SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

For the Quarterly Period Ended June 30, 2004

OR

Commission File Number 1-13884

Cooper Cameron Corporation

713/513-3300
(Registrant’s Telephone Number, Including Area Code)

N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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 July 28, 2004 was 54,933,658.

Table of Contents

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 CONDENSED FINANCIAL STATEMENTS
Unaudited

Note 1 — Basis of Presentation

     The accompanying Unaudited Consolidated Condensed 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.

     During the second quarter of 2004, the Company’s Board of Directors accelerated the vesting on 622,262 option shares previously granted to employees of the Company.

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There was no compensation expense associated with this action since the stock price related to the accelerated options was above the fair market value of the Company’s common stock on the day the acceleration was affected. However, approximately $7.0 million of compensation expense under the fair value method was accelerated as a result of this action and has been reflected in the above pro forma table as additional compensation expense for the three- and six-month periods ended June 30, 2004.

Note 2 — Refinancing Activities

     During the first six months of 2004, the Company undertook a number of steps to refinance its existing convertible debentures and repurchase shares of the Company’s stock. These steps included:

	•		the issuance of $200.0 million of 2.65% senior notes due 2007 (the “Senior Notes”),
	•		the issuance of $238.0 million of 1.5% convertible senior debentures due 2024 (the “1.5% Convertible Senior Debentures”),
	•		the repurchase of the Company’s existing zero coupon convertible senior debentures due 2021 (amounting to $259.5 million, net of a $61.2 million discount),
	•		the repurchase of $184.3 million of the Company’s existing 1.75% convertible senior debentures due 2021,
	•		the repurchase of 1,190,900 shares of the Company’s outstanding common stock at an average purchase price of $47.78 per share.

     In connection with the early retirement of the zero coupon convertible senior debentures due 2021 and $184.3 million of the 1.75% convertible senior debentures due 2021, the Company recorded a $6.8 million pre-tax charge ($4.6 million after-tax) to write off the unamortized debt issuance costs associated with these debentures. This charge has been reflected in the caption entitled “Interest Expense” in the accompanying Consolidated Results of Operations.

     After giving effect to the above transactions, the Company’s long-term debt at June 30, 2004 consisted of (in millions):

     The $200.0 million of Senior Notes due 2007 were issued during the first quarter of 2004 and bear interest at 2.65%, payable semi-annually in April and October of each year. During May 2004, the Company entered into interest rate swap agreements, the effect of which is to swap $150.0 million principal value of the Senior Notes to a variable interest rate of approximately

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LIBOR minus 0.8%. The Senior Notes were issued at a $138,000 discount. The Senior Notes do not contain any restrictive financial covenants.

     The $238.0 million of 1.5% Convertible Senior Debentures due 2024 were issued during the second quarter of 2004 and bear interest at 1.5%, payable semi-annually in May and November of each year. The Company has the right to redeem the debentures beginning on or after May 15, 2009. The holders of the debentures may require the Company to repurchase the debentures on May 15, 2009, 2014 and 2019. The debentures are convertible into the Company’s common stock at a rate of 14.4857 shares per debenture, or $69.03 per share. The holders can convert the debentures into the Company’s common stock only under the following circumstances:

	•		during any quarter in which the sales price of the Company’s common stock exceeds 120% of the conversion price for at least 20 consecutive trading days in the 30 consecutive trading-day period ending on the last trading day of the immediately preceding quarter,
	•		during any five consecutive trading-day period immediately following any five consecutive trading-day period in which the average trading price for the debentures is less than 97% of the average conversion value of the debentures,
	•		upon fundamental changes in the ownership of the Company’s common stock.

     Upon conversion, the Company may choose to deliver, in lieu of shares of common stock, cash or a combination of cash and shares of the Company’s common stock. Additionally, at any time before conversion, the Company may irrevocably elect to satisfy with cash its conversion obligation for up to 100% of the principal amount of any debentures submitted for conversion, with any remaining amount to be satisfied in shares of the Company’s common stock.

Note 3 — Selling and Administrative Expenses

     During the three and six months ended June 30, 2004, the Company’s selling and administrative expenses included severance costs totaling $0.6 million and $4.1 million, respectively, primarily related to a reduction in the workforce within the Cameron division. During the three and six months ended June 30, 2003, the Company’s selling and administrative expenses included zero and $5.5 million, respectively, 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.

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Note 4 — Employee Benefit Plans

     Total net benefit expense associated with the Company’s defined benefit pension plans consisted of the following:

     Total net benefit expense associated with the Company’s postretirement benefit plans consisted of the following:

     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.

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Note 5 — 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 that 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.

     A preliminary purchase price allocation for the Petreco acquisition resulted in goodwill of approximately $75.3 million at June 30, 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 6 — Segments

     Petreco’s results of operations subsequent to the acquisition date are included within the Cameron division. 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.

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Note 7 — Certain Balance Sheet Components

     Inventories consisted of the following:

     Plant and equipment consisted of the following: