Opinion ID: 567021
Heading Depth: 3
Heading Rank: 2

Heading: The October 4 Press Release

Text: 48 The October 4 press release revealed that, based on preliminary indications, 6 revenues for the third quarter would be substantially higher than those for the second quarter, but that earnings from continuing operations would be approximately the same as in the second quarter (11cents per share). During the October 3 meeting in which management decided on the language for the release, management had only a revenue flash report to work with from which to estimate the third quarter earnings per share. Supp.E.R. 203:14-15 at p 33; 205:13-14 at p 29; Supp.E.R. 212/44. 49 The appellants argue that the October 4 press release was misleading and without a reasonable basis. The appellants' evidence for their allegation is the deposition testimony of the Director of Investment Relations, Mr. Dunmire, 7 and some preliminary figures for earnings per share that were several cents lower than the 11cents implied in the release. 8 50 Dunmire testified that during the October 3 meeting, Mr. Willits, the Vice President of Finance at the time, expected that the company would earn somewhere around 8cents per share. E.R. at 3204. Willits denies the statement. Supp.E.R. 205:17 at p 35. Assuming that Willits made the statement during the meeting, Dunmire also testified that he and the others present eventually concluded that 11cents per share was the best view of the earnings the company may have made in the third quarter, E.R. at 3203-04, and was not misleading. Supp.E.R. 249/150:288. The estimation had a basis in the estimation of the profit margin on the unsold goods, which was converted to earnings per share (7cents) and subtracted from the last earnings per share forecast of 19cents to get 12cents. 9 Supp.E.R. 205:14-15 at p 31; see also Supp.E.R. 212/108:181-82, 185-87 (Michel's deposition). 51 The preliminary earnings per share figures computed by the company on the same day as the press release estimated an earnings per share figure of 7cents. E.R. at 565. The appellants argue that this is also evidence that the release was misleading. However, the appellants do not rebut the appellees' explanations that management knew this figure was incorrect because the preliminary worksheet contained overstated bonuses and sales commissions (based on outdated sales forecasts) and did not reflect the forthcoming audit or accounting adjustments. Supp.E.R. 201:13-14 at p 30; 205:16 at pp 33-34. Also, because revenue was up 25% from the second quarter, management believed that third quarter earnings had to be at least as high as in the second quarter, Supp.E.R. 203:16 at p 36; 205:14-15 at p 31; 208:10 at p 21, an apparently reasonable assumption that proved incorrect. 52 The appellants also highlight Dunmire's testimony that Michels told him that he had promised Mr. Towbin, an outside director and holder of a substantial number of shares in Convergent, that he would put out a positive press release to stop the decline in stock. E.R. at 3206, 3248. The appellants argue that this is evidence that the October 4 release was in reckless disregard of the truth. Without more evidence to rebut that already discussed, we disagree. The evidence already discussed shows that preliminary indications that earnings per share would be approximately the same in the third quarter as in the second were reasonable. See Apple Computer, 886 F.2d at 1117 (unrebutted explanations can defeat inferences of bad faith). 53 We affirm summary judgment against the appellants for each of the third quarter press releases.