##### 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 March 31, 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
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)


515 Post Oak BoulevardSuite 600Houston, Texas
    
    77027-3415(Address of principal executive offices)
    
    (Zip Code)
















þ o




Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o




o þ






|                               |  |                           
|------------------------------ |  | --------------------------
|Title of Class                 |  | Outstanding at May 4, 2006
|Common Shares, par value $1.00 |  | 348,672,017               









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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIO 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. EXHIBITSSIGNATURESExhibit IndexCertification 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)
 March 31,
    
    
    December 31,2006
    
    
    2005(unaudited)ASSETSCurrent Assets:Cash and Cash Equivalents
    
    $
    135,310
    
    
    $
    134,245Accounts Receivable, Net of Allowance for Uncollectible
Accounts of $11,670 and $12,210, Respectively
    
    
    1,354,404
    
    
    
    1,259,990Inventories
    
    
    991,621
    
    
    
    890,121Other Current Assets
    
    
    340,375
    
    
    
    354,5172,821,710
    
    
    
    2,638,873Property, Plant and Equipment, Net
    
    
    2,480,538
    
    
    
    2,367,237Goodwill
    
    
    2,832,143
    
    
    
    2,808,217Other Intangible Assets, Net
    
    
    618,954
    
    
    
    621,365Other Assets
    
    
    126,310
    
    
    
    144,612$
    8,879,655
    
    
    $
    8,580,304LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Short-term Borrowings and Current Portion of Long-term Debt
    
    $
    711,259
    
    
    $
    954,766Accounts Payable
    
    
    436,743
    
    
    
    476,363Other Current Liabilities
    
    
    650,171
    
    
    
    567,0121,798,173
    
    
    
    1,998,141Long-term Debt
    
    
    981,383
    
    
    
    632,071Deferred Tax Liabilities
    
    
    55,838
    
    
    
    88,476Other Liabilities
    
    
    214,667
    
    
    
    194,799Commitments and ContingenciesShareholders Equity:Common Shares, $1 Par Value, Authorized 500,000 Shares,
Issued 360,550 and 358,973 Shares, Respectively
    
    
    360,550
    
    
    
    358,973Capital in Excess of Par Value
    
    
    4,187,367
    
    
    
    4,164,365Treasury Shares, Net
    
    
    (233,190
    )
    
    
    (152,111
    )Retained Earnings
    
    
    1,406,255
    
    
    
    1,202,938Accumulated Other Comprehensive Income
    
    
    108,612
    
    
    
    92,6525,829,594
    
    
    
    5,666,817$
    8,879,655
    
    
    $
    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 MonthsEnded March 31,2006
    
    
    2005Revenues:Products
    
    $
    568,683
    
    
    $
    428,768Services
    
    
    967,328
    
    
    
    428,9381,536,011
    
    
    
    857,706Costs and Expenses:Cost of Products
    
    
    390,547
    
    
    
    296,550Cost of Services
    
    
    597,094
    
    
    
    286,186Research and Development
    
    
    36,443
    
    
    
    21,019Selling, General and Administrative Attributable to Segments
    
    
    184,946
    
    
    
    110,961Corporate General and Administrative
    
    
    22,256
    
    
    
    19,626Equity in Earnings of Unconsolidated Affiliates
    
    
    (2,634
    )
    
    
    (1,301
    )Operating Income
    
    
    307,359
    
    
    
    124,665Other Expense:Interest Expense, Net
    
    
    (18,988
    )
    
    
    (13,658
    )Other, Net
    
    
    (2,119
    )
    
    
    (2,226
    )Income from Continuing Operations Before Income Taxes
    
    
    286,252
    
    
    
    108,781Provision for Income Taxes
    
    
    (82,935
    )
    
    
    (28,346
    )Income from Continuing Operations
    
    
    203,317
    
    
    
    80,435Income from Discontinued Operation, Net of Taxes
    
    
    3⁄4
    
    
    
    161Net Income
    
    $
    203,317
    
    
    $
    80,596Basic Earnings Per Share:Income from Continuing Operations
    
    $
    0.58
    
    
    $
    0.29Income from Discontinued Operation
    
    
    0.00
    
    
    
    0.00Net Income
    
    $
    0.58
    
    
    $
    0.29Diluted Earnings Per Share:Income from Continuing Operations
    
    $
    0.57
    
    
    $
    0.27Income from Discontinued Operation
    
    
    0.00
    
    
    
    0.00Net Income
    
    $
    0.57
    
    
    $
    0.27Weighted Average Shares Outstanding:Basic
    
    
    349,160
    
    
    
    275,626Diluted
    
    
    358,326
    
    
    
    304,732
  2




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
 Three MonthsEnded March 31,2006
    
    
    2005Cash Flows from Operating Activities:Net Income
    
    $
    203,317
    
    
    $
    80,596Adjustments
to Reconcile Net Income to Net Cash Provided by Operating Activities:Depreciation and Amortization
    
    
    115,503
    
    
    
    70,122Loss on Sales of Assets, Net
    
    
    1,559
    
    
    
    499Income from Discontinued Operation
    
    
    3⁄4
    
    
    
    (161
    )Equity in Earnings of Unconsolidated Affiliates
    
    
    (2,634
    )
    
    
    (176
    )Employee Stock-Based Compensation Expense
    
    
    14,343
    
    
    
    6,833Amortization of Original Issue Discount
    
    
    3⁄4
    
    
    
    4,302Deferred Income Tax Benefit
    
    
    (1,328
    )
    
    
    (7,296
    )Other, Net
    
    
    2,944
    
    
    
    (669
    )Change in Operating Assets and Liabilities, Net of Effect
of Businesses Acquired
    
    
    (130,487
    )
    
    
    (119,190
    )Net Cash Provided by Continuing Operations
    
    
    203,217
    
    
    
    34,860Net Cash Used by Discontinued Operation
    
    
    3⁄4
    
    
    
    (5,323
    )Net Cash Provided by Operating Activities
    
    
    203,217
    
    
    
    29,537Cash Flows from Investing Activities:Acquisitions of Businesses, Net of Cash Acquired
    
    
    (23,751
    )
    
    
    (1,492
    )Capital Expenditures for Property, Plant and Equipment
    
    
    (212,677
    )
    
    
    (74,344
    )Acquisition of Intellectual Property
    
    
    (2,957
    )
    
    
    (4,395
    )Purchase of Equity Investment in Unconsolidated Affiliate
    
    
    3⁄4
    
    
    
    (1,350
    )Proceeds
from Sale of Assets, Net
    
    
    225
    
    
    
    4,756Net Cash Used by Investing Activities
    
    
    (239,160
    )
    
    
    (76,825
    )Cash Flows from Financing Activities:Repayments of Short-term Debt, Net
    
    
    (246,206
    )
    
    
    (5,246
    )Borrowings (Repayments) of Long-term Debt, Net
    
    
    347,346
    
    
    
    (1,290
    )Purchase of Treasury Shares
    
    
    (91,479
    )
    
    
    3⁄4Proceeds from Exercise of Stock Options
    
    
    26,783
    
    
    
    50,494Tax Benefit on Stock Option Exercises
    
    
    508
    
    
    
    3⁄4Other Financing Activities, Net
    
    
    56
    
    
    
    (156
    )Net Cash Provided by Financing Activities
    
    
    37,008
    
    
    
    43,802Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    1,065
    
    
    
    (3,486
    )Cash and Cash Equivalents at Beginning of Period
    
    
    134,245
    
    
    
    317,439Cash and Cash Equivalents at End of Period
    
    $
    135,310
    
    
    $
    313,953Supplemental Cash Flow Information:Interest Paid
    
    $
    2,953
    
    
    $
    1,348Income Taxes Paid, Net of Refunds
    
    
    39,687
    
    
    
    23,950
  3




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(In thousands)
 Three MonthsEnded March 31,2006
    
    
    2005Net Income
    
    $
    203,317
    
    
    $
    80,596Other Comprehensive Income (Loss):Reclassification Adjustment for Deferred Gain, net on Derivative
Instruments
    
    
    6,268
    
    
    
    68Foreign Currency Translation Adjustment
    
    
    9,692
    
    
    
    (7,064
    )Comprehensive Income
    
    $
    219,277
    
    
    $
    73,600
  4




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(UNAUDITED)
 1. General
    2. Critical Accounting Policies
  Revenue Recognition
    5




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(UNAUDITED)
  3. Business Combinations
      4. Exit Costs, Severance, Restructuring and Asset Impairment Charges
 2005 Exit Cost and Restructuring Charges
   6




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(UNAUDITED)
     Evaluation,Drilling &
    
    
    CompletionIntervention
    
    
    & Production
    
    
    OtherServices
    
    
    Systems
    
    
    Operations
    
    
    Corporate
    
    
    Total(In thousands)Cost of Products
    
    $
    20,654
    
    
    $
    3,191
    
    
    $
    651
    
    
    $
    3⁄4
    
    
    $
    24,496Cost of Services
    
    
    25,766
    
    
    
    3⁄4
    
    
    
    1,083
    
    
    
    3⁄4
    
    
    
    26,849Research and Development
    
    
    9,000
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    9,000Selling General & Administrative
    
    
    17,349
    
    
    
    3,462
    
    
    
    341
    
    
    
    3⁄4
    
    
    
    21,152Corporate General & Administrative
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    32,738
    
    
    
    32,738Total
    
    
    72,769
    
    
    
    6,653
    
    
    
    2,075
    
    
    
    32,738
    
    
    
    114,235Cash Payments
    
    
    (19,247
    )
    
    
    (4,224
    )
    
    
    (146
    )
    
    
    (2,752
    )
    
    
    (26,369
    )Non-cash Utilization
    
    
    (52,289
    )
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (12,911
    )
    
    
    (65,200
    )Balance at March 31, 2006
    
    $
    1,233
    
    
    $
    2,429
    
    
    $
    1,929
    
    
    $
    17,075
    
    
    $
    22,666
 5. Dispositions
   7




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(UNAUDITED)
  Three MonthsEnded March31, 2005(In thousands)Revenues
    
    $
    8,316Income Before Income Taxes
    
    $
    161Provision for Income Taxes
    
    
    3⁄4Net Income from Discontinued Operation, Net of Taxes
    
    $
    161
 6. Universal Compression
  7. Goodwill
 Goodwill and Other
Intangible Assets
  Evaluation,Drilling &
    
    
    CompletionIntervention
    
    
    & Production
    
    
    OtherServices
    
    
    Systems
    
    
    Operations
    
    
    Total(In thousands)As of December 31, 2005
    
    $
    1,627,528
    
    
    $
    809,281
    
    
    $
    371,408
    
    
    $
    2,808,217Goodwill acquired during period
    
    
    11,095
    
    
    
    6,177
    
    
    
    3⁄4
    
    
    
    17,272Purchase price and other adjustments
    
    
    (7,064
    )
    
    
    9,547
    
    
    
    631
    
    
    
    3,114Impact of foreign currency translation
    
    
    1,506
    
    
    
    1,716
    
    
    
    318
    
    
    
    3,540As of March 31, 2006
    
    $
    1,633,065
    
    
    $
    826,721
    
    
    $
    372,357
    
    
    $
    2,832,143
 8




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(UNAUDITED)
 8. Other Intangible Assets, Net
  March 31, 2006
    
    
    December 31, 2005Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    
    
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    Net(In thousands)Acquired technology
    
    $
    288,193
    
    
    $
    (11,131
    )
    
    $
    277,062
    
    
    $
    281,350
    
    
    $
    (6,501
    )
    
    $
    274,849Licenses
    
    
    205,599
    
    
    
    (51,059
    )
    
    
    154,540
    
    
    
    205,232
    
    
    
    (48,164
    )
    
    
    157,068Patents
    
    
    119,101
    
    
    
    (34,818
    )
    
    
    84,283
    
    
    
    116,590
    
    
    
    (33,028
    )
    
    
    83,562Customer relationships
    
    
    43,000
    
    
    
    (1,342
    )
    
    
    41,658
    
    
    
    43,000
    
    
    
    (717
    )
    
    
    42,283Customer contracts
    
    
    21,890
    
    
    
    (1,676
    )
    
    
    20,214
    
    
    
    22,450
    
    
    
    (961
    )
    
    
    21,489Covenants not to compete
    
    
    22,451
    
    
    
    (20,713
    )
    
    
    1,738
    
    
    
    22,333
    
    
    
    (19,942
    )
    
    
    2,391Other
    
    
    13,388
    
    
    
    (6,579
    )
    
    
    6,809
    
    
    
    13,277
    
    
    
    (6,175
    )
    
    
    7,102Total finite-lived intangible
assets
    
    
    713,622
    
    
    
    (127,318
    )
    
    
    586,304
    
    
    
    704,232
    
    
    
    (115,488
    )
    
    
    588,744Intangible assets with an
indefinite useful life
    
    
    32,650
    
    
    
    3⁄4
    
    
    
    32,650
    
    
    
    32,621
    
    
    
    3⁄4
    
    
    
    32,621$
    746,272
    
    
    $
    (127,318
    )
    
    $
    618,954
    
    
    $
    736,853
    
    
    $
    (115,488
    )
    
    $
    621,365
     Remainder of 2006
    
    $
    34,5022007
    
    
    43,8582008
    
    
    41,8472009
    
    
    41,0542010
    
    
    40,836
 9




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(UNAUDITED)
 9. Inventories
  March 31,
    
    
    December 31,2006
    
    
    2005(In thousands)Raw materials, components and supplies
    
    $
    264,704
    
    
    $
    259,047Work in process
    
    
    77,658
    
    
    
    63,491Finished goods
    
    
    649,259
    
    
    
    567,583$
    991,621
    
    
    $
    890,121
  10. Short-term Debt
 March 31,
    
    
    December 31,2006
    
    
    2005(In thousands)364-Day revolving credit facility
    
    $
    3⁄4
    
    
    $
    3⁄4Revolving credit facility
    
    
    3⁄4
    
    
    
    3⁄4Commercial Paper Program
    
    
    450,439
    
    
    
    716,927Short-term bank loans
    
    
    47,898
    
    
    
    24,596Total Short-term Borrowings
    
    
    498,337
    
    
    
    741,523Current Portion of Long-term Debt
    
    
    212,922
    
    
    
    213,243Short-term Borrowings and Current Portion of Long-term Debt
    
    $
    711,259
    
    
    $
    954,766
    10




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(UNAUDITED)
      1 4
  11. Derivative Instruments
 Interest Rate Swaps
   Cash Flow Hedges
   11




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(UNAUDITED)
  Other Derivative Instruments
  12. Earnings Per Share
    Three MonthsEnded March 31,2006
    
    
    2005(In thousands)Basic weighted average shares outstanding
    
    
    349,160
    
    
    
    275,626Dilutive effect of:Warrant
    
    
    2,377
    
    
    
    1,498Stock option and restricted share plans
    
    
    6,789
    
    
    
    9,414Convertible debentures
    
    
    3⁄4
    
    
    
    18,194Diluted weighted average shares outstanding
    
    
    358,326
    
    
    
    304,732
 12




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(UNAUDITED)
 13. Supplemental Cash Flow Information
  Three MonthsEnded March 31,2006
    
    
    2005(In thousands)Fair value of assets, net of cash acquired
    
    $
    6,769
    
    
    $
    3⁄4Goodwill
    
    
    17,272
    
    
    
    113Consideration paid related to prior year acquisitions
    
    
    5,818
    
    
    
    1,379Total liabilities
    
    
    (6,108
    )
    
    
    3⁄4Cash consideration, net of cash acquired
    
    $
    23,751
    
    
    $
    1,492
 14. Stock-Based Compensation
    13




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(UNAUDITED)
  Three MonthsEnded March 31, 2005(In thousands,except per shareamounts)Net Income:As reported
    
    $
    80,596Employee stock-based compensation expense included in
reported net income, net of income tax benefit
    
    
    4,442Pro forma compensation expense, determined
under fair value methods for all awards,
net of income tax benefit
    
    
    (8,021
    )Pro forma
    
    $
    77,017Basic earnings per share:As reported
    
    $
    0.29Pro forma
    
    
    0.28Diluted earnings per share:As reported
    
    
    0.27Pro forma
    
    
    0.26
   Stock Option Plans
    14




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(UNAUDITED)
  Weighted-Weighted-
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicExercise
    
    
    Contractual
    
    
    ValueOptions
    
    Shares
    
    
    Price
    
    
    Term
    
    
    (in thousands)Outstanding
at January 1, 2006
    
    
    13,940,334
    
    
    $
    13.72Granted
    
    
    3⁄4
    
    
    
    3⁄4Exercised
    
    
    (2,095,989
    )
    
    
    12.63Forfeited
    
    
    (6,000
    )
    
    
    21.54Outstanding at March 31, 2006
    
    
    11,838,345
    
    
    
    13.92
    
    
    
    8.65
    
    
    $
    376,856Vested or Expected to Vest at
March 31, 2006
    
    
    11,838,345
    
    
    
    13.92
    
    
    
    8.65
    
    
    
    376,856Exercisable at March 31, 2006
    
    
    10,443,479
    
    
    
    13.27
    
    
    
    8.38
    
    
    
    339,224
  Restricted Share Plan
     Weighted-AverageGrant DateNon-Vested Shares
    
    Shares
    
    
    Fair ValueNon-Vested
at January 1, 2006
    
    
    6,887,140
    
    
    $
    31.84Granted
    
    
    48,000
    
    
    
    38.41Vested
    
    
    (720,390
    )
    
    
    23.41Forfeited
    
    
    (84,991
    )
    
    
    32.22Non-Vested at March 31, 2006
    
    
    6,129,759
    
    
    $
    32.87
 15




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(UNAUDITED)
  15. Retirement and Employee Benefit Plans
  Three Months Ended March 31,2006
    
    
    2005United
    
    
    
    
    
    
    UnitedStates
    
    
    International
    
    
    States
    
    
    International(In thousands)Service cost
    
    $
    609
    
    
    $
    2,240
    
    
    $
    633
    
    
    $
    2,017Interest cost
    
    
    1,016
    
    
    
    1,578
    
    
    
    880
    
    
    
    1,163Expected return on plan assets
    
    
    (165
    )
    
    
    (1,481
    )
    
    
    (207
    )
    
    
    (895
    )Amortization of transition obligation
    
    
    3⁄4
    
    
    
    (1
    )
    
    
    3⁄4
    
    
    
    (1
    )Amortization of prior service cost
    
    
    572
    
    
    
    (25
    )
    
    
    657
    
    
    
    84Amortization of loss
    
    
    472
    
    
    
    118
    
    
    
    309
    
    
    
    10Net periodic benefit cost
    
    $
    2,504
    
    
    $
    2,429
    
    
    $
    2,272
    
    
    $
    2,378
  16. Segment Information
 Reporting Segments
    16




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(UNAUDITED)
   Three MonthsEnded March 31,2006
    
    
    2005(In thousands)Revenues from unaffiliated customers:Evaluation, Drilling & Intervention Services
    
    $
    916,689
    
    
    $
    466,981Completion
& Production Systems
    
    
    510,023
    
    
    
    371,062Other Operations
    
    
    109,299
    
    
    
    19,663$
    1,536,011
    
    
    $
    857,706Depreciation and amortization:Evaluation, Drilling & Intervention Services
    
    $
    82,658
    
    
    $
    48,343Completion
& Production Systems
    
    
    21,642
    
    
    
    19,382Other Operations
    
    
    10,420
    
    
    
    1,829Corporate
    
    
    783
    
    
    
    568$
    115,503
    
    
    $
    70,122Operating income:Evaluation, Drilling & Intervention Services
    
    $
    235,171
    
    
    $
    99,835Completion
& Production Systems
    
    
    74,812
    
    
    
    40,199Other Operations
    
    
    16,998
    
    
    
    2,956Corporate (a)
    
    
    (19,622
    )
    
    
    (18,325
    )$
    307,359
    
    
    $
    124,665
 
 (a)
    
    Includes equity in earnings of unconsolidated affiliates that are integral to the Companys
operations.  17. Condensed Consolidating Financial Statements
   17




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(UNAUDITED)
  18




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(UNAUDITED)
 Condensed Consolidating Balance Sheet
March 31, 2006
(unaudited)
(In thousands)
 OtherParent
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidationASSETSCurrent Assets:Cash and Cash Equivalents
    
    $
    42
    
    
    $
    2,542
    
    
    $
    132,726
    
    
    $
    3⁄4
    
    
    $
    135,310Other Current Assets
    
    
    1,222
    
    
    
    4,319
    
    
    
    2,680,859
    
    
    
    3⁄4
    
    
    
    2,686,4001,264
    
    
    
    6,861
    
    
    
    2,813,585
    
    
    
    3⁄4
    
    
    
    2,821,710Equity Investments in Affiliates
    
    
    8,337,669
    
    
    
    2,832,935
    
    
    
    12,406,706
    
    
    
    (23,577,310
    )
    
    
    3⁄4Shares Held in Parent
    
    
    3⁄4
    
    
    
    141,711
    
    
    
    91,479
    
    
    
    (233,190
    )
    
    
    3⁄4Intercompany Receivables, Net
    
    
    293,660
    
    
    
    1,663,488
    
    
    
    3⁄4
    
    
    
    (1,957,148
    )
    
    
    3⁄4Other Assets
    
    
    46,401
    
    
    
    10,148
    
    
    
    6,001,396
    
    
    
    3⁄4
    
    
    
    6,057,945$
    8,678,994
    
    
    $
    4,655,143
    
    
    $
    21,313,166
    
    
    $
    (25,767,648
    )
    
    $
    8,879,655LIABILITIES AND SHAREHOLDERS
EQUITYCurrent Liabilities:Short-term Borrowings and Current Portion
of Long-term Debt
    
    $
    451,352
    
    
    $
    224,069
    
    
    $
    35,838
    
    
    $
    3⁄4
    
    
    $
    711,259Accounts Payable and Other Current
Liabilities
    
    
    8,833
    
    
    
    15,738
    
    
    
    1,062,343
    
    
    
    3⁄4
    
    
    
    1,086,914460,185
    
    
    
    239,807
    
    
    
    1,098,181
    
    
    
    3⁄4
    
    
    
    1,798,173Long-term Debt
    
    
    603,481
    
    
    
    356,282
    
    
    
    21,620
    
    
    
    3⁄4
    
    
    
    981,383Intercompany Payables, Net
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    1,957,148
    
    
    
    (1,957,148
    )
    
    
    3⁄4Other Long-term Liabilities
    
    
    49,880
    
    
    
    77,397
    
    
    
    143,228
    
    
    
    3⁄4
    
    
    
    270,505Shareholders Equity
    
    
    7,565,448
    
    
    
    3,981,657
    
    
    
    18,092,989
    
    
    
    (23,810,500
    )
    
    
    5,829,594$
    8,678,994
    
    
    $
    4,655,143
    
    
    $
    21,313,166
    
    
    $
    (25,767,648
    )
    
    $
    8,879,655
 19




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(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 Current
Liabilities
    
    
    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
 20




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(UNAUDITED)
 Condensed
Consolidating Statements of Income
Three Months Ended March 31, 2006
(unaudited)
(In thousands)
 OtherParent
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidationRevenues
    
    $
    3⁄4
    
    
    $
    3⁄4
    
    
    $
    1,536,011
    
    
    $
    3⁄4
    
    
    $
    1,536,011Costs and Expenses
    
    
    (2,820
    )
    
    
    (276
    )
    
    
    (1,228,190
    )
    
    
    3⁄4
    
    
    
    (1,231,286
    )Equity in Earnings of Unconsolidated Affiliates
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    2,634
    
    
    
    3⁄4
    
    
    
    2,634Operating Income (Loss)
    
    
    (2,820
    )
    
    
    (276
    )
    
    
    310,455
    
    
    
    3⁄4
    
    
    
    307,359Other Income (Expense):Interest Income (Expense), Net
    
    
    (12,231
    )
    
    
    (7,935
    )
    
    
    1,178
    
    
    
    3⁄4
    
    
    
    (18,988
    )Intercompany Charges, Net
    
    
    227
    
    
    
    (13,610
    )
    
    
    13,383
    
    
    
    3⁄4
    
    
    
    3⁄4Equity in Subsidiary Income
    
    
    216,252
    
    
    
    230,699
    
    
    
    3⁄4
    
    
    
    (446,951
    )
    
    
    3⁄4Other, Net
    
    
    1,889
    
    
    
    (195
    )
    
    
    (3,813
    )
    
    
    3⁄4
    
    
    
    (2,119
    )Income (Loss) from Continuing Operations
Before Income Taxes
    
    
    203,317
    
    
    
    208,683
    
    
    
    321,203
    
    
    
    (446,951
    )
    
    
    286,252(Provision) Benefit for Income Taxes
    
    
    3⁄4
    
    
    
    7,569
    
    
    
    (90,504
    )
    
    
    3⁄4
    
    
    
    (82,935
    )Income (Loss) from Continuing Operations
    
    
    203,317
    
    
    
    216,252
    
    
    
    230,699
    
    
    
    (446,951
    )
    
    
    203,317Income from Discontinued Operation, Net of
Taxes
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4Net Income (Loss)
    
    $
    203,317
    
    
    $
    216,252
    
    
    $
    230,699
    
    
    $
    (446,951
    )
    
    $
    203,317
 Condensed
Consolidating Statements of Income
Three Months Ended March 31, 2005
(unaudited)
(In thousands)
 OtherParent
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidationRevenues
    
    $
    3⁄4
    
    
    $
    3⁄4
    
    
    $
    857,706
    
    
    $
    3⁄4
    
    
    $
    857,706Costs and Expenses
    
    
    (2,904
    )
    
    
    (47
    )
    
    
    (731,391
    )
    
    
    3⁄4
    
    
    
    (734,342
    )Equity in Earnings of Unconsolidated Affiliates
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    1,301
    
    
    
    3⁄4
    
    
    
    1,301Operating Income (Loss)
    
    
    (2,904
    )
    
    
    (47
    )
    
    
    127,616
    
    
    
    3⁄4
    
    
    
    124,665Other Income (Expense):Interest
Income (Expense), Net
    
    
    (2,536
    )
    
    
    (11,750
    )
    
    
    628
    
    
    
    3⁄4
    
    
    
    (13,658
    )Intercompany Charges, Net
    
    
    (8,167
    )
    
    
    23,373
    
    
    
    (15,206
    )
    
    
    3⁄4
    
    
    
    3⁄4Equity in Subsidiary Income
    
    
    95,458
    
    
    
    88,164
    
    
    
    3⁄4
    
    
    
    (183,622
    )
    
    
    3⁄4Other, Net
    
    
    (1,847
    )
    
    
    55
    
    
    
    (434
    )
    
    
    3⁄4
    
    
    
    (2,226
    )Income (Loss) from Continuing Operations
Before Income Taxes
    
    
    80,004
    
    
    
    99,795
    
    
    
    112,604
    
    
    
    (183,622
    )
    
    
    108,781(Provision) Benefit for Income Taxes
    
    
    592
    
    
    
    (4,337
    )
    
    
    (24,601
    )
    
    
    3⁄4
    
    
    
    (28,346
    )Income (Loss) from Continuing Operations
    
    
    80,596
    
    
    
    95,458
    
    
    
    88,003
    
    
    
    (183,622
    )
    
    
    80,435Income from Discontinued Operation, Net of
Taxes
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    161
    
    
    
    3⁄4
    
    
    
    161Net Income (Loss)
    
    $
    80,596
    
    
    $
    95,458
    
    
    $
    88,164
    
    
    $
    (183,622
    )
    
    $
    80,596
 21




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(UNAUDITED)
 Condensed Consolidating Statements of Cash Flows
Three Months Ended March 31, 2006
(unaudited)
(In thousands)
 OtherParent
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidationCash Flows from Operating Activities:Net Income (Loss)
    
    $
    203,317
    
    
    $
    216,252
    
    
    $
    230,699
    
    
    $
    (446,951
    )
    
    $
    203,317Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided (Used) by Operating
Activities:Equity in Earnings of Unconsolidated
Affiliates
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (2,634
    )
    
    
    3⁄4
    
    
    
    (2,634
    )Equity in Earnings of Affiliates
    
    
    (216,252
    )
    
    
    (230,699
    )
    
    
    3⁄4
    
    
    
    446,951
    
    
    
    3⁄4Charges from Parent or Subsidiary
    
    
    (227
    )
    
    
    13,610
    
    
    
    (13,383
    )
    
    
    3⁄4
    
    
    
    3⁄4Deferred Income Tax Provision (Benefit)
    
    
    3⁄4
    
    
    
    (7,572
    )
    
    
    6,244
    
    
    
    3⁄4
    
    
    
    (1,328
    )Other, Net
    
    
    44,334
    
    
    
    (115,440
    )
    
    
    74,968
    
    
    
    3⁄4
    
    
    
    3,862Net Cash Provided (Used) by Continuing
Operations
    
    
    31,172
    
    
    
    (123,849
    )
    
    
    295,894
    
    
    
    3⁄4
    
    
    
    203,217Net Cash Used by Discontinued Operation
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4Net Cash Provided (Used) by Operating
Activities
    
    
    31,172
    
    
    
    (123,849
    )
    
    
    295,894
    
    
    
    3⁄4
    
    
    
    203,217Cash Flows from Investing Activities:Acquisition of Businesses, Net of Cash
Acquired
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (23,751
    )
    
    
    3⁄4
    
    
    
    (23,751
    )Capital Expenditures for Property, Plant and
Equipment
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (212,677
    )
    
    
    3⁄4
    
    
    
    (212,677
    )Acquisition of Intellectual Property
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (2,957
    )
    
    
    3⁄4
    
    
    
    (2,957
    )Proceeds
from Sale of Assets, Net
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    225
    
    
    
    3⁄4
    
    
    
    225Net Cash Used by Investing Activities
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (239,160
    )
    
    
    3⁄4
    
    
    
    (239,160
    )Cash Flows from Financing Activities:Borrowings (Repayments) of Short-term Debt,
Net
    
    
    (266,488
    )
    
    
    19,175
    
    
    
    1,107
    
    
    
    3⁄4
    
    
    
    (246,206
    )Borrowings (Repayments ) of Long-term Debt,
Net
    
    
    347,984
    
    
    
    (876
    )
    
    
    238
    
    
    
    3⁄4
    
    
    
    347,346Borrowings (Repayments) Between
Subsidiaries, Net
    
    
    (112,700
    )
    
    
    77,523
    
    
    
    35,177
    
    
    
    3⁄4
    
    
    
    3⁄4Proceeds from Exercise of Stock Options
    
    
    3⁄4
    
    
    
    26,783
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    26,783Purchase of Treasury Shares
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (91,479
    )
    
    
    3⁄4
    
    
    
    (91,479
    )Other, Net
    
    
    (50
    )
    
    
    614
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    564Net Cash Provided (Used) by Financing
Activities
    
    
    (31,254
    )
    
    
    123,219
    
    
    
    (54,957
    )
    
    
    3⁄4
    
    
    
    37,008Net Increase (Decrease) in Cash and Cash
Equivalents
    
    
    (82
    )
    
    
    (630
    )
    
    
    1,777
    
    
    
    3⁄4
    
    
    
    1,065Cash and Cash Equivalents at Beginning of
Period
    
    
    124
    
    
    
    3,172
    
    
    
    130,949
    
    
    
    3⁄4
    
    
    
    134,245Cash and Cash Equivalents at End of Period
    
    $
    42
    
    
    $
    2,542
    
    
    $
    132,726
    
    
    $
    3⁄4
    
    
    $
    135,310
 22




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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(UNAUDITED)
 Condensed Consolidating Statements of Cash Flows
Three Months Ended March 31, 2005
(unaudited)
(In thousands)
 OtherParent
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidationCash Flows from Operating Activities:Net Income (Loss)
    
    $
    80,596
    
    
    $
    95,458
    
    
    $
    88,164
    
    
    $
    (183,622
    )
    
    $
    80,596Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided (Used) by Operating
Activities:Equity in (Earnings) Losses of Unconsolidated
Affiliates
    
    
    1,125
    
    
    
    3⁄4
    
    
    
    (1,301
    )
    
    
    3⁄4
    
    
    
    (176
    )Equity in Earnings of Affiliates
    
    
    (95,458
    )
    
    
    (88,164
    )
    
    
    3⁄4
    
    
    
    183,622
    
    
    
    3⁄4Charges from Parent or Subsidiary
    
    
    8,167
    
    
    
    (23,373
    )
    
    
    15,206
    
    
    
    3⁄4
    
    
    
    3⁄4Deferred Income Tax Provision (Benefit)
    
    
    3⁄4
    
    
    
    1,912
    
    
    
    (9,208
    )
    
    
    3⁄4
    
    
    
    (7,296
    )Other, Net
    
    
    84,252
    
    
    
    (65,527
    )
    
    
    (56,989
    )
    
    
    3⁄4
    
    
    
    (38,264
    )Net Cash Provided (Used) by Continuing
Operations
    
    
    78,682
    
    
    
    (79,694
    )
    
    
    35,872
    
    
    
    3⁄4
    
    
    
    34,860Net Cash Used by Discontinued
Operation
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (5,323
    )
    
    
    3⁄4
    
    
    
    (5,323
    )Net Cash Provided (Used) by Operating
Activities
    
    
    78,682
    
    
    
    (79,694
    )
    
    
    30,549
    
    
    
    3⁄4
    
    
    
    29,537Cash Flows from Investing Activities:Acquisition of Businesses, Net of Cash
Acquired
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (1,492
    )
    
    
    3⁄4
    
    
    
    (1,492
    )Capital Expenditures for Property, Plant and
Equipment
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (74,344
    )
    
    
    3⁄4
    
    
    
    (74,344
    )Acquisition of Intellectual Property
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (4,395
    )
    
    
    3⁄4
    
    
    
    (4,395
    )Proceeds from Sale of Assets
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    4,756
    
    
    
    3⁄4
    
    
    
    4,756Other, Net
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (1,350
    )
    
    
    3⁄4
    
    
    
    (1,350
    )Net Cash Used by Investing Activities
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (76,825
    )
    
    
    3⁄4
    
    
    
    (76,825
    )Cash Flows from Financing Activities:Repayments of Short-term Debt, Net
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (5,246
    )
    
    
    3⁄4
    
    
    
    (5,246
    )Repayments of Long-term Debt, Net
    
    
    3⁄4
    
    
    
    (881
    )
    
    
    (409
    )
    
    
    3⁄4
    
    
    
    (1,290
    )Borrowings (Repayments) Between
Subsidiaries, Net
    
    
    (47,307
    )
    
    
    (43,795
    )
    
    
    91,102
    
    
    
    3⁄4
    
    
    
    3⁄4Proceeds from Exercise of Stock Options
    
    
    3⁄4
    
    
    
    50,494
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    50,494Other, Net
    
    
    3⁄4
    
    
    
    (119
    )
    
    
    (37
    )
    
    
    3⁄4
    
    
    
    (156
    )Net Cash Provided (Used) by Financing
Activities
    
    
    (47,307
    )
    
    
    5,699
    
    
    
    85,410
    
    
    
    3⁄4
    
    
    
    43,802Net Increase (Decrease) in Cash and Cash
Equivalents
    
    
    31,375
    
    
    
    (73,995
    )
    
    
    39,134
    
    
    
    3⁄4
    
    
    
    (3,486
    )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
    
    $
    170,354
    
    
    $
    58
    
    
    $
    143,541
    
    
    $
    3⁄4
    
    
    $
    313,953
 23




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##### Table of Contents



WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(UNAUDITED)
 18. New Accounting Pronouncement
 Accounting Changes and Error Corrections Accounting Changes Reporting Accounting Changes in Interim Financial Statements-An Amendment of APB Opinion No.
28.
 19. Subsequent Events
  24




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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
    
    
    InternationalWTI Oil (1)
    
    
    Gas (2)
    
    
    Rig Count (3)
    
    
    Rig Count (3)March 31, 2006
    
    $
    66.63
    
    
    $
    7.210
    
    
    
    2,171
    
    
    
    898December 31, 2005
    
    
    61.04
    
    
    
    11.225
    
    
    
    2,046
    
    
    
    948March 31, 2005
    
    
    55.40
    
    
    
    7.653
    
    
    
    1,692
    
    
    
    891
 
 (1)
    
    Price per barrel as of March 31 and December 31  Source:Applied Reasoning, Inc.(2)
    
    Price per MM/BTU as of March 31 and December 31  Source:Oil World(3)
    
    Average rig count for the applicable month  Source:Baker Hughes Rig Count   25




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##### Table of Contents



Opportunities and Challenges
    Outlook
  
    
    U.S. rig activity will increase modestly from the high first quarter levels, with an
increase in unconventional hydrocarbon production activity.
    
    Canadian markets will remain at the recent high activity levels, adjusted for the
seasonally lower activity levels experienced during spring break up.
    
    The international markets will flourish, with the Eastern Hemisphere standing out as the
strongest market.
    
    Technologies that improve productivity will do increasingly well in the upcoming years.
  Geographic Markets.
 26




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##### Table of Contents



Pricing.
 Business Segments.
  Results of Operations
  27




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##### Table of Contents



Comparative Financial Data
 Three Months Ended March 31,2006
    
    
    2005(In thousands, except percentages andper share data)Revenues:Evaluation, Drilling & Intervention Services
    
    $
    916,689
    
    
    $
    466,981Completion & Production Systems
    
    
    510,023
    
    
    
    371,062Other Operations
    
    
    109,299
    
    
    
    19,6631,536,011
    
    
    
    857,706Gross Profit %:Evaluation, Drilling & Intervention Services
    
    
    39.8
    %
    
    
    35.2
    %Completion & Production Systems
    
    
    31.3
    
    
    
    28.1Other Operations
    
    
    21.8
    
    
    
    31.335.7
    
    
    
    32.1Research and Development:Evaluation, Drilling & Intervention Services
    
    $
    21,963
    
    
    $
    9,361Completion & Production Systems
    
    
    14,056
    
    
    
    11,214Other Operations
    
    
    424
    
    
    
    44436,443
    
    
    
    21,019Selling, General and Administrative Attributable to Segments:Evaluation, Drilling & Intervention Services
    
    
    107,529
    
    
    
    55,346Completion & Production Systems
    
    
    70,983
    
    
    
    52,870Other Operations
    
    
    6,434
    
    
    
    2,745184,946
    
    
    
    110,961Corporate General and Administrative
    
    
    22,256
    
    
    
    19,626Equity in Earnings of Unconsolidated Affiliates
    
    
    2,634
    
    
    
    1,301Operating Income:Evaluation, Drilling & Intervention Services
    
    
    235,171
    
    
    
    99,835Completion & Production Systems
    
    
    74,812
    
    
    
    40,199Other Operations
    
    
    16,998
    
    
    
    2,956Corporate (a)
    
    
    (19,622
    )
    
    
    (18,325
    )307,359
    
    
    
    124,665Interest Expense, Net
    
    
    (18,988
    )
    
    
    (13,658
    )Other, Net
    
    
    (2,119
    )
    
    
    (2,226
    )Effective Tax Rate
    
    
    29.0
    %
    
    
    26.1
    %Income from Continuing Operations per Diluted Share
    
    $
    0.57
    
    
    $
    0.27Net Income per Diluted Share
    
    
    0.57
    
    
    
    0.27Depreciation and Amortization
    
    
    115,503
    
    
    
    70,122
 
 (a)
    
    Includes equity in earnings of unconsolidated affiliates which are integral to our
operations. 28




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##### Table of Contents



Consolidated Revenues by Geographic Region
 Three MonthsEnded March 31,2006
    
    
    2005U.S.
    
    
    35
    %
    
    
    37
    %Canada
    
    
    25
    
    
    
    19Latin America
    
    
    11
    
    
    
    9Europe, CIS and West Africa
    
    
    11
    
    
    
    16Middle East and North Africa
    
    
    12
    
    
    
    12Asia Pacific
    
    
    6
    
    
    
    7Total
    
    
    100
    %
    
    
    100
    %
 Company Results
 Revenues
  Gross Profit
  Research and Development
  Corporate General and Administrative
  Interest Expense, Net
  29




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##### Table of Contents



Income Taxes
  Segment Results
 Evaluation, Drilling & Intervention Services
     Completion & Production Systems
     30




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##### Table of Contents



Other Operations
   Liquidity and Capital Resources
 Historical Cash Flows
  
    
    cash inflows from operating activities of $203.2 million;
    
    capital expenditures for property, plant and equipment of $212.7 million;
    
    acquisition of new businesses of approximately $23.8 million in cash, net of cash acquired;
    
    acquisition of intellectual property of $3.0 million;
    
    borrowings, net of repayments, on long-term debt and
short-term facilities of $101.1 million;
    
    proceeds from stock option activity of $26.8 million; and
    
    treasury share purchases of $91.5 million.
 Sources of Liquidity
   Uses of AvailabilityShort-term Financing
    
    Facility
    
    Expiration
    
    Commercial
    
    Letters ofFacilities
    
    Amount
    
    Date
    
    Paper
    
    Credit
    
    Availability(In millions)364-Day Revolving Credit
Facility
    
    $
    850.0
    
    
    Aug 2006
    
    $
    450.4
    
    
    $ 3⁄4
    
    $
    399.6Revolving Credit Facility
    
    
    500.0
    
    
    May 2006
    
    3⁄4
    
    
    14.9
    
    
    
    485.1Canadian Facility
    
    
    17.1
    
    
    July 2006
    
    3⁄4
    
    
    0.5
    
    
    
    16.6
 Revolving Credit Facilities
  31




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Commercial Paper
   Cash Requirements
     32




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##### Table of Contents



Derivative Instruments
     Off Balance Sheet Arrangements
 Guarantees
  Letters of Credit
  Operating Leases
  New Accounting Pronouncement
  Critical Accounting Policies and Estimates
  33




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##### Table of Contents



Revenue Recognition
     Exposures
 We conduct significant foreign operations that subject us to numerous risks.
  
    
    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
  34




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##### Table of Contents



Litigation and Environmental Exposure
   Industry Exposure
  Terrorism Exposure
  Tax Exposure
  Acquisition Integration Exposure
  35




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##### Table of Contents



Drilling Industry Exposures
     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 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 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.
 37




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##### Table of Contents




    
    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 March 31, 2006, 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
   March 31, 2006
    
    
    December 31, 2005Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    Value(In millions)6 5/8% Senior Notes due 2011
    
    $
    357.8
    
    
    $
    367.7
    
    
    $
    358.1
    
    
    $
    374.04.95% Senior Notes due 2013
    
    
    255.9
    
    
    
    244.5
    
    
    
    256.0
    
    
    
    244.55.50% Senior Notes due 2016
    
    
    348.5
    
    
    
    343.2
    
    
    
    3⁄4
    
    
    
    3⁄4
 39




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##### Table of Contents



Interest Rate Swaps
   
 ITEM 4. CONTROLS AND PROCEDURES
   40




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1A. RISK FACTORS
  
    
    We have changed the title of our first stated exposure on page 34 of this report from
International Exposure to We conduct significant foreign operations that subject us to
numerous risks.
    
    We have updated the percentage of our net assets located outside the U.S. and carried on
our books in local currencies on page 34 of this report from 40.7% as of December 31, 2005 to
42.3% as of March 31, 2006.
 
 ITEM 2. UNREGISTERED SALES OF EQUITY IN SECURITIES AND USE OF PROCEEDS
  Date
    
    No. of Shares
    
    
    Average PriceJanuary
    
    
    3⁄4
    
    
    
    3⁄4February
    
    

3⁄4
    
    
    
    3⁄4March
    
    
    2,186,500
    
    
    $
    41.81
  Date
    
    No. of Shares
    
    
    Average Market PriceJanuary
    
    
    144,476
    
    
    $
    39.74February
    
    
    72,806
    
    
    $
    42.75March
    
    
    18,108
    
    
    $
    45.76
 
 ITEM 6. EXHIBITS
  ExhibitNumber
    
    Description4.1
    
    Form of Global note for 5.50% Senior Notes due 2016 (incorporated
by reference to Exhibit 4.1 to the Registrants Current Report on
Form 8-K (File No. 1-31339) filed February 17, 2006).4.2
    
    Officers Certificate, dated January 17, 2006, establishing the
series of 5.50% Senior Notes due 2016 (incorporated by reference
to Exhibit 4.2 to the Registrants Current Report on Form 8-K
(File No. 1-31339) filed February 17, 2006).4.3
    
    Second Amended and Restated Credit Agreement dated as of May 2,
2006, among Weatherford International Ltd., Weatherford
International, Inc., Weatherford Liquidity Management Hungary
Limited Liability Company, JPMorgan Chase Bank as Administrative
Agent, and the other Lenders party thereto (incorporated by
reference to Exhibit 4.1 to the Registrants Current Report on
Form 8-K (File No. 1-31339) filed May 5, 2006).
 41




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##### Table of Contents



ExhibitNumber
    
    Description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 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 ChiefFinancial Officer(Principal Financial and AccountingOfficer)Date: May 9, 2006
 43




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##### Table of Contents



Exhibit Index
 ExhibitNumber
    
    Description4.1
    
    Form of Global note for 5.50% Senior Notes due 2016 (incorporated
by reference to Exhibit 4.1 to the Registrants Current Report on
Form 8-K (File No. 1-31339) filed February 17, 2006).4.2
    
    Officers Certificate, dated January 17, 2006, establishing the
series of 5.50% Senior Notes due 2016 (incorporated by reference
to Exhibit 4.2 to the Registrants Current Report on Form 8-K
(File No. 1-31339) filed February 17, 2006).4.3
    
    Second Amended and Restated Credit Agreement dated as of May 2,
2006, among Weatherford International Ltd., Weatherford
International, Inc., Weatherford Liquidity Management Hungary
Limited Liability Company, JPMorgan Chase Bank as Administrative
Agent, and the other Lenders party thereto (incorporated by
reference to Exhibit 4.1 to the Registrants Current Report on
Form 8-K (File No. 1-31339) filed May 5, 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 herewith