Surprise! Modem Media Posts Operating Profit

NORWALK, Conn. — Modem Media Inc. swung to a net loss in the fourth quarter but posted unexpected earnings from operations.

The online-advertising firm 45% owned by True North Communications Inc. (TNO) had a net loss of $61.7 million, or $2.47 a share, compared with year-earlier net income of $1.6 million, or six cents a share.

Excluding charges and acquisition-related expenses, Modem Media (MMPT) said it would have earned $800,000, or three cents a share, compared with $2.5 million, or 10 cents a share, a year earlier. The mean estimate of analysts surveyed by First Call/Thomson Financial was for a loss of 10 cents a share.

Revenue surged 44% to $35.2 million, with domestic revenue jumping 39% to $26.7 million and international revenue soaring 61% to $8.5 million.

Modem Media expects its operational costs to be at least $3 million lower this year as a result of its cost-reduction actions.

In the fourth quarter, the company took a $52.8 million charge to write off the remaining goodwill from its acquisition last year of San Francisco-based rival vivid studios, whose business “weakened significantly” late in the fourth quarter and into the first quarter.

True North had to delay issuing its fourth-quarter results because of a delay Modem Media had as well as an outstanding issue with the Securities and Exchange Commission regarding accounting for acquisitions.

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