Time Warner Inc. yesterday moved to cap the gusher of red ink spilling from its ill-fated 2001 acquisition by America Online, setting aside $3 billion for shareholder lawsuits alleging that investors were duped by inflated AOL revenue.

The move wiped out Time Warner's second-quarter profit, leaving the New York-based media giant with a loss of $321 million, or 7 cents a share. It was the company's first quarterly deficit in nearly three years.

Time Warner now will earmark $2.4 billion to settle lawsuits with the lead plaintiffs in the shareholder actions, with $600 million more to resolve other legal actions. The company previously agreed to pay $510 million to settle federal probes into the matter.

"By acting now to put these matters behind us we avoid the costs and distractions of protracted litigation, an outcome we clearly believe serves the best interest of our shareholders," Chief Executive Richard Parsons said in an analysts conference call.

The shareholder settlements would tie up the last major loose ends for the world's largest media company and clean up a once-heralded deal that instead became a financial black hole. Some $200 billion in shareholder value was wiped out when the company's shares plunged after the combination failed to yield promised results.

Time Warner even took AOL off its corporate name, reflecting the Internet operation's tarnished reputation. The company is now gambling that it can morph AOL from a subscription service into a portal site similar to Yahoo and Google.

"Everything turns on whether aol.com can become a viable portal," said Richard Greenfield, an analyst at Fulcrum Global Partners. "Given Time Warner's content and AOL's brand, it's something they can do."

Overshadowed yesterday was Time Warner plans to repurchase up to $5 billion of its stock in the next two years, a move heralded by analysts and shareholders, who hope it will boost the company's lagging share price. Time Warner limited the buyback to $5 billion to preserve its "flexibility to be opportunistic in a rapidly changing and highly dynamic world," said Parsons.

Time Warner shares, which traded above $55 in 2001, lost 15 cents yesterday, closing at $17.27.

Excluding the legal settlements and other one-time items, the company posted a profit of 18 cents a share, compared with 17 cents a year earlier. The number fell short of the 19 cents analysts were expecting, according to a survey by Thompson Financial.

Operating income for the company's filmed entertainment unit, which includes Warner Brothers Entertainment and New Line Cinema, dropped 47 percent to $219 million as revenue slid 15 percent to $2.64 billion.

The company cited strong year-earlier comparisons to numbers boosted by revenue from the "Lord Of The Rings" series.

Jeff Bewkes, chairman of the entertainment and networks group, said in the conference call that despite industrywide concern over the box-office softness, he expects the company's domestic box office for 2005 to at least match last year's total.