Along with its move to restate its previously announced net income for the six-month period downward by $1.1 million, embattled Nicor Inc. said last week the Securities and Exchange Commission (SEC) opened an informal inquiry into the accounting practices of its retail joint venture with Dynegy Inc. and a natural gas supply cost plan that already is under investigation by Illinois regulators.

At the same time, Naperville, IL-based Nicor said while it certified the accuracy of all of its 2002 financial results in compliance with existing SEC rules, it was not able to satisfy conditions in the new Sarbanes-Oxley Act of 2002, which require a company’s independent auditor to review of the results. The audit has not been completed due to uncertainties stemming from Nicor’s gas distribution unit, Nicor Gas, it noted.

Despite the bleak news, the company’s stock price fared well last week on Wall Street, rising to about $27.33 in mid-day trading Friday from its opening price of $26.81 last Monday. It’s 52-week high, however, is $49/share.

The SEC inquiry came only weeks after Nicor, long considered a stable old-line utility investment, stunned the market by reversing all of its first-quarter earnings and excluding all of its second-quarter earnings for a performance-based rate (PBR) program used by Nicor Gas. The PBR plan, enacted in January 2000, takes total gas supply costs and compares them to a benchmark tied to a market index. Savings and losses relative to the benchmark are shared equally with sales customers. Illinois regulators already are investigating Nicor Gas for alleged deceptive marketing practices related to its PBR program. Nicor’s board of directors has appointed an independent committee to conduct an inquiry of the PBR matter as well.

The SEC also is questioning the accounting practices at Nicor Energy LLC, a joint venture with Dynegy that supplies energy services to industrial, commercial and residential customers in the Midwest. Nicor reported it had uncovered accounting irregularities during a review in the second quarter of Nicor Energy’s business strategy, accounting practices, controls and financial results. It further said it was evaluating alternatives to its continued involvement with the Nicor Energy joint venture.

“It is possible that the outcome of these items [PBR and Nicor Energy accounting], either individually or in aggregate, will require the company to restate prior period financial results or take charges against future earnings,” Nicor said, but it added they were not expected to adversely affect the company’s liquidity or financial condition.

In restating its earnings last Wednesday, Nicor revised downward its net income for the six-month period by $1.1 million to $55.9 million, or $1.26 diluted earnings per share. It translated into a drop of 2 cents in per-share earnings for the half. This compared to a net come of $65.5 million, or $1.44 per diluted earnings per share, for the same period in 2001, according to Nicor.

For the second quarter, Nicor said its operating income was $20.4 million, or 46 cents diluted earnings per share, against a net income of $26.7 million, or 59 cents diluted share, for the same period last year.

Because it decided to reflect certain charges in the first quarter rather than in the second quarter, Nicor restated its first-quarter net income to $35.5 million, or 80 cents diluted earnings per share (a 10-cent reduction from previously reported results). This compared to net income of $38.8 million, or 85 cents diluted earnings per share, for the year-ago period.

The company also revised upward its previous earnings guidance for the year, putting it in the range of $2.95 to $3.10, and for the third quarter to 70 to 80 cents.

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