RSM220 14S T04 Danier Leather Case
DANIER LEATHER INC: DISCLOSURE REQUIREMENTS AND LITIGATION ACCOUNTING 1
1998 was a hot year. According to Environment Canada, it was so hot that such a year can be expected only once about every 2,500 years. Between December 1997 and November 1998, average temperatures were about 2.5 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 Canada – ever!
It was a also a record-setting 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 designer-manufacturer-retailers of fashion leather clothing and accessories. The company also completed an Initial Public Offering (IPO) – raising $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 IPO.
Table 1: Key events surrounding Danier's prospectus and IPO
Date
May 6, 1998
May 16, 1998
May 20, 1998
June 4, 1998
June 27, 1998
Event
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 forecasts – that actual results could vary and that there is no guarantee of reaching the projected results. 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 information.
IPO closing - Danier Leather raised $68 million.
Management revisits
1998 was a hot year. According to Environment Canada, it was so hot that such a year can be expected only once about every 2,500 years. Between December 1997 and November 1998, average temperatures were about 2.5 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 Canada – ever!
It was a also a record-setting 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 designer-manufacturer-retailers of fashion leather clothing and accessories. The company also completed an Initial Public Offering (IPO) – raising $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 IPO.
Table 1: Key events surrounding Danier's prospectus and IPO
Date
May 6, 1998
May 16, 1998
May 20, 1998
June 4, 1998
June 27, 1998
Event
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 forecasts – that actual results could vary and that there is no guarantee of reaching the projected results. 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 information.
IPO closing - Danier Leather raised $68 million.
Management revisits