##### 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, 2005
 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
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 515 Post Oak Boulevard
Suite 600
Houston, Texas
    
    77027-3415(Address of principal executive offices)
    
    (Zip Code)
  (Registrants telephone number, include area code)
 
   þ o
  þ o
  o þ
  Title of Class
    

Outstanding
at November 4, 2005Common Shares, par value $1.00
    
    173,816,776




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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 2. UNREGISTERED SALES OF EQUITY IN SECURITIES AND USE OF PROCEEDSITEM 5. OTHER INFORMATIONITEM 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 31,2005
    
    
    2004(unaudited)ASSETSCurrent Assets:Cash and Cash Equivalents
    
    $
    183,201
    
    
    $
    317,439Accounts Receivable, Net of Allowance for Uncollectible
Accounts of $13,559 and $15,910, Respectively
    
    
    1,147,423
    
    
    
    742,291Inventories
    
    
    857,689
    
    
    
    659,669Other Current Assets
    
    
    310,170
    
    
    
    191,391Current Assets from Discontinued Operation
    
    
    3⁄4
    
    
    
    12,4502,498,483
    
    
    
    1,923,240Property, Plant and Equipment, Net
    
    
    2,312,809
    
    
    
    1,397,120Goodwill
    
    
    2,848,053
    
    
    
    1,669,637Other Intangible Assets, Net
    
    
    614,247
    
    
    
    294,593Equity Investments in Unconsolidated Affiliates
    
    
    193,429
    
    
    
    170,202Other Assets
    
    
    175,232
    
    
    
    88,384Long-term Assets from Discontinued Operation
    
    
    3⁄4
    
    
    
    306$
    8,642,253
    
    
    $
    5,543,482LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Short-term Borrowings and Current Portion of Long-term Debt
    
    $
    1,271,803
    
    
    $
    22,235Accounts Payable
    
    
    412,020
    
    
    
    279,763Other Current Liabilities
    
    
    566,774
    
    
    
    346,320Current Liabilities from Discontinued Operation
    
    
    3⁄4
    
    
    
    11,6882,250,597
    
    
    
    660,006Long-term Debt
    
    
    624,482
    
    
    
    830,853Zero Coupon Convertible Senior Debentures
    
    
    3⁄4
    
    
    
    573,578Deferred Tax Liabilities
    
    
    136,663
    
    
    
    30,580Other Liabilities
    
    
    173,860
    
    
    
    135,076Commitments and ContingenciesShareholders Equity:Common Shares, $1 Par Value, Authorized 500,000 Shares,
Issued 178,485 and 145,279 Shares, Respectively
    
    
    178,485
    
    
    
    145,279Capital in Excess of Par Value
    
    
    4,306,100
    
    
    
    2,531,365Treasury Shares, Net
    
    
    (153,464
    )
    
    
    (228,064
    )Retained Earnings
    
    
    959,188
    
    
    
    735,518Accumulated Other Comprehensive Income
    
    
    166,342
    
    
    
    129,2915,456,651
    
    
    
    3,313,389$
    8,642,253
    
    
    $
    5,543,482
  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 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues:Products
    
    $
    490,269
    
    
    $
    342,820
    
    
    $
    1,346,265
    
    
    $
    1,097,052Services
    
    
    586,547
    
    
    
    451,521
    
    
    
    1,525,552
    
    
    
    1,152,1171,076,816
    
    
    
    794,341
    
    
    
    2,871,817
    
    
    
    2,249,169Costs and Expenses:Cost of Products
    
    
    355,689
    
    
    
    248,489
    
    
    
    950,931
    
    
    
    800,528Cost of Services
    
    
    392,284
    
    
    
    290,790
    
    
    
    1,013,997
    
    
    
    753,670Research and Development
    
    
    27,140
    
    
    
    20,445
    
    
    
    72,062
    
    
    
    59,719Selling, General and Administrative Attributable
to Segments
    
    
    135,167
    
    
    
    113,184
    
    
    
    376,091
    
    
    
    321,911Corporate General and Administrative
    
    
    19,169
    
    
    
    15,683
    
    
    
    56,136
    
    
    
    39,237Equity in Earnings of Unconsolidated Affiliates
    
    
    (6,857
    )
    
    
    (5,279
    )
    
    
    (13,611
    )
    
    
    (16,557
    )Exit Costs and Restructuring Charges
    
    
    80,018
    
    
    
    3⁄4
    
    
    
    80,018
    
    
    
    3⁄4Operating Income
    
    
    74,206
    
    
    
    111,029
    
    
    
    336,193
    
    
    
    290,661Other Income (Expense):Debt Redemption Expense
    
    
    (4,733
    )
    
    
    3⁄4
    
    
    
    (4,733
    )
    
    
    3⁄4Gain on Sale of Universal Common Stock
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    25,280Interest Expense, Net
    
    
    (17,197
    )
    
    
    (15,060
    )
    
    
    (45,834
    )
    
    
    (45,788
    )Other, Net
    
    
    7,272
    
    
    
    (905
    )
    
    
    11,565
    
    
    
    (1,528
    )Income from Continuing Operations Before Income
Taxes
    
    
    59,548
    
    
    
    95,064
    
    
    
    297,191
    
    
    
    268,625Provision for Income Taxes
    
    
    (12,249
    )
    
    
    (25,226
    )
    
    
    (74,732
    )
    
    
    (64,255
    )Income from Continuing Operations
    
    
    47,299
    
    
    
    69,838
    
    
    
    222,459
    
    
    
    204,370Income (Loss) from Discontinued Operation,
Net of Taxes
    
    
    587
    
    
    
    259
    
    
    
    1,211
    
    
    
    (7,779
    )Net Income
    
    $
    47,886
    
    
    $
    70,097
    
    
    $
    223,670
    
    
    $
    196,591Basic Earnings (Loss) Per Share:Income from Continuing Operations
    
    $
    0.31
    
    
    $
    0.52
    
    
    $
    1.56
    
    
    $
    1.53Income (Loss) from Discontinued Operation
    
    
    0.01
    
    
    
    0.00
    
    
    
    0.01
    
    
    
    (0.05
    )Net Income
    
    $
    0.32
    
    
    $
    0.52
    
    
    $
    1.57
    
    
    $
    1.48Diluted Earnings (Loss) Per Share:Income from Continuing Operations
    
    $
    0.30
    
    
    $
    0.49
    
    
    $
    1.48
    
    
    $
    1.44Income (Loss) from Discontinued Operation
    
    
    0.01
    
    
    
    0.00
    
    
    
    0.01
    
    
    
    (0.05
    )Net Income
    
    $
    0.31
    
    
    $
    0.49
    
    
    $
    1.49
    
    
    $
    1.39Weighted Average Shares Outstanding:Basic
    
    
    150,486
    
    
    
    134,147
    
    
    
    142,412
    
    
    
    133,189Diluted
    
    
    155,894
    
    
    
    149,089
    
    
    
    155,708
    
    
    
    147,829
  2




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##### Table of Contents



WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
 Nine MonthsEnded September 30,2005
    
    
    2004Cash Flows from Operating Activities:Net Income
    
    $
    223,670
    
    
    $
    196,591Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:Depreciation and Amortization
    
    
    222,389
    
    
    
    188,788Gain on Sale of Universal Common Stock
    
    
    3⁄4
    
    
    
    (25,280
    )(Gain) Loss on Sales of Assets, Net
    
    
    (460
    )
    
    
    3,538(Income) Loss from Discontinued Operation
    
    
    (1,211
    )
    
    
    7,779Debt Redemption Expense
    
    
    4,733
    
    
    
    3⁄4Non-cash Portion of Exit Costs and Restructuring Charges
    
    
    81,651
    
    
    
    3⁄4Equity in Earnings of Unconsolidated Affiliates
    
    
    (13,611
    )
    
    
    (16,557
    )Employee Stock-based Compensation Expense
    
    
    22,826
    
    
    
    6,185Amortization of Original Issue Discount
    
    
    11,432
    
    
    
    12,589Deferred Income Tax Benefit
    
    
    (13,831
    )
    
    
    (2,716
    )Other, Net
    
    
    3,467
    
    
    
    667Change in Operating Assets and Liabilities, Net of Effect
of Businesses Acquired
    
    
    (285,675
    )
    
    
    (36,222
    )Net Cash Provided by Continuing Operations
    
    
    255,380
    
    
    
    335,362Net Cash Provided by Discontinued Operation
    
    
    2,294
    
    
    
    4,126Net Cash Provided by Operating Activities
    
    
    257,674
    
    
    
    339,488Cash Flows from Investing Activities:Acquisitions of Businesses, Net of Cash Acquired
    
    
    (963,410
    )
    
    
    (14,056
    )Capital Expenditures for Property, Plant and Equipment
    
    
    (320,298
    )
    
    
    (209,638
    )Acquisition of Intellectual Property
    
    
    (9,234
    )
    
    
    (17,025
    )Purchase of
Equity Investment in Unconsolidated Affiliates, Net
    
    
    (16,424
    )
    
    
    (2,856
    )Proceeds from Sale of Universal Common Stock
    
    
    3⁄4
    
    
    
    89,998Proceeds
from Sale of Assets
    
    
    9,485
    
    
    
    14,814Net Cash Used by Investing Activities
    
    
    (1,299,881
    )
    
    
    (138,763
    )Cash Flows from Financing Activities:Borrowings (Repayments) of Short-term Debt, Net
    
    
    1,046,775
    
    
    
    (149,000
    )Repayments of Long-term Debt, Net
    
    
    (2,320
    )
    
    
    (7,103
    )Redemption of Zero Coupon Convertible Debentures
    
    
    (299,080
    )
    
    
    3⁄4Repayments on Asset Securitization
    
    
    3⁄4
    
    
    
    (75,000
    )Proceeds from Exercise of Stock Options
    
    
    165,116
    
    
    
    92,014Other Financing Activities, Net
    
    
    (2,522
    )
    
    
    (766
    )Net Cash Provided (Used) by Financing Activities
    
    
    907,969
    
    
    
    (139,855
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (134,238
    )
    
    
    60,870Cash and Cash Equivalents at Beginning of Period
    
    
    317,439
    
    
    
    56,082Cash and Cash Equivalents at End of Period
    
    $
    183,201
    
    
    $
    116,952Supplemental Cash Flow Information:Interest Paid
    
    $
    84,472
    
    
    $
    40,054Income Taxes Paid, Net of Refunds
    
    
    59,395
    
    
    
    62,039
  3




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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 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net Income
    
    $
    47,886
    
    
    $
    70,097
    
    
    $
    223,670
    
    
    $
    196,591Other Comprehensive Income (Loss):Reclassification Adjustment for Deferred Loss on
Derivative Instruments
    
    
    69
    
    
    
    68
    
    
    
    206
    
    
    
    197Foreign Currency Translation Adjustment
    
    
    81,357
    
    
    
    24,765
    
    
    
    36,845
    
    
    
    (6,792
    )Comprehensive Income
    
    $
    129,312
    
    
    $
    94,930
    
    
    $
    260,721
    
    
    $
    189,996
  4




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##### Table of Contents



WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 1. General
    Disclosures about
Segments of an Enterprise and Related Information Notes 3, 6
and 16.
 2. Business Combinations
   5




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  Note 11
  Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands, except per share amounts)Revenues
    
    $
    1,285,299
    
    
    $
    1,027,206
    
    
    $
    3,627,818
    
    
    $
    2,869,368Income from continuing operations
    
    
    51,726
    
    
    
    73,291
    
    
    
    255,738
    
    
    
    210,618Net income
    
    
    52,313
    
    
    
    73,550
    
    
    
    256,949
    
    
    
    202,839Basic earnings per share from continuing
operations
    
    
    0.31
    
    
    
    0.46
    
    
    
    1.55
    
    
    
    1.32Diluted earnings per share from
continuing operations
    
    
    0.30
    
    
    
    0.44
    
    
    
    1.47
    
    
    
    1.26
  3. Exit Costs and Restructuring Charges
  6




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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
    
    $
    17,240
    
    
    $
    2,393
    
    
    $
    3⁄4
    
    
    $
    19,633Cost of Services and Rentals
    
    
    23,445
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    23,445Research and Development
    
    
    8,000
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    8,000Selling General & Administrative
    
    
    17,137
    
    
    
    1,737
    
    
    
    3⁄4
    
    
    
    18,874Corporate General & Administrative
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    27,306
    
    
    
    27,306Total
    
    
    65,822
    
    
    
    4,130
    
    
    
    27,306
    
    
    
    97,258Utilized during the period
    
    
    (59,910
    )
    
    
    (1,741
    )
    
    
    (13,190
    )
    
    
    (74,841
    )Balance as of September 30, 2005
    
    $
    5,912
    
    
    $
    2,389
    
    
    $
    14,116
    
    
    $
    22,417
 4. Discontinued Operation
 Accounting for the Impairment or Disposal of Long-Lived Assets
  Allocation of Interest to Discontinued Operations
  Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands)Revenues
    
    $
    3⁄4
    
    
    $
    9,247
    
    
    $
    20,794
    
    
    $
    30,106Income (Loss) Before Income Taxes
    
    $
    587
    
    
    $
    259
    
    
    $
    777
    
    
    $
    (5,894
    )Benefit (Provision) for Income Taxes
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    434
    
    
    
    (1,885
    )Income (Loss) from Discontinued Operation,Net of Taxes
    
    $
    587
    
    
    $
    259
    
    
    $
    1,211
    
    
    $
    (7,779
    )
 7




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##### Table of Contents



WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  December 31,2004Accounts Receivable, Net of Allowance for Uncollectible Accounts
    
    $
    1,759Inventories
    
    
    9,533Other Current Assets
    
    
    1,158Current Assets from Discontinued Operation
    
    
    12,450Property, Plant and Equipment, Net
    
    
    175Other Assets
    
    
    131Long-term Assets from Discontinued Operation
    
    
    306$
    12,756Accounts Payable
    
    $
    7,567Other Current Liabilities
    
    
    4,121Current Liabilities from Discontinued Operation
    
    $
    11,688
 5. Universal Compression
   Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands)Revenues
    
    $
    181,128
    
    
    $
    191,884
    
    
    $
    582,448
    
    
    $
    567,468Gross Profit
    
    
    86,641
    
    
    
    77,698
    
    
    
    251,775
    
    
    
    228,234Net Income
    
    
    17,679
    
    
    
    12,190
    
    
    
    31,325
    
    
    
    35,700
  6. Goodwill
 Goodwill and Other
Intangible Assets
 8




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  Evaluation,
    
    
    CompletionDrilling &
    
    
    &Intervention
    
    
    Production
    
    
    OtherServices
    
    
    Systems
    
    
    Operations
    
    
    Total(in thousands)As of January 1, 2005
    
    $
    852,804
    
    
    $
    797,713
    
    
    $
    19,120
    
    
    $
    1,669,637Goodwill acquired during period
    
    
    1,113,708
    
    
    
    19,917
    
    
    
    12,932
    
    
    
    1,146,557Disposals
    
    
    
    
    
    
    (4,179
    )
    
    
    
    
    
    
    (4,179
    )Purchase price and other
adjustments
    
    
    (6,049
    )
    
    
    3,823
    
    
    
    
    
    
    
    (2,226
    )Impact of foreign currency
translation
    
    
    45,190
    
    
    
    (6,926
    )
    
    
    
    
    
    
    38,264As of September 30, 2005
    
    $
    2,005,653
    
    
    $
    810,348
    
    
    $
    32,052
    
    
    $
    2,848,053
 7. Other Intangible Assets, Net
   September 30, 2005
    
    
    December 31, 2004Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    
    
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    Net(In thousands)Licenses
    
    $
    204,933
    
    
    $
    (45,295
    )
    
    $
    159,638
    
    
    $
    203,728
    
    
    $
    (36,549
    )
    
    $
    167,179Patents
    
    
    114,647
    
    
    
    (31,335
    )
    
    
    83,312
    
    
    
    107,630
    
    
    
    (26,609
    )
    
    
    81,021Covenants not
to compete
    
    
    22,482
    
    
    
    (19,423
    )
    
    
    3,059
    
    
    
    21,986
    
    
    
    (17,625
    )
    
    
    4,361Other
    
    
    13,033
    
    
    
    (5,781
    )
    
    
    7,252
    
    
    
    12,923
    
    
    
    (4,392
    )
    
    
    8,531$
    355,095
    
    
    $
    (101,834
    )
    
    $
    253,261
    
    
    $
    346,267
    
    
    $
    (85,175
    )
    
    $
    261,092
   Note 15
 9




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 8. Inventories
  September 30,
    
    
    December 31,2005
    
    
    2004(In thousands)Raw materials, components and supplies
    
    $
    267,586
    
    
    $
    162,503Work in process
    
    
    32,009
    
    
    
    46,654Finished goods
    
    
    558,094
    
    
    
    450,512$
    857,689
    
    
    $
    659,669
  9. Short-term Debt
 September 30,
    
    
    December 31,2005
    
    
    2004(In thousands)364-Day Revolving Credit Facility
    
    $
    1,032,000
    
    
    $
    2003 Revolving Credit Facility
    
    
    11,050
    
    
    
    Short-term bank loans
    
    
    14,427
    
    
    
    11,072Total short-term borrowings
    
    
    1,057,477
    
    
    
    11,072Current portion of long-term debt
    
    
    214,326
    
    
    
    11,163Short-term Borrowings and Current Portion of Long-term Debt
    
    $
    1,271,803
    
    
    $
    22,235
    10




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##### Table of Contents



WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
   1 4
  10. Interest Rate Derivatives
  11. Zero Coupon Convertible Senior Debentures
    12. Earnings Per Share
  11




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##### Table of Contents



WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
    Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands)Basic weighted average shares outstanding
    
    
    150,486
    
    
    
    134,147
    
    
    
    142,412
    
    
    
    133,189Dilutive effect of:Warrant
    
    
    928
    
    
    
    1,124
    
    
    
    749
    
    
    
    975Stock option and restricted share plans
    
    
    4,480
    
    
    
    4,721
    
    
    
    4,540
    
    
    
    4,568Convertible debentures
    
    
    
    
    
    
    9,097
    
    
    
    8,007
    
    
    
    9,097Diluted weighted average shares outstanding
    
    
    155,894
    
    
    
    149,089
    
    
    
    155,708
    
    
    
    147,829
 13. Supplemental Cash Flow Information
  Nine MonthsSeptember 30,2005
    
    
    2004(In thousands)Fair value of assets, net of cash acquired
    
    $
    1,602,791
    
    
    $
    9,169Goodwill
    
    
    1,146,557
    
    
    
    6,045Consideration paid related to prior year acquisitions
    
    
    2,497
    
    
    
    3,532Common shares issued
    
    
    (1,398,020
    )
    
    
    Total liabilities assumed
    
    
    (390,415
    )
    
    
    (4,690
    )Cash consideration, net of cash acquired
    
    $
    963,410
    
    
    $
    14,056
 14. Stock-based Compensation
  Accounting for Stock-Based
Compensation
 12




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##### Table of Contents



WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Accounting for Stock Issued to
Employees.
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands, except per share amounts)Net Income:As reported
    
    $
    47,886
    
    
    $
    70,097
    
    
    $
    223,670
    
    
    $
    196,591Employee stock-based compensation expense
included in reported net income, net of income
tax benefit
    
    
    6,095
    
    
    
    1,601
    
    
    
    14,837
    
    
    
    4,020Pro forma compensation expense, determined
under fair value methods for all awards, net of
income tax benefit
    
    
    (9,363
    )
    
    
    (6,255
    )
    
    
    (25,605
    )
    
    
    (18,535
    )Pro forma
    
    $
    44,618
    
    
    $
    65,443
    
    
    $
    212,902
    
    
    $
    182,076Basic earnings per share:As reported
    
    $
    0.32
    
    
    $
    0.52
    
    
    $
    1.57
    
    
    $
    1.48Pro forma
    
    
    0.30
    
    
    
    0.49
    
    
    
    1.49
    
    
    
    1.37Diluted earnings per share:As reported
    
    $
    0.31
    
    
    $
    0.49
    
    
    $
    1.49
    
    
    $
    1.39Pro forma
    
    
    0.29
    
    
    
    0.46
    
    
    
    1.42
    
    
    
    1.29
  15. Retirement and Employee Benefit Plans
  Three Months Ended September 30,2005
    
    
    2004United
    
    
    
    
    
    
    UnitedStates
    
    
    International
    
    
    States
    
    
    International(In thousands)Service cost
    
    $
    633
    
    
    $
    1,974
    
    
    $
    441
    
    
    $
    1,375Interest cost
    
    
    872
    
    
    
    1,200
    
    
    
    632
    
    
    
    743Expected return on plan assets
    
    
    (186
    )
    
    
    (926
    )
    
    
    (232
    )
    
    
    (706
    )Amortization of transition obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    657
    
    
    
    80
    
    
    
    657
    
    
    
    22Amortization of loss
    
    
    327
    
    
    
    9
    
    
    
    25
    
    
    
    22Settlement/curtailment losses
    
    
    11,120
    
    
    
    
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    13,423
    
    
    $
    2,337
    
    
    $
    1,523
    
    
    $
    1,456
 13




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Nine Months Ended September 30,2005
    
    
    2004United
    
    
    
    
    
    
    UnitedStates
    
    
    International
    
    
    States
    
    
    International(In thousands)Service cost
    
    $
    1,899
    
    
    $
    5,984
    
    
    $
    1,322
    
    
    $
    4,143Interest cost
    
    
    2,633
    
    
    
    3,511
    
    
    
    1,896
    
    
    
    2,326Expected return on plan assets
    
    
    (601
    )
    
    
    (2,703
    )
    
    
    (696
    )
    
    
    (2,125
    )Amortization of transition obligation
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    1,971
    
    
    
    246
    
    
    
    1,971
    
    
    
    66Amortization of loss
    
    
    945
    
    
    
    30
    
    
    
    75
    
    
    
    325Settlement/curtailment losses
    
    
    11,120
    
    
    
    
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    17,967
    
    
    $
    7,066
    
    
    $
    4,568
    
    
    $
    4,735
  16. Segment Information
 Reporting Segments
     14




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##### Table of Contents



WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands)Revenues from unaffiliated customers:Evaluation, Drilling & Intervention Services
    
    $
    609,547
    
    
    $
    427,621
    
    
    $
    1,590,550
    
    
    $
    1,219,066Completion & Production Systems
    
    
    429,591
    
    
    
    344,073
    
    
    
    1,204,526
    
    
    
    970,270Other Operations
    
    
    37,678
    
    
    
    22,647
    
    
    
    76,741
    
    
    
    59,833$
    1,076,816
    
    
    $
    794,341
    
    
    $
    2,871,817
    
    
    $
    2,249,169Depreciation and amortization:Evaluation, Drilling & Intervention Services
    
    $
    57,927
    
    
    $
    43,917
    
    
    $
    154,885
    
    
    $
    131,122Completion & Production Systems
    
    
    19,847
    
    
    
    16,868
    
    
    
    58,715
    
    
    
    50,185Other Operations
    
    
    3,627
    
    
    
    1,832
    
    
    
    7,109
    
    
    
    5,625Corporate
    
    
    549
    
    
    
    644
    
    
    
    1,680
    
    
    
    1,856$
    81,950
    
    
    $
    63,261
    
    
    $
    222,389
    
    
    $
    188,788Operating income (expense):Evaluation, Drilling & Intervention
Services (a)
    
    $
    108,098
    
    
    $
    81,218
    
    
    $
    318,209
    
    
    $
    215,855Completion & Production Systems
    
    
    52,820
    
    
    
    33,473
    
    
    
    133,264
    
    
    
    81,364Other Operations
    
    
    5,618
    
    
    
    6,742
    
    
    
    7,263
    
    
    
    16,122Exit Costs and Restructuring Charges
    
    
    (80,018
    )
    
    
    
    
    
    
    (80,018
    )
    
    
    Corporate (b)
    
    
    (12,312
    )
    
    
    (10,404
    )
    
    
    (42,525
    )
    
    
    (22,680
    )$
    74,206
    
    
    $
    111,029
    
    
    $
    336,193
    
    
    $
    290,661
 
 (a)
    
    Includes a write down of $17.2 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 of unconsolidated affiliates.  17. Condensed Consolidating Financial Statements
  15




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##### Table of Contents



WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Condensed Consolidating Balance Sheet
September 30, 2005
(unaudited)
(In thousands)
 OtherParent
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidationASSETSCurrent Assets:Cash and Cash Equivalents
    
    $
    86
    
    
    $
    39,125
    
    
    $
    143,990
    
    
    $
    
    
    
    $
    183,201Other Current Assets
    
    
    160,758
    
    
    
    13,309
    
    
    
    2,141,215
    
    
    
    
    
    
    
    2,315,282160,844
    
    
    
    52,434
    
    
    
    2,285,205
    
    
    
    
    
    
    
    2,498,483Equity Investments in Unconsolidated Affiliates
    
    
    158,295
    
    
    
    
    
    
    
    35,134
    
    
    
    
    
    
    
    193,429Equity Investments in Affiliates
    
    
    7,623,774
    
    
    
    2,362,708
    
    
    
    11,528,160
    
    
    
    (21,514,642
    )
    
    
    Shares Held in Parent
    
    
    
    
    
    
    195,644
    
    
    
    
    
    
    
    (195,644
    )
    
    
    Intercompany Receivables, Net
    
    
    419,988
    
    
    
    1,590,517
    
    
    
    
    
    
    
    (2,010,505
    )
    
    
    Other Assets
    
    
    40,159
    
    
    
    10,560
    
    
    
    5,899,622
    
    
    
    
    
    
    
    5,950,341$
    8,403,060
    
    
    $
    4,211,863
    
    
    $
    19,748,121
    
    
    $
    (23,720,791
    )
    
    $
    8,642,253LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Short-term Borrowings and Current Portion
of Long-term Debt
    
    $
    932,742
    
    
    $
    214,224
    
    
    $
    124,837
    
    
    $
    
    
    
    $
    1,271,803Accounts Payable and Other Current
Liabilities
    
    
    6,147
    
    
    
    15,705
    
    
    
    956,942
    
    
    
    
    
    
    
    978,794938,889
    
    
    
    229,929
    
    
    
    1,081,779
    
    
    
    
    
    
    
    2,250,597Long-term Debt
    
    
    255,497
    
    
    
    354,679
    
    
    
    14,306
    
    
    
    
    
    
    
    624,482Intercompany Payables, Net
    
    
    
    
    
    
    
    
    
    
    2,010,505
    
    
    
    (2,010,505
    )
    
    
    Other Long-term Liabilities
    
    
    34,678
    
    
    
    77,466
    
    
    
    198,379
    
    
    
    
    
    
    
    310,523Shareholders Equity
    
    
    7,173,996
    
    
    
    3,549,789
    
    
    
    16,443,152
    
    
    
    (21,710,286
    )
    
    
    5,456,651$
    8,403,060
    
    
    $
    4,211,863
    
    
    $
    19,748,121
    
    
    $
    (23,720,791
    )
    
    $
    8,642,253
 16




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##### Table of Contents



WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Condensed Consolidating Balance Sheet
December 31, 2004
(In thousands)
 OtherParent
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidationASSETSCurrent Assets:Cash and Cash Equivalents
    
    $
    138,979
    
    
    $
    74,053
    
    
    $
    104,407
    
    
    $
    
    
    
    $
    317,439Other Current Assets
    
    
    1,149
    
    
    
    52,900
    
    
    
    1,551,752
    
    
    
    
    
    
    
    1,605,801140,128
    
    
    
    126,953
    
    
    
    1,656,159
    
    
    
    
    
    
    
    1,923,240Equity Investments in Unconsolidated Affiliates
    
    
    151,798
    
    
    
    
    
    
    
    18,404
    
    
    
    
    
    
    
    170,202Equity Investments in Affiliates
    
    
    3,837,607
    
    
    
    1,752,753
    
    
    
    6,763,091
    
    
    
    (12,353,451
    )
    
    
    Shares Held in Parent
    
    
    
    
    
    
    228,064
    
    
    
    
    
    
    
    (228,064
    )
    
    
    Intercompany Receivables, Net
    
    
    
    
    
    
    2,366,608
    
    
    
    
    
    
    
    (2,366,608
    )
    
    
    Other Assets
    
    
    34,026
    
    
    
    7,379
    
    
    
    3,408,635
    
    
    
    
    
    
    
    3,450,040$
    4,163,559
    
    
    $
    4,481,757
    
    
    $
    11,846,289
    
    
    $
    (14,948,123
    )
    
    $
    5,543,482LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Short-term Borrowings and Current Portion
of Long-term Debt
    
    $
    669
    
    
    $
    6,115
    
    
    $
    15,451
    
    
    $
    
    
    
    $
    22,235Accounts Payable and Other Current
Liabilities
    
    
    4,645
    
    
    
    7,578
    
    
    
    625,548
    
    
    
    
    
    
    
    637,7715,314
    
    
    
    13,693
    
    
    
    640,999
    
    
    
    
    
    
    
    660,006Long-term Debt
    
    
    255,989
    
    
    
    1,133,263
    
    
    
    15,179
    
    
    
    
    
    
    
    1,404,431Intercompany Payables, Net
    
    
    50,978
    
    
    
    
    
    
    
    2,315,630
    
    
    
    (2,366,608
    )
    
    
    Other Long-term Liabilities
    
    
    28,727
    
    
    
    68,998
    
    
    
    67,931
    
    
    
    
    
    
    
    165,656Shareholders Equity
    
    
    3,822,551
    
    
    
    3,265,803
    
    
    
    8,806,550
    
    
    
    (12,581,515
    )
    
    
    3,313,389$
    4,163,559
    
    
    $
    4,481,757
    
    
    $
    11,846,289
    
    
    $
    (14,948,123
    )
    
    $
    5,543,482
 17




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##### Table of Contents



WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Condensed Consolidating Statements of Operations
Three Months Ended September 30, 2005
(unaudited)
(In thousands)
 OtherParent
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidationRevenues
    
    $
    
    
    
    $
    
    
    
    $
    1,076,816
    
    
    $
    
    
    
    $
    1,076,816Costs and Expenses
    
    
    (6,753
    )
    
    
    (275
    )
    
    
    (1,002,439
    )
    
    
    
    
    
    
    (1,009,467
    )Equity in Earnings of Unconsolidated Affiliates
    
    
    3,866
    
    
    
    
    
    
    
    2,991
    
    
    
    
    
    
    
    6,857Operating Income (Loss)
    
    
    (2,887
    )
    
    
    (275
    )
    
    
    77,368
    
    
    
    
    
    
    
    74,206Other Income (Expense):Debt Redemption Expense
    
    
    
    
    
    
    (4,733
    )
    
    
    
    
    
    
    
    
    
    
    (4,733
    )Interest Expense, Net
    
    
    (6,870
    )
    
    
    (10,238
    )
    
    
    (89
    )
    
    
    
    
    
    
    (17,197
    )Intercompany Charges, Net
    
    
    (8,524
    )
    
    
    26,759
    
    
    
    (18,235
    )
    
    
    
    
    
    
    Equity in Subsidiary Income
    
    
    65,107
    
    
    
    57,255
    
    
    
    
    
    
    
    (122,362
    )
    
    
    Other, Net
    
    
    1,068
    
    
    
    17
    
    
    
    6,187
    
    
    
    
    
    
    
    7,272Income (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
    )
    
    
    
    
    
    
    (12,249
    )Income (Loss) from Continuing Operations
    
    
    47,886
    
    
    
    65,107
    
    
    
    56,668
    
    
    
    (122,362
    )
    
    
    47,299Income from Discontinued Operation, Net of
Taxes
    
    
    
    
    
    
    
    
    
    
    587
    
    
    
    
    
    
    
    587Net Income (Loss)
    
    $
    47,886
    
    
    $
    65,107
    
    
    $
    57,255
    
    
    $
    (122,362
    )
    
    $
    47,886
 Condensed Consolidating Statements of Operations
Three Months Ended September 30, 2004
(unaudited)
(In thousands)
 OtherParent
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidationRevenues
    
    $
    
    
    
    $
    
    
    
    $
    794,341
    
    
    $
    
    
    
    $
    794,341Costs and Expenses
    
    
    (1,658
    )
    
    
    (342
    )
    
    
    (686,591
    )
    
    
    
    
    
    
    (688,591
    )Equity in Earnings of Unconsolidated Affiliates
    
    
    4,193
    
    
    
    
    
    
    
    1,086
    
    
    
    
    
    
    
    5,279Operating Income (Loss)
    
    
    2,535
    
    
    
    (342
    )
    
    
    108,836
    
    
    
    
    
    
    
    111,029Other Income (Expense):Gain on Sale of Universal Common Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest Expense, Net
    
    
    (2,490
    )
    
    
    (10,958
    )
    
    
    (1,612
    )
    
    
    
    
    
    
    (15,060
    )Intercompany Charges, Net
    
    
    (6,081
    )
    
    
    20,815
    
    
    
    (14,734
    )
    
    
    
    
    
    
    Equity in Subsidiary Income
    
    
    77,590
    
    
    
    73,228
    
    
    
    
    
    
    
    (150,818
    )
    
    
    Other, Net
    
    
    (836
    )
    
    
    
    
    
    
    (69
    )
    
    
    
    
    
    
    (905
    )Income (Loss) from Continuing Operations
Before Income Taxes
    
    
    70,718
    
    
    
    82,743
    
    
    
    92,421
    
    
    
    (150,818
    )
    
    
    95,064Provision for Income Taxes
    
    
    (621
    )
    
    
    (5,153
    )
    
    
    (19,452
    )
    
    
    
    
    
    
    (25,226
    )Income (Loss) from Continuing Operations
    
    
    70,097
    
    
    
    77,590
    
    
    
    72,969
    
    
    
    (150,818
    )
    
    
    69,838Loss from Discontinued Operation, Net of
Taxes
    
    
    
    
    
    
    
    
    
    
    259
    
    
    
    
    
    
    
    259Net Income (Loss)
    
    $
    70,097
    
    
    $
    77,590
    
    
    $
    73,228
    
    
    $
    (150,818
    )
    
    $
    70,097
 18




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##### Table of Contents



WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Condensed Consolidating Statements of Operations
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
    )
    
    
    (2,536,722
    )
    
    
    3⁄4
    
    
    
    (2,549,235
    )Equity in Earnings of
Unconsolidated Affiliates
    
    
    6,497
    
    
    
    3⁄4
    
    
    
    7,114
    
    
    
    3⁄4
    
    
    
    13,611Operating Income (Loss)
    
    
    (5,400
    )
    
    
    (616
    )
    
    
    342,209
    
    
    
    3⁄4
    
    
    
    336,193Other Income (Expense):Debt Redemption Expense
    
    
    
    
    
    
    (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
    
    
    (1,519
    )
    
    
    (155
    )
    
    
    13,239
    
    
    
    3⁄4
    
    
    
    11,565Income (Loss) from
Continuing Operations
Before Income Taxes
    
    
    223,086
    
    
    
    271,966
    
    
    
    295,528
    
    
    
    (493,389
    )
    
    
    297,191Provision 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
 Condensed Consolidating Statements of Operations
Nine Months Ended September 30, 2004
(unaudited)
(In thousands)
 OtherParent
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidationRevenues
    
    $
    3⁄4
    
    
    $
    3⁄4
    
    
    $
    2,249,169
    
    
    $
    3⁄4
    
    
    $
    2,249,169Costs and Expenses
    
    
    (2,755
    )
    
    
    (1,233
    )
    
    
    (1,971,077
    )
    
    
    3⁄4
    
    
    
    (1,975,065
    )Equity in Earnings of
Unconsolidated Affiliates
    
    
    14,266
    
    
    
    3⁄4
    
    
    
    2,291
    
    
    
    3⁄4
    
    
    
    16,557Operating Income (Loss)
    
    
    11,511
    
    
    
    (1,233
    )
    
    
    280,383
    
    
    
    3⁄4
    
    
    
    290,661Other Income (Expense):Gain on Sale of Universal
Common Stock
    
    
    25,280
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    25,280Interest Expense, Net
    
    
    (8,834
    )
    
    
    (32,620
    )
    
    
    (4,334
    )
    
    
    3⁄4
    
    
    
    (45,788
    )Intercompany Charges, Net
    
    
    (18,750
    )
    
    
    68,033
    
    
    
    (49,283
    )
    
    
    3⁄4
    
    
    
    3⁄4Equity in Subsidiary Income
    
    
    188,622
    
    
    
    169,835
    
    
    
    3⁄4
    
    
    
    (358,457
    )
    
    
    3⁄4Other, Net
    
    
    (178
    )
    
    
    (53
    )
    
    
    (1,297
    )
    
    
    3⁄4
    
    
    
    (1,528
    )Income (Loss) from
Continuing Operations
Before Income Taxes
    
    
    197,651
    
    
    
    203,962
    
    
    
    225,469
    
    
    
    (358,457
    )
    
    
    268,625Provision for Income Taxes
    
    
    (1,060
    )
    
    
    (15,340
    )
    
    
    (47,855
    )
    
    
    3⁄4
    
    
    
    (64,255
    )Income (Loss) from
Continuing Operations
    
    
    196,591
    
    
    
    188,622
    
    
    
    177,614
    
    
    
    (358,457
    )
    
    
    204,370Loss from Discontinued
Operation, Net of
Taxes
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (7,779
    )
    
    
    3⁄4
    
    
    
    (7,779
    )Net Income (Loss)
    
    $
    196,591
    
    
    $
    188,622
    
    
    $
    169,835
    
    
    $
    (358,457
    )
    
    $
    196,591
 19




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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
    )
    
    
    (675,330
    )
    
    
    1,368,119
    
    
    
    3⁄4
    
    
    
    59,152Net Cash Provided (Used) by Continuing
Operations
    
    
    (656,226
    )
    
    
    (715,887
    )
    
    
    1,627,493
    
    
    
    3⁄4
    
    
    
    255,380Net Cash Used by Discontinued Operation
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    2,294
    
    
    
    3⁄4
    
    
    
    2,294Net Cash Provided (Used) by Operating
Activities
    
    
    (656,226
    )
    
    
    (715,887
    )
    
    
    1,629,787
    
    
    
    3⁄4
    
    
    
    257,674Cash 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 Sales of Assets
    
    
    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
    
    
    
    1,046,775Repayments of Long-term Debt, Net
    
    
    3⁄4
    
    
    
    1,759
    
    
    
    (4,079
    )
    
    
    3⁄4
    
    
    
    (2,320
    )Redemption of Zero Coupon Convertible
Debentures
    
    
    3⁄4
    
    
    
    (299,080
    )
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (299,080
    )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
    
    
    
    680,959
    
    
    
    (290,323
    )
    
    
    3⁄4
    
    
    
    907,969Net 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
 20




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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, 2004
(unaudited)
(In thousands)
 OtherParent
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidationCash Flows from Operating Activities:Net Income (Loss)
    
    $
    196,591
    
    
    $
    188,622
    
    
    $
    169,835
    
    
    $
    (358,457
    )
    
    $
    196,591Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided (Used) by Operating Activities:Equity in Earnings of Unconsolidated Affiliates
    
    
    (14,266
    )
    
    
    3⁄4
    
    
    
    (2,291
    )
    
    
    3⁄4
    
    
    
    (16,557
    )Equity in Earnings of Affiliates
    
    
    (188,622
    )
    
    
    (169,835
    )
    
    
    3⁄4
    
    
    
    358,457
    
    
    
    3⁄4Gain on Sale of Universal Common Stock
    
    
    (25,280
    )
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (25,280
    )Charges from Parent or Subsidiary
    
    
    18,750
    
    
    
    (68,033
    )
    
    
    49,283
    
    
    
    3⁄4
    
    
    
    3⁄4Deferred Income Tax Provision (Benefit)
    
    
    441
    
    
    
    15,339
    
    
    
    (18,496
    )
    
    
    3⁄4
    
    
    
    (2,716
    )Other, Net
    
    
    252,225
    
    
    
    (104,222
    )
    
    
    35,321
    
    
    
    3⁄4
    
    
    
    183,324Net Cash Provided (Used) by Continuing
Operations
    
    
    239,839
    
    
    
    (138,129
    )
    
    
    233,652
    
    
    
    3⁄4
    
    
    
    335,362Net Cash Used by Discontinued Operation
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    4,126
    
    
    
    3⁄4
    
    
    
    4,126Net Cash Provided (Used) by Operating Activities
    
    
    239,839
    
    
    
    (138,129
    )
    
    
    237,778
    
    
    
    3⁄4
    
    
    
    339,488Cash Flows from Investing Activities:Acquisition of Businesses, Net of Cash Acquired
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (14,056
    )
    
    
    3⁄4
    
    
    
    (14,056
    )Capital Expenditures for Property, Plant and
Equipment
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (209,638
    )
    
    
    3⁄4
    
    
    
    (209,638
    )Acquisition of Intellectual Property
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (17,025
    )
    
    
    3⁄4
    
    
    
    (17,025
    )Proceeds from Sale of Universal Common Stock
    
    
    89,998
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    89,998Proceeds from Sales of Assets
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    14,814
    
    
    
    3⁄4
    
    
    
    14,814Other
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (2,856
    )
    
    
    3⁄4
    
    
    
    (2,856
    )Net Cash Used by Investing Activities
    
    
    89,998
    
    
    
    3⁄4
    
    
    
    (228,761
    )
    
    
    3⁄4
    
    
    
    (138,763
    )Cash Flows from Financing Activities:Borrowings (Repayments) of Short-term Debt, Net
    
    
    (144,000
    )
    
    
    3⁄4
    
    
    
    (5,000
    )
    
    
    3⁄4
    
    
    
    (149,000
    )Repayments of Long-term Debt, Net
    
    
    3⁄4
    
    
    
    (445
    )
    
    
    (6,658
    )
    
    
    3⁄4
    
    
    
    (7,103
    )Proceeds from Asset Securitization
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (75,000
    )
    
    
    3⁄4
    
    
    
    (75,000
    )Borrowings (Repayments) Between
Subsidiaries, Net
    
    
    (179,187
    )
    
    
    59,998
    
    
    
    119,189
    
    
    
    3⁄4
    
    
    
    3⁄4Proceeds from Exercise of Stock Options
    
    
    3⁄4
    
    
    
    92,014
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    92,014Other, Net
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (766
    )
    
    
    3⁄4
    
    
    
    (766
    )Net Cash Provided (Used) by Financing Activities
    
    
    (323,187
    )
    
    
    151,567
    
    
    
    31,765
    
    
    
    3⁄4
    
    
    
    (139,855
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    6,650
    
    
    
    13,438
    
    
    
    40,782
    
    
    
    3⁄4
    
    
    
    60,870Cash and Cash Equivalents at Beginning of Period
    
    
    1,582
    
    
    
    2,959
    
    
    
    51,541
    
    
    
    3⁄4
    
    
    
    56,082Cash and Cash Equivalents at End of Period
    
    $
    8,232
    
    
    $
    16,397
    
    
    $
    92,323
    
    
    $
    3⁄4
    
    
    $
    116,952
 21




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##### Table of Contents



WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 18. New Accounting Pronouncement
 Share-Based Payment
 19. Subsequent Events
    22




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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
  23




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##### Table of Contents



Henry Hub
    
    North American
    
    InternationalWTI Oil (1)
    
    Gas (2)
    
    Rig Count (3)
    
    Rig Count (3)September 30, 2005
    
    $
    66.24
    
    
    $
    13.921
    
    
    
    1,949
    
    
    
    907December 31, 2004
    
    
    43.45
    
    
    
    6.149
    
    
    
    1,686
    
    
    
    869September 30, 2004
    
    
    49.64
    
    
    
    6.795
    
    
    
    1,523
    
    
    
    866
 
 (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    Opportunities and Challenges
  
    
    Eastern Hemisphere Infrastructure
    
    Technology
    
    Supply Chain Management
    24




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##### Table of Contents



Outlook
  
    
    In 2006 and beyond, North American land rig activity will flatten out and earnings and
returns will result from market share, technology and pricing.
    
    The international markets will flourish, with the Eastern Hemisphere standing out as the
strongest market.
    
    The North Sea is beginning a multi-year recovery phase, albeit from a relatively low
current activity level.
    
    Pricing is likely to strengthen in all geographic regions.
    
    Technologies that improve productivity will do increasingly well in the upcoming years.
  Geographic Markets.
 Pricing.
 Business Segments.
 Technology.
 25




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##### Table of Contents



Results of Operations
 Recent Acquisition
  Segment Realignment
   26




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##### Table of Contents



Comparative Financial Data
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands, except percentages and per share data)Revenues:Evaluation, Drilling & Intervention Services
    
    $
    609,547
    
    
    $
    427,621
    
    
    $
    1,590,550
    
    
    $
    1,219,066Completion & Production Systems
    
    
    429,591
    
    
    
    344,073
    
    
    
    1,204,526
    
    
    
    970,270Other Operations
    
    
    37,678
    
    
    
    22,647
    
    
    
    76,741
    
    
    
    59,8331,076,816
    
    
    
    794,341
    
    
    
    2,871,817
    
    
    
    2,249,169Gross Profit %:Evaluation, Drilling & Intervention Services (a)
    
    
    31.8
    %
    
    
    34.8
    %
    
    
    34.4
    %
    
    
    33.5
    %Completion & Production Systems
    
    
    29.2
    
    
    
    28.1
    
    
    
    28.4
    
    
    
    27.0Other Operations
    
    
    24.7
    
    
    
    42.2
    
    
    
    22.9
    
    
    
    40.330.5
    
    
    
    32.1
    
    
    
    31.6
    
    
    
    30.9Research and Development:Evaluation, Drilling & Intervention Services
    
    $
    14,624
    
    
    $
    9,454
    
    
    $
    35,297
    
    
    $
    28,334Completion & Production Systems
    
    
    12,255
    
    
    
    10,503
    
    
    
    35,658
    
    
    
    30,148Other Operations
    
    
    261
    
    
    
    488
    
    
    
    1,107
    
    
    
    1,23727,140
    
    
    
    20,445
    
    
    
    72,062
    
    
    
    59,719Selling, General and Administrative Attributable to
Segments:Evaluation, Drilling & Intervention Services
    
    
    71,197
    
    
    
    58,085
    
    
    
    193,645
    
    
    
    164,783Completion & Production Systems
    
    
    60,558
    
    
    
    52,763
    
    
    
    173,212
    
    
    
    150,375Other Operations
    
    
    3,412
    
    
    
    2,336
    
    
    
    9,234
    
    
    
    6,753135,167
    
    
    
    113,184
    
    
    
    376,091
    
    
    
    321,911Corporate General and Administrative
    
    
    19,169
    
    
    
    15,683
    
    
    
    56,136
    
    
    
    39,237Equity in Earnings of Unconsolidated Affiliates
    
    
    (6,857
    )
    
    
    (5,279
    )
    
    
    (13,611
    )
    
    
    (16,557
    )Exit Costs and Restructuring Charges
    
    
    80,018
    
    
    
    3⁄4
    
    
    
    80,018
    
    
    
    3⁄4Operating Income (Expense):Evaluation, Drilling & Intervention Services (a)
    
    
    108,098
    
    
    
    81,218
    
    
    
    318,209
    
    
    
    215,855Completion & Production Systems
    
    
    52,820
    
    
    
    33,473
    
    
    
    133,264
    
    
    
    81,364Other Operations
    
    
    5,618
    
    
    
    6,742
    
    
    
    7,263
    
    
    
    16,122Exit Costs and Restructuring Charges
    
    
    (80,018
    )
    
    
    3⁄4
    
    
    
    (80,018
    )
    
    
    3⁄4Corporate (b)
    
    
    (12,312
    )
    
    
    (10,404
    )
    
    
    (42,525
    )
    
    
    (22,680
    )74,206
    
    
    
    111,029
    
    
    
    336,193
    
    
    
    290,661Debt Redemption Expense
    
    
    (4,733
    )
    
    
    3⁄4
    
    
    
    (4,733
    )
    
    
    3⁄4Gain on Sale of Universal Common Stock
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    25,280Interest Expense, Net
    
    
    (17,197
    )
    
    
    (15,060
    )
    
    
    (45,834
    )
    
    
    (45,788
    )Other, Net
    
    
    7,272
    
    
    
    (905
    )
    
    
    11,565
    
    
    
    (1,528
    )Effective Tax Rate
    
    
    20.6
    %
    
    
    26.5
    %
    
    
    25.1
    %
    
    
    23.9
    %Income from Continuing Operations per Diluted
Share
    
    $
    0.30
    
    
    $
    0.49
    
    
    $
    1.48
    
    
    $
    1.44Income (Loss) from Discontinued Operation, Net of
Taxes
    
    
    587
    
    
    
    259
    
    
    
    1,211
    
    
    
    (7,779
    )Net Income per Diluted Share
    
    $
    0.31
    
    
    $
    0.49
    
    
    $
    1.49
    
    
    $
    1.39Depreciation and Amortization
    
    
    81,950
    
    
    
    63,261
    
    
    
    222,389
    
    
    
    188,788
 
 (a)
    
    Includes a write down of $17.2 million of inventory in
connection with our exit and restructuring plan for the three and
nine months ended September 30, 2005. 27




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##### Table of Contents



(b)
    
    Includes equity in earnings of unconsolidated affiliates. Consolidated Revenues by Geographic Region
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004U.S.
    
    
    38
    %
    
    
    38
    %
    
    
    38
    %
    
    
    36
    %Canada
    
    
    18
    
    
    
    15
    
    
    
    17
    
    
    
    17Latin America
    
    
    10
    
    
    
    9
    
    
    
    9
    
    
    
    9Europe, CIS and West Africa
    
    
    15
    
    
    
    19
    
    
    
    16
    
    
    
    18Middle East and North Africa
    
    
    11
    
    
    
    11
    
    
    
    12
    
    
    
    12Asia Pacific
    
    
    8
    
    
    
    8
    
    
    
    8
    
    
    
    8Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 Company Results
 Revenues
   Gross Profit
  Research and Development
  28




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##### Table of Contents



Corporate General and Administrative
  Equity in Earnings of Unconsolidated Affiliates
   Exit Costs and Restructuring Charges
  Evaluation,Drilling &
    
    
    CompletionIntervention
    
    
    & ProductionServices
    
    
    Systems
    
    
    Corporate
    
    
    Total(in thousands)Cost of Products
    
    $
    17,240
    
    
    $
    2,393
    
    
    $
    3⁄4
    
    
    $
    19,633Cost of Services and Rentals
    
    
    23,445
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    23,445Research and Development
    
    
    8,000
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    8,000Selling General & Administrative
    
    
    17,137
    
    
    
    1,737
    
    
    
    3⁄4
    
    
    
    18,874Corporate General & Administrative
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    27,306
    
    
    
    27,306Total
    
    
    65,822
    
    
    
    4,130
    
    
    
    27,306
    
    
    
    97,258Utilized during the period
    
    
    (59,910
    )
    
    
    (1,741
    )
    
    
    (13,190
    )
    
    
    (74,841
    )Balance as of September 30, 2005
    
    $
    5,912
    
    
    $
    2,389
    
    
    $
    14,116
    
    
    $
    22,417
 29




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##### Table of Contents



Debt Redemption Expense
  Gain on Sale of Universal Common Stock
  Interest Expense, Net
  Other, Net
  Income Taxes
   Segment Results
 Evaluation, Drilling & Intervention Services
    30




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##### Table of Contents



Completion & Production Systems
     Other Operations
    31




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##### Table of Contents



Discontinued Operation
  Liquidity and Capital Resources
 Historical Cash Flows
  
    
    cash inflows from operating activities of $257.7 million;
    
    capital expenditures for property, plant and equipment of $320.3 million;
    
    acquisition of new businesses of approximately $963.4 million in cash, net of cash acquired;
    
    acquisition of intellectual property of $9.2 million;
    
    proceeds from the sales of assets of $9.5 million;
    
    borrowings, net of repayments, on long-term debt and short-term facilities of $1,044.5 million;
    
    proceeds from stock option activity of $165.1 million; and
    
    cash paid for redemption of Zero Coupon Convertible Debentures of $299.1 million.
 Sources of Liquidity
   Facility
    
    Expiration
    
    
    
    
    
    Letters ofShort-term Financing Facilities
    
    Amount
    
    Date
    
    Drawn
    
    Credit
    
    Availability(In millions)364-Day Revolving Credit Facility(1)
    
    $
    1,200.0
    
    
    Aug. 2006
    
    $
    1,032.0
    
    
    $
    3⁄4
    
    
    $
    168.02003 Revolving Credit Facility(1)
    
    
    500.0
    
    
    May 2006
    
    
    11.1
    
    
    
    16.9
    
    
    
    472.0Canadian Facility
    
    
    17.1
    
    
    July 2006
    
    
    3⁄4
    
    
    
    0.3
    
    
    
    16.8
 
 (1)
    
    Our two revolving credit facilities contain customary affirmative and negative covenants,
including a maximum debt to capitalization ratio, a minimum interest coverage ratio (on the
2003 Revolving Credit Facility only), a limitation on liens, a limitation on incurrence of
indebtedness and a limitation on asset dispositions. We are in compliance with all covenants
set forth in the credit facilities. The committed revolving credit facilities do not contain
any provisions that make their availability dependent upon our credit ratings; however, the
interest rates are dependent upon the credit rating of our long-term senior debt.  32




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##### Table of Contents



1 4
  Cash Requirements and Contractual Obligations
  Letters of Credit
   Capital Expenditures
  Zero Coupon Convertible Senior Debentures
   New Accounting Pronouncement
 Share-Based Payment
 33




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##### Table of Contents



Critical Accounting Policies and Estimates
  Exposures
 International Exposure
  
    
    disruption of oil and natural gas exploration and production activities;
    
    restriction of the movement and exchange of funds;
    
    inhibition of our ability to collect receivables;
    
    enactment of additional or stricter U.S. government or international sanctions; and
    
    limitation of our access to markets for periods of time.
 Currency Exposure
   Investment Exposure
  Litigation and Environmental Exposure
  34




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##### Table of Contents



Industry Exposure
  Terrorism Exposure
  Tax Exposure
  Acquisition Integration Exposure
  Drilling Industry Exposures
   35




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##### Table of Contents



Bermuda Governance Risks
    36




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##### Table of Contents




    
    directors to be removed only for cause;
    
    restrictions on the time period in which directors may be nominated; and
    
    the board of directors to determine the powers, preferences and rights and the
qualifications, limitations and restrictions of our preference shares and to issue the
preference shares without shareholder approval.
  Forward-Looking Statements
   
    
    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 2003
and 2004, 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 2005.
    
    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
 37




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##### Table of Contents



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 underbalanced 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 expect to gain 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 realize expected benefits of the reincorporation
in the anticipated time frame, or at all, would negatively affect the anticipated 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.
    
    A decline in the fair value of our investment in Universal that is other than temporary
would adversely affect our projected results.In the third quarter of 2002, we recorded a
write-down in the carrying value of our investment in Universal. We can make no assurances
that there will not be an additional decline in value of this investment. Any decline may
result in an additional write-down in the carrying value of our investment and would
adversely affect our results.
    
    The cyclical nature of or a prolonged downturn in our industry could affect the carrying
value of our goodwill.As of September 30, 2005, we had approximately $2.8 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 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
 www.weatherford.com
 38




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  Foreign Currency Exchange Rates
    Interest Rates
   September 30,
    
    December 31,2005
    
    2004Carrying
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    Value
    
    
    Amount
    
    
    Value(In millions)6 5/8% Senior Notes due 2011
    
    $
    358.3
    
    
    $
    376.5
    
    
    $
    359.2
    
    
    $
    386.44.95% Senior Notes due 2013
    
    
    256.2
    
    
    
    246.1
    
    
    
    256.7
    
    
    
    249.4
  39




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##### Table of Contents



Interest Rate Swaps
   
 ITEM 4. CONTROLS AND PROCEDURES
    
 PART II. OTHER INFORMATION
 
 ITEM 2. UNREGISTERED SALES OF EQUITY IN SECURITIES AND USE OF PROCEEDS
  
 ITEM 5. OTHER INFORMATION
 www.weatherford.com.
 40




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##### Table of Contents



www.weatherford.com.
 
 ITEM 6. EXHIBITS
  ExhibitNumber
    
    Description4.1
    
    364-Day Revolving Credit Agreement, dated as of August 25, 2005,
among Weatherford International Ltd. and Weatherford Liquidity
Management Hungary Limited Liability Company, as Borrowers,
Weatherford International, Inc., as Guarantor, and UBS AG, Bank of
America, N.A. and Morgan Stanley Senior Funding, Inc. (including
form of Promissory Note thereunder) (incorporated by reference to
Exhibit 4.1 to the Registrants Current Report on Form 8-K (File
No. 1-31339) filed August 29, 2005).4.2
    
    Registration Rights, Standstill and Voting Agreement dated as of
August 31, 2005, between Weatherford International Ltd. and
Precision Drilling Corporation (incorporated by reference to
Exhibit 4.1 to the Registrants Current Report on Form 8-K (file
No. 1-31339, filed September 7, 2005).10.1
    
    Indemnification Agreement, dated as of September, 29, 2005,
between Weatherford International Ltd. and John R. King
(incorporated by reference to Exhibit 10.1 to the Registrants
Current Report on Form 8-K (file No. 1-31339) filed October 5,
2005).10.2
    
    Employment Agreement, dated as of September, 1, 2005, between
Weatherford International Ltd. and John R. King (incorporated by
reference to Exhibit 10.2 to the Registrants Current Report on
Form 8-K (file No. 1-31339) filed September 7, 2005).10.3
    
    Indemnification Agreement, dated as of September, 29, 2005,
between Weatherford International Ltd. and Ian E. Kelly
(incorporated by reference to Exhibit 10.2 to the Registrants
Current Report on Form 8-K (file No. 1-31339) filed October 5,
2005).10.4
    
    Employment Agreement, dated as of September, 1, 2005, between
Weatherford International Ltd. and Ian E. Kelly (incorporated by
reference to Exhibit 10.3 to the Registrants Current Report on
Form 8-K (file No. 1-31339) filed September 7, 2005).10.5
    
    Indemnification Agreement, dated as of September, 29, 2005,
between Weatherford International Ltd. and Andrew P. Becnel
(incorporated by reference to Exhibit 10.3 to the Registrants
Current Report on Form 8-K (file No. 1-31339) filed October 5,
2005).10.6
    
    Employment Agreement, dated as of September, 29, 2005, between
Weatherford International Ltd. and Andrew P. Becnel (incorporated
by reference to Exhibit 10.4 to the Registrants Current Report on
Form 8-K (file No. 1-31339) filed October 5, 2005).10.7
    
    Agreement, dated August 31, 2005, between Weatherford
International Ltd. and Precision Drilling Corporation
(incorporated by reference to Exhibit 10.1 to the Registrants
Current Report on Form 8-K (file No. 1-31339) filed September 7,
2005).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.
 41




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##### Table of Contents



ExhibitNumber
    
    Description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 herewith 42




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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/ Lisa W. RodriguezLisa W. RodriguezSenior Vice President and Chief
Financial Officer
(Principal Financial and Accounting
Officer)Date: November 9, 2005
 43




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##### Table of Contents



Index to Exhibits
 ExhibitNumber
    
    Description4.1
    
    364-Day Revolving Credit Agreement, dated as of August 25, 2005,
among Weatherford International Ltd. and Weatherford Liquidity
Management Hungary Limited Liability Company, as Borrowers,
Weatherford International, Inc., as Guarantor, and UBS AG, Bank of
America, N.A. and Morgan Stanley Senior Funding, Inc. (including
form of Promissory Note thereunder) (incorporated by reference to
Exhibit 4.1 to the Registrants Current Report on Form 8-K (File
No. 1-31339) filed August 29, 2005).4.2
    
    Registration Rights, Standstill and Voting Agreement dated as of
August 31, 2005, between Weatherford International Ltd. and
Precision Drilling Corporation (incorporated by reference to
Exhibit 4.1 to the Registrants Current Report on Form 8-K (file
No. 1-31339, filed September 7, 2005).10.1
    
    Indemnification Agreement, dated as of September, 29, 2005,
between Weatherford International Ltd. and John R. King
(incorporated by reference to Exhibit 10.1 to the Registrants
Current Report on Form 8-K (file No. 1-31339) filed October 5,
2005).10.2
    
    Employment Agreement, dated as of September, 1, 2005, between
Weatherford International Ltd. and John R. King (incorporated by
reference to Exhibit 10.2 to the Registrants Current Report on
Form 8-K (file No. 1-31339) filed September 7, 2005).10.3
    
    Indemnification Agreement, dated as of September, 29, 2005,
between Weatherford International Ltd. and Ian E. Kelly
(incorporated by reference to Exhibit 10.2 to the Registrants
Current Report on Form 8-K (file No. 1-31339) filed October 5,
2005).10.4
    
    Employment Agreement, dated as of September, 1, 2005, between
Weatherford International Ltd. and Ian E. Kelly (incorporated by
reference to Exhibit 10.3 to the Registrants Current Report on
Form 8-K (file No. 1-31339) filed September 7, 2005).10.5
    
    Indemnification Agreement, dated as of September, 29, 2005,
between Weatherford International Ltd. and Andrew P. Becnel
(incorporated by reference to Exhibit 10.3 to the Registrants
Current Report on Form 8-K (file No. 1-31339) filed October 5,
2005).10.6
    
    Employment Agreement, dated as of September, 29, 2005, between
Weatherford International Ltd. and Andrew P. Becnel (incorporated
by reference to Exhibit 10.4 to the Registrants Current Report on
Form 8-K (file No. 1-31339) filed October 5, 2005).10.7
    
    Agreement, dated August 31, 2005, between Weatherford
International Ltd. and Precision Drilling Corporation
(incorporated by reference to Exhibit 10.1 to the Registrants
Current Report on Form 8-K (file No. 1-31339) filed September 7,
2005).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 herewith