ConocoPhillips subsequently filed a 10-K report for 2008 with the SEC. We have used the 10-K's Balance Sheet, which had not previously been made available, to update our analysis and gauge scores.
This post identifies the changes to the analysis results. Since the 10-K did not change our examination of the fourth-quarter Income Statement, those results are not repeated here.
http://sheet.zoho.com/public/ncarvin/template-income-statement-1?mode=html
For the original analysis, we approximated the Balance Sheet for 31 December 2009 by adjusting the September version to reflect the $34.5 billion asset impairment charges Conoco recorded in the fourth quarter.
Berkshire Hathaway, Inc. (NYSE: BRK.A), run by super-investor Warren Buffett, and its affiliates owned about 79 million shares of ConocoPhillips on 31 December 2008, up from 17.5 million shares on 31 March 2008. Buffett recently characterized the purchase of these shares, when energy prices were soaring, as his biggest mistake in 2008.
ConocoPhillips owns 20 percent of LUKOIL (OTC: LUKOY), which is responsible for more than 18 percent of Russia's oil production. LUKOIL's shrinking market value was responsible for $7.4 billion of the fourth quarter's impairment charges.
Note that the Lukoil charge is significantly greater than the one Conoco recorded in 2007, when troubles with the Venezuelan government resulted in a $4.5 billion for expropriated assets.
The data in the 10-K led to a one-point increase in the Cash Management gauge and a one-point increase in the Overall gauge, from the levels in the original analysis. The other gauges did not change. The gauges now read as follows:
- Cash Management: 14 of 25 (down from 15 in September)
- Growth: 13 of 25 (down from 23)
- Profitability: 8 of 25 (up from 7)
- Value: 11 of 25 (down from 14)
- Overall: 44 of 100 (down from 52)
| Cash Management | December 2008 | 3 months prior | 12 months prior |
| Current Ratio | 1.0 | 1.0 | 0.9 |
| LTD/Equity | 49.1% | 23.4% | 22.8% |
| Debt/CFO | 1.2 years | 0.8 years | 0.9 years |
| Inventory/CGS | N/A | N/A | N/A |
| Finished Goods/Inventory | N/A | N/A | N/A |
| Days of Sales Outstanding (DSO) | 21.3 days | 22.5 days | 29.7 days |
| Working Capital/Market Capitalization | -0.9% | -0.9% | -1.3% |
| Cash Conversion Cycle Time | -1.1 days | -0.2 days | -2.1 days |
| Gauge Score (0 to 25) | 14 | 15 | 10 |
Note the doubling of the ratio of Long-Term Debt to Shareholders' Equity. In the fourth quarter of 2008, LTD increased from $21.7 billion to $27.1 billion, and Equity was slashed from $92.9 billion to $55.2 billion.
Most of the debt increase can be attributed to Conoco's decision to issue $4.9 billion of commercial paper in October 2008 to help close a transaction involving the formation of a 50/50 joint venture with Australia's Origin Energy, Ltd., (ASX:ORG ). The new company, named Australia Pacific LNG "will focus on coalbed methane production from the Bowen and Surat basins in Queensland, Australia, and LNG processing and export sales."
The plunge in Shareholders' Equity is a consequence of the $34.5 billion asset impairment charges Conoco recorded in the fourth quarter.
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