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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended September 30, 2002

OR

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

For the Transition Period from ________________ to ________________

Commission File No. 0-22623

OCULAR SCIENCES, INC.
(Exact name of registrant as specified in its charter)

1855 Gateway Boulevard, Suite 700
Concord, California 94520
(Address of principal executive offices, including zip code)

(925) 969-7000
(Registrant’s telephone number, including area code)

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 [   ].

As of October 24, 2002, there were outstanding 23,757,308 shares of the registrant’s Common Stock, par value $0.001 per share.

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OCULAR SCIENCES, INC.
INDEX

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PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements

OCULAR SCIENCES, INC.
Condensed Consolidated Balance Sheets — (unaudited)
(In thousands, except share and per share data)

See accompanying notes to condensed consolidated financial statements.

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OCULAR SCIENCES, INC.
Condensed Consolidated Statements of Income — (unaudited)
(In thousands, except share and per share data)

See accompanying notes to condensed consolidated financial statements.

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OCULAR SCIENCES, INC.
Condensed Consolidated Statements of Cash Flows — (unaudited)
(In thousands)

See accompanying notes to condensed consolidated financial statements.

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OCULAR SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 — Basis of Preparation

     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not contain all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements at and for the year ended December 31, 2001 and, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of our financial condition as of September 30, 2002 and the results of our operations and comprehensive income for the three and nine-month periods ended September 30, 2002 and 2001, respectively, and our cash flows for the nine-month periods ended September 30, 2002 and 2001. These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements as of December 31, 2001 and 2000 and for each of the three years ended December 31, 2001, including notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2001. Operating results for the nine-month period ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002.

All amounts, unless otherwise indicated are in U.S. dollars.

Note 2 — New Accounting Standards

     The Financial Accounting Standards Board’s Emerging Issues Task Force (EITF) issued EITF 00-14, “Accounting for Certain Sales Incentives”, effective January 1, 2002. EITF 00-14 requires that costs related to consumer coupons be classified as a reduction of sales. We reclassified as deductions in net sales approximately $451,000 and $1,025,000 of expenses which were previously classified as selling and marketing expenses in the three and nine months ended September 30, 2001, respectively.

     The EITF also issued EITF 00-25, “Vendor Income Statement Characterization of Consideration to a Purchaser of the Vendor’s Products or Services”, effective January 1, 2002. EITF 00-25 requires that certain of our customer promotional incentive payments, primarily cooperative merchandising allowances, be classified as a reduction of sales. We reclassified as deductions in net sales approximately $7.2 million and $19.8 million of customer promotional incentives that were previously classified as selling and marketing expenses in the three and nine months ended September 30, 2001, respectively.

     On January 1, 2002, we adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The implementation of SFAS No. 144 did not have a material impact on our consolidated financial statements.

     The FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” in June, 2002. SFAS No. 146 addresses accounting and reporting for costs associated with exit and disposal activities and supercedes EITF No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, as defined by the Statement. Under EITF 94-3, an exit cost was recognized at the date an entity committed to an exit plan. Additionally, SFAS No. 146 provides that exit and disposal costs should be measured at fair value and that the associated liability will be adjusted for changes in estimated cash flows. The provisions of SFAS No. 146 are effective for exit and disposal activities initiated after December 31, 2002.

Note 3 — Balance Sheet Items

     Inventories consisted of the following (in thousands):

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     Prepaid expenses and other current assets consisted of the following (in thousands):

     Accrued liabilities consisted of the following (in thousands):

Note 4 — Goodwill and Other Intangible Assets

     In July 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 142 provides guidance on how to account for goodwill and certain intangible assets after an acquisition is completed. The most substantive change is that goodwill and other indefinite life intangible assets can no longer be amortized but instead should be periodically tested for impairment. Therefore, we no longer amortize goodwill and certain other intangible assets, principally assembled workforce.

     We have completed the first step of SFAS No. 142 transitional goodwill impairment test and have determined that as of January 1, 2002 our goodwill had not been impaired. In the future, we will perform the annual impairment test required by SFAS No. 142 in the fourth quarter of each fiscal year.

     Goodwill and other intangible assets (gross) consisted of the following (in thousands):

     Accumulated amortization consisted of the following (in thousands):

     Goodwill and other intangible assets, net of accumulated depreciation, consisted of the following (in thousands):

The total weighted average amortization period of intangible assets subject to amortization is approximately 11 years.

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     Intangible assets subject to amortization consist primarily of marketing rights, patents, customer lists, core technology and trade names. Amortization expense for intangible assets subject to amortization amounted to approximately $630,000 and $1,403,000 for the three and nine months ended September 30, 2002, respectively and approximately $360,000 and $1,071,000 for the three and nine months ended September 30, 2001, respectively.

     Amortization expense for each of the five succeeding fiscal years will amount to approximately (in thousands):

     As required under SFAS No. 142, we have ceased to amortize goodwill and assembled workforce beginning January 1, 2002. As of September 30, 2002, unamortized goodwill and assembled workforce was approximately $39 million. This reduction in amortization effective January 1, 2002 may affect the comparability of current period results of operations with prior periods. The following table discloses what reported net income, including income tax effects, and basic and diluted net income per share would have been in all periods presented exclusive of amortization expense (in thousands, except for per share amounts):

Note 5 — Comprehensive Income

     Comprehensive income consisted of (in thousands):

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Note 6 — Net Income Per Share

     In accordance with SFAS No. 128, “Earnings Per Share,” basic earnings per share is calculated using the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated using the weighted average number of common shares and dilutive potential common shares outstanding during the period. Dilutive potential common shares represent shares issuable upon the exercise of outstanding options and are calculated using the treasury stock method.

     Options to purchase 971,720 and 813,270 shares of our common stock for the three and nine months ended September 30, 2002, respectively, were not included in the computation of diluted earnings per share because their exercise prices were greater than the average market price of our common stock of $24.05 and $25.89 per share, respectively. Options to purchase 913,070 and 1,284,390 shares of our common stock for the three and nine months ended September 30, 2001, respectively, were not included in the computation of diluted earnings per share because their exercise prices were greater than the average market price of our common stock of $21.51 and $19.27 per share, respectively.

Note 7 — Acquisition of the Contact Lens Business from Essilor International S.A.

     On February 12, 2001, we acquired the contact lens business of Essilor International (Compagnie Generale d’Optique) S. A. (“Essilor”). We acquired Essilor’s sales and distribution assets of the contact lens business in Europe and the United States and manufacturing facilities in France, the United Kingdom and the United States. The primary reasons for this acquisition were to expand our presence in Europe and to increase our breadth of product offerings.

     We have accounted for the acquisition using the purchase method. Accordingly, the operating results of Essilor are included in our operating results from February 1, 2001.

     The $48,590,000 purchase price for the assets acquired and liabilities assumed was comprised of $44,476,000 in cash and $4,114,000 in acquisition costs. There were no contingent payments, pre-acquisition contingencies or other commitments specified in the acquisition agreement.

     The purchase price has been allocated as follows (in thousands):

     Included in the liabilities assumed are accruals for costs associated with exiting certain activities and facilities of the acquired Essilor operations that were considered duplicative. This includes accruals for severance costs related to workforce reductions across all functions and exit costs associated with exiting certain facilities, dismantling equipment and other miscellaneous exit costs. Details of the exit costs and severance costs paid and charged against the accrual are presented in the following table (in thousands):

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     Management began formulating the plans to exit certain activities and facilities of the acquired Essilor operations at the time of the acquisition and expects to complete all actions under such plans by June 30, 2003.

     The purchase price was more than the fair value of the net assets acquired of approximately $20,960,000, resulting in goodwill of approximately $27,630,000. Subsequent to December 31, 2001, goodwill and assembled workforce have not been subject to amortization due to their infinite lives. Customer lists, existing technology and trade names are included as components of intangible assets and are being amortized on a straight-line basis over their useful lives as listed in the table below:

     The total weighted average amortization period of intangible assets subject to amortization is approximately 12 years.

     As a result of the acquisition, we recorded acquired in-process research and development totaling $4,150,000. This charge relates to Essilor’s Fully Molded Toric Lenses and Photochromic Lenses, all of which were under development on the date of the acquisition. These projects under development were valued on the premise of fair market value in continued use employing a version of the income approach referred to as the discounted cash flow approach. This methodology is based on discounting to present value, at an appropriate risk-adjusted discount rate, both the expenditures to be made to complete the development efforts and the operating cash flows which the applications are projected to generate, less a return on the assets necessary to generate the operating cash flows.

     From these projected revenues, we deducted costs of sales, operating costs, royalties and taxes to determine net cash flows. We estimated the percentage of completion of the development efforts for each product by comparing the estimated costs incurred and portions of the development accomplished prior to the acquisition date, to the total estimated costs and total development efforts required to fully develop these products. This percentage was calculated for each product and was then applied to the net cash flows that each product was projected to generate. These net cash flows were then discounted to present values using appropriate risk-adjusted discount rates in order to arrive at discounted fair values for each product.

     The following table reflects unaudited pro forma combined results of operations of the Company and Essilor on the basis that the acquisition had taken place on January 1, 2001 (in thousands, except per share data):

Note 8 — Acquisition of Assets of Seiko Contactlens, Inc.

     On March 11, 2002, we entered into an agreement to acquire certain assets of Seiko Contactlens, Inc. (“Seiko”). The purchase was completed on April 1, 2002. The primary reasons for this acquisition were to strengthen our presence and enhance our competitive positioning in Japan.

     As part of the acquisition, we hired 74 Seiko sales and administrative personnel. Seiko had been our distributor in Japan.

     We have accounted for the acquisition under the purchase method of accounting and accordingly the operating results of Seiko have been included in our operating results from April 1, 2002.

     The purchase price consisted of (in thousands):

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     The accounts receivable represents amounts owed to us from Seiko and exchanged as part of the acquisition.

     We have preliminarily evaluated the assets and liabilities acquired and have allocated the $21.6 million purchase price based on this evaluation, which is subject to change. The preliminary purchase price allocation consisted of (in thousands):

     Goodwill has not been subject to amortization due to its infinite life. Customer lists and favorable contracts are included as components of intangible assets and are being amortized on a straight-line basis over their useful lives as listed in the table below: