Strong Cash Position

By Steven Vaughan-Nichols  |  Posted 2004-06-10 Print this article Print

Despite the losses reported, SCOs cash and its available-for-sale securities position remained strong, totaling $61.3 million as of April 30.

Even after the company retires BayStar Capital Management LLCs 40,000 shares of Series A-1 Convertible Preferred Stock for a cash payment of $13 million, and after the issuance of 2.1 million shares of common stock valued at $13 a share, "SCO will have $48.3 million in cash," said Bert Young, chief financial officer at SCO.
"$5 million of that comes from our balance sheet before we started the IBM case, $8 million from cash generated from business operations, and $33 million as the net effect of capital from BayStar."

BayStar spokesman Jeremy Zweig reiterated that BayStar thinks the repurchase transaction will benefit the company and its shareholders.

In any case, Young continued, "After the cash payment to BayStar, we believe we will still have sufficient cash reserves to effectively pursue our intellectual property claims." Young said SCO is spending $4.4 million a quarter on its legal efforts against IBM, Novell, Red Hat, AutoZone and DaimlerChrysler.

Darl McBride, SCOs president and CEO, said the company was expecting its second-quarter figures. "Our revenue for the second quarter was consistent with our expectation," McBride said in a statement. He touched on areas in which SCO aims to improve during the rest of the year. "As the company looks forward to the last two quarters of fiscal year 2004, we are committed to increasing shareholder value through profitable operations and increasing cash flow from our Unix division, as well as remaining focused on our intellectual property lawsuits and licensing strategies," he said.

McBride said SCO is working on making its Unix division more efficient, and he did not rule out layoffs as one way that could be done. Despite this, McBride says that SCO will continue to release new editions of its core Unix operating systems.

SCO hopes that a combination of improved performance in its Unix division, the release of an updated version of UnixWare and other programs in the near future, and the eventual release of OpenServer Legend in the first quarter of 2005—which will bring UnixWare and OpenServer into one operating system—will lead its Unix division into becoming profitable.

But SCOs hopes are pinned on the great profits that would come from a successful outcome in its cases against Novell and IBM. A victory in the first case would show that it, and not Novell, owns the copyrights to Unix; a second win would show that IBM illegally placed Unix source code into Linux.

"The foundation of the company is on Unix IP," McBride said. "As the cases are resolved [in SCOs favor], we will reach a tipping point." As to doubts that SCO will win, McBride insisted that SCO, not IBM, wants a quick resolution of the case and said it has already shown the courts and IBM, in sealed documents, proof positive that Unix IP-protected code is in Linux. SCO filed this week for a five-month delay in the case. McBride said everyone will be able to see that SCO was in the right when all of the evidence is finally made public, adding, "Its important not to confuse IBMs positioning with the reality of the case."

In the meantime, though, shares of SCOs stock dropped by 9.37 percent to $4.93 by early afternoon on heavier-than-usual trading.

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Steven J. Vaughan-Nichols is editor at large for Ziff Davis Enterprise. Prior to becoming a technology journalist, Vaughan-Nichols worked at NASA and the Department of Defense on numerous major technological projects. Since then, he's focused on covering the technology and business issues that make a real difference to the people in the industry.

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