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Mercury restates earnings, board trio may face charges

Mercury restates earnings, board trio may face charges

Mercury Interactive restated earnings for 2002 to 2004, with a trio of board members facing possible prosecution, the company said Monday.

Mercury Interactive restated earnings for 2002 to 2004, with a trio of board members facing possible civil enforcement proceedings, the company said Monday.

It refiled financial statements for the fiscal years of 2002, 2003 and 2004, after previous such statements failed to recognise compensation from internal stock option grants. The restatement reflects non-cash adjustments from past stock-option practices, the company said.

The financial statements reflect a decrease of income before tax provisions of $US566.7 million from 1992 to December 31, 2004. Income before tax provisions fell to $US64.67 million from $US107 million for fiscal 2004. The company recorded a significant fall in net income and earnings per share in 2002 and 2004, while in 2003 it reported a net loss of $US62.58 million, a big drop from the $US41.51 million net income it originally reported. Mercury is expected to refile statements for the first quarter of 2005 later this month.

The US Securities and Exchange Commission (SEC) last year probed Mercury's accounting and questioned the company's handling of compensation based on backdated internal stock-option grants.

Acting at the behest of the SEC inquiry, a special committee of Mercury board members in June 2005 determined that over the past decade, Mercury incorrectly reported the date of at least 49 stock-option grants, picking a date on which the stock price was lower than when the option was actually granted.

The investigation led to the resignation of then-CEO, Amnon Landan, chief financial officer, Douglas Smith, and General Counsel, Susan Skaer, in November. Landan was replaced by Tony Zingale, then Mercury's president and chief operating officer.

The company also said Monday that the SEC had notified counsel for three Mercury Interactive board members that it is considering recommending that the Commission file a civil enforcement proceeding against each of these directors under applicable provisions of the federal securities laws.

Civil charges could be pressed against the three Mercury board members in connection with the accounting scandal that rocked the company last year.

The Mercury board members -- Igal Kohavi, Yair Shamir and Giora Yaron -- who were notified June 23 of the potential charges, told the SEC that the charges are without basis as they did not participate in or know of option backdating, the company said.

The three directors have not resigned from the board, although Mercury has accepted their offer to withdraw from their respective positions on the applicable board of director committees.


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