Embattled Nicor Inc. said Wednesday the Securities and Exchange Commission (SEC) has 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 it while it certified the accuracy of all of its 2002 financial results in compliance with existing SEC rules, it was not able to comply with the new Sarbanes-Oxley Act of 2002, which requires 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 news, the company’s stock took only a minor hit on Wall Street, falling 15 cents to $26.01 in mid-day trading and was up 2% by the end of the day to $26.67. It’s 52-week high, however, is $49/share.
The SEC inquiry comes 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.
Nicor on Wednesday reported earnings for the six-month period ended June 30 , including revisions to previously reported first- and second-quarter results for this year. The company posted net income of $55.9 million for the six months, or $1.26 diluted earnings per share. This was a drop of 2 cents in per-share earnings from the company’s preliminary results announced in mid-July. This also was down from a net come of $65.5 million, or $1.44 per diluted earnings per share, for the comparable 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, compared to a net income of $26.7 million, or 59 cents diluted share, for the same period last year.
Because it has 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 compares 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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