Thanks Patricia. I saw GAS drop 50% today.
UPDATE 4-Nicor plunges to 10-year low on accounting woes
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(Adds Dynegy comment, updates share prices)
By Carolyn Koo
NEW YORK, July 19 (Reuters) - Shares of Nicor Inc. plunged about 50 percent to a 10-year low on Friday, the latest company to suffer from accounting woes, in this case coming from a joint venture with Dynegy Inc.
The company, parent of gas distribution utility Northern Illinois Gas, also cited allegations of impropriety at a gas supply program that could lead to future earnings restatements or charges.
It warned of a full-year earnings shortfall and reported second-quarter earnings that fell 36 percent, substantially missing Wall Street's expectations.
The accounting problems and allegations of impropriety -- which have prompted a review by a special committee at Nicor and a downgrade to a "sell" rating by Merrill Lynch -- are the latest in a string of scandals to hit the beleaguered energy industry since Enron Corp.'s collapse last year.
Shares of Nicor, long considered a safe and stable investment, were down $14.85, or almost 40 percent, to $23.16 in Friday afternoon trading on the New York Stock Exchange, slicing its market capitalization to below $1 billion. Nicor shares hit a session low of $19.30. Dynegy shares were down 48 cents, or 10.7 percent, to $4.02.
Nicor's woes could bring the wrath of Illinois state regulators upon the company, one fund manager said.
"Most utility executives would never dream of doing anything fraudulent because the ramifications from state regulatory bodies would be incredibly punishing," said Greg Phelps of John Hancock's Patriot Group. "The state regulatory body is going to make an example of this company."
Potential punishment could range from fines to a change in management or members of the board of directors, added Phelps, whose funds do not own Nicor shares.
Naperville, Illinois-based Nicor said its second-quarter earnings were hurt by a $9.3 million pretax loss related to Nicor Energy LLC, an energy marketing joint venture with Dynegy, which has experienced its share of liquidity- and trading-related woes.
ARTHUR ANDERSEN WAS AUDITOR
Accounting irregularities at the venture, only a small portion of both Dynegy and Nicor's businesses according to the companies, were uncovered after a year-end 2001 independent audit. Until recently, Nicor and Dynegy shared auditor Arthur Andersen, which is in the process of winding down portions of its business after being convicted of obstructing justice. Nicor's auditor is now Deloitte & Touche.
The accounting problems resulted in a $1.6 million pretax adjustment for the quarter and also included a $3.7 million pretax adjustment for a revision of Nicor Energy's accrued revenue in the first quarter and a charge of $2.6 million for previously unrecorded liabilities.
Nicor Energy's owners and management started a review in the second quarter, but more adjustments may be required, the company said. A Dynegy spokesman said that Nicor manages the day-to-day operations of the joint venture including its accounting and finance functions.
Earnings were also hurt by the reversal of $2.9 million of estimated revenue for the company's gas distribution business in the first quarter.
That business has been hit recently by allegations contained in an anonymous letter that Nicor acted improperly in connection with a performance-based rate program, which rewards utilities for efficiently procuring gas and often enables them to return money to customers and shareholders.
The allegations -- under investigation by the Illinois Commerce Commission -- could require Nicor to restate past results or take a charge against future earnings.
A special committee of independent, non-management directors has also been set up to look into natural gas purchases, sales, transportation and storage.
Nicor also delayed its second-quarter earnings conference call until Tuesday, partly because the company needs to satisfy the ICC's request for information on Friday.
The company's new 2002 earnings-per-share forecast is $2.65 to $2.80 and new third-quarter forecast is 40 cents to 50 cents. The Thomson First Call estimates are $3.19 a share for the year and 63 cents a share for the third quarter.
In the second quarter, the company posted net income of $17.1 million, or |
