MarchFirst Inc., admitting that its much-touted acquisition last year of a flashy Internet consultant has nearly no value today, announced Monday that it is taking a one-time charge of $6.5 billion.
The Chicago-based Internet consultant, which on Monday had a market value just shy of $390 million, recorded a fourth-quarter net loss of $6.8 billion because of the write-off of goodwill related to its March acquisition of USWeb/CKS.
MarchFirst, formerly called Whittman-Hart, has been battered along with other Internet consultants as once-promising dot-com clients have gone belly-up and Internet advisory projects from more established companies have slowed.
Even within its troubled industry, MarchFirst has been among the hardest hit. Among other things, analysts blame the firm’s failure to identify a particular segment of the corporate community as its target market.
Whittman-Hart acquired San Francisco-based USWeb/CKS at the height of dot-com mania, only to see the entire sector dive.
Now, MarchFirst is scrambling to save its business. The company began a massive cost-reduction effort in November, eliminating 1,000 jobs, and has since let go an additional 1,100 workers.
In a call with analysts Monday, MarchFirst Chief Executive Robert Bernard said he does not foresee further massive job cuts, but “a few hundred” more workers could be shown the door. The company has closed its Montreal office, consolidated its operations in Pittsburgh and canceled leases in New York and San Francisco.
“We’ve taken very decisive steps to move forward,” Bernard said.
Analysts, though, say the company has a rough road to travel. “I think it’s going to get worse before it gets better,” said Adam Frisch, of UBS Warburg in New York. “I think there could be another solvency issue in the next three months. I’m not sure that they’re done with what they need to do yet.”
MarchFirst received a $150 million cash infusion from Francisco Partners in December by giving up a 32 percent stake in the company.
Bernard said Monday that his firm expects to reach a break-even point in the third quarter and does not expect a future cash shortfall.
Excluding one-time losses, MarchFirst posted a fourth-quarter net loss of $73.2 million, or 40 cents per diluted share, compared with net income of $10.9 million, or 16 cents per share, a year earlier, when fewer shares were outstanding. Analysts had expected a net loss of 30 cents per share, according to First Call/Thomson Financial.
Revenue for the quarter increased to $213.5 million, from $133.0 million a year ago.
Besides the write-off of goodwill, the company took a one-time charge of $143.2 million from losses on sales of securities and investment write-downs.
Additionally, MarchFirst expects to take a charge of about $130 million related to its layoffs, including $48.9 million in the fourth quarter. The balance will be recorded in the current quarter.
MarchFirst officials downplayed the $6.5 billion write-off Monday, saying the problem rests with the market’s pull away from Internet consultants, not the acquisition.
“This is simply an accounting action,” said John Peschier, MarchFirst’s managing executive of investor relations.
Regardless, the company, with many other Internet consultants, finds itself at the mercy of the economic slowdown, which will likely determine how quickly companies go forward with technology projects. So far, companies have not shown a willingness to move ahead in a soft economic environment.
“We’re definitely not seeing it get better,” Frisch said. “The question is, is it still getting worse?”
MarchFirst released its fourth-quarter results after the close of regular trading; its shares closed Monday at $2.50, up 16 cents, on the Nasdaq stock market. In after-hours trading, MarchFirst’s shares slid 35 percent, to $1.62.
In other earnings news:
– Tootsie Roll Industries Inc. reported Monday a 3.7 percent increase in fourth-quarter net income on a 13.7 jump in sales.
The Chicago-based candymaker posted earnings of $15.5 million, or 32 cents a diluted share, in the quarter ended Dec. 31, compared with $15.0 million, or 30 cents a share, a year earlier.
Fourth-quarter revenue, driven by acquisitions last year of Andes Candies and a cotton candy company, rose to $92.8 million from $81.6 million a year ago.
For the full year, net income rose 6.2 percent, to $75.7 million, or $1.53 a share, from $71.3 million, or $1.41 a share, in 1999. Revenue increased 7.6 percent, to $427.0 million from $396.7 million.
Shares of Tootsie Roll fell 63 cents, to $50.09, on the New York Stock Exchange.
