Time Warner (TWX) is considering strategic alternatives for its America Online (search) division, including a possible sale, spin-off or a significant restructuring of the business, The Post has learned.

Time Warner's bankers at Goldman Sachs (GS) are putting together a proposal for the Internet business, which despite a steep drop-off in subscribers continues to generate significant cash flow, sources said.

At Time Warner's next board meeting, in April, AOL chief Jonathan Miller (search) is to present an update on AOL's business, sources said.

After that meeting, sources add, executives are expected to consider the various options for the division.

Each divisional CEO makes a presentation to the board once a year. Previous meetings have featured presentations from the heads of Warner Bros. movie studio, Time Warner Cable and Turner Broadcasting.

Time Warner spokesman Ed Adler cautioned that talk of an AOL sale or spin-off is a "rumor," adding, "We talk to bankers all the time about a wide range of issues about all of our businesses."

A sale or spin-off of AOL has long been rumored, with prospective buyers said to be Barry Diller's InterActiveCorp (IACI), Internet giant Yahoo! or former AOL Time Warner Chairman Steve Case (search).

Miller, a former executive at Diller's USA Interactive - the precursor to InterActiveCorp - took the reins at AOL in August 2002 and was charged with stabilizing the beleaguered unit, which has been wracked by an accounting investigation and subscriber defections.

Miller has largely lived up to the task: Free cash flow remained stable last year at about $1 billion, and the division is expected to produce roughly $1.5 billion in free cash flow this year.

He also has met most of his quarterly targets, and Miller is said to be in the good graces of Time Warner chief Dick Parsons.

But subscriber rolls at AOL's flagship dial-up service continue to decline - last year, subscribers shrank by 2.2 million to 24.3 million. And the division still spends exorbitantly on marketing by offering free CDs to sign up new customers.

In the company's annual report, filed with the Securities and Exchange Commission this week, Time Warner warned that subscriber rolls will continue to shrink, which could affect Time Warner's financial condition.

Parsons has publicly said the company's strategic goal is to expand its cable business, which, with about 11 million customers, is the nation's second-largest cable operator, behind Comcast.

The company is eyeing an acquisition of Adelphia, once that scandal-marred company emerges from bankruptcy later this year.

Parsons has spent much of the last year shedding assets to pay down the company's debt and is now on track to beat his own target of reducing the company's debt to $20 billion by the end of 2004.