Unocal Corp. announced Aug. 2 that its preliminary net earnings for the second quarter of 2004 had reached a record high of $341 million.
That comes out to $1.25 per share, 93 percent above the $177 million, or 68 cents per share reported in the same period a year ago, Unocal said in a press release.
The company, however, said its preliminary adjusted after-tax earnings for the second quarter of the year came in at around $231 million, or 86 cents per share, 3 cents lower than the first quarter, but 3 cents higher than Wall Street analysts had predicted, according to Unocal spokesperson Paul Silva.
The difference between "preliminary net earnings" and "preliminary adjusted after-tax earnings" has to do with amounts that must be "backed out" of the net calculation for accounting and tax purposes, Silva said.
Among those things backed out were proceeds from the sale of some North America assets, money from the settlement of a long-standing dispute in the Philippines, costs associated with Unocal's recent arbitration with Agrium and an income tax settlement with the federal government. All of those represented one-time occurrences and were not used to figure "adjusted after-tax" earnings, Silva said.
Two days after Unocal painted its latest earnings picture, the oil giant commenced repurchasing shares of common and preferred stock, a move the company had announced in late July as part of a $511 million cash expenditure program that was to include stock repurchases and a $100 million contribution to the company's U.S. pension plan.
The company said the repurchase could buy back up to 4 million shares based on the July 27 closing price of $37.28 per share.
Silva said to his knowledge there was no direct connection between the announced high earnings and the stock repurchase.
"It's one of the things companies do," he said. "We have had many profitable quarters where we haven't gone back and bought up stock shares. (The high earnings) does allow us to do that, but I can't say that was the reason (for doing it now)."
The company's favorable cash flow was more of a factor in the decision to repurchase stock at this time, he said.
Unocal Chair Charles R. Williams said the company's strong operations, recent asset sales and high commodity prices built up significant cash balances making the repurchase program and pension fund addition possible.
"This (repurchase) program is designed to increase stockholder value and reduce the diluted shares overhang.
At the same time, the remaining cash on hand, together with cash flow from operating activities, will be sufficient to fund our planned capital programs," said Williamson, who also is the corporation's chief executive officer and president.
The "diluted shares overhang," Silva explained, refers to preferred stock, which could be converted to common stock. The company will be buying back both preferred and common stock shares, he said.
In total, the company expects to reduce its "diluted share" count by the equivalent of about 10 million shares, or nearly 4 percent of the diluted share balance, as of July 27, essentially adding value to all remaining shares.
Unocal said the cash outlay it would spend to repurchase of stock and make the pension fund infusion was expected to equal about half the cash balance reported at the end of the second quarter.
"If commodity prices remain high, and we have additional excess cash on had at year-end, Unocal may consider expanding one or more of these programs," Williamson said in the press release.
That price of that commodity, oil, is hitting record highs.
U.S. crude prices reached nearly $45 a barrel Monday and settled down at $44.485.
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