SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

For the Quarterly Period Ended March 31, 2004

OR

Commission File Number 1-13884

Cooper Cameron Corporation

713/513-3300

N/A

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.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Number of shares outstanding of issuer’s common stock as of April 26, 2004 was 53,718,441.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

COOPER CAMERON CORPORATION
CONSOLIDATED RESULTS OF OPERATIONS
(dollars and shares in millions, except per share data)

The accompanying notes are an integral part of these statements.

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COOPER CAMERON CORPORATION
CONSOLIDATED BALANCE SHEETS
(dollars in millions, except shares and per share data)

The accompanying notes are an integral part of these statements.

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COOPER CAMERON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)

The accompanying notes are an integral part of these statements.

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COOPER CAMERON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

Note 1 — Basis of Presentation

     The accompanying Unaudited Consolidated Financial Statements of Cooper Cameron Corporation (the “Company”) have been prepared in accordance with Rule 10-01 of Regulation S-X and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. Those adjustments, consisting only of normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the financial information for the interim periods, have been made. The results of operations for such interim periods are not necessarily indicative of the results of operations for a full year. The Unaudited Consolidated Condensed Financial Statements should be read in conjunction with the Audited Consolidated Financial Statements and Notes thereto filed by the Company on Form 10-K/A for the year ended December 31, 2003.

     As described more fully in the Company’s Annual Report on Form 10-K/A referred to above, the Company measures compensation expense for its stock-based compensation plans using the intrinsic value method. The following table illustrates the pro forma effect on net income and earnings per share if the Company had used the alternative fair value method to recognize stock-based employee compensation expense.

Note 2 — Plant Closing, Business Realignment and Other Related Costs

     During the first quarter of 2004, the Company’s selling and administrative expenses included severance costs totaling $3.4 million primarily related to an involuntary workforce reduction program at the Cameron division. During the first quarter of 2003, the Company’s selling

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and administrative expenses included $5.5 million of plant closing, business realignment and other related costs. This amount was comprised of (i) $3.0 million of costs for employee severance, relocation and plant closure activities incurred by Cooper Compression in connection with the decision announced in the fourth quarter of 2002 to close 13 facilities in the gas compression business, (ii) $1.0 million related to the Company’s international tax restructuring activities which were begun in 2002 and (iii) $1.5 million related to a litigation award associated with the use of certain intellectual property obtained in connection with a previous acquisition.

Note 3 — Employee Benefit Plans

     Total net benefit expense associated with the Company’s defined benefit pension and postretirement benefit plans consisted of the following for the three months ended March 31, 2004 and 2003:

     The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was enacted by the U.S. government on December 8, 2003. The Act introduced a prescription drug benefit under Medicare (Medicare Part D) as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. As provided by Financial Staff Position No. FAS 106-1, issued by the Financial Accounting Standards Board, the Company has elected to defer recognizing the effects of the Act in the accounting for the accumulated postretirement benefit obligations and net postretirement benefit costs of its retiree health care benefit plans until authoritative guidance on the accounting for the federal subsidy is issued or until certain other events occur, if required, for the Company to benefit from the new legislation. Such guidance or events could change previously reported information.

Note 4 — Acquisitions

     On February 27, 2004, the Company acquired one hundred percent of the outstanding stock of Petreco International Inc., a Houston-based supplier of oil and gas separation products for approximately $90.0 million, net of cash acquired and debt assumed. Petreco provides highly engineered, custom processing products to the oil and gas industry worldwide and provides the Company with additional product offerings which are complementary to its existing products. Petreco’s unaudited revenues and pre-tax income for 2003 were approximately $117.0 million and $12.0 million, respectively. Petreco’s results are included in the Company’s consolidated financial statements for the period subsequent to the acquisition date.

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     A preliminary purchase price allocation for the Petreco acquisition resulted in goodwill of approximately $75.1 million at March 31, 2004. The purchase price allocation is subject to adjustment as the Company is awaiting additional information relating to the fair value of Petreco’s assets and liabilities.

Note 5 — Segments

     Petreco’s results of operations subsequent to the acquisition date are included within the Cameron division since Petreco’s results are immaterial to both Cameron and the Company. Corporate & other includes expenses associated with the Company’s Corporate office in Houston, Texas as well as all of the Company’s interest income and interest expense.

Note 6 — Certain Balance Sheet Components

     Inventories consisted of the following:

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     Plant and equipment consisted of the following:

     Net goodwill consisted of the following:

     Accounts payable and accrued liabilities consisted of the following:

Note 7 — Refinancing Activities

     During the first quarter of 2004, the Company began implementing a plan to retire its outstanding twenty-year zero coupon convertible debentures (the “Zero-Coupon Convertible Debentures”) and the $200.0 million 1.75% convertible debentures (the “1.75% Convertible Debentures”). This plan consisted of the following:

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The issuance on March 15, 2004 of $200.0 million of fixed rate senior notes due April 15, 2007 (the “Senior Notes”). The Senior Notes carry a coupon rate of 2.65% payable semi-annually on April 15 and October 15 and were priced at a discount to yield 2.673%. Net proceeds to the Company totaled approximately $199.0 million.

The Company may redeem some or all of the Senior Notes at any time and from time to time before their maturity date at its option at a make-whole redemption price, together

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with accrued and unpaid interest, if any, to the redemption date. The Senior Notes are senior unsecured obligations of the Company and rank equally in right of payment with the Company’s existing and future senior unsecured debt. The Senior Notes contain certain customary covenants; however, the Senior Notes do not contain any financial covenants.

The proceeds of the Senior Notes, along with available cash balances and amounts available under the Company’s existing $200.0 million revolving credit facility, if needed, are expected to be utilized to repurchase all or a portion of the Zero-Coupon Convertible Debentures, the holders of which have the right to require the Company to repurchase the debentures on May 17, 2004. The repurchase price of such debentures would be approximately $259.5 million.

•

On April 6, 2004, the Company filed a Schedule TO with the Securities and Exchange Commission to commence a cash tender offer, at par, to purchase any and all of the outstanding 1.75% Convertible Debentures. The purpose of the tender offer is to acquire all of these debentures as a step in refinancing the indebtedness represented thereby. The Company will deliver any debentures that are purchased in the tender offer to a Trustee, for cancellation, and those debentures will cease to be outstanding. The tender offer is subject to a number of conditions including the Company’s ability to generate financing sufficient to pay the purchase price for all validly tendered debentures. The Company intends to obtain the funds necessary to pay the purchase price through the public or private sale of the Company’s debt or convertible debt securities. The Company also entered into an additional $200.0 million 364-day credit facility on April 21, 2004 that can only be used to provide additional liquidity should the tender offer be successful and the debt capital markets not be available to the Company at acceptable terms.

The tender offer is scheduled to expire at 9:00 a.m., New York City time, on May 5, 2004, unless extended or earlier terminated by the Company. The tender offer is not subject to the receipt of any minimum amount of tenders.

Should the Zero-Coupon Convertible Debentures and the 1.75% Convertible Debentures be retired as discussed above, the Company would be required to write off the unamortized portion of the debt issuance costs associated with these debentures, which amounted to $7.2 million in the aggregate at March 31, 2004.

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Note 8 — Comprehensive Income

     The amounts of comprehensive income for the three months ended March 31, 2004 and 2003 were as follows:

1 The significant changes in the “Foreign currency translation gain (loss)” relate primarily to the Company’s operations in the United Kingdom, France, Canada, Ireland and Venezuela.

     The components of accumulated other elements of comprehensive income at March 31, 2004 and December 31, 2003 were as follows:

Note 9 — Earnings Per Share

     The calculation of diluted shares outstanding is as follows:

     During the three months ended March 31, 2004, the number of basic and diluted shares outstanding were impacted by the acquisition of 251,900 shares of treasury stock at an average

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price of $43.41 per share and the issuance of 142,686 shares of treasury stock in satisfaction of employee stock option exercises.

     The calculation of net income used in computing diluted earnings per common share is as follows:

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     In addition to the historical data contained herein, this document includes “forward-looking statements” regarding future revenues and earnings of the Company, as well as expectations regarding cash flows and future capital spending, made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company’s actual results may differ materially from those described in forward-looking statements. These statements are based on current expectations of the Company’s performance and are subject to a variety of factors, some of which are not under the control of the Company, which can affect the Company’s results of operations, liquidity or financial condition. Such factors may include overall demand for, and pricing of, the Company’s products; the size and timing of orders; the Company’s ability to successfully execute large subsea projects it has been awarded; changes in the price of and demand for oil and gas in both domestic and international markets; political and social issues affecting the countries in which the Company does business; fluctuations in currency and financial markets worldwide; and variations in global economic activity. In particular, current and projected oil and gas prices have historically affected customers’ spending levels and their related purchases of the Company’s products and services; recently, however, there has been less linkage between commodity prices and spending. Additionally, the Company may change its cost structure, staffing or spending levels due to changes in oil and gas price expectations and the Company’s judgment of how such changes might impact customers’ spending. See additional factors discussed in “Factors That May Affect Financial Condition and Future Results” contained herein.

     Because the information herein is based solely on data currently available, it is subject to change as a result of changes in conditions over some of which the Company has no control or influence, and should not therefore be viewed as assurance regarding the Company’s future performance. Additionally, the Company is not obligated to make a public announcement of such changes unless required under applicable disclosure rules and regulations.

FIRST QUARTER 2004 COMPARED TO FIRST QUARTER 2003

     Cooper Cameron Corporation had net income of $17.3 million, or $0.31 per share on a diluted basis, for the first quarter of 2004 compared to $8.4 million, or $0.15 per share on a diluted basis, for the first quarter 2003. The results for the first quarter of 2004 and 2003 included pre-tax charges of $3.4 million and $5.5 million, respectively, ($2.5 million and $4.1 million after-tax, respectively). The charges recorded in the first quarter of 2004 represented severance costs primarily related to an involuntary workforce reduction program at the Cameron division. The charges recorded in the first quarter of 2003 consisted primarily of costs related to (i) facility closing activities in the Cooper Compression division, (ii) the Company’s international tax restructuring activities and (iii) a litigation award associated with the use of certain intellectual property obtained in connection with a previous acquisition.

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REVENUES

     Revenues for the first quarter of 2004 totaled $462.5 million, an increase of 28.1% from $361.1 million for the first quarter of 2003. All divisions experienced revenue gains, with increased subsea deliveries in Cameron accounting for the majority of the increase in revenues.

     Revenues for the first quarter of 2004 for Cameron totaled $310.5 million, an increase of 36.6% from $227.3 million for the first quarter of 2003. Movement in foreign currencies and the acquisition of Petreco caused a $14.4 million and $11.3 million increase, respectively, in revenues. Revenues in the subsea market increased 97.3%, revenues in the surface market increased 4.0% and revenues in the drilling market increased 16.4%. The increase in subsea revenues was attributable to deliveries associated with the large subsea orders received during 2002, primarily related to projects located offshore Africa and eastern Canada. The increase in surface revenues was primarily the result of increases in Mexico and Canada. The increase in drilling revenues was primarily attributable to large project shipments in the Asia Pacific/Middle East region.

     Revenues for the first quarter of 2004 for CCV totaled $77.2 million, an increase of 7.4% from $71.9 million for the first quarter of 2003. Sales in the distributor product line increased 8.3% primarily as a result of movement in foreign currencies. Sales in the engineered product line increased 12.1% which primarily reflects increased shipments in the Orbit product line attributable to large project awards during the latter part of 2003 as well as movements in foreign currencies.

     Revenues for the first quarter of 2004 for Cooper Compression totaled $74.8 million, an increase of 20.8% from $61.9 million for the first quarter of 2003. Aftermarket and new unit sales in the gas compression market increased approximately 6.7% and 177.3%, respectively. The increase in aftermarket sales was primarily driven by increased overhaul work and higher international shipments of parts. The increase in new units sales was primarily driven by increased foreign sales, particularly Mexico. In the air compression portion of Cooper Compression’s business, new unit sales increased 14.0% and aftermarket sales increased 36.9%. Both of these increases were driven by increased demand from the Far East.

COSTS AND EXPENSES

     Gross margin (exclusive of depreciation and amortization) for the first quarter of 2004 was $116.8 million as compared to $104.0 million for the first quarter of 2003, an increase of 12.3%. Gross margin as a percentage of revenues for the first quarter of 2004 decreased to 25.2% from 28.8% for the first quarter of 2003.

     Cameron’s gross margin percentage decreased to 22.8% in the first quarter of 2004 from 27.9% in the first quarter of 2003. This decrease is primarily attributable to: (i) shipment of lower margin large project work in the drilling product line, which decreased the overall gross margin percentage by 1.1%, (ii) increased liquidated damage reserves and warranty and other related costs in the subsea product line which decreased the overall gross margin percentage by 2.3% and (iii) increased subsea project shipments, which decreased the overall gross margin

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percentage by approximately 1.7%. These decreases were partially offset by increased royalty income which increased the overall gross margin percentage by approximately 0.6%.

     CCV’s gross margin percentage decreased to 30.1% for the first quarter of 2004 from 31.3% in the first quarter of 2003 due primarily to increased write-off of slow moving inventory which decreased the overall gross margin percentage by 1.9% partially offset by increased margins in the distribution and pipeline ball valve markets.

     Cooper Compression’s gross margin percentage increased to 30.4% in the first quarter of 2004 from 29.2% in the first quarter of 2003, due primarily to (i) increased pricing (principally on international orders in the air compression business) which increased the overall gross margin percentage by 0.6%, (ii) manufacturing efficiencies which increased the overall gross margin percentage by 0.5% and (iii) the spreading of relatively fixed overhead over a larger revenue base which increased the overall gross margin percentage by 5.3%. These increases were partially offset by the favorable impact of the liquidation of certain low-cost LIFO layers in 2003 which increased 2003’s overall gross margin percentage by 5.8%

     Depreciation and amortization expense for the first quarter of 2004 was $20.5 million, an increase of $0.1 million from $20.4 million for the first quarter of 2003. No significant changes occurred in depreciation and amortization expense.

     Selling and administrative expenses for the first quarter of 2004 were $70.9 million, a decrease of $0.7 million from $71.6 million for the first quarter of 2003. The decline in selling and administrative expenses is primarily attributable to a $2.1 million reduction in plant closing, business realignment and other related costs. This decrease was partially offset by the impact of a weaker U.S. dollar against most European currencies and the Canadian dollar which caused a $2.0 million increase in selling and administrative expense. Included in selling and administrative expenses for the first quarter of 2004 was $3.4 million of severance costs primarily related to an involuntary workforce reduction program at the Cameron division. Included in selling and administrative expenses for the first quarter of 2003 was $5.5 million of plant closing, business realignment and other related costs related to (i) facility closing activities in the Cooper Compression division, (ii) the Company’s international tax restructuring activities and (iii) a litigation award associated with the use of certain intellectual property obtained in connection with a previous acquisition.

     Interest income for the first quarter of 2004 was $1.3 million as compared to $1.4 million for the first quarter of 2003. Interest expense for the first quarter of 2004 was $2.4 million as compared to $2.0 million for the first quarter of 2003. The increase in interest expense primarily results from the issuance of the Senior Notes.

     The income tax provision for the first quarter of 2004 was $7.0 million as compared to $3.0 million for the first quarter of 2003. The estimated effective tax rate for the first quarter of 2004 was 29.0% as compared to 26.0% in the first quarter of 2003. The increase in the estimated effective tax rate for the first quarter of 2004 primarily reflects a shift in 2004 earnings to higher tax rate jurisdictions as compared to 2003.

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ORDERS & BACKLOG

     Orders were as follows: