With today's second-quarter earnings release, AOL Time Warner (NYSE:AOL) notched another quarter of growth under CEO and Chairman Richard Parsons. Hot movies like The Matrix Reloaded, as well as strength from its networks and cable divisions, helped offset ongoing weakness in the America Online Internet business. The company's plan to reduce debt is also moving along smoothly.

Total revenues for the quarter grew 6% to $10.8 billion. Filmed entertainment revenues increased 16%, while networks and cable revenues improved by 9% and 10%, respectively. Sales at the America Online division, however, sank 6% to $2.1 billion.

Including several special gains and $277 million in goodwill write-downs, AOL earned $1.1 billion, or $0.23 a diluted share. Stripping out all the muck, it earned $0.12 a share, vs. $396 million or $0.09 per share a year ago. Comparing like to like, then, AOL delivered earnings-per-share growth of 33%.

America Online lost subscribers again, closing the quarter with 25.3 million members. That's down 1.2 million from the year-ago period and 846,000, sequentially. It eliminated some members, accounting for 45% of that sequential decline, in an effort to clean up its subscriber base and remove non-paying users. The company is still trying to figure out a way to effectively shore up the division, but expects a mid-single-digit drop in 2003 revenues.

And management is keeping its word on debt reduction. At quarter's end, AOL had net debt of $24.2 billion on the books, $2.1 billion less than the $26.3 billion reported as of March 31. Another $1 billion from the sale of its DVD and CD manufacturing business late last week will be used to pay down even more borrowings.

One potential kink involves the planned spin-off of part of AOL's cable business this fall. The company has yet to satisfy the SEC concerning $400 million in transactions with Germany's Bertelsmann AG. Until the matter is settled, the SEC will likely postpone the spin-off, thus denying AOL roughly $2.1 billion earmarked for debt reduction. AOL appears unfazed by this, saying it can come up with the cash necessary to pare its debt to $20 billion by the end of next year.

On the balance, today's news is good for shareholders. AOL is staying the course on debt reduction, growing significant parts of its business, while at the same time addressing the problems with the America Online division.

David Gardner recommended AOL Time Warner for the August 2002 issue of the Motley Fool Stock Advisor.