TIDEWATER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended March 31, 2010, 2009, and 2008  The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and  deferred tax liabilities at March 31, 2010 and 2009 are as follows:  The company has not recognized a U.S. deferred tax liability associated with temporary differences related  to investments in foreign subsidiaries that are essentially permanent in duration. The differences relate  primarily to undistributed earnings and stock basis differences. Though the company does not anticipate  repatriation of funds, a current U.S. tax liability would be recognized when the company receives those  foreign funds in a taxable manner such as through receipt of dividends or sale of investments. As of  March 31, 2010, the total amount for which U.S. deferred taxes have not been recognized is approximately  $1.5 billion. A determination of the unrecognized deferred tax liability for temporary differences related to  investments in foreign subsidiaries is not practicable due to uncertainty regarding the use of foreign tax  credits which would become available as a result of a transaction. As of March 31, 2010, the company has foreign tax credit carry-forwards approximating $3.0 million that  expire in 2020 and net operating loss carry-forwards approximating $8.4 million that expire in 2030. Effective April 1, 2007, the company adopted the revised provisions of ASC 740, Income Taxes, relating to  uncertain tax positions which clarifies the accounting and reporting for uncertainties in income tax law. This  interpretation prescribes a comprehensive model for the financial statement recognition, measurement,  presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns.  In connection with the adoption of the new guidance, the company recording an additional $18.9 million of  tax liabilities, including penalty and interest of $3.8 million, a reduction to equity method investments of  $5.4 million, including penalties and interest of $2.6 million, and a corresponding decrease to stockholders’  equity of $24.3 million during fiscal 2008. The liabilities are attributable to the IRS disallowance of all claimed  deductions from taxable income related to the company’s Foreign Sales Corporation and the Extraterritorial  Income Exclusion for fiscal years 1999 through 2007, a permanent establishment issue related to a foreign  joint venture and a tax audit of a foreign subsidiary. In addition, the company has $7.8 million of  unrecognized tax benefits related to a state tax issue. The unrecognized tax benefits would affect the  effective tax rate if realized. Penalties and interest related to income tax liabilities are included in income tax  expense. In January 2008, the U.S. District Court for the Eastern District of Louisiana issued its final ruling in the  company’s favor with respect to a motion for summary judgment concerning the IRS disallowance of the  company’s tax deduction for foreign sales corporation commissions for fiscal years 1999 and 2000. In  April 2009, the Fifth Circuit Court of Appeals affirmed the District Court’s judgment. The IRS did not appeal  the Court of Appeals ruling, resulting in final resolution of the issue in the company’s favor in July 2009. The  tax benefit related to the issue is approximately $36.1 million, or $0.70 per common share, for fiscal year  ended March 31, 2010, which primarily includes a reversal of previously recorded liabilities for uncertain tax  positions and interest income on the judgment. In March 2010, the company settled a state tax issue for fiscal years 2001 through 2003, which resulted in a  tax benefit of $2.9 million, including interest of $0.8 million.  F-17 (In thousands) 2010 2009 Deferred tax assets:  Financial provisions not deducted for tax purposes  $  24,043  27,462  Net operating loss and tax credit carryforwards  11,469  1,816  Other 123 558 Gross deferred tax assets  35,635 29,836 Less valuation allowance --- --- Net deferred tax assets  35,635 29,836 Deferred tax liabilities:  Depreciation and amortization (211,355) (200,856) Other (149) (344) Gross deferred tax liabilities  (211,504)  (201,200)  Net deferred tax liabilities  $  (175,869)  (171,364) 