The Company's UNIX Business Achieves Profitability; Company Announces Adoption
of Shareholder Rights Plan and Letter of Intent to Complete a Revised Fee
Agreement With Boies, Schiller & Flexner
LINDON, Utah, Aug. 31 /PRNewswire-FirstCall/ -- The SCO Group, Inc.
(Nasdaq: SCOX), owner of the UNIX operating system and a leading provider of
UNIX-based solutions, today reported results for the fiscal third quarter
ended July 31, 2004.
Revenue for the third quarter of fiscal year 2004 was $11,205,000 as
compared to $20,055,000 from the comparable quarter of the prior year. The
decrease in revenue in the third quarter of fiscal year 2004 from the
comparable quarter of the prior year was primarily due to a decrease in
SCOsource licensing revenue to $678,000 in the third quarter of fiscal year
2004 from $7,280,000 in the third quarter of fiscal year 2003. However,
SCOsource licensing revenue did increase by $667,000 from the prior quarter
ended April 30, 2004.
The net loss for the third quarter of fiscal year 2004 was $7,423,000 as
compared to net income of $3,096,000 for the comparable quarter of the prior
year. The net income applicable to common stockholders for the third quarter
of fiscal year 2004 was $7,501,000, or $0.38 per diluted common share.
Included in the net income applicable to common stockholders for the third
quarter of fiscal year 2004 was a contribution to capital of $15,475,000
related to the repurchase and retirement of the remaining 40,000 shares of the
Company's Series A-1 Convertible Preferred Stock.
"Several positive developments fell into place for us this quarter that
strengthened the Company's overall position," said Darl McBride, president and
CEO, The SCO Group. "We successfully delivered on our strategy to restore
profitability within our UNIX business which is generating positive cash flow.
At the same time, we saw a nice uplift from SCOsource licensing revenue. In
addition, we closed the BayStar transaction and as announced today, we
implemented a Shareholder Rights Plan that will help protect the Company from
any potential undervalued takeover attempt. Finally, we are pleased to have
entered into a letter of intent with Boies, Schiller & Flexner that not only
demonstrates their belief in SCO's legal case but will also provide SCO with
greater financial flexibility."
McBride concluded, "We remain steadfastly committed to enforcing our
intellectual property rights on behalf of our customers, employees and
shareholders. Through the combination of the quarter's positive developments
and our current cash position, we are well-positioned to pursue our current
litigation through its conclusion."
For the first three quarters of fiscal year 2004, revenue was $32,734,000
compared to revenue for the first three quarters of fiscal year 2003 of
$54,964,000. For the first three quarters of fiscal year 2004, the net loss
was $16,834,000 and the net loss applicable to common stockholders was
$9,711,000, or $0.67 per diluted common share, compared to net income of
$6,872,000, or $0.47 per diluted common share for the first three quarters of
fiscal year 2003. Despite the net loss reported for first three quarters of
fiscal year 2004, cash and available-for-sale securities positions were
$43,027,000 at July 31, 2004.
BayStar Capital
As the Company previously announced on July 23, 2004 and reaffirmed on
August 25, 2004, SCO completed its transaction with BayStar Capital II, L.P.
regarding the retirement of BayStar's 40,000 shares of SCO's Series A-1
Convertible Preferred Stock in exchange for $13 million in cash and
2,105,263 shares of the Company's common stock. Upon completion of this
transaction, all outstanding shares of the Company's preferred stock were
retired.
Shareholder Rights Plan
SCO announced today in a separate press release that the Company's board
of directors has adopted a Shareholder Rights Plan. This plan is designed to
ensure that potential acquirers of the Company's stock recognize fair value
for the Company's assets and opportunities. Additional details of the
Shareholder Rights Plan have been made available through a press release that
was distributed today and through a current report on Form 8-K to be filed by
the Company.
Legal Fee Re-negotiation
The Company has entered into a letter of intent with Boies, Schiller &
Flexner LLP, its outside legal counsel to enter into a revised fee agreement
with respect to pending intellectual property and licensing litigation, to
limit overall cash cost of the Company's litigation to $31 million. The terms
also stipulate that Boies, Schiller & Flexner will lead SCO's efforts through
the duration and completion of the pending litigation in return for increased
contingency.
SCO will release further details of the new contract upon finalization of
the agreement.
Financial Outlook
The following statements are forward looking and actual results may differ
materially. See the discussion of certain risks and uncertainties related to
this financial outlook at the end of this release under "Forward-Looking
Statements."
For the fourth fiscal quarter ending October 31, 2004 the Company expects
total revenue to be in the range of $10,000,000 to $12,000,000. As previously
indicated, SCOsource revenue remains extremely difficult to predict, including
the timing and level of revenue in the near term or any given quarter.
Operating expenses for the fourth quarter relating to UNIX products and
services, exclusive of any charges from restructuring activities, are
anticipated to slightly decline from the third quarter of fiscal year 2004 and
comparable quarters. Expenses relating to SCOsource, including legal fees,
are expected to vary from quarter to quarter depending on the level of, and
activity surrounding, our intellectual property claims, and therefore are
difficult to predict. The Company will continue to take the necessary legal
steps to protect its UNIX intellectual property and aggressively pursue its
legal claims through the court system.
Conference Call
As previously announced, The SCO Group will host a conference call at
5:00 p.m. EDT today, August 31, 2004, to discuss our third quarter results and
key corporate developments. To participate in the teleconference, please call
800-289-0436 or 913-981-5507; confirmation code: 824670, approximately five
minutes prior to the time stated above. A listen-only Web cast of the call
will be broadcast live with a replay available the following day. The Web
cast and replay may be accessed from http://ir.sco.com/medialist.cfm.
About SCO
The SCO Group, Inc. (Nasdaq: SCOX) helps millions of customers in more
than 82 countries to grow their businesses everyday. Headquartered in Lindon,
Utah, SCO has a worldwide network of more than 11,000 resellers and
4,000 developers. SCO Global Services provides reliable localized support and
services to partners and customers. For more information on SCO products and
services, visit http://www.sco.com.
SCO and the associated SCO logo are trademarks or registered trademarks of
The SCO Group, Inc. in the U.S. and other countries. UNIX is a registered
trademark of The Open Group. All other brand or product names are or may be
trademarks of, and are used to identify products or services of, their
respective owners.
Forward-Looking Statements
This press release, particularly the "Financial Outlook" section, contains
forward-looking statements representing our current expectations and beliefs,
including, among other things: (i) the expectation that we will continue to
focus on our SCOsource initiatives and enforce our intellectual property
rights; (ii) expected consolidated revenue in the fourth quarter of fiscal
year 2004 of $10,000,000 to $12,000,000; (iii) the expectation that expenses
related to UNIX products and services, exclusive of any restructure costs,
will slightly decline for the fourth quarter compared to the third quarter of
fiscal year 2004 and comparable quarters of the prior year; (iv) the
expectation that expenses related to SCOsource are expected to vary from
quarter to quarter depending on the level of, and activity surrounding, our
intellectual property claims, and therefore are difficult to predict; and (v)
our intent to continue to take the necessary legal steps to protect our UNIX
intellectual property and aggressively pursue our legal claims and (vi) our
expectation that we will enter into a revised fee agreement with our law firms
handling our litigation. These forward-looking statements and related
assumptions are subject to risks and uncertainties that could cause actual
results and outcomes to differ materially from any forward-looking statements
contained herein. These risks and uncertainties include, without limitation:
(a) risks that we will not be successful in our efforts to protect and enforce
our intellectual property rights; (b) risks that our core UNIX business may
continue to decline; (c) risks that we will face increasing competition from
competing providers of operating system products and services, particularly
Linux; (d) risks that the U.S. and international economic and political
conditions will worsen and adversely affect technology purchases; (e) risks
that our SCOsource licensing initiatives will yield fewer licenses or less
licensing revenue than anticipated or that such licensing revenue will not be
generated when or in amounts currently anticipated; (f) risks that we will
require more capital to sustain our business objectives than we may have and
that such capital may not be available; (g) we may not be able to enter into a
revised fee agreement with our law firms; and (h) other risks and
uncertainties set forth in our filings with the Securities and Exchange
Commission. These forward-looking statements speak only as of the date
hereof, and we undertake no obligation to update such forward-looking
statements after the date hereof.
Condensed Consolidated Balance Sheets
(unaudited, in thousands)
July 31, October 31,
2004 2003
Assets:
Cash and cash equivalents $15,982 $64,428
Restricted cash 13,506 2,025
Available-for-sale securities 27,045 4,095
Accounts receivable, net 5,954 9,282
Other current assets 2,466 2,450
Total current assets 64,953 82,280
Property and equipment, net 799 1,148
Goodwill and intangibles, net 6,090 10,452
Other assets 1,390 1,072
Total assets $73,232 $94,952
Liabilities:
Accounts payable $1,825 $1,978
Accrued payroll and accrued expenses 13,824 8,506
Payable to BayStar Capital II, LLP 13,000 --
Accrued compensation to law firms 7,956 10,556
Deferred revenue 5,936 5,501
Derivative related to Series A convertible
preferred stock -- 15,224
Other current liabilities 2,038 3,347
Total current liabilities 44,579 45,112
Long-term liabilities 501 508
Minority interest -- 145
Convertible preferred stock -- 29,671
Stockholders' equity 28,152 19,516
Total liabilities and stockholders' equity $73,232 $94,952
Condensed Consolidated Statements of Operations
(unaudited, in thousands, except per share data)
Three Months Ended Nine Months Ended,
July 31, July 31,
2004 2003 2004 2003
Products revenue $8,929 $10,804 $27,056 $33,016
Services revenue 1,598 1,971 4,969 6,418
SCOsource licensing revenue 678 7,280 709 15,530
Total revenue 11,205 20,055 32,734 54,964
Cost of products revenue 825 1,284 2,614 3,676
Cost of services revenue 878 1,538 3,273 5,008
Cost of SCOsource licensing
revenue 7,312 1,712 15,236 3,875
Total cost of revenue 9,015 4,534 21,123 12,559
Gross margin 2,190 15,521 11,611 42,405
Operating expenses:
Sales and marketing 4,233 5,930 13,952 18,421
Research and development 2,592 2,950 8,167 8,142
General and administrative 1,889 1,413 6,475 4,525
Restructuring charges -- 614 -- 498
Loss on impairment of
long-lived assets -- -- 2,139 --
Amortization of intangibles 593 895 1,973 2,295
Stock-based compensation 270 309 868 927
Total operating expenses 9,577 12,111 33,574 34,808
Income (loss) from operations (7,387) 3,410 (21,963) 7,597
Equity in income (loss) of
affiliates 41 (71) 115 (171)
Other income (expense), net 99 (55) 6,284 (59)
Income (loss) before income
taxes (7,247) 3,284 (15,564) 7,367
Provision for income taxes (176) (188) (1,270) (495)
Net income (loss) (7,423) 3,096 (16,834) 6,872
Dividends on convertible
preferred stock 14,924 -- 7,123 --
Net income (loss) applicable
to common stockholders $7,501 $3,096 $(9,711) $6,872
Basic net income (loss) per
common share $0.49 $0.25 $(0.67) $0.58
Diluted net income (loss) per
common share $0.38 $0.19 $(0.67) $0.47
Weighted average basic common
shares outstanding 15,242 12,469 14,389 11,753
Weighted average diluted
common shares outstanding 19,912 16,180 14,389 14,744
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SOURCE The SCO Group, Inc.
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Related links:
http://www.SCO.com
CONTACT:
Blake Stowell, +1-801-932-5703,
bstowell@sco.com, or Marc Modersitzki, +1-801-932-5635,
mmodersi@sco.com, both of The SCO Group; or Anton Nicholas of
Sloane & Company, +1-212-446-1889, anicholas@sloanepr.com, for
The SCO Group, Inc.
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