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
SOURCE The SCO Group, Inc.