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 June 30, 2006

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

WEATHERFORD INTERNATIONAL LTD.

(Exact name of Registrant as specified in its Charter)

Bermuda		98-0371344
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
515 Post Oak Boulevard
Suite 600
Houston, Texas		77027-3415
(Address of principal executive offices)		(Zip Code)

(713) 693-4000

 

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

     Yes þ No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

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

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

     Yes o No þ

     Indicate the number of shares outstanding of each of the issuer’s classes of common shares, as of the latest practicable date:

Title of Class		Outstanding at August 3, 2006
Common Shares, par value $1.00		346,006,661

 

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)

		June 30,				December 31,
		2006				2005
		(unaudited)
ASSETS
Current Assets:
Cash and Cash Equivalents		$	127,375			$	134,245
Accounts Receivable, Net of Allowance for Uncollectible Accounts of $12,311 and $12,210, Respectively			1,340,307				1,259,990
Inventories			1,069,754				890,121
Other Current Assets			377,204				354,517
			2,914,640				2,638,873
Property, Plant and Equipment, Net			2,642,594				2,367,237
Goodwill			2,936,881				2,808,217
Other Intangible Assets, Net			608,558				621,365
Other Assets			123,588				144,612
		$	9,226,261			$	8,580,304
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Short-term Borrowings and Current Portion of Long-term Debt		$	842,903			$	954,766
Accounts Payable			455,702				476,363
Other Current Liabilities			699,951				567,012
			1,998,556				1,998,141
Long-term Debt			977,292				632,071
Deferred Tax Liabilities			55,467				88,476
Other Liabilities			231,662				194,799
Commitments and Contingencies
Shareholders’ Equity:
Common Shares, $1 Par Value, Authorized 1,000,000 Shares, Issued 361,662 and 358,973 Shares, Respectively			361,662				358,973
Capital in Excess of Par Value			4,217,537				4,164,365
Treasury Shares, Net			(369,825	)			(152,111	)
Retained Earnings			1,593,102				1,202,938
Accumulated Other Comprehensive Income			160,808				92,652
			5,963,284				5,666,817
		$	9,226,261			$	8,580,304

The accompanying notes are an integral part of these condensed consolidated financial statements.

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)

		Three Months								Six Months
		Ended June 30,								Ended June 30,
		2006				2005				2006				2005
Revenues:
Products		$	601,931			$	427,228			$	1,170,614			$	855,996
Services			936,645				510,067				1,903,973				939,005
			1,538,576				937,295				3,074,587				1,795,001
Costs and Expenses:
Cost of Products			412,510				297,581				803,057				594,131
Cost of Services			585,762				335,527				1,182,856				621,713
Research and Development			37,361				23,903				73,804				44,922
Selling, General and Administrative Attributable to Segments			183,451				125,367				368,397				236,328
Corporate General and Administrative			24,277				17,330				46,533				36,956
Equity in Earnings of Unconsolidated Affiliates			(3,293	)			(2,822	)			(5,927	)			(4,123	)
Operating Income			298,508				140,409				605,867				265,074
Other Income (Expense):
Interest Expense, Net			(23,715	)			(14,979	)			(42,703	)			(28,637	)
Other, Net			(11,371	)			3,432				(13,490	)			1,206
Income from Continuing Operations Before Income Taxes			263,422				128,862				549,674				237,643
Provision for Income Taxes			(76,575	)			(34,137	)			(159,510	)			(62,483	)
Income from Continuing Operations			186,847				94,725				390,164				175,160
Income from Discontinued Operation, Net of Taxes			¾				463				¾				624
Net Income		$	186,847			$	95,188			$	390,164			$	175,784
Basic Earnings Per Share:
Income from Continuing Operations		$	0.54			$	0.34			$	1.12			$	0.63
Income from Discontinued Operation			0.00				0.00				0.00				0.01
Net Income		$	0.54			$	0.34			$	1.12			$	0.64
Diluted Earnings Per Share:
Income from Continuing Operations		$	0.52			$	0.32			$	1.09			$	0.59
Income from Discontinued Operation			0.00				0.00				0.00				0.00
Net Income		$	0.52			$	0.32			$	1.09			$	0.59
Weighted Average Shares Outstanding:
Basic			348,853				277,872				349,006				276,750
Diluted			358,433				307,026				358,164				305,584

The accompanying notes are an integral part of these condensed consolidated financial statements.

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)

		Six Months
		Ended June 30,
		2006				2005
Cash Flows from Operating Activities:
Net Income		$	390,164			$	175,784
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization			230,522				140,439
Gain on Sales of Assets, Net			(10,544	)			(2,504	)
Income from Discontinued Operation			¾				(624	)
Equity in Earnings of Unconsolidated Affiliates			(5,927	)			(6,754	)
Employee Stock-Based Compensation Expense			28,467				13,448
Amortization of Original Issue Discount			¾				8,604
Deferred Income Tax Provision (Benefit)			(1,536	)			5,583
Other, Net			4,563				4,320
Change in Operating Assets and Liabilities, Net of Effect of Businesses Acquired			(125,985	)			(201,200	)
Net Cash Provided by Continuing Operations			509,724				137,096
Net Cash Provided by Discontinued Operation			¾				3,051
Net Cash Provided by Operating Activities			509,724				140,147
Cash Flows from Investing Activities:
Acquisitions of Businesses, Net of Cash Acquired			(106,077	)			(26,237	)
Capital Expenditures for Property, Plant and Equipment			(451,139	)			(191,094	)
Acquisition of Intellectual Property			(4,945	)			(6,830	)
Purchase of Equity Investment in Unconsolidated Affiliate			¾				(1,351	)
Proceeds from Sale of Assets and Businesses, Net			1,352				7,044
Net Cash Used by Investing Activities			(560,809	)			(218,468	)
Cash Flows from Financing Activities:
Borrowings of Short-term Debt, Net			86,524				7,928
Borrowings (Repayments) of Long-term Debt, Net			143,215				(1,195	)
Purchase of Treasury Shares			(238,652	)			¾
Proceeds from Exercise of Stock Options			52,062				62,320
Tax Benefit on Stock Option Exercises			690				¾
Other Financing Activities, Net			376				(2,500	)
Net Cash Provided by Financing Activities			44,215				66,553
Net Decrease in Cash and Cash Equivalents			(6,870	)			(11,768	)
Cash and Cash Equivalents at Beginning of Period			134,245				317,439
Cash and Cash Equivalents at End of Period		$	127,375			$	305,671
Supplemental Cash Flow Information:
Interest Paid		$	30,889			$	27,891
Income Taxes Paid, Net of Refunds			76,452				54,563

The accompanying notes are an integral part of these condensed consolidated financial statements.

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(In thousands)

		Three Months								Six Months
		Ended June 30,								Ended June 30,
		2006				2005				2006				2005
Net Income		$	186,847			$	95,188			$	390,164			$	175,784
Other Comprehensive Income (Loss):
Reclassification Adjustment for Deferred Gain, Net on Derivative Instruments			21				69				6,289				137
Foreign Currency Translation Adjustment			52,175				(37,448	)			61,867				(44,512	)
Comprehensive Income		$	239,043			$	57,809			$	458,320			$	131,409

The accompanying notes are an integral part of these condensed consolidated financial statements.

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

1. General

     The condensed consolidated financial statements of Weatherford International Ltd. and all majority-owned subsidiaries (the “Company”) included herein are unaudited; however, they include all adjustments of a normal recurring nature which, in the opinion of management, are necessary to present fairly the Company’s Condensed Consolidated Balance Sheet at June 30, 2006, Condensed Consolidated Statements of Income and Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2006 and 2005, and Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2005. Although the Company believes the disclosures in these financial statements are adequate to make the interim information presented not misleading, certain information relating to the Company’s organization and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted in this Form 10-Q pursuant to Securities and Exchange Commission rules and regulations. These financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2005 and the notes thereto included in the Company’s Annual Report on Form 10-K. The results of operations for the three and six months ended June 30, 2006 are not necessarily indicative of the results expected for the full year.

     The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period and disclosure of contingent liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to bad debts, inventories, investments, intangible assets and goodwill, property, plant and equipment, income taxes, insurance, employment benefits and contingent liabilities. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

     Certain reclassifications have been made to conform prior year financial information to the current period presentation.

     The Company completed the acquisition of the Energy Services Division (“Precision Energy Services”) and International Contract Drilling Division (“Precision Drilling International”) of Precision Drilling Corporation on August 31, 2005 and began integrating those acquired businesses into the Company’s reporting structure. In connection with the acquisition, the Company realigned its operating and reporting segments to include Evaluation, Drilling & Intervention Services and Completion & Production Systems. The Company’s remaining segments, Pipeline and Specialty Services and Precision Drilling International were reported as Other Operations as their operations were not material individually.

     While the Company’s intent was to integrate the Precision Drilling International product lines into Evaluation, Drilling and Intervention Services as of the acquisition date, the reporting structure that optimized the Company’s productivity initiatives was not executed until the second quarter of 2006, as other integration activities were ongoing. Productivity initiatives the Company seeks to maximize include but are not limited to (a) customer focus, (b) streamlining business processes and (c) maximizing product line pull-through including integrated projects. In addition, it was subsequently determined that the Pipeline and Specialty Services Segment would be managed and reported under the Completion & Production Systems Division to allow for the elimination of certain cost redundancies and to benefit from the similarities shared with other completion and artificial lift product lines.

     In connection with these recent changes, the Company realigned its operating segments and reviewed the presentation of its reporting segments in the second quarter of 2006 (See Note 17). The three historical reporting segments of Evaluation, Drilling & Intervention Services, Completion & Production Systems and Other Operations are now presented as: Evaluation, Drilling & Intervention Services and Completion & Production Systems. The previous components of Other Operations, Precision Drilling International and Pipeline and Specialty Services, are now reported under Evaluation, Drilling & Intervention Services and Completion & Production Systems, respectively. Historical segment data has been restated for all periods to conform to the new presentation (See Notes 4, 7 and 17).

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

2. Critical Accounting Policies

     There have been no material changes or developments in the Company’s evaluation of accounting estimates and underlying assumptions or methodologies that the Company believes to be Critical Accounting Policies and Estimates as disclosed in our Form 10-K, for the year ended December 31, 2005. Although there have been no material changes to the Company’s revenue recognition policy subsequent to December 31, 2005, further clarification of this critical accounting policy, as it relates to products and services sold in our contract drilling and pipeline services businesses, is warranted, as these businesses are expected to comprise a higher percentage of total revenues for 2006. In addition, the Company has expanded its disclosure to clarify the nature of the expenses typically incurred and rebilled to the customer.

     Revenue Recognition

     Revenue is recognized when all of the following criteria have been met: a) evidence of an arrangement exists, b) delivery to and acceptance by the customer has occurred, c) the price to the customer is fixed and determinable and d) collectibility is reasonably assured.

     Both contract drilling and pipeline service revenue is contractual by nature and both are day-rate based contracts. The Company recognizes revenue for these contracts based on the criteria outlined above which is consistent with our other product offerings.

     From time to time, the Company may receive revenues for preparation and mobilization of equipment and personnel. In connection with new drilling contracts, revenues earned and incremental costs incurred directly related to preparation and mobilization are deferred and recognized over the primary contract term of the project using the straight-line method. Costs of relocating equipment without contracts to more promising market areas are expensed as incurred. Demobilization fees received are recognized, along with any related expenses, upon completion of contracts.

     The Company incurs rebillable expenses including shipping and handling, third-party inspection and repairs, and custom and duties. The Company recognizes the revenue associated with these rebillable expenses as Products Revenues and all related costs as Cost of Products in the accompanying Condensed Consolidated Statements of Income.

3. Business Combinations

     The Company has acquired businesses critical to its long-term growth strategy. Results of operations for acquisitions are included in the accompanying Condensed Consolidated Statements of Income from the date of acquisition. The balances included in the Condensed Consolidated Balance Sheets related to acquisitions are based on preliminary information and are subject to change when final asset valuations are obtained and the potential for liabilities has been evaluated. Acquisitions are accounted for using the purchase method of accounting and the purchase price was allocated to the net assets acquired based upon their estimated fair values at the date of acquisition. Final valuations of assets and liabilities are obtained and recorded within one year from the date of the acquisition.

     During the first half of 2006, the Company effected various acquisitions that were integrated into the Company’s operations for total consideration of approximately $99.9 million.

     On August 31, 2005, the Company acquired Precision Energy Services and Precision Drilling International, former divisions of Precision Drilling Corporation. Precision Energy Services is a provider of cased hole and open hole wireline services, drilling and evaluation services and production services. These operations substantially broadened the Company’s wireline and directional capabilities and strengthened the Company’s underbalanced product lines. Opportunities exist to accelerate the acquired products’ market penetration in the Eastern Hemisphere through the Company’s established infrastructure. Precision Drilling International is a land rig contractor owning and operating 48 rigs, with a concentrated presence in the Eastern Hemisphere and Latin America. The procurement of these assets will allow the Company to further meet our customers’ comprehensive service needs.

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

     Consideration paid for these businesses was approximately $2,340.7 million consisting of $942.7 million in cash and 52.0 million Weatherford common shares, $1.00 par value (“Common Shares”). The fair value of the shares issued was determined using an average price of $26.89, which represented the average closing price of the Company’s stock for a short period before and after the agreement date. The purchase price is subject to a working capital adjustment mechanism, which has not been completed.

     The total purchase price was allocated to Precision Energy Services and Precision Drilling International’s net tangible and identifiable intangible assets based on their estimated fair values. The excess of the purchase price over the net assets was recorded as goodwill. The preliminary allocation of the purchase price was based upon preliminary valuations and estimates and assumptions are subject to change upon the receipt and management’s review of the final valuations. The primary areas of the purchase price allocation which are not yet finalized relate to pre-merger contingencies and residual goodwill. The final valuation of net assets is expected to be completed no later than one year from the acquisition date.

4. Exit Costs, Severance, Restructuring and Asset Impairment Charges

     2005 Exit Cost and Restructuring Charges

     During the third and fourth quarters of 2005, the Company underwent both a restructuring related to its acquisition of Precision and reorganization activities related to its historical businesses, including a change in management, a change in regional structure and an evaluation of product lines. The Company incurred exit costs of $114.2 million related to its exit and reorganization. The charge included an inventory write-down of $20.7 million which was recorded in Cost of Products and a remaining amount of $93.6 million which was recorded as Exit Costs and Restructuring Charges in the related period’s Consolidated Statements of Income.

     The exit plan related to the Precision acquisition resulted in exit costs and restructuring charges of $105.5 million. The Company initiated an integration plan to combine worldwide operations, rationalize product lines, and eliminate certain products, services and locations. Product line rationalization included wireline, underbalanced and directional product and service offerings. Inventory totaling $20.7 million was written-down. Asset impairment charges included $20.9 million for fixed assets, $12.9 million related to information technology and $1.7 million related to investments. Employee severance and termination benefits totaled $33.0 million. Contract terminations and facility closures of $7.3 million were also recorded.

     In connection with the valuation of the Precision assets, $9.0 million was identified as purchased in process research and development and was written-off.

     The exit plan related to the reorganization activities surrounding the Company’s historical businesses resulted in exit costs and restructuring charges of $8.7 million. The Company incurred severance and termination benefits of $3.6 million and recorded $2.6 million of facility termination charges related to the rationalization of two facilities, one located in the United Kingdom and the other in the U.S. The remaining $2.5 million charge related to the write-off of other assets.

     The 2005 integration and reorganization plans are expected to be substantially completed during the fourth quarter of 2006. No additional costs were recorded during the first six months of 2006, and the Company does not

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

anticipate future charges, relating to these activities. In addition, there were no costs incurred related to this Exit Cost and Restructuring Plan during the six months ended June 30, 2005.

		Evaluation,
		Drilling &				Completion
		Intervention				& Production
		Services				Systems				Corporate				Total
		(In thousands)
Cost of Products		$	20,654			$	3,842			$	¾			$	24,496
Cost of Services			25,766				1,083				¾				26,849
Research and Development			9,000				¾				¾				9,000
Selling General & Administrative			17,349				3,803				¾				21,152
Corporate General & Administrative			¾				¾				32,738				32,738
Total			72,769				8,728				32,738				114,235
Cash Payments			(20,131	)			(6,080	)			(8,126	)			(34,337	)
Non-cash Utilization			(52,389	)			¾				(12,911	)			(65,300	)
Balance at June 30, 2006		$	249			$	2,648			$	11,701			$	14,598

     As of June 30, 2006, the remaining accrual was comprised of $12.7 million and $1.9 million in severance benefits and facility closure costs, respectively. The length of time the Company is obligated to make severance payments varies, with the longest obligation continuing through 2018. The facility closure costs will be paid out over the term of the respective leases, with the longest obligation continuing through 2011.

5. Dispositions

     In June 2004, the Company’s management approved a plan to sell its non-core GSI compression fabrication business. The sale of this business was finalized in July 2005 for a gain of $0.6 million. The GSI Compression fabrication business was historically included in the Company’s Completion & Production Systems segment. In accordance with SFAS No. 144, the GSI compression fabrication business results of operations and cash flows have been reflected in the condensed consolidated financial statements and notes as a discontinued operation for all periods presented.

     Interest charges have been allocated to the discontinued operation based on a pro rata calculation of the net assets of the discontinued business to the Company’s consolidated net assets.

     Operating results of the discontinued operation were as follows:

		Three Months				Six Months
		Ended June 30,				Ended June 30,
		2005				2005
		(In thousands)
Revenues		$	12,478			$	20,794
Income Before Income Taxes		$	29			$	190
Benefit for Income Taxes			434				434
Income from Discontinued Operation, Net of Taxes		$	463			$	624

     In 2005, the Company divested its remaining holdings in Universal Compression Holdings, Inc. (“Universal”) (See Note 6). The Company also sold certain assets and a business during the six months ended June 30, 2006. It

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

was determined the discontinued operations provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, did not apply to these transactions as the disposals did not meet the guidelines for discontinued operations.

6. Universal Compression

     In 2005, the Company sold its remaining shares of Universal common stock. The Company no longer holds any ownership interest in Universal.

7. Goodwill

     Goodwill is evaluated for impairment in accordance with SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”), which requires that such assets be tested for impairment on at least an annual basis. The Company performs its annual goodwill impairment test as of October 1. The Company’s goodwill impairment test involves a comparison of the fair value of each of the Company’s reporting units, as defined under SFAS No. 142, with its carrying amount. The fair value is determined using discounted cash flows and other market-related valuation models, including earnings multiples and comparable asset market values. The Company will continue to test its goodwill annually as of October 1 unless events occur or circumstances change between annual tests that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

     The changes in the carrying amount of goodwill for the six months ended June 30, 2006 are as follows:

		Evaluation,
		Drilling &				Completion
		Intervention				& Production
		Services				Systems				Total
		(In thousands)
As of December 31, 2005		$	1,960,013			$	848,204			$	2,808,217
Goodwill acquired during period			52,270				16,085				68,355
Disposal			(1,216	)			¾				(1,216	)
Purchase price and other adjustments			17,348				9,741				27,089
Impact of foreign currency translation			13,823				20,613				34,436
As of June 30, 2006		$	2,042,238			$	894,643			$	2,936,881

8. Other Intangible Assets, Net

     The components of intangible assets are as follows:

		June 30, 2006												December 31, 2005
		Gross												Gross
		Carrying				Accumulated								Carrying				Accumulated
		Amount				Amortization				Net				Amount				Amortization				Net
		(In thousands)
Acquired technology		$	291,482			$	(17,013	)		$	274,469			$	281,350			$	(6,501	)		$	274,849
Licenses			206,283				(54,021	)			152,262				205,232				(48,164	)			157,068
Patents			121,512				(37,660	)			83,852				116,590				(33,028	)			83,562
Customer relationships			39,000				(1,830	)			37,170				43,000				(717	)			42,283
Customer contracts			21,890				(2,392	)			19,498				22,450				(961	)			21,489
Covenants not to compete			23,681				(21,633	)			2,048				22,333				(19,942	)			2,391
Other			13,483				(6,878	)			6,605				13,277				(6,175	)			7,102
Total finite-lived intangible assets			717,331				(141,427	)			575,904				704,232				(115,488	)			588,744
Intangible assets with an indefinite useful life			32,654				¾				32,654				32,621				¾				32,621
		$	749,985			$	(141,427	)		$	608,558			$	736,853			$	(115,488	)		$	621,365

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

     The estimated fair value of intangible assets obtained through acquisitions consummated in the preceding twelve months are based on preliminary information which is subject to change when final valuations are obtained.

     The Company has trademarks which are considered to have indefinite lives as the Company has the ability and intent to renew indefinitely. These trademarks had a carrying value of $11.4 million as of June 30, 2006 and December 31, 2005.

     The Company has intangible assets recorded for unrecognized prior service costs related to its Supplemental Executive Retirement Plan (“SERP”) and several of its international pension plans (see Note 16). These unrecognized costs were $21.3 million as of June 30, 2006 and $21.2 million as of December 31, 2005 and are included in intangible assets with an indefinite useful life.

     Amortization expense was $12.8 million and $24.5 million for the three and six months ended June 30, 2006, respectively, and $5.6 million and $11.5 million for the three and six months ended June 30, 2005, respectively. Future estimated amortization expense for the carrying amount of intangible assets as of June 30, 2006 is expected to be as follows (in thousands):

Remainder of 2006		$	23,499
2007			45,036
2008			42,996
2009			42,067
2010			41,781

9. Inventories

     Inventories by category are as follows:

		June 30,				December 31,
		2006				2005
		(In thousands)
Raw materials, components and supplies		$	285,523			$	259,047
Work in process			83,269				63,491
Finished goods			700,962				567,583
		$	1,069,754			$	890,121

     Work in process and finished goods inventories include the cost of materials, labor and plant overhead.

10. Short-term Debt

		June 30,				December 31,
		2006				2005
		(In thousands)
364-Day revolving credit facility		$	¾			$	¾
Revolving credit facility			¾				¾
Canadian credit facility			14,848				¾
Commercial paper program			753,062				716,927
Short-term bank loans			62,877				24,596
Total Short-term Borrowings			830,787				741,523
Current Portion of Long-term Debt			12,116				213,243
Short-term Borrowings and Current Portion of Long-term Debt		$	842,903			$	954,766

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

     On August 25, 2005, the Company entered into the 364-Day Revolving Credit Facility (“364-Day Facility”) with UBS AG, Bank of America, N.A. and Morgan Stanley Senior Funding, Inc. Under this agreement, the Company was allowed to borrow up to $1.2 billion to fund the redemption of its Zero Coupon Convertible Senior Debentures, the acquisition of Precision Energy Services and Precision Drilling International, and certain possible refinancings, including repayment of commercial paper or common share repurchases. The facility matures August 23, 2006. Amounts outstanding accrue interest at a variable rate based on either the U.S. prime rate or London Interbank Offered Rate (“LIBOR”) and are subject to mandatory prepayments and reductions in the committed availability if the Company undertakes certain types of capital market transactions or increases the commitment under its revolving credit facility. There have been two such reductions in the committed amount, including one in February 2006 for $350.0 million and a second in May 2006 for $250.0 million, bringing the current committed amount to $600.0 million. On June 30, 2006, there were no outstanding borrowings under this agreement.

     In October 2005, the Company initiated a commercial paper program under which it may from time to time issue short-term unsecured notes. In connection with this program, the Company entered into agreements with third-party lending institutions under which each of these lending institutions may act as dealers of this commercial paper. Also in connection with the program, Weatherford International, Inc., one of our wholly-owned indirect subsidiaries, provided a guarantee of any commercial paper notes that the Company may issue. The Company’s commercial paper issuances are supported by two committed lending facilities: the 364-Day Facility and the revolving credit facility. As of June 30, 2006, the Company had $753.1 million of outstanding commercial paper issuances with maturities ranging from 5 to 80 days. The weighted average interest rate related to outstanding commercial paper issuances at June 30, 2006 was 5.4%.

     On February 17, 2006, the Company completed an offering of $350.0 million senior notes at a coupon rate of 5.50% (“5.50% Senior Notes”) with a maturity in February 2016. Net proceeds of $346.2 million were used to partially repay outstanding borrowings on our commercial paper program. In association with the transaction, the maximum borrowing allowed under the commercial paper program was reduced from $1.5 billion to $1.2 billion and the committed availability of the 364-Day Facility was reduced by $350.0 million.

     On May 2, 2006, the Company amended and restated the revolving credit agreement with a syndicate of banks of which JPMorgan Chase Bank is the Administrative Agent (“Revolving Credit Facility”). As restated, the Revolving Credit Facility provides a $750.0 million, five-year multi-currency senior unsecured revolving credit facility. Based on the Company’s current debt ratings, it will pay a commitment fee of 0.08% per year, and borrowings under the facility will bear interest at variable annual rates based on LIBOR plus 0.27%, plus an additional 0.05% for any period in which more than half of the total commitment is utilized. The restated credit agreement superseded the previous $500.0 million facility that was scheduled to mature May 12, 2006. In association with the amendment, the committed availability of the 364-Day Facility was reduced by $250.0 million. At June 30, 2006, there were no outstanding borrowings and $16.6 million of letters of credit issued under the Revolving Credit Facility.

     On May 15, 2006, the stated maturity date, the Company repaid in full the outstanding $200.0 million of 7 ¹/4% Senior Notes plus all accrued interest.

     The Company’s credit facilities require us to maintain a debt-to-capitalization ratio of less than 60% (and required us to maintain that ratio at less than 50% prior to May 2, 2006, at which time the previous $500.0 million credit agreement containing this covenant was superseded) and contain other covenants and representations customary for an investment-grade commercial credit. The facilities are guaranteed by the Company’s wholly-owned subsidiary, Weatherford International, Inc., subject to certain conditions. The Company was in compliance with these covenants at June 30, 2006. The committed revolving credit facilities do not contain any provisions that make their availability dependent upon the Company’s credit ratings; however, the interest rates are dependent upon the credit rating of its long-term senior debt.

     The Company also maintains a Canadian dollar committed facility to support its operations in that country. The Canadian facility provided for borrowings or letters of credit under the facility up to an aggregate of 20.0 million Canadian dollars, or $17.9 million as of June 30, 2006. There were borrowings of $14.8 million and $0.5 million in outstanding letters of credit under the Canadian facility at June 30, 2006. The weighted average interest rate on the outstanding

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

borrowings of this facility was 6.0% at June 30, 2006. On July 14, 2006, the facility commitment amount was changed to 25.0 million Canadian dollars and the maturity was extended to July 13, 2007.

     The Company has short-term borrowings with various domestic and international institutions pursuant to uncommitted facilities. At June 30, 2006, the Company had $62.9 million in short-term borrowings outstanding under these arrangements with a weighted average interest rate of 5.0%. In addition, the Company had $113.1 million of letters of credit and bid and performance bonds outstanding under these uncommitted facilities.

     In connection with the acquisition of Precision Energy Services and Precision Drilling International, the Company has indemnified Precision Drilling Corporation for outstanding letters of credit of $10.2 million.

11. Shareholders’ Equity

     Authorized Shares

     On May 9, 2006, the Company’s shareholders approved an increase in the authorized share capital from 510,000,000 to 1,010,000,000. The Company is authorized to issue 1,000,000,000 Common Shares and 10,000,000 undesignated preference shares, $1.00 par value. As of June 30, 2006, no preferred shares have been issued.

     Share Repurchase Program

     In 2005, the Company’s Board of Directors approved a share repurchase program under which up to $1 billion of the Company’s outstanding Common Shares could be purchased in open market or privately negotiated transactions. Pursuant to this program, the Company purchased approximately 5.2 million Common Shares during the six months ended June 30, 2006, at an average price per share of $46.07.

     Warrant

     On February 28, 2002, the Company issued Shell Technology Ventures Inc. a warrant to purchase up to 6.5 million Common Shares at a price of $30.00 per share. Effective July 12, 2006, this agreement was amended and restated to reflect, among other things, changes in the Company’s capital structure. The warrant remains exercisable until February 28, 2012 and is subject to adjustment for changes in the Company’s capital structure or the issuance of dividends in cash, securities or property. Upon exercise by the holder, settlement may occur through physical delivery, net share settlement, net cash settlement or a combination thereof. The net cash settlement option upon exercise is at the sole discretion of the Company. In addition, the amended and restated warrant no longer contains a conversion feature, which previously allowed the warrant holder to convert the warrant into Common Shares.

12. Derivative Instruments

     Interest Rate Swaps

     The Company uses interest rate swap agreements to take advantage of available short-term interest rates. Amounts received upon termination of the swap agreements represent the fair value of the agreements at the time of termination and are recorded as an adjustment to the carrying value of the related debt. These amounts are being amortized as a reduction to interest expense over the remaining term of the debt.

     As of June 30, 2006 and December 31, 2005, the Company had unamortized gains of $15.4 million and $18.3 million, respectively, associated with interest rate swap terminations. These gains have been deferred and recorded as an adjustment to the carrying value of the related debt and are amortized against interest expense over the remaining term of the debt issuance against which they were hedged. The Company’s interest expense was reduced by $1.2 million and $3.0 million for the three and six months ended June 30, 2006, respectively, and $1.6 million and $3.3 million for the three and six months ended June 30, 2005, respectively. There were no interest rate swap agreements outstanding as of June 30, 2006.

     Cash Flow Hedges

     During December 2005, the Company recorded a $4.2 million loss in other comprehensive income on interest rate derivatives entered into and terminated in 2005; this loss is being amortized over the life of the 5.50% Senior Notes.

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

     In January 2006 the Company entered into interest rate derivative instruments for a notional amount of $350.0 million to hedge projected exposures to interest rates in anticipation of a future debt issuance. Those hedges were terminated at the time of issuance of the 5.50% Senior Notes. The Company received cash proceeds of $6.2 million at termination, and the gain on these hedges is being amortized over the life of the 5.50% Senior Notes.

     Other Derivative Instruments

     As of June 30, 2006, the Company had entered into several foreign currency forward contracts and one option contract with notional amounts aggregating $326.5 million to hedge exposure to currency fluctuations in various foreign currencies, including the Canadian dollar, the Euro, the Australian dollar, the Norwegian kroner, the Brazilian reais, the Mexican peso and the pound sterling. In addition, after the closing of the acquisition of Precision Energy Services and Precision Drilling International, the Company entered into a series of cross-currency swaps with notional amounts at execution totaling $588.9 million. These derivative instruments were not designated as hedges and the changes in fair value of the contracts are recorded each period in current earnings. During the three and six months ended June 30, 2006, net cash proceeds of $0.6 million and $1.8 million, respectively, were received from the cross-currency swaps, which were the net settlement of quarterly interest rate payments on the two currencies swapped. These quarterly net interest rate settlements are based on the variable interest rates of both the Canadian dollar and the U.S. dollar. On March 31, 2006, cross currency swaps with a fair value of $140.4 million were terminated and the Company paid a net settlement in April 2006 of $3.5 million. At June 30, 2006, the fair value of the remaining cross-currency swaps was $412.4 million.

13. Earnings Per Share

     Basic earnings per share for all periods presented equals net income divided by the weighted average number of Common Shares outstanding during the period. Diluted earnings per share is computed by dividing net income, as adjusted for the assumed conversion of dilutive debentures, by the weighted average number of Common Shares outstanding during the period as adjusted for the dilutive effect of the Company’s stock option and restricted share plans, warrant and the incremental shares for the assumed conversion of dilutive debentures.

     The diluted earnings per share calculation for the three and six months ended June 30, 2006 excludes 16 thousand and eight thousand stock options that were anti-dilutive, respectively. However for the three and six months ended June 30, 2005, there were no anti-dilutive stock options, therefore, the effect of all stock options were included in the diluted earnings per share calculation for those periods. Net income for the diluted earnings per share calculation for the three and six months ended June 30, 2005 is adjusted to add back $3.0 million and $5.9 million, respectively, of amortization of original issue discount, net of taxes, relating to the Company’s Zero Coupon Convertible Senior Debentures due 2020 (“Zero Coupon Debentures”).

     The following reconciles basic and diluted weighted average shares outstanding:

		Three Months								Six Months
		Ended June 30,								Ended June 30,
		2006				2005				2006				2005
Basic weighted average shares outstanding			348,853				277,872				349,006				276,750
Dilutive effect of:
Warrant			2,809				2,086				2,377				1,498
Stock option and restricted share plans			6,771				8,874				6,781				9,142
Convertible debentures			¾				18,194				¾				18,194
Diluted weighted average shares outstanding			358,433				307,026				358,164				305,584

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

14. Supplemental Cash Flow Information

     The following summarizes investing activities relating to acquisitions integrated into the Company’s operations for the periods shown:

		Six Months
		Ended June 30,
		2006				2005
		(In thousands)
Fair value of assets, net of cash acquired		$	42,944			$	4,490
Goodwill			68,355				24,219
Consideration paid related to prior year acquisitions			6,216				1,946
Total liabilities			(11,438	)			(4,418	)
Cash consideration, net of cash acquired		$	106,077			$	26,237

15. Stock-Based Compensation

     In December 2004, the Financial Accounting Standards Board issued SFAS No. 123 (Revised 2004) Share-Based Payment (“SFAS No. 123R”). SFAS No. 123R addresses the accounting for all share-based payment awards, including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. Under the new standard, companies are no longer able to account for share-based compensation transactions using the intrinsic value method in accordance with Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees”. Under the intrinsic method, no compensation expense is recognized when the exercise price of an employee stock option is equal to the Common Share market price on the grant date and all other factors of the grant are fixed. Under SFAS No. 123R, companies must account for share-based compensation transactions using a fair-value method and recognize the expense in the consolidated statement of income. Effective, January 1, 2006, the Company adopted SFAS No. 123R using the modified-prospective transition method. Under this method, compensation cost is recognized for all awards granted, modified or settled after the adoption date as well as for any awards that were granted prior to the adoption date for which the requisite service has not yet been rendered.

     Previously on January 1, 2003, the Company adopted SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”), to expense the fair value of employee stock-based compensation for awards granted, modified or settled subsequent to December 31, 2002. The Company selected the prospective method of adoption, and under this method, the fair value of employee stock-based compensation granted or modified subsequent to adoption is measured at the grant date based on the fair value of the award and is recognized as an expense over the service period, which is usually the vesting period. Accordingly, the adoption of Statement SFAS No. 123R’s fair value method does not have an impact on the Company’s reported results of operations for the six months ended June 30, 2006 as all of the grants issued prior to the adoption of SFAS No. 123 were fully vested in the prior year and the grants issued subsequent to January 1, 2003 are currently being expensed at their estimated fair value.

     SFAS No. 123R requires the cash flows resulting from the tax benefits resulting from tax deductions in excess of compensation cost recognized for share based awards to be classified as financing cash flows. Had the Company not adopted SFAS No. 123R, the excess tax benefits would have been classified as an operating cash inflow.

A description of the Company’s share-based payment plans are presented below.

     Incentive Plan

     In May 2006, shareholders voted to approve the Weatherford International Ltd. 2006 Omnibus Incentive Plan (the “Omnibus Plan”) previously adopted by the Board of Directors in February 2006. The Omnibus Plan provides for awards of options, SARs, restricted shares, restricted share units, performance share awards, performance unit awards, other share-based awards and cash-based awards to any employee or non-employee director of the Company or any of its affiliates. No further options, restricted shares or restricted share units will be granted under the other existing equity plans of the Company and any future issuances of stock based awards will be made from the

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

Omnibus Plan. The provisions of each award will vary based on the type of award granted and will be specified by the Compensation Committee of the Board of Directors. Those awards, such as options and SARs, that are based on a specific contractual term will be granted with a term not to exceed ten years. The terms of the issuances to date under the Omnibus Plan are consistent with awards previously granted. Under the Omnibus Plan, there are 10 million Common Shares available for grant. As of June 30, 2006, approximately 9.9 million shares were available for grant under the plan. To date, only options, restricted shares and restricted share units have been granted under the Omnibus Plan.

     The options granted under the Omnibus Plan are granted with an exercise price equal to or greater than the fair market value of the Common Shares at the time the option is granted. The Company values and recognizes the options and restricted shares similar to the awards previously granted under the Company’s other share-based payment plans.

     Stock Option Plans

     The Company has a number of stock option plans pursuant to which directors, officers and key employees have been granted options to purchase Common Shares at the fair market value on the date of grant.

     The Company has in effect a 1991 Employee Stock Option Plan (“1991 ESO Plan”), a 1992 Employee Stock Option Plan (“1992 ESO Plan”) and a 1998 Employee Stock Option Plan (“1998 ESO Plan”). Stock options generally vest after one to four years following the date of grant and expire after ten to fourteen years from the date of grant. Subsequent to the approval of the Company’s Omnibus Plan in May 2006, future grants under these plans have been suspended.

     Restricted Share Plan

     The Restricted Share Plan provides for the granting of restricted share awards (“RSA”) or restricted share units (“RSU”), the vesting of which is subject to conditions and limitations established at the time of the grant. Upon the grant of an RSA, the participant has the rights of a shareholder, including but not limited to the right to vote such shares and the right to receive any dividends paid on such shares. Recipients of RSU awards will not have the rights of a shareholder of the Company until such date as the Common Shares are issued or transferred to the recipient. Key employees, directors and persons providing material services to the Company may be eligible for participation in the Restricted Share Plan. Subsequent to the approval of the Company’s Omnibus Plan in May 2006, future RSA and RSU grants under this plan has been suspended.

     RSAs and RSUs vest based on continued employment, and vesting generally occurs over a two to four-year period, with an equal amount of the restricted shares vesting on each anniversary of the grant date. A portion of the 2005 and 2006 grants vest over a four-year period, with 50% of the shares vesting after two years and the remaining portion vesting in the fourth year.

     The fair value of RSAs and RSUs is determined based on the closing price of the Company’s shares on the grant date. The total fair value is amortized to expense on a straight-line basis over the vesting period.

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

     The following illustrates the pro forma effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to all outstanding and unvested awards as of June 30, 2005.

		Three Months				Six Months
		Ended June 30,				Ended June 30,
		2005				2005
		(In thousands, except per share
		amounts)
Net Income:
As reported		$	95,188			$	175,784
Employee stock-based compensation expense included in reported net income, net of income tax benefit			4,300				8,742
Pro forma compensation expense, determined under fair value methods for all awards, net of income tax benefit			(8,221	)			(16,242	)
Pro forma		$	91,267			$	168,284
Basic earnings per share:
As reported		$	0.34			$	0.64
Pro forma			0.33				0.61
Diluted earnings per share:
As reported		$	0.32			$	0.59
Pro forma			0.31				0.57

     The Company recognized $14.1 million and $28.5 million in employee stock-based compensation expense during the three and six months ended June 30, 2006, respectively, and $6.6 million and $13.4 million for the three and six months ended June 30, 2005, respectively. The related income tax benefit recognized for the three and six months ended June 30, 2006, was $4.9 million and $10.0 million, respectively, and $2.3 million and $4.7 million for the three and six months ended June 30, 2005, respectively. The Company capitalized $2.1 million and $2.3 million of stock-based compensation during the three and six months ended June 30, 2006, respectively.

     The Company uses the Black-Scholes option pricing model to determine the fair value of each option award on the date of grant. The estimated fair value of the options is amortized to expense on a straight-line basis over the vesting period. The specific assumptions used in determining the fair values for option grants during the three and six months ended June 30, 2006 are discussed in more detail below and are noted in the following table. There were no options granted during the first six months of 2005.

     The Company calculates the expected volatility by measuring the volatility of the historical stock price for a period equal to the expected life of the option and ending at the time the option was granted. The risk-free interest rate is determined based upon the interest rate on a U.S. Treasury Bill with a term equal to the expected life of the option at the time the option was granted. In estimating the expected lives of the stock options, the Company has relied primarily on actual experience with previous stock option grants. The expected life is less than the term of the option as option holders, in our experience, exercise or forfeit the options during the term of the option.

		Three Months				Six Months
		Ended June 30,				Ended June 30,
		2006				2006
Expected volatility			37.7	%			37.7	%
Expected dividends			0.00	%			0.00	%
Expected term (in years)			5.0				5.0
Risk-free rate			4.93	%			4.93	%

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

     A summary of option activity under the stock option plans as of June 30, 2006, and changes during the six month period then ended is presented below:

										Weighted-
						Weighted-				Average				Aggregate
						Average				Remaining				Intrinsic
						Exercise				Contractual				Value
Options		Shares				Price				Term				(in thousands)
Outstanding at January 1, 2006			13,940,334			$	13.72
Granted			39,000				50.67
Exercised			(3,986,937	)			12.98
Forfeited			(18,000	)			19.87
Outstanding at June 30, 2006			9,974,397				14.16				8.40			$	353,755
Vested or Expected to Vest at June 30, 2006			9,974,397				14.16				8.40				353,755
Exercisable at June 30, 2006			8,692,531				13.35				8.09				315,298

     The weighted-average grant date fair value of options granted during the six months ended June 30, 2006 was $20.83. There were no options granted during the first six months of 2005. The intrinsic value of options exercised during the six months ended June 30, 2006 and 2005 was $137.7 million and $77.1 million, respectively. As of June 30, 2006, there was $3.5 million of total unrecognized compensation cost related to the Company’s unvested stock options and that cost is expected to be recognized over a weighted-average period of 0.9 years.

     A summary of the status of the Company’s non-vested RSAs and RSUs issued under its Restricted Share Plan and Omnibus Plan as of June 30, 2006 and changes during the six month period then ended, is presented below:

						Weighted-								Weighted-
						Average								Average
						Grant Date								Grant Date
		RSA				Fair Value				RSU				Fair Value
Non-Vested at January 1, 2006			4,206,900			$	30.47				2,680,240			$	33.99
Granted			63,000				44.55				60,000				47.78
Vested			(518,424	)			23.48				(261,217	)			25.96
Forfeited			(89,155	)			31.46				(121,363	)			33.52
Non-Vested at June 30, 2006			3,662,321			$	32.29				2,357,660			$	34.26

     The weighted-average grant date fair value of RSAs and RSUs granted during the six months ended June 30, 2006 and 2005 was $46.13 and $24.73, respectively. The total fair value of RSAs and RSUs vested during the six months ended June 30, 2006 and 2005 was $33.1 million and $8.5 million, respectively. As of June 30, 2006, there was $94.0 million and $67.6 million of total unrecognized compensation cost related to non-vested RSAs and RSUs respectively, which is expected to be recognized over a weighted-average period of 3.2 years.

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

16. Retirement and Employee Benefit Plans

     The Company has defined benefit pension and other post-retirement benefit plans covering certain U.S. and international employees. Plan benefits are generally based on factors such as age, compensation levels and years of service. The components of net periodic benefit cost for the three and six months ended June 30, 2006 and 2005 are as follows:

		Three Months Ended June 30,
		2006								2005
		United								United
		States				International				States				International
		(In thousands)
Service cost		$	609			$	2,344			$	633			$	1,993
Interest cost			1,016				1,631				881				1,148
Expected return on plan assets			(165	)			(1,546	)			(208	)			(882	)
Amortization of transition obligation			¾				(1	)			¾				(1	)
Amortization of prior service cost			573				(26	)			657				82
Amortization of loss			471				122				309				11
Settlements			2,770				¾				¾				¾
Net periodic benefit cost		$	5,274			$	2,524			$	2,272			$	2,351

		Six Months Ended June 30,
		2006								2005
		United								United
		States				International				States				International
		(In thousands)
Service cost		$	1,218			$	4,584			$	1,266			$	4,010
Interest cost			2,032				3,209				1,761				2,311
Expected return on plan assets			(330	)			(3,027	)			(415	)			(1,777	)
Amortization of transition obligation			¾				(2	)			¾				(2	)
Amortization of prior service cost			1,145				(51	)			1,314				166
Amortization of loss			943				240				618				21
Settlements			2,770				¾				¾				¾
Net periodic benefit cost		$	7,778			$	4,953			$	4,544			$	4,729

     The Company previously disclosed in its financial statements for the year ended December 31, 2005, that it expected to contribute $0.4 million in the U.S. and $6.9 million internationally to its pension and other postretirement benefit plans during 2006. As of June 30, 2006, approximately $0.1 million of contributions have been made in the U.S. and $3.1 million of contributions have been made internationally. Currently, the Company anticipates total contributions in the U.S. and internationally to approximate the original estimates previously disclosed.

17. Segment Information

     Reporting Segments

     The Company is a diversified international energy service and manufacturing company that provides a variety of services and equipment to the exploration, production and transmission sectors of the oil and natural gas industry. The Company operates in virtually every oil and natural gas exploration and production region in the world. The Company divides its business into two separate segments as defined by the chief operating decision maker: Evaluation, Drilling & Intervention Services and Completion & Production Systems.

     In connection with the Company’s continued integration plan relating to the acquisition of divisions of Precision Drilling Corporation and the recent operational realignment of its Pipeline and Specialty Services businesses, the Company undertook a review of its presentation of segment information in the second quarter of

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

2006 (See note 1). In addition to its former businesses, Evaluation, Drilling & Intervention Services now includes the operations of Precision Drilling International and Completion & Production Services includes the operations of Pipeline and Specialty Services. The following describes our reporting segments:

     The Company’s Evaluation, Drilling & Intervention Services segment provides a wide range of oilfield products and services, including drilling services and equipment, cased hole and open hole wireline services, well installation services and cementing products and equipment, controlled pressure drilling and testing, fishing and intervention services, liner systems, expandable solid tubular systems and contract drilling rigs.

     The Company’s Completion & Production Systems segment designs, manufactures, sells and services a complete line of artificial lift equipment, including progressing cavity pumps, reciprocating rod lift systems, gas lift systems and electrical submersible pumps as well as provides fracturing technologies, production optimization services and automation and monitoring of wellhead production. This segment also provides pipeline specialty services and certain completion products and systems including cased hole systems, flow control systems, sand screens, expandable sand screen systems and intelligent completion technologies. Completion & Production Systems also provides screens for industrial applications.

     Financial information by industry segment for each of the three and six months ended June 30, 2006 and 2005 is summarized below. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Inter-segment sales are not material.

		Three Months								Six Months
		Ended June 30,								Ended June 30,
		2006				2005				2006				2005
		(In thousands)
Revenues from unaffiliated customers:
Evaluation, Drilling & Intervention Services		$	965,504			$	514,022			$	1,971,770			$	981,003
Completion & Production Systems			573,072				423,273				1,102,817				813,998
		$	1,538,576			$	937,295			$	3,074,587			$	1,795,001
Depreciation and amortization:
Evaluation, Drilling & Intervention Services		$	90,838			$	48,615			$	182,162			$	96,958
Completion & Production Systems			23,481				21,139				46,877				42,350
Corporate			700				563				1,483				1,131
		$	115,019			$	70,317			$	230,522			$	140,439
Operating income:
Evaluation, Drilling & Intervention Services		$	217,895			$	110,868			$	467,145			$	210,703
Completion & Production Systems			101,597				44,049				179,328				87,204
Corporate (a)			(20,984	)			(14,508	)			(40,606	)			(32,833	)
		$	298,508			$	140,409			$	605,867			$	265,074

     As of June 30, 2006, total assets were $6,178.6 million for Evaluation, Drilling & Intervention Services, $2,668.3 million for Completion & Production Systems and $379.4 million for Corporate. Total assets as of December 31, 2005, were $5,750.5 million for Evaluation, Drilling & Intervention Services, $2,407.1 million for Completion & Production Systems and $422.7 million for Corporate.

18. Condensed Consolidating Financial Statements

     As of June 30, 2006, the 6 5/8% Senior Notes of Weatherford International, Inc. (the “Issuer”) were guaranteed by Weatherford International Ltd. (the “Parent”). As of December 31, 2005, the 6 5/8% Senior Notes and the 7 1/4% Senior Notes of the Issuer were guaranteed by the Parent. The 7 1/4% Senior Notes were paid in full in May

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

2006. The following obligations of the Parent were guaranteed by the Issuer as of June 30, 2006 and December 31, 2005: (i) the Revolving Credit Facility, (ii) the 364-Day Facility, (iii) the 4.95% Senior Notes, and (iv) issuances of notes under the Commercial Paper Program. As of June 30, 2006, the 5.50% Senior Notes are guaranteed by the Issuer.

     As a result of these guarantee arrangements, the Company is required to present the following condensed consolidating financial information. The accompanying guarantor financial information is presented on the equity method of accounting for all periods presented. Under this method, investments in subsidiaries are recorded at cost and adjusted for the Company’s share in the subsidiaries’ cumulative results of operations, capital contributions and distributions and other changes in equity. Elimination entries relate primarily to the elimination of investments in subsidiaries and associated intercompany balances and transactions. Certain prior year amounts have been reclassified, including investments in consolidated subsidiaries, to conform to the current presentation.

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

Condensed Consolidating Balance Sheet
June 30, 2006
(unaudited)
(In thousands)

										Other
		Parent				Issuer				Subsidiaries				Eliminations				Consolidation
ASSETS
Current Assets:
Cash and Cash Equivalents		$	25			$	454			$	126,896			$	¾			$	127,375
Other Current Assets			1,874				4,471				2,780,920				¾				2,787,265
			1,899				4,925				2,907,816				¾				2,914,640
Equity Investments in Affiliates			9,112,060				3,069,766				12,800,894				(24,982,720	)			¾
Shares Held in Parent			¾				131,173				238,652				(369,825	)			¾
Intercompany Receivables, Net			126,394				1,412,063				¾				(1,538,457	)			¾
Other Assets			46,410				10,099				6,255,112				¾				6,311,621
		$	9,286,763			$	4,628,026			$	22,202,474			$	(26,891,002	)		$	9,226,261
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Short-term Borrowings and Current Portion of Long-term Debt		$	753,779			$	35,505			$	53,619			$	¾			$	842,903
Accounts Payable and Other Current Liabilities			13,183				4,186				1,138,284				¾				1,155,653
			766,962				39,691				1,191,903				¾				1,998,556
Long-term Debt			603,542				355,965				17,785				¾				977,292
Intercompany Payables, Net			¾				¾				1,538,457				(1,538,457	)			¾
Other Long-term Liabilities			47,583				64,027				175,519				¾				287,129
Shareholders’ Equity			7,868,676				4,168,343				19,278,810				(25,352,545	)			5,963,284
		$	9,286,763			$	4,628,026			$	22,202,474			$	(26,891,002	)		$	9,226,261

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

Condensed Consolidating Balance Sheet
December 31, 2005
(In thousands)

										Other
		Parent				Issuer				Subsidiaries				Eliminations				Consolidation
ASSETS
Current Assets:
Cash and Cash Equivalents		$	124			$	3,172			$	130,949			$	¾			$	134,245
Other Current Assets			952				1,179				2,502,497				¾				2,504,628
			1,076				4,351				2,633,446				¾				2,638,873
Equity Investments in Affiliates			8,029,938				2,602,236				12,368,520				(23,000,694	)			¾
Shares Held in Parent			¾				152,111				¾				(152,111	)			¾
Intercompany Receivables, Net			180,959				1,741,011				¾				(1,921,970	)			¾
Other Assets			43,493				10,366				5,887,572				¾				5,941,431
		$	8,255,466			$	4,510,075			$	20,889,538			$	(25,074,775	)		$	8,580,304
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Short-term Borrowings and Current Portion of Long-term Debt		$	717,628			$	206,118			$	31,020			$	¾			$	954,766
Accounts Payable and Other Current Liabilities			4,002				7,770				1,031,603				¾				1,043,375
			721,630				213,888				1,062,623				¾				1,998,141
Long-term Debt			255,329				357,449				19,293				¾				632,071
Intercompany Payables, Net			¾				¾				1,921,970				(1,921,970	)			¾
Other Long-term Liabilities			46,792				80,231				156,252				¾				283,275
Shareholders’ 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

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

Condensed Consolidating Statements of Income
Three Months Ended June 30, 2006
(unaudited)
(In thousands)

										Other
		Parent				Issuer				Subsidiaries				Eliminations				Consolidation
Revenues		$	¾			$	¾			$	1,538,576			$	¾			$	1,538,576
Costs and Expenses			(5,957	)			(300	)			(1,237,104	)			¾				(1,243,361	)
Equity in Earnings of Unconsolidated Affiliates			¾				¾				3,293				¾				3,293
Operating Income (Loss)			(5,957	)			(300	)			304,765				¾				298,508
Other Income (Expense):
Interest Expense, Net			(16,484	)			(6,697	)			(534	)			¾				(23,715	)
Intercompany Charges, Net			(7,132	)			(20,537	)			27,669				¾				¾
Equity in Subsidiary Income			214,122				231,916				¾				(446,038	)			¾
Other, Net			2,298				(59	)			(13,610	)			¾				(11,371	)
Income (Loss) from Continuing Operations Before Income Taxes			186,847				204,323				318,290				(446,038	)			263,422
(Provision) Benefit for Income Taxes			¾				9,799				(86,374	)			¾				(76,575	)
Income (Loss) from Continuing Operations			186,847				214,122				231,916				(446,038	)			186,847
Income from Discontinued Operation, Net of Taxes			¾				¾				¾				¾				¾
Net Income (Loss)		$	186,847			$	214,122			$	231,916			$	(446,038	)		$	186,847