Updated from 11:07 a.m. EDT

The news from

AOL Time Warner

(AOL)

was mostly good Wednesday, although its struggling AOL unit continued to lose subscribers while posting surprising financial progress.

The New York media conglomerate was also mum on the multiple investigations swirling around its accounting and business practices, two areas where investor concerns have fueled the long decline in AOL Time Warner shares.

The company has disappointed Wall Street countless times since the merger of America Online with Time Warner, beset by executive turmoil, earnings setbacks and regulatory scrutiny. But for now, first-quarter results had investors applauding, as most data fell into the better-than-expected category. Strong bottom-line results in filmed entertainment and cable led the way.

Even the star-crossed America Online division managed to pleasantly surprise Wall Street. The online operation reported a much-smaller-than-expected decline in earnings before interest, taxes, depreciation and amortization, offsetting a 2003 subscriber exodus that topped analysts' estimates.

"We're on a good track now to deliver on our full-year expections," said CEO Dick Parsons in a meeting with analysts Wednesday morning.

Shares rose 70 cents Wednesday afternoon to trade at $14.01.

Back in Black

The company earned $396 million, or 9 cents a share, on 6.3% revenue growth in the latest quarter compared with a loss from continuing operations of $8 million, or break-even on a per-share basis, last year. Its bottom-line loss in the year-ago quarter was $54.2 billion, reflecting huge goodwill writedowns related to the merger of AOL and Time Warner.

EBITDA -- a bottom-line metric preferred by managers of media companies -- rose 14% to $2 billion, while cash flow from operations totaled $1.5 billion and free cash flow totaled $1 billion.

That 14% EBITDA growth was boosted by changes in how AOL Time Warner reports the figure. In accordance with new

Securities and Exchange Commission

regulations, the EBITDA figure now includes merger and restructuring charges, which were higher in 2002. Under AOL Time Warner's prior definition of EBITDA, the year-over-year growth would have amounted to 9%, still ahead of expectations.

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On the top line, content revenue rose 11% to $3.3 billion, reflecting gains at its movie-producing and HBO divisions. Advertising revenue fell 5% to $1.3 billion, reflecting decreases at America Online and its cable units, offset partially by gains at the publishing and networks divisions. Other revenue decreased 21% to $472 million due to declines at the America Online and Publishing divisions.

Debt to Society

AOL Time Warner's net debt -- which the company hopes to reduce to $20 billion by the end of next year -- rose from $25.8 billion at the end of 2002 to $26.3 billion at the end of March.

On Wednesday, Parsons characterized the slight rise as a positive, given the $2.1 billion the company had to pay to

Comcast

(CMCSA) - Get Report

in the first quarter as part of the dissolution of the Time Warner Entertainment partnership.

Relevant to that debt-reduction goal, Parsons confirmed that the company expected the initial public offering of shares in Time Warner Cable would likely be delayed until the second half of the year. AOL Time Warner had originally forecast an IPO by June, but analysts had suspected the timetable was slipping. Parsons said the company would be able to meet its debt reduction targets regardless of the IPO's timing.

Parsons said he had nothing new to report about the ongoing Justice Department and SEC investigations into advertising transactions at America Online. "It remains one of my highest priorities," said Parsons, to continue to work cooperatively with the agencies investigating the company.

Turnaround Story

Though AOL's first quarter revenue fell 4% from year-earlier figures, other information indicated a turnaround is in the works. EBITDA, excluding merger and restructuring charges, fell 2% to $400 million -- a relief to analysts such as Merrill Lynch's Jessica Reif Cohen, who had forecast $325 million in EBITDA.

The company attributed the improvement to a reduction in network and customer service costs, as well as a shift in marketing spending from the first quarter to the second.

While the company says it lost $178 million in ad sales in the first quarter from expiring long-term deals, Don Logan, chairman of AOL Time Warner's Media & Communications group, said the ad business was on an upswing. Logan said that expected AOL in 2003 to show double-digit increases in advertising sales over 2002, emphasizing that he was talking about business transactions rather than revenue recognition. "In terms of business generated, we're moving in the right direction," he said.

Logan said that the loss of 290,000 AOL subscribers in the U.S. since the beginning of the year was attributable to a maturing dial-up marketplace, higher churn, a slowdown in registrations in late March -- due to the war, he said -- and subscribers' move to broadband.

In discussing how AOL intends to get a greater share of that high-speed Internet business, Logan said the company's deal to market broadband AOL to Comcast's cable customers won't be up and running until this summer, and most of the marketing will take place in the fall. He said he expected most of AOL's broadband growth this year to come from "bring-your-own-access" content-only subscriptions, rather than from bundled access deals such as the ones with Comcast.

That's because it's easier to do a national marketing campaign for BYOA than for bundled access, said Logan, and because it was easier to sell BYOA to AOL dial-up customers dropping their service in favor of a broadband connection.

Also relevant to AOL's future, Logan said the company was investigating how it could make more money from its popular instant messaging service, though he didn't address an analyst's suggestion that the company might institute some sort of subscription charge for AOL Instant Messenger. "We're looking to find more ways to monetize that," said Logan.