8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): April 22, 2004

Mercury Interactive Corporation

(Exact name of registrant as specified in its charter)

Delaware	0-22350	77-0224776
(State or other jurisdiction of incorporation)	(Commission File No.)	(IRS Employer Identification No.)

1325 Borregas Avenue, Sunnyvale, California 94089

(Address of Principal Executive Offices)

(408) 822-5200

(Registrant’s Telephone Number, Including Area Code)

Item 7. Exhibits

The following exhibit is furnished herewith:

99.1 Press release dated April 22, 2004

Items 12. Results of Operations and Financial Condition

On April 22, 2004, Mercury Interactive Corporation issued a press release announcing financial results for the quarter ended March 31, 2004. A copy of the press release is furnished as Exhibit 99.1 to this report. This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the company, whether made before or after the date of this report, regardless of any general incorporation language in the filing.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: April 22, 2004	MERCURY INTERACTIVE CORPORATION
	By:	/s/ Susan J. Skaer
	Name:	Susan J. Skaer
		Vice President, General Counsel and Secretary

EXHIBIT INDEX

Exhibit No.	Description
	The following exhibit is furnished herewith:
99.1	Press release dated April 22, 2004

EX-99.1

Exhibit 99.1

Investor Relations Contact

Michelle (Ahlmann) Levine, 408-822-5464

Public Relations Contact

Dave Peterson, 408-822-5231

MERCURY INTERACTIVE REPORTS FIRST QUARTER RESULTS

· Revenue of $156.8 million; Increase of 42% versus Q1 2003

· Net Increase in Deferred Revenue of $20.5 million

· Earnings Per Share: $0.19 GAAP; $0.24 Non-GAAP

SUNNYVALE, CALIF. — APRIL 22, 2004 — Mercury Interactive Corporation (NASDAQ: MERQ), the global leader in business technology optimization (BTO), today reported results for the first quarter ended March 31, 2004.

Revenue for the first quarter of 2004 was $156.8 million, an increase of 42 percent compared to $110.4 million reported in the first quarter of 2003.

Deferred revenue for the first quarter of 2004 increased by $20.5 million from the fourth quarter of 2003 to $301.1 million. Cash generated from operations for the first quarter of 2004 was $64.5 million compared to $53.2 million in the first quarter of 2003.

GAAP RESULTS

Net income for the first quarter of 2004 was $18.9 million, or $0.19 per diluted share, compared to $18.1 million, or $0.20 per diluted share, for the same period a year ago. GAAP results for the first quarter include stock-based compensation and amortization of intangible assets of $4.1 million, integration and other related charges of $1.0 million and net loss on investments in non-consolidated companies of $0.1 million.

NON-GAAP RESULTS

Net income for the first quarter of 2004 was $23.8 million, or $0.24 per diluted share, compared to $18.8 million, or $0.21 per diluted share, for the same period a year ago. Non-GAAP results, as presented in the attached reconciliation table, exclude the following recurring items: integration and

Mercury Interactive Reports First Quarter Results Page 2

other related charges, stock-based compensation, amortization of intangible assets, net loss on investments in non-consolidated companies as well as related income tax provisions.

“Mercury’s results in the first quarter were very strong, with growth in new orders of over 30 percent,” said Amnon Landan, chairman and CEO at Mercury. “This growth is driven by the continued adoption of our BTO solutions by our global customers.”

Q1 2004 HIGHLIGHTS

• Record results in IT Governance (formerly Kintana) with revenues of $17.0 million

• Accenture selected Mercury IT Governance Center for internal use throughout their global outsourcing and systems integration practices

• Continued momentum across Application Delivery (AD) and Application Management (AM)

• AD year-over-year order growth exceeds 30%

• AM year-over-year order growth exceeds 40%

• 11 transactions exceeding $1.0 million

• Cash flow from operations of $64.5 million

FINANCIAL OUTLOOK

The following financial outlook is provided based on information as of April 22, 2004. Management provides the following guidance for the quarter ending June 30, 2004:

• New order growth is expected to be in the range of 25 percent to 35 percent

• Revenue is expected to be in the range of $160.0 million to $170.0 million

• Net increase in deferred revenue is expected to be in the range of $10.0 million to $20.0 million

• Non-GAAP operating margin expected to be in the range of 15 to 17 percent

• GAAP diluted earnings per share is expected to be in a range of $0.09 to $0.16

• Non-GAAP diluted earnings per share is expected to be in the range of $0.21 to $0.26

• Cash flow from operations is expected to be in the range of $40.0 million to $50.0 million

Mercury Interactive Reports First Quarter Results Page 3

Non-GAAP guidance is adjusted from GAAP guidance by excluding recurring integration and other related charges, stock-based compensation, amortization of intangible assets, and facilities impairment charges related to the move to our new campus.

QUARTERLY CONFERENCE CALL

Mercury will host a conference call to discuss first quarter results at 2:00 p.m. Pacific Time today. A live Webcast of the conference call, together with supplemental financial information, can be accessed through the company’s Investor Relations Web site at http://www.mercuryinteractive.com/ir. In addition, an archive of the Webcast can be accessed through the same link. An audio replay of the call will be available until midnight on April 28, 2004. The audio replay can be accessed by calling 888-203-1112 or 719-457-0820, conference call code: 421926.

ABOUT MERCURY

Mercury Interactive, the global leader in business technology optimization (BTO), is committed to helping customers optimize the business value of information technology (IT). Founded in 1989, Mercury conducts business worldwide and is one of the fastest growing enterprise software companies today. Mercury provides software and services to govern the priorities, people and practices of IT; deliver and manage enterprise applications; and integrate IT strategy and execution.

Customers worldwide rely on Mercury Optimization Centers to improve quality and performance of applications and manage IT costs, risk, and compliance. Mercury BTO offerings are complemented by technologies and services from global business partners. For more information, visit www.mercuryinteractive.com.

Effective April 30, 2004, Mercury’s corporate headquarters will move to 379 North Whisman Road, Mountain View, California 94043. The telephone and fax numbers at that location will be (650) 603-5200 and (650) 603-5300, respectively.

FORWARD LOOKING STATEMENTS

This press release contains “forward-looking statements” under the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties concerning Mercury Interactive’s expected financial performance, as well Mercury Interactive’s future business prospects and product and service offerings. Mercury Interactive’s actual results may differ materially from the results predicted or from any other forward-looking statements made by, or on behalf of, Mercury Interactive and reported results

Mercury Interactive Reports First Quarter Results Page 4

should not be considered as an indication of future performance. The potential risks and uncertainties include, among other things: 1) the mix of perpetual and term licenses and the effect of the timing of the recognition of revenue from products sold under term licenses; 2) Mercury Interactive has historically received a substantial portion of its orders at the end of the quarter and if an order shortfall occurs at the end of a quarter it could negatively impact the company’s operating results for that quarter; 3) the dependence of Mercury Interactive’s financial growth on the continued success and acceptance of its existing and new software products and services, and the success of its BTO strategy; 4) uncertainties related to the integration of products and services, employees and operations as a result of acquisitions; 5) the ability to attract and retain key personnel; 6) intense competition for Mercury Interactive’s products and services; and 7) the additional risks and important factors described in Mercury Interactive’s SEC reports, including the Annual Report to Stockholders on Form 10-K for the fiscal year ended December 31, 2003, which is available at the SEC’s website at www.sec.gov. All of the information in this press release is as of April 22, 2004, and Mercury Interactive undertakes no duty to update this information.

NON-GAAP FINANCIAL INFORMATION

Mercury Interactive provides non-GAAP net income and earnings per share data as additional information for its operating results. These measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. Mercury Interactive’s management believes these non-GAAP measures are useful to investors because this supplemental information facilitates comparisons to prior periods. Management uses these non-GAAP measures to evaluate its financial results, develop budgets and manage expenditures. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to the comparable GAAP results, which is attached to this press release.

# # #

Editor’s Note

Tables Attached: Condensed Consolidated Statements of Operations, Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Cash Flows, Table of Reconciliations from GAAP to Non-GAAP.

Mercury Interactive is a trademark or registered trademark of Mercury Interactive Corporation in the United States and/or other countries. Other product and company names are used herein for identification purposes only, and may be trademarks of their respective companies.

MERCURY INTERACTIVE

1325 Borregas Avenue, Sunnyvale, CA 94089 Tel: (408) 822-5200 Fax: (408) 822-5300

Mercury Interactive Reports First Quarter Results Page 5

MERCURY INTERACTIVE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three months ended March 31,
	2004		2003
Revenues:
License fees	$	57,573	$	44,786
Subscription fees		35,907		19,274
Total product revenues		93,480		64,060
Maintenance fees		46,889		35,585
Professional service fees		16,437		10,740
Total revenues		156,806		110,385
Costs and expenses:
Cost of license and subscription		9,819		6,550
Cost of maintenance		3,592		2,679
Cost of professional services		13,543		6,620
Marketing and selling		73,963		52,685
Research and development		17,286		11,589
General and administrative		12,245		9,100
Stock-based compensation		209		189
Integration and other related charges		979		—
Amortization of intangible assets		3,940		458
Total costs and expenses		135,576		89,870
Income from operations		21,230		20,515
Other income, net		3,244		2,327
Income before provision for income taxes		24,474		22,842
Provision for income taxes		5,566		4,698
Net income	$	18,908	$	18,144
Net income per share (basic)	$	0.21	$	0.21
Net income per share (diluted)	$	0.19	$	0.20
Weighted average common shares (basic)		91,450		85,032
Weighted average common shares and equivalents (diluted)		97,781		89,349

Mercury Interactive Reports First Quarter Results Page 6

MERCURY INTERACTIVE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

	March 31, 2004			December 31, 2003
ASSETS
Current assets:
Cash and cash equivalents	$	568,403		$	549,278
Short-term investments		222,992			157,082
Trade accounts receivable, net		125,269			142,908
Prepaid expenses and other assets		64,233			64,043
Total current assets		980,897			913,311
Long-term investments		541,021			527,348
Property and equipment, net		79,689			73,203
Investments in non-consolidated companies		11,669			13,928
Debt issuance costs, net		14,038			14,965
Goodwill		347,686			347,616
Intangible assets, net		41,187			45,126
Restricted cash		6,000			6,000
Interest rate swap		15,597			11,557
Long-term deferred tax assets		1,018			—
Other assets		16,318			17,456
Total assets	$	2,055,120		$	1,970,510
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	18,552		$	17,584
Accrued liabilities		87,329			96,637
Deferred tax liabilities		27,895			27,925
Income taxes payable		41,479			35,404
Short-term deferred revenue		224,003			212,716
Total current liabilities		399,258			390,266
Convertible notes		815,154			811,159
Long-term deferred tax liabilities		—			266
Long-term deferred revenue		77,137			67,909
Other long-term payables		1,598			541
Total liabilities		1,293,147			1,270,141
Stockholders’ equity:
Common stock		184			181
Additional paid-in capital		510,268			468,150
Treasury stock		(16,082	)		(16,082	)
Notes receivable from issuance of common stock		(5,929	)		(6,580	)
Unearned stock-based compensation		(1,242	)		(1,533	)
Accumulated other comprehensive loss		(6,586	)		(6,219	)
Retained earnings		281,360			262,452
Total stockholders’ equity		761,973			700,369
Total liabilities and stockholders’ equity	$	2,055,120		$	1,970,510

Mercury Interactive Reports First Quarter Results Page 7

MERCURY INTERACTIVE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Three months ended March 31,
	2004			2003
Cash flows from operating activities:
Net income	$	18,908		$	18,144
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,915			3,879
Sales reserves		237			(406	)
Unrealized gain on interest rate swap		(44	)		(34	)
Amortization of intangible assets		3,940			458
Stock-based compensation		209			189
Loss on investments in non-consolidated companies		455			572
Loss on disposals of assets		275			—
Unrealized gain on warrant		(332	)		—
Deferred income taxes		(1,314	)		2,422
Changes in assets and liabilities, net of effect of acquisitions:
Trade accounts receivable		17,653			14,988
Prepaid expenses and other assets		1,030			3,793
Accounts payable		971			(2,764	)
Accrued liabilities		(9,522	)		(10,289	)
Income taxes payable		6,056			750
Deferred revenue		19,995			21,497
Other long-term payables		1,056			—
Net cash provided by operating activities		64,488			53,199
Cash flows from investing activities:
Maturities of investments		325,803			298,972
Purchases of investments		(403,820	)		(322,671	)
Proceeds from return on investment in non-consolidated company		1,525			—
Purchases of investments in non-consolidated companies		(750	)		—
Cash paid in conjunction with the acquisition of Kintana		(70	)		—
Acquisition of property and equipment		(10,532	)		(1,686	)
Net cash used in investing activities		(87,844	)		(25,385	)
Cash flows from financing activities:
Proceeds from issuance of common stock under stock option and employee stock purchase plans		42,543			10,687
Collection of notes receivable from issuance of common stock		149			2,414
Net cash provided by financing activities		42,692			13,101
Effect of exchange rate changes on cash		(211	)		191
Net increase in cash and cash equivalents		19,125			41,106
Cash and cash equivalents at beginning of period		549,278			349,123
Cash and cash equivalents at end of period	$	568,403		$	390,229

Mercury Interactive Reports First Quarter Results Page 8

MERCURY INTERACTIVE CORPORATION

TABLE OF RECONCILIATION FROM GAAP TO NON-GAAP

(in thousands, except per share data)

(unaudited)

	Three months ended March 31,
	2004			2003
GAAP Net Income to Non-GAAP Net Income:
GAAP net income	$	18,908		$	18,144
Bonus program (Performant)		979			—
Net loss on investments in non-consolidated companies		123			—
Stock-based compensation and amortization of intangible assets (Freshwater)		544			647
Stock-based compensation and amortization of intangible assets (Performant)		303			—
Stock-based compensation and amortization of intangible assets (Kintana)		3,172			—
Stock-based compensation and amortization of intangible assets (other)		130			—
Provision for income taxes		(379	)		—
Non-GAAP Net Income	$	23,780		$	18,791
GAAP Diluted EPS to Non-GAAP Diluted EPS:
GAAP net income per share-diluted	$	0.19		$	0.20
Bonus program (Performant)		0.01			—
Net loss on investments in non-consolidated companies		0.00	(1)		—
Stock-based compensation and amortization of intangible assets (Freshwater)		0.01			0.01
Stock-based compensation and amortization of intangible assets (Performant)		0.00	(1)		—
Stock-based compensation and amortization of intangible assets (Kintana)		0.03			—
Stock-based compensation and amortization of intangible assets (other)		0.00	(1)		—
Provision for income taxes		(0.00	)(1)		—
Non-GAAP net income per share-diluted	$	0.24		$	0.21
(1) Amount is less than $0.005
GAAP Operating Margin to Non-GAAP Operating Margin:
GAAP operating margin		13.5	%		18.6	%
Bonus program (Performant)		0.6	%		—
Stock-based compensation and amortization of intangible assets (Freshwater)		0.3	%		0.6	%
Stock-based compensation and amortization of intangible assets (Performant)		0.2	%		—
Stock-based compensation and amortization of intangible assets (Kintana)		2.0	%		—
Stock-based compensation and amortization of intangible assets (other)		0.1	%		—
Non-GAAP operating margin		16.8	%(1)		19.2	%

(1) Amounts do not foot due to rounding