The dividend suspension, which helped send Warner Music's stock down as much as 22 percent, raised questions about the company's ability to manage its debt.

On a conference call, analysts peppered Warner executives with questions about the company's debt pile which stood at $2 billion at the end of the quarter. It has a cash balance of $249 million.

"We are not concerned about our ability to meet our debt covenants," Chief Executive Edgar Bronfman said.

"We decided to suspend the dividend in order to take a conservative approach to cash management. (The move) allows us to reduce the net debt and maintaining level of A&R investment. That's the best combination to create equity appreciation for shareholders," he added.

A&R stands for "artists and repertoire" and refers to record companies' talent scouting and development.

The world's third largest music company, home to recording artists such as R.E.M. and Led Zeppelin, posted a fiscal second quarter net loss of $37 million or 25 cents a share, compared with a loss of $27 million or 19 cents a year ago.

Warner Music, which has struggled with declining CD sales as consumer switch to new forms of digital music, said its loss from continuing operations was 23 cents a share. That was well short of analysts estimate of a loss of 12 cents a share, according to Reuters Estimates.

Revenue rose 2 percent to $800 million, although factoring out the impact of the weak dollar, revenue declined 3.6 percent. Domestic revenue declined 14 percent.

Major sellers in the quarter included artists Simple Plan, Nickelback and the soundtrack to the film "Juno."

Goldman Sachs analyst Ingrid Chung said Warners digital revenue of $164 million was better-than-expected, and, at 48 percent, had grown faster than the U.S. industry on average. But it was not enough for her to recommend the stock.

"Without an indication of what the cash freed up from the suspension of the dividend will be used for, we continue to advise investors to stay on the sidelines as we have limited visibility into the timing and magnitude of returns from the $400 million plus" invested in new initiatives, she said in a note to clients.

Warner Music in February paid its last quarterly dividend of 13 cents a share.

The shares fell early to a low of $6.39, but somewhat recovered after midday to $7.85, off 13.3 percent on the New York Stock Exchange where it was one of the day's biggest percentage losers.

(Additional reporting by Yinka Adegoke)

Reuters/Nielsen

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