WMG Confirms Plan To Sell Plants, Reports First-Quarter Losses

AOL Time Warner yesterday reported a profit and revenue gain for the first quarter, despite declines at Warner Music Group, and confirmed that it is considering a sale of the division's disc-manufacturing unit (Bulletin, March 10).

"We are in the early stages of exploring the possible sale of our music manufacturing business," says Jeff Bewkes, chairman of AOL TW's entertainment and networks group, which includes WMG. "This is a business that we clearly would consider exiting for the right price."

Morgan Stanley is understood to be shopping the unit, which could fetch $1 billion. WEA Inc. CEO Jim Caparro is among those believed to be bidding on the assets (Bulletin, April 7).

For the quarter, WMG had an operating loss of $14 million, vs. operating income of $20 million in the same period last year. This was due to a 4.4% decline in earnings before interest, taxes, depreciation, and amortization to $87 million, and higher amortization costs. Sales fell 3.5% to $914 million, as DVD manufacturing revenue and favorable currency-exchange rates were not enough to offset declines in music shipments.

Overall, AOL TW revenue rose 6.3% to $10 billion. AOL TW had net income of $396 million, or nine cents per share, vs. a net loss of $54.2 billion, or $12.25 per share, in last year's first quarter, when it took a $54.2 billion goodwill writedown.

AOL TW is under investigation from the Securities & Exchange Commission and Department of Justice over its accounting practices. Standard & Poor's said yesterday that AOL TW's BBB+ rating will likely remain under review until the agency "reaches a higher comfort level" regarding litigation and the probes. AOL TW stock closed yesterday up 5.2% at $14.