WEATHERFORD INTERNATIONAL LTD - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

OR

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

COMMISSION FILE NUMBER 1-31339

WEATHERFORD INTERNATIONAL LTD.
(Exact name of registrant as specified in its charter)

BERMUDA 98-0371344
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

515 POST OAK BOULEVARD, SUITE 600, HOUSTON, TEXAS 77027-3415
(Address of principal executive offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(713) 693-4000

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE

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 [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of June 30, 2002 was $3,733,151,976, based upon the closing price
on the New York Stock Exchange as of such date.

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

DOCUMENTS INCORPORATED BY REFERENCE

Certain information called for by Items 10, 11, 12 and 13 of Part III will
be included in an amendment to Form 10-K or incorporated by reference from the
registrant's definitive proxy statement to be filed pursuant to Regulation 14A.

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EXPLANATORY STATEMENT

Weatherford International Ltd., a Bermuda exempted company ("Weatherford
Limited"), is filing this Annual Report on Form 10-K as successor to Weatherford
International, Inc., a Delaware corporation ("Weatherford Inc."). On June 26,
2002, Weatherford Limited became the parent holding company of Weatherford Inc.
as the result of a corporate reorganization effected through the merger of a
subsidiary with and into Weatherford Inc. Each share of Weatherford Inc. issued
immediately prior to the effective time of the merger automatically converted
into the right to receive a common share of Weatherford Limited. Thus, the
stockholders of Weatherford Inc. became the shareholders of Weatherford Limited
which, together with its subsidiaries, continues to be engaged in the same
business that Weatherford Inc. and its subsidiaries were engaged in before the
merger. Throughout this Form 10-K, the stockholders of Weatherford Inc. may be
referred to as shareholders of Weatherford Limited, and as such, Weatherford
Inc.'s common stock may be referred to as common shares of Weatherford Limited.
For periods prior to June 26, 2002, please refer to the periodic and other
reports filed with the Securities and Exchange Commission by Weatherford Inc.
(Commission File No. 001-13086) prior to June 26, 2002.

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PART I

ITEM 1. BUSINESS

Weatherford International Ltd. is one of the world's leading providers of
equipment and services used for the drilling, completion and production of oil
and natural gas wells. Weatherford, as we know it today, was formed in
connection with the May 1998 merger of Weatherford Enterra, Inc. into EVI, Inc.

We were incorporated under the laws of Delaware in 1972. In 2002 we
re-incorporated in Bermuda. Many of our businesses, including those of
Weatherford Enterra, have been conducted for more than 50 years. Our principal
executive offices are located at 515 Post Oak Boulevard, Suite 600, Houston,
Texas 77027. Our telephone number is (713) 693-4000 and our Internet address is
www.weatherford.com. We make available, free of charge, on our website our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we
electronically file or furnish them to the SEC.

We conduct operations in approximately 100 countries and have approximately
540 service and sales locations, which are located in nearly all of the oil and
natural gas producing regions in the world. We are among the leaders in each of
our primary markets, and our distribution and service network is one of the most
extensive in the industry.

Our business is divided into three principal operating divisions:

- Drilling and Intervention Services -- This division provides: (1)
drilling services and equipment including pressure control, drill pipe,
drilling accessories, underbalanced drilling systems and directional
drilling systems, (2) well installation services and cementation products
including casing installation services, torque monitoring, handling
tools, power equipment, drilling with casing services and equipment, and
cementing tools, and (3) fishing and intervention services including
fishing services and equipment, thru tubing services and systems, casing
exit systems, wireline services and multilateral systems, and (4)
pipeline and specialty services including complete asset management
programs.

- Completion Systems -- This division provides: (1) cased hole systems, (2)
liner systems, (3) flow control systems, (4) sand screens, including
premium, pre-pack and wire wrap sand screens, (5) expandable sand screen
(ESS(TM)) systems, (6) expandable solid tubular systems for well
remediation, with additional systems for well completion and well
construction in development, and (7) intelligent completion technologies
for the remote monitoring and control of well production.

- Artificial Lift Systems -- This division is the only organization in the
world that is able to provide all forms of artificial lift used primarily
for the production of oil. These lift systems include: (1) progressing
cavity pumps (PCPs), (2) reciprocating rod lift systems, (3) gas lift
systems, (4) hydraulic lift systems, (5) electrical submersible pumps
(ESPs), and (6) production optimization services and automation and
monitoring of wellhead production. This division also provides screens
for industrial applications.

In addition to the above operations, historically we operated a Compression
Services Division and a Drilling Products Division. In February 2001, we
completed the merger of essentially all of our Compression Services Division
into a subsidiary of Universal Compression Holdings, Inc. in exchange for 13.75
million shares of Universal, or approximately 45% of Universal's outstanding
common stock. In addition, in April 2000, we completed the spin-off to our
shareholders of our Drilling Products Division through a distribution of the
stock of our Grant Prideco, Inc. subsidiary. Grant Prideco's operations have
been classified as discontinued in our financial statements.

The following is a summary of the markets we serve and our business
strategies. We have also included a discussion of each of our divisions,
including a description of our products and services offered and our
competitors. Financial information regarding our segments and geographic results
appears in the footnote

1

entitled Segment Information in the Notes to Consolidated Financial Statements
included in Item 8. Financial Statements and Supplementary Data.

REFERENCES TO WEATHERFORD

When referring to Weatherford and using phrases such as "we" and "us," the
intent is to refer to Weatherford International Ltd. and its subsidiaries as a
whole or on a divisional basis depending on the context in which the statements
are made.

STRATEGY

Our primary objective is to provide our shareholders with above average
returns on their investment through income growth and asset appreciation. We
seek to achieve this objective through the pursuit of strategic investments and
technology opportunities that will enhance the long-term value of our company
while improving the market shares, product and service offerings and
profitability of our existing businesses.

Principal components of our growth strategy include the following:

- Further develop our game-changing technologically-advanced products and
services that can minimize formation damage, optimize reservoir
production and allow us to capitalize on important secular trends such as
the maturation of the world's major hydrocarbon reserves, the growth of
deepwater activity and an increasing tendency for the world to rely on
international markets for world oil and gas production.

- Continue to enhance our existing products and services to maintain our
leading position in the markets in which we operate.

- Leverage our worldwide infrastructure to introduce new and existing
products and services, such as our underbalanced drilling, expandable
tubular technology, optical sensing systems for intelligent well
completions and production optimization systems for artificial lift.

- Pursue strategic acquisitions and combinations for long-term growth in
new or existing markets.

MARKETS

We are a leading provider of equipment and services to the oil and gas
exploration and production industry. Demand for our industry's services and
products depends upon the number of oil and natural gas wells being drilled, the
depth and drilling conditions of such wells, the number of well completions and
the level of workover activity worldwide.

During the mid-1980's the drilling industry contracted sharply, correcting
a condition of significant over capacity that existed in the supply of oilfield
service and equipment. For the last 15 years (since 1987) the Baker Hughes
global rig count has cycled up and down with factors such as world economic and
political trends that influence supply and demand for energy, the price for oil
and natural gas and the level of exploration and drilling for those commodities.

The majority of worldwide drilling activity, as measured by rig counts, has
historically been concentrated in North America. Over time, activity in North
America has become increasingly driven by natural gas consumption on the
continent, particularly in the United States. The percentage of the United
States rig count dedicated to natural gas drilling has increased from
approximately 50% in the early 1990's to more than 80% in 2002. Canada has
experienced a similar trend with rigs drilling for natural gas increasing from
less than 40% five years ago to nearly 70% in 2002. A primary reason for the
increasing emphasis on natural gas drilling is that North American gas wells
have very high production decline rates, so that significant numbers of new
wells need to be drilled over time to maintain ongoing natural gas production at
desirable levels. In addition to this trend, an increasing amount of drilling
and production activity is occurring in offshore environments, particularly in
the Gulf of Mexico. Changes in the balance of energy demand and the supply of
natural gas affects natural gas storage levels, commodity prices and the
volatility of North American drilling activity. In 2002, the North American rig
count averaged 1,097, 27% below the 2001 average but 34% above the low of the
last 15 years, 816, which occurred in 1992.
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Over the last decade, drilling and completion activity has grown faster in
international markets than in North America. In 2002, approximately two-thirds
of the worldwide drilling and completion expenditures occurred in international
markets, according to Spears & Associates. Drilling activity outside North
America tends to be less volatile than the North American market. Due to the
significant investment and complexity surrounding international projects,
drilling decisions relating to such projects tend to be evaluated and monitored
with a longer-term perspective in regard to oil and natural gas pricing as most
contracts span two to three years. Additionally, the international market is
dominated by major oil companies and national oil companies, which tend to have
longer-term objectives than the typical independent producer in North America.
In the last 15 years, the non-North American rig count has cycled between a high
of 1,032 in 1988 and a low of 588 in 1999. In 2002, the international rig count
averaged 732. Since 1999, the international market has recovered slowly;
however, we believe due to the mature age of and the decline of production in
the North American oilfields, the geological future of the industry is in
international markets.

Historically, the majority of our business was concentrated in the United
States and Canada. Following the merger of EVI and Weatherford Enterra in 1998,
we began a concerted program to expand our operations and shift more of our
business internationally by utilizing the strength of our Drilling and
Intervention Services Division's international presence to introduce new and
existing products and services into these markets. Today, we operate in
approximately 100 countries in the major oil and natural gas producing areas of
North and Latin America, Europe, Africa, Russia, China, Southeast Asia and the
Middle East. In 1998, our revenue split between North America and international
was 64% North America, 36% international. In 2002 it was 47% North America, 53%
international.

In 2002, our Drilling and Intervention Services Division generated 59% of
its revenues from international activity and our Completion Systems Division
generated approximately 61% of its revenues from the same regions. With the
increasing importance of international oil production, these divisions continue
to focus on growth in international markets.

Our Artificial Lift Systems Division depends principally on North American
rotary and workover rig activity for oil production. It is estimated more than
three-quarters of the world's producing oil wells require some form of
artificial lift. In North America, the estimated number of producing oil wells
requiring lift is closer to 90% and outside of North America the estimate is
approximately 70%. In 2002, 62% of this division's revenues were from North
America, significantly lower than 1998 when it was 90%.

Due to the maturity of the world's oil and gas reservoirs, the accelerating
production decline rates and the change in focus to deepwater prospects,
technology has become increasingly critical to the marketplace. Customers are
testing, proving and seeking both incremental and game-changing technologies at
an increasing rate. Technology is an important aspect of our products and
services as it helps us provide our customers with more efficient, higher margin
and more cost-effective tools to find and produce oil and gas. We have invested
a substantial amount of our time and resources in building our technology
offerings. We believe our new, more efficient and accurate products and services
are among the best in the industry and enable our customers to reduce their
costs of drilling and production and/or increase production rates.

DRILLING AND INTERVENTION SERVICES DIVISION

Our Drilling and Intervention Services Division provides products and
services used by oil and gas companies, drilling contractors and other service
companies to explore for, drill for and produce oil and natural gas. We estimate
about two-thirds of the products and services offered by this division are used
in the initial drilling and completion of oil and gas wells. The remainder of
the products and services are used in connection with the production phases of
wells, including maintenance, re-drilling, re-completion and other remediation
and well installations.

This division continues to focus on the secular growth of its underbalanced
drilling services offerings. We also pursue strategic acquisitions for long-term
growth and market expansion. During 2001, we expanded our international presence
through the acquisition of Orwell Group Plc, an Aberdeen, Scotland-based
company.

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PRODUCTS AND SERVICES OFFERED

The principal products and services provided by this division are drilling
services and equipment, well installation services and cementing products,
fishing and intervention services and pipeline and specialty services.

Drilling Services and Equipment

Our drilling services and equipment operations consist of a broad range of
systems and products used during the drilling, completion and workover of oil
and gas wells. These offerings include:

Proprietary and Other Drilling Equipment -- We offer proprietary drilling
equipment to our customers. These patented tools, including our drilling jars,
rotating control heads and other pressure control equipment, as well as many of
our fishing products, are manufactured by us. We also offer a broad selection of
third-party manufactured rental equipment and tools for the drilling, completion
and workover of oil and gas wells. We offer these tools to our customers,
primarily operators and drilling contractors, on a rental basis, allowing the
customer to utilize unique equipment without the cost of holding that equipment
in inventory.

The rental of our proprietary and other equipment permits the equipment to
be more efficiently used and allows us to receive value-added returns on the
equipment. The breadth of our operations and locations allows us to manage and
re-deploy our equipment to locations where the equipment is most needed.

Our proprietary and other drilling equipment and tools include:

- Drilling tools such as drill pipe, drill collars, heavy weight pipe and
drilling jars.

- Fishing and downhole tools such as milling tools, casing cutters, fishing
jars, spears and overshots, stabilizers, power swivels and bottom hole
assemblies.

- Pressure control equipment such as blow-out preventers, high pressure
valves, accumulators, adapters and choke and kill manifolds.

- Tubular handling equipment such as elevators, spiders, slips, tongs and
kelly spinners.

Underbalanced Drilling Services -- Underbalanced drilling (UBD) occurs when
the bottom hole pressure exerted by the hydrostatic head of the drilling fluid
column is less than the pressure of the formation being drilled. In
underbalanced applications, the reservoir is able to flow while the drilling
takes place and thereby protects the formation from damage by the drilling
fluids. Traditional drilling methods utilize weighted drilling fluids that not
only prevent the flow of hydrocarbons during drilling but permeate the
formation, causing significant formation damage and limiting the flow of
hydrocarbons. The advantages to underbalanced drilling include faster rates of
drill bit penetration, reduction of formation damage that inhibits production
rates and minimizing lost circulation and the need for costly stimulations.
Underbalanced drilling is considered to be particularly desirable for drilling
in older fields and reservoirs where the downhole pressure has declined. We
believe many older fields and reservoirs cannot be economically drilled other
than through the use of underbalanced drilling. Although currently less than 5%
of the world's wells are drilled underbalanced, we estimate an increasing
percentage, up to at least 20%, of the world's wells are likely to be drilled
underbalanced during the next 5 to 10 years as familiarity with UBD systems and
their production benefits grows.

We offer a complete suite of critical components for underbalanced drilling
on a worldwide basis. These components include:

- Surface Equipment -- Specially designed self-contained mobile or
skid-mounted compression and membrane-nitrogen generation systems,
rotating control heads to control well pressures while circulating
drilling mediums during drilling, skid-mounted separators to separate
oil, gas, drilling media and cuttings, choke manifolds and solids
recovery systems.

- Downhole Equipment -- High temperature motors, wireline steering tools,
drill pipe, air rotary hammer drills, casing exit systems, downhole
deployment valves and downhole data acquisition equipment.

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- Fluid Systems -- Air drilling systems, mist drilling systems, foam
drilling systems, including our patented Trans-Foam(R) Recyclable
Drilling Fluid System and aerated fluid drilling systems produced by our
specialty chemical subsidiary, Clearwater.

- Software/Engineering -- Engineering and software, including simulation
modeling, candidate screening, corrosion mitigation, on-site engineering,
data analysis and supervision.

Directional Drilling Services -- Our Directional Drilling Services group
provides drilling engineering services and mechanical drilling systems including
measurement-while-drilling (MWD) services, downhole drilling motors, orienter
sub assemblies, re-entry services and wireline guidance tools.

Well Installation Services and Cementing Products

Well Installation Services -- These services consist of a wide variety of
tubular connection and installation services for the drilling, completion and
workover of an oil and gas well. We offer an integrated package of total tubular
services management that allows our customers to receive all of their tubular
handling, preparation, inspection, cleaning and wellsite installation needs from
a single source. We are a leader in rig mechanization technology used for the
installation of tubing and casing and offer various products and services to
improve rig floor operations by reducing staffing requirements, increasing
operational effectiveness and improving safety. We offer computerized torque
monitoring and testing services to ensure the integrity of tubular connection
makeup. We also specialize in critical service installations where operating
conditions (such as offshore) and/or metallurgical characteristics call for
specific handling technology. Finally, our well installation services include
high-grade completion equipment installation services as well as cementation
engineering services. Many of these services are provided in conjunction with
our Completion Systems Division.

Cementing Products -- Cementing operations are one of the most important
and expensive phases in the completion of a well. We are the world's leading
producer of specialized equipment that allows operators to centralize the casing
of the well and control the displacement of cement and other fluids. Our
cementing engineers also analyze complex wells and provide detailed
recommendations to help optimize cementing results. Our cementing products group
also works closely with our Completion Systems Division in designing integrated
completion systems. Our cementing product line includes the following:

- Centralizer Placement Software -- Software for calculating centralizer
spacing for optimum standoff.

- Centralizers -- A comprehensive range for varying applications and well
conditions.

- LoDRAG(TM) and LoTORQ(TM) Centralizers -- Mechanical friction-reduction
systems for extended reach drilling and underpressured conditions where
differential sticking risk is high.

- Drilling with Casing (DwC(TM)) -- A technique that uses casing as the
drillstring by attaching the DrillShoe(TM) drillable drill bits directly
to the casing.

- Flow Enhancement Tools -- Tools that improve cement flow.

- Float Equipment -- Drillable shoes and collars with float valves that
provide higher flow rates.

- Other Equipment -- Cement baskets, guide shoes, retainers and bridge
plugs, multiple stage tools and cementing plugs.

Fishing & Intervention Services

Our fishing and intervention services operations consist of the following:

Fishing Services -- Fishing services are provided through teams of
experienced fishing tool supervisors and a comprehensive line of fishing tools.
Our teams provide conventional fishing services such as removing wellbore
obstructions including lost equipment, tools, drill string segments and other
debris that become caught during the drilling and completion of new wells.
Specialty fishing tools required in these activities include fishing jars,
milling tools, casing cutters, overshots and spears. Fishing services offers
conventional and

5

advanced casing exit systems that allow sidetrack and lateral drilling solutions
for customers who either cannot proceed down the original well track or want to
drill lateral wells from the main or parent wellbore. In addition, advanced
multilateral systems are provided, including selective reentry systems (SRS(TM))
that allow numerous sidetracks from parent wellbores, pre-milled windows
utilizing patented "key way" technology and advanced multilateral junction
solutions. Fishing services also provides well patches and extensive plug and
abandonment services.

Intervention Services -- Intervention services includes wireline systems
and services for completion activities, mechanical services, logging services,
casing and tubing evaluation, production logging, perforating and pipe recovery.
Intervention Services also provides thru-tubing services used in well re-entry
activity that allow operators to perform complex drilling, completion and
cementing activities from existing wellbores without removing existing
production systems. Thru-tubing services and products include drilling motors,
casing exits, fishing and milling, zonal isolation and other well remediation
services.

Pipeline and Specialty Services

Pipeline and Specialty Services -- Our pipeline and specialty services
provide a range of services covering the lifespan of a pipeline. These services
use pipeline asset management programs, patented chemical solutions and tested
engineering methodology. Services include site management, pre-commissioning,
hook-up, commissioning, turnkey operation support, hydrostatic testing and
de-watering, gauging and cleaning and chemical solutions for build-up problems.

COMPETITION

Our Drilling and Intervention Services Division's products and services are
provided worldwide, and we compete in a variety of distinct segments with a
number of competitors. Our major competitors are Baker Hughes, Halliburton,
Schlumberger, Smith International and BJ Services. We also compete with
Precision Drilling, Franks International and other regional suppliers that
provide a limited range of equipment and services tailored for local markets.
Competition is based on a number of factors including performance, safety,
quality, reliability, service, price, response time and in some cases, breadth
of products. We believe we are the industry leader in underbalanced drilling,
and one of the largest providers of drilling products, cementing products and
well installation services in the world.

COMPLETION SYSTEMS DIVISION

In 1999, we formed our Completion Systems Division to focus on providing
our customers with a comprehensive offering of completion products as well as
engineered and integrated completion systems for oil and gas fields. From 2000
through 2002, we expanded this division's worldwide sales and service
capabilities throughout our global footprint and expanded the operating range
and sophistication of its product offering. We also continued our secular growth
strategy through the ongoing development and commercialization of our line of
expandable completion products. Since introduction in 1999, more than 20 miles
of our initial expandables product offering, the Expandable Sand Screen
(ESS(TM)), has been installed in more than 150 wells.

In 2001, we made strategic acquisitions of Johnson Screens and CiDRA's
Optical Sensing business to expand the breadth of our product offerings and to
obtain new technologically-advanced value-added products. The acquisition of
Johnson increased our manufacturing capabilities and presence in global oil and
gas well screen markets. Johnson has a dominant brand name and is a leader in
screen technology. The acquisition of CiDRA added fiber optic sensing to our
intelligent well offerings. CiDRA's technology can measure pressure,
temperature, flow, phase fraction and seismic activity. Weatherford's first
optical 4-D seismic sensing system, utilizing CiDRA technology, was installed in
December 2002.

In March 2002, we signed agreements with Shell Technology Ventures for the
global licensing of their expandable solid tubular intellectual property and
access to the U.S. market for use of our ESS. Shell and Weatherford have been at
the forefront of developing expandable technology since the mid-1990's.

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PRODUCTS AND SERVICES OFFERED

New technologies offered by this division are expandable systems and
intelligent wells. In addition to these game-changing technologies, we have one
of the most comprehensive completion offerings available, including cased hole
systems, liner systems, well screens and flow control and tool string. The
Completion Systems Division has a comprehensive set of systems for the
completion market including:

Cased Hole Systems

These systems are incorporated into the tubing string used to transport
hydrocarbons from the reservoir to the surface. We offer a wide range of devices
used to enhance the safety and functionality of the production string, including
permanent and retrievable packer systems, sub-surface safety systems,
specialized downhole isolation valves and associated servicing equipment.

Liner Systems

Liner hangers allow strings of casing to be suspended within a wellbore
without having to extend the string to the surface, and are used to isolate
production zones and formations. Most directional wells include one or more
liners because of the difficulty of designing casing programs compatible with
high tensile tubulars. We offer both drilling and production liner hangers.
Drilling liners are used to isolate areas within the well during drilling
operations. Production liners are used in the producing area of the well to
support the wellbore and to isolate various sections of the well. We also offer
expandable slotted liners designed to reduce cost and improve production. Our
inflatable packer product line includes annulus casing packers, inflatable
production packers and inflatable straddle packer assemblies. We also offer
specialized high pressure, high temperature, high performance inflatable
thru-tubing and completion packers.

Well Screens

Conventional sand screen products are used in the fluid-solid separation
processes and have a variety of product applications. Our primary application of
well screens is for the control of sand in unconsolidated formations. Sand
production often results in premature failure of artificial lift and other
downhole and surface equipment and can obstruct the flow of oil and gas. We
offer premium, pre-pack and wire-wrap sand screens.

Expandable Sand Screens (ESS(TM))

Our ESS Systems are proprietary step-change sand control devices that
reduce cost and improve production. The ESS consists of three layers including
slotted base pipe, filtration screens and an outer protective shroud. The ESS
can be expanded utilizing a fixed cone and/or Weatherford's proprietary rotary
expansion systems which enable the ESS to be compliant with the walls of the
well thus stabilizing the wellbore and aiding productivity. Weatherford's rotary
systems utilize positive displacement motor technology and can be deployed on
drill pipe or coiled tubing. The ESS can replace complex gravel packing
techniques in many sand control situations.

Solid Tubular Expandable Technologies

Proprietary expandable tools are also being developed for downhole solid
tubular applications in well remediation, well completion and well construction.
Solid tubular expandable products at Weatherford include the Expandable Liner
Hangers (ELH(TM)), used to create liners and seals, and Metal Skin(TM), used for
well cladding to cut off zones, retro-fit corroded section of casing and
strengthen existing casing. Solid Tubular Expandables utilize both fixed cone
and our compliant roller expansion technology. Weatherford also expects to
commercialize additional solid expandable applications during 2003 and 2004 for
well construction purposes, including Optiwell(TM) and monobore applications.
Both Optiwell and monobore systems will allow significant cost reductions in the
form of a reduction in consumables for drilling and completion of the wells
(fewer drill bit sizes, less drilling fluid, less casing, etc), smaller rig
platforms and reduced cuttings removal needs. The benefits are derived because
of expandable technologies' potential to significantly reduce or eliminate the
reverse-telescoping technique used historically for well design.
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Intelligent Completion Technology

Intelligent completion systems allow operators to remotely monitor the
pressure, temperature, flow and phase fraction and seismic activity of a well.
They also permit the control of various downhole components, such as valves and
chokes. These products, when combined with production packers, permit the
management of different sections of a well to optimize and coordinate
production. These devices can also eliminate the need for wireline and coiled
tubing because they can be operated from the surface. Advanced sensing systems
that enable 4-D seismic monitoring of reservoirs, or the ability to measure
reservoir performance over time, have been developed. Weatherford's first system
was installed in December 2002.

Flow Control and Tool String

Flow control systems include completion and intervention equipment that
provide the ability to manage production throughout the life of the well. Our
flow control systems include standard flow control products such as nipples,
locks, running and pulling tools, plugs and rolling systems. We also offer
comprehensive engineering, design and installation capabilities.

COMPETITION

In our Completion Systems Division, our principal competitors are Baker
Hughes, Halliburton and Schlumberger. We also compete with various smaller
providers of completion equipment. Technological innovation, quality of service,
industry reputation and price are the principal methods of competition. We
believe we are the third largest provider of completion equipment in the world.

ARTIFICIAL LIFT SYSTEMS DIVISION

Artificial lift systems are installed in oil wells that do not have
sufficient reservoir pressure to raise the oil to the surface or that need to
supplement the natural reservoir pressures to produce oil from the well. We
believe we are the leading provider of artificial lift systems worldwide. We
also believe we have a competitive advantage as the only provider of all forms
of lift and as the only supplier of customized production solutions.

One of our technology initiatives, production optimization systems or
intelligent lift, provides powerful benefits to our customers for lowering
operating and capital costs and improving rates of production. During 2001, we
made key technology acquisitions to further complement our intelligent lift
systems. Today, the complete optimization system allows remote monitoring of
reservoir production and equipment performance as well as the ability to
remotely adjust production and systems operation.

Our Artificial Lift Systems Division is also continuing to focus on
expanding our share of the electrical submersible pumps market through supplier
alliances and the development of our own proprietary electrical submersible
pumping (ESP) units. Our first Weatherford-designed ESP's were sold during 2002.

PRODUCTS AND SERVICES OFFERED

There are six principal types of artificial lift technologies used in the
industry. We are the only company in the world able to provide all forms of lift
including progressing cavity pumps, reciprocating rod and gas lift systems,
electrical submersible pumps, hydraulic and other lift systems. This division
also offers production optimization systems.

Progressing Cavity Pumps

A progressing cavity pump (PCP) is a downhole pump controlled by an
above-ground electric motor system connected to the downhole pump via sucker
rods for the production of oil. These pumps are among the most operationally
efficient and are designed to work in wells of depths up to 6,000 feet and
production between 10 to 4,500 barrels of oil per day. We are also developing
high temperature progressing cavity pumps for steam assisted gravity drilling
("SAGD") applications. PCP's have had particular success in heavy oil producing
basins around the world.

8

Reciprocating Rod Lift Systems

A reciprocating rod lift system is an artificial lift pumping system that
uses an above-ground mechanical unit connected to a sucker rod and a downhole
pump. It uses an up and down suction process to lift the oil from the reservoir.
Reciprocating lift is used primarily for the production of oil from wells of
depths up to 14,000 feet and production rates from 20 to 8,000 barrels per day.
Reciprocating lift systems are generally more expensive to install than other
systems but less costly to operate. We offer a complete package of products for
rod lift applications ranging from traditional pump jacks to the
state-of-the-art RotaFlex(R) long stroke pumping unit, as well as all downhole
components, including the Corod(R) continuous sucker rod, traditional sucker
rods and tubing anchors.

Gas Lift Systems

Gas lift is a form of artificial lift that uses natural gas to lift oil in
a producing reservoir to the surface. The process of gas lift involves the
injection of natural gas into the well through an above-ground injection system
and a series of downhole mandrels and gas lift valves. The gas injected into the
system is either produced from and reinjected into the well, or is injected from
gas produced from nearby wells. The injected gas acts as the lifting agent for
the heavier oil. Gas lift systems are used primarily for offshore wells and
those wells that have a high component of gas in the well or have a gas supply
near the well. Gas lift systems are designed to operate at depths up to 15,000
feet with volumes up to 20,000 barrels of oil per day.

Electrical Submersible Pumps

An electrical submersible pump (ESP) is an electric pump and motor placed
downhole near the producing reservoir that is driven by an electric motor
controller and supply system above ground. Electrical submersible pumps are
designed to operate at depths of 9,000 to 12,000 feet with volumes from 800 to
20,000 barrels per day. Prior to 1999, we had not been a provider of electrical
submersible pumps to the industry. In 1999, we entered into an alliance with
Electrical Submersible Pumps, Inc., the world's third largest supplier of this
type of pump, to supply us with electrical submersible pumps and to distribute
them in selected markets. In 2002, we began manufacturing and distributing our
own proprietary line of ESP's.

Hydraulic Lift Systems

Hydraulic lift is a form of oil pumping system that uses an above-ground
surface power unit to operate a downhole hydraulic pump (jet or piston) to lift
oil from the reservoir. These systems are designed for wells at depths up to
20,000 feet with volumes up to 15,000 barrels per day. Hydraulic pumps are
well-suited for wells with high volumes and low solids.

Other Lift Systems

We also offer other forms of lift such as "plunger lift." Plunger lift is
the only artificial lift system that requires no assistance from outside energy
sources. The typical system consists of a plunger (or piston), top and bottom
bumper springs, a lubricator and a surface controller. The plunger cycles
between the top and bottom bumper springs. As it travels to the surface, it
creates a solid interface between the lifted gas below and produced fluid above
to maximize lift energy. The travel cycle is controlled by a surface controller.
Plunger lift is a low cost, easily maintained method of lift. It is particularly
useful for dewatering gas wells and increasing production from wells with
emulsion problems. Plunger lift also keeps wells free of paraffin and other
tubing deposit problems and can be used to produce a well to depletion.

Production Optimization Systems

Our Artificial Lift Systems Division was one of the first organizations to
provide complete artificial lift well optimization services and products. These
services include software and instrumentation that allow the customer to
remotely monitor and control wells and optimize field production from a central
location. To further develop this service, we entered into alliance agreements
and purchased key complementary

9

technologies during 2001. We believe this product offering will benefit the
customer with substantial cost savings while improving returns.

Johnson Screens

The Artificial Lift Systems Division also operates the water well and
industrial screen business of Johnson, which was acquired in 2001. Johnson's
downhole oil and gas well screen products have been integrated into our
Completion Systems Division. Served markets include water well, petrochemical,
polymer/extrusion, mining and general industrial applications.

Gas Services International

Gas Services International (GSI) is a unit of Artificial Lift Systems
Division, which offers total process system solutions for all aspects of natural
gas production, including compression, processing and offshore floating
production systems. GSI is located in Singapore and primarily services the Asia
Pacific and Middle East regions.

COMPETITION

We primarily compete with Baker Hughes, Schlumberger, Robbins & Myers and
Harbison Fischer. We also compete with Lufkin, National-Oilwell and Dover
Corporation. The principal methods of competition are performance, quality,
reliability, service and technological innovation. We believe we are the world's
largest provider of progressing cavity pumps, reciprocating rod lift pump
systems and hydraulic lift systems and are the only fully integrated provider of
all lift systems.

COMPRESSION SERVICES DIVISION

In February 2001, we completed the merger of essentially all of our
Compression Services Division into a subsidiary of Universal Compression
Holdings, Inc. in exchange for 13.75 million shares of Universal common stock.
Our Compression Services Division prior to the merger, was operated as a joint
venture between us and GE Capital. We owned 64% of the venture and GE Capital
owned 36%. In connection with the merger, we acquired GE Capital's 36% interest.
We retained part of the Compression Services Division, namely the
Singapore-based Gas Services International operations. We also retained $10.0
million in accounts receivable.

Prior to the Universal merger, our Compression Services Division offered
the following products and services: rental, packaging and sales of natural gas
compressors, custom-designed compression systems, maintenance and reconditioning
services and select services such as repair services.

DISCONTINUED OPERATIONS -- GRANT PRIDECO

Our Grant Prideco Drilling Products Division is classified as a
discontinued operation in light of our spin-off of this division to our
shareholders in April 2000. Grant Prideco is an international manufacturer and
supplier of products used for the exploration and production of oil and gas.

10

PROPERTIES

Our operations are conducted in over 100 countries. We currently have more
than 85 manufacturing facilities and approximately 540 sales, service and
distribution locations throughout the world. The following table describes the
material facilities owned or leased by us as of December 31, 2002:

- ---------------

(1) Facility is shared by our Drilling and Intervention Services Division and
Completion Systems Division.

OTHER BUSINESS DATA

RAW MATERIALS

We purchase a wide variety of raw materials as well as parts and components
made by other manufacturers and suppliers for use in our manufacturing. Many of
the products sold by us are manufactured by other parties. We are not dependent
on any single source of supply for any of our raw materials or purchased
components; however, the loss of one or more of our suppliers in our Artificial
Lift Systems Division could disrupt production for some time.

CUSTOMERS AND BACKLOG

Our principal customers consist of major and independent oil and natural
gas producing companies. During 2002, 2001 and 2000, none of our customers
accounted for more than 10% of consolidated revenues.

Our backlog consists of customer orders for which a purchase order has been
received, satisfactory credit arrangements exist and delivery is scheduled. The
respective sales backlog for our completion products and our artificial lift
systems and products were approximately $25 million and $64 million as of
January 2003 and approximately $44 million and $85 million for the comparable
period in the prior year. All backlog is expected

12

to be shipped during 2003. Our Drilling and Intervention Services Division does
not have backlog as it is primarily service related.

RESEARCH, DEVELOPMENT AND PATENTS

We maintain world-class technology and training centers in Houston, Texas
and Aberdeen, Scotland whose activities are focused on improving existing
products and services and developing new technologies to meet customer demands
for improved drilling performance and enhanced reservoir productivity. Our
expenditures for research and development totaled $79.6 million in 2002, $50.8
million in 2001 and $43.0 million in 2000.

As many areas of our business rely on patents and proprietary technology,
we have followed a policy of seeking patent protection both inside and outside
the United States for products and methods that appear to have commercial
significance. In the United States, we currently have 499 patents issued and
over 275 pending. We have 891 foreign patents issued and over 725 pending. We
amortize patents over the years expected to be benefited, ranging from 5 to 20
years.

Many of our patents provide us with competitive advantages in our markets.
Important patented products and technologies include (1) our expandable slotted
and solid tubular products, many of which are sold pursuant to a license from
Shell, (2) our underbalanced drilling products and services, including our
"Virtual Riser" offshore pressure control system, Williams high pressure
rotating heads, internal riser rotating control head for deepwater drilling and
our chemicals and foam technology and (3) fiber optic sensing systems for
intelligent completion systems.

Although in the aggregate our patents are of considerable importance to the
manufacturing and marketing of many of our products, we do not believe that the
loss of one or more of our patents would have a material adverse effect on our
business.

SEASONALITY

Weather and natural phenomena can temporarily affect the sale and
performance of our products and services. Spring months in Canada tend to affect
operations negatively, but the widespread geographical locations of our
operations serve to mitigate the impact of the seasonal nature of our business.

INSURANCE

We currently carry a variety of insurance for our operations. We are
partially self-insured for certain claims in amounts we believe to be customary
and reasonable.

Although we believe we currently maintain insurance coverage adequate for
the risks involved, there is always a risk our insurance may not be sufficient
to cover any particular loss or that our insurance may not cover all losses. For
example, while we maintain product liability insurance, this type of insurance
is limited in coverage and it is possible an adverse claim could arise in excess
of our coverage. Finally, insurance rates have in the past been subject to wide
fluctuation, and changes in coverage and changes in the insurance industry will
likely result in increases in our cost and higher deductibles and retentions.

FEDERAL REGULATION AND ENVIRONMENTAL MATTERS

Our operations are subject to federal, state and local laws and regulations
relating to the energy industry in general and the environment in particular.
Environmental laws have, in recent years, become more stringent and have
generally sought to impose greater liability on a larger number of potentially
responsible parties. While we are not currently aware of any situation involving
an environmental claim that would likely have a material adverse effect on our
business, it is always possible that an environmental claim with respect to one
or more of our current businesses or a business or property that one of our
predecessors owned or used could arise that could have a material adverse
effect.

In August 2001, we paid $131,182 to the EPA to settle as a de minimus party
to the Casmailia, California Superfund Site. In September 2001, we were notified
by the Texas Natural Resource Conservation Commission ("TNRCC") that we were
named as a party to the Voda Petroleum site in Clarksville City,

13

Texas. This matter is in the preliminary stages and based on the information
provided by the TNRCC, it appears that we will be a de minimus party.

Our expenditures during 2002 to comply with environmental laws and
regulations were not material, and we currently expect the cost of compliance
with environmental laws and regulations for 2003 also will not be material.

EMPLOYEES

We currently employ approximately 15,700 employees. Certain of our foreign
operations are subject to union contracts. These contracts, however, cover less
than one percent of our employees. We believe that our relationship with our
employees is generally satisfactory.

FORWARD-LOOKING STATEMENTS

This report as well as other filings made by us with the Securities and
Exchange Commission ("SEC") and our releases issued to the public contain
various statements relating to future results, including certain projections and
business trends. We believe these statements constitute "Forward-Looking
Statements" as defined in the Private Securities Litigation Reform Act of 1995.

From time to time, we update the various factors we consider in making our
forward-looking statements and the assumptions we use in those statements. The
following sets forth an update of the various assumptions we use in our
forward-looking statements, as well as risks and uncertainties relating to those
statements. Certain of the risks and uncertainties may cause actual results to
be materially different from projected results contained in forward-looking
statements in this report and in our other disclosures. These risks and
uncertainties include, but are not limited to, those described in "Risk Factors"
below and the following:

- A downturn in market conditions could affect projected results. Any
material changes in oil and gas supply and demand, oil and gas prices,
rig count or other market trends would affect our results and would
likely affect the forward-looking information provided by us. The oil and
gas industry is extremely volatile and subject to change based on
political and economic factors outside our control. Through the beginning
of 2002, there was a general decrease in prices for oil and natural gas,
reflecting diminished demand attributable to political and economic
issues. In the latter part of 2002, there was an increase of prices for
oil and natural gas. However, with exception of Canada, which experienced
a seasonal increase in drilling activity, producers did not increase
drilling due to the political and economic uncertainty. If an extended
regional and/or worldwide recession would occur, it would result in even
lower demand and lower prices for oil and gas, which would adversely
affect our revenues and income. At this time, we have assumed increases
in worldwide demand will be modest throughout the first half of 2003.

- Our results are dependent upon our ability to react to the current market
environment. During the fourth quarter of 2001 and throughout 2002, we
implemented a number of programs intended to reduce costs and align our
cost structure with the current market environment. Our forward-looking
statements assume these measures will generate the savings expected and,
if the markets continue to decline, any additional actions we pursue will
be adequate to achieve the desired savings.

- A material disruption in our manufacturing could adversely affect some
divisions of our business. Our forward-looking statements assume any
manufacturing expansion and consolidation will be completed without
material disruptions. If there are disruptions or excess costs associated
with manufacturing changes, our results could be adversely affected.

- Our success is dependent upon the integration of acquisitions. We have
consummated acquisitions of several product lines and businesses. The
success of our acquisitions will be dependent on our ability to integrate
the product lines and businesses with our existing businesses and
eliminate duplicative costs. We incur various duplicative costs during
the integration of the operations of acquired businesses into our
operations. Our forward-looking statements assume the successful
integration of the operations of the acquired businesses; however, there
can be no assurance that the expected benefits of these
14

acquisitions will materialize. Integration of acquisitions is something
that cannot occur in the short-term and that requires constant effort at
the local level to be successful. Accordingly, there can be no assurance
as to the ultimate success of these integration efforts.

- Our long-term growth is dependent upon technological advances. Our
ability to deliver our long-term growth strategy is dependent 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, and to expand the markets for new
technology through leverage of our worldwide infrastructure. Key to our
success will be our ability to commercialize the technology that we have
acquired and demonstrate the enhanced value that our technology brings to
our customers' operations. Our major technological advances include, but
are not limited to, those related to underbalanced drilling, expandable
well construction and intelligent well completion. Our forward-looking
statements have assumed successful commercialization of and above-
average growth from these new products and services.

- Nonrealization of expected benefits from our corporate reorganization
could affect our projected results. An inability to realize expected
benefits of the reorganization within the anticipated time frame, or at
all, would likely affect the financial benefit of our corporate
reorganization.

- A decline in the fair value of our investment in Universal that is other
than temporary would adversely affect our projected results. In the
third quarter of 2002, we determined the decline in Universal's stock
price was other than temporary and recorded a write-down in the carrying
value of the investment. In connection with the reduction in the carrying
value, we recognized a tax benefit related to the difference between the
book carrying value and the tax basis of the investment. We can make no
assurances that there will not be a decline in value of our investment in
Universal or that any such decline would be temporary. Any decline may
result in a write-down in the carrying value of our investment in
Universal and would adversely affect our results.

- The cyclical nature of or a prolonged downturn in our industry could
affect the carrying value of our goodwill. As of December 31, 2002, we
had approximately $1.5 billion of goodwill. Our estimates of the value of
our goodwill could be reduced in the future as a result of various
factors in or 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 decline 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.

- 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, war, or terrorist
attacks and there will be no material changes in global trade policies.
On October 11, 2002, the U.S. Congress passed a resolution authorizing
the President of the United States to use the armed forces of the United
States as he determines necessary and appropriate in order to (1) defend
the national security of the United States against the continuing threat
posed by Iraq and (2) enforce all relevant United Nation Security Council
resolutions regarding Iraq. Any military action undertaken by the United
States or other countries against Iraq could adversely affect our results
of operations.

Finally, our future results will depend upon various other risks and
uncertainties, including, but not limited to, those detailed in our other
filings with the SEC. For additional information regarding risks and
uncertainties, see our other current filings with the SEC under the Securities
Exchange Act of 1934, as amended, and the Securities Act of 1933, as amended,
available free of charge at the SEC's website at www.sec.gov. We will generally
update our assumptions in our filings as circumstances require.

15

RISK FACTORS

An investment in our common shares involves various risks. When considering
an investment in our company, you should consider carefully all of the risk
factors described below, as well as other information included and incorporated
by reference in this report.

LOW OIL AND GAS PRICES ADVERSELY AFFECT DEMAND FOR OUR PRODUCTS AND SERVICES.

Low oil and gas prices adversely affect demand throughout the oil and
natural gas industry, including the demand for our products and services. As
prices decline, we are affected in two significant ways. First, the funds
available to our customers for the purchase of goods and services decline.
Second, exploration and drilling activity declines as marginally profitable
projects become uneconomic and are either delayed or eliminated. Accordingly,
when oil and gas prices are relatively low, our revenues and income will be
adversely affected.

THE MARKET PRICE OF OUR COMMON SHARES MAY FLUCTUATE.

Historically, the market price of common shares of companies engaged in the
oil and gas industry has been highly volatile. Likewise, the market price of our
common shares has varied significantly in the past. News announcements and
changes in oil and natural gas prices, changes in the demand for oil and natural
gas exploration and changes in the supply and demand for oil and natural gas
have all been factors, among others, that have affected the price of our common
shares.

WE HAVE SIGNIFICANT FOREIGN OPERATIONS THAT WOULD BE ADVERSELY IMPACTED IN THE
EVENT OF WAR, POLITICAL DISRUPTION, CIVIL DISTURBANCE AND CHANGES IN GLOBAL
TRADE POLICIES.

Like most multinational oilfield service companies, we have operations in
certain international areas, including parts of the Middle East, North and West
Africa, Latin America, the Asia-Pacific region and the Commonwealth of
Independent States that are inherently subject to risks of war, political
disruption, civil disturbance and changes in global trade policies that may:

- disrupt oil and gas exploration and production activities;

- negatively impact results of operations;

- restrict the movement and exchange of funds;

- inhibit our ability to collect receivables;

- lead to U.S. government or international sanctions; and

- limit access to markets for periods of time.

OUR SIGNIFICANT OPERATIONS IN FOREIGN COUNTRIES EXPOSE US TO CURRENCY
FLUCTUATION RISKS.

Approximately 30.0% of our net assets are located outside the U.S. and are
carried on our books in local currencies. Changes in those currencies in
relation to the U.S. dollar result in translation adjustments, which are
reflected as accumulated other comprehensive loss in the shareholders' equity
section on our Consolidated Balance Sheets. We recognize remeasurement and
transactional gains and losses on currencies in our Consolidated Statements of
Operations. Such remeasurement and transactional losses may adversely impact our
results of operations.

In certain foreign countries a component of our cost structure is U.S.
dollar denominated, whereas our revenues are partially local currency based;
therefore, a devaluation of the local currency would adversely impact our
operating margins.

CUSTOMER CREDIT RISKS COULD RESULT IN LOSSES.

The concentration of our customers in the energy industry may impact our
overall exposure to credit risk, in that customers may be similarly affected by
prolonged changes in economic and industry conditions. We

16

perform ongoing credit evaluations of our customers and do not generally require
collateral in support of our trade receivables. While we maintain reserves for
potential credit losses, we cannot assure such reserves will be sufficient to
meet write-offs of uncollectible receivables or our losses from such receivables
will be consistent with our expectations.

UNINSURED JUDGMENTS OR A RISE IN INSURANCE PREMIUMS COULD ADVERSELY IMPACT OUR
RESULTS.

Although we maintain insurance to cover potential claims and losses, we
could become subject to a judgment for which we are not adequately insured.
Additionally, the recent terrorist attacks that occurred in the U.S., as well as
other factors, have generally increased the cost of insurance for companies,
including ours. Significant increases in the cost of our insurance and more
restrictive coverages may adversely impact our results of operations.

UNINSURED CLAIMS AND LITIGATION COULD ADVERSELY IMPACT OUR RESULTS.

In the ordinary course of business, we become the subject of various claims
and litigation. We maintain insurance to cover many of our potential losses and
we are subject to various self-retentions and deductibles with respect to our
insurance. Although we are subject to various ongoing items of litigation, we do
not believe any of the items of litigation we are currently subject to will
result in any material uninsured losses to us. However, it is possible an
unexpected judgment could be rendered against us in cases in which we could be
uninsured and beyond the amounts we currently have reserved or anticipate
incurring.

We are also subject to various federal, state and local laws and
regulations relating to the energy industry in general and the environment in
particular. Environmental laws have in recent years become more stringent and
have generally sought to impose greater liability on a larger number of
potentially responsible parties. While we are not currently aware of any
situation involving an environmental claim which would likely have a material
adverse effect on our business, it is always possible that an environmental
claim with respect to one or more of our current businesses or a business or
property that one of our predecessors owned or used could arise and could
involve the expenditure of a material amount of funds.

CHANGES IN TAX LAWS COULD ADVERSELY IMPACT OUR RESULTS.

On June 26, 2002, the stockholders and Board of Directors of Weatherford
International, Inc. approved our corporate reorganization, and Weatherford
International Ltd., a newly formed Bermuda company, became the parent holding
company of Weatherford International, Inc. Our expectations as to the tax
benefits that could result from our reorganization were based upon laws in
effect at the time of the reorganization. Legislation proposed after we began to
develop a reorganization plan, including legislation that has been recently
introduced, has included items that could, if enacted, restrict or eliminate our
ability to realize anticipated tax benefits. Changes in tax laws, tax treaties
or tax regulations or the interpretation or enforcement thereof or differing
interpretation or enforcement of applicable law by the U.S. Internal Revenue
Service or other taxing authorities could adversely impact our ability to
realize tax benefits from our reorganization and adversely impact our results.

A TERRORIST ATTACK COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESSES.

The terrorist attacks that took place in the U.S. on September 11, 2001
were unprecedented events that have created many economic and political
uncertainties, some of which may materially impact our businesses. The potential
for future terrorist attacks, the national and international responses to
terrorist attacks, and other acts of war or hostility have created many economic
and political uncertainties, which could adversely affect our businesses.

ITEM 2. PROPERTIES

See Item 1. Business -- Properties on page 11 of this report, which is
incorporated by reference into this item.

17

ITEM 3. LEGAL PROCEEDINGS

In the ordinary course of business, we become the subject of various claims
and litigation. We maintain insurance to cover many of our potential losses, and
we are subject to various self-retention and deductibles with respect to our
insurance.

See Item 1. Business -- Other Business Data -- Federal Regulations and
Environmental Matters on page 13 of this report, which is incorporated by
reference into this item.

Although we are subject to various ongoing items of litigation, we do not
believe any of the items of litigation to which we are currently subject will
result in any material uninsured losses to us. It is possible, however, an
unexpected judgment could be rendered against us in the cases in which we are
involved that could be uninsured and beyond the amounts we currently have
reserved.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of shareholders of the Company during
the fourth quarter of the year ended December 31, 2002.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Our common shares are traded on the New York Stock Exchange under the
symbol "WFT." As of March 10, 2003, there were 1,384 shareholders of record.
Additionally, there were 1,792 stockholders of Weatherford Inc. as of the same
date who had not yet exchanged their shares. The following table sets forth, for
the periods indicated, the range of high and low sales prices per common share
as reported on the New York Stock Exchange.

- ---------------

(a) On June 26, 2002 Weatherford International Ltd. became the parent holding
company of Weatherford International, Inc. as a result of a corporate
reorganization. Each share of common stock of Weatherford International,
Inc. automatically converted into the right to receive a common share of
Weatherford International Ltd. Thus, the stockholders of Weatherford
International, Inc. became the shareholders of Weatherford International
Ltd.

On March 10, 2003, the closing sales price of our common shares as reported
by the New York Stock Exchange was $38.65 per share. We have not declared or
paid cash dividends on our common shares since 1984 and we do not currently
anticipate paying cash dividends on our common shares at any time in the
foreseeable future.

18

In addition to our common shares, we currently have certain convertible
securities outstanding. Weatherford Inc.'s $402.5 million principal amount in 5%
Convertible Subordinated Preferred Equivalent Debentures due 2027 have the
following material terms:

- Mature on November 1, 2027

- Interest rate of 5% per annum, payable February 1, May 1, August 1 and
November 1 of each year, but subject to deferral for up to 20 consecutive
quarters if not in default on interest payments

- Are convertible into Weatherford Limited's common shares at a conversion
price of $53.34 per share

- May be redeemed by us at any time at redemption prices set forth in an
indenture relating to the debentures

- Are subordinated in right of payment of principal and interest to certain
existing and future senior indebtedness

Weatherford Inc. also has $910.0 million face amount of Zero Coupon
Convertible Senior Debentures due 2020. These debentures have the following
material terms:

- Mature on June 30, 2020

- Original issue discount of $408.4 million, providing the holders with an
annual 3% yield to maturity

- Holders may convert at any time prior to maturity at a conversion rate of
9.9970 of Weatherford Limited's common shares per $1,000 principal amount
at maturity

- We may redeem these debentures on or after June 30, 2005 at the accreted
principal amount at the time of redemption

- Holders also may require us to repurchase these debentures on June 30,
2005, June 30, 2010 and June 30, 2015 at the issue price plus accrued
original issue discount, and we may, at our election, repurchase the
debentures for cash, common shares or a combination thereof

- Are an unsecured obligation ranking equal in right of payment with all
other unsecured and unsubordinated indebtedness and ranking senior to any
future subordinated indebtedness

On February 28, 2002, we issued a warrant to purchase 3.2 million of our
common shares at $60 per share as part of the consideration given to obtain a
worldwide license to Shell Technology Ventures' expandable technology. This
warrant has a nine-year exercisable life beginning one year after the issue
date. Upon exercise, settlement may occur through physical delivery, net share
settlement, net cash settlement or a combination thereof. The warrant also may
be converted into common shares at any time after the third anniversary of the
issue date.

On October 23, 2002, we issued an aggregate of 370,155 of our common shares
in connection with our acquisition of the assets of Clearwater, Inc. and related
companies. The Clearwater acquisition was a transaction not involving a public
offering and was exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933.

Information concerning securities authorized for issuance under equity
compensation plans is set forth in the section entitled "Equity Compensation
Plan Information" in Item 12 of Part III of this report, which section is
incorporated herein by reference.

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth certain selected historical consolidated
financial data and should be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations

19

and the Consolidated Financial Statements and Notes thereto included elsewhere
herein. The following information may not be deemed indicative of our future
operating results.

- ---------------

(a) Includes $217.1 million related to a write-down in our investment in
Universal and $15.4 million for a non-recurring charge related to a
rationalization of our businesses in light of industry conditions. The net
after tax impact of these charges was $156.2 million. Results in 2002
benefited from the non-amortization of goodwill. Goodwill amortization
expense in 2001 was $39.5 million, or $36.9 million net of taxes.

(b) Includes $56.3 million, $43.0 million net of taxes, of impairment charges
related to the merger of essentially all of our Compression Services
Division into Universal.

(c) Includes $160.0 million, $104.0 million net of taxes, of merger and other
charges relating to the merger between EVI and Weatherford Enterra and a
reorganization and rationalization of our business in light of industry
conditions.

(d) Includes $76.5 million of deferred tax provision associated with the
deconsolidation of our Compression Services Division.

(e) Includes $347.1 million of our 6 5/8% Senior Notes due 2011, issued
November 2001.

(f) Includes $910.0 million face amount of our Zero Coupon Convertible Senior
Debentures, at the accreted discount amount of $509.2 million as of
December 31, 2000, issued June 2000.

(g) Reflects the distribution of our Grant Prideco, Inc. subsidiary to holders
of our common stock in April 2000.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

Effective June 26, 2002, Weatherford International Ltd., a Bermuda exempted
company, became the parent holding company of Weatherford International, Inc.
following a corporate reorganization. Each share of common stock of Weatherford
International, Inc. automatically converted into the right to receive a common
share of Weatherford International Ltd. Thus, the stockholders of Weatherford
International, Inc. became the shareholders of Weatherford International Ltd.
The reorganization has been accounted for as a reorganization of entities under
common control and accordingly, did not result in any changes to our
consolidated amounts of assets, liabilities or shareholders' equity.

Our business is conducted through three business segments: (1) Drilling and
Intervention Services, (2) Completion Systems and (3) Artificial Lift Systems.
In addition to these three segments, we historically operated a Compression
Services Division and a Drilling Products Division. In February 2001, we
completed

20

the merger of essentially all of our Compression Services Division into a
subsidiary of Universal Compression Holdings, Inc. in exchange for 13.75 million
shares of Universal common stock, or approximately 45% of Universal's current
common stock outstanding. On April 14, 2000, we distributed to our shareholders
all of the outstanding shares of Grant Prideco, Inc., which held the operating
assets used in our Drilling Products Division. As a result of this distribution,
our Drilling Products Division is presented as discontinued operations in the
accompanying financial statements.

The following is a discussion of our market, financial condition and
results of operations for the last three years. This discussion should be read
in conjunction with our financial statements and notes thereto included in Item
8. Financial Statements and Supplementary Data. Our discussion includes various
forward-looking statements about our markets, the demand for our products and
services and our future results. These statements are based on certain
assumptions we consider reasonable. For information about these assumptions, you
should refer to the section entitled "Forward-Looking Statements" located within
Item 1. Business.

We acquire numerous companies every year and focus on integration efforts
to realize the benefits each acquisition provides. We are unable to provide
certain information regarding our results excluding the impact of acquisitions
due to the integration of these acquisitions into our operations. Comparative
revenue trends excluding acquisitions only exclude those acquisitions for which
revenue information has been separately maintained.

MARKET TRENDS AND OUTLOOK

Our businesses serve the oil and gas industry. All of our businesses are
affected by changes in the worldwide demand for and price of oil and natural
gas. Certain of our products and services, such as our well installation
services and well completion services, are dependent on the level of exploration
and development activity and the completion phase of the well life cycle. Other
products and services, such as our artificial lift systems, are dependent on
production activity. We currently estimate approximately two-thirds of our
continuing operations are reliant on drilling activity, with the remainder
focused on production and reservoir enhancement activity.

The following chart sets forth certain statistics reflective of historical
market conditions:

- ---------------

(1) Price per barrel as of December 31 -- Source: Applied Reasoning, Inc.

(2) Price per MM/BTU as of December 31 -- Source: Oil World

(3) Average rig count for December -- Source: Baker Hughes Rig Count

The demand for our products and services is cyclical due to the nature of
the energy industry. Over the last several years, rig count fluctuated due to
world economic and political trends that influence the supply and demand for
energy, the price for oil and natural gas and the level of exploration and
drilling for those commodities. The price of oil and natural gas has also been
subject to much volatility. In the last three years, oil reached a high of
$37.20 in September 2000 and a low of $17.45 in November 2001. Natural gas
prices topped at $9.98 in December 2000 and bottomed at $1.83 in September 2001.

Historically, the majority of worldwide drilling activity has been
concentrated in North America. From mid-1999 through mid-2001, North American
rig count improved steadily, peaking in the first quarter of 2001 at 1,717 rigs.
The level of drilling and completion spending in North America also improved
steadily for this same time period with an overall improvement greater than
100%. During the latter part of 2001 the rig count started to decline, and the
decline continued through mid-2002 reaching a low in April 2002 of 845 rigs.
Since mid-2002, the North American rig count has shown moderate signs of
improvement and has remained relatively flat averaging 1,115 rigs. In 2002, the
level of spending declined approximately 40% from 2001,
21

returning to levels only marginally better than 1999. Despite improving oil and
natural gas prices, the current low level of activity reflects customer
uncertainty about the recovery of the economy and demand for energy. We expect
activity to strengthen once our customers feel confident as to the
sustainability of economic improvements and commodity prices for our industry.

Over the last few decades, drilling and completion activity has grown
faster in international markets than in North America. The international market
experienced strong improvements in 2001 as compared to 2000 with an increase in
annual average international rig count of 14% and all regions improving. In
2002, the annual average international rig count declined slightly. The decline
was due to an 18% decline in Latin America, which was primarily related to
Venezuela declining 37% and Argentina declining 31%. The economic and political
uncertainty of these countries were the main drivers in their declines. The
decline in Latin America was nearly offset by gains in the Middle East and Asia
Pacific. The quarterly average rig count in the Middle East improved to 212 rigs
in the fourth quarter of 2002, almost a 50% improvement since the first quarter
of 2000 where the average rig count was 143. Asia Pacific experienced similar
improvements with an increase of approximately 35% from the first quarter of
2000. International drilling and completion spending has steadily increased
since 1999. The total spending in 2002 increased more than 50% from 1999's
spending level. We believe the geological future of the industry is in the
international markets due to the decline of activity in the North American
oilfields and their mature age.

In general, we expect the markets and our business strategies to affect our
results as follows:

North America. The markets in the U.S. are in the early stages of
improvement. The level of inquiry and contractual bidding has recently started
to rise. If historical leads and lags hold true, we expect to experience
improvements in our U.S. business sometime in mid-to late 2003. We anticipate
volume increases to be between 10 and 15 percent and we expect to increase
pricing as volume increases. Canada is currently showing very strong performance
in 2003 and is expected to continue to see improvements with the normal seasonal
decline in the second quarter due to spring breakup. We anticipate improvements
in volume in Canada of approximately 15%. We expect to see a 5 to 10 percent
improvement in both the rig count in North America and the level of drilling and
completion spending.

Our Artificial Lift Systems Division is impacted by the volatility in North
America, primarily related to the oil rig count. The revenues for this division
are approximately 60% North American, with 30% in the U.S. and 30% in Canada.
Due to the high dependency on Canadian activity, the length and severity of
spring breakup will have a significant impact on this division. Our Drilling and
Intervention Services Division and Completion Systems Division will also be
impacted by improvements in North America. These divisions derived approximately
40% of their revenues from this region during 2002.

International. Overall, we expect international activity to improve
approximately 4% in 2003 compared to 2002. We anticipate we will experience 10%
growth year-on-year, exhibiting the same or higher dollar sales per rig employed
as shown historically. The largest expected increases in 2003 over 2002 are in
the North Africa, Far East and Brazil and Mexico markets. In the latter part of
2002, we experienced declines in the UK North Sea region, Venezuela and
Kazakhstan. We believe the activity in the UK has bottomed out and should remain
flat through 2003 unless and until the UK government and the North Sea operators
come to a mutually satisfactory agreement on taxation. When, and if they do, we
believe UK activity will rise within six months of such an agreement.
Additionally, due to the completion of a major consolidation of a number of our
business segments in the UK North Sea, we believe when the UK cycle reverses
itself we are positioned to take on incremental volume at higher incremental
margins. The declines in Venezuela in the last half of the year are due to the
continuing economic and political uncertainty which culminated in a strike in
the fourth quarter of 2002. We expect the first quarter of 2003 to continue to
deteriorate but should recover some for the balance of the year once a degree of
normalcy returns to operations. Current operations were also impacted by
activity in Kazakhstan, more specifically Chevron's Tengiz project, as the
project was abruptly interrupted. This project officially restarted at the end
of January, and our operations will resume by the end of April 2003.

We expect our technology products to fuel much of the prospective
performance in our international markets. In 2002, our technology products
increased approximately 30% from their 2001 level. We expect growth from our
expandable products in the upcoming year and beyond. We recently signed a $50
million two-
22

year contract for Shell Malaysia for our expandable sand screens and announced a
$34 million contract for Petrobras offshore projects in 2003 and 2004. In the
first half of 2003, we anticipate the commercialization of our first expandable
solids for well remediation. Recently, we successfully installed an
all-hydraulic multi-zone completion system, under our intelligent well product
line. This installation, in such a high-end downhole application, opens up a
whole market for intelligent zonal isolation at an affordable cost. After
working on the development and marketing of our underbalanced systems for two
years, we are seeing the emergence of repeat business. For 2003, the growth in
underbalanced services is likely to be the Middle East, Latin America and U.S.
tight gas reservoirs. Overall, we expect revenues from our technology products
to grow more than 50% from 2002 levels.

Based on our market expectations and our business strategies, we project
our 2003 diluted earnings per share to be in the range of $1.50 - $1.60.

Overall, the level of market improvements for our businesses in 2003 will
continue to be heavily dependent on the timing and strength of the recovery in
the North American markets, our gains in market share outside North America and
the acceptance of our new technologies. The speed and extent of any recovery in
the North American markets is difficult to predict in light of continued
economic uncertainty. In addition, the continued strength of the industry is
uncertain and will be highly dependent on many external factors, such as world
economic and political conditions, member country quota compliance within OPEC
(Organization of Petroleum Exporting Countries) and weather conditions. The
extreme volatility of our markets makes predictions regarding future results
difficult.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of
operation is based upon our consolidated financial statements. We prepare these
financial statements in conformity with accounting principles generally accepted
in the United States. As such, we are required to make certain estimates,
judgments 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 periods presented. We base our estimates on
historical experience, available information and various other assumptions we
believe to be reasonable under the circumstances. On an on-going basis, we
evaluate our estimates; however, actual results may differ from these estimates
under different assumptions or conditions. The accounting policies we believe
require management's most difficult, subjective or complex judgments and are the
most critical to our reporting of results of operations and financial position
are as follows:

ACCOUNTS RECEIVABLE

We perform ongoing credit evaluations of our customers and adjust credit
limits based upon payment history and the customer's current credit worthiness
as determined by our review of their current credit information. We continuously
monitor collections and maintain a provision for estimated uncollectible
accounts based upon our historical experience and any specific customer
collection issues we have identified. While such credit losses have historically
been within our expectations and the provisions established, we cannot give any
assurances we will continue to experience the same credit loss rates we have in
the past. The cyclical nature of our industry may affect our customers'
operating performance and cash flows, which could impact our ability to collect
on these obligations. In addition, many of our customers are located in certain
international areas that are inherently subject to risks of economic, political
and civil instabilities, which may impact our ability to collect these accounts
receivable.

EQUITY INVESTMENTS

Our equity investments in unconsolidated subsidiaries primarily include our
investment in Universal. We review our equity investments for impairment and
record an adjustment when we believe the decline in fair value is other than
temporary. The fair value of the asset is measured using quoted market prices
or, in the absence of quoted market prices, fair value is based on an estimate
of discounted cash flows. In determining whether the decline is other than
temporary we consider the cyclical nature of the industry in which the

23

investment operates, its historical performance, its performance in relation to
its peers and the current economic environment. During the third quarter of
2002, we determined the decline in fair value of Universal was other than
temporary. We recorded a write-down in our investment of $217.1 million, $146.2
million net of taxes. We will continue to monitor the fair value of our
investments for impairment and will record an adjustment if we believe a decline
is other than temporary.

BUSINESS COMBINATIONS AND GOODWILL AND INDEFINITE-LIVED INTANGIBLE ASSETS

Goodwill and intangible assets acquired in connection with business
combinations represent the excess of consideration over the fair value of
tangible net assets acquired. Certain assumptions and estimates are employed in
determining the fair value of assets acquired, the fair value of liabilities
assumed, as well as in determining the allocation of goodwill to the appropriate
reporting unit.

In accordance with Statement of Financial Accounting Standard ("SFAS") No.
142, Goodwill and Other Intangible Assets we no longer amortize goodwill and
indefinite-lived intangible assets. We perform an impairment test for goodwill
and indefinite-lived intangible assets annually, or earlier if indicators of
potential impairment exist. Our goodwill impairment test involves a comparison
of the fair value of each of our reporting units with their carrying value. Our
impairment test for indefinite-lived intangible assets involves the comparison
of the fair value of the intangible asset and its carrying value. The fair value
is determined using discounted cash flows and other market-related valuation
models. Certain estimates and judgements are required in the application of the
fair value models. We have determined no impairment exists; however, if for any
reason the fair value of our goodwill or that of any of our reporting units or
the fair value of our intangible assets with indefinite lives declines below the
carrying value in the future, we may incur charges for the impairment.

LONG-LIVED ASSETS

Long-lived assets, which include property, plant and equipment,
definite-lived intangibles and other assets comprise a significant amount of our
total assets. In accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, long-lived assets to be held and used by us are
reviewed to determine whether any events or changes in circumstances indicate
the carrying amount of the asset may not be recoverable. For long-lived assets
to be held and used, we base our evaluation on impairment indicators such as the
nature of the assets, the future economic benefit of the assets, any historical
or future profitability measurements and other external market conditions or
factors that may be present. If such impairment indicators are present or other
factors exist that indicate the carrying amount of the asset may not be
recoverable, we determine whether an impairment has occurred through the use of
an undiscounted cash flows analysis of the asset at the lowest level for which
identifiable cash flows exist. If an impairment has occurred, we recognize a
loss for the difference between the carrying amount and the estimated fair value
of the asset. The fair value of the asset is measured using quoted market prices
or, in the absence of quoted market prices, is based on an estimate of
discounted cash flows.

SELF-INSURANCE

We are self-insured up to certain levels for general liability, vehicle
liability, group medical and for workers' compensation claims for certain of our
employees. The amounts in excess of the self-insured levels are fully insured.
We accrue for self-insurance accruals based on claims filed and an estimate for
significant claims incurred but not reported. We regularly review estimates of
reported and unreported claims and provide for losses through insurance
reserves. Although we believe adequate reserves have been provided for expected
liabilities arising from our self-insured obligations, it is reasonably possible
our estimates of these liabilities will change over the near term as
circumstances develop.

INCOME TAXES

We provide for income taxes in accordance with SFAS No. 109, Accounting for
Income Taxes. This standard takes into account the differences between
financial statement treatment and tax treatment of certain

24

transactions. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect of a change in
tax rates is recognized as income or expense in the period that includes the
enactment date. We operate in various legal forms and in numerous taxing
jurisdictions. As a result, changes in tax laws and our level of operations or
profitability in each taxing jurisdiction could impact the amount of income tax
expense we provide during any given year.

VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS

We record a valuation allowance to reduce our deferred tax assets when it
is more likely than not that some portion or all of the deferred tax assets will
expire before realization of the benefit or that future deductibility is not
probable. The ultimate realization of the deferred tax assets depends on the
ability to generate sufficient taxable income of the appropriate character in
the future. This requires us to use estimates and make assumptions regarding
significant future events such as the taxability of entities operating in the
various taxing jurisdictions.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

The following charts contain selected financial data comparing our results
from operations for 2002 and 2001:

Comparative Financial Data

A discussion of our results for 2002 as compared to 2001 is as follows:

- Consolidated revenues were flat year over year. The incremental revenues
from our technology products, specifically our underbalanced drilling
services, expandables and intelligent completions, and acquisitions were
offset by the impact of deteriorated market conditions, primarily in the
U.S. The impact of these factors is as follows:

- Our technology products increased approximately $60 million. Our
technology products have grown to contribute 11.8% of consolidated
revenue compared to 9.2% in 2001.

- Our international revenues improved 18.0% compared to a relatively flat
average annual international rig count. Technology product sales and
acquisitions contributed to the increase. Our acquisitions contributed
more than $107 million to our international revenue growth. Most regions
experienced significant gains led by the Middle East and North Africa
region where revenues improved nearly 30%, excluding the impact of
acquisitions.

- Our North American revenues decreased 14.6%. We were negatively impacted
by a decline of 26.9% in the average annual rig count, which more than
offset incremental contributions of more than $85 million from
acquisitions.

- Gross profit percentage decreased from 36.4% in 2001 to 32.1% in 2002,
primarily due to lower volumes and pricing pressures in a depressed U.S.
market and a shift in our product mix.

- Research and development expenses increased 56.7% primarily due to costs
incurred to develop our technology-related product lines. We continue to
focus on investing in the development of technology-based products that
considerably improve the drilling and exploration process through
increased efficiency.

- Selling, general and administrative expenses attributable to the segments
decreased as a percentage of revenue from 15.8% in 2001 to 15.0% in 2002.
This decrease is primarily related to the non-amortization of goodwill in
2002, partially offset by an increase in intangible amortization in 2002.
Goodwill amortization attributable to segments in 2001 was $36.1 million.

- Corporate general and administrative expense increased $4.4 million from
2001 due to $4.5 million of transaction costs related our corporate
reorganization.

- In 2002, our interest expense increased $11.5 million from 2001 primarily
due to a full year of interest for our $350 million 6 5/8% Senior Notes
issued in November of 2001, partially offset by the incremental benefit
generated by our interest rate swaps on our $200 million 7 1/4% Senior
Notes and lower interest rates on floating rate debt.

- In 2002, our other income increased $7.2 million primarily due to an
increase in voluntary sales of assets and sales of businesses of $11.4
million.

26

- Our effective tax rate on net income in 2002, excluding the impact of the
non-recurring charge and write-down in our investment in Universal was
approximately 32.3% compared to 36.3% in 2001. The change is primarily
due to the impact of non-amortization of goodwill on earnings before tax
in 2002, benefits of our corporate reorganization and the favorable
settlement of several audits in various taxing jurisdictions.

Segment Results

DRILLING AND INTERVENTION SERVICES

Our Drilling and Intervention Services Division experienced a decline in
total revenue by approximately 5%, despite strong improvements in international
revenue and contributions from acquisitions. In the fourth quarter of 2001, the
U.S. market started to weaken and we experienced the beginnings of lower volume
and pricing pressures which continued throughout 2002. This division, which
derived 45% of its revenues from the U.S. in 2001, experienced a decline in U.S.
revenues of 28% in 2002 compared to 2001 excluding the benefits of acquisitions.
This market-led decline impacted this division's revenues and overall
profitability due to lower volumes to cover fixed costs and lower pricing. On an
international basis, our Drilling and Intervention Services Division experienced
improvements in nearly all markets, particularly in the Middle East and North
Africa region.

This division's results also benefited from acquisitions in 2002. In the
fourth quarter of 2002 we acquired Clearwater International based in
Pennsylvania. This acquisition provides our Drilling and Intervention Services
Division with key proprietary products and fluid technology for its
underbalanced drilling services as well as it's pipeline and specialty services
business. We also acquired other small entities in 2002, which benefited this
division along with the full year incremental revenues from our 2001
acquisitions integrated into this division. Acquisitions contributed more than
$50 million in incremental revenue in 2002, $17 million in North America and $33
million internationally.

The following chart sets forth data regarding the results of our Drilling
and Intervention Services Division for 2002 and 2001:

- ---------------

(a) Includes $2.0 million of non-recurring charges related to severance and
asset impairment.

- In 2002, this division's revenues decreased 5.2% from 2001 levels.
International revenues improved 16.1% compared to a decline of 1.7% in
the average annual rig count. Excluding the impact of acquisitions, gains
were primarily made in the Middle East and North Africa region, 31.1%,
and the Asia Pacific region, 29.8%. North American revenues declined
$174.0 million, or 25.0% due to an average annual rig count decline of
26.9%.

- Gross profit as a percentage of revenue declined from 37.6% in 2001 to
30.7% in 2002 primarily due to pricing pressures and lower volumes in the
U.S. market as well as a change in product mix. This division was also
impacted by the deterioration in the United Kingdom related to E&P tax
disputes between the UK government and the North Sea operators and the
decline in Venezuelan activity.

- Selling, general and administrative expenses decreased as a percentage of
revenues from 11.9% in 2001 to 11.2% in 2002. The decline primarily
relates to the non-amortization of goodwill in 2002, partially

27

offset by costs associated with the expansion of our underbalanced
services infrastructure. Goodwill amortization expense in 2001 was $15.2
million.

COMPLETION SYSTEMS

Our Completion Systems Division's revenues improved approximately 5% in
2002 compared to 2001. The improvement was from higher technology product sales
and the incremental revenue contributions from acquisitions integrated into this
division. Johnson Screens, acquired in November 2001, was the primary source of
incremental revenue related to acquisitions. Johnson is a global provider of
screens for the fluid-solid separation process including the recently introduced
Excelflo(TM) premium screen line and the Super Flo(TM), Super Weld(R) and Thin
Pack(TM) screens for oil and gas production.

In the last half of 2002, this division pulled its 5 1/2 inch expandable
sand screen product off of the market for a re-engineering adjustment. The
product was off the market for the whole third quarter of 2002 and it was
reintroduced during the fourth quarter. All subsequent installations have been
performed with 100% success. This re-engineering affected both the sales of the
expandables and the associated pull-through sales of its core completion
products. The lower activity levels, coupled with the lower pull-through sales
in the second half of the year, resulted in core completion products
experiencing an overall decline in sales, with the exception of conventional oil
and gas screens which benefited from the acquisition of Johnson.

The following chart sets forth data regarding the results of our Completion
Systems Division for 2002 and 2001:

- ---------------

(a) Includes $6.4 million of non-recurring charges related to severance and
asset impairment.

- Revenue for 2002 increased $15.9 million, or 4.5%, from 2001 levels. Our
international revenues excluding acquisitions, improved 1.9% compared to
an average annual rig count reduction of 1.7%. The Middle East and North
Africa region experienced gains of 27.3%, nearly offset by declines in
Asia Pacific and Latin America. Excluding acquisitions, revenues in North
America decreased 16.9% compared to an average annual rig count reduction
of 26.9%. Acquisitions contributed more than $38 million, $24 million
internationally and $14 million in North America.

- Research and development expenses more than doubled in 2002 compared to
2001. The increase reflects the focus on the development of new
technology-related product lines, specifically expandables and
intelligent completion.

- Selling, general and administrative expenses as a percentage of revenue
decreased to 18.7% in 2002 from 19.8% in 2001 primarily due to the
non-amortization of goodwill in 2002, offset by an increase in the
intangible amortization. Goodwill amortization expense for 2001 was $10.5
million and the incremental intangible amortization in 2002 was $7.6
million.

ARTIFICIAL LIFT SYSTEMS

Our Artificial Lift Systems Division was stronger in 2002 as compared to
2001 primarily due to the incremental revenues associated with the late 2001
acquisitions integrated into this division and gains made internationally.
Acquisitions contributed more than $105 million in revenue, primarily related to
the non-oil and gas screens businesses from our acquisition of Johnson. This
division's lift systems revenues declined 17%

28

due to the decline in the North American markets, where it derives more than 70%
of this form of revenue. Lift systems include reciprocating rod lift, gas lift,
progressing cavity pumps, electric submersible pumps and hydraulic pumps.

The following chart sets forth data regarding the results of our Artificial
Lift Systems Division for 2002 and 2001:

- ---------------

(a) Includes $7.2 million of non-recurring charges related to severance and
asset impairment.

- Revenues increased 13.3%, or decreased 4.1% excluding incremental
revenues from acquisitions, in 2002 compared to 2001. North American
revenues excluding the impact of acquisitions decreased 8.7% compared to
an annual average rig count reduction of 26.9%. International revenues on
the same basis improved 5.1%, while the annual average international rig
count declined slightly. Revenues in the Eastern Hemisphere improved more
than $25 million, partially offset by declines in Latin America of nearly
$15 million.

- Gross profit as a percentage of revenue decreased from 36.1% in 2001 to
34.7% in 2002, primarily due to product mix and pricing pressures in the
depressed U.S. market.

- Selling, general and administrative expenses as a percentage of revenue
declined from 22.0% in 2001 to 20.1% in 2002 primarily due to the
non-amortization of goodwill in 2002. Goodwill amortization in 2001 was
$9.5 million.

29

NON-RECURRING AND ASSET IMPAIRMENT CHARGE

During 2002, we recorded $15.4 million, $10.0 million net of taxes, in
non-recurring and asset impairment charges related to a rationalization of our
businesses in light of industry conditions. We undertook initiatives to
rationalize our business in light of the lower activity levels and the continued
economic uncertainty. Initiatives approved during 2002 included a reduction in
workforce, primarily in the United States, and closure of two facilities. The
charge related to these initiatives is summarized by division in the following
table and described in greater detail below:

- ---------------

(1) In accordance with our announced plan to terminate employees company-wide,
we recorded severance and related costs for 849 specifically identified
employees. As of December 31, 2002, 439 employees had been terminated with
the remainder expected to be completed in the first half of 2003.

(2) The asset impairment primarily relates to the write-down of equipment and
facilities which are held for sale as a result of the decline in market
conditions. These assets, having a carrying amount of $7.7 million, have
been reclassified in Other Current Assets on our Consolidated Balance Sheet
as of December 31, 2002. We anticipate the assets will be sold by September
30, 2003.

(3) In 2000, we recorded a non-recurring charge of $56.3 million in connection
with the merger of our Compression Services Division with Universal of which
$4.7 million of estimated transaction costs were not incurred.

IMPAIRMENT OF INVESTMENT IN UNIVERSAL

On February 9, 2001, we completed the merger of essentially all of our
Compression Services Division into a subsidiary of Universal in exchange for
13.75 million shares of Universal common stock, which approximated 48% of
Universal's then outstanding shares. Following the merger, Universal, in an
unrelated transaction, issued additional shares of common stock reducing our
ownership to 45%. We retained part of the Compression Services Division, namely
our Singapore-based GSI business, which is now consolidated within our
Artificial Lift Systems Division, and $10.0 million in accounts receivable.

In the third quarter of 2002, we recorded a write-down of our investment in
Universal of $217.1 million as we determined that the decline in the market
value was other than temporary. In connection with the reduction in the carrying
value of this investment, we recognized a tax benefit of $70.9 million, reducing
the deferred tax liability related to the difference between the book carrying
value and the tax basis of the investment. As of December 31, 2002, our carrying
value of our investment in Universal was $276.0 million and the market value of
our ownership interest in Universal was $263.0 million. We currently do not
believe that this decline in the market value is other than temporary.

30

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

The following charts contain selected financial data comparing our results
from continuing operations for 2001 and 2000:

Comparative Financial Data

- ---------------

(a) Includes $56.3 million of impairment charges related to the merger of
essentially all of our Compression Services Division into Universal. The
net after tax impact of these charges was $43.0 million.

(b) Includes $76.5 million of deferred tax liability associated with the
difference between our book basis in our Compression Services Division and
the tax basis of the common stock of Universal received in connection with
the merger of our Compression Services Division into Universal.

Sales by Geographic Region

Our results from continuing operations for 2001 as compared to 2000 were
affected by the following specific items:

- Excluding the results of our Compression Services Division, revenues
increased $722.4 million, or 45.7%, from 2000 levels. This incremental
revenue is the result of improved market conditions, pricing initiatives,
acquisitions and new technology product lines. The impact of these
factors is as follows:

- Our North American revenues improved 30.9%, reflecting the benefits of
an increased average annual rig count of 18.8% and contributions of more
than $57 million from 2001 acquisitions.

31

- Our international revenues improved 68.9% compared to an average annual
international rig count increase of 14.9%. Our 2001 acquisitions
contributed more than $107 million to our international revenue growth.
All geographic regions experienced strong gains, particularly Asia
Pacific, where revenues excluding acquisitions grew 87.4%.

- Our technology product lines, including underbalanced services,
expandables and intelligent completion, increased $114.8 million.

- Gross profit percentage increased from 32.3% in 2000 to 36.4% in 2001,
primarily due to volume and pricing gains in all of our divisions.

- Selling, general and administrative expenses attributable to the segments
decreased as a percentage of revenue from 18.4% in 2000 to 15.8% in 2001.
This decrease is primarily attributable to a higher revenue base, which
was partially offset by an increase in selling and marketing expenses of
$11.2 million.

- Corporate general and administrative expense increased $2.7 million from
2000; however, it remained relatively flat as a percentage of revenue on
a year over year basis.

- Our equity in earnings in 2001 increased $18.1 million from 2000 due to
our investment in Universal.

- In 2001, our interest expense increased $14.7 million from 2000 due to a
full year of amortization of original issue discount on our Zero Coupon
Convertible Senior Debentures and higher average short-term borrowings
mitigated by lower average interest rates.

- Our effective tax rate on income from continuing operations for 2001 and
2000, excluding the impact of the charges recorded related to the merger
of our Compression Services Division into Universal, was approximately
36.3%.

Segment Results

DRILLING AND INTERVENTION SERVICES

The following chart sets forth data regarding the results of our Drilling
and Intervention Services Division for 2001 and 2000:

- In 2001, this division's revenues improved 51.6% from 2000 levels. North
American revenues were impacted by an average annual rig count increase
of 18.8% and improved technology revenues from our underbalanced services
of $23.7 million. International revenues improved 73.5%, reflecting the
benefits of the 14.9% average annual rig count improvement, contributions
from acquisitions of more than $80 million and the international growth
of our underbalanced services of almost $50 million.

- Gross profit as a percentage of revenue increased primarily due to
pricing initiatives put into place in the second half of 2000 and in the
first quarter of 2001 and higher utilization of assets.

- Selling, general and administrative expenses decreased as a percentage of
revenues from 14.4% in 2000 to 11.9% in 2001. The decrease primarily
reflects a higher revenue base, which was partially offset by increased
selling costs attributable to the higher sales. We also incurred $5.3
million of additional goodwill and intangible amortization expense for
this division.

32

COMPLETION SYSTEMS

The following chart sets forth data regarding the results of our Completion
Systems Division for 2001 and 2000:

- Revenue for 2001 increased $132.6 million, or 60.8%, from 2000 levels.
Revenues in North America increased $55.2 million due to an average
annual rig count increase of 18.8% and contributions from acquisitions of
more than $11 million. Our international revenues, excluding expandables
and acquisitions, improved 31.0%. The average annual international rig
count increase of 14.9%, increased expandables revenue of $40.7 million
and revenues from acquisitions of more than $4.5 million all contributed
to the incremental international revenue.

- Gross profit as a percentage of revenue increased from 28.7% in 2000 to
33.6% in 2001 due to pricing initiatives, higher throughput in the
manufacturing facilities and product mix.

- Selling, general and administrative expenses as a percentage of revenue
decreased to 19.8% in 2001 from 26.4% in 2000 primarily due to a higher
revenue base, which was partially offset by higher employee costs
associated with our efforts to expand this division.

ARTIFICIAL LIFT SYSTEMS

The following chart sets forth data regarding the results of our Artificial
Lift Systems Division for 2001 and 2000:

- Revenues increased 28.0% primarily due to acquisitions, increased volume
and pricing initiatives. Our 2001 acquisitions contributed close to $67
million. Excluding acquisitions, our U.S. revenue improved 23.7% and Asia
Pacific revenue more than doubled.

- Gross profit as a percentage of revenue improved 7.4% from 2000,
primarily due to pricing initiatives and product mix.

- Selling, general and administrative expenses as a percentage of revenue
declined from 22.7% in 2000 to 22.0% in 2001 primarily due to a higher
revenue base and the rationalization of distribution centers, which was
partially offset by increased selling costs associated with the
incremental revenues.

COMPRESSION SERVICES AND THE UNIVERSAL TRANSACTION

In connection with the merger with Universal, we recorded impairment
charges in 2000 of $56.3 million, $43.0 million after taxes, and provided for
deferred taxes of $76.5 million due to the exchange of a

33

consolidated subsidiary for an equity method investment. The impairment charge
reflects the difference between the estimated fair value of net assets held for
sale and the net book value of our Compression Services Division assets, less
estimated costs to sell. The estimated fair value of assets held for sale was
determined using quoted market prices and estimated selling prices. Concurrent
with the transaction, we paid GE Capital $206.5 million for its 36% ownership in
the joint venture in which our Compression Services Division operated.

We also entered into a Registration Rights Agreement in connection with the
merger with Universal, pursuant to which we were granted certain demand and
piggyback registration rights for our shares of Universal common stock. Pursuant
to the terms of the merger agreement, we also appointed three members to
Universal's Board of Directors. As long as we own at least 20% of Universal's
outstanding common stock, we have the right to designate three board members. If
our ownership interest falls below 20%, we may designate only two directors to
serve on Universal's Board of Directors. As of December 31, 2002, we had
appointed three of Universal's eight board members, including our Chairman,
President and Chief Executive Officer and our Chief Financial Officer.

During 2000, our Compression Services Division contributed $234.8 million
in revenue. Including $37.8 million of the charge recorded in 2000, this
division reported an operating loss of $9.6 million during 2000. During 2001, up
to the merger date, our Compression Services Division contributed $26.9 million
of revenues and an operating loss of $0.6 million. Subsequent to the merger, we
began recording equity in earnings of unconsolidated affiliates based on our
portion of Universal's net income. The difference between the cost basis of our
investment and the fair value in the net assets of Universal at the time of the
merger was $152.5 million and was amortized during 2001 on a straight-line basis
with a 40-year life through equity in earnings of unconsolidated affiliates.

DISCONTINUED OPERATIONS

Our discontinued operations consist of our Grant Prideco Drilling Products
Division, which was spun-off to our shareholders in April 2000. We had a loss
from discontinued operations, net of taxes, for the period ended April 14, 2000
of $3.5 million. Included in this loss was $1.0 million of transaction costs,
net of taxes.

LIQUIDITY AND CAPITAL RESOURCES

HISTORICAL CASH FLOWS

Our historical cash flows for the two years ended December 31, 2002 were as
follows:

SOURCES OF LIQUIDITY

Our current sources of capital are current reserves of cash, cash generated
from operations, proceeds from our asset securitization and borrowings under
bank lines of credit.

34

Our operating cash flow is directly related to our business and the
segments in which we operate. Should market conditions deteriorate, or should we
experience unforeseen declines in results of operations, cash flows may be
reduced.

Cash flow from operations is expected to be our primary source of liquidity
in 2003. We anticipate cash flows from operations, combined with existing credit
facilities, will provide sufficient capital resources and liquidity to manage
our operations, meet debt obligations and fund projected capital expenditures.
However, we are continually reviewing acquisitions in our markets. Depending on
the size and timing of an acquisition, we could require additional capital in
the form of either debt, equity or both.

The following summarizes our borrowings and availability on our short-term
financing facilities.

- ---------------

(1) Banking Facilities

In April 2001, we entered into a $250.0 million, three-year multi-currency
revolving credit facility, with commitment capacity of up to $400.0 million.
Interest accrues at a variable rate based on the borrower's applicable
Eurocurrency rate.

In May 1998, we put in place a five-year unsecured revolving credit
facility that allows us to borrow up to $200.0 million in our U.S. credit
facility and up to $50.0 million in our Canadian credit facility. Borrowings
under this facility bear interest at a variable rate based on the U.S. prime
rate or LIBOR. We are pursuing alternative financing prior to the May 2003
expiration of this facility.

Our credit facilities contain customary affirmative and negative covenants,
including a maximum debt to capitalization ratio, a minimum interest coverage
ratio, a limitation on liens, a limitation on incurrence of indebtedness and a
limitation on asset dispositions. The covenants apply to Weatherford
International Ltd., the guarantor of these obligations. We are in compliance
with all covenants set forth in the credit facilities. The committed revolving
credit facilities do not contain any provision which makes their availability
dependent upon our credit ratings, however, the interest rates are dependent
upon the credit rating of our long-term senior debt.

We also have unsecured short-term borrowings with various institutions
pursuant to uncommitted facilities. At December 31, 2002, we had $75.3 million
in unsecured short-term borrowings outstanding under these arrangements with
interest rates ranging from 1.50% to 13.50%. Our weighted average interest rate
for our unsecured short-term borrowings was 3.56% during 2002.

(2) Asset Securitization

In 2001, we entered into an agreement with a financial institution to sell,
on a continuous basis, an undivided interest in a specific pool of our current
domestic accounts receivables. Pursuant to this agreement, we periodically sell
certain trade accounts receivable to a wholly-owned bankruptcy-remote
subsidiary. The subsidiary was formed to purchase accounts receivable and, in
turn, sell participating interests in such accounts receivable to a financial
institution. The sale of participating interests is limited to a percentage of
receivables sold to the subsidiary. In accordance with SFAS No. 140, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, the related receivables are removed from the Consolidated Balance
Sheets and the subsidiary records a retained interest for the amount of
receivables sold in excess of cash received. Our retained interest in the
receivables pool is valued based on the recoverable value. We have retained
servicing responsibilities and a subordinated interest in the receivables sold.
There is no recourse against us for failure of debtors to pay when due on
account of debtor's bankruptcy or inability to pay, and our retained interest in
the receivables pool is subordinate to the investors' interests. We are

35

permitted to securitize up to $75.0 million under this agreement. If our credit
rating falls below BBB- from Standard & Poor's or Baa3 from Moody's, the
financial institution has no further obligation to purchase our accounts
receivable. We currently pay a program fee on participating interests at a
variable rate based on the financial institution's commercial paper rate plus
other fees. This agreement has been extended through December 2003.

CONTRACTUAL OBLIGATIONS

The following summarizes our contractual cash obligations and contingent
commitments.

- ---------------

(1) Short-term Debt

At December 31, 2002, we had $274.9 million in borrowings under revolving
credit facilities and $75.3 million in unsecured short-term borrowings
outstanding under the uncommitted facilities.

(2) Senior Notes and Derivative Instruments

On November 16, 2001, we issued $350.0 million Senior Notes due November
15, 2011. Interest on the 6 5/8% Senior Notes is payable semi-annually on May 15
and November 15.

We have outstanding $200.0 million of publicly traded 7 1/4% Senior Notes
due May 15, 2006. Interest on the 7 1/4% Senior Notes is payable semi-annually
on May 15 and November 15. During 2002, we had two interest rate swap agreements
to reduce the exposure on our $200.0 million Senior Notes. The objective of the
swaps was to protect the debt against changes in fair value and to take
advantage of the interest rates then available. In October 2002, we terminated
both swap agreements and received $13.9 million in cash as settlement. The cash
received was recorded against the fair value of the agreements at the time of
settlement and the resulting gain will be amortized over the remaining life of
the 7 1/4% Senior Notes as a reduction to interest expense.

(3) Other Long-term Debt

As of December 31, 2002, we had various other debt outstanding of $24.1
million, primarily related to foreign bank and other debt and capital leases.

(4) Letters of Credit

We also execute letters of credit in the normal course of business. While
these obligations are not normally called, it should be noted that these
obligations could be called at anytime prior to the expiration date. The letters
of credit classified as due after five years do not have a maturity date.

Other Commitments

In connection with the corporate reorganization, Weatherford International
Ltd. fully and unconditionally guaranteed the following obligations of
Weatherford International, Inc.: (1) the three-year multi-currency revolving
credit facility, (2) the five-year unsecured credit agreement, (3) the 7 1/4%
Senior Notes, (4) the 6 5/8% Senior Notes, (5) the Zero Coupon Debentures and
(6) the Convertible Preferred Debentures. In addition, we and Weatherford
International, Inc. fully and unconditionally guaranteed certain domestic
subsidiaries' performance obligations relating to the asset securitization,
including their payment obligations.

36

Capital Expenditures

Our capital expenditures for 2002 were $268.7 million and primarily related
to our new technologies, drilling equipment, fishing tools and tubular service
equipment. During 2002, we received proceeds of approximately $21 million from
tools lost down hole. Capital expenditures in 2003 are expected to be
approximately $250.0 million, of this amount approximately $125 million is for
betterments and improvements and $125 million is for growth.

Shell License

On February 28, 2002, we issued a warrant to purchase approximately 3.2
million of our common shares at $60 per share, with a nine-year exercisable life
beginning one year after the issue date. The warrant holder may exercise the
warrant and settlement may occur through physical delivery, net share
settlement, net cash settlement or a combination thereof. The warrant also may
be converted into common shares at any time after the third anniversary of the
issue date. We issued these warrants to Shell as partial consideration for a
worldwide license to Shell Technology Ventures' expandable technology.
Expandable technology refers to both slotted and solid expandables, related
tools and accessories and specialized expansion systems. Under the terms of the
agreement, we received a global license to Shell's existing and future
expandable tubular intellectual property and immediate access to the U.S. market
for use of our Completion Systems Division's Expandable Sand Screen (ESS(TM))
system. Additional consideration includes $65.0 million in cash and a $20.0
million promissory note which was paid in December 2002. We also received a 50%
reduction in the royalty rate we historically paid for Shell licensed technology
sales. The license is being amortized over the life of the agreement, which is
17 years.

In addition to the aforementioned cash obligations, we have contractual
obligations related to our debentures, which may be settled in cash, equity or a
combination thereof as follows:

Zero Coupon Convertible Senior Debentures

On June 30, 2000, we completed the private placement of $910.0 million face
amount of our Zero Coupon Convertible Senior Debentures. These debentures were
issued at $501.6 million providing the holders with an annual 3% yield to
maturity. As of December 31, 2002, the accreted amount was $540.4 million.

Holders may convert the Zero Coupon Convertible Senior Debentures into our
common shares at any time before maturity at a conversion rate of 9.9970 shares
per $1,000 principal amount at maturity or an initial conversion price of
$55.1425 per common share. The effective conversion price will increase as the
accreted value of the Zero Coupon Convertible Senior Debentures increases. We
may redeem the Zero Coupon Convertible Senior Debentures on or after June 30,
2005 at the accreted amount at the time of redemption as provided for in the
indenture agreement. The holders also may require us to repurchase the Zero
Coupon Convertible Senior Debentures on June 30, 2005, June 30, 2010 and June
30, 2015 at the accreted amount. The accreted value will be $582.2 million,
$675.6 million and $784.1 million as of June 30, 2005, 2010 and 2015,
respectively. We may, at our election, repurchase the debentures in cash, common
shares or a combination thereof. The Zero Coupon Convertible Senior Debentures
are unsecured, ranking equal in right of payment with all other unsecured and
unsubordinated indebtedness and will rank senior to any future subordinated
indebtedness.

Convertible Preferred Debentures

In November 1997, we sold $402.5 million principal amount of our 5%
Convertible Subordinated Preferred Equivalent Debentures due 2027. The
Convertible Preferred Debentures bear interest at an annual rate of 5%, paid
quarterly starting February 1, 1997, and are convertible into our common shares.
The conversion rate, as adjusted for our spin-off of Grant Prideco, is $53.34
per share.

We have the right to redeem the Convertible Preferred Debentures at
redemption prices provided for in the indenture. The Convertible Preferred
Debentures are subordinated in right of payment of principal and interest to the
prior payment in full of certain existing and all future senior indebtedness. We
also have the

37

right, but have not exercised such right, to defer payments of interest on the
Convertible Preferred Debentures by extending the quarterly interest payment
period for up to 20 consecutive quarters at any time when we are not in default
in the payment of interest.

RELATED PARTY AGREEMENTS

Our Chairman, President and Chief Executive Officer is also the Chairman of
the Board of Directors of Grant Prideco. In addition, four of our directors
serve on both our and Grant Prideco's Boards of Directors. In connection with
the April 2000 spin-off of Grant Prideco, we entered into a preferred customer
agreement pursuant to which we agreed, for a three-year period, to purchase at
least 70% of our requirements of drill stem products from Grant Prideco. The
price for those products will be at a price not greater than that which Grant
Prideco sells to its best similarly situated customers. We are entitled to apply
against our purchases a drill stem credit of $30.0 million, subject to a
limitation of the application of the credit to no more than 20% of any purchase.
As of December 31, 2002, we had $16.9 million remaining of the drill stem
credit.

NEW ACCOUNTING PRONOUNCEMENTS

In August 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 143, Accounting for Asset Retirement Obligations ("SFAS No. 143"). SFAS
No. 143 addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. SFAS No. 143 applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development and/or the normal operation of a long-lived asset, except for
certain obligations of lessees. This standard requires entities to record the
fair value of a liability for an asset retirement obligation in the period
incurred. We do not anticipate the adoption of SFAS No. 143 as of January 1,
2003, will have a material effect on our consolidated financial statements.

Effective January 1, 2002, we adopted SFAS No. 144, Accounting for the
Impairment of Disposal of Long-Lived Assets, which provides updated guidance
concerning the recognition and measurement of an impairment loss for certain
types of long-lived assets and modifies the accounting and reporting of
discontinued operations. The adoption of SFAS No. 144 did not have an impact on
our consolidated financial statements. During 2002, we sold three businesses. We
determined that the discontinued operations provisions of SFAS No. 144 did not
apply to these transactions as neither the proceeds from the sale nor the
business' financial position or results of operations were material.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections.
SFAS No. 145, which is effective for fiscal years beginning after May 15, 2002,
provides guidance for income statement classification of gains and losses on
extinguishment of debt and accounting for certain lease modifications that have
economic effects that are similar to sale-leaseback transactions. We do not
believe the adoption of this statement will have a material impact on our
consolidated financial statements.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 requires companies to recognize
costs associated with restructurings, discontinued operations, plant closings,
or other exit or disposal activities, when incurred as opposed to when the
entity commits to an exit plan under Emerging Issues Task Force No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring). The
provisions of this statement are effective for exit or disposal activities
initiated after December 31, 2002. We plan to adopt the standard as of the
effective date and will implement its provisions on a prospective basis.

In November 2002, FASB Interpretation ("FIN") No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others ("FIN No. 45") was issued. FIN No. 45
requires a guarantor to recognize, at the inception of a guarantee, a liability
for the fair value of the obligation undertaken in issuing the guarantee. FIN
No. 45 also expands the disclosures required to be made by a guarantor about its
obligation under certain guarantees that is has issued. Initial recognition and
measurement provisions of FIN No. 45 are applicable on a prospective basis to
guarantees issued or
38

modified. The disclosure requirements are effective immediately. We do not
expect FIN No. 45 to have a material effect on our consolidated financial
statements.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation -- Transition and Disclosure ("SFAS No. 148"). SFAS No. 148 amends
SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. SFAS No. 148 is effective for fiscal years beginning
after December 15, 2002. The interim disclosure provisions are effective for
financial reports containing financial statements for interim periods ending
after December 15, 2002. The adoption of SFAS No. 148 did not have an effect on
our financial position, results of operations, or cash flows.

In January 2003, FIN No. 46, Consolidation of Variable Interest Entities
("FIN No. 46") was issued. FIN No. 46 requires that companies that control
another entity through interests other than voting interests should consolidate
the controlled entity. FIN No. 46 applies to variable interest entities created
after January 31, 2003, and applies in the first interim period beginning after
June 15, 2003 to variable interest entities created before February 1, 2003. The
related disclosure requirements are effective immediately. We are currently
evaluating the impact this interpretation will have on our consolidated
financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We are currently exposed to market risk from changes in foreign currency
and changes in interest rates. A discussion of our market risk exposure in
financial instruments follows.

FOREIGN CURRENCY EXCHANGE RATES

Because we operate in virtually every oil and gas exploration and
production region in the world, we conduct a portion of our business in
currencies other than the U.S. dollar. The functional currency for most of our
international operations is the applicable local currency. Although most of our
international revenues are denominated in the local currency, the effects of
foreign currency fluctuations are partly mitigated because local expenses of
such foreign operations are also generally denominated in the same currency.

Assets and liabilities of which the functional currency is the local
currency are translated using the exchange rates in effect at the balance sheet
date, resulting in translation adjustments that are reflected as accumulated
other comprehensive loss in the shareholders' equity section on our Consolidated
Balance Sheets. Approximately 30.0% of our net assets are impacted by changes in
foreign currencies in relation to the U.S. dollar. We recorded a $29.3 million
adjustment to our equity account for the year ended December 31, 2002 to reflect
the net impact of the strengthening in various foreign currencies against the
U.S. dollar.

INTEREST RATES

We are subject to interest rate risk on our long-term fixed interest rate
debt and, to a lesser extent, variable-interest rate borrowings. Our long-term
borrowings subject to interest rate risk primarily consist of the $350.0 million
principal of the 6 5/8% Senior Notes due 2011, $200.0 million principal of the
7 1/4% Senior Notes due 2006, the $402.5 million principal of the 5% Convertible
Subordinated Preferred Equivalent Debentures due 2027 and the $910.0 million
Zero Coupon Senior Convertible Debentures due 2020. Changes in interest rates
would, assuming all other things being equal, cause the fair market value of
debt with a fixed interest rate to increase or decrease, and thus increase or
decrease the amount required to refinance the debt. As of December 31, 2002 and
2001, the fair value of the 6 5/8% Senior Notes was $383.4 million and $332.5
million, respectively. The fair value of the 7 1/4% Senior Notes was $222.8
million and $209.5 million as of December 31, 2002 and 2001, respectively. The
fair value of both Senior Notes is principally dependent on changes in
prevailing interest rates. As of December 31, 2002 and 2001, the fair market
value of the Convertible Preferred Debentures was $385.8 million and $347.1
million, respectively, and the fair market value of the Zero Coupon Convertible
Debentures was $588.1 million and $534.5 million, respectively. The
39

fair value of the Convertible Preferred Debentures and the Zero Coupon
Debentures are principally dependent on both prevailing interest rates and our
current share price as it relates to the conversion price of $53.34 per common
share and $55.1425 per common share, respectively.

We have various other long-term debt instruments but believe that the
impact of changes in interest rates in the near term will not be material to
these instruments. Short-term borrowings of $350.2 million at December 31, 2002
and $163.5 million at December 31, 2001 approximate fair market value.

40

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

41

REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Directors
Weatherford International Ltd.

We have audited the accompanying consolidated balance sheets of Weatherford
International Ltd., the successor of Weatherford International, Inc., and
Subsidiaries as of December 31, 2002 and 2001, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
two years in the period ended December 31, 2002. Our audits also included the
accompanying financial statement schedule listed in the Index at Item 15(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits. The consolidated financial
statements of Weatherford International, Inc. as of December 31, 2000 and for
the year then ended were audited by other auditors who have ceased operations.
Those auditors expressed an unqualified opinion on those consolidated financial
statements in their report dated March 16, 2001.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Weatherford
International Ltd. and Subsidiaries at December 31, 2002 and 2001, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

As discussed in Note 10 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" ("SFAS No. 142") in 2002.

As discussed above, the financial statements of Weatherford International,
Inc. as of December 31, 2000, and for the year then ended were audited by other
auditors who have ceased operations. As described in Notes 1 and 10, these
financial statements have been revised. We audited the reclassification
adjustments described in Note 1 -- Reclassifications that were applied to revise
the 2000 financial statements. We also applied audit procedures to the
transitional disclosures required by SFAS No. 142 in Note 10 with respect to
2000. Our audit procedures included (a) agreeing the previously reported net
loss from continuing operations and reported loss from discontinued operations
to the previously issued financial statements, (b) agreeing the adjustments to
reported net loss from continuing operations and reported net loss from
discontinued operations representing amortization expense (net of tax effect)
recognized in 2000 related to goodwill to the Company's underlying records
obtained from management, and (c) testing the mathematical accuracy of the
reconciliation of adjusted net loss to reported loss from continuing operations,
and the related loss per share amounts. In our opinion, such reclassification
adjustments and disclosures are appropriate and have been properly applied.
However, we were not engaged to audit, review, or apply any procedures to the
2000 financial statements of the Company other than with respect to such
reclassification adjustments and disclosures and, accordingly, we do not express
an opinion or any other form of assurance on the 2000 financial statements taken
as a whole.

/s/ ERNST & YOUNG LLP

Houston, Texas
February 3, 2003

42

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of Weatherford International, Inc.:

We have audited the accompanying consolidated balance sheet of Weatherford
International, Inc. (a Delaware corporation) and subsidiaries as of December 31,
2000 and the related consolidated statements of operations, stockholders' equity
and cash flows for each of the two years in the period ended December 31, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Weatherford
International, Inc. and subsidiaries as of December 31, 2000, and the results of
their operations and their cash flows for each of the two years in the period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States.

Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index to financial statements is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. The schedule has been subjected to the
auditing procedures applied in our audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.

/s/ ARTHUR ANDERSEN LLP

Houston, Texas
March 16, 2001

NOTE: The report of Arthur Andersen LLP presented above is a copy of a
previously issued Arthur Andersen LLP report and said report has not been
reissued by Arthur Andersen LLP nor has Arthur Andersen LLP provided a consent
to the inclusion of its report in this Form 10-K.

43

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE)

The accompanying notes are an integral part of these consolidated financial
statements.
44

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The accompanying notes are an integral part of these consolidated financial
statements.
45

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PAR VALUE)

The accompanying notes are an integral part of these consolidated financial
statements.
46

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

The accompanying notes are an integral part of these consolidated financial
statements.
47

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Weatherford
International Ltd. (a Bermuda exempted company) ("Weatherford Limited") and all
majority-owned subsidiaries ("the Company"). All material intercompany accounts
and transactions have been eliminated in consolidation. The Company accounts for
its 50% or less-owned affiliates using the equity method of accounting as the
Company does not have voting or operational control of these affiliates.

NATURE OF OPERATIONS

The Company is one of the largest global providers of innovative mechanical
solutions, technology and services for the drilling and production sectors of
the oil and gas industry.

BASIS OF PRESENTATION

Effective June 26, 2002, Weatherford Limited became the parent holding
company of Weatherford International, Inc. ("Weatherford Inc.") following a
corporate reorganization. Upon consummation of the merger, the shares of
Weatherford Inc. common stock automatically converted into the right to receive
Weatherford Limited common shares, $1.00 par value ("Common Shares"). In the
merger, Common Shares were issued to holders of Weatherford Inc. common stock.
In the consolidated financial statements for all periods presented, the
stockholders of Weatherford Inc. are referred to as shareholders of the Company,
and as such, Weatherford Inc.'s common stock, $1.00 par value, will be referred
to as Common Shares.

In October 1999, the Board of Directors of Weatherford Inc. approved a plan
to distribute all of the outstanding shares of common stock of its wholly owned
subsidiary, Grant Prideco, Inc. (the "Spin-off"), to holders of Common Shares.
These shares were distributed at the close of business on April 14, 2000 to
shareholders of record as of March 23, 2000. In connection with and prior to the
Spin-off, the Company transferred its drilling products businesses to Grant
Prideco, Inc. ("Grant Prideco"). As a result, the accompanying financial
statements reflect the operations of Grant Prideco as discontinued operations.

RECLASSIFICATIONS

Research and development expenditures are expensed as incurred. In the 2001
and 2000 Annual Reports on Form 10-K, the Company included Research and
Development expenses as components of Cost of Products, Cost of Services and
Rentals, and Selling, General and Administrative Attributable to Segments. Such
amounts have been reclassified to conform to the 2002 presentation in the
accompanying Statement of Operations.

Reclassifications were also made to the 2001 and 2000 statements of cash
flows to conform to the 2002 presentation.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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

48

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results could differ from those estimates.

ACCOUNT RECEIVABLE AND ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS

Accounts receivable are stated at the historical carrying amount net of
write-offs and allowance for uncollectible accounts. The Company establishes an
allowance for uncollectible accounts receivable based on historical experience
and any specific customer collection issues that the Company has identified.
Uncollectible accounts receivable are written off when a settlement is reached
for an amount that is less than the outstanding historical balance or when the
Company has determined the balance will not be collected.

INVENTORIES

Inventories are valued using the first-in, first-out ("FIFO") method and
are stated at the lower of cost or market.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, both owned and under capital lease, is
carried at cost. Maintenance and repairs are expensed as incurred. The cost of
renewals, replacements and betterments is capitalized. Depreciation on fixed
assets, including those under capital leases, is computed using the
straight-line method over the estimated useful lives. Depreciation expense for
the years ended December 31, 2002, 2001 and 2000 was $198.9 million, $160.5
million and $153.8 million, respectively. The estimated useful lives of the
major classes of property, plant and equipment are as follows:

LONG-LIVED ASSETS

In accordance with Statement of Financial Accounting Standards ("SFAS") No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS No.
144"), long-lived assets, excluding goodwill and indefinite-lived intangibles,
to be held and used by the Company are reviewed to determine whether any events
or changes in circumstances indicate that the carrying amount of the asset may
not be recoverable. SFAS No. 144 modifies SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of ("SFAS
No. 121"). The asset impairment charges during 2000 were recorded under the
provisions of SFAS No. 121. For long-lived assets to be held and used, the
Company bases its evaluation on impairment indicators such as the nature of the
assets, the future economic benefit of the assets, any historical or future
profitability measurements and other external market conditions or factors that
may be present. If such impairment indicators are present or other factors exist
that indicate that the carrying amount of the asset may not be recoverable, the
Company determines whether an impairment has occurred through the use of an
undiscounted cash flows analysis of the asset at the lowest level for which
identifiable cash flows exist. If an impairment has occurred, the Company
recognizes a loss for the difference between the carrying amount and the fair
value of the asset. The fair value of the asset is measured using quoted market
prices or, in the absence of quoted market prices, is based on an estimate of
discounted cash flows. Assets are classified as held for sale when the Company
has a plan for disposal of certain assets and those assets meet the held for
sale criteria of SFAS No. 144. In 2000, the Company announced the merger of
essentially all of its Compression Services Division and determined that there
was an impairment of its assets held for sale (See Note 4).

49

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

GOODWILL AND INDEFINITE-LIVED INTANGIBLES

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets
("SFAS No. 142"), the Company tests for the impairment of goodwill and other
intangible assets with indefinite lives on at least an annual basis. 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 Company's indefinite-lived asset impairment test involves a
comparison of the fair value of the intangible and its carrying value. The fair
value is determined using discounted cash flows and other market-related
valuation models, including earnings multiples and comparable asset market
values. Prior to the adoption of SFAS No. 142, goodwill was amortized on a
straight line basis over the lesser of the estimated useful life or 40 years. In
conjunction with the adoption of this statement, the Company has discontinued
the amortization of goodwill.

ENVIRONMENTAL EXPENDITURES

Environmental expenditures that relate to the remediation of an existing
condition caused by past operation and that do not contribute to future revenues
are expensed. Liabilities for these expenditures are recorded when it is
probable that obligations have been incurred and costs can be reasonably
estimated. Estimates are based on available facts and technology, enacted laws
and regulations and the Company's prior experience in remediation of
contaminated sites. Accrued undiscounted environmental liabilities were $6.0
million and $5.0 million at December 31, 2002 and 2001, respectively.

FOREIGN CURRENCY TRANSLATION

The functional currency for most of the Company's international operations
is the applicable local currency. Results of operations for foreign subsidiaries
with functional currencies other than the U.S. dollar are translated using
average exchange rates during the period. Assets and liabilities of these
foreign subsidiaries are translated using the exchange rates in effect at the
balance sheet dates, and the resulting translation adjustments are included as
Accumulated Other Comprehensive Loss, a component of shareholders' equity.
Currency transaction gains and losses are reflected in the Company's results of
operations during the period incurred.

STOCK OPTIONS

In December 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure
("SFAS No. 148"). SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based
Compensation ("SFAS No. 123") to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. As permitted under SFAS No. 123, the Company continues to
use the intrinsic value method of accounting established by Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, to
account for its stock-based compensation programs. Accordingly, no compensation
expense is recognized when the exercise price of an employee stock option is
equal to the Common Share

50

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

market price on the grant date. The following illustrates the pro forma effect
on net income (loss) and earnings (loss) per share if the Company had applied
the fair value recognition provisions of SFAS No. 123:

For purposes of pro forma disclosures, the fair value of each option grant
is estimated on the date of grant using the Black-Scholes option pricing model.
The following assumptions for 2002, 2001 and 2000, respectively, were computed
on a weighted average basis: expected volatility of 60.93%, 58.93% and 45.44%,
risk-free interest rate of 3.3%, 4.3% and 6.2%, expected life of 5.2, 5.4 and
4.9 years and no expected dividends. The weighted average fair value of the
options granted in 2002, 2001 and 2000 was $21.20, $14.42 and $18.09,
respectively. The estimated fair value of the options is amortized to proforma
expense over the options' vesting period.

ACCOUNTING FOR INCOME TAXES

Under SFAS No. 109, Accounting for Income Taxes, income taxes have been
provided based upon the tax laws and rates in the countries in which operations
are conducted and income is earned. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. A valuation allowance for deferred tax assets is
recorded when it is more likely than not that some or all of the benefit from
the deferred tax asset will not be realized.

REVENUE RECOGNITION

Revenue for product sales is recognized when all of the following criteria
have been met: a) evidence of an agreement 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. Products are deemed to
be accepted by the customer upon receipt of written acceptance. Revenue from
rental and service agreements is recognized as earned, over the rental period
and when services have been rendered, and the associated costs and expenses are
recognized as incurred.

In accordance with Emerging Issues Task Force ("EITF") 00-10, Accounting
for Shipping and Handling Fees and Costs, the Company recognizes the revenue
associated with rebillable shipping and handling costs as Revenues of Products
and Revenues of Services and Rentals and all costs for shipping and handling
costs as Cost of Products and Cost of Services and Rentals in the accompanying
Consolidated Statements of Operations.

51

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share for all periods presented equals net income
(loss) 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 adjusted
for the dilutive effect of the Company's stock option and restricted stock
plans, warrants and the incremental shares for the assumed conversion of
dilutive debentures. The effect of stock option and restricted stock plans,
warrants and the assumed conversion of dilutive debentures is not included in
the computation for periods in which a loss from continuing operations occurs,
because to do so would be anti-dilutive.

Diluted earnings per share for 2001 reflects the dilutive effect of stock
option and restricted stock plans and assumed conversion of the Company's Zero
Coupon Convertible Senior Debentures (the "Zero Coupon Debentures") and the
Company's 5% Convertible Subordinated Preferred Equivalent Debentures (the
"Convertible Preferred Debentures"), during the quarterly periods in which the
conversion would have been dilutive. Net income for the dilutive earnings per
share calculation for 2001 is adjusted to add back the amortization of original
issue discount, net of taxes, relating to the Zero Coupon Debentures totaling
$10.6 million, and interest, net of taxes, on the Convertible Preferred
Debentures totaling $9.8 million. The diluted weighted average number of shares
outstanding for 2001 includes 4,480 shares for the dilutive effect of the stock
option and restricted stock plans and 14,757 shares for the dilutive effect of
the convertible debentures.

NEW REPORTING REQUIREMENTS

In August 2001, the FASB issued SFAS No. 143, Accounting For Asset
Retirement Obligations ("SFAS No. 143"). SFAS No. 143 addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. SFAS No.
143 applies to legal obligations associated with the retirement of long-lived
assets that result from the acquisition, construction, development and/or the
normal operation of a long-lived asset, except for certain obligations of
lessees. This standard requires entities to record the fair value of a liability
for an asset retirement obligation in the period incurred. The Company does not
anticipate the adoption of SFAS No. 143 as of January 1, 2003, will have a
material effect on its consolidated financial statements.

Effective January 1, 2002, the Company adopted SFAS No. 144, which provides
updated guidance concerning the recognition and measurement of an impairment
loss for certain types of long-lived assets and modifies the accounting and
reporting of discontinued operations. The adoption of SFAS No. 144 did not have
an impact on the consolidated financial statements of the Company. During 2002,
the Company sold three businesses. The Company determined the discontinued
operations provisions of SFAS No. 144 did not apply to these transactions as
neither the proceeds from the sale nor the businesses' financial position or
results of operations were material to the Company.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections
("SFAS No. 145"). SFAS No. 145, which is effective for fiscal years beginning
after May 15, 2002, provides guidance for income statement classification of
gains and losses on extinguishment of debt and accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. The Company does not believe the adoption of this statement will
have a material impact on its consolidated financial statements.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities ("SFAS No. 146"). SFAS No. 146 requires
companies to recognize costs associated with restructurings, discontinued
operations, plant closings, or other exit or disposal activities, when incurred
as opposed to when the entity commits to an exit plan under EITF No. 94-3,
Liability Recognition for Certain

52

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring). The provisions of this statement are
effective for exit or disposal activities initiated after December 31, 2002. The
Company does not believe the adoption of this statement will have a material
impact on its consolidated financial statements.

In November 2002, FASB Interpretation ("FIN") No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others ("FIN No. 45") was issued. FIN No. 45
requires a guarantor to recognize, at the inception of a guarantee, a liability
for the fair value of the obligation undertaken in issuing the guarantee. FIN
No. 45 also expands the disclosures required to be made by a guarantor about its
obligations under certain guarantees that it has issued. Initial recognition and
measurement provisions of FIN No. 45 are applicable on a prospective basis to
guarantees issued or modified. The disclosure requirements are effective
immediately. The Company does not expect FIN No. 45 to have a material effect on
its consolidated financial statements.

In December 2002, the FASB issued SFAS No. 148. SFAS No. 148 amends SFAS
No. 123 to provide alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee compensation
and amends the disclosure requirements of SFAS No. 123. SFAS No. 148 is
effective for fiscal years ending after December 15, 2002. The Company continues
to use the intrinsic value method of accounting for stock-based compensation. As
a result, the adoption of SFAS No. 148 did not have an effect on its
consolidated financial statements.

In January 2003, FIN No. 46, Consolidation of Variable Interest Entities
("FIN No. 46") was issued. FIN No. 46 requires companies that control another
entity through interests other than voting interests should consolidate the
controlled entity. FIN No. 46 applies to variable interest entities created
after January 31, 2003, and applies in the first interim period beginning after
June 15, 2003 to variable interest entities created before February 1, 2003. The
related disclosure requirements are effective immediately. The Company is
currently evaluating the impact this interpretation will have on its
consolidated financial statements.

2. CORPORATE REORGANIZATION

Effective June 26, 2002, Weatherford Limited became the parent holding
company of Weatherford Inc. following a corporate reorganization. Weatherford
Inc. continues to exist as an indirect, wholly owned subsidiary of Weatherford
Limited. Weatherford Limited and its subsidiaries continue to conduct the
business previously conducted by Weatherford Inc. and its subsidiaries. The
reorganization has been accounted for as a reorganization of entities under
common control, and accordingly, did not result in any changes to the
consolidated amounts of assets, liabilities or shareholders' equity.

In conjunction with the merger, Weatherford Limited fully and
unconditionally guaranteed the following obligations of Weatherford Inc.: (1)
the three-year multi-currency revolving credit facility, (2) the five-year
unsecured credit agreement, (3) the $200.0 million 7 1/4% Senior Notes due 2006
(the "7 1/4% Senior Notes"), (4) the $350.0 million 6 5/8% Senior Notes due
2011, ("the 6 5/8% Senior Notes"), (5) the Zero Coupon Debentures and (6) the
Convertible Preferred Debentures. In addition, Weatherford Limited and
Weatherford Inc. fully and unconditionally guaranteed certain domestic
subsidiaries' performance obligations relating to the asset securitization,
including their payment obligations (See Note 9).

In connection with the reorganization, the Company incurred $4.5 million,
$3.0 million after taxes, in transaction-related expenses. The transaction
expenses relate to professional services and are reflected in Corporate General
and Administrative Expenses in the accompanying Consolidated Statements of
Operations for the year ended December 31, 2002.

53

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. NON-RECURRING AND ASSET IMPAIRMENT CHARGE

During 2002, the Company recorded $15.4 million, $10.0 million net of
taxes, in non-recurring and asset impairment charges relating to a
rationalization of its businesses in light of industry conditions. The Company
undertook initiatives to rationalize its business in light of the lower activity
levels and the continued economic uncertainty. Initiatives approved during 2002
included a reduction in workforce, primarily in the United States and closure of
two facilities. The charge related to these initiatives is summarized by
division in the following table and described in greater detail below:

- ---------------

(1) In accordance with the Company's announced plan to terminate employees
company-wide, it recorded severance and related costs for 849 specifically
identified employees. As of December 31, 2002, 439 employees had been
terminated with the remainder expected to be completed in the first half of
2003.

(2) The asset impairment primarily relates to the write-down of equipment and
facilities which are held for sale as a result of the decline in market
conditions. These assets, having a carrying amount of $7.7 million, have
been reclassified in Other Current Assets on the accompanying Consolidated
Balance Sheet as of December 31, 2002. The Company anticipates the assets
will be sold by September 30, 2003.

(3) In 2000, the Company recorded a non-recurring charge of $56.3 million in
connection with the merger of its Compression Services Division with
Universal of which $4.7 million of estimated transaction costs were not
incurred.

4. UNIVERSAL COMPRESSION

MERGER TRANSACTION

On February 9, 2001, the Company completed the merger of essentially all of
its Compression Services Division with and into a subsidiary of Universal in
exchange for 13.75 million shares of Universal common stock. The Company
retained part of the Compression Services Division, including Singapore-based
Gas Services International operations, which is now consolidated within the
Company's Artificial Lift Systems Division. The Universal common stock received
represented approximately 48% of Universal's total common stock outstanding as
of the date of the merger. Subsequent to the merger, Universal issued additional
shares of common stock, and the Company's ownership declined to 45% by December
31, 2001 and remained at that level throughout 2002. Upon the closing of the
merger, Universal repaid and terminated the Company's sale and leaseback
arrangements and the Compression Services Division's credit facility.

In connection with this transaction, the Company recorded impairment
charges in the fourth quarter of 2000 of $56.3 million, $43.0 million after
taxes, and provided for deferred taxes of $76.5 million due to the exchange of a
consolidated subsidiary for an equity method investment. The impairment charge
reflects the

54

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

difference between estimated fair value of net assets held for sale and the net
book value of the Compression Services Division assets, less estimated costs to
sell. The estimated fair value of assets held for sale was determined using
quoted market prices and estimated selling prices. Prior to the merger, the
Company operated this division in a joint venture with GE Capital. The Company
paid GE Capital $206.5 million for its 36% ownership in the joint venture
concurrent with the merger.

In connection with the merger with Universal, the Company and Universal
entered into a Voting Agreement pursuant to which the Company agreed to certain
voting limitations with respect to shares of our Universal common stock. The
Voting Agreement expired in December 2001. The Company may now vote its shares
at its sole discretion. The Company and Universal also entered into a
Registration Rights Agreement, pursuant to which the Company was granted certain
demand and piggyback registration rights for its shares of Universal common
stock. Additionally, the Company entered into a Transitional Services Agreement
with Universal to provide certain corporate and administrative services for a
fee and reimbursement of costs and expenses for up to 120 days following the
merger. Pursuant to the terms of the merger agreement, the Company also
appointed three members to Universal's Board of Directors, including both the
Company's Chairman, President and Chief Executive Officer and the Company's
Chief Financial Officer. As long as the Company owns at least 20% of Universal's
outstanding common stock, the Company has the right to designate three board
members. If ownership interest falls below 20%, it may designate only two
directors, and if its ownership falls below 10% the Company will no longer be
entitled to designate directors to serve on Universal's Board of Directors. As
of December 31, 2002, the Company had appointed three of Universal's eight board
members.

EQUITY INVESTMENT IN UNIVERSAL

In connection with the merger, the Company de-consolidated the businesses
that merged with Universal and recorded its investment in Universal as Equity
Investments in Unconsolidated Affiliates on the accompanying Consolidated
Balance Sheets. Accordingly, the Company began recording its equity interest in
Universal's results of operations, based on estimates provided by Universal, as
Equity in (Earnings) Losses of Unconsolidated Affiliates, Net of Impairment
Charge on the accompanying Consolidated Statements of Operations. During 2002
and 2001, the Company did not receive distributions from Universal related to
the Equity in (Earnings) Losses of Unconsolidated Affiliates, Net of Impairment
Charge. The difference between the cost basis of the Company's investment in
Universal and the Company's proportionate interest in the fair value of the net
assets of Universal as of the merger date was $152.5 million and was amortized
on a straight-line basis with a 40 year life through Equity in (Earnings) Losses
of Unconsolidated Affiliates, Net of Impairment Charge during 2001. The Company
ceased amortization beginning in 2002 in accordance with SFAS No. 142.

The Company reviews its investment in Universal for impairment in
accordance with APB No. 18, The Equity Method of Accounting for Investments in
Common Stock ("APB No. 18"). APB No. 18 requires recognition of a loss when the
decline in an investment is other than temporary. In determining whether the
decline is other than temporary, the Company considers the cyclical nature of
the industry in which Universal operates, their historical performance, their
performance in relation to their peers and the current economic environment. In
the third quarter of 2002, the Company recorded a write-down of its investment
in Universal by $217.1 million as it determined that the decline in the market
value was other than temporary. In connection with the reduction in the carrying
value of this investment, the Company recognized a tax benefit of $70.9 million,
reducing the deferred tax liability related to the difference between the book
carrying value and the tax basis of the investment. As of December 31, 2002, the
Company's carrying value of its investment in Universal was $276.0 million and
the market value of the Company's ownership interest in Universal was $263.0
million. The Company currently does not believe that this decline in the market
value is other than temporary.

55

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Summarized financial information for Universal as of and for the twelve
months ended December 31, 2002 and 2001 are presented below:

- ---------------

(a) Gross profit is defined by Universal as total revenues less rental expense,
cost of sales (excluding depreciation and amortization), gain on asset
sales and interest income.

The financial statements of Universal are required by Rule 3-09 of
Regulation S-X and will be filed as a part of this Form 10-K by an amendment to
this Form 10-K upon the filing by Universal of their Form 10-K for the year
ended March 31, 2003. Universal is required to file their Form 10-K by June 29,
2003.

5. DISCONTINUED OPERATIONS

In October 1999, the Board of Directors of the Company approved a plan to
spin-off Grant Prideco through a distribution by the Company to its shareholders
of one share of stock of Grant Prideco for each Common Share held by the
Company's shareholders. The distribution was completed as of the close of
business on April 14, 2000 (the "Spin-off Date"). The Company's Chairman,
President and Chief Executive Officer is also the Chairman of the Board of
Directors of Grant Prideco. In addition, four other members serve on the Boards
of Directors of both the Company and Grant Prideco.

The distribution of the net assets of discontinued operations and the
related accumulated other comprehensive loss was reflected as an adjustment to
Retained Earnings. The results of operations for Grant Prideco, through the
Spin-off Date, are reflected in the accompanying Consolidated Statements of
Operations as Loss from Discontinued Operations, Net of Taxes. Condensed results
of Grant Prideco are as follows:

The Company purchases drill pipe and other related products from Grant
Prideco. The purchases made prior to the Spin-off Date have been eliminated in
the accompanying consolidated financial statements. The

56

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

purchases eliminated by the Company for the year ended December 31, 2000 were
$7.0 million. These purchases represent Grant Prideco's cost.

The results from discontinued operations include a management fee charged
to Grant Prideco of $0.5 million for the year ended December 31, 2000. The fee
was based on the time devoted to Grant Prideco for accounting, tax, treasury and
risk management services.

AGREEMENTS BETWEEN THE COMPANY AND GRANT PRIDECO

In connection with the Spin-off, Grant Prideco and the Company entered into
a tax allocation agreement (the "Tax Allocation Agreement"). Under the terms of
the Tax Allocation Agreement, Grant Prideco is responsible for all taxes and
associated liabilities relating to the historical businesses of Grant Prideco.
The Tax Allocation Agreement also requires that any tax liabilities associated
with the Spin-off will be paid by Grant Prideco.

The Tax Allocation Agreement further provides that in the event there is a
tax liability associated with the historical operations of Grant Prideco that is
offset by a tax benefit of the Company, the Company will apply the tax benefit
against such tax liability and will be reimbursed for the value of the tax
benefit when and as the Company would have been able to otherwise utilize that
tax benefit for its own businesses.

In connection with the Spin-off, the Company received from Grant Prideco an
unsecured subordinated note in the amount of $100.0 million with an interest
rate of 10% and interest due quarterly. In December 2000, Grant Prideco repaid
this note and all unpaid interest.

At the time of the Spin-off the Company entered into a preferred customer
agreement with Grant Prideco pursuant to which the Company agreed, for a
three-year period, to purchase at least 70% of its requirements of drill stem
products from Grant Prideco. The price for those products will be at a price not
greater than that which Grant Prideco sells to its best similarly situated
customers. The Company is entitled to apply against its purchases a drill stem
credit of $30.0 million, subject to a limitation of no more than 20% of any
purchase. As of December 31, 2002, the Company had $16.9 million remaining of
the drill stem credit.

6. ACQUISITIONS

On October 23, 2002, the Company acquired Clearwater International
("Clearwater") for approximately $33.6 million, consisting of 370,155 Common
Shares, cash of $15.6 million and $2.4 million payable upon receipt of
additional assets in 2003. Clearwater is based in Coraopolis, Pennsylvania and
is a producer and distributor of oilfield production and completion chemicals.
This acquisition was integrated into the Company's Drilling and Intervention
Services Division and provides key proprietary products and fluid technology in
its underbalanced drilling services product line.

On November 30, 2001, the Company acquired the Johnson Screens division
("Johnson") from Vivendi Environnement for $110.0 million. Johnson is based in
Minneapolis, Minnesota and is a global provider of screens for fluid-solid
separation processes, including the recently-introduced Excelflo(TM) premium
screen line and the Superflo(TM), Super Weld(R) and Thin Pack(TM) screens for
oil and gas production. The oil and gas screen product lines were integrated
into the Company's Completion Systems Division and the remaining product lines
were integrated into its Artificial Lift Systems Division. This acquisition
provides the Completion Systems Division and Artificial Lift Systems Division
with significant manufacturing consolidation benefits, economies of scale and
access to innovative new technologies.

On November 16, 2001, the Company acquired CiDRA Corporation's Optical
Sensing Systems business unit ("CiDRA") for approximately $123.1 million,
consisting of 1.9 million Common Shares and cash of $62.5 million. CiDRA is
based in Houston, Texas and is a provider of a suite of permanent in-well fiber
optic sensor systems, which include pressure and temperature gauges, flow and
phase fraction systems, and an all-

57

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

fiber in-well seismic system. This acquisition provides the Completion Systems
Division with proprietary technology in the growing field of advanced
intelligent completion and field automation systems.

On April 19, 2001, the Company acquired Orwell Group plc ("Orwell") for
total consideration of approximately $251.5 million, including a final purchase
price adjustment, consisting of 3.2 million Common Shares, $1.6 million in cash
and $81.4 million of assumed debt which was paid in full following the closing
of the transaction. Orwell, based in Aberdeen, Scotland, is an international
provider of oilfield services for drilling, fishing, remediation and marine
applications. This acquisition increases the Company's presence in the
international markets and increases capacity. Orwell's operations were
integrated into the Company's Drilling and Intervention Services Division.

On August 10, 2000, the Company acquired Alpine Oil Services Corporation
("Alpine") for one share of $1.00 par value Series A Preferred Shares ("Series A
Preferred Share") (See Note 16) and exchangeable securities of one of the
Company's Canadian subsidiaries that are exchangeable for Common Shares on a
one-for-one basis. The approximate value of the Alpine acquisition was $54.4
million. Alpine, headquartered in Calgary, Alberta, Canada, was integrated into
the Company's Drilling and Intervention Services and Completion Systems
Divisions. The acquisition extends the Company's underbalanced drilling
capabilities worldwide, adds new completion technology and further expands our
offerings of products and services in Canada.

The Company has also effected various other acquisitions during 2002, 2001
and 2000 that were integrated into the Company's continuing operations for total
consideration of approximately $103.1 million, $281.5 million and $158.0
million, respectively.

The acquisitions discussed above were accounted for using the purchase
method of accounting. Results of operations for acquisitions accounted for as
purchases are included in the accompanying consolidated financial statements
since the date of acquisition. The purchase price was allocated to the net
assets acquired based upon their estimated fair market values at the date of
acquisition. The balances included in the Consolidated Balance Sheets related to
the current year acquisitions are based upon preliminary information and are
subject to change when final asset and liability valuations are obtained. Final
valuations of assets and liabilities are obtained and recorded within one year
from the date of the acquisition. Material changes in the preliminary
allocations are not anticipated by management. The 2002, 2001 and 2000
acquisitions are not material individually or in the aggregate with same year
acquisitions, therefore, pro forma information is not presented.

7. CASH FLOW INFORMATION

The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Other Current Assets
at December 31, 2002 and 2001 included cash of approximately $6.4 million and
$4.3 million, respectively, which was restricted as a result of bond
requirements in certain foreign countries.

During the years ended December 31, 2002, 2001 and 2000, there were
noncash-operating activities of $15.7 million, $10.0 million and $2.2 million,
respectively, relating to tax benefits received from the exercise of
nonqualified stock options. These benefits were recorded as a reduction of
income taxes payable and an increase to Capital in Excess of Par Value on the
accompanying Consolidated Balance Sheets.

Cash paid for interest and income taxes, net of refunds, was as follows:

58

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following summarizes investing activities relating to acquisitions
integrated into the Company's continuing operations:

During the years ended December 31, 2002, 2001 and 2000 there were
noncash-investing activities of $0.3 million, $5.0 million and $2.5 million,
respectively, relating to capital leases.

During the years ended December 31, 2002 and 2001, there were
noncash-financing activities related to our interest rate swaps of $14.1 million
and $1.9 million, respectively (See Note 13).

8. INVENTORIES

Inventories by category are as follows:

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

9. ASSET SECURITIZATION

In 2001, Weatherford Inc. entered into an agreement with a financial
institution to sell, on a continuous basis, an undivided interest in a specific
pool of domestic accounts receivable of Weatherford Inc. and its subsidiaries.
Pursuant to this agreement, Weatherford Inc. periodically sells certain trade
accounts receivables to a wholly-owned bankruptcy-remote subsidiary of the
Company, W1 Receivables, L.P. ("W1"). W1 was formed to purchase accounts
receivables and, in turn, sell participating interests in such accounts
receivables to a financial institution. The sale of participating interests is
limited to a percentage of receivables sold to W1. In accordance with SFAS No.
140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, the related receivables are removed from the
Consolidated Balance Sheets and W1 records a retained interest for the amount of
receivables sold in excess of cash received. The Company's retained interest in
the receivables pool is valued based on the recoverable value. In this
transaction, the Company retains servicing responsibilities and a subordinated
interest in the receivables sold. There is no recourse against the Company for
failure of debtors to pay when due on account of debtor's bankruptcy or
inability to pay, and the Company's retained interest in the receivables pool is
subordinate to the investors' interests. This agreement was extended through
December 2003.

Weatherford Inc. is permitted to securitize up to $75.0 million under this
agreement. If Weatherford Limited's or Weatherford Inc.'s credit rating falls
below BBB- from Standard and Poor's or Baa3 from

59

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Moody's, the financial institution has no further obligation to purchase the
accounts receivable. In connection with the reorganization, Weatherford Limited
and Weatherford Inc. fully and unconditionally guaranteed certain domestic
subsidiaries' performance obligations relating to the asset securitization,
including their payment obligations. Weatherford Inc. currently pays a program
fee on participating interests at a variable rate based on the financial
institution's commercial paper rate plus other fees. Program fees totaled $2.2
million and $2.3 million for the years ended December 31, 2002 and 2001,
respectively, and are included in Other Income (Expense) on the accompanying
Consolidated Statements of Operations. Weatherford Inc. had received $68.9
million and $140.8 million for purchased interests and had retained interests in
receivables sold of $143.6 million and $100.7 million as of December 31, 2002
and 2001, respectively.

10. GOODWILL

In June 2001, the FASB issued SFAS No. 142, which provides for the
non-amortization of goodwill and other intangible assets with indefinite lives
and requires that such assets be tested for impairment at least on an annual
basis. The Company adopted SFAS No. 142 effective January 1, 2002 and has
applied the non-amortization provision. During the second quarter of 2002, the
Company completed the transitional goodwill impairment test prescribed in SFAS
No. 142 with respect to existing goodwill at the date of adoption. In addition,
the Company completed its annual goodwill impairment test as of October 1, 2002.
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 Company's reporting units correspond to the Company's
business segments, namely Drilling and Intervention Services, Completion Systems
and Artificial Lift Systems. The fair value is determined using discounted cash
flows and other market-related valuation models. As both calculations indicated
that the fair value of each reporting unit exceeded its carrying amount, none of
the Company's goodwill was impaired. The Company will continue to test its
goodwill annually on a consistent measurement date 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.

60

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table provides net income (loss) and earnings (loss) per
share information had the non-amortization provision been in effect for the
years ended December 31, 2001 and 2000:

The changes in the carrying amount of goodwill for the year ended December
31, 2002 are as follows:

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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. OTHER INTANGIBLE ASSETS

The Company amortizes identifiable intangible assets, excluding goodwill
and indefinite-lived intangibles, on a straight-line basis over the years
expected to be benefited, ranging from 3 to 20 years. The components of these
other intangible assets are as follows:

Amortization expense was $16.0 million, $8.1 million and $8.2 million for
the years ended December 31, 2002, 2001 and 2000 respectively. Estimated
amortization expense for the carrying amount of intangible assets as of December
31, 2002 is expected to be $20.2 million for 2003, $19.1 million for 2004, $18.4
million for 2005, $17.3 million for 2006 and $15.4 million for 2007.

The Company has trademarks associated with its 2001 acquisition of the
Johnson Screens division from Vivendi Environnement, which are considered to
have indefinite lives as the Company has the ability and intent to renew
indefinitely. These trademarks are classified in Other Intangible Assets, Net on
the accompanying Consolidated Balance Sheets and had a carrying value of $8.0
million at December 31, 2002 and $9.7 million at December 31, 2001. The
estimated fair market 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.

On March 1, 2002, the Company obtained a worldwide license to Shell
Technology Ventures' ("Shell") expandable technology. Expandable technology
refers to both slotted and solid expandables, related tools and accessories and
specialized expansion systems. Under the terms of the agreement, the Company
received a global license to Shell's existing and future expandable tubular
intellectual property and immediate access to the U.S. market for use of its
Completion Systems Division's Expandable Sand Screen (ESS(TM)) system for
consideration that included $65.0 million in cash, a $20.0 million promissory
note, which was paid in 2002, and $57.0 million for a warrant to purchase 3.2
million Common Shares at $60 per share. This warrant was issued on February 28,
2002 and has a nine-year exercisable life beginning one year after the issue
date. The warrant holder may exercise the warrant and settlement may occur
through physical delivery, net share settlement, net cash settlement or a
combination thereof. The warrant also may be converted into Common Shares at any
time after the third anniversary of the issue date. The value of the warrant was
determined using the Black-Scholes model. In addition, the Company received a
50% reduction in the royalty rate it historically paid on Shell licensed
technology sales. This license is being amortized over the life of the
agreement, which is 17 years.

62

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. SHORT-TERM DEBT

In April 2001, the Company entered into a $250.0 million, three-year
multi-currency revolving credit facility, with commitment capacity of up to
$400.0 million. As of December 31, 2002, the Company had $125.1 million
available under this agreement. This facility does not contain any provision
which makes its availability dependent upon the Company's credit ratings;
however, amounts outstanding accrue interest at a variable rate based on the
borrower's applicable Eurocurrency rate and credit ratings assigned to the
Company's long-term senior debt by Standard and Poor's and Moody's Investor
Service. A commitment fee of 0.125% is payable quarterly on the unused portion
of the facility. The facility contains customary affirmative and negative
covenants and reflects the same covenant structure as the Company's existing
$250.0 million revolving credit agreement, dated May 1998, which remains in
effect. The Company was in compliance with these covenants as of December 31,
2002. The Company's weighted average interest rate was 4.37% and 5.56% for 2002
and 2001, respectively.

In May 1998, the Company entered into a five-year unsecured credit
agreement, which provides for borrowings of up to an aggregate of $250.0
million, consisting of $200.0 million in the U.S. and $50.0 million in Canada.
Amounts outstanding under the facility accrue interest at a variable rate based
on either the U.S. prime rate or LIBOR and the credit rating assigned to the
Company's long-term senior debt. A commitment fee ranging from 0.09% to 0.20%
per annum, depending on the credit ratings assigned to the Company's long-term
senior debt, is payable quarterly on the unused portion of the facility. The
facility contains customary affirmative and negative covenants, including a
maximum debt to capitalization ratio, a minimum interest coverage ratio, a
limitation on liens, a limitation on occurrence of indebtedness and a limitation
on asset dispositions. The Company was in compliance with these covenants as of
December 31, 2002. This facility does not contain any provision which makes its
availability dependent upon the Company's credit ratings. As of December 31,
2002, $63.2 million was available under this facility due to $36.8 million being
used to secure outstanding letters of credit. The Company's weighted average
cost of borrowings under this facility was 2.23% and 4.47% for 2002 and 2001,
respectively.

The Company also engages in unsecured short-term borrowings with various
institutions pursuant to uncommitted facilities. At December 31, 2002, the
Company had $75.3 million in unsecured short-term borrowings outstanding under
these arrangements. The weighted average interest rate was 3.56% and 5.09% for
2002 and 2001, respectively.

The Company also has various uncommitted credit facilities available for
stand-by letters of credit and bid and performance bonds. The Company had $42.8
million of such letters of credit and bid and performance bonds outstanding at
December 31, 2002.

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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. LONG-TERM DEBT

The following is a summary of scheduled long-term debt maturities by year
(in thousands):

2003........................................................ $ 14,088
2004........................................................ 10,374
2005........................................................ 5,575
2006........................................................ 203,049
2007........................................................ 1,353
Thereafter.................................................. 350,640
--------
$585,079
========

6 5/8% SENIOR NOTES

On November 16, 2001, the Company completed a private placement of $350.0
million of 6 5/8% Senior Notes which are unsecured obligations of the Company.
The interest on the notes is payable semi-annually in arrears on May 15 and
November 15 of each year commencing on May 15, 2002. As evidenced by market
transactions, the estimated fair value of the 6 5/8% Senior Notes was $383.4
million and $332.5 million as of December 31, 2002 and 2001, respectively.

7 1/4% SENIOR NOTES

The Company has outstanding $200.0 million of 7 1/4% Senior Notes which are
unsecured obligations of the Company. Interest is payable semi-annually on May
15 and November 15. Based on the borrowing rates available to the Company, the
fair value of the 7 1/4% Senior Notes was $222.8 million and $209.5 million at
December 31, 2002 and 2001, respectively.

During part of 2002, the Company had in effect two interest rate swap
agreements entered into on November 15, 2001 and January 8, 2002, to reduce the
exposure to changes in the fair value of the 7 1/4% Senior Notes and to take
advantage of interest rates available in the economic environment during that
period. In July 2001, the Company entered into a swap whereby it received
interest at the fixed rate of 7 1/4% and paid a floating rate based on LIBOR.
The hedges were considered perfectly effective against changes in the fair value
of debt due to changes in the benchmark interest rate over its term. In
accordance with SFAS No. 133, the shortcut method applies and there was no need
to periodically reassess the effectiveness of the hedge during the term of the
swaps. Under these agreements, the Company received interest at the fixed rate

64

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of 7 1/4% and paid a floating rate based on LIBOR. The November 15, 2001 and
January 8, 2002 swap agreements were terminated in October 2002, and the Company
received $13.9 million in cash, resulting in a gain of $11.0 million. The July
2001 swap was terminated on November 15, 2001, and the Company adjusted the swap
agreement to fair value and received $4.1 million in cash for the asset. The
cash received was recorded against the fair market value of the agreements, and
the resulting gain is being amortized over the remaining life of the 7 1/4%
Senior Notes as an adjustment to Interest Expense on the accompanying
Consolidated Statements of Operations.

The effective rate for the 7 1/4% Senior Notes for the years ended December
31, 2002 and 2001 was 4.04% and 6.44%, respectively, after giving effect to the
interest rate swaps.

14. ZERO COUPON CONVERTIBLE SENIOR DEBENTURES

On June 30, 2000, the Company completed a private placement of $910.0
million face amount of its Zero Coupon Debentures due 2020. The Zero Coupon
Debentures were issued at a discount with an imputed 3% per annum interest rate.
During 2002 and 2001, the Company amortized $15.8 million and $15.4 million,
respectively, of the original issue discount. As of December 31, 2002 and 2001,
the unamortized discount on the Zero Coupon Debentures was $369.6 million and
$385.4 million, respectively.

Holders may convert the Zero Coupon Debentures into Common Shares at any
time before maturity at a conversion rate of 9.9970 shares per $1,000 principal
amount at maturity or initially at a price of $55.1425 per Common Share. The
effective conversion price will increase as the accreted value of the Zero
Coupon Debentures increases. The Company may redeem any of the Zero Coupon
Debentures on or after June 30, 2005 at the accreted amount at the time of
redemption. Holders may require the Company to repurchase the Zero Coupon
Debentures on June 30, 2005, June 30, 2010 and June 30, 2015 at the accreted
amount. The Company may elect to repurchase the Zero Coupon Debentures for cash,
Common Shares or a combination thereof. The Zero Coupon Debentures are unsecured
ranking equal in right of payment with all other unsecured and unsubordinated
indebtedness and will rank senior to any future subordinated indebtedness. As
evidenced by market transactions, the estimated fair value of the Zero Coupon
Debentures was $588.1 million and $534.5 million at December 31, 2002 and 2001,
respectively.

15. 5% CONVERTIBLE SUBORDINATED PREFERRED EQUIVALENT DEBENTURES

In November 1997, the Company completed a private placement of $402.5
million principal amount of Convertible Preferred Debentures due 2027. The net
proceeds from the Convertible Preferred Debentures were $390.9 million. The
conversion price of the Convertible Preferred Debentures, as adjusted for the
Spin-off, is $53.34 per Common Share. The Convertible Preferred Debentures are
redeemable by the Company at any time on or after November 4, 2000, at
redemption prices described therein, and are subordinated in right of payment of
principal and interest to the prior payment in full of certain existing and all
future senior indebtedness of the Company. The Convertible Preferred Debentures
bear interest at an annual rate of 5%, and the Company has the right to defer
payments of interest by extending the quarterly interest payment period for up
to 20 consecutive quarters at any time when the Company is not in default in the
payment of interest. As evidenced by market transactions, the estimated fair
value of the Convertible Preferred Debentures was $385.8 million and $347.1
million as of December 31, 2002 and 2001, respectively.

16. SHAREHOLDERS' EQUITY

AUTHORIZED SHARES

As of December 31, 2001, the Company was authorized to issue 250,000,000 of
Weatherford Inc. Common Shares and 3,000,000 of Weatherford Inc. $1.00 par value
preferred shares. Upon consummation of the merger, the Company is authorized to
issue 500,000,000 Common Shares and 10,000,000 undesignated

65

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

preference shares, $1.00 par value. During the three years ended December 31,
2002, no preferred shares were issued, except as noted below.

As of December 31, 2000, the Company had authorized and issued one Series A
Preferred Share in connection with its acquisition of Alpine. The former Alpine
shareholders were issued exchangeable securities in one of the Company's
Canadian subsidiaries that were exchangeable for Common Shares on a one-for-one
basis. The Series A Preferred Share, issued to a trustee, entitled the trustee
to vote essentially as a proxy for the former Alpine shareholders who had not
yet exchanged their exchangeable securities into Common Shares. During 2001, the
former Alpine shareholders exchanged all such securities and the Series A
Preferred Share was canceled.

17. COMPENSATION PLANS

STOCK OPTION PLANS

The Company has a number of stock option plans pursuant to which directors,
officers and other key employees may be 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"). Under these plans, options to purchase up
to an aggregate of 25.2 million Common Shares may be granted to officers and key
employees of the Company (including directors who are also key employees). At
December 31, 2002, approximately 0.9 million shares were available for granting
under such plans.

In connection with the Spin-off, the stock options outstanding as of the
Spin-off Date were adjusted such that 1998 ESO Plan option holders received
options only in the company for which they worked. The exercise prices, as well
as the number of shares under the 1998 ESO Plan, were adjusted so the options
immediately before the Spin-off had equivalent economic terms to the options
immediately after the Spin-off. Options holders of the 1991 ESO Plan and 1992
ESO Plan received options for both the Company and Grant Prideco. The exercise
prices were adjusted so the options immediately before the Spin-off had
equivalent economic terms to the options immediately after the Spin-off.

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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stock options vest after three to four years and expire after ten to
fourteen years from the date of grant. Information about the stock option plans
and predecessor plans for the three years ended December 31, 2002, is set forth
below:

The options exercisable as of December 31, 2001 and 2000 were 5.5 million
and 1.6 million, respectively.

EXECUTIVE DEFERRED COMPENSATION PLAN

In May 1992, the Company's shareholders approved the Executive Deferred
Compensation Stock Ownership Plan (the "EDC Plan"). Under the EDC Plan, a
portion of the compensation for certain key employees of the Company, including
officers and employee directors, can be deferred for payment after retirement or
termination of employment.

The Company has established a grantor trust to fund the benefits under the
EDC Plan. The funds provided to such trust are invested by a trustee independent
of the Company in Common Shares, which are

67

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

purchased by the trustee on the open market. The assets of the trust are
available to satisfy the claims of all general creditors of the Company in the
event of bankruptcy or insolvency. Accordingly, the Common Shares held by the
trust and the liability of the Company under the EDC Plan are included in the
accompanying Consolidated Balance Sheets as Treasury Shares, Net.

RETIREMENT AND EMPLOYEE BENEFIT PLANS

The Company has defined contribution plans covering certain of its
employees. Contribution expenses related to these plans totaled $10.4 million,
$6.7 million and $4.5 million in 2002, 2001 and 2000, respectively.

18. INCOME TAXES

The components of Income (Loss) before Income Taxes and Minority Interest
were as follows:

The Company's income tax benefit (provision) from continuing operations
consisted of the following:

In 2000, an income tax benefit of $0.9 million was recorded on the loss
from discontinued operations.

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WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The difference between the tax benefit (provision) at the statutory federal
income tax rate and the tax benefit (provision) attributable to Income (Loss)
Before Income Taxes and Minority Interest for the three years ended December 31,
2002 is analyzed below:

Deferred tax assets and liabilities are recognized for the estimated future
tax effects of temporary differences between the tax basis of an asset or
liability and its reported amount in the financial statements. The measurement
of deferred tax assets and liabilities is based on enacted tax laws and rates
currently in effect in each of the jurisdictions in which the Company has
operations.

Deferred tax assets and liabilities are classified as current or
non-current according to the classification of the related asset or liability
for financial reporting. The components of the net deferred tax asset
(liability) attributable to continuing operations were as follows:

69

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The change in valuation allowance in 2002 primarily relates to operating
loss carryforwards ("NOL") in certain non-U.S. jurisdictions where the ultimate
realization of the deferred tax asset depends on the ability to generate
sufficient taxable income of the appropriate character in the future.

The Company has provided additional taxes for the anticipated repatriation
of earnings of its foreign subsidiaries.

At December 31, 2002, the Company had $100.6 million of net operating
losses, $5.5 million of which were generated by certain domestic subsidiaries
prior to their acquisition by the Company. The use of these acquired domestic
net operating losses is subject to limitations imposed by the Internal Revenue
Code and is also restricted to the taxable income of the subsidiaries generating
the losses. Loss carryforwards, if not utilized, will expire at various dates
from 2003 through 2025.

At December 31, 2002, the Company had approximately $8.3 million of foreign
tax credits to offset future payments of federal income taxes. The foreign tax
credits expire in varying amounts through 2006.

19. DISPUTES, LITIGATION AND CONTINGENCIES

LITIGATION AND OTHER DISPUTES

The Company is aware of various disputes and potential claims and is a
party in various litigation involving claims against the Company, some of which
are covered by insurance. Based on facts currently known, the Company believes
that the ultimate liability, if any, which may result from known claims,
disputes and pending litigation, would not have a material adverse effect on the
Company's consolidated financial position, results of operations or cash flows.

INSURANCE

The Company is self-insured for general liability, vehicle liability, group
medical and for workers' compensation claims for certain of its employees. The
amounts in excess of the self-insured levels are fully insured. Self-insurance
accruals are based on claims filed and an estimate for significant claims
incurred but not reported. Although the Company believes adequate reserves have
been provided for expected liabilities arising from its self-insured
obligations, it is reasonably possible that management's estimates of these
liabilities will change over the near term as circumstances develop.

20. COMMITMENTS

OPERATING LEASES

The Company is committed under various operating lease agreements primarily
related to office space and equipment. Generally, these leases include renewal
provisions and rental payments, which may be adjusted for taxes, insurance and
maintenance related to the property. Future minimum rental commitments under
noncancelable operating leases are as follows (in thousands):

2003........................................................ $ 24,322
2004........................................................ 19,418
2005........................................................ 16,046
2006........................................................ 13,469
2007........................................................ 11,991
Thereafter.................................................. 58,294
--------
$143,540
========

70

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Total rent expense incurred under operating leases attributable to
continuing operations was approximately $41.3 million, $31.9 million and $38.0
million for the years ended December 31, 2002, 2001 and 2000, respectively.

SALE AND LEASEBACK OF EQUIPMENT

The Company's Compression Services Division entered into various sale and
leaseback arrangements where it sold compressors and received cash equal to the
appraised value of $299.9 million through the merger date with Universal. Under
these arrangements, legal title to the compression units was sold to third
parties and leased back to the division under a five-year operating lease with a
market-based purchase option. Total lease expense incurred under these
arrangements was approximately $2.5 million and $21.3 million for the years
ended December 31, 2001 and 2000, respectively. The lease expense is classified
as Cost of Services and Rentals in the accompanying Consolidated Statements of
Operations.

21. RELATED PARTY TRANSACTIONS

A member of the Company's Board of Directors is the Chief Executive Officer
of First Reserve Corporation. First Reserve Corporation beneficially owns
certain convertible preferred securities of CiDRA Corporation, which are
convertible into less than 10% of CiDRA Corporation's common stock on a fully
diluted and convertible basis. The purchase price for the Company's 2001
acquisition of CiDRA (See Note 6) was determined through a competitive bid
process conducted by a third-party investment banking firm. The member of the
Company's Board of Directors did not participate or vote in the meeting of the
Company's Board of Directors in which the acquisition of CiDRA was discussed and
approved. During 2002, the Company purchased a related business from CiDRA
Corporation for $4.8 million. The member of the Company's Board of Directors did
not participate in the Company's consideration or approval of such transaction.

During 2002, the Company sold one of its businesses to an employee for a
note receivable of $9.9 million. The terms of the transaction were negotiated on
an arms-length basis.

The Company incurred legal fees of $2.0 million and $3.1 million during
2001 and 2000, respectively, with a law firm in which a former executive officer
of the Company was a partner.

During 2001, the Company paid Lehman Brothers, Inc. ("Lehman")
approximately $1.1 million for fees associated with an acquisition and $0.9
million associated with the private placement of its 6 5/8% Senior Notes (See
Note 13). The Company also entered into interest rate swap agreements for its
7 1/4% Senior Notes (See Note 13) with Lehman during 2001. Two members of the
Company's Board of Directors are also managing directors of Lehman. All fee
arrangements and terms associated with these transactions were on terms standard
in the industry.

22. SEGMENT INFORMATION

GEOGRAPHIC SEGMENTS

Financial information by geographic segment, as provided to the chief
operating decision maker, for each of the three years ended December 31, 2002,
is summarized below. Revenues are attributable to countries based on the
ultimate destination of the sale of products and performance of services.
Long-lived assets are

71

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

long-term assets excluding deferred tax assets of $18.3 million, $13.8 million
and $60.2 million at December 31, 2002, 2001 and 2000, respectively, and net
assets of discontinued operations.

MAJOR CUSTOMERS AND CREDIT RISK

Substantially all of the Company's customers are engaged in the energy
industry. This concentration of customers may impact the Company's overall
exposure to credit risk, either positively or negatively, in that customers may
be similarly affected by changes in economic and industry conditions. The
Company performs ongoing credit evaluations of its customers and does not
generally require collateral in support of its trade receivables. The Company
maintains reserves for potential credit losses, and actual losses have
historically been within the Company's expectations. Foreign sales also present
various risks, including risks of war, civil disturbances and governmental
activities that may limit or disrupt markets, restrict the movement of funds,
result in the deprivation of contract rights or the taking of property without
fair consideration. Most of the Company's foreign sales, however, are to large
international companies or are secured by letters of credit or similar
arrangements.

In 2002, 2001 and 2000, there was no individual customer who accounted for
10% or greater of consolidated revenues.

BUSINESS 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 gas industry. The Company
operates in virtually every oil and gas exploration and production region in the
world. The Company divides its business segments into three separate groups as
defined by the chief operating decision maker: Drilling and Intervention
Services, Completion Systems and Artificial Lift Systems. The Company also
historically operated a Compression Services segment. The amounts reported for
this segment include results through February 9, 2001 (See Note 4).

The Company's Drilling and Intervention Services segment provides a wide
range of oilfield products and services, including drilling services and
equipment, well installation services and cementing products, fishing and
intervention services and pipeline and specialty services.

The Company's Completion Systems segment provides completion products and
systems including cased hole systems, liner systems, flow control systems, sand
screens, expandable sand screen systems, expandable solid tubular systems and
intelligent completion technologies.

The Company's Artificial Lift 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, electrical
submersible pumps and production optimization services and automation and
monitoring of wellhead production. This segment also provides screens for
industrial applications.

The Company's Compression Services segment historically packaged, rented
and sold parts and provided services for gas compressor units over a broad
horsepower range.

72

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Financial information by industry segment for each of the three years ended
December 31, 2002 is summarized below. The total assets do not include the net
assets of discontinued operations. The accounting policies of the segments are
the same as those described in the summary of significant accounting policies.

- ---------------

(a) Includes Equity in (Earnings) Losses of Unconsolidated Affiliates, Net of
Impairment Charge. During 2002, the Company recorded an impairment charge of
$217.1 million, $146.2 million net of taxes, for its investment in
Universal.

73

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

23. CONSOLIDATING FINANCIAL STATEMENTS

As part of the June 26, 2002 reorganization, Weatherford Limited ("Parent")
guaranteed, on a full and unconditional basis, certain indebtedness of its
indirect wholly owned subsidiary, Weatherford Inc. ("Issuer") (See Note 2). The
following consolidating financial information for Parent and Issuer and all
other subsidiaries has been provided.

CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2002
(IN THOUSANDS)

74

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2002
(IN THOUSANDS)

75

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2002
(IN THOUSANDS)

76

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

24. QUARTERLY FINANCIAL DATA (UNAUDITED)

The following tabulation sets forth unaudited quarterly financial data for
2002 and 2001.

ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

77

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Pursuant to General Instruction G(3), information on directors and
executive officers of the Registrant will be filed in an amendment to Form 10-K
or incorporated by reference from the Company's Definitive Proxy Statement to be
filed pursuant to Regulation 14A.

ITEM 11. EXECUTIVE COMPENSATION

Pursuant to General Instruction G(3), information on executive compensation
will be filed in an amendment to Form 10-K or incorporated by reference from the
Company's Definitive Proxy Statement to be filed pursuant to Regulation 14A.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Pursuant to General Instruction G(3), information on security ownership of
certain beneficial owners and management will be filed in an amendment to Form
10-K or incorporated by reference from the Company's Definitive Proxy Statement
to be filed pursuant to Regulation 14A.

EQUITY COMPENSATION PLAN INFORMATION

As of December 31, 2002, the Company had the following compensation plans
(including individual compensation arrangements) under which equity securities
are authorized for issuance.

- ---------------

(a) The Weatherford International, Inc. 1998 Employee Stock Option Plan, as
amended (the "Plan"), is administered by the Compensation Committee of the Board
of Directors, and all employees are eligible to receive options under the Plan.
The Plan provides for the grant of nonqualified options to purchase common
shares of Weatherford International Ltd. The price at which shares may be
purchased is based on the market price of the shares and cannot be less than the
aggregate par value of the shares on the date the option was granted. Unless
otherwise provided in an option agreement, no option may be exercised after one
day less than 10 years from the date of vesting. Options generally become fully
exercisable after three to four years from the date of grant, subject to earlier
vesting in the event of the death, disability or retirement of the employee or
in the event of a change of control of the Company. The Plan provides for the
grant of options to purchase up to 22,000,000 shares. As of December 31, 2002,
there were options to purchase an aggregate of 18,252,479 common shares
outstanding under this Plan, of which options to purchase an aggregate of
4,357,794 common shares were vested.

78

On September 8, 1998, July 5, 2000 and September 26, 2001, the Company
granted to each of its directors other than Bernard Duroc-Danner an option or
warrant to purchase 93,632, 60,000 and 60,000 common shares, respectively, at a
purchase price per share equal to $11.615, $36.75 and $23.77, respectively,
which was the fair market value of our common shares as of the day we granted
the options or warrant. The options and warrants were issued under agreements
between us and the directors. Each option or warrant is exercisable for a period
of ten years from the date which it becomes fully exercisable. The options and
warrant granted on September 8, 1998 and July 5, 2000 become fully exercisable
three years from the date of grant, and the options and warrant granted on
September 26, 2001 become fully exercisable four years from the date of grant,
in each case subject to earlier vesting in the event of the death, disability or
retirement of the optionee or warrantholder or a change of control of the
Company. Under these agreements there were options and warrants to purchase an
aggregate of 1,128,160 common shares outstanding as of December 31, 2002, of
which options and warrants to purchase an aggregate of 655,424 common shares
were vested.

Under our Non-Employee Director Deferred Compensation Plan, each
non-employee director may elect to defer up to 7.5% of any fees paid by the
Company. The deferred fees are converted into non-monetary units representing
common shares that could have been purchased with the deferred fees based on the
average of the high and low market price of the common shares on the last day of
the month in which fees were deferred. If a non-employee director elects to
defer at least 5% of his fees, the Company will make an additional contribution
to the director's account equal to the sum of (1) 7.5% of the director's fees
plus (2) the amount of fees deferred by the director. The non-employee directors
are fully vested at all times. The Company's directors may generally determine
when distributions will be made from the plan. The amount of the distribution
will be a number of common shares equal to the number of units at the time of
distribution. Distributions are made in common shares.

The Company established its Foreign Executive Deferred Compensation Stock
Ownership Plan for key foreign employees. Under the Company's Foreign Executive
Deferred Compensation Stock Ownership Plan, the Company contributes 15% of each
participant's total salary, bonus and commission compensation each year. The
Company's contributions vest over a five-year period on the basis of 20% per
year for each year of service. Under the Foreign Executive Deferred Compensation
Stock Ownership Plan, the Company's contributions are converted into
non-monetary units equal to the number of common shares that could have been
purchased with the amounts contributed based on the average closing price of the
common shares for each day of the month in which contributions are made.
Distributions are made under the Foreign Executive Deferred Compensation Stock
Ownership Plan after a participant retires, becomes disabled or dies or after
his employment is terminated. Distributions under the Foreign Executive Deferred
Compensation Stock Ownership Plan are made in a number of common shares equal to
the number of units allocated to the participant's account at the time of
distribution.

On February 28, 2002, the Company issued Shell Technology Ventures Inc. a
warrant to purchase 3,232,214 common shares at a price of $60.00 per share. The
warrant has a nine-year exercisable life beginning one year after the issue
date. The warrant holder may exercise the warrant and settlement may occur
through physical delivery, net share settlement, net cash settlement or a
combination thereof. The warrant also may be converted into common shares at any
time after the third anniversary of the issue date. The number of common shares
issuable upon conversion would be equal to the Black-Scholes value of the
warrant divided by the average of the closing price of common shares for the
10-day period prior to the date of conversion.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Pursuant to General Instruction G(3), information on certain relationships
and related transactions will be filed in an amendment to Form 10-K or
incorporated by reference from the Company's Definitive Proxy Statement to be
filed pursuant to Regulation 14A.

79

PART IV

ITEM 14. CONTROLS AND PROCEDURES

Within the 90-day period prior to the filing of this Annual Report on Form
10-K, the Company carried out an evaluation, under the supervision and with the
participation of management, including the Chief Executive Officer and the Chief
Financial Officer, of the effectiveness of the Company's disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Exchange Act).
Based upon that evaluation, the Company's Chief Executive Officer and Chief
Financial Officer have concluded that the Company's disclosure controls and
procedures are effective to timely alert them to material information relating
to the Company (including its consolidated subsidiaries) required to be included
in the Company's Exchange Act filings. There was no significant changes in the
Company's internal controls, or in other factors that could significantly affect
the Company's internal controls, subsequent to the date of the Company's
evaluation.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as a part of this report or
incorporated herein by reference:

1. The consolidated financial statements of the Company listed on page
41 of this report.

2. The financial statement schedule on page 86 of this report.

3. The exhibits of the Company listed below under Item 15(c).

(b) Reports on Form 8-K

1. Current Report on form 8-K dated October 24, 2002, announcing the
Company's earnings for the quarter ended September 30, 2002.

2. Current Report on Form 8-K dated October 8, 2002, announcing the
following:

(i) a non-recurring charge of approximately $155 million, net of
taxes, related essentially to a write-down of the Company's
equity investment in Universal compression Holdings, Inc., and

(ii) comments on the Company's third and fourth quarter earnings
outlook.

(c) Exhibits

- ---------------

* Management contract or compensatory plan or arrangement

+ Filed herewith

As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the Company has
not filed with this Annual Report on Form 10-K certain instruments defining the
rights of holders of long-term debt of the Company and its subsidiaries because
the total amount of securities authorized under any of such instruments does not
exceed 10% of the total assets of the Company and its subsidiaries on a
consolidated basis. The Company agrees to furnish a copy of any of such
instruments to the Securities and Exchange Commission upon request.

85

We agree to furnish to any requesting stockholder a copy of any of the
above named exhibits upon the payment of our reasonable expenses of obtaining,
duplicating and mailing the requested exhibits. All requests for copies of
exhibits should be made in writing to our Investor Relations Department at 515
Post Oak Blvd., Suite 600, Houston, TX 77027.

(d) Financial Statement Schedule

SCHEDULE II

WEATHERFORD INTERNATIONAL LTD. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS AND ALLOWANCES
FOR THE THREE YEARS ENDED DECEMBER 31, 2002

All other schedules are omitted because they are not required or because
the information is included in the financial statements or notes thereto.

86

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Houston, State of Texas, on March 14, 2003.

WEATHERFORD INTERNATIONAL LTD.

By: /s/ BERNARD J. DUROC-DANNER
------------------------------------
Bernard J. Duroc-Danner
President, Chief Executive Officer,
Chairman of the Board and Director
(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

87

CERTIFICATIONS

I, Bernard J. Duroc-Danner, certify that:

1. I have reviewed this annual report on Form 10-K of Weatherford International
Ltd.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 14, 2003

/s/ BERNARD J. DUROC-DANNER
--------------------------------------
Bernard J. Duroc-Danner
President, Chief Executive Officer,
Chairman of the Board and Director

88

I, Lisa W. Rodriguez, certify that:

1. I have reviewed this annual report on Form 10-K of Weatherford International
Ltd.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 14, 2003

/s/ LISA W. RODRIGUEZ
--------------------------------------
Lisa W. Rodriguez
Senior Vice President and
Chief Financial Officer

89

EXHIBIT INDEX

- ---------------

* Management contract or compensatory plan or arrangement

+ Filed herewith