Oops: Weatherford reports $500M tax error

Oil field services firm Weatherford International goes by the stock ticker is WFT, but analyst reaction to the company reporting more than $500 million in tax errors is more likely drawing the reaction of “WTF?” from investors.

The company said it will have to restate its earnings going back to 2007 due to “material weaknesses” in its internal controls, namely:

  1. inadequate staffing and technical expertise within the company related to taxes,
  2. ineffective review and approval practices relating to taxes,
  3. inadequate processes to effectively reconcile income tax accounts and
  4. inadequate controls over the preparation of quarterly tax provisions.

Analysts with Tudor Pickering & Holt note the irony that Weatherford should suffer a tax-related problem, given that the firm moved its headquarters to Switzerland to avoid paying U.S. taxes.

But Bill Herbert at Simmons & Co. says in a research note this morning “If there is a silver-lining in these revelations it is that only ~$20mm of these adjustments impacts cash flow.”

Weatherford also revealed in filings its exposure to developments in Libya, Egypt, Tunisia, Yemen and Bahrain, which account for about 3 percent of the company’s total 2010 revenues.

Combined with the tax issues, this could translate to about a 4 cents per share impairment, but the impact isn’t completely clear yet, Herbert continues.

“Bottom-line, the 26c Q1 Street estimate is too high,” he writes. “By the way, Xerox this last statement and apply to all large cap service stocks.”

Weatherford’s stock closed Tuesday trading at $23.53 but opened down some 15 percent Wednesday at $20.

At the same time Weatherford reported the tax error it also reported salary increases and bonus payment to many of its execs yesterday, including a $50,000 raise and $300,000 bonus payment to the vice president of tax, James Hudgins.

I wonder how much he would have made if there wasn’t a massive tax error.