MAYBE UNITED OWES ITS RISE TO MORE THAN THE ESOP
Congratulations on recognizing the success and mpportunity that United Airlines Inc. and the employee stock-ownership plan (ESOP) have created ("United we own," Cover Story, Mar. 18). Your article highlights many of the same points we stress with small companies establishing ESOPs. When you cut through it, however, it is good management, strong leadership, and good people that build strong companies. Shareholders and boards can, and should, only oversee, not implement.
Principal, The Management Team
As an unwilling participant in the United Airlines ESOP, I read your article with interest. Will the ESOP be a success? Time will tell. Meanwhile, many employees are doing a slow burn watching management cash in their stock options, becoming instant millionaires as the stock hit new highs recently. The rest of us can cash out only on the day we retire. If the stock is trading at $200 on Dec. 31, 2002, I'll have recouped my investment. But if it's trading at $30, where I've seen it many times during my 29 years, I'll be wiped out. For many of us, the ESOP, far from providing security, is more like a crapshoot.
Rixeyville, Va.Return to top
MAINFRAMES ARE FAR FROM DEAD AT UNISYS
In "Here come those slow-growth blues" (Corporate Scoreboard, Mar. 4), you say: "Unisys took a $582 million charge to cut jobs and ditch mainframes." Sorry, but your mainframe prognosis is way out in left field. More than any other computer company, Unisys has been successfully transitioning mainframe capabilities to state-of-the-art enterprise servers. In fact, on Apr. 9, we will be announcing a new family of enterprisewide servers that will turn this business upside down.
Alan G. Lutz
Blue Bell, Pa.
Editor's note: BUSINESS WEEK should not have used the word "ditch." However, Unisys has been reducing its dependence on mainframes.Return to top
KEEPING THE FAITH WITH ARIEL
I am writing in response to your article on John Rogers and Ariel Capital Management Inc. ("Ariel's fall from grace," Finance, Feb. 26). The Chicago Urban League established a business relationship with Ariel Capital Management in 1985. In developing the relationship, we embraced John Rogers' investment philosophy. This relationship has been highly beneficial for the league. We view the current decline in the average annual return on investment of Ariel's portfolio as just a small glitch in an otherwise outstanding performance by an investment manager, minority or otherwise. We remain confident that John Rogers and his management team possess the skill and philosophical outlook to guide the firm back to the high level of performance it enjoyed up to the early 1990s. We intend to maintain our relationship with Ariel for the foreseeable future.
James W. Compton
President and CEO
Chicago Urban League
ChicagoReturn to top
THE NEW MATH OF MOVIE ACCOUNTING
Your article, "Fatal subtraction?" (Entertainment, Mar. 11), implied that it was the capitalization of advertising expense that was the culprit causing an overstatement of assets.
The problem in the movie industry is not the accounting rules but the application of those rules to specific situations. If assets are overstated, it is because of overly optimistic amortization periods--not because advertising is being capitalized. Accounting rules require that a company allocate its advertising benefits over a life that can be justified by historical experience. The question should be not with the principle of capitalizing advertising but with whether a movie producer can show historical statistics to justify the life assigned to film rights.
Dale L. Flesher
Professor of Accounting
University of Mississippi
Your discussion of an entertainment industry task force's proposed motion-picture accounting-rule changes--could lead a reader to an erroneous conclusion about the potential impact of these changes on Sony Pictures Entertainment.
The article quotes David Londoner, a member of the task force, as estimating that between 40% and 55% of an entertainment company's inventory of released films is made up of advertising and overhead costs. The same paragraph states that Sony Corp. has $2 billion in unamortized film costs, implying that between $800 million and $1.1 billion of advertising and overhead cost are in Sony's inventory. This is not true. SPE's inventory balance includes television inventory, videocassette inventory, development costs, films in production, and a purchase accounting adjustment recorded when Sony purchased Columbia Pictures Entertainment in 1989. None of these items falls into the category of "unamortized film costs," and the new rules, if adopted, would not have an impact on any of these portions of our inventory. In addition, the percentage of advertising and overhead costs included in Sony's inventory of released films--the only portion of inventory subject to the new rules--is less than the low end of Londoner's 40% to 55% range.
Because of these factors, the potential financial impact of the proposed new rules on SPE would be only a small fraction of BUSINESS WEEK's implied number.
Culver City, Calif.
Editor's note: A spokesman for Sony Corp. of America, Sony Pictures' parent company, erroneously confirmed to BUSINESS WEEK the $2 billion in unamortized film costs figure.Return to top