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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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

For the transition period from                  to                 

Commission file number 1-10945

OCEANEERING INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

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  Ö , 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. Yes  Ö , No     .

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes  Ö , No     .

        Aggregate market value of the voting stock held by non-affiliates of the registrant at March 13, 2003, based upon the closing sale price of the Common Stock on the New York Stock Exchange:                                                                        $497,035,000

        Number of shares of Common Stock outstanding at March 13, 2003:                                                          24,360,274

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Portions of the proxy statement relating to the registrant’s 2003 annual meeting of shareholders, to be filed on or before April 30, 2003 pursuant to Regulation 14A of the Securities Exchange Act of 1934, are incorporated by reference to the extent set forth in Part III, Items 10-13 of this report.

PART I

ITEM 1. BUSINESS.

General Development of Business

Oceaneering International, Inc. is an advanced applied technology company that provides a comprehensive range of integrated technical services and hardware to customers who operate in harsh environments, such as underwater, space and other hazardous areas. Oceaneering was organized in 1969 out of the combination of three diving service companies founded in the early 1960s. Since our establishment, we have concentrated on the development and marketing of underwater services and products requiring the use of advanced deepwater technology. We are one of the world’s largest underwater services contractors. We provide most of our services and products to the oil and gas industry. These include drilling support, subsea construction, design, lease and operation of production systems, facilities maintenance and repair, specialty subsea hardware and specialized onshore and offshore engineering and inspection. We have locations in the United States and 16 other countries. Our international operations, principally in the North Sea, Africa, Brazil, Australia and Asia, accounted for approximately 47% of our revenue, or $255 million, for the year ended December 31, 2002.

We operate in five business segments. The segments are contained within two businesses – services and products provided to the offshore oil and gas industry (“Offshore Oil and Gas”) and all other services and products (“Advanced Technologies”). Our business segments within the Offshore Oil and Gas business are Remotely Operated Vehicles (“ROVs”), Subsea Products, Mobile Offshore Production Systems and Other Services. We report our Advanced Technologies business as one segment. In each of our businesses, we have been concentrating on expanding our capabilities to provide technical solutions to our customers.

Effective November 1, 2000, our Board of Directors changed our fiscal year-end to December 31 from March 31. In connection with this transition, we reported on the nine-month period from April 1, 2000 to December 31, 2000.

Offshore Oil and Gas. In the last few years, the focus of our Offshore Oil and Gas business has been toward increasing our asset base for providing services and products for deepwater offshore operations and subsea completions. Prior to 1996, we purchased most of our remotely operated vehicles, often referred to as ROVs, which are submersible vehicles operated from the surface and widely used in the offshore oil and gas industry. However, in response to increased demand for more powerful systems operating in deeper water, we expanded our capabilities and established an in-house facility to design and build ROVs to meet the continued expansion of our ROV fleet. This facility was established and became fully operational in January 1998. We have built over 75 ROV systems, and we are producing all our new ROVs in-house. In September 2000, we exchanged our diving-related assets in Asia, Australia and the Middle East for 11 ROVs. The diving-related assets were part of our Other Services segment. For the past couple of years, we have kept the number of our work-class ROVs at a constant level and have built new systems for replacement and upgrade of the existing fleet.

Through our Oceaneering Multiflex division, we are a leading provider of subsea hydraulic and electrohydraulic umbilicals. Umbilicals are used by offshore operators to, among other things, control subsea wellhead hydrocarbon flow rates. We entered this market in March 1994 through our purchase of the operating subsidiaries of Multiflex International Inc. During 1998, we constructed a new umbilical plant in Brazil and relocated, modernized and increased the capabilities of our umbilical manufacturing facility in Scotland. Both new facilities began operations in the first half of 1999.

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We own three operating mobile offshore production systems:

We own and operate two multiservice vessels, the Ocean Intervention and the Ocean Intervention II, which went into service in the fourth quarter of calendar 1998 and the third quarter of calendar 2000, respectively. These multiservice vessels are equipped with thrusters that allow them to be dynamically positioned, which means the vessels can maintain a constant position at a location without the use of anchors. They are used in pipeline or flowline tie-ins, pipeline crossings and subsea hardware interventions and installations. Both vessels can carry and install significant lengths of coiled tubing or umbilicals required to bring subsea well completions into production (tie-back to production facilities). These two vessels are part of our Other Services segment.

Advanced Technologies. In August 1992 and May 1993, we purchased two businesses that formed the basis of our Advanced Technologies segment. The first business designed, developed and operated robotic systems and ROVs specializing in non-oilfield markets and provided the basis for our expansion into commercial and government subsea cable field support, maintenance and repair, civil works projects and commercial theme park animation in 1993. The second business designed, developed and fabricated spacecraft hardware and high-temperature insulation products.

We intend to continue our strategy of acquiring, as opportunities arise, additional assets or businesses, to improve our market position or expand into related service and product lines, either directly through merger, consolidation or purchase, or indirectly through joint ventures. We are also applying our skills and technology in further developing business unrelated to the oil and gas industry and performing services for government agencies and firms in the aerospace and civil engineering and construction industries.

Financial Information about Segments

For financial information about our business segments, please see the table in Note 6 of the Notes to Consolidated Financial Statements in this report, which presents revenue, income from operations, depreciation and amortization expense, identifiable assets, goodwill and capital expenditures by business segment for the years ended December 31, 2002 and 2001 and the nine-month period ended December 31, 2000.

Description of Business

OFFSHORE OIL AND GAS

Our Offshore Oil and Gas business consists of ROVs, Subsea Products, Mobile Offshore Production Systems and Other Services.

ROVs. ROVs are submersible vehicles operated from the surface. They are widely used in the offshore oil and gas industry for a variety of underwater tasks, including drill support, installation and construction support, pipeline inspection and surveys and subsea production facility operation and maintenance. ROVs may be outfitted with manipulators, sonar, video cameras, specialized tooling packages and other equipment or features to facilitate the performance of specific underwater tasks. We use ROVs at water depths or in situations where the use of divers would be uneconomical or infeasible. We own 125 work-class ROVs and are the industry leader in providing ROV services on deepwater wells, which are the most technically demanding. We believe we operate the largest and most technically advanced fleet of ROVs in the world.

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        ROV revenue:

Subsea Products. We manufacture a variety of built-to-order specialty subsea hardware to ISO 9001 quality requirements. These products include:

We market these products under the trade names Oceaneering Multiflex and Oceaneering Intervention Engineering.

Subsea umbilicals and production control equipment are used by offshore well operators to control subsea wellhead hydrocarbon flow, monitor downhole and wellhead conditions and perform chemical injection. Pipeline repair systems make the effective repair of pipelines and risers possible without requiring underwater welding. ROV tooling and work packages provide the operational link between an ROV and permanently installed equipment located on the sea floor.

        Subsea Products revenue:

Mobile Offshore Production Systems. We presently own three operating mobile offshore production systems, the Ocean Legend, the Ocean Producer and the San Jacinto.

We also undertake engineering and project management of projects related to mobile offshore production systems. We have managed the conversion of a jackup to a production unit and in-field life extension and modifications to a floating production storage and offloading system. We also perform engineering studies for customers evaluating field development projects.

        Mobile Offshore Production Systems revenue:

Other Services. We perform subsea intervention and hardware installation services from our multiservice vessels. These services include: subsea well tie-backs; pipeline/flowline tie-ins and repairs; pipeline crossings; umbilical and other subsea equipment installations; and subsea intervention. We also provide oilfield diving, non-destructive inspection and testing services and supporting vessel operations, which are utilized principally in inspection, repair and maintenance activities.

We supply commercial diving services to the oil and gas industry in the United States using the traditional techniques of air, mixed gas and saturation diving, all of which use surface-supplied breathing gas. We do not use divers in water depths greater than 1,000 feet. We also use atmospheric diving systems, which enclose the operator in a surface pressure diving suit, in water

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depths up to 2,300 feet. In September 2000, we exchanged our diving-related assets in Asia, Australia and the Middle East for 11 ROVs.

Through our Solus Schall division, we offer a wide range of inspection services to customers required to obtain third-party inspections to satisfy contractual structural specifications, internal safety standards or regulatory requirements. We focus on the inspection of pipelines and onshore fabrication of offshore facilities for the oil and gas industry. Certain of Solus Schall’s pipeline inspection activities are performed through the use of specialized x-ray crawlers, which travel inside pipelines, stopping to perform radiographic inspection of welds. In January 2003, we purchased OIS International Inspection plc for $27 million in cash. OIS is a global provider of non-destructive testing and inspection services, principally to the oil and gas industry.

        Other Services revenue:

ADVANCED TECHNOLOGIES

Our Advanced Technologies segment provides underwater intervention, engineering services and related manufacturing to meet a variety of industrial requirements, including ship and submarine husbandry, search and recovery, commercial and government subsea cable field support, maintenance and repair, civil works projects and commercial theme park animation. We do this in part by extending the use of existing assets and technology developed in oilfield operations to new applications.

We work for customers having specialized requirements in underwater or other environments outside the oil and gas industry. We provide various engineering and underwater services for the U.S. Navy, including undersea operations, development of new underwater systems and inspection and maintenance of the Navy’s fleet of surface ships and submarines. Through a joint venture we formed with a subsidiary of Smit Internationale, N.V., we also maintain and operate commercial cable lay and maintenance equipment. The current term of the joint venture agreement expires in March 2006. It automatically extends for five-year periods unless one of the participants gives cancellation notice at least one year before the end of the then-current term. Due to the current condition of the telecommunications market, this venture is currently inactive and the single vessel used in the venture is being marketed for oilfield and other uses.

We design and operate ROVs that are capable of being worked in water depths to 25,000 feet. Our other specialized equipment includes ROV cable lay and maintenance equipment rated to 10,000 feet and deep-tow, side-scan sonar systems designed for use in depths to 20,000 feet. In 2002, we located and recovered a British Royal Navy helicopter in water depth over 12,000 feet off the U.S. east coast. In 2001, we located and filmed two sunken World War II warships, the British battle cruiser H.M.S. Hood and the German battleship Bismarck, in water depths over 9,000 and 15,000 feet, respectively.

We also design and develop specialized tools and build ROV systems to customer specifications for use in deepwater and hazardous environments. In addition to commercial applications, we also develop systems for the U.S. Navy and the Department of Energy.

We entered the commercial theme park animation market in 1993. We believe we are the industry leader in large animated figures, and we have provided more than 43 large figures for theme parks in the U.S. and overseas.

As part of our Advanced Technologies segment, Oceaneering Space and Thermal Systems directs our efforts towards applying undersea technology and experience in the space industry. We provide products and services to NASA and NASA prime contractors in the engineering, design and fabrication of space flight hardware, including systems engineering and integration. Our product lines include extravehicular activity tools, logistics carriers, space refrigerators, robotic devices, life support

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systems, habitability hardware and high-temperature thermal protection systems for unmanned launch vehicles. These activities substantially depend on continued government funding for space programs.

        Advanced Technologies revenue:

MARKETING

Offshore Oil and Gas. Oil and gas exploration and development expenditures fluctuate from year to year. In particular, budgetary approval for more expensive drilling and production in deepwater, an area in which we have a high degree of focus, may be postponed or suspended during periods when exploration and production companies reduce their offshore capital spending.

We market our ROVs, Subsea Products and Other Services to domestic, international and foreign national oil and gas companies engaged in offshore exploration, development and production. We also provide services and products as a subcontractor to other oilfield service companies operating as prime contractors. Customers for these services typically award contracts on a competitive bid basis. These contracts are typically less than one year in duration, although we enter into multi-year contracts from time to time.

We market our Mobile Offshore Production Systems primarily to international and foreign national oil and gas companies. We offer systems for production and development of fields and prospects in areas lacking pipelines and processing infrastructure. Our systems can also be used for extended well testing and early production of marginal fields. Contracts are typically awarded on a competitive basis, generally for periods of one or more years.

In connection with the services we perform in our Offshore Oil and Gas business, we generally seek contracts that compensate us on a dayrate basis. Under dayrate contracts, the contractor provides the ROV or vessel and the required personnel to operate the unit. Compensation under a dayrate contract is based on a rate per day for each day the unit is used. The typical dayrate depends on market conditions, the nature of the operations to be performed, the duration of the work, the equipment and services to be provided, the geographical areas involved and other variables. Dayrate contracts may also contain an alternate, lower dayrate that applies when a unit is in route to a new site or when operations are interrupted or restricted by equipment breakdowns, adverse weather or water conditions or other conditions beyond the contractor’s control. Some dayrate contracts provide for revision of the specified dayrates in the event of material changes in certain items of cost being incurred by the contractor. Contracts for our products are generally for a fixed price.

Advanced Technologies. We market our marine services and related engineering services to government agencies, major defense contractors, NASA and NASA prime contractors and telecommunications, construction and other industrial customers outside the energy sector. We also market to insurance companies, salvage associations and other customers who have requirements for specialized operations in deep water.

Major Customers. Our top five customers in the years ended December 31, 2002 and 2001 accounted for 34% and 30%, respectively, of our consolidated revenue. Our top five customers in the nine-month period ended December 31, 2000 accounted for approximately 29% of our consolidated revenue. For the year ended December 31, 2002 and the nine-month period ended December 31, 2000, four of our top five customers were oil and gas exploration and production companies served by our Offshore Oil and Gas business segments. The other top five customer was the U.S. Navy, which was served by our Advanced Technologies segment. In the year ended December 31, 2001, our top five customers were all oil and gas exploration and production companies served by our Offshore Oil and Gas business segments. No single customer accounted for more than 10% of our consolidated revenue in any of those three periods. While we do not depend on any one customer, the loss of one of our significant customers could, at least on a short-term basis, have an adverse effect on our results of operations.

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RAW MATERIALS

Most of the raw materials we use in our manufacturing operations, such as steel in various forms, electronic components and plastics, are available from many sources, and we do not depend on any single supplier or source for any of our raw materials. However, some components we use to manufacture subsea umbilicals are available from limited sources. While we have not experienced any difficulties in obtaining those materials in the past and do not anticipate any such difficulties in the foreseeable future, it is possible that a shortage of supply could develop. Any significant, prolonged shortage of these materials could result in increased costs for these materials and delays in our subsea umbilicals manufacturing operations.

COMPETITION

Our businesses are highly competitive.

OFFSHORE OIL AND GAS

We are one of several companies that provide underwater services on a worldwide basis. We compete for contracts with companies that have worldwide operations, as well as numerous others operating locally in various areas. We believe that our ability to provide a wide range of underwater services, including technological applications in deeper water (greater than 1,000 feet) on a worldwide basis, should enable us to compete effectively in the oilfield exploration and development market. In some cases involving projects that require less sophisticated equipment, small companies have been able to bid for contracts at prices uneconomical to us.

ROVs. We believe we are the world’s largest owner/operator of work-class ROVs employed in oil and gas related operations. We estimate we have a market share of approximately 30%. At December 31, 2002, we had 125 work-class ROVs in service. We compete with several major companies on a worldwide basis and with numerous others operating locally in various areas. We have fewer competitors in deeper water depths, as more sophisticated equipment and technology is needed in deeper water. We estimate that, during 2002, we provided ROV drilling support on approximately 73% of the wells drilled worldwide in water depths of 1,000 feet or more and approximately 84% of the wells drilled worldwide in water depths of 3,000 feet or more.

Competition for ROV services historically has been based on equipment availability, location of or ability to deploy the equipment, quality of service and price. The relative importance of these factors can vary from year to year based on market conditions. The ability to develop improved equipment and techniques and to attract and retain skilled personnel is also an important competitive factor in our markets.

Subsea Products. Although there are many competitors offering either specialized products or operating in limited geographic areas, we believe we are one of a small number of companies that compete on a worldwide basis for the provision of thermoplastic and steel tube subsea control umbilical cables.

Mobile Offshore Production Systems. We believe we are well positioned to compete in this market through our ability to identify and offer optimum solutions, supply equipment and utilize our expertise in associated subsea technology and offshore construction and operations gained through our extensive operational experience worldwide. We are one of many companies that offer leased mobile offshore production systems.

Other Services. We perform subsea intervention and hardware installation services from our multiservice vessels in the Gulf of Mexico. These services include: subsea well tie-backs; pipeline/flowline tie-ins and repairs; pipeline crossings; umbilical and other subsea equipment installations; and subsea intervention. We are one of many companies that offer these services. In addition, other companies can move their vessels to the Gulf of Mexico from other areas with relative ease.

The worldwide inspection market consists of a wide range of inspection and certification requirements in many industries. Solus Schall competes in only selected portions of this market. We believe that our broad geographic sales and operational coverage, long history of operations, technical reputation, application of x-ray pipeline inspection technology and accreditation to international quality standards enable us to compete effectively in our selected inspection services market segments.

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Frequently, oil and gas companies use prequalification procedures that reduce the number of prospective bidders for their projects. In some countries, political considerations tend to favor local contractors. While these considerations have not materially impacted this segment’s results in recent periods, our view of the increasing trend to favor local contractors in West Africa was a factor in our decisions to sell our diving operations in West Africa in March 2000 and to exchange our diving-related assets in Asia, Australia and the Middle East for ROVs in September 2000. We no longer provide oilfield diving services outside of the United States.

ADVANCED TECHNOLOGIES. We believe our specialized ROV assets and experience in deepwater operations give us an advantage in obtaining contracts in water depths greater than 5,000 feet. We have fewer competitors in deeper water depths due to the advanced technical knowledge and sophisticated equipment required for deepwater operations.

Engineering services is a very broad market with a large number of competitors. We compete in specialized areas in which we can combine our extensive program management experience, mechanical engineering expertise and the capability to continue the development of conceptual project designs into the manufacture of prototype equipment.

We also use the administrative and operational support structures of our Offshore Oil and Gas business to provide additional local support for services provided to this segment’s customers.

SEASONALITY, BACKLOG AND RESEARCH AND DEVELOPMENT

A material amount of our consolidated revenue is generated from contracts for marine services in the Gulf of Mexico and the North Sea, which are usually more active from April through November compared to the rest of the year. However, our exit from the diving sector in the North Sea in early 1998 and a number of multiyear ROV contracts we entered into since 1997 have reduced the seasonality of our ROV and Other Services operations. Revenues in our Mobile Offshore Production Systems, Subsea Products and Advanced Technologies segments are generally not seasonal.

        The amounts of backlog orders we believe to be firm as of December 31, 2002 and 2001 were as follows:

        * Represents amounts that were not expected to be performed within one year.

No material portion of our business is subject to renegotiation of profits or termination of contracts by the United States government.

Our research and development expenditures were approximately $4 million, $5 million and $5 million during the years ended December 31, 2002 and 2001 and the nine-month period ended December 31, 2000, respectively. These amounts do not include the expenditures by others in connection with joint research activities in which we participated or expenditures we incurred in connection with research conducted during the course of performing our operations.

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REGULATION

Our operations are affected from time to time and in varying degrees by foreign and domestic political developments and foreign, federal and local laws and regulations. In particular, oil and gas production operations and economics are affected by tax, environmental and other laws relating to the petroleum industry, by changes in such laws and by constantly changing administrative regulations. Those developments may directly or indirectly affect our operations and those of our customers.

Compliance with federal, state and local provisions regulating the discharge of materials into the environment or relating to the protection of the environment has not had a material impact on our capital expenditures, earnings or competitive position.

While not a legal requirement, within our Offshore Oil and Gas business we maintain various quality management systems. Our quality management systems in the United Kingdom and Norway are certified to the substantial equivalent of ISO 9001 and cover all our Offshore Oil and Gas products and services. The quality management systems of our Subsea Products segment are certified to ISO 9001 for its products and services. The quality management systems of both the Oceaneering Space and Thermal Systems and Oceaneering Technologies units of our Advanced Technologies segment are also certified to ISO 9001. ISO 9001 is an internationally recognized verification system for quality management established by the International Standards Organization.

RISKS AND INSURANCE

We derive most of our revenue from companies in the offshore oil and gas industry, a historically cyclical industry with levels of activity that are significantly affected by the levels and volatility of oil and gas prices.

We derive most of our revenue from customers in the offshore oil and gas exploration, development and production industry. The offshore oil and gas industry is a historically cyclical industry characterized by significant changes in the levels of exploration and development activities. Oil and gas prices, and market expectations of potential changes in those prices, significantly affect the levels of those activities. Worldwide political, economic and military events have contributed to oil and gas price volatility and are likely to continue to do so in the future. Any prolonged reduction in the overall level of offshore oil and gas exploration and development activities, whether resulting from changes in oil and gas prices or otherwise, could materially and adversely affect our financial condition and results of operations in our segments within our offshore oil and gas business. Some factors that have affected and are likely to continue affecting oil and gas prices and the level of demand for our services and products include the following:

War, other armed conflicts or terrorist attacks could have a material adverse effect on our business.

Events leading to the war in Iraq, increasing military tension involving North Korea, as well as the terrorist attacks of September 11, 2001 and subsequent terrorist attacks and unrest, have caused instability in the world’s financial and commercial markets, have significantly increased political and economic instability in some of the geographic areas in which we operate and have contributed to high levels of volatility in prices for oil and gas in recent months. Recent acts of terrorism and threats of armed conflicts in or around various areas in which we operate, such as the Middle East and Indonesia, could limit or disrupt our

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markets and operations, including disruptions resulting from the evacuation of personnel, cancellation of contracts or the loss of personnel or assets.

The recently commenced war in Iraq, as well as threats of war or other armed conflict elsewhere, may cause further disruption to financial and commercial markets generally, may generate greater political and economic instability in some of the geographic areas in which we operate and may contribute to even higher levels of volatility in prices for oil and gas than those experienced in recent months. In addition, any possible reprisals as a consequence of the war with Iraq, such as acts of terrorism in the United States or elsewhere, may materially adversely affect us in ways we cannot predict at this time.

Our international operations involve additional risks not associated with domestic operations.

A significant portion of our revenue is attributable to operations in foreign countries. These activities accounted for approximately 47% of our consolidated revenue in the year ended December 31, 2002. Risks associated with our operations in foreign areas include risks of:

Additionally, in some jurisdictions we are subject to foreign governmental regulations favoring or requiring the awarding of contracts to local contractors or requiring foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. These regulations may adversely affect our ability to compete.

Our exposure to the risks we described above varies from country to country. In recent periods, political instability and civil unrest in Indonesia and West Africa and general economic downturns in Asia and Brazil have been our greatest concerns. There is a risk that a continuation or worsening of these conditions could materially and adversely impact our future business, operations, financial condition and results of operations. Of our total consolidated revenue for the year ended December 31, 2002, we generated approximately 2% from our operations in Indonesia, 13% from our operations in West Africa, 3% from our operations in Asia, excluding Indonesia, and 6% from our operations in Brazil.

Our offshore oilfield operations involve a variety of operating hazards and risks that could cause losses.

Our operations are subject to the hazards inherent in the offshore oilfield business. These include blowouts, explosions, fires, collisions, capsizings and severe weather conditions. These hazards could result in personal injury and loss of life, severe damage to or destruction of property and equipment, pollution or environmental damage and suspension of operations. We may incur substantial liabilities or losses as a result of these hazards. While we maintain insurance protection against some of these risks, and seek to obtain indemnity agreements from our customers requiring the customers to hold us harmless from some of these risks, our insurance and contractual indemnity protection may not be sufficient or effective to protect us under all circumstances or against all risks. Some of the risks inherent in our operations are either not insurable or insurance is available only at rates that we consider uneconomical, particularly after the impact on the insurance markets of the September 11, 2001 terrorists’ attacks in the United States. The occurrence of a significant event not fully insured or indemnified against or the failure of a customer to meet its indemnification obligations to us could materially and adversely affect our results of operations and financial condition.

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Laws and governmental regulations may add to our costs or adversely affect our operations.

Our business is affected by changes in public policy and by federal, state, local and foreign laws and regulations relating to the energy industry. Oil and gas exploration and production operations are affected by tax, environmental and other laws relating to the petroleum industry, by changes in those laws and changes in related administrative regulations. It is also possible that these laws and regulations may in the future add significantly to our operating costs or those of our customers or otherwise directly or indirectly affect our operations.

Environmental laws and regulations can increase our costs, and our failure to comply with those laws and regulations can expose us to significant liabilities.

Risks of substantial costs and liabilities related to environmental compliance issues are inherent in our operations. Our operations are subject to extensive federal, state, local and foreign laws and regulations relating to the generation, storage, handling, emission, transportation and discharge of materials into the environment. Permits are required for the operation of various facilities, and those permits are subject to revocation, modification and renewal. Governmental authorities have the power to enforce compliance with their regulations, and violations are subject to fines, injunctions or both. In some cases, those governmental requirements can impose liability for the entire cost of cleanup on any responsible party without regard to negligence or fault and impose liability on us for the conduct of or conditions others have caused, or for our acts that complied with all applicable requirements when we performed them. It is possible that other developments, such as stricter environmental laws and regulations, and claims for damages to property or persons resulting from our operations, would result in substantial costs and liabilities. Our insurance policies and the contractual indemnity protection we seek to obtain from our customers may not be sufficient or effective to protect us under all circumstances or against all risks involving compliance with environmental laws and regulations.

EMPLOYEES

As of December 31, 2002, we had approximately 3,400 employees. Our workforce varies seasonally and peaks during the summer months. Approximately 9% of our employees are represented by unions. We consider our relations with our employees to be satisfactory.

FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS

For financial information about our geographic areas of operation, please see the table in Note 6 of the Notes to Consolidated Financial Statements in this report, which presents revenue and long-lived assets attributable to each of our geographic areas for the years ended December 31, 2002 and 2001 and the nine-month period ended December 31, 2000.

AVAILABLE INFORMATION

Our website address is www.oceaneering.com. We make available through this website under “Shareholder Information—SEC Financial Reports,” free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonable practicable after we electronically file those materials with, or furnish those materials to, the SEC.

ITEM 2. PROPERTIES.

See Item 1 – “Business – Description of Business – Offshore Oil and Gas” and “Business – Description of Business – Advanced Technologies” for a description of equipment and manufacturing facilities used in providing our services and products.

We maintain office, shop and yard facilities in various parts of the world to support our operations. We consider these facilities, which we describe below, to be suitable for their intended use. In these locations, we typically lease or own office facilities for our administrative and engineering staff, shops equipped for fabrication, testing, repair and maintenance activities and warehouses and yard areas for storage and mobilization of equipment to work sites. All sites are available to support any

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of our business segments as the need arises. The groupings that follow associate our significant offices with the primary business segment they serve.

Offshore Oil and Gas. In general, our ROV and Other Services segments share facilities. The largest location is in Morgan City, Louisiana and consists of ROV manufacturing and training facilities, open and covered storage space and offices. The Morgan City facilities primarily support operations in the United States. We have regional support offices for our North Sea and Southeast Asia operations in Aberdeen, Scotland and Indonesia. We also have operational bases in various other locations, the most significant of which are in Norway, Australia and Nigeria.

We use workshop and office space in Houston, Texas in both our Mobile Offshore Production Systems and Subsea Products business segments. Our manufacturing facilities for our Subsea Products segment are located in or near Houston, Texas, Edinburgh, Scotland and Rio de Janeiro, Brazil. Each of these manufacturing facilities is suitable for its intended purpose and has sufficient excess capacity to respond to increases in demand for our subsea products that may be reasonably anticipated in the foreseeable future. We would require a new facility to begin producing steel tube umbilicals in the United States. Operations of the mobile offshore production unit Ocean Producer are supported through our regional office in Aberdeen. Operations of the San Jacinto and the Ocean Legend are supported from our office in Perth, Australia.

Our principal manufacturing facilities are located on properties we own or hold under a long-term lease, expiring in 2014. The other facilities we use in our Offshore Oil and Gas business segments are on properties we lease.

Advanced Technologies. Our primary facilities for our Advanced Technologies segment are leased offices and workshops in Upper Marlboro, Maryland, which support our services for the U.S. Navy and our commercial theme park animation activities. We also lease facilities in Houston, Texas, which primarily support our space industry activities and our subsea telecommunications installation joint venture.

ITEM 3. LEGAL PROCEEDINGS.

In the ordinary course of business, we are subject to actions for damages alleging personal injury under the general maritime laws of the United States, including the Jones Act, for alleged negligence. We report actions for personal injury to our insurance carriers and believe that the settlement or disposition of those suits will not have a material effect on our financial position or results of operations. For additional information, see “Commitments and Contingencies – Litigation” in Note 5 of the Notes to Consolidated Financial Statements included in this report.

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

No matter was submitted to a vote of our security holders, through the solicitation of proxies or otherwise, during the last three months of the year ended December 31, 2002.

EXECUTIVE OFFICERS OF THE REGISTRANT.

Executive Officers. The following information relates to our executive officers as of March 15, 2003:

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Each executive officer serves at the discretion of our Chief Executive Officer and our Board of Directors and is subject to reelection or reappointment each year after the annual meeting of our shareholders. We do not know of any arrangement or understanding between any of the above persons and any other person or persons pursuant to which he was selected or appointed as an officer.

Business Experience. John R. Huff, Chairman and Chief Executive Officer, joined Oceaneering as a director, President and Chief Executive Officer in 1986. He was elected Chairman of the Board in August 1990. He is a director of BJ Services Company and Suncor Energy Inc.

T. Jay Collins, President and Chief Operating Officer, joined Oceaneering in October 1993 as Senior Vice President and Chief Financial Officer. In May 1995, he was appointed Executive Vice President – Oilfield Marine Services and held that position until becoming President and Chief Operating Officer in November 1998. He was elected a director of Oceaneering in March 2002. He is a director of Friede Goldman Halter, Inc.

Marvin J. Migura, Senior Vice President and Chief Financial Officer, joined Oceaneering in May 1995. From 1975 to 1994, he held various financial positions with Zapata Corporation, then a diversified energy services company, most recently as Senior Vice President and Chief Financial Officer from 1987 to 1994.

M. Kevin McEvoy, Senior Vice President, joined Oceaneering in 1984 when we acquired Solus Ocean Systems, Inc. Since 1984, he has held various senior management positions in each of our operating groups and geographic areas. He was appointed a Vice President in 1990 and Senior Vice President in November 1998.

George R. Haubenreich, Jr., Senior Vice President, General Counsel and Secretary, joined Oceaneering in 1988.

John L. Zachary, Controller and Chief Accounting Officer, joined Oceaneering in 1988 as Controller for the Advanced Technologies and Mobile Offshore Production Systems divisions. From 1993 until 1998, he was Controller for the Americas Region and was appointed to his present position in October 1998.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS.

We are including the following discussion to inform our existing and potential security holders generally of some of the risks and uncertainties that can affect our company and to take advantage of the “safe harbor” protection for forward-looking statements that applicable federal securities law affords.

From time to time, our management or persons acting on our behalf make forward-looking statements to inform existing and potential security holders about our company. These statements may include projections and estimates concerning the timing and success of specific projects and our future backlog, revenue, income and capital spending. Forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “plan,” “forecast,” “budget,” “goal” or other words that convey the uncertainty of future events or outcomes. In addition, sometimes we will specifically describe a statement as being a forward-looking statement and refer to this cautionary statement.

In addition, various statements this report contains, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements. Those forward-looking statements appear in Item 1 – “Business,” Item 2 – “Properties” and Item 3 – “Legal Proceedings” in Part I of this report and in Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Item 7A – “Quantitative and Qualitative Disclosures About Market Risk” and in the Notes to Consolidated Financial Statements incorporated into Item 8 of Part II of this report and elsewhere in this report. These forward-looking statements speak only as of the date of this report, we disclaim any obligation to update these statements, and we caution you not to rely unduly on them. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond

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our control. These risks, contingencies and uncertainties relate to, among other matters, the following:

We believe the items we have outlined above are important factors that could cause our actual results to differ materially from those expressed in a forward-looking statement made in this report or elsewhere by us or on our behalf. We have discussed most of these factors in more detail elsewhere in this report. These factors are not necessarily all the important factors that could affect us. Unpredictable or unknown factors we have not discussed in this report could also have material adverse effects on actual results of matters that are the subject of our forward-looking statements. We do not intend to update our description of important factors each time a potential important factor arises. We advise our security holders that they should (1) be aware that important factors we do not refer to above could affect the accuracy of our forward-looking statements and (2) use caution and common sense when considering our forward-looking statements.

Part II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Oceaneering’s common stock is listed on the New York Stock Exchange under the symbol OII. The following table sets out, for the periods indicated, the high and low sales prices for our common stock as reported on the New York Stock Exchange (consolidated transaction reporting system):

On March 13, 2003, there were 443 holders of record of our common stock. On that date, the closing sales price, as quoted on the New York Stock Exchange, was $21.29. We have not made any common stock dividend payments since 1977, and we currently have no plans to pay cash dividends. Our credit agreements contain restrictions on the payment of dividends. See Note 4 of Notes to Consolidated Financial Statements included in this report.

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EQUITY COMPENSATION PLAN INFORMATION

The following presents equity compensation plan information as of December 31, 2002:

At December 31, 2002, there were: (1) 1,649,440 shares of Oceaneering common stock under equity compensation plans not approved by security holders available for grant, in the form of stock options, stock appreciation rights or stock awards; and (2) 837,050 shares of Oceaneering common stock under equity compensation plans approved by security holders available for grant, in the form of stock options, stock appreciation rights or stock awards, subject to no more than a remaining 2,000 shares being used for awards other than stock options or stock appreciation rights to employees. For a description of the material features of each of these plans, see Note 8 of Notes to Consolidated Financial Statements.

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 and our Consolidated Financial Statements and Notes included in this report. The following information may not be indicative of our future operating results. Additionally, the information related to periods before 2002 has been restated to correct errors related to, among other things, our accounting for restricted stock expense, Brazilian currency translation and the timing of certain employee benefit accruals. See Note 2 of Notes to Consolidated Financial Statements included in this report.

Results of Operations:

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Other Financial Data:

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

All statements in this Form 10-K, other than statements of historical facts, including, without limitation, statements regarding our business strategy, plans for future operations and industry conditions, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to various risks, uncertainties and assumptions, including those we refer to under the heading “Cautionary Statement Concerning Forward-Looking Statements” in Part I of this report. Although we believe that the expectations reflected in such forward-looking statements are reasonable, because of the inherent limitations in the forecasting process, as well as the relatively volatile nature of the industries in which we operate, we can give no assurance that those expectations will prove to have been correct. Accordingly, evaluation of our future prospects must be made with caution when relying on forward-looking information.

Critical Accounting Policies and Estimates

We have based the following discussion and analysis of our financial condition and results of operation on our consolidated financial statements, which we have prepared in conformity with accounting principles generally accepted in the United States. These principles require us to make various 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 we present. We base our estimates on historical experience, available information and other assumptions we believe to be reasonable under the circumstances. On an on-going basis, we evaluate our estimates; however, our actual results may differ from these estimates under different assumptions or conditions. The following discussion summarizes the accounting policies we believe (1) require our management’s most difficult, subjective or complex judgments and (2) are the most critical to our reporting of results of operations and financial position.

Revenue Recognition. Our revenues are primarily derived from billings under contracts that provide for specific time, material and equipment charges, which we accrue daily and bill periodically, ranging from weekly to monthly. We account for significant lump-sum contracts, which we enter into mainly in our Subsea Products and Advanced Technologies segments, using the percentage-of-completion method. Under this method, we generally recognize estimated contract revenue based on costs incurred to date as a percentage of total estimated costs. Changes in the expected cost of materials and labor, productivity, scheduling and other factors affect the total estimated costs. Additionally, external factors, including weather or other factors outside of our control, may also affect the progress and estimated cost of a project’s completion and, therefore, the timing of income and revenue recognition. We routinely review estimates related to our contracts and reflect revisions to profitability in earnings immediately. If a current estimate of total contract cost indicates an ultimate loss on a contract, we recognize the projected loss in full when we determine it. In prior years, we have recorded adjustments to earnings as a result of revisions to contract estimates. These include a loss on our first steel tube umbilical project in 2001 and losses on fixed-price jobs in India in 2000 for services we no longer provide in foreign markets. Although we are continually striving to improve our ability to estimate our contract costs and profitability, adjustments to overall contract costs may continue to be significant in future periods.

Long-lived Assets. We evaluate our property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be appropriate. We base these evaluations on a comparison of the assets’ fair values, which are generally based on forecasts of cash flows associated with the assets, or fair market value of the assets, to the

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carrying amounts of the assets. Any impairment is recorded as the amount, if any, by which the carrying amounts exceed the fair values. During the years ended December 31, 2002 and 2001 and the nine-month period ended December 31, 2000, we recorded $0.7 million, $2.1 million and $2.5 million, respectively, in impairment charges related to property and equipment. Our expectations regarding future sales and undiscounted cash flows are highly subjective, cover extended periods of time and depend on a number of factors outside our control, such as changes in general economic conditions, laws and regulations. Accordingly, these expectations could differ significantly from year to year.

We expense the costs of repair and maintenance as we incur them, except for drydocking costs associated with our larger vessels. We estimate and accrue these drydock costs over a period of time in advance of future drydockings. We recognize differences between the estimates and actual costs incurred in the income statement.

Loss Contingencies. We self-insure for workers’ compensation, maritime employer’s liability and comprehensive general liability claims to levels we consider financially prudent and carry insurance for exposures beyond the self-insurance levels, which can be by occurrence or in the aggregate. We determine the level of accruals by reviewing our historical experience and current year claim activity. We do not record accruals on a present-value basis. We review each claim with insurance adjusters and establish specific reserves for known liabilities. We establish an additional reserve for incidents incurred but not reported to us for each year using our estimates and based on prior experience. We believe we have established adequate accruals for uninsured expected liabilities arising from those obligations. However, it is possible that future earnings could be affected by changes in our estimates relating to these matters.

We are involved in various claims and actions against us, most of which are covered by insurance. We believe that our ultimate liability, if any, that may result from these claims and actions will not materially affect our financial position, cash flows or results of operations.

For a summary of our major accounting policies, please read Note 1 to our Consolidated Financial Statements.

Liquidity and Capital Resources

We consider our liquidity and capital resources adequate to support our operations and internally generated growth initiatives. At December 31, 2002, we had working capital of $117 million, including cash of $66 million. Additionally, we had $80 million available under our revolving credit facility, which is scheduled to expire in October 2003.

We expect operating cash flow to meet our ongoing annual cash requirements, including debt service, for the foreseeable future. Net cash provided by operating activities was $123 million and $60 million for the years ended December 31, 2002 and 2001, respectively, and $41 million for the nine-month period ended December 31, 2000.

Our capital expenditures for the years ended December 31, 2002 and 2001 and the nine-month period ended December 31, 2000 were $35 million, $58 million and $102 million, respectively. Capital expenditures during 2002 included ROV additions and replacements, a replacement diving service vessel and additions related to the products and controls division of our Subsea Products segment. Capital expenditures during 2001 included expenditures for additional ROVs, completion of the Ocean Legend and upgrades and life extension of the Ocean Producer necessary for its new seven-year contract, which began in the fourth quarter of 2001. Capital expenditures during the nine-month period ended December 31, 2000 included expenditures for the conversion of a jackup drilling rig to a mobile offshore production unit, the Ocean Legend, for initial use offshore Western Australia, ROV additions and construction costs to complete our second multiservice vessel.

We had no major commitments for capital expenditures at December 31, 2002.

In April 1997, we approved a plan to repurchase up to a maximum of 3 million shares of our common stock, and we completed this plan in 2002, at a total cost of $50 million. We reissued all of these shares through our incentive plans, as restricted stock, contributions to our 401(k) plan or for exercised stock options. For a description of our incentive plans, please read Note 8 to our Consolidated Financial Statements. In September 2002, we approved a plan to repurchase up to 3 million shares, or $75 million, of our common stock. Pursuant to this plan, we repurchased 288,500 shares of common stock during the year ended December 31, 2002, at a total cost of $6.7 million.

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At December 31, 2002, we had long-term debt of $118 million and a 27% debt-to-total capitalization ratio. We have $100 million of 6.72% Senior Notes to be repaid from 2006 through 2010. We have an $80 million revolving credit facility, under which we had no outstanding borrowings and $80 million available for future borrowings at December 31, 2002. This facility is scheduled to expire in October 2003. We expect to put a new revolving credit facility in place before the current facility expires. In March 2000, we added a $50 million term-loan facility, which is to be repaid through April 2004.

At December 31, 2002, we had $18 million in outstanding borrowings under the term-loan facility. Both the revolving credit and term-loan facilities have short-term interest rates that float with market rates, plus applicable spreads. We have effectively fixed the interest rate on the term loan at approximately 4% through an interest rate swap. We have no off-balance-sheet debt and have not guaranteed any debt not reflected on our consolidated balance sheet.

Because of our significant foreign operations, we are exposed to currency fluctuations and exchange risks. We generally minimize these risks primarily through matching, to the extent possible, revenues and expenses in the various currencies in which we operate. Cumulative translation adjustments as of December 31, 2002 relate primarily to our permanent investments in and loans to our foreign subsidiaries. Inflation has not had a material effect on us in the past two years and no such effect is expected in the near future.

See Item 1 – “Business – Description of Business – Risks and Insurance.”

Restatement

We have restated our financial statements as of and for the year ended December 31, 2001 and for the nine-month period ended December 31, 2000 to correct errors related to our accounting for, among other things, restricted stock expense, Brazilian currency translation and the timing of certain employee benefit accruals. The following discussion addresses those financial results as restated. See Note 2 to Consolidated Financial Statements for additional details concerning the restatement.

Results of Operations

The table below sets out revenue and profitability for the years ended December 31, 2002 and 2001 and the nine-month period ended December 31, 2000.

Information on our business segments is shown in Note 6 of the Notes to Consolidated Financial Statements included in this report.

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Offshore Oil and Gas. The table below sets out revenue and profitability for our Offshore Oil and Gas business for the years ended December 31, 2002 and 2001 and the nine-month period ended December 31, 2000.

In response to (1) continued increasing demand to support deepwater drilling and (2) identified future construction and production maintenance work, we extended our ROV fleet expansion program in 1997 by announcing plans for additional new ROVs. These new vehicles are designed for use around the world in water depths to 10,000 feet and in severe weather conditions. We have added over 75 ROVs to our fleet during the last several years and we plan to add additional vehicles at a rate dependent on market demand.

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In the past few years, we have sold or exchanged our foreign diving-related assets, which were part of our Other Services segment, to concentrate on our other deepwater services and products which have potential for higher margins:

For the year ended December 31, 2002, ROV revenue was 3% lower than the prior year. Gross margin declined 18% and gross margin percentage declined 5%. These declines resulted from a decrease in fleet utilization of 7%, from 76% to 69%, and an increase in repair and maintenance expenses. In the year ended December 31, 2001, ROV gross margin percentage rose 4% over the nine-month period ended December 31, 2000. The increase was the result of more ROVs available for service and an increase in ROV utilization from 67% to 76%. We anticipate ROV utilization and margins to slightly increase in 2003 due to programs we have put in place to improve our ROV marketing and operations.

Subsea Products revenue in 2002 was 3% lower than in 2001, while gross margin and operating income percentages were up 8% and 7%, respectively. In 2001, we were producing our first large steel tube umbilical order at a loss. When we completed the project in the first half of 2001, the resulting available capacity allowed our U.K. plant to take on profitable work. In 2002, we completed manufacturing an order in excess of $30 million in our Brazilian plant. This was the largest umbilical contract in our company’s history. Both gross margin and operating income percentages for Subsea Products rose 3% in 2001 over the nine-month period ended December 31, 2000 from improved pricing. We anticipate lower results from our Subsea Products segment in 2003, particularly in the first half of the year, as our backlog at December 31, 2002 was lower than it was at December 31, 2001.

Mobile Offshore Production Systems revenue was up 24% for 2002 as compared to 2001, primarily from a full year of service from the Ocean Legend, as compared to eight months in 2001. Gross margin percentage and operating income percentage were both up 12%. In 2002 we received and recognized $1.3 million as revenue relating to a 2001 dispute with our customer. In addition, the Ocean Producer began operation under a new seven-year contract in the fourth quarter of 2001, at higher revenues and margins than its prior contract. Gross margin percentage for Mobile Offshore Production Systems was 7% lower in 2001 than for the nine-month period ended December 31, 2000 primarily because the 2000 period had $4.3 million of gains on the sales of two out-of-service semisubmersible rigs, partially offset by a $2.5 million writedown of a tanker we had been holding for conversion into production service. We anticipate slightly lower results from our Mobile Offshore Production Systems operations in 2003 as a result of a lower dayrate for the Ocean Legend, which took effect when its contract was extended in May 2002. The contract now is scheduled to expire in May 2006.

Other Services revenue increased 20% for 2002 as compared to 2001, while gross margin and operating margin increased 3% and 4%, respectively. A significant improvement in offshore activity in the Gulf of Mexico was the impetus for these improvements. We experienced an increase in utilization and profitability from our two Gulf of Mexico Ocean Intervention multiservice vessels in 2002, along with a contribution from a significant engineering and specialized diving contract. Gross margin and operating income percentages were higher for 2001 as compared to the nine-month period ended December 31, 2000 primarily because the 2000 period included losses from two large fixed-price jobs in India incurred before we sold those operations in September 2000. We anticipate lower results from our Other Services on lower Ocean Intervention vessel utilization and lower contribution from our Gulf of Mexico diving operations. In January 2003, we purchased OIS International Inspection plc for $27 million in cash. OIS is a global provider of non-destructive testing and inspection services, principally to the oil and gas industry. We do not expect the acquisition to materially affect our results in 2003.

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Advanced Technologies. The table below sets out revenue and profitability for this segment for the years ended December 31, 2002 and 2001 and the nine-month period ended December 31, 2000.

Advanced Technologies revenue, gross margin and gross margin percentage for 2002 was about the same as 2001. During 2002 an increase in marine services offset a decline in subsea telecommunication cable ROV services and lower space-related product sales. 2002 operating income declined by $1.2 million, or 10%, due to a $1.4 million charge to selling, general and administrative expenses for a doubtful account receivable related to work performed in prior years for an aerospace industry customer. Our gross margin and operating margin percentages were higher in 2001 over the nine-month period ended December 31, 2000 primarily because the 2000 period included provisions totaling $1.8 million relating to operations of a division we no longer own.

We anticipate 2003 revenues, gross margin and gross margin percentage to be similar to 2002 results. However, we expect our business mix of projects to change—with higher activity related to: vessel maintenance; pier and mooring repairs; submarine services for the U.S. Navy; and design and construction of specialized equipment for theme parks. We expect our operating income to increase in 2003, primarily as a result of the negative impact in 2002 of the charge for the doubtful receivable described above.

Unallocated Expenses. Our unallocated expenses, i.e., those not associated with a specific business segment, within gross margin consist of expenses related to our incentive and deferred compensation plans, including restricted stock and bonuses, as well as other general expenses. Our restricted stock expense varies with the market price of our common stock. Our unallocated expenses within operating income consist of those within gross margin plus general and administrative expenses related to corporate functions. The table below sets out our unallocated expenses for the years ended December 31, 2002 and 2001 and the nine-month period ended December 31, 2000.

Other. General and administrative expenses were at a relatively flat rate over the periods presented, except that 2002 contained a $1.4 million charge for the doubtful account receivable mentioned in the Advanced Technologies segment discussion above. Interest expense increased through 2001 as a result of our increased borrowings to fund capital expenditures and repurchases of common stock. Interest expense declined in 2002, as we generated sufficient cash flow to reduce our debt by $52 million and increase our cash by $56 million. Interest expense is net of capitalized interest of $2.0 million for the year ended December 31, 2001 and $3.0 million for the nine-month period ended December 31, 2000. Equity in earnings of unconsolidated affiliates primarily relates to our 50% share of our commercial cable laying and maintenance venture. Due to the current condition of the telecommunications market, this venture is currently inactive and the single vessel used in the venture is being marketed for oilfield and other uses. Other income (expense), net primarily consists of foreign currency gains and losses.

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Our effective tax rate, determined after consideration of valuation allowances and foreign, state and local taxes, was 29%, 35% and 36% for the years ended December 31, 2002 and 2001 and the nine-month period ended December 31, 2000, respectively. We lowered our effective tax rate to 29% in 2002 as we anticipate that we will be able to realize foreign tax credits and we were able to finalize tax positions related to the foreign vessel and diving operations that we sold in 2000. For 2003, we anticipate an effective tax rate of approximately 35%.

New Reporting Requirements

In June 2001, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 143, Accounting For Asset Retirement Obligations, which 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 position or results of operations.

Effective January 1, 2002, we adopted SFAS No. 144, Accounting for the Impairment or 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 position or results of operations.

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 position or results of operations.

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. The provisions of this statement are effective for exit or disposal activities initiated after December 31, 2002. We do not believe the adoption of this statement will have a material impact on our consolidated financial position or results of operations.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock Compensation – Transition and Disclosure. 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. We continue to use the intrinsic value method of accounting for stock-based compensation. As a result, the adoption of SFAS No. 148 did not have a material effect on our consolidated financial position or results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are currently exposed to certain market risks arising from transactions we have entered into in the normal course of business. These risks relate to interest rate changes and fluctuations in foreign exchange rates. We do not believe these risks are material. We have not entered into any market risk sensitive instruments for trading purposes. We manage our exposure to interest rate changes through the use of a combination of fixed and floating rate debt and an interest rate hedge. See Note 4 of Notes to Consolidated Financial Statements included in this report for a description of our long-term debt agreements, interest rates and maturities. We believe that significant interest rate changes will not have a material near-term impact on our future earnings or cash flows. Because we operate in various oil and gas exploration and production regions in the world, we conduct a portion of our business in currencies other than the U.S. dollar. The functional currency for many of our international operations is the applicable local currency. We manage our exposure to changes in foreign exchange rates primarily through arranging compensation in U.S. dollars or freely convertible currency and, to the extent possible, by limiting compensation received in other currencies to amounts necessary to meet obligations denominated in those currencies. We use the exchange

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rates in effect as of the balance sheet date to translate assets and liabilities as to which the functional currency is the local currency, resulting in translation adjustments that we reflect as accumulated other comprehensive income or loss in the shareholders’ equity section of our Consolidated Balance Sheets. We recorded an $11.8 million adjustment to our equity accounts for the year ended December 31, 2002 to reflect the net impact of the strengthening of various foreign currencies against the U.S. dollar for locations where the functional currency is not the U.S. dollar.

Our Subsea Products business in Brazil conducts much of its operations in U.S. dollars, which is its functional currency. We recorded $1.9 million of foreign currency losses in our statement of operations in 2002 related to our operations in Brazil.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

In this report, our consolidated financial statements and supplementary data appear following the signature page to this report and are hereby incorporated by reference.

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

As we previously disclosed in our current report on Form 8-K dated June 18, 2002, which we filed with the SEC on June 24, 2002, we dismissed Arthur Andersen LLP as our independent auditors and appointed Ernst & Young LLP to serve as our independent auditors for 2002.

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Part III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information with respect to the directors and nominees for election to our Board of Directors is incorporated by reference from the section “Election of Directors” in our definitive proxy statement to be filed on or before April 30, 2003, relating to our 2003 Annual Meeting of Shareholders.

The information with respect to our executive officers is provided under the heading “Executive Officers of the Registrant” following Item 4 of Part I of this report. There are no family relationships between any director or executive officer.

ITEM 11. EXECUTIVE COMPENSATION.

The information required by Item 11 is incorporated by reference from the section “Executive Compensation” in the proxy statement described in Item 10 above.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information required by Item 12 is incorporated by reference from the section “Election of Directors – Security Ownership of Management and Certain Beneficial Owners” in the proxy statement described in Item 10 above.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by Item 13 is incorporated by reference from the section “Certain Relationships and Related Transactions” in the proxy statement described in Item 10 above.

ITEM 14. CONTROLS AND PROCEDURES.

Within the 90-day period immediately preceding the filing of this report, our chief executive officer and chief financial officer have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934). Based on that evaluation, our chief executive officer and chief financial officer concluded that the design and operation of our disclosure controls and procedures were effective as of the date of that evaluation. There have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of that evaluation.

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Part IV

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

(a)     Documents filed as part of this report.

         1.            Financial Statements

                        (i)     Report of Independent Auditors

                        (ii)    Consolidated Balance Sheets

                        (iii)   Consolidated Statements of Income

                        (iv)    Consolidated Statements of Cash Flows

                        (v)     Consolidated Statements of Shareholders’ Equity and Comprehensive Income

                        (vi)    Notes to Consolidated Financial Statements

         2.            Exhibits:

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*    Indicates exhibit previously filed with the Securities and Exchange Commission as indicated and incorporated herein by reference.

+    Indicates management contract or compensatory plan or arrangement.

(b)    Reports on Form 8-K.

We filed the following report on Form 8-K during the last quarter of the period covered by this report:

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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.

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

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CERTIFICATIONS

I, John R. Huff, Chief Executive Officer of Oceaneering International, Inc., certify that:

March 21, 2003

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I, Marvin J. Migura, Chief Financial Officer of Oceaneering International, Inc., certify that:

March 21, 2003

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OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

Index to Financial Statements

Report of Independent Auditors

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Cash Flows

Consolidated Statements of Shareholders’ Equity and Comprehensive Income

Notes to Consolidated Financial Statements

Selected Quarterly Financial Data (unaudited)

Index to Schedules

All schedules for which provision is made in the applicable regulations of the Securities and Exchange Commission have been omitted because they are not required under the relevant instructions or because the required information is included in the financial statements included herein or in the related footnotes thereto.

REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Directors of Oceaneering International, Inc.:

We have audited the accompanying consolidated balance sheets of Oceaneering International, Inc. and subsidiaries as of December 31, 2002 and 2001 and the related consolidated statements of income, cash flows and shareholders’ equity and comprehensive income for each of the two years in the period ended December 31, 2002 and for the nine-month 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 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 Oceaneering International, Inc. and subsidiaries as of 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 and for the nine-month period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States.

As discussed in Note 2 to the consolidated financial statements, the Company has restated its financial statements for the year ended December 31, 2001 and for the nine-month period ended December 31, 2000. Also, as discussed in Note 1 to the consolidated financial statements, in 2002 the Company changed its method of accounting for goodwill and other intangible assets.

Houston, Texas

February 19, 2003

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OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS