OCEANEERING INTERNATIONAL INC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2003
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OR

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

For the transition period from to
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Commission File Number 1-10945
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OCEANEERING INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)

DELAWARE 95-2628227
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

11911 FM 529
Houston, Texas 77041
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(Address of principal executive offices) (Zip Code)

(713) 329-4500
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(Registrant's telephone number, including area code)

Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes [X] No [ ]

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

Yes [X] No [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)

See Notes to Consolidated Financial Statements.

Page 2

OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except per share amounts)

See Notes to Consolidated Financial Statements.

Page 3

OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)

See Notes to Consolidated Financial Statements.

Page 4

OCEANEERING INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and Significant Accounting Policies

We have prepared these unaudited consolidated financial statements
pursuant to instructions for the Quarterly Report on Form 10-Q required
to be filed with the Securities and Exchange Commission. These
financial statements do not include all information and footnotes
normally included in financial statements prepared in accordance with
generally accepted accounting principles. These financial statements
reflect all adjustments that we believe are necessary to present fairly
our financial position at June 30, 2003 and our results of operations
and cash flows for the periods presented. All such adjustments are of a
normal and recurring nature. The financial statements should be read in
conjunction with the consolidated financial statements and related
notes included in our Annual Report on Form 10-K for the year ended
December 31, 2002. The results for interim periods are not necessarily
indicative of annual results. Certain amounts from prior years have
been reclassified to conform with the current year presentation.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expense
during the reporting period. Actual results could differ from those
estimates.

Stock Options

In December 2002, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 148,
Accounting for Stock-Based Compensation-Transition and Disclosure. SFAS
No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation,
to provide alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee
compensation. As permitted under SFAS No. 123, we continue to use the
intrinsic value method of accounting established by Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, to account for our stock-based compensation programs.
Accordingly, we do not recognize any compensation expense when the
exercise price of an employee stock option is equal to the market price
per share of our common stock on the grant date. The following
illustrates the pro forma effect on net income and earnings per share
if we had applied the fair value recognition provisions of SFAS No.
123:

For purposes of these pro forma disclosures, we estimate the fair value
of each option grant as of the date of grant using a Black-Scholes
option pricing model. The estimated fair value of the options is
amortized to pro forma expense over the options' expected average
lives.

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New Reporting Requirements

In June 2001, the FASB issued 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 during which the asset was placed in service. Our
adoption of SFAS No. 143 as of January 1, 2003 has not had a material
effect on our consolidated financial position or results of operations.

In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Direct Guarantees of Indebtedness of Others. FIN 45
elaborates on the disclosures to be made by a guarantor in its
financial statements and clarifies that a guarantor is required, at the
inception of the guarantee, to recognize a liability for the fair value
of an obligation undertaken in issuing the guarantee. The recognition
and measurement provisions of FIN 45 are effective for guarantees
issued or modified after December 31, 2002. We have not had a material
impact on our consolidated financial position or results of operations
from FIN 45.

In January 2003, the FASB issued FIN No. 46, Consolidation of Variable
Interest Entities, which is effective for variable interest entities
created after January 31, 2003, and for the first interim period
beginning after June 15, 2003. FIN 46 addresses consolidation by
business enterprises of variable interest entities where:

o the entity investment at risk is not sufficient to permit the
entity to finance its activities without additional financial
support from other parties; or

o the equity investors lack an essential characteristic of a
controlling financial interest.

We have not had and do not expect to have a material impact on our
consolidated financial position or results of operations from FIN 46.

2. Prepaid Expenses and Other Current Assets

Our prepaid expenses and other current assets consisted of the
following:

3. Debt

Our long-term debt consisted of the following:

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In July 2003, we repaid the Term Loan with the proceeds from a new
four-year revolving credit facility that matures in July 2007. The
following table reflects the scheduled maturities of our long-term debt
as of June 30, 2003, after giving effect to the new revolving credit
facility.

4. Shareholders' Equity

Our shareholders' equity consisted of the following:

5. Income Taxes

We paid cash taxes of $9.7 million and $5.9 million during the
six-month periods ended June 30, 2003 and 2002, respectively.

6. Business Segment Information

We supply a comprehensive range of technical services and specialty
products to customers in a variety of industries. Our Oil and Gas
business consists of five business segments: Remotely Operated Vehicles
("ROVs"); Subsea Products; Subsea Projects; Mobile Offshore Production
Systems; and Inspection and Non-Destructive Testing ("NDT".) Our
Advanced Technologies business is a separate segment that provides
project management, engineering services and equipment for applications
outside the oil and gas industry. Unallocated expenses are those not
associated with a specific business segment. These consist of expenses
related to our incentive and deferred compensation plans, including
restricted stock and bonuses, as well as other general expenses.

Before 2003, our Subsea Projects segment, which consists of our subsea
installation, maintenance and repair services utilizing our Gulf of
Mexico vessels, including our Ocean Intervention class vessels, and our
specialized diving group, and our Inspection & NDT segment, which
consists of non-destructive testing and inspection services, were
reported together as our Other Services segment. In January 2003, we
completed the acquisition of OIS International Inspection plc, which
approximately tripled the size of our inspection and non-destructive
testing operations. As a result, we are now reporting Inspection & NDT
as a separate segment. We have reclassified our prior periods to
conform with the current classifications.

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Other than as we explained above, there are no differences in the basis
of segmentation or in the basis of measurement of segment profit or
loss from those used in our consolidated financial statements for the
year ended December 31, 2002. The following summarizes certain
financial data by business segment:

7. Comprehensive Income

Comprehensive income is the total of net income and all non-owner
changes in equity. The amounts of comprehensive income for the three-
and six-month periods ended June 30, 2003 and 2002 are as follows:

Amounts comprising other elements of comprehensive income in
Shareholders' Equity are as follows:

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8. Business Acquisitions

In January 2003, we acquired OIS International Inspection plc, an
international provider of inspection and non-destructive testing
services, for approximately $30 million. In April 2003, we acquired
Nauticos Corporation, a provider of marine products and services
support to government and commercial customers, and Reflange, Inc., a
manufacturer of patented metal seal piping connectors and a supplier of
on-site machining services, for approximately $8 million and $5
million, respectively. The acquisitions were accounted for using the
purchase method of accounting, with the purchase price being allocated
to the net assets acquired based on their fair market values at the
date of acquisition. We have made the purchase price allocations based
on estimates using information currently available to us, and the
allocations are subject to change when final asset and liability
valuations are obtained. Our current estimate of goodwill associated
with these three acquisitions is $15 million. These acquisitions were
not material; therefore, we have not included pro forma information.
The results of operations of OIS International Inspection plc, Nauticos
Corporation and Reflange, Inc. are included in our consolidated
statements of income from the respective dates of acquisition.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

All statements in this Form 10-Q, 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 have referred to under
the headings "Business -- Risks and Insurance" and "Cautionary Statement
Concerning Forward-Looking Statements" in Part I of our Annual Report on Form
10-K for the year ended December 31, 2002. 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 be 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 ongoing 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, and occasionally in our
Subsea Projects segment, using the percentage-of-completion method. Under this
method, we 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 costs indicates an ultimate loss on a contract, we recognize the
projected loss in full when we determine it. Although we are continually
striving to improve our ability to estimate our contract costs and
profitability, adjustments to overall contract costs may 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 carrying amounts of
the assets. Any impairment is recorded as the amount, if any, by which the
carrying amounts exceed the fair values. 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.

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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 contained in this Form 10-Q and note 1 to our
consolidated financial statements contained in our Form 10-K for the year ended
December 31, 2002.

Changes in Financial Condition

We consider our liquidity and capital resources adequate to support our
operations and capital commitments. At June 30, 2003, we had working capital of
$111 million, including $27 million of cash and cash equivalents. Additionally,
we had $80 million of borrowing capacity available under our revolving credit
facility.

Our capital expenditures were $64 million during the six months ended June 30,
2003, as compared to $12 million during the corresponding period of last year.
Capital expenditures in the current year consisted primarily of the acquisitions
of OIS International Inspection plc, Nauticos Corporation and Reflange, Inc.
Prior-year capital expenditures consisted primarily of expenditures relating to
the addition of units to our fleet of ROVs to replace older units we retired.

We had no material commitments for capital expenditures at June 30, 2003.

At June 30, 2003, we had long-term debt of $115 million and a 26% debt-to-total
capitalization ratio. We have $100 million of Senior Notes outstanding, to be
repaid from 2006 through 2010. We had an $80 million revolving credit facility,
under which we had no outstanding borrowings and $80 million available for
future borrowings at June 30, 2003. This facility was scheduled to expire in
October 2003. In July we replaced it with a new $100 million revolving credit
facility that expires in July 2007. We also had a term-loan facility that was to
be repaid through April 2004. At June 30, 2003, we had $15 million in
outstanding borrowings under the term-loan facility. In July 2003, we repaid the
balance of the term loan with proceeds from the new revolving credit facility
and had $85 million available for future borrowings. The new revolving credit
facility has short-term interest rates that float with market rates, plus
applicable spreads. We have no off-balance sheet debt and have not guaranteed
any debt that is not reflected on our consolidated balance sheets.

Changes in Results of Operations

We operate in six business segments. The segments are contained within two
businesses - services and products provided to the oil and gas industry ("Oil
and Gas") and all other services and products ("Advanced Technologies"). Before
2003, our Subsea Projects segment, which consists of our subsea installation,
maintenance and repair services utilizing our Gulf of Mexico vessels, including
our two Ocean Intervention class vessels, and our specialized diving group, and
our Inspection & NDT segment, which consists of non-destructive testing and
inspection services, were reported together as our Other Services segment. In
January 2003, we completed the acquisition of OIS International Inspection plc,
which approximately tripled the size of our inspection and non-destructive
testing operations. As a result, we are now reporting Inspection & NDT as a
separate segment. We have reclassified our prior periods to conform with the
current classifications.

Consolidated revenue and margin information is as follows:

In our financial statements contained in our Annual Report on Form 10-K for the
year ended December 31, 2002, we restated periods before September 30, 2002 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. For a discussion of the restatement, see note 2 to the consolidated
financial statements contained in our Form 10-K.

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Our Oil and Gas business results are influenced by the level of capital spending
by oil and gas companies in the offshore sector, particularly in deepwater, that
is, at water depths of 1,000 feet or more. In 2002, we saw a decrease in
deepwater exploration activity, particularly in the Gulf of Mexico. As a result,
the increase in ROV drill support services that we had expected to begin in the
second half of 2002 has not yet materialized. In addition, we have also noted
continuing delays in the development of deepwater prospects around the world. As
evidenced by the decline in our Subsea Products backlog from $61 million at
December 31, 2001 to $26 million at June 30, 2003, a surge in these operations
appears unlikely before the last quarter of 2003. Based on the number of subsea
tree orders and our outstanding bids, we anticipate our backlog will increase by
September 30, 2003, with a subsequent increase in activity for the remainder of
the year.

We generate a material amount of our consolidated revenue from contracts for
marine services and Inspection & NDT 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 the substantial number of multiyear ROV contracts that we
entered into since calendar year 1997 have reduced the seasonality of our Subsea
Projects and ROV operations. Revenues in our Mobile Offshore Production Systems,
Subsea Products and Advanced Technologies segments are generally not seasonal.

OIL AND GAS

The table below sets forth our revenues and gross margins for our Oil and Gas
business for the periods indicated.

For the quarter ended June 30, 2003, our ROV segment revenues increased from
higher utilization and higher dayrates than those in corresponding period of
2002 as the decline in deepwater drill support was offset by an increase in
construction activity. Margins decreased due to higher operating expenses
associated with construction support activities. Revenues, gross margin and
gross margin percentage increased over the quarter ended March 31, 2003 as a
result of an increase in utilization from 64% to 72%. For the six-month period
ended June 30, 2003, our

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revenue, gross margin and gross margin percentage decreased due to lower
utilization. For the balance of 2003, we expect our ROV results to be consistent
with those achieved in the quarter ended June 30, 2003.

During the three- and six-month periods ended June 30, 2003, our Subsea Products
revenues and gross margins declined from the corresponding periods of the prior
year due to reduced activity at our U.K. and Brazil umbilical plants. Subsea
Products gross margin was positively impacted by $1.3 million due to the
successful completion of a project at a lower cost than previously estimated. We
expect this segment results will improve in the second half of 2003 compared to
the first half. While our outlook for the Subsea Products segment is highly
positive based on the projected growth in subsea wellhead completions, we
anticipate this segment's results will be lower in 2003 as compared to 2002.

For our Subsea Projects segment, a decrease in offshore activity in the Gulf of
Mexico contributed to the decrease in gross margins for the three- and six-month
periods ended June 30, 2003 as compared to the corresponding periods of the
prior year. The margins in the six-month period ended June 30, 2003 were
favorably impacted by reductions in cost estimates totaling $1.9 million. We
adjusted the cost estimates due to the favorable completion of an installation
project and the settlement of a personal injury claim. Additionally, gross
margin decreased as 2002 included a contribution from a significant engineering
and specialized diving contract. Although we anticipate improved results in the
second half of the year, we believe that for 2003 our Subsea Projects segment
will earn less revenue at lower margins than it did in 2002.

Our Mobile Offshore Production Systems gross margins were lower than those in
the corresponding periods of 2002. During the second quarter of 2002, our
customer exercised its option to extend the Ocean Legend contract for an
additional two years. As a result, our revenue and margin on this contract
decreased by approximately $19,000 per day from mid-May 2002.

Our Inspection & NDT revenues and gross margins increased substantially as a
result of our acquisition of OIS International Inspection plc in January 2003.
Gross margin percentage was lower, as the acquired business had been operating
at lower margins than our historical Inspection & NDT business. We anticipate
having higher margin percentages for this business for the remainder of 2003 as
we continue to improve the efficiencies of the combined organizations.

ADVANCED TECHNOLOGIES

Revenue and gross margin information is as follows:

Advanced Technologies revenues and margins were higher in the 2003 periods as
compared to the corresponding periods in 2002 from improved revenues and margins
in our entertainment, marine services and space divisions, partially offset by
lower levels of activities from our telecommunications cable ROV services. We
anticipate quarterly results for the rest of 2003 to be similar to those
achieved in the first two quarters.

UNALLOCATED EXPENSES

Our unallocated expenses are those not associated with a specific business
segment. These consist of expenses related to our incentive and deferred
compensation plans, including restricted stock and bonuses, as well as general
expenses. Our unallocated expenses were $4.7 million, $2.4 million and $3.7
million for the three months ended June 30, 2003, June 30, 2002 and March 31,
2003, respectively. Our unallocated expenses were $8.4 million and $9.3 million
for the six months ended June 30, 2003 and 2002, respectively. The compensation
plan expenses increased in the quarter ended June 30, 2003 as a result of
increased restricted stock expense, which was attributable to an increase in our
quarter-end stock price from the prior quarter.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses increased 17% in each of the three-
and six-month periods ended June 30, 2003 over the corresponding periods in 2002
due to the additional expenses relating to OIS International Inspection plc,
which we acquired in January 2003.

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OTHER

Our equity in the losses of our telecommunications joint venture was $348,000
and $579,000 for the three- and six-month periods ended June 30, 2003, compared
to $429,000 and $37,000 for the three- and six-month periods ended June 30,
2002. 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.

Interest expense for the three- and six-month periods ended June 30, 2003
decreased compared to the corresponding periods in the prior year due to lower
debt levels. Our debt had been incurred to fund the acquisition of additional
equipment, including the Ocean Legend, and the expansion of our Subsea Products
production capacity. We did not capitalize any interest during the three- or
six-month periods ended June 30, 2003 or June 30, 2002.

The provisions for income taxes were related to U.S. income taxes that we
provided at estimated annual effective rates using assumptions as to earnings
and other factors that would affect the tax calculation for the remainder of the
year and to the operations of foreign branches and subsidiaries that were
subject to local income and withholding taxes. We anticipate our effective tax
rate for 2003 to be 35%.

ITEM 3. 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 contained in our Annual Report on Form 10-K for the year
ended December 31, 2002 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 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 a
$1.1 million adjustment to our equity accounts for the six-month period ended
June 30, 2003 to reflect the net impact of the weakening of the U.S. dollar
against various foreign currencies 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 consolidated statement of income for 2002 related to our
operations in Brazil. Foreign currency losses were $360,000 and $427,000 for the
three-month periods ended June 30, 2003 and 2002, respectively, and $520,000 and
$672,000 for the six-month periods ended June 30, 2003 and 2002, respectively.

ITEM 4. CONTROLS AND PROCEDURES.

In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an
evaluation, under the supervision and with the participation of management,
including our chief executive officer and chief financial officer, of the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this report. Based on that evaluation, our chief executive
officer and chief financial officer concluded that our disclosure controls and
procedures were effective as of June 30, 2003 to provide reasonable assurance
that information required to be disclosed in our reports filed or submitted
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission's rules and
forms.

There has been no change in our internal controls over financial reporting that
occurred during the three months ended June 30, 2003 that has materially
affected, or is reasonably likely to materially affect, our internal controls
over financial reporting.

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PART II - OTHER INFORMATION

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

(a) Oceaneering International, Inc. held its Annual Meeting of
Shareholders on May 30, 2003. The following matters were voted
upon at the Annual Meeting, with the voting results as
follows:

(1) Election of Class II Directors

Messrs. T. J. Collins, D. Michael Hughes, David S.
Hooker and Harris J. Pappas also continued as
directors immediately following the Annual Meeting.

(2) Ratification of the appointment of Ernst & Young LLP
as independent auditors for the Company.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits.

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

(b) We filed the following reports on Form 8-K during the quarter for which
this report is filed.

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SIGNATURES

Pursuant to the requirements 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.

OCEANEERING INTERNATIONAL, INC.
(Registrant)

Date: August 12, 2003 By: /S/ JOHN R. HUFF
------------------------------------
John R. Huff
Chairman and Chief Executive Officer

Date: August 12, 2003 By: /S/ MARVIN J. MIGURA
------------------------------------
Marvin J. Migura
Senior Vice President and Chief
Financial Officer

Date: August 12, 2003 By: /S/ JOHN L. ZACHARY
------------------------------------
John L. Zachary
Controller and Chief Accounting
Officer

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INDEX TO EXHIBITS

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

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