NEW YORK (CNN/Money) - AOL Time Warner posted a second-quarter profit Wednesday but also disclosed that the Securities and Exchange Commission is probing its accounting practices.

Shares of AOL Time Warner (AOL: down $1.60 to $9.80, Research, Estimates), the world's largest media company, tumbled $1.50, or 13 percent, to $9.90 in pre-market trading on Instinet Thursday, following a loss of 15 cents to close regular-hours trading Wednesday at $11.40, widening their year-to-date losses to 64 percent even before any further decline Thursday.

CEO Richard Parsons speaking on a conference call, said the SEC is conducting what he called a fact-finding inquiry into its accounting practices. He defended the company's accounting, saying allegations raised in a Washington Post report last week about boosting sales via unconventional deals were without merit.

He said that the company's accountants, Ernst & Young, signed off on the accounting at the time of the transactions and then again when the issue was brought up.

Parsons said that AOL Time Warner called the SEC prior to the Post articles appearing. Apparently reporters from the newspaper had called the company seeking comment. "After the articles came out, the SEC informed us that they are conducting a fact-finding inquiry,'' he said.

The SEC declined to comment.

The company's Internet unit, America Online, saw sales drop 11 percent due to weak online advertising market. But AOL Time Warner credited releases of home videos and DVD versions of popular films, including "Harry Potter and the Sorcerer's Stone" and "Ocean's Eleven," with helping its Warner Brothers unit and other divisions.

As to its earnings, the New York-based company reported cash earnings excluding one-time charges and other costs of 24 cents a share, which topped the consensus earnings per share forecast of 22 cents, according to earnings tracker First Call.

But the company also said it now expects to be at the lower end of its previous guidance for the year despite being at the upper end of its full-year revenue guidance

The company reported net earnings of $394 million, or 9 cents a share, for the quarter, compared with a loss of $734 million, or 17 cents a share, a year earlier. Sales rose 10 percent to $10.6 billion.

"Overall, I'm pleased with the results from most of our businesses," Parsons said.

But looking ahead, the company said cash earnings -- a measure of pretax earnings excluding depreciation, amortization and interest -- will fall at the lower end of its previously announced range of a 5 to 9 percent growth for the full year, due to continued weakness in the advertising at AOL. The company had cash earnings of $9.9 billion in 2001.

But the company, which owns HBO, Time magazine, Warner Bros. studios and CNN/Money, among other properties, expects its 2002 revenue growth to come in at the upper end of its 5 to 8 percent range. The company had 2001 revenue of $38.2 billion.

In the third quarter the company said it expects cash earnings to be flat to a low-single digit percentage gain compared with a year ago, while the revenue growth rate should be in the mid-digits.

Amid the worst bear market in a generation, few stocks have disappointed as much as AOL, which has tumbled 78 percent from its 52-week high.

Robert Pittman, who came from the AOL side of the company, resigned under pressure last week as chief operating officer. A series of management changes made that day gave more power to Time Warner veterans, although Time Warner was bought by AOL.

That purchase, announced in early 2000 at the height of the bull market and completed a year later, came with the promise of double-digit growth as the merged company's Internet and media properties cross-marketed each other.

But the burst of the Internet bubble all but killed online advertising, and subscriber growth at AOL slowed sharply. And those aren't the only hurdles facing the company, which has also suffered from as investors burned by Enron and WorldCom flee companies with complicated balance sheets.

In the company's latest results, revenue at the AOL unit fell to $2.27 billion, down from $2.33 billion a year earlier.

"The AOL division actually came in worse than expected," Fred Moran, who covers AOL for Jefferies & Co, told CNNfn's Street Sweep.

Wayne Pace, the company's chief financial officer, said that may continue.

"We expect to see advertising revenue slow in the second half of the year," said Pace, who said the company has $7 billion in available funding.

AOL added 492,000 new members in the quarter, bringing total net members to 35.1 million worldwide.

Sales in the film divisions rose 26 percent. The movie units, Warner Bros. and New Line Cinema, each set its own all-time domestic box office record with $540 million and $373 million, respectively, the company said.

As for television, last week Warner Bros. Television received 43 Emmy nominations, while HBO earned 93 Emmy nominations.

Sales at Warner Music Group, whose artists include the Goo Goo Dolls and Alanis Morissette, gained 4 percent.

CNN's total-daily audience gained 67 percent over last year.

Executives on Wednesday did not address questions about a possible AOL spinoff and the likelihood of a spinoff of the cable operations as part of a deal to unwind its Time Warner Entertainment.

Instead, Parsons, the CEO who replaced Jerry Levin in May, focused on what he hopes are better times ahead for the company.

"I'm confident we are making the right moves," he said. "We have all the pieces we need to succeed."