decoration decoration
Stories

GROKLAW
When you want to know more...
decoration
For layout only
Home
Archives
Site Map
Search
About Groklaw
Awards
Legal Research
Timelines
ApplevSamsung
ApplevSamsung p.2
ArchiveExplorer
Autozone
Bilski
Cases
Cast: Lawyers
Comes v. MS
Contracts/Documents
Courts
DRM
Gordon v MS
GPL
Grokdoc
HTML How To
IPI v RH
IV v. Google
Legal Docs
Lodsys
MS Litigations
MSvB&N
News Picks
Novell v. MS
Novell-MS Deal
ODF/OOXML
OOXML Appeals
OraclevGoogle
Patents
ProjectMonterey
Psystar
Quote Database
Red Hat v SCO
Salus Book
SCEA v Hotz
SCO Appeals
SCO Bankruptcy
SCO Financials
SCO Overview
SCO v IBM
SCO v Novell
SCO:Soup2Nuts
SCOsource
Sean Daly
Software Patents
Switch to Linux
Transcripts
Unix Books
Your contributions keep Groklaw going.
To donate to Groklaw 2.0:

Groklaw Gear

Click here to send an email to the editor of this weblog.


To read comments to this article, go here
SCO's Auditors Resign: Out With the Old, In With the New
Friday, June 03 2005 @ 05:24 PM EDT

SCO's auditors, KPMG, have resigned, so SCO has a new firm, Tanner. They are "pleased", of course, to appoint new auditors and claim they never had any disagreements with the old ones. I suppose the old firm wishes to spend more time with their families.

Just horsing around. They don't tell us why they resigned. Here's the press release. They filed an 8-K about it, with a letter from KPMG attached as an exhibit, and their 10-Q, which tells us that they will "likely assert counterclaims against Red Hat, should the stay be lifted. I'm sure Red Hat can barely sleep from fear. Maybe fear and loathing. Well. At least loathing. And here's a Sarbanes-Oxley Financial and Accounting Disclosure Information page.

The 10-Q also tells us this about SCO's "core" business:

Our sales of UNIX products and services during the last several periods have been primarily to pre-existing UNIX customers and not newly acquired customers. . . .

Revenue from our UNIX business decreased by $898,000, or 9 percent, for the second quarter of fiscal year 2005 compared to the second quarter of fiscal year 2004 and decreased by $3,475,000, or 16 percent, for the first two quarters of fiscal year 2005 compared to the first two quarters of fiscal year 2004.  The revenue from this business has been declining over the last several quarters primarily as a result of increased competition from alternative operating systems, particularly Linux.  If revenue from our UNIX business continues to decline and we are unable to generate positive cash flow, our UNIX business will be adversely impacted.

In an effort to attain profitability in our UNIX business, we have decreased our operating costs and streamlined our operations.  Operating costs for our UNIX business decreased from $12,201,000 for the second quarter of fiscal year 2004 to $7,449,000 for the second quarter of fiscal year 2005 and decreased from $23,286,000 for the first two quarters of fiscal year 2004 to $14,487,000 for the first two quarters of fiscal year 2005.  These cost reductions have primarily been attributable to reduced headcount, continued operational efficiencies generated in our UNIX business, the elimination of certain write-offs and severance and exit costs, as well as from the consolidation of certain facilities.

In our UNIX business, we have reduced the number of full-time equivalent employees from 263 as of April 30, 2004, to 164 as of April 30, 2005.  We have taken these headcount reductions and reduced other discretionary spending while still maintaining a worldwide presence.  Based on our cost-cutting actions, we anticipate that our UNIX business will continue to generate income from operations and positive cash flow throughout fiscal year 2005. . . .

SCOsource Business. 

During the 2003 fiscal year, we became aware that our UNIX code and derivative works had been inappropriately included in the Linux operating system.  We believe the inclusion of our UNIX code and derivative works in Linux has been a major contributor to the decline in our UNIX business because users of Linux generally do not pay for the operating system but pay only minimal fees, if any, for service and maintenance.  The Linux operating system competes directly with our OpenServer and UnixWare products and has taken significant market share from these products.

In an effort to protect our UNIX intellectual property, we initiated our SCOsource business.  The initiatives of this business include seeking to enter into license agreements with UNIX vendors and offering SCOsource IP licenses to Linux and other end users allowing them to continue to use our UNIX source code and derivative works found in Linux.  We believe that our SCOsource licensing revenue opportunities have been adversely impacted by our outstanding dispute with Novell over our UNIX copyright ownership, which may have caused many potential customers to delay or forego licensing until an outcome in this legal matter has been reached. . . .

If our revenue from the sale of our UNIX products and services continues to decline, we will need to further reduce operating expenses to generate positive cash flow.  We may not be able to further reduce operating expenses without damaging our ability to support our existing UNIX business.  Additionally, we may not be able to achieve profitability through additional cost-cutting actions.

Our UNIX products and services revenue has declined over the last several years primarily as a result of increased competition from alternative operating systems, particularly Linux.  In our quarterly results of operations, we recognize revenue from agreements for support and maintenance contracts and other long-term contracts that have been previously invoiced and are included in deferred revenue.  Our future UNIX revenue may be adversely impacted and may continue to decline if we are unable to replenish these deferred revenue balances with long-term maintenance and support contracts or replace them with other sustainable revenue streams.  If we are unable to generate positive cash flow and profitable operations, our operations will be adversely impacted.

All these antiLinux FUDsters need to coordinate better. SCO is telling the court that Linux is generally free and service costs are minimal, underpricing their proprietary code; meanwhile Microsoft's Get the Facts ha ha campaign claims that it costs more to switch to Linux than to stay with them. So, guys, take a meeting and work this problem out, will you? You can't expect Groklaw to answer diametrically opposing FUD, can you? Besides, it's making it hard to take you seriously.

Here's the press release, followed by pertinent text of SCO's 8K, followed by KPMG's letter, Exhibit 16-1:

*************************************

The SCO Group Appoints New Independent Registered Public Accounting Firm
Friday June 3, 4:17 pm ET

LINDON, Utah, June 3 /PRNewswire-FirstCall/ -- The SCO Group, Inc. (Nasdaq: SCOX - News), owner of the UNIX operating system and a leading provider of UNIX-based solutions, today announced that the Audit Committee of The SCO Group's Board of Directors approved and appointed Tanner LC ("Tanner") as its independent registered public accounting firm for the fiscal year ending October 31, 2005, effective June 2, 2005. KPMG LLP ("KPMG") was previously the independent registered public accounting firm for the Company. On May 27, 2005, KPMG notified the Company that they would resign upon completion of the Statement on Auditing Standards ("SAS") No. 100 review of the Company's condensed consolidated financial statements as of April 30, 2005 and for the related three and six month periods ended April 30, 2005. Effective June 2, 2005, KPMG completed their SAS 100 review and their resignation became effective.

Bert B. Young, Chief Financial Officer of The SCO Group said, "We are pleased to appoint Tanner as auditor for SCO. Tanner's size, expertise, resources, and local accessibility will serve SCO's shareholders well at this time in the company's evolution. We look forward to working with Tanner."

Young continued, "We have had no disagreements with KPMG and appreciate their professionalism in serving us in the past."

In connection with the audits of the two fiscal years ended October 31, 2004 and the subsequent interim periods through June 2, 2005, there were no disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG, would have caused KPMG to make reference to the subject matter of the disagreements in connection with its reports.

The audit reports of KPMG on the Company's consolidated financial statements as of and for the years ended October 31, 2004 and October 31, 2003 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles.

About SCO

The SCO Group, Inc. (Nasdaq: SCOX - News) helps millions of customers to grow their businesses everyday. Headquartered in Lindon, Utah, SCO has a worldwide network of thousands of resellers and developers. SCO Global Services provides reliable localized support and services to partners and customers. For more information on SCO products and services, visit 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.

****************************************

[Excerpt from 8-K]

Item 4.01 Changes in Registrant's Certifying Accountant.

        KPMG LLP ("KPMG") was previously the independent registered public accounting firm for The SCO Group, Inc. (the "Company"). On May 27, 2005, KPMG notified the Company that they would resign upon completion of the Statement on Auditing Standards ("SAS") No. 100 review of the Company's condensed consolidated financial statements as of April 30, 2005 and for the related three-month and six-month periods ended April 30, 2005. On June 2, 2005, KPMG completed their SAS 100 review and their resignation became effective. On June 2, 2005, Tanner LC ("Tanner") was engaged as the independent registered public accounting firm. The Audit Committee of the Company's Board of Directors recommended and approved the appointment of Tanner.

        In connection with the audits of the two fiscal years ended October 31, 2004, and the subsequent interim periods through June 2, 2005, there were no disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG, would have caused KPMG to make reference in connection with their opinion to the subject matter of the disagreement.

        There were no reportable events (as defined in Regulation S-K Item 304(a)(1)(v)) during the two most recent fiscal years of the Company ended October 31, 2004, or the subsequent interim periods through June 2, 2005, except that, KPMG reported in a letter to the Company's Audit Committee dated May 17, 2005 that during its audit of the Company's financial statements for the fiscal year ended October 31, 2004, it noted a material weakness in internal controls related to the accounting for capital stock and stock option transactions. The Audit Committee and the Company's management discussed the issue with KPMG and the Company has authorized KPMG to respond fully to the inquiries of Tanner concerning the issue.

        The audit reports of KPMG on the Company's consolidated financial statements as of and for the years ended October 31, 2004 and October 31, 2003 did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles.

        A letter from KPMG LLP is attached as Exhibit 16.1 to this Form 8-K.

        During the Company's two most recent fiscal years and the subsequent interim periods through June 2, 2005, the Company did not consult with Tanner regarding any of the matters set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.

*****************************************

Exhibit 16-1

June 3, 2005

Securities and Exchange Commission
Washington, D.C. 20549

Ladies and Gentlemen:

        We were previously principal accountants for The SCO Group, Inc. and, under the date of February 18, 2005, except as to note 16, which is as of March 11, 2005, we reported on the consolidated financial statements of The SCO Group, Inc. as of and for the years ended October 31, 2004 and 2003. On May 27, 2005, we notified the SCO Group, Inc. that we would resign upon completion of the Statement of Auditing Standards (SAS) No. 100 review of The SCO Group, Inc.'s condensed consolidated financial statements as of April 30, 2005 and for the related three-month and six-month periods ended April 30, 2005. The SAS No. 100 review was completed June 2, 2005. We have read The SCO Group, Inc's statements included under Item 4.01 of its Form 8-K dated June 3, 2005, and we agree with such statements, except that we are not in a position to agree or disagree with The SCO Group, Inc's statements that: 1) Tanner LC was engaged as the independent registered public accounting firm and the Audit Committee recommended or approved their appointment and 2) whether or not The SCO Group, Inc. consulted with Tanner LC regarding any of the matters set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.

Very truly yours,

/s/ KPMG LLP


  View Printable Version


Groklaw © Copyright 2003-2013 Pamela Jones.
All trademarks and copyrights on this page are owned by their respective owners.
Comments are owned by the individual posters.

PJ's articles are licensed under a Creative Commons License. ( Details )