By its own admission, Weatherford International has pretty awful internal controls. Back in March 2011, the company's disclosed that controls (and employees) for its tax function were virtually non-existent and it led to a $500 million error. The team in the C-suite was pretty disappointed with this development and the company replaced their Chief Accounting Officer in some kind of half-hearted effort to reassure investors that the numbers at WFT were TIP-TOP.
In February of this year, the company announced that a restatement was in order, but CEO Bernard Duroc-Danner reiterated that nothing was fucked and that, in fact, progress was being made, "I understand how repeated setbacks on administrative issues are painful, but in this instance, I would characterize this quarter's events and income-tax accounting as also constructive." In other words, there's no cause for concern because these "administrative issues" were being dealt with.
More recently, however, the company delayed its regulatory filings because it needed "more time work out tax structure problems," but they finally got on the horn this week to discuss how things were going.
Here's an excerpt from the 8-K:
During the third quarter of 2012, the company finalized its goodwill impairment analysis and concluded that the carrying amount of goodwill in the Middle East/North Africa and Sub-Sahara Africa reporting units exceeded the fair value of goodwill and recorded a non-cash charge of $589 million in the second quarter to write-off all the goodwill in these reporting units. There was no goodwill impairment in the Russia reporting unit. During our goodwill impairment analysis, we also identified impairment losses associated with our equity method investments and have recorded a $204 million non-cash charge during the second quarter related to those investments.
Okay, well that's not so good. But these things kinds of things happen and setbacks are understandable. How about those "tax strucutre problems"?
As previously reported in the company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, the company’s Annual Reports on Form 10-K for the years ended December 31, 2011 and 2010 and each of the company’s Quarterly Reports on Form 10-Q during the year ended December 31, 2011, the Company identified a material weakness in its internal control over financial reporting relating to current taxes payable, certain deferred tax assets and liabilities, reserves for uncertain tax positions, and current and deferred income tax expense. Errors relating to this material weakness resulted in the restatement of the company’s consolidated financial statements included in its Annual Reports on Form 10-K for both 2011 and 2010. To date, the material weakness in accounting for income taxes has not been remediated, and management has identified additional income tax related errors as described below.
Which directly led to things like:
[M]anagement identified $92 million of additional income tax expense related to prior periods, a significant portion of which related to management’s estimates regarding unrecognized tax benefits and adjustments for the difference between actual taxes paid and tax liabilities accrued for the prior period on over 200 tax returns filed during the second quarter.
Christ, guys! Is there really a shortage of tax provision experts for energy services companies? Can't you poach some of the slackers at Halliburton? They've got at least one problematic employee in the tax department that could probably use a fresh start. Get it together.
Press Release [WFT]