National | Business

Issue: "Why the long face, Fidel?," May 1, 2004

Firm promise?

On its corporate website, Ernst & Young states that it is "committed to restoring the public's trust in professional services firms and the quality of financial reporting."

That's a noble cause considering that accounting improprieties marked many of the nation's largest corporate scandals in recent years.

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But on April 16, Ernst & Young's commitment, as well as its reputation, were dealt a severe blow by the Securities and Exchange Commission. The SEC barred the nation's third-largest accounting firm from accepting new corporate audit clients for six months because of its failure to maintain independence from a company whose books it audited. The company will also pay a $1.7 million fine.

The SEC said Ernst & Young was performing audits for software maker PeopleSoft at the same time it was developing and marketing a product in tandem with the company. Ernst & Young engaged in the dual activities from 1993 through 2000, according to the SEC.

The firm's consulting business reaped profits from recommending PeopleSoft's programs to customers -a practice that SEC administrative law judge Brenda Murray termed "outrageous."

Ernst & Young said Friday it did not plan to appeal the ruling, though it had previously argued that its conduct was appropriate and met professional standards.

Brewing battle

SEATTLE-BASED STARBUCKS IS opening three coffee shops a day in its quest for 25,000 stores worldwide. The company currently has more than 7,500 locations-5,000 in the United States alone.

Industry analysts say Starbucks controls nearly 40 percent of the specialty coffee market. That's not surprising, given the fact that Caribou Coffee, the nation's second-leading specialty coffee retailer, operates just 200 stores in eight states.

But Starbucks' stiffest competition might just come from an unexpected source, as Dunkin' Donuts is now transforming itself into a specialty coffee shop without the high prices and fancy names. Founded in 1950, Dunkin' Donuts sells nearly 1 billion cups of coffee a year at more than 5,800 stores in the United States and 29 other countries.

That makes the chain big enough to challenge Starbucks, but is the current clientele of Dunkin' Donuts ready to make the switch to cappuccinos and lattes? And will cheaper prices alone be enough to entice the new generation of discriminating coffee drinkers?

Balance Sheet

DVD rental company Netflix plans to raise the price of its core subscription offering to $21.99 a month, effective June 15. With nearly 2 million subscribers, the $2 monthly price increase is nearly enough to cover the company's first-quarter net loss of $5.8 million.

Sales at the nation's retailers grew by 1.8 percent in March, the largest amount in a year, according to the Commerce Department. Stronger job growth, tax refunds, and super-low borrowing costs were credited for the boost.

A target of obesity lawsuits and a magnet for criticism that fast food is unhealthy, McDonald's Corp. will launch its new "Go Active!" meals at all 13,500 of its U.S. restaurants on May 6. The flab-fighting Adult Happy Meals will feature salads, bottled water, and advice on choosing a healthier lifestyle.

As U.S. consumers continue to shun Levi Strauss & Co.'s best-known brands- Levi's and Dockers-the San Francisco- based company said it will cut more jobs. In less than four years, the company has eliminated 6,400 jobs and closed all of its U.S. manufacturing facilities.

The two heavyweights in digital camera technology-Sony Corp. and Eastman-Kodak Co.-have sued each other in recent weeks over alleged patent infringement. Sony ranked first in sales with a 22 percent market share last year, while Kodak garnered 18 percent.


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