Opinion ID: 567021
Heading Depth: 3
Heading Rank: 1

Heading: The September 18, 19 Press Releases

Text: 43 The September releases reported that Convergent had decided to wait to issue its planned debenture offering until third quarter results were disclosed, but that it anticipated no change in its profit expectations, which were in line with those of securities analysts ranging from fifteen to twenty cents per share. As it turned out, Convergent made a profit of only seven cents per share in the third quarter. Appellants list several facts which they allege were known or should have been known at the time of the September releases which make the releases fraudulent. 44 Appellants allege that Convergent failed to disclose the real reason the debenture offering was postponed: because the president of the company, Mr. Michels, refused to guarantee a profit or give strong assurances of a profit, for the underwriters before the quarter results were in. They allege that Michels' hesitancy in negotiations with the underwriters is evidence that he did not believe the positive earnings forecast published in the September releases. This allegation lacks merit. The September 18 release stated that the debenture offering was postponed to await third quarter results. The appellants have no evidence that Michels' hesitancy to give strong assurances to the underwriters meant that he did not believe his company's internal profit forecasts. In fact, one of the underwriters testified that at the same time that Michels refused to guarantee a profit, he also told the underwriters that he did expect the company's objectives to be met. E.R. at 2976-77. Michels testified in his declaration that he believed the forecasts would be met and was surprised by the actual results. Supp.E.R. 203:14 at p 32. Other high-ranking executives testified similarly. Supp.E.R. 206:9-10 at p 19 (Wegbreit, Chief Operating Officer); Supp.E.R. 205:13 at p 28 (Willits, Vice President of Finance). 45 Appellants argue, in the alternative, that facts existed at the time of the statements that seriously undermined the statements' accuracy and show that they had no reasonable basis. They argue that Convergent knew or should have known that it had insufficient orders to meet its projections. However, appellants present no evidence that Convergent had insufficient orders. They point out that as much as one-half of the shortfall in the third quarter, according to Convergent's calculations after-the-fact, may be attributed to insufficient demand or lack of orders. E.R. 1340-42. However, Convergent gives several unrebutted explanations for why their projections were reasonable, although part of the shortfall did ultimately result from insufficient orders. First, several Convergent executives stated in their affidavits that Convergent routinely sought and received orders late in the quarter. 5 Supp.E.R. 203:4-5 at p 10; Supp.E.R. 206:5-6 at p 10; Supp.E.R. 201:8-9 at pp 20-21. Second, customers unexpectedly ordered more of the basic, less profitable NGEN modules than the complex, more profitable NGEN modules. Supp.E.R. 203:17-18 at p 39; Supp.E.R. 10 at p 21. Third, Burroughs, a major customer, completely cancelled $700,000 worth of orders for complex NGEN modules in the last few days of September. Contrary to appellants' assertions, Burroughs testified in an affidavit that although Convergent knew that Burroughs intended to begin manufacturing some of the products it usually purchased from Convergent, Burroughs did not tell Convergent that that would occur as early as the third quarter, or that Burroughs would be replacing Convergent's high profit, not low profit, modules with its own. Supp.E.R. 207:7 at pp 12-14. Finally, notes from a meeting of high-ranking executives on September 21, three days after the September press releases, says that there are enough orders to cover forecasts. E.R. at 1989. Appellants offer nothing, but their assertions that Convergent somehow should have foreseen the orders shortfall. Assertions cannot create a genuine factual issue. 46 Finally, appellants argue that the great disparity between earnings and projections in July and August alone eviscerated the optimistic September releases of any reasonable basis. They point out that minus Workslate losses, losses in the first two months of each of the first and second quarters were only 3cents per share, whereas losses in July and August totalled 9cents per share. Also, earnings per share for the same period in the first and second quarters were 4cents below projections, but earnings per share for July and August were 15cents below projections. This disparity is indeed troubling and suggests a presumption that something was wrong with the third quarter projections. To boost such a presumption into a genuine issue of fact, however, the appellants would need to provide evidence from Convergent's business records that showed with particularity how the projections were faulty, such as which assumptions made in the calculations were unreasonable. Then they would need to provide evidence that the unreasonable assumptions were so unreasoanble that Convergent's management was reckless to rely on them. 47 The appellants have not provided the evidence necessary to create a genuine issue of fact regarding the September press releases. We affirm summary judgment with regard to them.