##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the quarterly period ended September 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the transition period from  to
 Commission file number 1-31339
 WEATHERFORD INTERNATIONAL LTD.
  Bermuda
    
    98-0371344(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)515 Post Oak BoulevardSuite 600Houston, Texas
    
    77027-3415(Address of principal executive offices)
    
    (Zip Code)
 (Registrants telephone number, include area code)
 (Former name, former address and former fiscal year, if changed since last report)
  þ o
  þ o o
  o þ
  Title of Class
    
    Outstanding at October 27, 2006Common Shares, par value $1.00
    
    339,710,007




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKITEM 4. CONTROLS AND PROCEDURESPART II. OTHER INFORMATIONITEM 1A. RISK FACTORSITEM 2. UNREGISTERED SALES OF EQUITY IN SECURITIES AND USE OF PROCEEDSITEM 6. EXHIBITSSIGNATURESIndex to ExhibitsCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906    Table of Contents  
 PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
 September 30,
    
    
    December 31,2006
    
    
    2005(unaudited)ASSETSCurrent Assets:Cash and Cash Equivalents
    
    $
    120,292
    
    
    $
    134,245Accounts Receivable, Net of Allowance for Uncollectible
Accounts of $12,697 and $12,210, Respectively
    
    
    1,522,188
    
    
    
    1,259,990Inventories
    
    
    1,168,952
    
    
    
    890,121Other Current Assets
    
    
    456,578
    
    
    
    354,5173,268,010
    
    
    
    2,638,873Property, Plant and Equipment, Net of Accumulated
Depreciation of $1,845,478 and $1,593,362, Respectively
    
    
    2,816,868
    
    
    
    2,367,237Goodwill
    
    
    3,033,995
    
    
    
    2,808,217Other Intangible Assets, Net
    
    
    632,971
    
    
    
    621,365Other Assets
    
    
    145,180
    
    
    
    144,612$
    9,897,024
    
    
    $
    8,580,304LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Short-term Borrowings and Current Portion of Long-term Debt
    
    $
    633,038
    
    
    $
    954,766Accounts Payable
    
    
    475,029
    
    
    
    476,363Other Current Liabilities
    
    
    921,000
    
    
    
    567,0122,029,067
    
    
    
    1,998,141Long-term Debt
    
    
    1,571,374
    
    
    
    632,071Deferred Tax Liabilities
    
    
    115,082
    
    
    
    88,476Other Liabilities
    
    
    219,879
    
    
    
    194,799Commitments and ContingenciesShareholders Equity:Common Shares, $1 Par Value, Authorized 1,000,000 Shares,
Issued 361,812 and 358,973 Shares, Respectively
    
    
    361,812
    
    
    
    358,973Capital in Excess of Par Value
    
    
    4,232,006
    
    
    
    4,164,365Treasury Shares, Net
    
    
    (638,191
    )
    
    
    (152,111
    )Retained Earnings
    
    
    1,827,305
    
    
    
    1,202,938Accumulated Other Comprehensive Income
    
    
    178,690
    
    
    
    92,6525,961,622
    
    
    
    5,666,817$
    9,897,024
    
    
    $
    8,580,304
  1




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##### Table of Contents



WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:Products
    
    $
    634,415
    
    
    $
    490,269
    
    
    $
    1,805,029
    
    
    $
    1,346,265Services
    
    
    1,062,338
    
    
    
    586,547
    
    
    
    2,966,311
    
    
    
    1,525,5521,696,753
    
    
    
    1,076,816
    
    
    
    4,771,340
    
    
    
    2,871,817Costs and Expenses:Cost of Products
    
    
    439,132
    
    
    
    356,378
    
    
    
    1,242,189
    
    
    
    950,509Cost of Services
    
    
    639,154
    
    
    
    392,284
    
    
    
    1,822,010
    
    
    
    1,013,997Research and Development
    
    
    38,241
    
    
    
    27,140
    
    
    
    112,045
    
    
    
    72,062Selling, General and Administrative Attributable to
Segments
    
    
    194,410
    
    
    
    134,316
    
    
    
    562,807
    
    
    
    370,644Corporate General and Administrative
    
    
    24,718
    
    
    
    19,159
    
    
    
    71,251
    
    
    
    56,115Equity in (Earnings) Losses of Unconsolidated
Affiliates
    
    
    190
    
    
    
    (2,991
    )
    
    
    (5,737
    )
    
    
    (7,114
    )Exit Costs and Restructuring Charges
    
    
    3⁄4
    
    
    
    80,018
    
    
    
    3⁄4
    
    
    
    80,018Operating Income
    
    
    360,908
    
    
    
    70,512
    
    
    
    966,775
    
    
    
    335,586Other Income (Expense):Debt Redemption Expense
    
    
    3⁄4
    
    
    
    (4,733
    )
    
    
    3⁄4
    
    
    
    (4,733
    )Interest Expense, Net
    
    
    (27,591
    )
    
    
    (17,197
    )
    
    
    (70,294
    )
    
    
    (45,834
    )Other, Net
    
    
    (6,161
    )
    
    
    10,966
    
    
    
    (19,651
    )
    
    
    12,172Income from Continuing Operations Before Income Taxes
    
    
    327,156
    
    
    
    59,548
    
    
    
    876,830
    
    
    
    297,191Provision for Income Taxes
    
    
    (92,953
    )
    
    
    (12,249
    )
    
    
    (252,463
    )
    
    
    (74,732
    )Income from Continuing Operations
    
    
    234,203
    
    
    
    47,299
    
    
    
    624,367
    
    
    
    222,459Income from Discontinued Operation, Net of Taxes
    
    
    3⁄4
    
    
    
    587
    
    
    
    3⁄4
    
    
    
    1,211Net Income
    
    $
    234,203
    
    
    $
    47,886
    
    
    $
    624,367
    
    
    $
    223,670Basic Earnings Per Share:Income from Continuing Operations
    
    $
    0.68
    
    
    $
    0.16
    
    
    $
    1.79
    
    
    $
    0.78Income from Discontinued Operation
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.01Net Income
    
    $
    0.68
    
    
    $
    0.16
    
    
    $
    1.79
    
    
    $
    0.79Diluted Earnings Per Share:Income from Continuing Operations
    
    $
    0.66
    
    
    $
    0.15
    
    
    $
    1.75
    
    
    $
    0.74Income from Discontinued Operation
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.00Net Income
    
    $
    0.66
    
    
    $
    0.15
    
    
    $
    1.75
    
    
    $
    0.74Weighted Average Shares Outstanding:Basic
    
    
    345,733
    
    
    
    300,972
    
    
    
    347,915
    
    
    
    284,824Diluted
    
    
    354,471
    
    
    
    311,788
    
    
    
    356,905
    
    
    
    311,416
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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
 Nine MonthsEnded September 30,2006
    
    
    2005Cash Flows from Operating Activities:Net Income
    
    $
    624,367
    
    
    $
    223,670Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:Depreciation and Amortization
    
    
    354,030
    
    
    
    222,389Gain on Sales of Assets, Net
    
    
    (23,040
    )
    
    
    (460
    )Income from Discontinued Operation
    
    
    3⁄4
    
    
    
    (1,211
    )Debt Redemption Expense
    
    
    3⁄4
    
    
    
    4,733Non-cash Portion of Exit Costs and Restructuring Charges
    
    
    3⁄4
    
    
    
    81,651Equity in Earnings of Unconsolidated Affiliates
    
    
    (5,737
    )
    
    
    (13,611
    )Employee Stock-Based Compensation Expense
    
    
    43,017
    
    
    
    22,826Amortization of Original Issue Discount
    
    
    3⁄4
    
    
    
    11,432Deferred Income Tax Benefit
    
    
    (19,283
    )
    
    
    (13,831
    )Other, Net
    
    
    16,139
    
    
    
    3,467Change in Operating Assets and Liabilities, Net of Effect
of Businesses Acquired
    
    
    (275,408
    )
    
    
    (235,939
    )Net Cash Provided by Continuing Operations
    
    
    714,085
    
    
    
    305,116Net Cash Provided by Discontinued Operation
    
    
    3⁄4
    
    
    
    2,294Net Cash Provided by Operating Activities
    
    
    714,085
    
    
    
    307,410Cash Flows from Investing Activities:Acquisitions of Businesses, Net of Cash Acquired
    
    
    (162,192
    )
    
    
    (963,410
    )Capital Expenditures for Property, Plant and Equipment
    
    
    (720,650
    )
    
    
    (320,298
    )Acquisition of Intellectual Property
    
    
    (28,469
    )
    
    
    (9,234
    )Purchase of Equity Investment in Unconsolidated Affiliate
    
    
    3⁄4
    
    
    
    (16,424
    )Proceeds from Sale of Assets and Businesses, Net
    
    
    22,132
    
    
    
    9,485Net Cash Used by Investing Activities
    
    
    (889,179
    )
    
    
    (1,299,881
    )Cash Flows from Financing Activities:Borrowings (Repayments) of Short-term Debt, Net
    
    
    (121,716
    )
    
    
    1,046,775Borrowings (Repayments) of Long-term Debt, Net
    
    
    735,920
    
    
    
    (2,320
    )Redemption of Zero Coupon Convertible Debentures
    
    
    3⁄4
    
    
    
    (348,816
    )Purchase of Treasury Shares
    
    
    (507,646
    )
    
    
    3⁄4Proceeds from Exercise of Stock Options
    
    
    54,003
    
    
    
    165,116Tax Benefit on Stock Option Exercises
    
    
    194
    
    
    
    3⁄4Other Financing Activities, Net
    
    
    386
    
    
    
    (2,522
    )Net Cash Provided by Financing Activities
    
    
    161,141
    
    
    
    858,233Net Decrease in Cash and Cash Equivalents
    
    
    (13,953
    )
    
    
    (134,238
    )Cash and Cash Equivalents at Beginning of Period
    
    
    134,245
    
    
    
    317,439Cash and Cash Equivalents at End of Period
    
    $
    120,292
    
    
    $
    183,201Supplemental Cash Flow Information:Interest Paid
    
    $
    43,107
    
    
    $
    84,472Income Taxes Paid, Net of Refunds
    
    
    111,888
    
    
    
    59,395
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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(In thousands)
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net Income
    
    $
    234,203
    
    
    $
    47,886
    
    
    $
    624,367
    
    
    $
    223,670Other Comprehensive Income (Loss):Reclassification Adjustment for Deferred
Gain (Loss), Net on Derivative Instruments
    
    
    (1,499
    )
    
    
    69
    
    
    
    4,790
    
    
    
    206Foreign Currency Translation Adjustment
    
    
    19,381
    
    
    
    81,357
    
    
    
    81,248
    
    
    
    36,845Comprehensive Income
    
    $
    252,085
    
    
    $
    129,312
    
    
    $
    710,405
    
    
    $
    260,721
  4




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 1. General
       
 5




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 2. Critical Accounting Policies
  Revenue Recognition
     3. Business Combinations
    6




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
   Accounting for Contingencies
 4. Exit Costs, Severance, Restructuring and Asset Impairment Charges
 2005 Exit Cost and Restructuring Charges
     7




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Evaluation,Drilling &
    
    
    CompletionIntervention
    
    
    & ProductionServices
    
    
    Systems
    
    
    Corporate
    
    
    Total(In thousands)Cost of Products
    
    $
    20,654
    
    
    $
    3,842
    
    
    $
    3⁄4
    
    
    $
    24,496Cost of Services
    
    
    25,766
    
    
    
    1,083
    
    
    
    3⁄4
    
    
    
    26,849Research and Development
    
    
    9,000
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    9,000Selling General & Administrative
    
    
    17,349
    
    
    
    3,803
    
    
    
    3⁄4
    
    
    
    21,152Corporate General & Administrative
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    32,738
    
    
    
    32,738Total
    
    
    72,769
    
    
    
    8,728
    
    
    
    32,738
    
    
    
    114,235Cash Payments
    
    
    (20,166
    )
    
    
    (7,721
    )
    
    
    (8,187
    )
    
    
    (36,074
    )Non-cash Utilization
    
    
    (52,410
    )
    
    
    (722
    )
    
    
    (12,911
    )
    
    
    (66,043
    )Balance at September 30, 2006
    
    $
    193
    
    
    $
    285
    
    
    $
    11,640
    
    
    $
    12,118
  5. Dispositions
 Accounting for the Impairment or Disposal of Long-Lived Assets,
   Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2005
    
    
    2005(In thousands)Revenues
    
    $
    3⁄4
    
    
    $
    20,794Income Before Income Taxes
    
    $
    587
    
    
    $
    777Benefit for Income Taxes
    
    
    3⁄4
    
    
    
    434Income from Discontinued Operation,Net of Taxes
    
    $
    587
    
    
    $
    1,211
  8




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  6. Universal Compression
  7. Goodwill
 Goodwill and Other
Intangible Assets
  Evaluation,Drilling &
    
    
    CompletionIntervention
    
    
    & ProductionServices
    
    
    Systems
    
    
    Total(In thousands)As of December 31, 2005
    
    $
    1,960,013
    
    
    $
    848,204
    
    
    $
    2,808,217Goodwill acquired during period
    
    
    101,772
    
    
    
    17,998
    
    
    
    119,770Disposal
    
    
    (1,216
    )
    
    
    3⁄4
    
    
    
    (1,216
    )Purchase price and other adjustments
    
    
    75,668
    
    
    
    396
    
    
    
    76,064Impact of foreign currency translation
    
    
    (1,329
    )
    
    
    32,489
    
    
    
    31,160As of September 30, 2006
    
    $
    2,134,908
    
    
    $
    899,087
    
    
    $
    3,033,995
 8. Other Intangible Assets, Net
  September 30, 2006
    
    
    December 31, 2005Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    
    
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    Net(In thousands)Acquired technology
    
    $
    315,761
    
    
    $
    (21,733
    )
    
    $
    294,028
    
    
    $
    281,350
    
    
    $
    (6,501
    )
    
    $
    274,849Licenses
    
    
    225,974
    
    
    
    (56,970
    )
    
    
    169,004
    
    
    
    205,232
    
    
    
    (48,164
    )
    
    
    157,068Patents
    
    
    125,561
    
    
    
    (40,073
    )
    
    
    85,488
    
    
    
    116,590
    
    
    
    (33,028
    )
    
    
    83,562Customer relationships
    
    
    27,694
    
    
    
    (2,522
    )
    
    
    25,172
    
    
    
    43,000
    
    
    
    (717
    )
    
    
    42,283Customer contracts
    
    
    21,890
    
    
    
    (3,231
    )
    
    
    18,659
    
    
    
    22,450
    
    
    
    (961
    )
    
    
    21,489Covenants not to compete
    
    
    24,175
    
    
    
    (22,572
    )
    
    
    1,603
    
    
    
    22,333
    
    
    
    (19,942
    )
    
    
    2,391Other
    
    
    13,679
    
    
    
    (7,320
    )
    
    
    6,359
    
    
    
    13,277
    
    
    
    (6,175
    )
    
    
    7,102Total finite-lived intangible
assets
    
    
    754,734
    
    
    
    (154,421
    )
    
    
    600,313
    
    
    
    704,232
    
    
    
    (115,488
    )
    
    
    588,744Intangible assets with an
indefinite useful life
    
    
    32,658
    
    
    
    3⁄4
    
    
    
    32,658
    
    
    
    32,621
    
    
    
    3⁄4
    
    
    
    32,621$
    787,392
    
    
    $
    (154,421
    )
    
    $
    632,971
    
    
    $
    736,853
    
    
    $
    (115,488
    )
    
    $
    621,365
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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
     Remainder of 2006
    
    $
    12,0392007
    
    
    48,2832008
    
    
    46,2162009
    
    
    45,2882010
    
    
    44,943
 9. Inventories
  September 30,
    
    
    December 31,2006
    
    
    2005(In thousands)Raw materials, components and supplies
    
    $
    320,681
    
    
    $
    259,047Work in process
    
    
    91,076
    
    
    
    63,491Finished goods
    
    
    757,195
    
    
    
    567,583$
    1,168,952
    
    
    $
    890,121
  10. Short-term Debt
 September 30,
    
    
    December 31,2006
    
    
    2005(In thousands)364-Day revolving credit facility
    
    $
    3⁄4
    
    
    $
    3⁄4Revolving credit facility
    
    
    73,142
    
    
    
    3⁄4Canadian credit facility
    
    
    4,794
    
    
    
    3⁄4Commercial paper program
    
    
    449,495
    
    
    
    716,927Short-term bank loans
    
    
    92,670
    
    
    
    24,596Total Short-term Borrowings
    
    
    620,101
    
    
    
    741,523Current Portion of Long-term Debt
    
    
    12,937
    
    
    
    213,243Short-term Borrowings and Current Portion of Long-term Debt
    
    $
    633,038
    
    
    $
    954,766
 10




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
     1 4
    11




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
    11. Shareholders Equity
 Authorized Shares
  Share Repurchase Program
  Warrant
  12. Derivative Instruments
 Interest Rate Swaps
   Cash Flow Hedges
  12




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
   Other Derivative Instruments
  13. Earnings Per Share
   13




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  Three Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,2006
    
    2005
    
    2006
    
    2005Basic weighted average shares outstanding
    
    
    345,733
    
    
    
    300,972
    
    
    
    347,915
    
    
    
    284,824Dilutive effect of:Warrant
    
    
    2,251
    
    
    
    1,856
    
    
    
    2,307
    
    
    
    1,498Stock option and restricted share plans
    
    
    6,487
    
    
    
    8,960
    
    
    
    6,683
    
    
    
    9,080Convertible debentures
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    16,014354,471
    
    
    
    311,788
    
    
    
    356,905
    
    
    
    311,416
 14. Supplemental Cash Flow Information
  Nine MonthsEnded September 30,2006
    
    
    2005(In thousands)Fair value of assets, net of cash acquired
    
    $
    87,178
    
    
    $
    1,602,791Goodwill
    
    
    119,770
    
    
    
    1,146,557Consideration paid related to prior year acquisitions
    
    
    6,539
    
    
    
    2,497Common shares issued
    
    
    3⁄4
    
    
    
    (1,398,020
    )Total liabilities
    
    
    (51,295
    )
    
    
    (390,415
    )Cash consideration, net of cash acquired
    
    $
    162,192
    
    
    $
    963,410
 15. Stock-Based Compensation
 Share-Based Payment Accounting for Stock Issued to
Employees
 Accounting for Stock-Based
Compensation
 14




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
    Incentive Plan
   Stock Option Plans
   Restricted Share Plan
   15




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
    Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2005
    
    
    2005(In thousands, except per shareamounts)Net Income:As reported
    
    $
    47,886
    
    
    $
    223,670Employee stock-based compensation expense included in
reported net income, net of income tax benefit
    
    
    6,095
    
    
    
    14,837Pro forma compensation expense, determined
under fair value methods for all awards,
net of income tax benefit
    
    
    (9,363
    )
    
    
    (25,605
    )Pro forma
    
    $
    44,618
    
    
    $
    212,902Basic earnings per share:As reported
    
    $
    0.16
    
    
    $
    0.79Pro forma
    
    
    0.15
    
    
    
    0.75Diluted earnings per share:As reported
    
    $
    0.15
    
    
    $
    0.74Pro forma
    
    
    0.14
    
    
    
    0.71
    16




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Three Months
    
    Nine MonthsEnded
    
    EndedSeptember 30,
    
    September 30,2006
    
    2006Expected volatility
    
    
    37.54
    %
    
    
    37.62
    %Expected dividends
    
    
    0.00
    %
    
    
    0.00
    %Expected term (in years)
    
    
    5.0
    
    
    
    5.0Risk-free rate
    
    
    5.10
    %
    
    
    4.99
    %
  Weighted-Weighted-
    
    Average
    
    AggregateAverage
    
    Remaining
    
    IntrinsicExercise
    
    Contractual
    
    ValueOptions
    
    Shares
    
    Price
    
    Term
    
    (in thousands)Outstanding at January 1, 2006
    
    
    13,940,334
    
    
    $
    13.72Granted
    
    
    59,000
    
    
    
    49.59Exercised
    
    
    (4,137,562
    )
    
    
    12.98Forfeited
    
    
    (18,000
    )
    
    
    19.87Outstanding at September 30, 2006
    
    
    9,843,772
    
    
    
    14.24
    
    
    
    8.15
    
    
    $
    270,922Vested or Expected to Vest at
September 30, 2006
    
    
    9,843,772
    
    
    
    14.24
    
    
    
    8.15
    
    
    
    270,922Exercisable at September 30, 2006
    
    
    8,883,906
    
    
    
    13.36
    
    
    
    7.91
    
    
    
    251,912
   Weighted-
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    AverageGrant Date
    
    
    
    
    
    Grant DateRSA
    
    Fair Value
    
    RSU
    
    Fair ValueNon-Vested at January 1, 2006
    
    
    4,206,900
    
    
    $
    30.47
    
    
    
    2,680,240
    
    
    $
    33.99Granted
    
    
    83,000
    
    
    
    43.93
    
    
    
    146,300
    
    
    
    45.18Vested
    
    
    (637,390
    )
    
    
    23.77
    
    
    
    (269,602
    )
    
    
    26.06Forfeited
    
    
    (163,730
    )
    
    
    32.98
    
    
    
    (177,113
    )
    
    
    33.90Non-Vested at September 30, 2006
    
    
    3,488,780
    
    
    
    33.33
    
    
    
    2,379,825
    
    
    
    35.63
 17




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##### Table of Contents



WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  16. Retirement and Employee Benefit Plans
  Three Months Ended September 30,2006

    
    
    2005United
    
    
    
    
    
    
    UnitedStates
    
    
    International
    
    
    States
    
    
    International(In thousands)Service cost
    
    $
    610
    
    
    $
    2,408
    
    
    $
    633
    
    
    $
    1,974Interest cost
    
    
    1,002
    
    
    
    1,659
    
    
    
    872
    
    
    
    1,200Expected return on plan assets
    
    
    (144
    )
    
    
    (1,551
    )
    
    
    (186
    )
    
    
    (926
    )Amortization of transition obligation
    
    
    3⁄4
    
    
    
    (1
    )
    
    
    3⁄4
    
    
    
    3⁄4Amortization of prior service cost
    
    
    572
    
    
    
    (27
    )
    
    
    657
    
    
    
    80Amortization of loss
    
    
    474
    
    
    
    127
    
    
    
    327
    
    
    
    9Settlements
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    11,120
    
    
    
    3⁄4Net periodic benefit cost
    
    $
    2,514
    
    
    $
    2,615
    
    
    $
    13,423
    
    
    $
    2,337
 Nine Months Ended September 30,2006

    
    
    2005United
    
    
    
    
    
    
    UnitedStates
    
    
    International
    
    
    States
    
    
    International(In thousands)Service cost
    
    $
    1,828
    
    
    $
    6,992
    
    
    $
    1,899
    
    
    $
    5,984Interest cost
    
    
    3,034
    
    
    
    4,868
    
    
    
    2,633
    
    
    
    3,511Expected return on plan assets
    
    
    (474
    )
    
    
    (4,578
    )
    
    
    (601
    )
    
    
    (2,703
    )Amortization of transition obligation
    
    
    3⁄4
    
    
    
    (3
    )
    
    
    3⁄4
    
    
    
    (2
    )Amortization of prior service cost
    
    
    1,717
    
    
    
    (78
    )
    
    
    1,971
    
    
    
    246Amortization of loss
    
    
    1,417
    
    
    
    367
    
    
    
    945
    
    
    
    30Settlements
    
    
    2,770
    
    
    
    3⁄4
    
    
    
    11,120
    
    
    
    3⁄4Net periodic benefit cost
    
    $
    10,292
    
    
    $
    7,568
    
    
    $
    17,967
    
    
    $
    7,066
  17. Segment Information
 Reporting Segments
  18




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
      Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands)Revenues from unaffiliated customers:Evaluation, Drilling & Intervention Services
    
    $
    1,100,059
    
    
    $
    627,690
    
    
    $
    3,071,829
    
    
    $
    1,608,693Completion & Production Systems
    
    
    596,694
    
    
    
    449,126
    
    
    
    1,699,511
    
    
    
    1,263,124$
    1,696,753
    
    
    $
    1,076,816
    
    
    $
    4,771,340
    
    
    $
    2,871,817Depreciation and amortization:Evaluation, Drilling & Intervention Services
    
    $
    97,105
    
    
    $
    59,734
    
    
    $
    279,267
    
    
    $
    156,692Completion & Production Systems
    
    
    25,807
    
    
    
    21,667
    
    
    
    72,684
    
    
    
    64,017Corporate
    
    
    596
    
    
    
    549
    
    
    
    2,079
    
    
    
    1,680$
    123,508
    
    
    $
    81,950
    
    
    $
    354,030
    
    
    $
    222,389Operating income:Evaluation, Drilling & Intervention
Services (a)
    
    $
    267,942
    
    
    $
    111,430
    
    
    $
    735,087
    
    
    $
    322,133Completion & Production Systems
    
    
    117,874
    
    
    
    55,268
    
    
    
    297,202
    
    
    
    142,472Exit Costs and Restructuring Charges
    
    
    3⁄4
    
    
    
    (80,018
    )
    
    
    3⁄4
    
    
    
    (80,018
    )Corporate (b)
    
    
    (24,908
    )
    
    
    (16,168
    )
    
    
    (65,514
    )
    
    
    (49,001
    )$
    360,908
    
    
    $
    70,512
    
    
    $
    966,775
    
    
    $
    335,586
 
 (a)
    
    Includes a write down of $17.3 million of inventory in connection with our exit and
restructuring plan for the three and nine months ended September 30, 2005.(b)
    
    Includes equity in earnings (losses) of unconsolidated affiliates that are integral to the Companys
operations. 19




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  18. Condensed Consolidating Financial Statements
   20




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Condensed Consolidating Balance Sheet
September 30, 2006
(unaudited)
(In thousands)
 OtherParent
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidationASSETSCurrent Assets:Cash and Cash Equivalents
    
    $
    111
    
    
    $
    47
    
    
    $
    120,134
    
    
    $
    3⁄4
    
    
    $
    120,292Other Current Assets
    
    
    225
    
    
    
    3,894
    
    
    
    3,143,599
    
    
    
    3⁄4
    
    
    
    3,147,718336
    
    
    
    3,941
    
    
    
    3,263,733
    
    
    
    3⁄4
    
    
    
    3,268,010Equity Investments in Affiliates
    
    
    9,575,484
    
    
    
    3,156,066
    
    
    
    12,923,147
    
    
    
    (25,654,697
    )
    
    
    3⁄4Shares Held in Parent
    
    
    3⁄4
    
    
    
    130,545
    
    
    
    507,646
    
    
    
    (638,191
    )
    
    
    3⁄4Intercompany Receivables, Net
    
    
    284,677
    
    
    
    1,439,126
    
    
    
    3⁄4
    
    
    
    (1,723,803
    )
    
    
    3⁄4Other Assets
    
    
    53,907
    
    
    
    9,845
    
    
    
    6,565,262
    
    
    
    3⁄4
    
    
    
    6,629,014$
    9,914,404
    
    
    $
    4,739,523
    
    
    $
    23,259,788
    
    
    $
    (28,016,691
    )
    
    $
    9,897,024LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Short-term Borrowings and Current Portion
of Long-term Debt
    
    $
    450,220
    
    
    $
    55,425
    
    
    $
    127,393
    
    
    $
    3⁄4
    
    
    $
    633,038Accounts Payable and Other CurrentLiabilities
    
    
    16,594
    
    
    
    9,966
    
    
    
    1,369,469
    
    
    
    3⁄4
    
    
    
    1,396,029466,814
    
    
    
    65,391
    
    
    
    1,496,862
    
    
    
    3⁄4
    
    
    
    2,029,067Long-term Debt
    
    
    1,199,109
    
    
    
    355,644
    
    
    
    16,621
    
    
    
    3⁄4
    
    
    
    1,571,374Intercompany Payables, Net
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    1,723,803
    
    
    
    (1,723,803
    )
    
    
    3⁄4Other Long-term Liabilities
    
    
    49,999
    
    
    
    64,312
    
    
    
    220,650
    
    
    
    3⁄4
    
    
    
    334,961Shareholders Equity
    
    
    8,198,482
    
    
    
    4,254,176
    
    
    
    19,801,852
    
    
    
    (26,292,888
    )
    
    
    5,961,622$
    9,914,404
    
    
    $
    4,739,523
    
    
    $
    23,259,788
    
    
    $
    (28,016,691
    )
    
    $
    9,897,024
 21




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Condensed Consolidating Balance Sheet
December 31, 2005
(In thousands)
 OtherParent
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidationASSETSCurrent Assets:Cash and Cash Equivalents
    
    $
    124
    
    
    $
    3,172
    
    
    $
    130,949
    
    
    $
    3⁄4
    
    
    $
    134,245Other Current Assets
    
    
    952
    
    
    
    1,179
    
    
    
    2,502,497
    
    
    
    3⁄4
    
    
    
    2,504,6281,076
    
    
    
    4,351
    
    
    
    2,633,446
    
    
    
    3⁄4
    
    
    
    2,638,873Equity Investments in Affiliates
    
    
    8,029,938
    
    
    
    2,602,236
    
    
    
    12,368,520
    
    
    
    (23,000,694
    )
    
    
    3⁄4Shares Held in Parent
    
    
    3⁄4
    
    
    
    152,111
    
    
    
    3⁄4
    
    
    
    (152,111
    )
    
    
    3⁄4Intercompany Receivables, Net
    
    
    180,959
    
    
    
    1,741,011
    
    
    
    3⁄4
    
    
    
    (1,921,970
    )
    
    
    3⁄4Other Assets
    
    
    43,493
    
    
    
    10,366
    
    
    
    5,887,572
    
    
    
    3⁄4
    
    
    
    5,941,431$
    8,255,466
    
    
    $
    4,510,075
    
    
    $
    20,889,538
    
    
    $
    (25,074,775
    )
    
    $
    8,580,304LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Short-term Borrowings and Current Portion
of Long-term Debt
    
    $
    717,628
    
    
    $
    206,118
    
    
    $
    31,020
    
    
    $
    3⁄4
    
    
    $
    954,766Accounts Payable and Other CurrentLiabilities
    
    
    4,002
    
    
    
    7,770
    
    
    
    1,031,603
    
    
    
    3⁄4
    
    
    
    1,043,375721,630
    
    
    
    213,888
    
    
    
    1,062,623
    
    
    
    3⁄4
    
    
    
    1,998,141Long-term Debt
    
    
    255,329
    
    
    
    357,449
    
    
    
    19,293
    
    
    
    3⁄4
    
    
    
    632,071Intercompany Payables, Net
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    1,921,970
    
    
    
    (1,921,970
    )
    
    
    3⁄4Other Long-term Liabilities
    
    
    46,792
    
    
    
    80,231
    
    
    
    156,252
    
    
    
    3⁄4
    
    
    
    283,275Shareholders Equity
    
    
    7,231,715
    
    
    
    3,858,507
    
    
    
    17,729,400
    
    
    
    (23,152,805
    )
    
    
    5,666,817$
    8,255,466
    
    
    $
    4,510,075
    
    
    $
    20,889,538
    
    
    $
    (25,074,775
    )
    
    $
    8,580,304
 22




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Condensed Consolidating Statements of Income
Three Months Ended September 30, 2006
(unaudited)
(In thousands)
 OtherParent
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidationRevenues
    
    $
    3⁄4
    
    
    $
    3⁄4
    
    
    $
    1,696,753
    
    
    $
    3⁄4
    
    
    $
    1,696,753Costs and Expenses
    
    
    (2,525
    )
    
    
    (243
    )
    
    
    (1,332,887
    )
    
    
    3⁄4
    
    
    
    (1,335,655
    )Equity in Losses of Unconsolidated Affiliates
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (190
    )
    
    
    3⁄4
    
    
    
    (190
    )Operating Income (Loss)
    
    
    (2,525
    )
    
    
    (243
    )
    
    
    363,676
    
    
    
    3⁄4
    
    
    
    360,908Other Income (Expense):Interest Expense, Net
    
    
    (21,770
    )
    
    
    (5,665
    )
    
    
    (156
    )
    
    
    3⁄4
    
    
    
    (27,591
    )Intercompany Charges, Net
    
    
    (10,419
    )
    
    
    108,275
    
    
    
    (97,856
    )
    
    
    3⁄4
    
    
    
    3⁄4Equity in Subsidiary Income
    
    
    273,678
    
    
    
    208,552
    
    
    
    3⁄4
    
    
    
    (482,230
    )
    
    
    3⁄4Other, Net
    
    
    (4,761
    )
    
    
    (209
    )
    
    
    (1,191
    )
    
    
    3⁄4
    
    
    
    (6,161
    )Income
(Loss) from Continuing Operations Before Income Taxes
    
    
    234,203
    
    
    
    310,710
    
    
    
    264,473
    
    
    
    (482,230
    )
    
    
    327,156Provision for Income Taxes
    
    
    3⁄4
    
    
    
    (37,032
    )
    
    
    (55,921
    )
    
    
    3⁄4
    
    
    
    (92,953
    )Income (Loss) from Continuing Operations
    
    
    234,203
    
    
    
    273,678
    
    
    
    208,552
    
    
    
    (482,230
    )
    
    
    234,203Income from Discontinued Operation, Net of
Taxes
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4Net Income
    
    $
    234,203
    
    
    $
    273,678
    
    
    $
    208,552
    
    
    $
    (482,230
    )
    
    $
    234,203
 Condensed Consolidating Statements of Income
Three Months Ended September 30, 2005
(unaudited)
(In thousands)
 OtherParent
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidationRevenues
    
    $
    3⁄4
    
    
    $
    3⁄4
    
    
    $
    1,076,816
    
    
    $
    3⁄4
    
    
    $
    1,076,816Costs and Expenses
    
    
    (6,753
    )
    
    
    (275
    )
    
    
    (1,002,267
    )
    
    
    3⁄4
    
    
    
    (1,009,295
    )Equity in Earnings of Unconsolidated Affiliates
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    2,991
    
    
    
    3⁄4
    
    
    
    2,991Operating Income (Loss)
    
    
    (6,753
    )
    
    
    (275
    )
    
    
    77,540
    
    
    
    3⁄4
    
    
    
    70,512Other Income (Expense):Debt Redemption Expense
    
    
    3⁄4
    
    
    
    (4,733
    )
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (4,733
    )Interest Expense, Net
    
    
    (6,870
    )
    
    
    (10,238
    )
    
    
    (89
    )
    
    
    3⁄4
    
    
    
    (17,197
    )Intercompany Charges, Net
    
    
    (8,524
    )
    
    
    26,759
    
    
    
    (18,235
    )
    
    
    3⁄4
    
    
    
    3⁄4Equity in Subsidiary Income
    
    
    65,107
    
    
    
    57,255
    
    
    
    3⁄4
    
    
    
    (122,362
    )
    
    
    3⁄4Other, Net
    
    
    4,934
    
    
    
    17
    
    
    
    6,015
    
    
    
    3⁄4
    
    
    
    10,966Income
(Loss) from Continuing Operations Before Income Taxes
    
    
    47,894
    
    
    
    68,785
    
    
    
    65,231
    
    
    
    (122,362
    )
    
    
    59,548Provision for Income Taxes
    
    
    (8
    )
    
    
    (3,678
    )
    
    
    (8,563
    )
    
    
    3⁄4
    
    
    
    (12,249
    )Income (Loss) from Continuing Operations
    
    
    47,886
    
    
    
    65,107
    
    
    
    56,668
    
    
    
    (122,362
    )
    
    
    47,299Income from Discontinued Operation, Net of
Taxes
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    587
    
    
    
    3⁄4
    
    
    
    587Net Income (Loss)
    
    $
    47,886
    
    
    $
    65,107
    
    
    $
    57,255
    
    
    $
    (122,362
    )
    
    $
    47,886
 23




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##### Table of Contents



WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Condensed Consolidating Statements of Income
Nine Months Ended September 30, 2006
(unaudited)
(In thousands)
 OtherParent
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidationRevenues
    
    $
    3⁄4
    
    
    $
    3⁄4
    
    
    $
    4,771,340
    
    
    $
    3⁄4
    
    
    $
    4,771,340Costs and Expenses
    
    
    (11,302
    )
    
    
    (819
    )
    
    
    (3,798,181
    )
    
    
    3⁄4
    
    
    
    (3,810,302
    )Equity in Earnings of Unconsolidated Affiliates
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    5,737
    
    
    
    3⁄4
    
    
    
    5,737Operating Income (Loss)
    
    
    (11,302
    )
    
    
    (819
    )
    
    
    978,896
    
    
    
    3⁄4
    
    
    
    966,775Other Income (Expense):Interest Income (Expense), Net
    
    
    (50,485
    )
    
    
    (20,297
    )
    
    
    488
    
    
    
    3⁄4
    
    
    
    (70,294
    )Intercompany Charges, Net
    
    
    (17,324
    )
    
    
    74,128
    
    
    
    (56,804
    )
    
    
    3⁄4
    
    
    
    3⁄4Equity in Subsidiary Income
    
    
    704,052
    
    
    
    671,167
    
    
    
    3⁄4
    
    
    
    (1,375,219
    )
    
    
    3⁄4Other, Net
    
    
    (574
    )
    
    
    (463
    )
    
    
    (18,614
    )
    
    
    3⁄4
    
    
    
    (19,651
    )Income
(Loss) from Continuing Operations Before Income Taxes
    
    
    624,367
    
    
    
    723,716
    
    
    
    903,966
    
    
    
    (1,375,219
    )
    
    
    876,830Provision for Income Taxes
    
    
    3⁄4
    
    
    
    (19,664
    )
    
    
    (232,799
    )
    
    
    3⁄4
    
    
    
    (252,463
    )Income (Loss) from Continuing Operations
    
    
    624,367
    
    
    
    704,052
    
    
    
    671,167
    
    
    
    (1,375,219
    )
    
    
    624,367Income from Discontinued Operation, Net of
Taxes
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4Net Income (Loss)
    
    $
    624,367
    
    
    $
    704,052
    
    
    $
    671,167
    
    
    $
    (1,375,219
    )
    
    $
    624,367
 Condensed Consolidating Statements of Income
Nine Months Ended September 30, 2005
(unaudited)
(In thousands)
 OtherParent
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidationRevenues
    
    $
    3⁄4
    
    
    $
    3⁄4
    
    
    $
    2,871,817
    
    
    $
    3⁄4
    
    
    $
    2,871,817Costs and Expenses
    
    
    (11,897
    )
    
    
    (616
    )
    
    
    (2,530,832
    )
    
    
    3⁄4
    
    
    
    (2,543,345
    )Equity in Earnings of Unconsolidated Affiliates
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    7,114
    
    
    
    3⁄4
    
    
    
    7,114Operating Income (Loss)
    
    
    (11,897
    )
    
    
    (616
    )
    
    
    348,099
    
    
    
    3⁄4
    
    
    
    335,586Other Income (Expense):Debt Redemption Expense
    
    
    3⁄4
    
    
    
    (4,733
    )
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (4,733
    )Interest Expense, Net
    
    
    (9,757
    )
    
    
    (35,664
    )
    
    
    (413
    )
    
    
    3⁄4
    
    
    
    (45,834
    )Intercompany Charges, Net
    
    
    (19,368
    )
    
    
    78,875
    
    
    
    (59,507
    )
    
    
    3⁄4
    
    
    
    3⁄4Equity in Subsidiary Income
    
    
    259,130
    
    
    
    234,259
    
    
    
    3⁄4
    
    
    
    (493,389
    )
    
    
    3⁄4Other, Net
    
    
    4,978
    
    
    
    (155
    )
    
    
    7,349
    
    
    
    3⁄4
    
    
    
    12,172Income
(Loss) from Continuing Operations Before Income Taxes
    
    
    223,086
    
    
    
    271,966
    
    
    
    295,528
    
    
    
    (493,389
    )
    
    
    297,191(Provision) Benefit for Income Taxes
    
    
    584
    
    
    
    (12,836
    )
    
    
    (62,480
    )
    
    
    3⁄4
    
    
    
    (74,732
    )Income (Loss) from Continuing Operations
    
    
    223,670
    
    
    
    259,130
    
    
    
    233,048
    
    
    
    (493,389
    )
    
    
    222,459Income from Discontinued Operation, Net of
Taxes
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    1,211
    
    
    
    3⁄4
    
    
    
    1,211Net Income (Loss)
    
    $
    223,670
    
    
    $
    259,130
    
    
    $
    234,259
    
    
    $
    (493,389
    )
    
    $
    223,670
 24




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##### Table of Contents



WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2006
(unaudited)
(In thousands)
 OtherParent
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidationCash Flows from Operating Activities:Net Income (Loss)
    
    $
    624,367
    
    
    $
    704,052
    
    
    $
    671,167
    
    
    $
    (1,375,219
    )
    
    $
    624,367Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided (Used) by Operating
Activities:Equity in Earnings of Unconsolidated
Affiliates
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (5,737
    )
    
    
    3⁄4
    
    
    
    (5,737
    )Equity in Earnings of Affiliates
    
    
    (704,052
    )
    
    
    (671,167
    )
    
    
    3⁄4
    
    
    
    1,375,219
    
    
    
    3⁄4Charges from Parent or Subsidiary
    
    
    17,324
    
    
    
    (74,128
    )
    
    
    56,804
    
    
    
    3⁄4
    
    
    
    3⁄4Deferred Income Tax Provision (Benefit)
    
    
    3⁄4
    
    
    
    19,630
    
    
    
    (38,913
    )
    
    
    3⁄4
    
    
    
    (19,283
    )Other, Net
    
    
    141,055
    
    
    
    (188,305
    )
    
    
    161,988
    
    
    
    3⁄4
    
    
    
    114,738Net Cash Provided (Used) by Continuing
Operations
    
    
    78,694
    
    
    
    (209,918
    )
    
    
    845,309
    
    
    
    3⁄4
    
    
    
    714,085Net Cash Used by Discontinued Operation
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4Net Cash Provided (Used) by Operating
Activities
    
    
    78,694
    
    
    
    (209,918
    )
    
    
    845,309
    
    
    
    3⁄4
    
    
    
    714,085Cash Flows from Investing Activities:Acquisition of Businesses, Net of Cash
Acquired
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (162,192
    )
    
    
    3⁄4
    
    
    
    (162,192
    )Capital Expenditures for Property, Plant and
Equipment
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (720,650
    )
    
    
    3⁄4
    
    
    
    (720,650
    )Acquisition of Intellectual Property
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (28,469
    )
    
    
    3⁄4
    
    
    
    (28,469
    )Capital Contribution to Subsidiary
    
    
    (651,748
    )
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    651,748
    
    
    
    3⁄4Proceeds from Sale of Assets and Business,
Net
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    22,132
    
    
    
    3⁄4
    
    
    
    22,132Net Cash Used by Investing Activities
    
    
    (651,748
    )
    
    
    3⁄4
    
    
    
    (889,179
    )
    
    
    651,748
    
    
    
    (889,179
    )Cash Flows from Financing Activities:Borrowings
(Repayments) of Short-term Debt, Net
    
    
    (267,407
    )
    
    
    51,136
    
    
    
    94,555
    
    
    
    3⁄4
    
    
    
    (121,716
    )Borrowings (Repayments ) of Long-term Debt,
Net
    
    
    944,216
    
    
    
    (200,865
    )
    
    
    (7,431
    )
    
    
    3⁄4
    
    
    
    735,920Borrowings (Repayments) Between
Subsidiaries, Net
    
    
    (103,717
    )
    
    
    301,888
    
    
    
    (198,171
    )
    
    
    3⁄4
    
    
    
    3⁄4Proceeds from Exercise of Stock Options
    
    
    3⁄4
    
    
    
    54,003
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    54,003Purchase of Treasury Shares
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (507,646
    )
    
    
    3⁄4
    
    
    
    (507,646
    )Proceeds from Capital Contribution
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    651,748
    
    
    
    (651,748
    )
    
    
    3⁄4Other, Net
    
    
    (51
    )
    
    
    631
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    580Net Cash Provided (Used) by Financing
Activities
    
    
    573,041
    
    
    
    206,793
    
    
    
    33,055
    
    
    
    (651,748
    )
    
    
    161,141Net Decrease in Cash and Cash
Equivalents
    
    
    (13
    )
    
    
    (3,125
    )
    
    
    (10,815
    )
    
    
    3⁄4
    
    
    
    (13,953
    )Cash and Cash Equivalents at Beginning of
Period
    
    
    124
    
    
    
    3,172
    
    
    
    130,949
    
    
    
    3⁄4
    
    
    
    134,245Cash and Cash Equivalents at End of Period
    
    $
    111
    
    
    $
    47
    
    
    $
    120,134
    
    
    $
    3⁄4
    
    
    $
    120,292
 25




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##### Table of Contents



WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2005
(unaudited)
(In thousands)
 OtherParent
    
    Issuer
    
    Subsidiaries
    
    Eliminations
    
    ConsolidationCash Flows from Operating Activities:Net Income (Loss)
    
    $
    223,670
    
    
    $
    259,130
    
    
    $
    234,259
    
    
    $
    (493,389
    )
    
    $
    223,670Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided (Used) by Operating
Activities:Equity in Earnings of Unconsolidated
Affiliates
    
    
    (6,497
    )
    
    
    3⁄4
    
    
    
    (7,114
    )
    
    
    3⁄4
    
    
    
    (13,611
    )Equity in Earnings of Affiliates
    
    
    (259,130
    )
    
    
    (234,259
    )
    
    
    3⁄4
    
    
    
    493,389
    
    
    
    3⁄4Charges from Parent or Subsidiary
    
    
    19,368
    
    
    
    (78,875
    )
    
    
    59,507
    
    
    
    3⁄4
    
    
    
    3⁄4Deferred Income Tax Provision (Benefit)
    
    
    3⁄4
    
    
    
    13,447
    
    
    
    (27,278
    )
    
    
    3⁄4
    
    
    
    (13,831
    )Other, Net
    
    
    (633,637
    )
    
    
    (625,594
    )
    
    
    1,368,119
    
    
    
    3⁄4
    
    
    
    108,888Net Cash Provided (Used) by Continuing
Operations
    
    
    (656,226
    )
    
    
    (666,151
    )
    
    
    1,627,493
    
    
    
    3⁄4
    
    
    
    305,116Net Cash Provided by Discontinued
Operation
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    2,294
    
    
    
    3⁄4
    
    
    
    2,294Net Cash Provided (Used) by Operating
Activities
    
    
    (656,226
    )
    
    
    (666,151
    )
    
    
    1,629,787
    
    
    
    3⁄4
    
    
    
    307,410Cash Flows from Investing Activities:Acquisition of Businesses, Net of Cash
Acquired
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (963,410
    )
    
    
    3⁄4
    
    
    
    (963,410
    )Capital Expenditures for Property, Plant and
Equipment
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (320,298
    )
    
    
    3⁄4
    
    
    
    (320,298
    )Acquisition of Intellectual Property
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (9,234
    )
    
    
    3⁄4
    
    
    
    (9,234
    )Proceeds from Sale of Assets and Businesses,
Net
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    9,485
    
    
    
    3⁄4
    
    
    
    9,485Other, Net
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (16,424
    )
    
    
    3⁄4
    
    
    
    (16,424
    )Net Cash Used by Investing Activities
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (1,299,881
    )
    
    
    3⁄4
    
    
    
    (1,299,881
    )Cash Flows from Financing Activities:Borrowings of Short-term Debt, Net
    
    
    932,050
    
    
    
    5,700
    
    
    
    109,025
    
    
    
    3⁄4
    
    
    
    1,046,775Borrowings (Repayments) of Long-term Debt,
Net
    
    
    3⁄4
    
    
    
    1,759
    
    
    
    (4,079
    )
    
    
    3⁄4
    
    
    
    (2,320
    )Redemption of Zero Convertible Debentures
    
    
    3⁄4
    
    
    
    (348,816
    )
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (348,816
    )Borrowings (Repayments) Between
Subsidiaries, Net
    
    
    (414,717
    )
    
    
    809,858
    
    
    
    (395,141
    )
    
    
    3⁄4
    
    
    
    3⁄4Proceeds from Exercise of Stock Options
    
    
    3⁄4
    
    
    
    165,116
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    165,116Other, Net
    
    
    3⁄4
    
    
    
    (2,394
    )
    
    
    (128
    )
    
    
    3⁄4
    
    
    
    (2,522
    )Net Cash Provided (Used) by Financing
Activities
    
    
    517,333
    
    
    
    631,223
    
    
    
    (290,323
    )
    
    
    3⁄4
    
    
    
    858,233Net Increase (Decrease) in Cash and Cash
Equivalents
    
    
    (138,893
    )
    
    
    (34,928
    )
    
    
    39,583
    
    
    
    3⁄4
    
    
    
    (134,238
    )Cash and Cash Equivalents at Beginning of
Period
    
    
    138,979
    
    
    
    74,053
    
    
    
    104,407
    
    
    
    3⁄4
    
    
    
    317,439Cash and Cash Equivalents at End of Period
    
    $
    86
    
    
    $
    39,125
    
    
    $
    143,990
    
    
    $
    3⁄4
    
    
    $
    183,201
 26




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##### Table of Contents



WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 19. New Accounting Pronouncements
 Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106,
and 132(R)
 Fair Value Measurements
 Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements .
 Accounting for Uncertainty in Income
Taxes  an Interpretation of FASB Statement No. 109
 20. Subsequent Event
  27




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
  Overview
 General
   Industry Trends
   Henry Hub


    North American Rig
    
    International RigWTI Oil (1)
    
    Gas (2)
    
    Count (3)
    
    Count (3)September 30, 2006
    
    $
    62.91
    
    
    $
    5.620
    
    
    
    2,185
    
    
    
    949December 31, 2005
    
    
    61.04
    
    
    
    11.225
    
    
    
    2,046
    
    
    
    948September 30, 2005
    
    
    66.24
    
    
    
    13.921
    
    
    
    1,949
    
    
    
    907
 
 (1)
    
    Price per barrel as of September 30 and December 31  Source:Applied Reasoning, Inc.(2)
    
    Price per MM/BTU as of September 30 and December 31  Source:Oil World(3)
    
    Average rig count for the applicable month  Source:Baker Hughes Rig Count  28




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##### Table of Contents



Opportunities and Challenges
    Industry Outlook
     29




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##### Table of Contents



Weatherford Outlook
 Geographic Markets.
 Pricing.
 Business Segments.
  Results of Operations
   30




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##### Table of Contents



Comparative Financial Data
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands, except percentages and per share data)Revenues:Evaluation, Drilling & Intervention Services
    
    $
    1,100,059
    
    
    $
    627,690
    
    
    $
    3,071,829
    
    
    $
    1,608,693Completion & Production Systems
    
    
    596,694
    
    
    
    449,126
    
    
    
    1,699,511
    
    
    
    1,263,1241,696,753
    
    
    
    1,076,816
    
    
    
    4,771,340
    
    
    
    2,871,817Gross Profit %:Evaluation, Drilling & Intervention Services (a)
    
    
    38.3
    %
    
    
    31.5
    %
    
    
    37.6
    %
    
    
    34.3
    %Completion & Production Systems
    
    
    33.1
    
    
    
    29.0
    
    
    
    32.5
    
    
    
    28.236.5
    
    
    
    30.5
    
    
    
    35.8
    
    
    
    31.6Research and Development:Evaluation, Drilling & Intervention Services
    
    $
    25,036
    
    
    $
    14,624
    
    
    $
    70,063
    
    
    $
    35,297Completion & Production Systems
    
    
    13,205
    
    
    
    12,516
    
    
    
    41,982
    
    
    
    36,76538,241
    
    
    
    27,140
    
    
    
    112,045
    
    
    
    72,062Selling, General and Administrative Attributable to
Segments:Evaluation, Drilling & Intervention Services
    
    
    127,992
    
    
    
    71,645
    
    
    
    349,526
    
    
    
    193,736Completion & Production Systems
    
    
    66,418
    
    
    
    62,671
    
    
    
    213,281
    
    
    
    176,908194,410
    
    
    
    134,316
    
    
    
    562,807
    
    
    
    370,644Corporate General and Administrative
    
    
    24,718
    
    
    
    19,159
    
    
    
    71,251
    
    
    
    56,115Equity in Earnings (Losses) of Unconsolidated Affiliates
    
    
    (190
    )
    
    
    2,991
    
    
    
    5,737
    
    
    
    7,114Exit Costs and Restructuring Charges
    
    
    
    
    
    
    80,018
    
    
    
    
    
    
    
    80,018Operating Income:Evaluation, Drilling & Intervention Services
    
    
    267,942
    
    
    
    111,430
    
    
    
    735,087
    
    
    
    322,133Completion & Production Systems
    
    
    117,874
    
    
    
    55,268
    
    
    
    297,202
    
    
    
    142,472Exit Costs and Restructuring Charges
    
    
    
    
    
    
    (80,018
    )
    
    
    
    
    
    
    (80,018
    )Corporate (b)
    
    
    (24,908
    )
    
    
    (16,168
    )
    
    
    (65,514
    )
    
    
    (49,001
    )360,908
    
    
    
    70,512
    
    
    
    966,775
    
    
    
    335,586Debt Redemption Expense
    
    
    
    
    
    
    (4,733
    )
    
    
    
    
    
    
    (4,733
    )Interest Expense, Net
    
    
    (27,591
    )
    
    
    (17,197
    )
    
    
    (70,294
    )
    
    
    (45,834
    )Other, Net
    
    
    (6,161
    )
    
    
    10,966
    
    
    
    (19,651
    )
    
    
    12,172Effective Tax Rate
    
    
    28.4
    %
    
    
    20.6
    %
    
    
    28.8
    %
    
    
    25.1
    %Income from Continuing Operations per Diluted Share
    
    $
    0.66
    
    
    $
    0.15
    
    
    $
    1.75
    
    
    $
    0.74Net Income per Diluted Share
    
    
    0.66
    
    
    
    0.15
    
    
    
    1.75
    
    
    
    0.74Depreciation and Amortization
    
    
    123,508
    
    
    
    81,950
    
    
    
    354,030
    
    
    
    222,389
 
 (a)
    
    Includes a write down of $17.3 million of inventory in connection with our exit and
restructuring plan for the three and nine months ended September 30, 2005.(b)
    
    Includes equity in earnings (losses) of unconsolidated affiliates which are integral to our
operations. 31




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##### Table of Contents



Consolidated Revenues by Geographic Region
 Three Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,2006
    
    2005
    
    2006
    
    2005U.S.
    
    
    39
    %
    
    
    38
    %
    
    
    38
    %
    
    
    38
    %Canada
    
    
    17
    
    
    
    18
    
    
    
    19
    
    
    
    17Latin America
    
    
    10
    
    
    
    10
    
    
    
    11
    
    
    
    9Europe, CIS and West Africa
    
    
    13
    
    
    
    15
    
    
    
    13
    
    
    
    16Middle East and North Africa
    
    
    14
    
    
    
    11
    
    
    
    13
    
    
    
    12Asia Pacific
    
    
    7
    
    
    
    8
    
    
    
    6
    
    
    
    8Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 Company Results
 Revenues
   Gross Profit
  Research and Development
  32




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Corporate General and Administrative
  Exit Cost and Restructuring Charges
     33




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##### Table of Contents



Evaluation,Drilling &
    
    
    Completion &Intervention
    
    
    ProductionServices
    
    
    Systems
    
    
    Corporate
    
    
    Total(In thousands)Cost of Products
    
    $
    20,654
    
    
    $
    3,842
    
    
    $
    3⁄4
    
    
    $
    24,496Cost of Services
    
    
    25,766
    
    
    
    1,083
    
    
    
    3⁄4
    
    
    
    26,849Research and Development
    
    
    9,000
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    9,000Selling General & Administrative
    
    
    17,349
    
    
    
    3,803
    
    
    
    3⁄4
    
    
    
    21,152Corporate General & Administrative
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    32,738
    
    
    
    32,738Total
    
    
    72,769
    
    
    
    8,728
    
    
    
    32,738
    
    
    
    114,235Cash Payments
    
    
    (20,166
    )
    
    
    (7,721
    )
    
    
    (8,187
    )
    
    
    (36,074
    )Non-cash Utilization
    
    
    (52,410
    )
    
    
    (722
    )
    
    
    (12,911
    )
    
    
    (66,043
    )Balance at September 30, 2006
    
    $
    193
    
    
    $
    285
    
    
    $
    11,640
    
    
    $
    12,118
  Interest Expense, Net
  Other, Net
  Income Taxes
  Segment Results
 Evaluation, Drilling & Intervention Services
  34




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##### Table of Contents



Completion & Production Systems
   35




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##### Table of Contents



Liquidity and Capital Resources
 Historical Cash Flows
  
    
    cash inflows from operating activities of $714.1 million;
    
    capital expenditures for property, plant and equipment of $720.7 million;
    
    acquisition of new businesses of approximately $162.2 million in cash, net of cash acquired;
    
    acquisition of intellectual property of $28.5 million;
    
    net proceeds from the sales of assets of $22.1 million;
    
    borrowings, net of repayments, on long-term debt and short-term facilities of $614.2 million;
    
    proceeds from stock option activity of $54.0 million; and
    
    treasury share purchases of $507.6 million.
 Sources of Liquidity and Borrowings
   Uses of AvailabilityShort-term
    
    
    
    
    
    
    
    Commercial
    
    
    
    
    
    LettersCommitted
    
    Facility
    
    Expiration
    
    Paper
    
    
    
    
    
    of
    
    CommittedFinancing Facilities
    
    Amount
    
    Date
    
    Support
    
    Drawn
    
    Credit
    
    AvailabilityRevolving Credit
Facility
    
    $
    750.0
    
    
    May 2011
    
    $
    449.5
    
    
    $
    73.1
    
    
    $
    18.6
    
    
    $
    208.8Canadian Facility
    
    
    22.4
    
    
    July 2007
    
    
    
    
    
    
    4.8
    
    
    
    0.4
    
    
    
    17.2
  36




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##### Table of Contents



Uncommitted Borrowing Arrangements
  Commercial Paper
  Debt Offerings
   37




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##### Table of Contents



Cash Requirements
     Derivative Instruments
       38




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##### Table of Contents



Off Balance Sheet Arrangements
 Guarantees
  Letters of Credit
  Operating Leases
  New Accounting Pronouncements
  Subsequent Event
  Critical Accounting Policies and Estimates
  39




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##### Table of Contents



Revenue Recognition
     Exposures
 Risk Factors
 Currency Exposure
   Acquisition Integration Exposure
   Accounting for Contingencies
 Forward-Looking Statements
   40




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##### Table of Contents




    
    A downturn in market conditions could affect projected results.Any material changes in
oil and natural gas supply and demand, oil and natural gas prices, rig count or other
market trends would affect our results and would likely affect the forward-looking
information we provided. The oil and natural gas industry is extremely volatile and
subject to change based on political and economic factors outside our control. During 2004
and 2005, worldwide drilling activity increased; however, if an extended regional and/or
worldwide recession were to occur, it would result in lower demand and lower prices for oil
and natural gas, which would adversely affect drilling and production activity and
therefore would affect our revenues and income. We have assumed increases in worldwide
demand will continue throughout 2006.
    
    Availability of a skilled workforce could affect our projected results.Due to the high
activity in the exploration and production and oilfield service industries there is an
increasing shortage of available skilled labor. Our forward-looking statements assume we
will be able to recruit and maintain a sufficient skilled workforce for activity levels.
    
    Increases in the prices and availability of our raw materials could affect our results
of operations.We use large amounts of raw materials for manufacturing our products. The
price of these raw materials has a significant impact on our cost of producing products for
sale or producing fixed assets used in our business. We have assumed that the prices of
our raw materials will remain within a manageable range and will be readily available. If
we are unable to attain necessary raw materials or if we are unable to minimize the impact
of increased raw materials costs through our supply chain initiatives or by passing through
these increases to our customers, our margins and results of operations could be adversely
affected.
    
    Our long-term growth depends upon technological innovation and commercialization.Our
ability to deliver our long-term growth strategy depends in part on the commercialization
of new technology. A central aspect of our growth strategy is to innovate our products and
services, to obtain technologically advanced products through internal research and
development and/or acquisitions, to protect proprietary technology from unauthorized use
and to expand the markets for new technology through leverage of our worldwide
infrastructure. The key to our success will be our ability to commercialize the technology
that we have acquired and demonstrate the enhanced value our technology brings to our
customers operations. Our major technological advances include, but are not limited to,
those related to directional drilling, controlled pressure drilling and testing systems, expandable solid
tubulars, expandable sand screens and intelligent well completion. Our forward-looking
statements have assumed successful commercialization of, and above-average growth from,
these new products and services.
    
    Nonrealization of expected benefits from our 2002 corporate reincorporation could affect
our projected results.We have gained certain business, financial and strategic advantages
as a result of our reincorporation, including improvements to our global tax position and
cash flow. An inability to continue to realize expected benefits of the reincorporation in
the anticipated time frame, or at all, would negatively affect the benefit of our corporate
reincorporation.
    
    Nonrealization of expected benefits from our 2005 acquisition of Precision Energy
Services and Precision Drilling International could affect our projected results.We
expect to gain certain business, financial and strategic advantages as a result of this
acquisition, including synergies and operating efficiencies. An inability to realize
expected strategic advantages as a result of the acquisition, would negatively affect the
anticipated benefits of the acquisition.
    
    The cyclical nature of or a prolonged downturn in our industry could affect the carrying
value of our goodwill.As of September 30, 2006, we had approximately $3.0 billion of
goodwill. Our estimates of the value of our goodwill could be reduced in the future as a
result of various factors, some of which are beyond our control. Any reduction in the
value of our goodwill may result in an impairment charge and therefore adversely affect our
results.
    
    Currency fluctuations could have a material adverse financial impact on our business.A
material change in currency rates in our markets could affect our future results as well as
affect the carrying values of our assets. World currencies have been subject to much
volatility. Our forward-looking statements assume no material impact from future changes
in currencies.
    
    Adverse weather conditions in certain regions could aversely affect our operations.In
the summer of 2005, the Gulf of Mexico suffered several significant hurricanes. These
hurricanes and associated hurricane threats reduced the number of days on which we and our
customers could operate, which resulted in lower revenues than we otherwise would have
achieved. Similarly, an unusually warm Canadian winter or unusually rough weather in the
North Sea could reduce our operations and revenues from those areas
 41




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##### Table of Contents



during the relevant period. Our forward-looking statements assume weather patterns in our
primary areas of operations will not deviate significantly from historical patterns.
    
    Political disturbances, war, or terrorist attacks and changes in global trade policies
could adversely impact our operations.We have assumed there will be no material political
disturbances or terrorist attacks and there will be no material changes in global trade
policies. Any further military action undertaken by the U.S. or other countries could
adversely affect our results of operations.
 www.sec.gov
 Available Information
  42




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  Foreign Currency Exchange Rates
    Interest Rates
   September 30, 2006
    
    December 31, 2005Carrying
    
    Fair
    
Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    Value(In millions)6 5/8% Senior Notes due 2011
    
    $
    357.2
    
    
    $
    360.4
    
    
    $
    358.1
    
    
    $
    374.04.95% Senior Notes due 2013
    
    
    255.5
    
    
    
    240.1
    
    
    
    256.0
    
    
    
    244.55.50% Senior Notes due 2016
    
    
    348.6
    
    
    
    343.4
    
    
    
    
    
    
    
6.50% Senior Notes due 2036
    
    
    595.7
    
    
    
    613.1
    
    
    
        
    

    
    
        
 43




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##### Table of Contents



Interest Rate Swaps
    
 ITEM 4. CONTROLS AND PROCEDURES
   44




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1A. RISK FACTORS
  
    
    We have updated the percentage of our net assets located outside the U.S. and carried on
our books in local currencies on page 40 of this report from 40.7% as of December 31, 2005
to 40.1% as of September 30, 2006.
 
    
    We added the following paragraph to the risk factor titled Acquisition Integration Exposure:
 Accounting for Contingencies
 
 ITEM 2. UNREGISTERED SALES OF EQUITY IN SECURITIES AND USE OF PROCEEDS
   MaximumTotal Number
    
    Number (orof Shares
    
    ApproximatePurchased as
    
    Dollar Value) ofPart of
    
    Shares that MayPublicly
    
    Yet BeTotal Number
    
    Average
    
    Announced
    
    Purchasedof Shares
    
    Price Paid
    
    Plans or
    
    Under the PlansPeriod
    
    Purchased
    
    per Share
    
    Programs
    
    or ProgramsJuly 1-July 31, 2006
    
    
    
    

    
    
    $ 
    

    
    
    
    
    

    $
    761,347,941August 1-August 31, 2006
    
    
    2,491,300
    
    
    
    45.28
    
    
    
    2,491,300
    
    
    
    648,539,734September 1-September 30, 2006
    
    
    3,849,000
    
    
    
    40.58
    
    
    
    3,849,000
    
    
    
    492,353,7236,340,300
    
    
    
    42.43
    
    
    
    6,340,300
    
    
    
    492,353,723
  Period
    
    No. of Shares
    
    Average PriceJuly 1-July 31, 2006
    
    
    464
    
    
    $
    48.30August 1-August 31, 2006
    
    
    3⁄4
    
    
    $
    3⁄4September 1-September 30, 2006
    
    
    32,320
    
    
    $
    41.78
 45




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##### Table of Contents



ITEM 6. EXHIBITS
  ExhibitNumber
    
    Description4.1
    
    Officers Certificate, dated August 7, 2006, establishing the
series of 6.50% Senior Notes due 2036 (incorporated by reference
to Exhibit 4.1 to the Registrants Current Report on Form 8-K (File
No. 1-31339) filed August 7, 2006).4.2
    
    Form of $500,000 Global note for 6.50% Senior Notes due 2036
(incorporated by reference to Exhibit 4.2 to the Registrants
Current Report on Form 8-K (File No. 1-31339) filed August 7,
2006).4.3
    
    Form of $100,000 Global note for 6.50% Senior Notes due 2036
(incorporated by reference to Exhibit 4.3 to the Registrants
Current Report on Form 8-K (File No. 1-31339) filed August 7,
2006).10.1
    
    Employment Agreement dated October 27, 2006, between Weatherford International Ltd. and
Andrew P. Becnel (incorporated by reference to Exhibit 10.1 to the Registrants Current Report
on Form 8-K (File No. 1-31339) filed October 27, 2006).10.2
    
    Employment Agreement dated October 27, 2006, between Weatherford International Ltd. and
Jessica Abarca (incorporated by reference to Exhibit 10.2 to the Registrants Current Report
on Form 8-K (File No. 1-31339) filed October 27, 2006).10.3
    
    Indemnification Agreement dated October 27, 2006, between Weatherford International Ltd. and
Jessica Abarca (incorporated by reference to Exhibit 10.3 to the Registrants Current Report
on Form 8-K (File No. 1-31339) filed October 27, 2006).31.1
    
    Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
 
 
    
    Filed with this report 46




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##### Table of Contents



SIGNATURES
  Weatherford International Ltd.By:
    /s/ Bernard J. Duroc-DannerBernard J. Duroc-DannerChief Executive Officer
(Principal Executive Officer)/s/ Andrew P. BecnelAndrew P. BecnelSenior Vice President and Chief Financial Officer(Principal Financial Officer)/s/ Jessica AbarcaJessica AbarcaVice President 
Accounting andChief Accounting Officer(Principal Accounting Officer)Date:  October 31, 2006 47




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##### Table of Contents



ExhibitNumber
    
    Description4.1
    
    Officers Certificate, dated August 7, 2006, establishing the
series of 6.50% Senior Notes due 2036 (incorporated by reference
to Exhibit 4.1 to the Registrants Current Report on Form 8-K (File
No. 1-31339) filed August 7, 2006).4.2
    
    Form of $500,000 Global note for 6.50% Senior Notes due 2036
(incorporated by reference to Exhibit 4.2 to the Registrants
Current Report on Form 8-K (File No. 1-31339) filed August 7,
2006).4.3
    
    Form of $100,000 Global note for 6.50% Senior Notes due 2036
(incorporated by reference to Exhibit 4.3 to the Registrants
Current Report on Form 8-K (File No. 1-31339) filed August 7,
2006).10.1
    
    Employment Agreement dated October 27, 2006, between Weatherford International Ltd. and
Andrew P. Becnel (incorporated by reference to Exhibit 10.1 to the Registrants Current Report
on Form 8-K (File No. 1-31339) filed October 27, 2006).10.2
    
    Employment Agreement dated October 27, 2006, between Weatherford International Ltd. and
Jessica Abarca (incorporated by reference to Exhibit 10.2 to the Registrants Current Report
on Form 8-K (File No. 1-31339) filed October 27, 2006).10.3
    
    Indemnification Agreement dated October 27, 2006, between Weatherford International Ltd. and
Jessica Abarca (incorporated by reference to Exhibit 10.3 to the Registrants Current Report
on Form 8-K (File No. 1-31339) filed October 27, 2006).31.1
    
    Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
 
 
    
    Filed with this report 48