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The Morning After the Poison Pill
Wednesday, September 01 2004 @ 02:55 PM EDT

The media continues to react to yesterday's 3rd quarter teleconference, and they are almost unanimous. Everyone (with two exceptions) understood it as loss, gloom and doom. Here, for your enjoyment is a bouquet of snips from the reports to add to yesterday's collection.

Without a doubt, Motley Fool wins for style ("a management team that's put this company into a stumbling, deathlike trance"). The creativity award goes to CBSMarketwatch for finding a way to report SCO's results as positive news, as Forbes did yesterday. Imagine if you only got your news from those two. Why, you'd probably go out and buy SCO stock or something.

Also, just so you know, SCO has announced a city-to-city tour. The tour will run from September 22 through October 7, visiting 12 cities across North America. "Qualified attendees will receive sample copies of all SCO products through NFR kits, as well as other valuable giveaways. The seminars are free and will visit Minneapolis, MN; Montreal, QC; Vancouver, BC; Irvine, CA; Sherman Oaks, CA; Chicago, IL; Dallas, TX; Toronto, ON; Atlanta, GA; New York, NY; Orlando, FL; and Boston, MA."

Motley Fool:

SCO Slides Again
After dodging a bullet from BayStar -- which forced SCO's hand a few months back because it thinks the firm's only real asset is its long-shot legal claims -- management seems to be fearing for its future. A "shareholder rights" plan was also unveiled today, typical in that it seeks to prevent anyone from taking control of 15% of the firm without running the offer through the board. Of course, as is so often the case, the plan looks more like job protection for a management team that's put this company into a stumbling, deathlike trance.

SCO Group Swings to a Loss SCO, which hired high-profile attorney David Boies to lead its Linux legal battle, saw its cash balance fall to nearly $16 million on July 31, from $64.4 million on Oct. 31. Cash plus available-for-sale securities, however, experienced a smaller decrease, to $43 million on July 31, from $61.3 million on April 31.

[p. 2] Initially, after SCO sued IBM, the company's stock was viewed as a lottery ticket on the Linux lawsuits. But investors have taken a dimmer view of that ticket in recent months. The stock is off more than 80% from its 52-week high, while the short interest has been hovering around 50% of the float since mid-May, according to Nasdaq.

The SCO Group, Inc. (SCOX: chart) said after the bell Tuesday that it swung to a quarterly loss from a year-earlier profit, due to a decline in revenue. The Lindon, Utah-based owner of the UNIX operating system reported a net loss of $7.4 million for its fiscal third quarter, against a profit of $3.1 million a year ago. The company said that it had third-quarter net income applicable to common shareholders of $7.5 million, or 38 cents per share, which includes a one-time contribution of capital of $15.5 million related to a repurchase of convertible stock. Quarterly revenue tumbled to $11.2 million from $20.1 million, largely due to a decrease in SCOsource licensing revenue.

The stock dipped 3.31% on Tuesday to $3.80. SCO shares inched up 5 cents to $3.85 in after-market trade.

Unix vendor SCO Group (Quote, Chart), in the midst of copyright infringement lawsuits over parts of Linux, reported a net loss of $7.4 million for its fiscal third quarter on lowered revenues and higher legal fees. The results more than reversed its profit of $3.1 million during the same, year-ago quarter. . . .

SCO attributed its lackluster quarterly performance partially due to a lack or revenue from its SCOsource licensing program, which was formed to license SCO's Unix intellectual property. The program, which licenses its Unix System V source code, is also aimed in part at taking in fees from Linux users on parts of the operating system code that it claims copyright.


As the high cost of litigation takes its toll, The SCO Group has instituted a $31 million cap on legal fees to be spent over the duration of its pending legal action and has enacted a shareholder rights plan to protect investors from any hostile takeover attempt.

During a conference call Tuesday, SCO CEO Darl McBride disclosed that the company spent almost $8 million of the $11 million in revenue generated during its third fiscal quarter of 2004 on legal fees, a "high-water mark" in litigation costs since the embattled Unix company filed suit against IBM in the spring of 2003.

To date, SCO, Lindon, Utah, has spent roughly $15 million in legal fees to fight intellectual property claims it has brought against IBM and Novell.

Tuesday, SCO reported a third-quarter loss of $7.4 million on revenue of $11.2 million. That's a sharp contrast to a year ago, when the company reported a profit of $3.1 million on revenue of $20.1 million.

The drop was primarily due to a decrease in SCOsource licensing revenue--from $7.3 million a year ago to $678,000. SCO sells SCOsource licenses to protect Linux users from legal action in the event SCO wins its intellectual-property lawsuit against IBM. SCO claims that IBM used SCO-owned Unix V source code without SCO's permission. . . .

Company execs anticipate fourth-quarter revenue of about $10 million but some restructuring and downsizing as well that will cost the company money in the short term.


SCO (SCOX: news, chart, profile), which provides Unix and open-source Linux operating systems to small and midsize businesses, rose 1.3 percent after it reported third-quarter earnings of 38 cents per share on sales of $11.2 million. It said it expected fourth-quarter sales of $10 million to $12 million.

The Lindon, Utah-based company added that it adopted a shareholder rights plan designed to deter a hostile takeover.

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