Dozens of companies including Apple Computer and Delta Airlines have recently announced option exchange programs, according to recent 10-Q filings. This perfectly legal accounting trick, which surfaced several years ago, allows employees to exchange their underwater options for new lower priced ones as long as they wait six months and a day to get the new options. Although many companies have become sensitive to the way this looks to ordinary shareholders — after all, nobody is offering you a chance to cash in your $40 Apple shares for new lower priced ones — and limit participation to employees, some companies still allow their executives and board members to participate too. The reason companies wait six months and a day to issue the new options is to avoid the tax penalties associated with repricing.
If only we were so lucky….
August 18, 2003