NEW YORK (CNN/Money) - Time Warner Inc. reported improved third-quarter earnings Wednesday that beat Wall Street expectations, and a published report said the company's current and former chairmen have been subpoenaed as part of an ongoing federal probe into the company's accounting practices.

CNNfn's Greg Clarkin reports on SEC's continuing investigation into Time Warner, and on a reported ongoing federal probe into its accounting practices. Play video (Real or Windows Media)

The world's largest media conglomerate, parent of CNN/Money, earned $497 million, or 11 cents a share, excluding special items, compared with a recently lowered forecast of 9 cents a share by analysts surveyed by earnings tracker First Call. The company had income of $57 million, or 1 cent a share, from continuing operations in the year-earlier period. although it said the number that compares most closely to this year's earnings was $385 million, or 9 cents a share, in the year-earlier period.

Including special items, the company posted net income of $541 million, or 12 cents a share, compared with a net loss of $55 million, or 1 cent a share, a year earlier.

Time Warner said it expects to incur some undisclosed amount of special charges in the fourth quarter relating to changes aimed at stemming losses at the Time-Life direct marketing unit, as well as reduced occupancy needs at the AOL unit.

Dick Parsons is the current chairman and CEO of Time Warner.

The earnings report came as the New York Times reported Wednesday that Chairman and CEO Richard Parsons and board member and former Chairman Steve Case have been subpoenaed as part of an ongoing federal probe into its accounting practices. A company spokeswoman had no comment on the article other than a reference in the earnings release that executives are cooperating with the probes.

Shares of Time Warner (TWX: down $0.41 to $15.14, Research, Estimates) couldn't resist an early market selloff despite better-than-expected earnings. Its stock fell more than 2 percent in late-morning trading on the New York Stock Exchange.

Revenue rose 4 percent to $10.3 billion. Revenue increased 10 percent at both the networks and cable operations, while revenue fell 6 percent at the filmed entertainment unit and 4.5 percent at Internet service provider America Online. AOL had a drop of nearly 700,000 in the number of subscribers, but most of that decline came from fewer customers on unbilled free trials. An increase of about 200,000 new customers paying for high-speed service kept subscription revenue essentially flat.

Time Inc., the magazine publishing unit, showed both subscription and advertising revenue declines due to one fewer issue for each of its weekly publications in the quarter and a softer ad market, which reduced ad revenue in the publishing division by 2 percent. But because television networks reported 14 percent growth in ad revenue, the company's overall ad revenue rose 2.5 percent from year-earlier levels.

Steve Case, the former chairman of Time Warner, is still a director on the company's board.

Income rose 21 percent at the filmed entertainment division despite the slide in revenue there, and was up 8 percent at networks and 7 percent at cable operations. But income fell nearly 26 percent at the company's publishing unit and dropped 7 percent at AOL. The music unit posted a $1 million loss compared with earnings of $22 million a year earlier.

The company's net debt stayed basically unchanged at $24.1 billion, down from $24.2 billion a the start of the quarter. It was able to slightly reduce debt despite adding about $700 million in debt that had been held off the balance sheet previously, Parsons said.

The company has said reducing its debt is a key goal and that current debt levels already meet its debt reduction target for the year. But Parsons said the company also is starting to consider plans for how to invest its free cash flow in 2004 and beyond once debt reduction plans are completed. He said the cable operations are a prime focus of future investment plans.

YOUR E-MAIL ALERTS Time Warner Incorporated Dick Parsons Steve Case Media or Create your own Manage alerts | What is this?

Time Warner reiterated its previous earnings and revenue guidance, saying it expects to post full-year growth in both before depreciation and amortization in the mid-single digits.

The AOL unit's full-year revenue should decline in the mid-single digit as well, with earnings before depreciation and amortization between flat and down mid-single digits as well, even with a 35-to-45 percent fall in the unit's ad revenue during the year.