Updated from 4:52 p.m. EST

If you thought the news couldn't get worse at

AOL Time Warner

(AOL)

, guess again.

The beaten-down media giant, which has repeatedly cut its once-ambitious financial targets over the last year, beat second-quarter earnings estimates Wednesday but also warned that next quarter's numbers won't be as strong as expected. The stock, which has been beaten viciously throughout 2002 amid worries about the company's growth prospects, slipped in postclose trading.

Not only that, but CEO Dick Parsons told analysts Wednesday night that the

Securities and Exchange Commission

is conducting a "fact-finding inquiry" at the company in the wake of last week's articles in

The Washington Post

questioning certain accounting practices at America Online in 2000 and 2001.

Data

Reporting financial results for the second quarter ended June 30, the battered media and entertainment conglomerate said it earned 24 cents a share excluding certain expenses, 2 cents better than the Wall Street estimate and even with the year-earlier figure. Revenue of $10.6 billion was ahead of the consensus of $10 million as reported by Thomson Financial/First Call, and up from $9.6 billion on a pro forma basis from the second quarter last year.

AOL, which recently went through a management upheaval that put Time Warner veterans in control and saw the resignation of AOL's Bob Pittman, said that third-quarter earnings before interest, taxes, depreciation and amortization -- a common media industry financial yardstick -- will be flat or down "low single-digits" percentagewise compared to the third quarter of 2001. Revenue for the third quarter will grow in the low single-digits, says AOL.

Analysts had been expecting year-over-year ebitda growth in the quarter.

For the full year, AOL Time Warner says full-year revenue looks as if it will come in at the top end of the previously 5% to 8% guidance for growth, while ebitda will come in at the low end of the previously forecast range of 5% to 9%. The company blames "continued softness in the high-margin advertising business at America Online."

Banking

The company admits it's banking on a knockout fourth quarter performance to meet full year targets, but says it will benefit from multiple factors, such as the expected release of Harry Potter and Lord of the Rings movie sequels as well as video releases of Scooby Doo and the forthcoming Austin Powers movie.

Addressing the state of the advertising market, Chief Financial Officer Wayne Pace said television network advertisng was "solid," and said publishing advertising revenue had hit bottom. Though the outlook isn't as clear for publishing as it is for the networks, Pace said, "The signs are better now than they've ever been for us."

The company says online advertising revenue in the third quarter will likely match the second-quarter figure of $412 million, then rise to the high $400 million range in the fourth quarter.

Parsons said the SEC inquiry was no surprise in the current climate; in fact, he said, the company gave the commission advance notice that the

Post

articles would be running. He reiterated the company's position that it stood by the accounting questioned in the story, and said the company's auditor, Ernst & Young, had re-examined the transactions and given them a clean bill of health in writing.

AOL Time Warner's stock fell 15 cents to close at $11.40, then fell an added 85 cents to $10.70 in after-hours trading.