SCO Group Reports Quarterly Loss Amid Legal Battle Against IBM

SCO Group Reports Quarterly Loss Amid Legal Battle Against IBM

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SALT LAKE CITY (AP) -- The SCO Group Inc. reported a net loss for the second quarter on Thursday, partly due to mounting legal expenses in its fight against IBM Corp. and others over claims that users of the free Linux operating system are infringing on SCO's Unix license.

SCO lost $14.9 million, or $1.06 per share on a diluted basis, in the three months ending April 30. That was down from $4.5 million in net income, or 33 cents a diluted share, for the year-earlier quarter.

Revenue shrunk by more than half to $10.1 million from $21.3 million.

The loss was almost three times worse than predicted by Decatur Jones analysts, who predicted a loss of $4.6 million. SCO's report came during midday trading Thursday, when SCO shares were going for $4.96, down from $5.44 at the close of Wednesday.

SCO held its report a week while resolving a dispute with Larkspur, Calif.-based hedge fund Baystar Capital Management LLC, which criticized SCO's leadership for focussing on declining Unix operating systems at the expense of the potentially lucrative IBM case.

Baystar retired its preferred stock for $13 million in cash and 2.1 million shares of common stock, leaving SCO with about $45 million in cash to help wage the legal battle. The company's cash reserves total $61.3 million, enough to fund the legal battle for years to come, chief financial officer Bert Young said.

Legal expenses for copyright enforcement hit $4.4 million for the second quarter, which pushed down earnings. The company also booked charges of $2.1 million for an unproductive acquisition and $700,000 to restructure Unix operations.

The company's net loss for the year was $17.2 million, or $1.23 per diluted share, compared to net income of $3.7 million, or 29 cents per diluted share, for the year-earlier period.

SCO sued IBM Corp. for dumping allegedly confidential Unix code into Linux and sued DaimlerChrysler AG and AutoZone Inc. for deploying Linux systems without an SCO license.

It also sent letters to about 1,500 companies demanding they pay licensing fees of about $700 per server or face legal action.

Those demands have produced only $11,000 so far, Young said.

SCO chief executive Darl McBride said the company is coming out with new Unix products after a "dark period when there just wasn't much going on." He said that should boost revenue.

McBride said he expects to prevail over IBM, though he warned the protracted battle is turning into a "war of patience." A trial is set for April 2005, although that could get set back; both companies are fighting over pretrial discovery demands.

"We've got the firepower on the legal side, the cash and very strong claims," McBride said.

(Copyright 2004 by The Associated Press. All Rights Reserved.)

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