Modem Media Sees Before-Charges Profit

Interactive shop Modem Media will post a before-charges profit for fourth quarter 2000 — greater than third quarter, despite making less money.

That fact suggests that its recent efforts at controlling costs — by laying off a total of 131 employees, closing its Tokyo office, and reducing leased space in other branches — are paying off.

The Norwalk, Conn.-based company, which at the beginning of the month delayed its reporting until Thursday, reported quarterly revenue of $35.2 million and earnings of $800,000, or $0.03 per share, before one-time charges.

That take was down slightly from the previous quarter, when Modem Media saw $37.8 million in billings, though it posted a greater profit. In third quarter, the company saw only earnings of $300,000, or $0.01 per share.

That fourth-quarter profit also will push its 2000 performance further into the black, excluding charges. For the full year, revenues were $134.3 million — up 81 percent from 1999 — and earnings topped $2.9 million before charges.

“Last year marked another record breaking year for us, in revenue, client growth, application of new technology and more integrated marketing programs,” said Modem Media chairman G.M. O’Connell. “Our strong performance during a time of market uncertainty is proof of our ability to deliver sound strategies with winning executions to our global clients — a formula that will undoubtedly drive our company through 2001 and beyond.”

However, those rosy earnings will be tempered by a sizable, one-time charge in the fourth quarter of $61.7 million, or $2.47 per share, the majority of which is a write-off of $52.8 million in impairment from its acquisition of e-commerce developer Vivid Holdings.

The goodwill from that purchase cannot be recovered from future cash flows, the company said, and as a result, will be written off as an accounting charge.

“Late in the fourth quarter of 2000 and continuing into the first quarter of 2001, the Vivid business weakened significantly, leading the company to conclude that the remaining value inherent in the Vivid goodwill will not be realized,” the company said in a statement. “Specifically, the number of Vivid employees that are employed by the company has continued to decrease, new assignments that would utilize the skills of the remaining Vivid employees have not been secured, and market conditions have impacted the ability of Internet start-ups to utilize the company’s services.”

Additionally, the company also recorded a fourth quarter charge of $1.5 million for the write-off of the goodwill associated with the Tokyo office’s closing.

On top of that will be appended an after-tax charge of $4.2 million, linked to costs of renegotiated leases in branch offices and employee severance.

The amount of that charge is higher than the company previously estimated — a fact that spokespeople attributed to increased costs related to their San Francisco office lease reduction.

A year ago, the company posted net income of $1.6 million, or $0.06 per share, in the fourth quarter of 1999. Net loss for the year was $74.2 million, or $3.04 per share, compared with net income of $3.0 million, or $0.13 per share, in 1999.

Yet once Modem Media writes down and pays off these charges, it will likely see at least a $3 million in reduced operating expenses before goodwill amortization as a result of the office closing, lease renegotiations and layoffs. That’s good news, but it’s also lower than the $5 million executives had said they expected to save from the efforts going forward.

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