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Updated from 9:52 a.m. EDT


Buoyed by robust advertising growth, media giant

Time Warner


said Wednesday that third-quarter cash flow grew 13%, pushing the company past Wall Street estimates.

The second-biggest U.S. media company, whose merger with

America Online


awaits regulatory approval in the U.S., said earnings before interest, taxes and amortization (EBITA), adjusted for unusual items, rose to $1.27 billion, or 7 cents a share, from $1.13 billion, or 7 cents share, in the year-earlier period.

Analysts surveyed by

First Call/Thomson Financial

had projected earnings before items of 4 cents a share.


"Third quarter operating results were fueled by 17% growth in advertising and provide exceptional momentum for our pending merger with America Online," Time Warner Chairman and Chief Executive Gerald Levin said in a statement.

Time Warner, which owns cable channels such as HBO and CNN, move studio

Warner Brothers

and magazines such as




, said on a reported basis, including items, third-quarter net income fell to $1.28 billion, or 6 cents per diluted share in 2000, from $1.61 billion, or 28 cents per share during the year-ago period. Total revenues grew to $6.87 billion from $6.72 billion.

Revenues from its publishing group fell to $1.08 billion from adjusted year-ago results, but that group's EBITA, which is the main gauge Wall Street uses to measure media company performance, climbed to $494 million from $434 million.

Time Warner shares, which fell earlier in the day amid a broad market selloff, rebounded in afternoon trading, rising $1.94 to $67.50. AOL recovered as well, climbing $1.41 to $45.01.

Panic on the Streets of London

Time Warner, whose stable of magazines and TV networks would appear to make it sensitive to advertising spending patterns, made its announcement amid fears on Wall Street that ad spending is slowing. On Tuesday, media stocks, AOL and Time Warner included, took a beating -- only the most recent in a rough few weeks for the sector -- after

Merrill Lynch

released a bearish ad forecast. Merrill projects weak ad spending over the next few months, blaming the continuing decline in ad spending by dot-com companies, which helped fuel the huge growth that media and advertising companies have enjoyed the last several years.

Levin, in a conference call with analysts and reporters, offered a spirited argument against a perception -- one analyst said it is "almost a panic" -- of an ad slowdown.

"There's been a lot of swirl around the advertising market, particularly related to the so-called dot-com shakeout," Levin said. "I don't get it and I don't buy it." Levin said Time Warner's ad growth is "precisely on plan."

He added that even should there be a slowdown, Time Warner is well-positioned because its publishing unit, for example, claims some 22% of the marketplace. "There will be a flight to quality."

Added Steven Heyer, president and chief operating officer of Time Warner's Turner Broadcasting unit: "We're a market leader. ... As folks think about who they are going to do business with, they think about us first."

'Highly Confident'

Asked by an analyst to break out exactly how much of its advertising dollars come from dot-coms, Levin demurred. "We are highly confident of our position," Levin said. "We think there is no dot-com advertising issue as it relates to ... AOL Time Warner. I just don't see the exposure."

Robert Pittman, who will serve as co-chief operating officer of a combined AOL Time Warner, offered a similarly ringing defense of AOL Time Warner and downplayed the impact of the ad slowdown.

"I think at the end of the day, hopefully, as good sales managers, we will have very low exposure to bad debt or companies that will go away," Pittman said. "You hear a lot of noise? It's that, it's noise."

Time Warner also said it is working with London-based music company

EMI Group

to revive the planned merger of

Warner Music Group

and EMI that was

terminated earlier this month under mounting pressure from European antitrust regulators.

"It isn't dead yet. Stay tuned," Time Warner President Richard Parsons said on the conference call. The two companies are in exclusive negotiations until Jan. 31, Time Warner said.

Levin said Time Warner also is in talks with



about restructuring the two companies' joint ownership of

Time Warner Entertainment

. AT&T holds a 25.5% stake in TWE, which owns most of Time Warner's cable systems as well as Warner Bros. and premium cable network

Home Box Office

cable network. AT&T also competes with Time Warner Cable with its own cable systems.

AT&T inherited the stake when it acquired

MediaOne Group

, and federal regulators have

told the company that divesting its stake in the company is one way to comply with federal ownership limits.