Why Did JDSU Slip in its 10K After Close on Friday?

JDSU filed its 10K for fiscal year ended June 30th after the market closed on Friday, writes "Slash". Do not ask me why it was filed 34 minutes after market close on a Friday. So what is the big deal? Perhaps some of the disclosure in the 10K! Lets see where to begin. I will just quote the original text:

"Based upon the evaluation of internal controls as of June 30th , 2005, we have determined we have material weaknesses in our system of internal control over financial reporting"

" Material weakness in the control environment due to an insufficient number of qualified resources with the required proficiency to apply the Company's accounting policies in accordance with U.S generally accepted accounting principles. This material weakness resulted in adjustments to several significant accounts. The accounts most affected include foreign currency translation, restructuring accruals and investments"

"A material weakness in information and communication due to insufficient processes and controls in the identification, capture and timely communication of financially significant information between certain parts of the organization and the finance department that precludes finance from accounting for transactions in a complete, appropriate and timely manner. This material weakness resulted in adjustments to several significant accounts. The accounts most affected include inventory and stock-based compensation."

"A material weakness in control activities associated with complex and non-routine transactions and estimation processes, due to inadequate documentation and review of accounting procedures and analyses. This material weakness resulted in adjustments to several significant accounts. The areas most affected include revenue, investments and the statement of cash flows."

And then they have this to say about their new products:

"Many of our newer products, such as ROADMs, optical switches, and high speed transponders are encountering significant yield, performance and delivery problems"

I agree that JDS is trying to right the ship with all the divestitures and re-orgs and the acquisition of Acterna. But all those have too much risk associated with them, and all these material weaknesses do not help the cause. And the margin problems with new products certainly will not help. Diligent investors always keep an eye on organic growth and what the original business does after a large acquisition (which more times than not are usually done to hide underperforming businesses), unless JDS improves its original business the Acterna acquisition will only take the company so far.

All these are very serious lapses of financial control and are an area for concern for real investors, but do not tell that to the momentum crowd that has driven this stock in last few weeks to valuations that are hard to imagine in this day and age. Even with lofty expectations and nice sizeable jump in operating margins due to the Acterna acquisition the valuation on this stock is way above anything you can expect in terms of growth.

Perhaps I am too old fashioned or perhaps people are too giddy on optics again.

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Full disclosure: at the time of publication the founder of Seeking Alpha is short JDSU.