The disclosure came in the company's third-quarter earnings report, which met lowered earnings and sales expectations. Excluding charges, JDS reported earnings of $160 million, or 14 cents a share, on sales of $920 million for the period ended March 31. Those results were in line with already reduced estimates, according to First Call.
But including a host of charges related to mergers, a reduction in the company's investment portfolio, the sale of a subsidiary, payroll taxes on stock-option exercises, stock compensation charges and other items, JDS reported a third-quarter loss of $1.3 billion, or $1.13 a share. For the first nine months of its fiscal year, the company reported a loss of $3.2 billion including charges.
Leading up to the earnings report, speculation swirled that JDS would announce a deal to buy Lucent Technologies' Optical Fiber Solutions business, a division of the company that has been on the block for a while. That deal didn't materialize.
JDS, like other telecommunications component and equipment makers, has struggled as customers slammed the brakes on spending. The San Jose, Calif.-based company cut its estimates for the third quarter in February and again in March.
Now the company is cutting its earnings targets again. For the fourth quarter, it projects earnings of 5 cents a share on sales of $700 million. Those results exclude a host of charges. According to First Call, analysts were expecting earnings of 12 cents a share on sales of $930 million.
"We have warned that JDS Uniphase is at the bottom of the food chain in the telecom space and is exposed to the economic slowdown," said Merrill Lynch analyst Tom Astle in a research note. "Today's news supports our optical dead zone theory. While this news is not a complete surprise, the magnitude is surprising."
In a conference call with analysts, JDS CFO Anthony Muller said the company is still seeing a downturn and couldn't give an outlook beyond the June quarter. "'Is this the bottom of the industry downturn?' We're not sure," he said.
Muller said there was a possibility that the industry could work through excess inventory by June. "We had a high level of cancellations in the third quarter," he said. "It has either run its course or is close to running its course."
The dreary results and outlook led to the company's restructuring. The company said it will eliminate overlapping development programs and allocate the resources to developing new technologies. JDS also said it will consolidate its manufacturing, transfer some of its products to China and streamline its customer service operations. The restructuring will eliminate 5,000 jobs and close 25 buildings.
The restructuring will also include hefty charges in the fourth quarter. The company said it will take charges for employee severance, consolidation of product lines and operations, and inventory write-offs as it reworks its manufacturing and product lines. Charges will be between $375 million and $425 million, the company said. JDS ended the third quarter with about $1 billion in cash.
In other developments, JDS said it is consulting with the Securities and Exchange Commission to evaluate the amount of goodwill the company is carrying. In accounting, goodwill is any advantage, such as a well-regarded brand name or symbol, that enables a business to earn better profits than its competitors.
Because JDS was built through mergers and acquisitions, it is carrying a $56.2 billion in goodwill on its balance sheet as of March 31. Most of the goodwill was based on JDS' stock price when the deals were announced, but shares have since fallen dramatically. Now the company's goodwill tops its market capitalization by $40 billion.
JDS, which anticipates taking charges to lower goodwill, said it is asking the SEC for help "on the interpretation of generally accepted accounting principles with regard to this matter."