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Canada (161,538)
RSM220H1 (54)
Xin Baohua (17)
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lec 5 Danier Leather Case.pdf

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Department
Rotman Commerce
Course
RSM220H1
Professor
Xin Baohua
Semester
Winter

Description
1DANIER LEATHER INC DISCLOSURE REQUIREMENTS AND LITIGATION ACCOUNTING1998 was a hot year According to Environment Canada it was so hot that such a year can be expected only once about every 2500 years Between December 1997 and November 1998 average temperatures were about 25 degrees higher than normal and record high temperatures were set in almost every month of the year In fact July was the warmest month in Canadaever It was a also a recordsetting year for Danier Leather Inc In 1998 the company recorded record revenues and profits The company had been in the retail business since 1974 and had evolved into one of the leading integrated designermanufacturerretailers of fashion leather clothing and accessoriesThe company also completed an Initial Public Offering IPOraising 68 million and making a landmark transition to a publicly traded company However the IPO also brought along a major class action lawsuit that would take 10 years and the Supreme Court of Canada to resolve In fact this became a landmark case on financial reporting and corporate disclosure responsibilities Table 1 summarizes the key events surrounding the IPOTable 1 Key events surrounding Daniers prospectus and IPO Date Event May 6 1998 Danier Leather files prospectus with the Ontario Securities Commission OSC Prospectus includes a financial projection for Q4 and fiscal year ending June 27 1998 It also includes a standard disclaimer about forecaststhat actual results could vary and that there is no guarantee of reaching the projected resultsMay 16 1998 Danier Leather management realizes that the record heat is having a negative impact on sales Management notes that if such temperatures continue the company will not meet the projected results that were disclosed in the prospectus forecast Management does not release this informationMay 20 1998 IPO closingDanier Leather raised 68 million June 4 1998 Management revisits the forecast again and concludes that sales and net income will fall short of the original forecast that was filed in the prospectus This time Danier issues a material change report and a press release noting the change Over the next few days Daniers share price drops by more than 20 percent see Table 2June 27 1998 Danier Leather Q4 and fiscal year end Danier meets the projected results contained in the IPO prospectus During the 1999 fiscal year Danier Leather received an official Statement of Claim under the Class Proceedings ActOntario alleging inaccuracies and lack of disclosure in the IPO prospectus The lawsuit sought compensation for shareholders who faced subsequent decline in value of their shares Table 3 summarizes the key events relating to the class action against Danier Leather IncTable 2 Danier Leather stock price following the forecast revision on June 4 1998 source wwwtmxcom Date Open High Low CloseVolumeChange Change 06041998 11600116001000010250206400 10250000 06051998 10000100009500960011632000650634 06081998 9600960086008650646000950990 06091998 8650870082508250260000400462 06101998 870089008700890054800 0650788 06111998 90009000900090001900 01001121 This case was written by Dragan Stojanovic and Francesco Bova as a basis for class discussion Sources include CBC News 2007 Danier Leather prospectus did not mislead investors top court rules Retrieved August 23 2012 from httpwwwcbccanewsbusinessstory20071012danierhtmlrefrss Environment Canada 2011 Canadas top ten weather stories of 1998 Retrieved August 23 2012 from httpwwwecgccameteoweatherdefaultasplangEnn3DED7A351t2 Thacker L LSheikh U M 2008 Class Actions Beware The Supreme Court of Canada in Kerr v Danier Leather inc CCCA 2008 National Spring Conference 3637
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