SCO's quarterly earnings teleconference was held on August 31, with Darl
McBride, president and CEO, and Bert Young, CFO, present for the call. SCO
announced an "active and productive quarter" that
"exceeded every bar we set last quarter." "Exceeding every
bar" includes, it seems, a net loss of $7,423,000 with legal expenditures
of $7.3 million. It's all a matter of where you set the bar.
SCO managed to drag in $678,000 in SCOsource licensing, though the company
declined to specify the source or the nature of the income.
indicated that the revenue was "primarily from two sources";
one of those is clearly EV1Servers.Net, while the other remains a mystery.
Their UNIX products performed much better than their legal strategy,
bringing in $8,929,000 in the quarter.
McBride and Young spent very little time in the teleconference
talking up their UNIX products, though McBride did announce a "major
upgrade to OpenServer" called "Legend" due for 2005.
In addition to the company's third quarter results, SCO announced a
"Shareholder Rights Plan" and a deal with their legal teams to cap legal
expenses going forward. The company also reiterated the retirement of
BayStar's 40,000 shares of A-1 preferred stock in exchange for $13 million
in cash, and 2,105,263 shares of common stock in SCO.
Rights Plan is to "deter coercive takeover tactics,"
though McBride denied that the plan was put into place to counter any
specific takeover attempts. McBride did admit to being
"concerned" about the company's stock price. As of this
writing, the company's stock is trading at $3.76 per share, a far cry from
the high water mark of $22.29 per share. In any case, a large fraction of
SCO stock is held by insiders, making a hostile takeover unlikely even
without a poison-pill "rights plan."
The deal with Boies, Schiller & Flexner, if finalized, will limit SCO's
legal costs to $31 million in costs, but will boost the firm's potential
take should SCO manage to win its legal battles. McBride was sketchy on the
details, but Boies, Schiller & Flexner will receive between 20 to 33
percent of the take of any award. SCO has already paid out just over $15
million in the past five quarters, according to Young, and will have $12
million left over after the $31 million is taken into account. There is
some ambiguity over whether SCO has committed to paying Boies that
much regardless of what happens; we will have to see the actual agreement
to get an answer to that question.
Despite exceeding every bar they set for the third quarter, the company is
still looking at downsizing. According to Young, the company has 230 people
now and is looking at closing offices in the U.S. and overseas. Young did
clarify that that the company is simply moving from larger offices to
smaller offices in some areas.
Once again, the questions posed to SCO during the question and answer
period were largely non-confrontational -- though one reporter did press
McBride on SCO's legal strategy, and asked McBride whether SCO had bothered
to get a "second opinion" to protect SCO's shareholders in the
face of "a plethora of legal opinion counter to" SCO's own
legal position. McBride's answer, of course, was that SCO had not. McBride
also pointed out that many items before the court are under seal, and that
the only parties able to fully size up the case are SCO, IBM and the judge.
SCO once again chose to not to allow a representative from LWN to ask a
question during the call. While SCO told reporters that they would be
limited to one question during the Q&A period, Maureen O'Gara was
allowed to ramble though at least six questions and follow-ups during the
call. SCO shut down the Q&A rather quickly, citing time constraints.
In stark contrast to previous teleconferences and interviews, McBride
refrained from any rhetoric about "stolen" code or the GPL. He did,
however, take make references to "IBM-sponsored" websites that have been
questioning SCO's legal position. Unfortunately, none of the reporters who
were allowed to ask questions pressed McBride on this allegation. Nor did
any of the reporters use the occasion to ask specific questions about the
filings or McBride's assertion that IBM has not delivered all materials as
ordered by the judge in the case.
In all, the teleconference was fairly tame by SCO standards. For those
interested in listening to the SCO conference call, there is an archive
on SCO's web site.
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