Back-dating bad for bottom line

Ashley Milne-Tyte Jul 5, 2006

TEXT OF STORY

SCOTT JAGOW: The Securities and Exchange Commission is investigating dozens of firms for back-dating stock options. That means executives are given almost a sure thing in company shares. Now, the Wall Street Journal says the SEC is ready to file charges against one company called Mercury Interactive. As Ashley Milne-Tyte reports, this case shows why back-dating can be bad for the bottom line.


ASHLEY MILNE-TYTE: The irony is part of what Mercury does is make software to help companies comply with business regulations.

Mercury has just re-stated years of financial results. The re-statements transform the company’s previously stated 2003 profit of $41.5 million into a loss of almost $63 million.

James Angel is a finance professor at Georgetown University. He says the accounting rules companies have to adhere regarding stock options have changed recently.

JAMES ANGEL:“Now such options expense has to be recognized, and this is an example of why, because it can make a huge difference in the financial restatements of some companies.”

He says given that dozens of companies are under investigation for backdating of stock options, we’re likely to see more financial re-statements.

I’m Ashley Milne-Tyte for Marketplace.

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