UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
[ ] 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 000-26867
PIVOTAL CORPORATION
(Exact name of registrant as specified in its charter)
BRITISH COLUMBIA, CANADA 98-0366456
(State or other Jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
SUITE 700 - 858 BEATTY STREET
VANCOUVER, BRITISH COLUMBIA, V6B 1C1
CANADA
(Address of principal executive offices)
Telephone (604) 699-8000
(Registrant's telephone number, including area code)
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 period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes [X] No ____
COMMON SHARES OUTSTANDING AT November 1, 2002: 25,337,660
PIVOTAL CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2002
TABLE OF CONTENTS
Page
----
PART I FINANCIAL INFORMATION..................................................1
ITEM 1 Condensed Consolidated Financial Statements...................1
Condensed Consolidated Balance Sheets as of
September 30, 2002 and June 30, 2002.......................1
Condensed Consolidated Statements of Operations
for the Three Months Ended September 30, 2002 and 2001.....2
Condensed Consolidated Statement of Shareholders'
Equity for the Three Months ended September 30, 2002.......3
Condensed Consolidated Statements of Cash flows
for the Three Months Ended September 30, 2002
and 2001...................................................4
Notes to the Condensed Consolidated Financial Statements......5
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................10
ITEM 3 Quantitative and Qualitative Disclosures About
Market Risk................................................21
ITEM 4 Controls and Procedures......................................22
PART II OTHER INFORMATION.....................................................24
ITEM 1 Legal Proceedings............................................24
ITEM 2 Changes in Securities and Use of Proceeds....................24
ITEM 3 Defaults Upon Senior Securities..............................24
ITEM 4 Submission of Matters to a Vote of Security Holders..........24
ITEM 5 Other Information............................................24
ITEM 6 Exhibits and Reports on Form 8-K.............................24
Signature
Certifications
PART I - ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PIVOTAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN UNITED STATES DOLLARS; ALL AMOUNTS IN THOUSANDS)
September 30, June 30,
2002 2002
------------ ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 15,781 $ 20,322
Short-term investments 14,505 20,961
Restricted Cash 1,477 -
Accounts receivable 8,007 11,100
Prepaid expenses and other 2,945 2,546
------------ ------------
Total current assets 42,715 54,929
Property and equipment, net 3,783 4,201
Goodwill 7,308 7,308
Acquired intangibles 236 324
Other assets 1,587 1,883
------------ ------------
Total assets $ 55,629 $ 68,645
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 13,707 $ 16,414
Current portion of accrued restructuring costs 1,554 2,296
Deferred revenue 10,926 12,327
Current portion of obligations under capital leases
and long-term debt 328 320
------------ ------------
Total current liabilities 26,515 31,357
Non-current portion of accrued restructuring costs 2,851 3,082
Non-current portion of obligations under capital leases and long-term debt 143 423
------------ ------------
Total liabilities 29,509 34,862
------------ ------------
Shareholders' equity:
Preferred shares, undesignated, no par value;
authorized shares - 20,000 at September 30, 2002 and
June 30, 2002; no shares issued and outstanding - -
Common shares, no par value; authorized shares -
200,000 at September 30, 2002 and June 30, 2002;
issued and outstanding shares - 24,610 and 24,096
at September 30, 2002 and June 30, 2002, respectively 179,252 178,084
Deferred share-based compensation (17) (23)
Accumulated other comprehensive loss (112) (90)
Accumulated deficit (153,003) (144,188)
------------ ------------
Total shareholders' equity 26,120 33,783
------------ ------------
Total liabilities and shareholders' equity $ 55,629 $ 68,645
============ ============
See accompanying notes.
1
PIVOTAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(EXPRESSED IN UNITED STATES DOLLARS,
ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
Three months ended
September 30,
2002 2001
----------- ----------
Revenues:
License $ 3,215 $ 6,053
Services and maintenance 9,092 10,077
----------- ----------
Total revenues 12,307 16,130
----------- ----------
Cost of revenues:
License 247 492
Services and maintenance 5,346 5,968
----------- ----------
Total cost of revenues 5,593 6,460
----------- ----------
Gross profit 6,714 9,670
----------- ----------
Operating expenses:
Sales and marketing 9,056 13,404
Research and development 3,991 5,103
General and administrative 2,030 5,206
Restructuring costs and other charges - 1,925
Amortization of goodwill - 6,683
----------- ----------
Total operating expenses 15,077 32,321
----------- ----------
Loss from operations (8,363) (22,651)
Interest and other income (loss) (289) 218
----------- ----------
Loss before income taxes (8,652) (22,433)
Income taxes 163 154
----------- ----------
Net loss $ (8,815) $ (22,587)
=========== ==========
Loss per share:
Basic and diluted $ (0.36) $ (0.94)
Weighted average number of shares used to calculate
loss per share:
Basic and diluted 24,316 23,988
See accompanying notes.
2
PIVOTAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002
(EXPRESSED IN UNITED STATES DOLLARS; ALL AMOUNTS IN THOUSANDS)
(UNAUDITED)
Common Shares and Accumulated
Additional Paid-In Deferred Other Total
Capital Share-Based Comprehensive Accumulated Shareholders'
Shares Amount Compensation Loss (Deficit) Equity
------ ------ ------------ ---- --------- ------
Balance June 30, 2002 24,096 $178,084 $ (23) $ (90) $(144,188) $33,783
Net loss - - - - (8,815) (8,815)
Unrealized loss on - - - (22) - (22)
available-for-sale
investment
-----------
Comprehensive loss (8,837)
-----------
Issuance of common shares on 4 3 - - - 3
exercise of stock options
Issuance of common shares 62 195 - - - 195
related to Employee Stock
Purchase Plan
Issuance of common shares 448 970 970
related to prior year
acquisitions
Amortization of share-based - - 6 - - 6
compensation
--------------------------------------------------------------------------------------
Balance September 30, 2002 24,610 $179,252 $ (17) $ (112) $(153,003) $26,120
======================================================================================
See accompanying notes.
3
PIVOTAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN UNITED STATES DOLLARS; ALL AMOUNTS IN THOUSANDS)
(UNAUDITED)
Three months ended
September 30,
2002 2001
----------- ----------
Cash flows from operating activities:
Net loss for the period $ (8,815) $(22,587)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Amortization of goodwill - 6,683
Amortization of acquired intangibles 88 156
Depreciation 520 1,038
Amortization of deferred share-based compensation 6 14
Change in operating assets and liabilities:
Accounts receivable 3,093 11,229
Prepaid expenses (399) (1,604)
Accounts payable and accrued liabilities (1,737) (2,295)
Accrued restructuring costs (973) --
Deferred revenue (1,401) (2,141)
----------- ----------
Net cash used in operating activities (9,618) (9,507)
----------- ----------
Cash flow from investing activities:
Purchases, sales and maturities of short-term investments, net 6,456 7,049
Purchase of property and equipment (102) (248)
Proceeds from sale and leaseback of assets - 289
Change in restricted cash (1,477) -
Change in (purchase) of long term investments and other assets 274 (1,716)
----------- ----------
Net cash provided by investing activities 5,151 5,374
----------- ----------
Cash flow from financing activities:
Proceeds from issuance of common shares 198 624
Repayment of obligations under capital lease (272) (289)
----------- ----------
Net cash provided by (used in) financing activities (74) 335
----------- ----------
Net decrease in cash and cash equivalents (4,541) (3,798)
Cash and cash equivalents, beginning of period 20,322 13,247
----------- ----------
Cash and cash equivalents, end of period $ 15,781 $ 9,449
=========== ==========
See accompanying notes.
4
PIVOTAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS; ALL AMOUNTS IN THOUSANDS
EXCEPT PER SHARE DATA)
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated unaudited financial statements have been
prepared pursuant to the rules and regulations for interim financial information
of the United States Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with United States generally accepted accounting
principles have been condensed, or omitted, pursuant to such rules and
regulations. In Pivotal's opinion, these financial statements include all
adjustments necessary (which are of a normal and recurring nature) for the fair
presentation of the financial position, results of operations, cash flows and
shareholders' equity for the interim periods presented. These financial
statements should be read in conjunction with the audited consolidated financial
statements included in Pivotal's Annual Report on Form 10-K for the year ended
June 30, 2002. The results of operations for any interim period are not
necessarily indicative of the results of operations for any other interim period
or for a full fiscal year.
2. GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard No. 141 (SFAS 141), "Business Combinations" and
Statement of Financial Accounting Standard No. 142 (SFAS 142), "Goodwill and
Other Intangible Assets".
SFAS 141 requires that business combinations be accounted for under the purchase
method of accounting and addreses the initial recognition and measurement of
assets required, including goodwill and intangibles, and liabilities assumed in
a busines combination. The Company adoptd SFAS 141 on a prospective basis
effective July 1, 2001. The adoption of SFAS 141 did not have a material effect
on the Company's financial statements, but will impact the accounting treatment
of future acquisitions.
SFAS 142 requires goodwill to be allocated to, and assessed as part of, a
reporting unit. Further, SFAS 142 specifies that goodwill will no longer be
amortized but instead will be subject to impairment tests at least annually. In
conjunction with the implementation of SFAS 142, Pivotal will complete an
initial goodwill impairment assessment in the three month period ending December
31, 2002 to determine if a transition impairment change should be recognized
under SFAS No. 142.
The Company adopted SFAS 142 on a prospective basis at the beginning of fiscal
2003 and stopped amortizing goodwill totaling $7.3 million, thereby eliminating
annual goodwill amortization of approximately $6.4 million in fiscal 2003. Net
loss and net loss per share adjusted to exclude goodwill for the comparative
period ended September 30, 2002 are as follows:
Three Months Ended
September 30, September 30,
2002 2001
------------------------------------
Net income (loss), as reported $ (8,815) $(22,587)
Adjustments:
Amortization of goodwill - 6,683
------------------------------------
Net loss $ (8,815) $(15,904)
====================================
Basic and diluted net loss per
share, as reported $ (0.36) $ (0.94)
====================================
Basic and diluted net loss per
share, adjusted $ (0.36) $ (0.66)
====================================
3. ACCOUNTS RECEIVABLE
Accounts receivable are net of an allowance for doubtful accounts of $2,135 and
$1,704 at September 30, 2002 and June 30, 2002, respectively.
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The components of accounts payable and accrued liabilities are as follows:
September 30, June 30,
2002 2002
----------- ----------
Accounts payable $ 7,754 $ 9,084
Accrued compensation 2,812 3,287
Accrued acquisition costs 982 2,044
Other accrued liabilities 2,159 1,999
----------- ----------
$13,707 $16,414
----------- ----------
5. LOSS PER SHARE
The following table sets forth the computation of basic and diluted loss per
share:
Three months ended
September 30,
2002 2001
---- ----
Net loss (A) $ (8,815) $(22,587)
Weighted average number of common shares outstanding (B) 24,316 23,988
Loss per share:
Basic and diluted (A/B) $ (0.36) $(0.94)
5
PIVOTAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS; ALL AMOUNTS IN THOUSANDS
EXCEPT PER SHARE DATA)
(UNAUDITED)
6. SEGMENTED INFORMATION
Pivotal performs the development, marketing, and supporting of Internet and
corporate network-based software applications used for managing customer and
selling partner relationships. Pivotal licenses and markets products
internationally and is in a single industry segment, specifically the license,
implementation and support of its software. Pivotal's chief operating decision
maker reviews financial information presented on a consolidated basis,
accompanied by disaggregated information about revenues by geographic region for
the purpose of making operating decisions and assessing financial performance.
During the three months ended September 30, 2002 and 2001, no single customer
accounted for 10% or more of total revenue.
7. RESTRUCTURING CHARGES AND ASSET IMPAIRMENTS
During the year ended June 30, 2002, in light of the significant downturn in the
North American and global economies, and the related impact on corporate capital
spending, management approved restructuring plans to align Pivotal's cost
structure with management's revised revenue expectations. In connection with
these plans, Pivotal recorded charges of $53,576 related to both restructuring
activities and intangible asset writedowns. These charges included restructuring
costs of $20,589 associated with workforce reduction, consolidation of excess
facilities, contract settlements and tangible asset impairments. In addition,
Pivotal recorded a charge of $32,987 related to the impairment of previously
recorded goodwill and other purchased intangible assets. Pivotal may incur
additional restructuring charges in subsequent periods.
There were no restructuring or asset impairment charges recorded for the quarter
ended September 30, 2002. Adjustments to the restructuring reserves will be made
in future periods, if necessary, based upon actual events and circumstances at
the time.
The following summarizes the activity in the June 30, 2002 restructuring
liability during the three month period ended September 30, 2002:
Severance Excess Contract Total
and Facilities/Asset Settlement
Benefits Impairments Costs/Other
-----------------------------------------------------------
Reserve balances, June 30, 2002 $ 295 $4,331 $ 752 $ 5,378
Restructuring charges, quarter ended - - - -
September 30, 2002
Cash payments (216) (404) (353) (973)
-----------------------------------------------------------
Reserve balances, September 30, 2002 $ 79 $3,927 $ 399 $4,405
Current Portion $ 79 $1,076 $ 399 $1,554
-----------------------------------------------------------
Non-current Portion - $2,851 - $2,851
===========================================================
6
PIVOTAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS; ALL AMOUNTS IN THOUSANDS
EXCEPT PER SHARE DATA)
(UNAUDITED)
8. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("SFAS No. 146"). SFAS No. 146 addresses
significant issues regarding the recognition, measurement, and reporting of
costs associated with exit and disposal activities, including restructuring
activities. SFAS No. 146 also addresses recognition of certain costs related to
terminating a contract that is not a capital lease, costs to consolidate
facilities or relocate employees, and termination benefits provided to employees
that are involuntarily terminated under the terms of a one-time benefit
arrangement that is not an ongoing benefit arrangement or an individual
deferred-compensation contract. As SFAS No. 146 is effective only for exit or
disposal activities initiated after December 31, 2002, Pivotal does not expect
the adoption of this statement to have a material impact on the Company's
financial statements.
9. EMPLOYEE STOCK OPTION PLAN
Under APB Opinion No. 25, because the exercise price of Pivotal's employee stock
options generally equals the fair value of the underlying stock on the date of
grant, no compensation expense is recognized. Deferred compensation expense of
$473 was recorded during 1999 for those situations where the exercise price of
an option was lower than the deemed fair market value for financial reporting
purposes of the underlying common stock. The deferred compensation is being
amortized over the vesting period of the underlying options. Amortization of the
deferred share-based compensation balance of $17 at September 30, 2002 will be
completed during the year ending June 30, 2003.
An alternative method of accounting for stock options is SFAS No. 123,
Accounting for Stock-Based Compensation. Under SFAS No. 123, employee stock
options are valued at the grant date using the Black-Scholes valuation model and
the resultant compensation cost is recognized ratably over the vesting period.
Had compensation cost for Pivotal's share option plan been determined based on
the Black-Scholes value at the grant dates for awards as prescribed by SFAS No.
123, the pro forma net loss and basic and diluted loss per share would have been
as follows:
7
Three months ended
September 30,
2002 2001
---- ----
Net loss
As reported $ (8,815) $(22,587)
SFAS No. 123 pro forma (15,031) (29,215)
Basic and diluted loss per share:
As reported $ (0.36) $ (0.94)
SFAS No. 123 pro forma $ (0.62) $ (1.22)
Compensation expense recognized in providing pro forma disclosures may not be
representative of the effects on pro forma earnings for future years since SFAS
No. 123 applies only to options granted after 1996.
The weighted average Black-Scholes option pricing model value of options granted
under the share option plan during the quarters ended September 30, 2002 and
2001 were U.S. $1.87, and U.S. $4.35 per share, respectively. The fair value for
these options was estimated at the date of grant using the following weighted
average assumptions:
Three months ended
September 30,
2002 2001
---- ----
Assumptions
Volatility factor of expected
market price of Pivotal's shares 127% 118.4%
Dividend yield 0.0% 0.0%
Weighted average expected:
life of stock options (years) 4.0 years 4.0 years
Risk free interest rate 3.0% 4.4%
10. RELATED PARTY TRANSACTIONS
During the year ended June 30, 2001, Pivotal loaned Cdn$124 to its General
Counsel and Assistant Secretary. This loan is non-interest bearing, unsecured
and pursuant to an agreement dated May 29, 2002, Cdn$23 of the loan has been
repaid and the outstanding balance of the loan will be repaid through future
incentive bonuses.
On October 1, 2001, Pivotal entered into a consulting agreement with Christopher
Lochhead. Mr. Lochhead was appointed to Pivotal's Board of Directors on November
27, 2001. Pursant to the consulting agreement, Pivotal has agreed to pay Mr.
Lochhead a retainer of $12 per month in exchange for Mr. Lochhead providing a
pre-determined number of monthly consulting hours. Mr. Lochhead may charge an
additional fee if the pre-determined number of monthly consulting hours is
exceeded. During the three month period ended September 30, 2002, Pivotal paid
Mr. Lochhead $47 pursuant to the agreement. The consulting agreement with
Christopher Lochhead was terminated effective September 30, 2002.
11. SUBSEQUENT EVENTS
On October 3, 2002, Pivotal announced the signing of a definitive agreement to
acquire all of the issued and outstanding shares of MarketFirst Software Inc.
The acquisition was completed on October 23, 2002. The purchase price consisted
of 725 shares of common stock of Pivotal Corporation and cash of $55.
8
On October 3, 2002, Pivotal announced the implementation of restructuring plans,
which primarily consist of reductions in workforce and discretionary
expenditures and the consolidation of excess facilities. The restructuring plans
include a reduction in the number of employees by 16% from 500 employees to
approximately 420 employees, which includes approximately 30 employees from the
MarketFirst merger. We expect to recognize a charge to operations of between
$5.8 million and $9.2 million in the quarter ending December 31, 2002. Total
cash outlays under the restructuring are expected to be approximately $5 million
to $8 million, and relate primarily to costs associated with vacating facilities
and the reduction of our workforce. Approximately $2 million to $3 million in
costs associated with reduction of our workforce will be paid in the three month
period ending December 31, 2002, and the remaining costs associated with
vacating facilities will generally be paid over the remaining lease terms, which
range from one to ten years. The total restructuring charge and related cash
outlay are based on management's estimates, which may change as the
restructuring plan is finalized. Additional charges may be incurred in future
periods depending on business conditions.
12. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform to the
presentation adopted in the current period.
9
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Investors should read the following in conjunction with the unaudited condensed
consolidated financial statements and notes thereto included in Part I - Item 1
of this Quarterly Report, and the audited consolidated financial statements and
notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations in our Annual Report on Form 10-K for the fiscal year
ended June 30, 2002.
FORWARD-LOOKING STATEMENTS
Statements in this filing about our future results, levels of activity,
performance, goals or achievements or other future events constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause actual results or events to
differ materially from those anticipated in our forward-looking statements.
These factors include, among others, those described in connection with the
forward-looking statements, and the factors described under the heading "Risk
Factors" in Exhibit 99.1 to this report, which is hereby incorporated by
reference in this report.
In some cases, you can identify forward-looking statements by our use of words
such as "may," "will," "should," "could," "expect," "plan," "intend,"
"anticipate," "believe," "estimate," "predict," "potential" or "continue" or the
negative or other variations of these words, or other comparable words or
phrases.
Although we believe that the expectations reflected in our forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, achievements or other future events. Moreover, neither we
nor anyone else assumes responsibility for the accuracy and completeness of our
forward-looking statements. We are under no duty to update any of our
forward-looking statements after the date of this report. You should not place
undue reliance on our forward-looking statements.
OVERVIEW
Pivotal Corporation offers Customer Relationship Management (CRM) software and
related services that enable mid-sized enterprises worldwide to acquire, serve
and manage their customers. Pivotal's target customers are companies and
business units in the revenue range of $100 million to $3 billion. Customer
Relationship Management products and services automate and manage marketing,
selling and servicing processes. We refer to our software as the Pivotal CRM
Suite. The Pivotal CRM Suite is designed to complement and integrate with a
business' supply chain, therefore enabling businesses to improve efficiency and
increase revenue.
Our products are used in 44 countries and are available in English, French,
German, Spanish, Portuguese, Japanese, Chinese and Hebrew. More than 1,500
companies around the world use Pivotal, including: CIBC, Centex Homes,
HarperCollins Publishers, Hitachi Telecom Inc., Premera Blue Cross, Royal Bank
of Canada, Southern Company and Vivendi. We market and sell our products through
a direct sales force as well as through third-party solution providers.
Our common shares are listed on the Nasdaq National Market under the symbol
"PVTL" and on the Toronto Stock Exchange under the symbol "PVT". Our head office
is located at Suite 700 - 858 Beatty Street, Vancouver, British Columbia, Canada
V6B 1C1, and our telephone number is (604) 699-8000. Our home page on the
Internet can be found at www.pivotal.com. Information contained on our website
does not constitute part of this report.
Pivotal Corporation was incorporated in British Columbia, Canada in 1990 under
the name Pen Magic Software Corporation, and then changed its name to Pen Magic
Software Inc. in 1991, to Pivotal Software Inc. in 1995 and to Pivotal
Corporation in 1999. The terms "Pivotal," "our company" and "we" in this filing
refer to Pivotal Corporation, a British Columbia company, and all of Pivotal
Corporation's wholly owned subsidiaries including Pivotal Corporation,
incorporated in the State of Washington; Pivotal Corporation Limited,
incorporated in the United Kingdom; Pivotal Corporation France S.A.,
incorporated in France; Exactium Ltd., incorporated in Israel; Exactium, Inc.,
incorporated in the State of Delaware; Pivotal Technologies Corporation Limited,
incorporated in the Republic of Ireland; Pivotal Corporation (N.I.) Limited,
incorporated in Northern Ireland; Pivotal GmbH, incorporated in Germany; Pivotal
Corporation Australia Pty. Ltd., incorporated in Australia; Project One Business
10
Technologies Inc., amalgamated in British Columbia, Canada; Nihon Pivotal K.K.,
incorporated in Japan; and 1254590 Ontario Limited (formerly Inform, Inc.),
incorporated in Ontario, Canada.
Pivotal CRM Suite, Pivotal Sales, Pivotal Sales - Miller Heiman Edition, Pivotal
Wireless for Sales, Pivotal Sales Analytics, Pivotal Marketing, Pivotal
eMarketing, Pivotal Marketing Analytics, Pivotal Service, Pivotal Contact
Center, Pivotal eService, Pivotal Wireless for Service, Pivotal Service
Analytics, Pivotal eSales, Pivotal Configurator, Pivotal Advisor, Pivotal
Quoter, Pivotal Catalog, Pivotal ePartner, Pivotal Partner Management, Pivotal
Partner Analytics, Pivotal Integration Engine, Pivotal Lifecycle Engine, Pivotal
Syncstream, Pivotal Intellisync, Pivotal Interactive Selling Engine, Pivotal
Analytics Engine, Pivotal Intelligent Internet Architecture and Pivotal Wireless
are trademarks and/or registered trademarks of Pivotal Corporation. All other
company names, product names, marks, logos, and symbols referenced are the
trademarks and/or registered trademarks of their respective owners.
On January 24, 2002, we announced the availability of our advanced integration
product - Pivotal Integration Engine, a technology that has been designed to
cost-effectively integrate and synchronize our Customer Relationship Management
software with back-office and legacy systems.
On October 3, 2002, we announced corporate restructuring initiatives, which
included a company-wide workforce reduction representing approximately 27% of
our total workforce, consolidation of excess facilities and restructuring of
certain business functions. We believe that this new headcount enables us to
align with both the current demand in the market for customer relationship
management and electronic business products as well as the anticipated growth
within that same market. We expect to recognize a charge to operations of
between $5.8 million and $9.2 million in the quarter ending December 31, 2002.
Total cash outlays under the restructuring are expected to be approximately $5
million to $8 million, and relate primarily to costs associated with vacating
facilities and the reduction of our workforce. Approximately $2 million to $3
million in costs associated with reduction of our workforce will be paid in the
three month period ending December 31, 2002, and the remaining costs associated
with vacating facilities will generally be paid over the remaining lease terms,
which range from one to ten years. The total restructuring charge and related
cash outlay are based on management's estimates, which may change as the
restructuring plan is finalized. Additional charges may be incurred in future
periods depending on business conditions and management's ability to achieve
targeted expense levels.
SOURCES OF REVENUE AND REVENUE RECOGNITION POLICY
We derive our revenues from the sale of licenses and services and maintenance.
License and maintenance revenues are normally generated from licensing our
products with end-users, value added resellers and application service providers
and, to a lesser extent, through distribution of third-party products. Service
revenues are generated from consulting services and education services sold to
end-users.
We recognize license revenues on delivery of our solutions to the customer when
all of the following conditions have been satisfied:
o there is persuasive evidence of an arrangement (we consider a
non-cancelable agreement signed by us and the customer to be
persuasive evidence of an arrangement);
o the fee is fixed or determinable (we consider the fee to be fixed or
determinable if the fee is not subject to refund or adjustment and if
we have not granted extended payment terms to the customer); and
o the collection of the license fee is probable (we consider collection
to be probable if our internal credit analysis indicates that the
customer will be able to pay amounts as they become due under the
arrangement).
Revenues for multiple-element arrangements, which could consist of software
licenses, upgrades, enhancements, maintenance and consulting services, are
allocated among the component elements based upon the relative fair value of
each element. The fair value of each element is determined by the price charged
by us when that element is sold separately, or, in the case of an element not
yet sold separately, by the price established by authorized management, if it is
probable that the price, once established, will not change before market
introduction.
11
We enter into reseller and sub-licensing arrangements that provide a fee payable
to us based on a percentage of list prices. We recognize revenue only on the net
fee payable to us from the reseller upon sell-through to the end customer by the
reseller.
We typically sell first year maintenance with the related software license.
Revenue related to maintenance is recognized evenly over the term of the
maintenance contract, typically one year.
We recognize revenue from consulting, implementation services and education as
these services are performed. We derive revenue from these services primarily on
a time-and-materials basis under a separate service arrangement with the
customer. In circumstances where we enter into fixed-price service contracts,
revenue is recognized on a percentage-of-completion basis, which is measured
based upon actual person-hours performed. Much of the implementation services
provided to our customers in connection with installations of our solutions are
provided by third-party consulting and implementation service providers. These
third-party service providers ordinarily contract directly with the customer.
On occasion, we have purchased goods or services for our operations from these
vendors at or about the same time we have licensed our software to these
organizations. These transactions are negotiated separately and recorded at
terms we consider to be arms-length.
RESULTS OF OPERATIONS
The following table presents selected financial data, derived from our unaudited
condensed consolidated statements of operations, as a percentage of total
revenues for the periods indicated. The operating results for the three months
ended September 30, 2002 and 2001, are not necessarily indicative of the results
that may be expected for the full fiscal year or any future period.
Three months ended
September 30,
2002 2001
---- ----
CONSOLIDATED STATEMENT OF OPERATIONS
Revenues:
Licenses 26% 38%
Services and maintenance 74% 62%
-------------------------
Total revenues 100% 100%
-------------------------
Cost of Revenues:
Licenses 2% 3%
Services and maintenance 43% 37%
-------------------------
Total cost of revenues 45% 40%
-------------------------
Gross profit 55% 60%
-------------------------
Operating Expenses:
Sales and marketing 74% 83%
Research and development 32% 31%
General and administrative 16% 32%
Restructuring costs and other charges - 12%
Amortization of goodwill and identifiable intangible - 42%
-------------------------
Total operating expenses 122% 200%
-------------------------
Loss from operations (67)% (140)%
Interest and other income (loss) (2)% 1%
-------------------------
Loss before income taxes (69)% (139)%
Income tax expense 1% 1%
-------------------------
Net loss (70)% (140)%
=========================
12
REVENUES
Total revenues decreased 24% to $12.3 million for the three months ended
September 30, 2002 compared to $16.1 million for the quarter ended September 30,
2001. This decrease is attributable to a 47% decrease in license revenues and a
10% decrease in services and maintenance revenues.
The market for our solutions and related services is unpredictable. Our sales
are susceptible to fluctuations in the economy and the corresponding effect on
corporate purchasing habits creating a reluctance of companies to acquire
significant software systems at this time. These market conditions may continue
to deteriorate. The severity and duration of any further deterioration may
compel us to consider further reductions in our workforce to realign with those
new market conditions, on either a regional or global scale, or both. Any
further deterioration in market conditions could adversely impact our ability to
develop, deliver and/or service our existing and new products, as well as our
ability to attract, maintain and service our customers.
Licenses
Revenues from licenses were $3.2 million for the three months ended September
30, 2002, compared to $6.1 million for the quarter ended September 30, 2001.
Our revenue from licenses decreased as a result of the continued economic
slowdown through 2002 and the resulting impact on corporate capital spending. We
have observed an overall reduction in corporate capital budgets and continue to
experience longer and less predictable selling cycles. Our license revenue
growth depends on the overall demand for customer relationship management
products, and the overall demand for our software depends in large part on the
general economic and business conditions. Additionally, we experienced contract
losses and delays in concluding contracts with some customers due to customer
concerns over the rapid decline of our stock price in the latter half of
September 2002 and whether such decline indicated issues within the company.
Revenues from licenses represented 26% and 38% of total revenues for the
quarters ended September 30, 2002 and 2001, respectively. No single customer
accounted for 10% or more of our revenues for the quarters ended September 30,
2002 and 2001. The decline in license revenues in the first quarter of 2002
occurred largely in our North American and European operations. North American
license revenues accounted for 45% and 61% of total license revenues in the
quarters ended September 30, 2002 and 2001, respectively.
During the quarter ended September 30, 2002, we recognized no software license
revenue from transactions with vendors where we purchased goods or services from
those vendors at or about the same time as the software license transactions.
Services and Maintenance
Revenues from services and maintenance decreased 10% to $9.1 million from $10.1
million for the quarters ended September 30, 2002 and 2001, respectively. During
the quarter ended September 30, 2002, we experienced an increase of $0.4 million
in revenues from technical support and maintenance contracts, which entitle the
customer to new versions of the solutions and to technical support and
maintenance services, and a decrease of $1.4 million in revenues from
implementation, education and consulting service engagements.
Our revenues from services and maintenance represented 74% and 62% of total
revenues for the quarters ended September 30, 2002 and 2001, respectively. We
believe that future revenues from services and maintenance will decrease as a
percentage of total revenues as license revenues are anticipated to strengthen
at a greater rate than service and maintenance revenues. We plan to continue to
rely on third parties to provide a large part of implementation services to our
customers rather than providing those services directly.
COST OF REVENUES
Total cost of revenues decreased 13% to $5.6 million, or 45% of total revenues,
from $6.5 million, or 40% of total revenues, for the quarters ended September
30, 2002 and 2001, respectively. The decrease in total cost of revenues was due
to decreased revenues, as well as reduced headcount and related allocations for
services and maintenance following our restructuring in the second quarter of
fiscal 2002. The increase in cost of revenues as a percentage of
13
total revenues is due to a change in revenue mix between services and
maintenance revenues versus license revenues in the September 2002 quarter
compared to the September 2001 quarter.
Licenses
Cost of revenues from licenses decreased to approximately $0.2 million from $0.5
million for the quarters ended September 30, 2002 and 2001, respectively. The
decrease is due primarily to the decline in license revenues compared to prior
quarters. Cost of revenues from licenses as a percentage of revenues from
licenses was 8% for both the quarters ended September 30, 2002 and 2001.
The cost of licenses as a percentage of license revenue remains similar to prior
quarters but can fluctuate quarter to quarter depending on sales mix and costs
of third-party technology integrated with our solutions.
Services and Maintenance
Cost of revenues from services and maintenance consists of personnel and other
expenses relating to providing maintenance and customer support, education and
consulting services. Cost of revenues from services and maintenance will vary
depending on the mix of services we provide between support and maintenance,
education, implementation and consulting services. Gross profit margins are
higher for support and maintenance services than they are for education and
consulting services. Support and maintenance services involve the delivery of
software upgrades, which our customers download and install themselves and
customer support. Education and consulting services generally require more
involvement by our employees, resulting in higher compensation, travel and
similar expenses.
Cost of revenues from services and maintenance decreased 10% to $5.3 million
from $6.0 million for the quarters ended September 30, 2002 and 2001,
respectively. Cost of revenues from services and maintenance as a percentage of
revenues from services and maintenance was 59% for both the quarters ended
September 30, 2002 and 2001.
OPERATING EXPENSES
Sales and Marketing
Sales and marketing expenses consist primarily of salaries, commissions, bonuses
and benefits earned by sales and marketing personnel, direct expenditures such
as travel, communication and occupancy for direct sales offices and marketing
expenditures related to advertising, trade shows, direct mail, online marketing
and promotion.
Sales and marketing expenses decreased 32% to $9.1 million from $13.4 million
for the quarters ended September 30, 2002 and 2001, respectively. The decreased
expenditures for the three month period ending September 30, 2002 is the result
of a reduction in employees and marketing program expenditures following the
implementation of our restructuring plans in the second quarter of fiscal 2002
as well as increased operating efficiencies and decreased commissions due to
lower sales. Sales and marketing expenses decreased as a percentage of total
revenues to 74% from 83% for the quarters ended September 30, 2002 and 2001,
respectively.
Research and Development
Research and development expenses include costs associated with new products,
enhancements of existing products and quality assurance activities and consist
primarily of salaries, benefits and equipment for software engineers, quality
assurance personnel, program managers, product managers, technical writers and
outside contractors used to augment the research and development efforts.
Software development costs incurred prior to the establishment of technological
feasibility are included in research and development costs as incurred. Since
license revenues from our solutions are not recognized until after technological
feasibility has been established, software development costs are not generally
expensed in the same period in which license revenues for the developed
solutions are recognized. There are no software development costs capitalized on
our balance sheet.
Research and development expenses decreased 22% to $4.0 million from $5.1
million for the quarters ended September 30, 2002 and 2001, respectively. This
decrease is a result of a reduction in employees and contract labor
14
following the implementation of our restructuring plans in the second quarter of
fiscal 2002. Research and development expenses were 32% of total revenues for
both quarters ended September 30, 2002 and 2001, respectively.
General and Administrative
General and administrative expenses consist primarily of salaries, benefits and
related costs for executive, finance, administrative and human resources.
General and administrative expenses also include legal and other professional
fees and bad debt expense.
General and administrative expenses decreased 61% to $2.0 million from $5.2
million for the quarters ended September 30, 2002 and 2001, respectively.
General and administrative expenses were 16% and 32% of total revenues for the
quarters ended September 30, 2002 and 2001, respectively. The decrease in
general and administrative expenses was due to the fact that general and
administrative expense for the quarter ended September 30, 2001 included a $1.9
million charge for doubtful accounts receivable as well as due to the impact of
reduced personnel and facilities costs following our restructuring in the second
quarter of fiscal 2002.
Restructuring Costs and other Charges
During the year ended June 30, 2002, in light of the significant downturn in the
North American and global economies, and the related impact on corporate capital
spending, management approved restructuring plans to align Pivotal's cost
structure with management's revised revenue expectations. In connection with
these plans, Pivotal recorded charges of $53.6 million related to both
restructuring activities and intangible asset writedowns. These charges included
restructuring costs of $20.6 million associated with workforce reduction,
consolidation of excess facilities, contract settlements and tangible asset
impairments. In addition, Pivotal recorded a charge of $33.0 million related to
the impairment of previously recorded goodwill and other purchased intangible
assets. Pivotal may incur additional restructuring charges in subsequent
periods.
There were no restructuring or asset impairment charges recorded for the quarter
ended September 30, 2002. Adjustments to the restructuring reserves will be made
in future periods, if necessary, based upon actual events and circumstances at
the time.
The following summarizes the activity in the June 30, 2002 restructuring
liability during the three month period ended September 30, 2002, expressed in
United States dollars; all amounts in thousands:
Severance Excess Contract Total
and Benefits Facilities/Asset Settlement
Impairments Costs/Other
---------------------------------------------------------
Reserve balances, June 30, 2002 $ 295 $4,331 $752 $5,378
Restructuring charges, quarter ended - - - -
September 30, 2002
Cash payments (216) (404) (353) (973)
---------------------------------------------------------
Reserve balances, September 30, 2002 $ 79 $3,927 $399 $4,405
Current Portion $ 79 $1,076 $399 $1,554
---------------------------------------------------------
Non-current Portion - $2,851 - $2,851
=========================================================
As a result of this restructuring, we have achieved annualized savings of
approximately $32 million in cost of revenues and operating expenses based on
the expenditure levels at the time of this restructuring.
15
Amortization of Goodwill
There was no charge for amortization of goodwill in the quarter ended September
30, 2002. Amortization of goodwill was $1.6 million for the quarter ended
September 30, 2001. Due to our adoption of SFAS No. 141 and 142 on July 1, 2002,
we no longer amortize goodwill. We will complete an initial goodwill impairment
assessment to determine whether we will be required to recognize a transition
goodwill impairment charge under SFAS No. 142 in the three months period ending
December 31, 2002. See "Recent Accounting Pronouncements".
Interest and Other Income (Loss)
Interest and other income (loss) consists of earnings on cash and cash
equivalents and short-term investments net of interest expense, foreign exchange
gains and losses, and gains and losses on investments. Interest and other income
(loss) was ($289,000) and $218,000 for the quarters ended September 30, 2002 and
2001, respectively. In the quarter ended September 30, 2002, interest and other
income (loss) was impacted by lower cash and short term investment balances held
during the period. For the quarters ended September 30, 2002 and 2001,
respectively, interest and other income included a foreign exchange loss of
$380,000 and $263,000. The foreign exchange loss was a result of the
appreciation of the United States dollar relative to the functional currencies
of our European, Australian and Japanese subsidiaries. The other components of
interest and other income were not material for the periods presented.
Income Taxes
The provision for income taxes was $163,000 and $154,000 for the three months
periods ended September 30, 2002 and 2001, respectively. These income tax
amounts were attributable to our operations in the United States, the United
Kingdom and France.
QUARTERLY RESULTS OF OPERATIONS
The following tables present our unaudited quarterly results of operations both
in absolute dollars and on a percentage of revenue basis for each of our last
eight quarters. This data has been derived from unaudited consolidated financial
statements that have been prepared on the same basis as the annual audited
consolidated financial statements and, in our opinion, included all normal
recurring adjustments necessary for the fair presentation of such information.
These unaudited quarterly results should be read in conjunction with our annual
audited consolidated financial statements.
Quarterly results of operations, expressed in United States dollars; all amounts
in thousands:
Three months ended
----------------------------------------------------------------------------------------------
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31,
2002 2002 2002 2001 2001 2001 2001 2000
--------- --------- --------- --------- --------- --------- --------- ---------
Revenues:
License $ 3,215 $8,849 $7,510 $6,870 $6,053 $12,028 $16,368 $16,346
Services and maintenance 9,092 10,223 10,206 9,828 10,077 10,216 10,271 9,705
----------------------------------------------------------------------------------------------------------------------------
Total revenues 12,307 19,072 17,716 16,698 16,130 22,244 26,639 26,051
----------------------------------------------------------------------------------------------------------------------------
Cost of revenues:
License 247 522 385 557 492 946 1,009 979
Services and maintenance 5,346 5,443 5,025 5,895 5,968 6,108 5,591 5,299
----------------------------------------------------------------------------------------------------------------------------
Total cost of 5,593 5,965 5,410 6,452 6,460 7,054 6,600 6,278
revenues
----------------------------------------------------------------------------------------------------------------------------
Gross profit 6,714 13,107 12,306 10,246 9,670 15,190 20,039 19,773
----------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Sales and marketing 9,056 8,803 8,734 10,476 13,404 14,129 12,689 12,914
16
Three months ended
----------------------------------------------------------------------------------------------
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31,
2002 2002 2002 2001 2001 2001 2001 2000
--------- --------- --------- --------- --------- --------- --------- ---------
Research and development 3,991 3,720 3,636 4,660 5,103 5,228 5,096 4,509
General and 2,030 2,774 2,060 2,780 5,206 6,904 2,787 2,100
administrative
Restructuring costs and
other charges - 2,147 - 49,504 1,925 - - -
Amortization of
goodwill and - 1,594 1,593 6,131 6,683 6,594 6,068 5,405
Intangible assets
----------------------------------------------------------------------------------------------------------------------------
Total operating expenses 15,077 19,038 16,023 73,551 32,321 32,855 26,640 24,928
----------------------------------------------------------------------------------------------------------------------------
Loss from operations (8,363) (5,931) (3,717) (63,305) (22,651) (17,665) (6,601) (5,155)
Other income (loss)
Interest and other
income (loss) (289) 245 345 481 218 1,352 994 644
Impairment of - (1,244) - - - - - -
investments
----------------------------------------------------------------------------------------------------------------------------
(289) (999) 345 481 218 1,352 994 644
Loss before income taxes (8,652) (6,930) (3,372) (62,824) (22,433) (16,313) (5,607) (4,511)
Income tax expense (recovery) 163 60 (8) 180 154 344 56 170
----------------------------------------------------------------------------------------------------------------------------
Net loss $(8,815) $(6,990) $(3,364) ($63,004) $(22,587) $(16,657) $(5,663) ($4,681)
============================================================================================================================
Quarterly results of operations on a percentage of revenue basis:
Three months ended
----------------------------------------------------------------------------------------------
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31,
2002 2002 2002 2001 2001 2001 2001 2000
--------- --------- --------- --------- --------- --------- --------- ---------
REVENUES:
License 26% 46% 42% 41% 38% 54% 62% 63%
Services and maintenance 74% 54% 58% 59% 62% 46% 38% 37%
----------------------------------------------------------------------------------------------------------------------------
Total revenues 100% 100% 100% 100% 100% 100% 100% 100%
----------------------------------------------------------------------------------------------------------------------------
COST OF REVENUES:
License 2% 3% 2% 3% 3% 4% 4% 4%
Services and 43% 28% 29% 36% 37% 28% 21% 20%
maintenance
----------------------------------------------------------------------------------------------------------------------------
Total cost of revenues 45% 31% 31% 39% 40% 32% 25% 24%
----------------------------------------------------------------------------------------------------------------------------
Gross profit 55% 69% 69% 61% 60% 68% 75% 76%
----------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Sales and marketing 74% 46% 49% 63% 83% 63% 48% 50%
Research and
development 32% 20% 21% 28% 31% 23% 19% 17%
General and
administrative 16% 15% 12% 17% 32% 31% 10% 8%
Restructuring costs
and other charges - 11% - 296% 12% - - -
Amortization of
goodwill and intangible
assets - 8% 8% 36% 42% 30% 23% 21%
----------------------------------------------------------------------------------------------------------------------------
Total operating
expenses 122% 100% 90% 440% 200% 147% 100% 96%
----------------------------------------------------------------------------------------------------------------------------
Loss from operations (67)% (31)% (21)% (379)% (140)% (79)% (25)% (20)%
Other income (loss)
Interest and other
income (loss) (2)% 1% 2% 3% 1% 6% 4% 3%
Impairment of
investments (6%) -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------
(2)% (5%) 2% 3% 1% 6% 4% 3%
Loss before income taxes (69)% (36)% (19)% (376)% (139)% (73)% (21)% (17)%
17
Three months ended
----------------------------------------------------------------------------------------------
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31,
2002 2002 2002 2001 2001 2001 2001 2000
--------- --------- --------- --------- --------- --------- --------- ---------
Income tax expense 1% (1)% - 1% 1% 2% - 1%
(recovery)
----------------------------------------------------------------------------------------------------------------------------
Net loss (70)% (37)% (19)% (377)% (140)% (75)% (21)% (18)%
============================================================================================================================
We believe the decrease in revenue in the quarter ended September 30, 2002 as
compared to prior quarters was a result of the global economic slowdown and
related reluctance of companies to acquire significant software and systems
during this time. In addition, a pattern of reduced buying by European customers
during July and August has resulted in lower European license revenues in the
quarters ended September 30.
Our quarterly operating results have fluctuated significantly in the past and
will continue to fluctuate in the future as a result of a number of factors,
many of which are outside of our control. As a result of our restructuring
initiatives and our limited operating history and recent acquisitions, we cannot
forecast operating expenses based on historical results. Accordingly, we base
our anticipated level of expense in part on future revenue projections and
planned expenditure levels. Most of our expenses are fixed in the short-term and
we may not be able to quickly reduce spending if revenues are lower than we have
projected. Our ability to forecast our quarterly revenues accurately is limited
given the current economic climate, our limited operating history, the length of
the sales cycle of our solutions and other uncertainties in our business. If
revenues in a particular quarter do not meet projections, our net losses in a
given quarter would be greater than expected. As a result, we believe that
quarter-to-quarter comparisons of our operating results are not necessarily
meaningful. Investors should not rely on the results of one quarter as an
indication of future performance.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2002, we had $15.8 million in cash and cash equivalents, $14.5
million in short-term investments, $1.5 million in restricted cash, and $16.2
million in total working capital. Our combined cash and cash equivalents,
short-term investments, and restricted cash balance decreased to $31.8 million
at September 30, 2002 from $41.3 million at June 30, 2002. Our working capital
decreased to $16.2 million at September 30, 2002 from $23.6 million at June
30,2002. This decrease was principally due to the net loss for the period, which
was partially offset by a significant decrease in accounts receivable.
Net cash used in operating activities was $9.6 million and $9.5 million for the
three months ended September 30, 2002 and 2001, respectively.
Net cash provided by investing activities was $5.2 million and $5.4 million for
the three months ended September 30, 2002 and 2001. During the three months
ended September 30, 2002 and 2001, we received proceeds of $6.5 million and $7.0
million, respectively, from the sale and maturity of short-term investments. Net
capital expenditures were $0.1 and $0.2 for the three months ended September 30,
2002 and 2001, respectively.
Net cash used in financing activities was $0.07 million for the three months
ended September 30, 2002, compared to $0.3 million of cash provided by financing
activities for the three months ended September 30, 2001.
As of September 30, 2002, our future fixed commitments for cash payments
primarily related to obligations under non-cancelable operating and capital
leases. We lease facilities under non-cancelable operating leases expiring
between 2002 and 2012 and certain equipment under non-cancelable operating and
capital leases expiring between 2002 and 2004. Future minimum lease payments and
other future fixed commitments for the years ending June 30 are as follows:
18
Years ending June 30,
(thousands)
Total 2003 2004 2005 2006 2007 2008 - 2012
------------------------------------- --------------------------------------------------
Capital leases and long term debt $ 471 59 390 22 - - -
Restructuring liabilities 4,405 1,349 928 918 694 308 208
Operating leases (excluding amounts
charged to restructuring) 40,161 5,803 6,022 4,508 4,018 3,564 16,246
Licencing commitments 750 750 - - - - -
------------------------------------- --------------------------------------------------
Total cash obligations $ 45,787 7,961 7,840 5,448 4,712 3,872 16,454
Our principal sources of liquidity at September 30, 2002 were our cash and cash
equivalents, short-term investments and restricted cash of $31.8 million. We
have a credit agreement with a Canadian chartered bank, which includes a
revolving letter of credit facility of $5.0 million, bearing interest at the
bank's prime rate plus 1% per year, secured by a charge on all of our current
and future personal property. As at September 30, 2002, letters of credit
totaling $6.5 million were outstanding to secure facilities and equipment lease
obligations. We secured issued letters of credit in excess of our revolving
letter of credit facility with $1.5 million cash in trust, which has been
presented as restricted cash on our balance sheet as at September 30, 2002.
On October 23, 2002, we completed the acquisition of MarketFirst Software Inc.
The purchase price consisted of 0.725 million shares of Pivotal Corporation and
cash of $0.06 million. We expect that any additional expenditures and
obligations related to the MarketFirst acquisition will be minimal.
Subsequent to September 30, 2002, as a result of the impact of our most recent
quarterly performance on certain required balance sheet ratios, we are now
required to secure our Credit Agreement with cash in trust. This has resulted in
the release from escrow of a Pledge Agreement dated June 25, 2002 covering
US$5,500,000 cash. While the Pledge Agreement has been released from the escrow
and is now standing as security for advances under the Credit Agreement, the
secured party has not enforced its rights against the cash collateral.
We expect to incur capital expenditures of $2.5 to $3.5 million in the remainder
of fiscal 2003, largely due to our move to new Vancouver head office facilities,
as well as various upgrades to our computer systems infrastructure. We believe
that the total amount of cash and cash equivalents and short-term investments,
along with the credit facilities, will be sufficient to meet our anticipated
cash needs for working capital and other purposes through at least the next
eighteen months. Thereafter, depending on the development of our business, we
may need to raise additional cash for working capital or other expenses. In the
interim, however, we may encounter lower than anticipated revenues, high than
anticipated expenses, or opportunities for acquisitions or other business
initiatives that require significant cash commitments, or unanticipated problems
or expenses that could result in a requirement for additional cash before that
time. If we need to raise additional cash, financing may not be available to us
on favorable terms, or at all.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject Pivotal to a concentration of
credit risk consist principally of cash and cash equivalents, short-term
investments and accounts receivable. Cash and cash equivalents are held with
high-quality financial institutions and short-term investments are made in
investment grade securities to mitigate exposure to credit risk. Pivotal's
customer base is dispersed across many different geographic areas throughout
North America, Europe and the Asia Pacific and consists of companies in a
variety of industries. Pivotal performs ongoing credit evaluations of its
customers and does not require collateral or other security to support credit
sales. Pivotal provides an allowance for bad debts based on historical
experience and specifically identified risks. If the creditworthiness of certain
customers deteriorates, or their business fails, we may experience additional
bad debt expenses. During the three month period ended September 30, 2002, we
recorded provisions for doubtful debts of $0.1 million.
19
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("SFAS No. 146"). SFAS No. 146 addresses
significant issues regarding the recognition, measurement, and reporting of
costs associated with exit and disposal activities, including restructuring
activities. SFAS No. 146 also addresses recognition of certain costs related to
terminating a contract that is not a capital lease, costs to consolidate
facilities or relocate employees, and termination benefits provided to employees
that are involuntarily terminated under the terms of a one-time benefit
arrangement that is not an ongoing benefit arrangement or an individual
deferred-compensation contract. As SFAS No. 146 is effective only for exit or
disposal activities initiated after December 31, 2002, Pivotal does not expect
the adoption of this statement to have a material impact on the Company's
financial statements.
20
PART I - ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to financial market risks, including fluctuations in foreign
exchange rates and interest rates.
INTEREST RATE RISK
We invest our cash in a variety of short-term financial instruments, including
government bonds, commercial paper and money market instruments. Our portfolio
is diversified and consists primarily of investment grade securities to minimize
credit risk. These investments are typically denominated in U.S. dollars. Cash
balances in foreign currencies are operating balances and are only invested in
demand or short-term deposits of the local operating bank.
Investments in both fixed rate and floating rate interest earning instruments
carry a degree of interest rate risk. Fixed rate securities may have their fair
market value adversely impacted because of a rise in interest rates, while
floating rate securities may produce less income than expected if interest rates
fall. Due in part to these factors, our future investment income may fall short
of expectations because of changes in interest rates or we may suffer losses in
principal if forced to sell securities that have seen a decline in market value
because of changes in interest rates.
Our investments are made in accordance with an investment policy approved by our
board of directors. Under this policy, all short-term investments must be made
in investment grade securities with original maturities of less than one year at
the time of acquisition.
We do not attempt to reduce or eliminate our exposure to interest rate risk
through the use of derivative financial instruments due to the short-term nature
of the investments. Based on a sensitivity analysis performed on our balances as
of September 30, 2002, the fair value of our short-term investment portfolio
would not be materially impacted by a shift in the yield curve of plus or minus
50, 100 or 150 basis points.
OTHER INVESTMENTS
Included in other assets are certain investments in public and private
companies. Our investment in two public companies are considered available for
sale and are subject to considerable market price volatility and are
additionally risky due to resale restrictions. The investments are recorded on
the balance sheet at market value with unrealized gains or losses reported as a
separate component of accumulated other comprehensive income. We may lose some
or all of our investment in those shares. We typically do not attempt to reduce
or eliminate our market exposure on these securities. A 10% adverse change in
the equity price would result in an approximate $57,000 decrease in the fair
value of our marketable equity securities as of September 30, 2002. Our
investments in privately held companies are carried at cost less writedowns
related to other than temporary declines. These investments are inherently
risky, as they typically are comprised of investments in companies that are
still in start-up or development stages. The market for their product or
technologies that they have under development is typically in the early stages,
and may never materialize. We could lose our entire investment in these
companies or may incur an impairment charge if we determine that the value of
these assets has been impaired.
FOREIGN CURRENCY RISK
We have operations in Canada and a number of countries outside of the United
States and therefore we are subject to risks typical of an international
business including, but not limited to, differing economic conditions, changes
in political climate, differing tax structures, other regulations and
restrictions and foreign exchange rate volatility. Accordingly, our future
results could be materially adversely affected by changes in these or other
factors.
Our sales and corresponding receivables are substantially in U.S. dollars.
Through our operations in Canada and outside North America, we incur the
majority of our research and development, customer support costs and
administrative expenses in Canadian and other local currencies. We are exposed,
in the normal course of business, to foreign currency risks on these
expenditures. We have evaluated our exposure to these risks and have determined
21
that our significant operating exposure to foreign currencies exposure at this
time is to the Canadian dollar through our operations in Canada. At this time,
we do not believe our operating exposure to other currencies is material,
however we are exposed to foreign currency gains and losses on monetary assets
and liabilities denominated in local currencies.
On occasion, we use forward contracts to minimize the risks associated with
transactions originating in Canadian dollars. We have not designated these
forward contracts to be hedging instruments. Therefore, all gains or losses
resulting from the change in fair value of these contracts have been included in
earnings in the current period.
If we were to designate these types of forward contracts or other derivatives as
hedges in the future and such derivatives satisfy the criteria for hedging
instruments, then depending on the nature of the hedge, changes in the fair
value of the derivatives will be offset against the change in fair value of
assets, liabilities, or firm commitments recognized in earnings (fair value
hedges) or recognized in other comprehensive income until the related hedged
item is recognized in earnings (cash flow hedges). Any change in fair value
related to the ineffective portion of a derivative will be recognized in
earnings through periodic mark to market adjustments.
In addition to the use of foreign exchange forward contracts noted above, from
time to time we may also purchase Canadian dollars in the open market and hold
these funds in order to satisfy forecasted operating needs in Canadian dollars
for the next operating period, which is generally limited to six months or less.
If our actual currency requirement in the period forecasted differs materially
from the notional amount of our forward contracts and/or the amount of Canadian
dollars purchased in the open market during a period of currency volatility or
if we do not continue to manage our exposure to foreign currency through forward
contracts or other means, we could experience unanticipated foreign currency
gains or losses.
Our foreign currency risk management policy subjects us to risks relating to the
creditworthiness of the commercial banks with which we enter into forward
contracts. If one of these banks cannot honor its obligations, we may suffer a
loss. We also invest in our international operations which will likely result in
increased future operating expenses denominated in United Kingdom and Irish
pounds, French francs, euros, German marks, Japanese yen, Australian dollars and
New Zealand dollars. Our exposure to exchange fluctuations in foreign currencies
is not material to date and accordingly, our current foreign currency risk
management practices do not cover foreign exchange risks related to these other
currencies. In the future, our exposure to foreign currency risks from these
other foreign currencies may increase and if not managed appropriately, we could
experience unanticipated foreign currency gains and losses.
The purpose of our foreign currency risk management policy is to reduce the
effect of exchange rate fluctuation on our results of operations. Therefore,
while our foreign currency risk management policy may reduce our exposure to
losses resulting from unfavorable changes in currency exchange rates, it also
reduces or eliminates our ability to profit from favorable changes in currency
exchange rates.
At September 30, 2002, we had no outstanding currency forward exchange
contracts, and had none outstanding during the quarter. For the three months
ended September 30, 2002 and 2001, respectively, foreign exchange loss was
$380,000 and $263,000.
PART I - ITEM 4
CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934, as amended) as of a date (the "Evaluation Date") within 90
days prior to the filing date of this report. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that, as of the
Evaluation Date, our disclosure controls and procedures were effective in timely
alerting them to the material information relating to us (or our consolidated
subsidiaries) required to be included in our periodic SEC filings and Form 8-K
reports.
22
(b) Changes in internal controls.
There were no significant changes made in our internal controls or, to our
knowledge, in other factors that could significantly affect these controls
subsequent to the date of their evaluation.
23
PART II: OTHER INFORMATION
PART II - ITEM 1
LEGAL PROCEEDINGS
As of the date hereof, there is no material litigation pending against us. From
time to time, we are a party to litigation and claims incident to the ordinary
course of business. While the results of litigation and claims cannot be
predicted with certainty, we believe that the final outcome of such matters will
not have a material adverse effect on our business, financial condition, results
of operations and cash flows.
PART II - ITEM 2
CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
PART II - ITEM 3
DEFAULTS UPON SENIOR SECURITIES
None.
PART II - ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II - ITEM 5
OTHER INFORMATION
None.
PART II - ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1(1) Share Purchase Agreement by and between Pivotal and Pierre
Marcel, Marc Bahda, Bernard Wach and Other Shareholders of
Transitif S.A., dated December 3, 1999
2.2(2) Stock Purchase Agreement among Pivotal and Industrial &
Financial Systems AB and Eli Barak, Alon Hod and Tony Topaz
concerning all of the Shares of Exactium Ltd. dated April
11, 2000
2.3(3) Share Purchase Agreement among Pivotal and David Pritchard,
Kirk Herrington, Michael Satterfield, Calvin Mah, VW B.C.
Technology Investment Fund, LP, Venrock Associates, Venrock
Associates II, LP, Working Ventures Canadian Fund Inc., Bank
of Montreal Capital Corporation, Sussex Capital Inc. and the
Other Shareholders of Simba Technologies Inc. concerning all
of the Shares of Simba Technologies Inc. dated May 29, 2000
24
EXHIBIT NO. DESCRIPTION
----------- -----------
2.4(12) Agreement and Plan of Merger among Pivotal, Pivotal
Corporation, a Washington corporation, Pivotal Merger
Subsidiary, Inc., MarketFirst Software, Inc. and other
shareholders of MarketFirst Software, Inc. dated October 2,
2002
3.2(4) Memorandum and Articles
4.1(4) Specimen of common share certificate
4.2(4) Registration Rights (included in Exhibit 10.14)
4.3(2) Registration Rights Agreement dated June 2, 2000 (included
in Exhibit 2.2)
4.4(3) Registration Rights Agreement dated June 26, 2000 (included
in Exhibit 2.3)
4.5(8) Specimen of common share certificate as of August 17, 2000
#10.1(4) Employee Share Purchase Plan
10.2(4) Lease dated as of July 18, 1997 between Sodican (B.C.) Inc.
and Pivotal for premises located in North Vancouver, B.C.
10.3(4) Lease dated as of May 26, 1998 between Novo Esplanade Ltd.
and Pivotal for premises located in North Vancouver, B.C.
10.4(4) Lease(1) dated as of December 14, 1998 between B.C. Rail
Ltd. and Pivotal for premises located in North Vancouver,
B.C.
10.5(4) Lease(2) dated as of December 14, 1998, between B.C. Rail
Ltd. and Pivotal with respect to premises located in North
Vancouver, B.C.
10.6(4) Lease dated as of December 11, 1998 between The Plaza at
Yarrow Bay Inc. (previously Yarrow Bay Office III Limited
Partnership) and Pivotal with respect to premises located in
Kirkland, Washington
10.7(4) Canadian Imperial Bank of Commerce Cdn$2,000,000 Committed
Installment Loan dated March 18, 1998
10.8(4) Canadian Imperial Bank of Commerce Cdn$3,000,000 Operating
Line of Credit dated March 18, 1998
10.9(4) Security Agreement with Canadian Imperial Bank of Commerce
dated for reference April 15, 1998
10.10(4) Contract Relative to Special Security under the Bank Act
between Canadian Imperial Bank of Commerce and Pivotal dated
April 30, 1998
10.11(4) Canadian Imperial Bank of Commerce Schedule - Standard
Credit Terms dated March 18, 1998
10.12(4) Canadian Imperial Bank of Commerce Schedule - Standard
Credit Terms dated March 18, 1998
25
EXHIBIT NO. DESCRIPTION
----------- -----------
#10.13(4) Form of Indemnity Agreement between Pivotal and directors
and officers of Pivotal
10.14(4) Investors' Rights Agreement dated January 15, 1999
10.15(5) Lease dated April 14, 2000 among Deramore Holdings
Limited(1), Pivotal Corporation (NI) Limited (2) and Pivotal
for premises located in Belfast, Northern Ireland
#10.16(5) Employment Agreement between Vince Mifsud and Pivotal dated
November 10, 1998
#10.17(6) Exactium Ltd. 1999 Stock Option Plan
#10.18(7) Simba Technologies Inc. Incentive Stock Option Plan, as
amended
#10.19(8) Amended and Restated Incentive Stock Option Plan
10.20(8) Restated Offer to Lease dated July 28, 2000 between CB
Richard Ellis Limited and Pivotal with respect to premises
located in Vancouver, B.C.
10.21(8) First Amendment to Restated Offer to Lease dated October 16,
2000 between PCI Properties Corp. and Pivotal with respect
to premises located in Vancouver, B.C.
10.22(8) Second Amendment to Restated Offer to Lease dated May 18,
2001 between PCI Properties Corp. and Pivotal with respect
to premises located in Vancouver, B.C.
10.23(8) Lease dated September 1, 2000 between Landgem Office I, Ltd.
(previously Dallas Office Portfolio L.P.) and Software
Spectrum CRM, Inc. for premises located in Dallas, Texas
10.24(8) Lease dated December 19, 2000 between 485 Properties, LLC
and Pivotal for premises located in Atlanta, Georgia
10.25(8) Lease dated as of November 24, 2000 between Scholl Consumer
Products Limited and Pivotal for premises located in Luton,
England
#10.26(8) Employment Agreement between Kent Roger (Bo) Manning and
Pivotal dated August 22, 2001
10.27(8) Amendment No.1 dated June 19, 2001 to the Canadian Imperial
Bank of Commerce Cdn$3,000,000 Operating Line of Credit
dated March 18, 1998
10.28(8) Amendment No.2 dated July 3, 2001 to the Canadian Imperial
Bank of Commerce Cdn$3,000,000 Operating Line of Credit
dated March 18, 1998
#10.29(9) Consulting Agreement between Lochhead Corporation and
Pivotal dated January 28, 2002 10.30(10) Loan Agreement
between Canadian Imperial Bank of Commerce and Pivotal dated
December 31, 2001
#10.31(11) Employment Agreement between John O'Hara and Pivotal dated
June 5, 2001
#10.32(11) Employment Agreement between Robert Douglas and Pivotal
dated October 21, 2001
#10.33(11) Employment Agreement between Joe Dworak and Pivotal dated
October 19, 2001
#10.34(11) Employment Agreement between James Warden and Pivotal dated
May 18, 1999
26
EXHIBIT NO. DESCRIPTION
----------- -----------
10.35(11) Lease Amendment Agreement made as of April 22, 2002 between
354875 B.C. Ltd. and Pivotal with respect to premises
located in North Vancouver, B.C.
10.36(11) Modification of Lease dated January 8, 2002 between B.C.
Rail Ltd. and Pivotal
10.37(11) Sub-lease dated September 19, 2001 between The H.W. Wilson
Company Inc. and Pivotal with respect to premises located in
Dublin, Republic of Ireland
10.38(11) Sub-lease dated August 18, 2000 between Dunsmuir &
HornbyLtd. and Pivotal with respect to premises located in
Vancouver, B.C.
10.39(11) Lease Extension dated October 30, 2001 between Dunsmuir &
Hornby Ltd. and Pivotal with respect to premises located in
Vancouver, B.C.
10.40(11) Lease made May 7, 2000 between 1102758 Ontario Limited and
Pivotal with respect to premises located in Toronto, ON
#10.41(11) Loan Agreement made as of January 29, 2001 between Pivotal
and Andre Beaulieu
#10.42(11) Amendment of Loan Agreement dated May 29, 2002 between
Pivotal and Andre Beaulieu
10.43(11) Sub-lease dated August 29, 2000 between Pivotal and Primus
Telecommunications (Canada) Inc. with respect to premises
located in Vancouver, B.C.
10.44(11) Amendment of Lease Extension dated April 29, 2002 between
Pivotal and Dunsmuir and Hornby Ltd. with respect to
premises located in Vancouver, B.C.
10.45 Lease dated August 18, 2000 between Pivotal and Dunsmuir and
Hornby Ltd. with respect to premises located in Vancouver,
B.C.
99.1 Risk Factors
---------------------------
# Indicates management contract or compensatory plan or arrangement.
(1) Incorporated by reference to Pivotal's Form 8-K filed on January 25, 2000.
(2) Incorporated by reference to Pivotal's Form 8-K filed on June 19, 2000.
(3) Incorporated by reference to Pivotal's Form 8-K filed on July 11, 2000.
(4) Incorporated by reference to Pivotal's Registration Statement on Form F-1
(No. 333-82871).
(5) Incorporated by reference to Pivotal's Annual Report on Form 10-K for the
year ended June 30, 2000.
(6) Incorporated by reference to Pivotal's Registration Statement on Form S-8
(No. 333-39922).
(7) Incorporated by reference to Pivotal's Registration Statement on Form S-8
(No. 333-42460).
(8) Incorporated by reference to Pivotal's Annual Report on Form 10-K for the
year ended June 30, 2001
(9) Incorporated by reference to Pivotal's Quarterly Report on Form 10-Q for
the quarter ended December 31, 2001
(10) Incorporated by reference to Pivotal's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2002
(11) Incorporated by reference to Pivotal's Annual Report on Form 10-K for the
year ended June 30, 2002
(12) Incorporated by reference to Pivotal's Form 8-K filed on October 29, 2002
(b) Reports on Form 8-K
None
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 14, 2002
PIVOTAL CORPORATION
/s/ Divesh Sisodraker
-------------------------------
Divesh Sisodraker
Chief Financial Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
28
CERTIFICATION
I, Divesh Sisodraker, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pivotal Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ Divesh Sisodraker
----------------------------------------
Divesh Sisodraker
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION
I, Roger (Bo) Manning, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pivotal Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ Roger (Bo) Manning
----------------------------------------
Roger (Bo) Manning
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. ss.1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Pivotal Corporation (the "Company")
on Form 10-Q for the quarter ended September 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Divesh
Sisodraker, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Divesh Sisodraker
------------------------------------
Divesh Sisodraker
Chief Financial Officer
(Principal Financial Officer)
November 14, 2002
CERTIFICATION PURSUANT TO
18 U.S.C. ss.1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Pivotal Corporation (the "Company")
on Form 10-Q for the quarter ended September 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Kent
Roger (Bo) Manning, President and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Kent Roger (Bo) Manning
----------------------------------------
Kent Roger (Bo) Manning
President and Chief Executive
Officer
(Chief Executive Officer)
November 14, 2002