UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2004

OR

o 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)

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

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

(713) 329-4500

(Registrant’s telephone number, including area code)

Not Applicable

(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 þ No o

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

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

Class	Outstanding at October 29, 2004
Common Stock, $.25 Par Value	25,638,180 shares

Page 1

Oceaneering International, Inc.
Form 10-Q

Index

Part I	Financial Information
Item 1.	Financial Statements.
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 3.	Quantitative and Qualitative Disclosure About Market Risk.
Item 4.	Controls and Procedures.
Part II	Other Information
Item 5.	Other Information.
Item 6.	Exhibits.
Signatures
Index to Exhibits

Page 2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

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

	Sep. 30,			Dec. 31,
	2004			2003
	(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	26,291		$	18,396
Accounts receivable, net of allowance for doubtful accounts of $2,763		185,140			151,206
Prepaid expenses and other		63,100			55,163
Total Current Assets		274,531			224,765
Property and Equipment, at cost		754,770			650,099
Less: accumulated depreciation		(362,656	)		(321,029	)
Net Property and Equipment		392,114			329,070
Goodwill		49,734			38,468
Investments in unconsolidated affiliates		56,744			54,632
Other		18,732			15,921
TOTAL ASSETS	$	791,855		$	662,856
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	40,676		$	32,130
Accrued liabilities		95,598			85,406
Income taxes payable		13,801			15,436
Total Current Liabilities		150,075			132,972
Long-term Debt, net of current portion		166,462			122,324
Other Long-term Liabilities		51,473			48,185
Commitments and Contingencies
Shareholders’ Equity		423,845			359,375
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	791,855		$	662,856

See Notes to Consolidated Financial Statements.

Page 3

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

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
Revenue	$	192,862		$	172,754		$	554,143		$	477,184
Cost of services and products		158,657			142,382			461,435			394,423
Gross margin		34,205			30,372			92,708			82,761
Selling, general and administrative expenses		15,486			14,322			48,201			40,511
Income from operations		18,719			16,050			44,507			42,250
Interest income		767			94			889			381
Interest expense		(2,141	)		(2,105	)		(6,403	)		(5,956	)
Equity earnings (losses) of unconsolidated affiliates, net		2,480			35			5,936			(186	)
Other income (expense), net		(61	)		(169	)		(947	)		(859	)
Income before income taxes		19,764			13,905			43,982			35,630
Provision for income taxes		(6,918	)		(4,867	)		(15,394	)		(12,471	)
Net Income	$	12,846		$	9,038		$	28,588		$	23,159
Basic Earnings per Share	$	0.51		$	0.38		$	1.15		$	0.97
Diluted Earnings per Share	$	0.50		$	0.37		$	1.12		$	0.95
Weighted average number of common shares		25,153			23,971			24,798			23,851
Incremental shares from stock options and restricted stock		718			517			814			573
Weighted average number of common shares and equivalents		25,871			24,488			25,612			24,424

See Notes to Consolidated Financial Statements.

Page 4

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

	For the Nine Months Ended
	September 30,
	2004			2003
Cash Flows from Operating Activities:
Net Income	$	28,588		$	23,159
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		48,446			42,153
Non-cash compensation and other		5,916			5,335
Distributed (undistributed) earnings of unconsolidated affiliates		(3,697	)		565
Increase (decrease) in cash from:
Accounts receivable		(33,934	)		(14,052	)
Prepaid expenses and other current assets		(3,162	)		(413	)
Other assets		(1,209	)		(1,708	)
Current liabilities		20,861			(7,691	)
Other long-term liabilities		(1,187	)		4,499
Total adjustments to net income		32,034			28,688
Net Cash Provided by Operating Activities		60,622			51,847
Cash Flows from Investing Activities:
Business acquisitions		(66,324	)		(57,137	)
Purchases of property and equipment and other		(55,139	)		(30,730	)
Net Cash Used in Investing Activities		(121,463	)		(87,867	)
Cash Flows from Financing Activities:
Net proceeds (payments) on revolving credit and other long-term debt, net of expenses		43,518			(2,901	)
Proceeds from issuance of common stock		25,218			7,115
Purchases of treasury stock		—			(13,338	)
Net Cash Provided by (Used in) Financing Activities		68,736			(9,124	)
Net Decrease in Cash and Cash Equivalents		7,895			(45,144	)
Cash and Cash Equivalents — Beginning of Period		18,396			66,201
Cash and Cash Equivalents — End of Period	$	26,291		$	21,057

See Notes to Consolidated Financial Statements.

Page 5

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 September 30, 2004 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, 2003. The results for interim periods are not necessarily indicative of annual results.
	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-Based Compensation
	We 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, Accounting for Stock-Based Compensation:

	For the						For the
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
	(in thousands, except per share amounts)
Net Income:
As reported	$	12,846		$	9,038		$	28,588		$	23,159
Employee stock-based compensation included in net income, net of income tax benefit		1,529			895			5,531			3,182
Pro forma compensation expense determined under fair value methods for all awards, net of income tax benefit		(2,567	)		(2,088	)		(9,189	)		(6,864	)
Pro forma	$	11,808		$	7,845		$	24,930		$	19,477
Reported earnings per common share:
Basic	$	0.51		$	0.38		$	1.15		$	0.97
Diluted	$	0.50		$	0.37		$	1.12		$	0.95
Pro forma earnings per common share:
Basic	$	0.47		$	0.33		$	1.01		$	0.82
Diluted	$	0.46		$	0.32		$	0.97		$	0.80

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 expected average lives of the options.

Page 6

	Variable Interest Entities
	In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities. FIN No. 46 requires a company to consolidate a variable interest entity if it is designated as the primary beneficiary of that entity. A variable interest entity is generally defined as an entity whose equity is insufficient to absorb the expected losses or whose owners lack the risk and rewards of ownership. FIN No. 46 is effective for all variable interest entities created or modified after January 31, 2003 and requires certain disclosures for all variable interest entities. In December 2003, the FASB published a revision to FIN No. 46 (“FIN No. 46R”) to clarify some of the provisions of the Interpretation and to defer the effective date of implementation for certain entities created before January 31, 2003. Under the guidance of FIN No. 46R, entities that do not have interests in structures that are commonly referred to as special purpose entities (“SPEs”) are required to apply the provisions of the Interpretation in financials statements for periods ending after March 14, 2004. The adoption of the provisions of FIN No. 46 did not have a material impact on our consolidated financial position, results of operations or liquidity. In December 2003, we purchased a 50% equity interest in Medusa Spar LLC for $43.7 million. Medusa Spar LLC owns a 75% interest in a production spar platform. Medusa Spar LLC’s revenue is derived from processing oil and gas production for a fee based on the volumes processed (“throughput”). The majority working interest owner of the Medusa field, the spar’s initial location, has committed to deliver a minimum throughput, which we expect will generate sufficient revenue to repay Medusa Spar LLC’s bank debt. Medusa Spar LLC financed its acquisition of its 75% interest in the production spar platform using approximately 50% debt and 50% equity from its equity holders. Our maximum exposure to loss from our investment in Medusa Spar LLC is our current carrying value of $48.3 million. Medusa Spar LLC is a variable interest entity. As we are not the primary beneficiary under FIN 46, we are accounting for our investment in Medusa Spar LLC under the equity method of accounting. We recorded $2.2 million and $5.8 million of equity earnings of unconsolidated affiliates from this investment in the three- and nine-month periods ended September 30, 2004, respectively.
2.	Prepaid Expenses and Other Current Assets
	Our prepaid expenses and other current assets consisted of the following:

	Sep. 30,		Dec. 31,
	2004		2003
	(in thousands)
Spare parts for remotely operated vehicles	$	14,479	$	12,865
Inventories, primarily raw materials		20,061		19,595
Deferred taxes		19,567		16,265
Other		8,993		6,438
Total	$	63,100	$	55,163

     Inventory is stated at the lower of cost or market. We determine cost using the weighted average method.

3. Debt

     Our long-term debt consisted of the following:

	Sep. 30,		Dec. 31,
	2004		2003
	(in thousands)
6.72% Senior Notes	$	100,000	$	100,000
Revolving credit facility		65,000		20,000
Software vendor financing		1,462		2,324
Long-term Debt		166,462		122,324
Less: current portion		—		—
Long-term Debt, net of current portion	$	166,462	$	122,324

Page 7

     Scheduled maturities of our long-term debt as of September 30, 2004 were as follows:

	6.72% Notes		Revolving Credit		Other		Total
			(in thousands)
Remainder of 2004	$	—	$	—	$	290	$	290
2005		—		—		1,172		1,172
2006		20,000		—		—		20,000
2007		20,000		—		—		20,000
2008		20,000		65,000		—		85,000
Thereafter		40,000		—		—		40,000
Total	$	100,000	$	65,000	$	1,462	$	166,462

	Maturities through September 30, 2005 are not classified as current as of September 30, 2004, since we can extend the maturity by reborrowing under the revolving credit facility with a maturity date after one year.
4.	Shareholders’ Equity and Comprehensive Income
	Our shareholders’ equity consisted of the following:

	Sep. 30,		Dec. 31,
	2004		2003
	(in thousands)
Common Stock, par value $0.25;
90,000,000 shares authorized; 25,576,670 and 24,813,289 shares issued	$	6,394	$	6,203
Additional paid-in capital		138,339		113,704
Treasury stock; zero and 429,545 shares, at cost		—		(9,563	)
Retained earnings		273,639		245,051
Other comprehensive income		5,473		3,980
Total shareholders’ equity	$	423,845	$	359,375

Comprehensive income is the total of net income and all nonowner changes in equity. The amounts of comprehensive income for the three- and nine-month periods ended September 30, 2004 and 2003 are as follows:

	For the					For the
	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2004		2003			2004		2003
			(in thousands)
Net Income per Consolidated Statements of Income	$	12,846	$	9,038		$	28,588	$	23,159
Foreign Currency Translation Gains		1,422		2,290			1,438		3,391
Change in Fair Value of Interest Rate Hedge		—		208			—		308
Change in Minimum Pension Liability Adjustment		136		(25	)		55		(118	)
Comprehensive Income	$	14,404	$	11,511		$	30,081	$	26,740

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

	Sep. 30, 2004			Dec. 31, 2003
	(in thousands)
Accumulated Net Foreign Currency Translation Adjustments	$	7,599		$	6,161
Minimum Pension Liability Adjustment		(2,126	)		(2,181	)
	$	5,473		$	3,980

5.	Income Taxes
	During interim periods, we provide for income taxes at our estimated annual effective tax rate, using assumptions as to (1) earnings and other factors that would affect the tax calculation for the remainder of the year and (2) the operations of foreign branches and subsidiaries that are subject to local income and withholding taxes.

Page 8

	We paid cash taxes of $19.5 million and $13.4 million for the nine-month periods ended September 30, 2004 and 2003, 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. 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.
	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, 2003. The following summarizes certain financial data by business segment:

	For the Three Months Ended									For the Nine Months Ended
	Sep. 30,			Sep. 30,			June 30,			Sep. 30,			Sep. 30,
	2004			2003			2004			2004			2003
	(in thousands)
Revenue
Oil and Gas
ROVs	$	56,546		$	40,644		$	55,081		$	158,032		$	116,587
Subsea Products		37,162			29,748			36,525			107,013			81,667
Subsea Projects		15,278			20,375			16,423			44,184			51,276
Mobile Offshore Production Systems		11,613			11,732			13,128			37,508			35,089
Inspection		37,719			37,688			40,207			109,825			102,929
Total Oil and Gas		158,318			140,187			161,364			456,562			387,548
Advanced Technologies		34,544			32,567			33,289			97,581			89,636
Total	$	192,862		$	172,754		$	194,653		$	554,143		$	477,184
Gross Margin
Oil and Gas
ROVs	$	16,407		$	10,577		$	14,648		$	41,908		$	30,069
Subsea Products		5,612			4,366			6,676			17,985			14,320
Subsea Projects		2,406			3,153			2,023			5,905			7,127
Mobile Offshore Production Systems		4,536			4,708			4,426			13,496			13,769
Inspection		4,883			5,895			5,337			13,140			13,365
Total Oil and Gas		33,844			28,699			33,110			92,434			78,650
Advanced Technologies		6,682			6,343			6,469			18,648			17,216
Unallocated Expenses		(6,321	)		(4,670	)		(6,710	)		(18,374	)		(13,105	)
Total	$	34,205		$	30,372		$	32,869		$	92,708		$	82,761
Operating Income
Oil and Gas
ROVs	$	13,692		$	8,909		$	12,102		$	34,359		$	24,940
Subsea Products		2,002			631			2,934			6,961			4,727
Subsea Projects		1,238			1,890			721			2,325			3,883
Mobile Offshore Production Systems		4,076			4,113			3,974			12,088			11,905
Inspection		1,887			3,198			2,555			4,540			5,090
Total Oil and Gas		22,895			18,741			22,286			60,273			50,545
Advanced Technologies		4,975			4,605			4,398			13,074			12,260
Unallocated Expenses		(9,151	)		(7,296	)		(9,853	)		(28,840	)		(20,555	)
Total	$	18,719		$	16,050		$	16,831		$	44,507		$	42,250

In February 2004, we acquired the drill support ROV business of Stolt Offshore S.A. for approximately $50 million (see note 7). On September 30, 2004, we acquired 10 work class ROVs and other equipment in North and South America from Fugro N.V. for $17 million. All of the assets that we acquired in these two transactions are included in our ROV segment.

Page 9

7.

Business Acquisition

In February 2004, we acquired the drill support ROV business of Stolt Offshore S.A. for approximately $50 million and in September 2004 we acquired 10 work class ROVs, related equipment and business in North and South America from Fugro N.V. for approximately $17 million. We are accounting for these business acquisitions using the purchase method of accounting, with the purchase price being allocated to the assets and liabilities acquired based on their fair market values at the date of acquisition. We have made the purchase price allocations based on information currently available to us, and the allocations are subject to change when we obtain final asset and liability valuations. The acquisitions were not material. As a result, we have not included pro forma information in this report. The results of the businesses acquired are included in our consolidated statement of income, in each case from the date of acquisition.

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

All statements in this quarterly report on 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, 2003. 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.

This section should be read in conjunction with the Management’s Discussion and Analysis included in our annual report on Form 10-K for the year ended December 31, 2003.

Executive Overview

We generate over 80% of our revenue from our services and products provided to the oil and gas industry. In 2003, we operated in what we considered to be a difficult market for oilfield services and products in general. These same market conditions persisted through the first quarter of 2004 and improved during the second and third quarters. The first quarter of 2004 included a $1.8 million pre-tax expense for a terminated acquisition effort in our unallocated expenses.

Compared to the second quarter of 2004, we experienced an increase in earnings in our ROV segment from higher utilization and lower repair expenses. The added capacity from the acquisition of the drill support ROV business of Stolt Offshore S.A. in February 2004 has contributed to the improvement in our ROV results. For the fourth quarter of 2004, we expect net income to be comparable to the third quarter. We expect improvements in our Subsea Products and Subsea Projects segments, and declines from seasonality and timing of projects in our ROV, Inspection and Advanced Technologies segments. The expected improvement in our Subsea Projects segment is attributable to inspection and repair work in the Gulf of Mexico made necessary by Hurricane Ivan.

Critical Accounting Policies and Estimates

For information about our Critical Accounting Policies and Estimates, please refer to the discussion in our annual report on Form 10-K for the year ended December 31, 2003 under the heading “Critical Accounting Policies and Estimates” in Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operation.

Liquidity and Capital Resources

We consider our liquidity and capital resources adequate to support our operations and capital commitments. At September 30, 2004, we had working capital of $124 million, including $26 million of cash and cash equivalents. Additionally, we had $185 million of borrowing capacity available under our revolving credit facility.

Our capital expenditures were $122 million during the nine months ended September 30, 2004, as compared to $88 million during the corresponding period of last year. Capital expenditures in the current year consisted mainly of the acquisition of the drill support ROV business of Stolt Offshore S.A., the acquisition of 10 ROVs and related equipment from Fugro N.V. and expenditures related to our new umbilical facility in Panama City, Florida. Prior-year capital expenditures consisted primarily of the acquisition of OIS International Inspection plc, Rotator AS, Nauticos Corporation and Reflange, Inc.

We had no material commitments for capital expenditures at September 30, 2004.

Page 10

At September 30, 2004, we had long-term debt of $166 million and a 28% debt-to-total capitalization ratio. We have $100 million of Senior Notes outstanding, to be repaid from 2006 through 2010, and $65 million outstanding under our $250 million revolving credit facility that expires in January 2008. The revolving credit facility has short-term interest rates that float with market rates, plus applicable spreads. We have not guaranteed any debt not reflected on our consolidated balance sheet and do not have any off balance sheet arrangements as defined by SEC rules.

In the nine-month period ended September 30, 2004, our cash and cash equivalents increased $8 million. We generated $61 million in cash from operating activities, used $121 million of cash in investing activities and obtained $69 million of cash from financing activities. The cash used in investing activities was used primarily for the capital expenditures described above and the cash obtained from financing activities was used, along with a substantial portion of the cash provided by operating activities, to pay for those capital expenditures and to finance an increase in working capital of $33 million. Much of the increase in working capital was from accounts receivable associated with increased ROV revenue associated with the ROVs acquired from Stolt and the seasonal Inspection and Subsea Projects revenue increases during the second and third quarters.

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”). Our unallocated expenses are those not associated with a specific business segment.

Consolidated revenue and margin information is as follows:

	For the Three Months Ended									For the Nine Months Ended
	Sep. 30,			Sep. 30,			June 30,			Sep. 30,			Sep. 30,
	2004			2003			2004			2004			2003
	(dollars in thousands)
Revenue	$	192,862		$	172,754		$	194,653		$	554,143		$	477,184
Gross margin		34,205			30,372			32,869			92,708			82,761
Operating margin		18,719			16,050			16,831			44,507			42,250
Gross margin %		18	%		18	%		17	%		17	%		17	%
Operating margin %		10	%		9	%		9	%		8	%		9	%

We generate a material amount of our consolidated revenue from contracts for marine services and inspection services in the Gulf of Mexico and North Sea, which are usually more active from April through November compared to the rest of the year. In 2004, we expect higher-than-normal fourth quarter revenues from our Subsea Projects segment due to inspection and repair work made necessary in the Gulf of Mexico by Hurricane Ivan. Revenues in our Mobile Offshore Production Systems, Subsea Products and Advanced Technologies segments are generally not seasonal.

Page 11

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 Three Months Ended									For the Nine Months Ended
	Sep. 30,			Sep. 30,			June 30,			Sep. 30,			Sep. 30,
	2004			2003			2004			2004			2003
				(dollars in thousands)
ROVs
Revenue	$	56,546		$	40,644		$	55,081		$	158,032		$	116,587
Gross margin		16,407			10,577			14,648			41,908			30,069
Gross margin %		29	%		26	%		27	%		27	%		26	%
Operating margin		13,692			8,909			12,102			34,359			24,940
Operating margin %		24	%		22	%		22	%		22	%		21	%
Work class utilization %		69	%		71	%		67	%		68	%		69	%
Subsea Products
Revenue	$	37,162		$	29,748		$	36,525		$	107,013		$	81,667
Gross margin		5,612			4,366			6,676			17,985			14,320
Gross margin %		15	%		15	%		18	%		17	%		18	%
Operating margin		2,002			631			2,934			6,961			4,727
Operating margin %		5	%		2	%		8	%		7	%		6	%
Subsea Projects
Revenue	$	15,278		$	20,375		$	16,423		$	44,184		$	51,276
Gross margin		2,406			3,153			2,023			5,905			7,127
Gross margin %		16	%		15	%		12	%		13	%		14	%
Operating margin		1,238			1,890			721			2,325			3,883
Operating margin %		8	%		9	%		4	%		5	%		8	%
Mobile Offshore Production Systems
Revenue	$	11,613		$	11,732		$	13,128		$	37,508		$	35,089
Gross margin		4,536			4,708			4,426			13,496			13,769
Gross margin %		39	%		40	%		34	%		36	%		39	%
Operating margin		4,076			4,113			3,974			12,088			11,905
Operating margin %		35	%		35	%		30	%		32	%		34	%
Inspection
Revenue	$	37,719		$	37,688		$	40,207		$	109,825		$	102,929
Gross margin		4,883			5,895			5,337			13,140			13,365
Gross margin %		13	%		16	%		13	%		12	%		13	%
Operating margin		1,887			3,198			2,555			4,540			5,090
Operating margin %		5	%		8	%		6	%		4	%		5	%
Total Oil and Gas
Revenue	$	158,318		$	140,187		$	161,364		$	456,562		$	387,548
Gross margin		33,844			28,699			33,110			92,434			78,650
Gross margin %		21	%		20	%		21	%		20	%		20	%
Operating margin		22,895			18,741			22,286			60,273			50,545
Operating margin %		14	%		13	%		14	%		13	%		13	%

Our ROV segment gross margins reflect the utilization percentages of the respective periods and increased capacity from the acquisition of 34 ROVs from Stolt Offshore S.A. in February 2004. As a result of increased construction support work, which began during the latter half of 2003 and carried through the first nine months of 2004, the average revenue per day of ROV utilization was higher than the corresponding period in 2003 and comparable to that of the preceding quarter. Gross margins increased over the prior quarter due to lower repair expenses. We expect gross margin percentage to be slightly lower in the fourth quarter, as we expect our repair expenses to rise closer to historical levels.

During the quarter ended September 30, 2004, our Subsea Products revenues increased from the corresponding quarter of the prior year and the preceding quarter. Our margin contributions increased compared to the corresponding periods of 2003 from the higher revenue levels after our acquisition of Rotator in 2003. Margins decreased from the prior quarter due to competitive pricing pressure in the umbilical market. The nine-month period ended September 30, 2003 was positively impacted by $1.3 million due to the successful completion of a project at a lower cost

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than previously estimated. Our outlook for the Subsea Products segment is positive, based on the growth in the number of subsea wellhead completions and the level of bid activity we are experiencing, although the competitive pricing environment still exists in the umbilical market, particularly in regard to Gulf of Mexico steel tube umbilicals. Our Subsea Products backlog increased from $60 million at June 30, 2004 to $73 million at September 30, 2004. During the fourth quarter of 2004, we expect higher revenue and margin contributions than we had in the third quarter. Our steel tube cabling machine in Brazil is now operational, and we expect our Panama City, Florida facility, with steel tube capability, to be operational in December 2004.

For our Subsea Projects segment, we experienced a slight revenue decrease compared to the preceding quarter, but slightly increased margins due to better results from our Gulf of Mexico diving operations. Reflecting less demand for our services, our margin contributions were below those achieved in the corresponding quarter of 2003. The nine months of 2003 included 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. We believe, that for the full year, our Subsea Projects segment results in 2004 will be slightly below those achieved in 2003.

Our Mobile Offshore Production Systems gross margins were flat for all periods presented, as our three main assets were working under the same contracts as in 2003. We expect margins to continue at about the same levels through the remainder of 2004.

Compared to the corresponding periods of 2003, our Inspection gross margins decreased as a result of three major storms in the Gulf of Mexico, which delayed and interrupted work. Our margins were also negatively impacted by restructuring costs following the acquisition of OIS International Inspection plc in January 2003.

Advanced Technologies

Revenue and gross margin information is as follows:

	For the Three Months Ended									For the Nine Months Ended
	Sep. 30,			Sep. 30,			June 30,			Sep. 30,			Sep. 30,
	2004			2003			2004			2004			2003
	(dollars in thousands)
Revenue	$	34,544		$	32,567		$	33,289		$	97,581		$	89,636
Gross margins		6,682			6,343			6,469			18,648			17,216
Gross margin %		19	%		19	%		19	%		19	%		19	%
Operating margin		4,975			4,605			4,398			13,074			12,260
Operating margin %		14	%		14	%		13	%		13	%		14	%

Advanced Technologies revenues were higher and margin percentages were flat in the periods presented from additional work for the U.S. Navy and space-related products and services associated with the next Space Shuttle launch. We anticipate the fourth quarter results to be slightly lower than those achieved during the third quarter, due to the timing of projects.

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 periods indicated.

	For the Three Months Ended									For the Nine Months Ended
	Sep. 30,			Sep. 30,			June 30,			Sep. 30,			Sep. 30,
	2004			2003			2004			2004			2003
							(dollars in thousands)
Gross margin expenses	$	(6,321	)	$	(4,670	)	$	(6,710	)	$	(18,374	)	$	(13,105	)
% of revenue		3	%		3	%		3	%		3	%		3	%
Operating expenses		(9,151	)		(7,296	)		(9,853	)		(28,840	)		(20,555	)
% of revenue		5	%		4	%		5	%		5	%		4	%

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Unallocated operating expenses in the nine months ended September 30, 2004 include the expensing of $1.8 million of accumulated transaction costs related to a terminated acquisition effort in the first quarter of 2004.

Other

The table below sets forth our significant financial statement items below the income from operations line.

	For the Three Months Ended									For the Nine Months Ended
	Sep. 30,			Sep. 30,			June 30,			Sep. 30,			Sep. 30,
	2004			2003			2004			2004			2003
							(dollars in thousands)
Interest income	$	767		$	94		$	67		$	889		$	381
Interest expense		(2,141	)		(2,105	)		(2,168	)		(6,403	)		(5,956	)
Equity earnings (losses) of unconsolidated affiliates, net		2,480			35			2,320			5,936			(186	)
Other income (expense), net		(61	)		(169	)		(263	)		(947	)		(859	)
Provision for income taxes		(6,918	)		(4,867	)		(5,875	)		(15,394	)		(12,471	)

The amounts of equity earnings (losses) of unconsolidated affiliates are as follows:

	For the Three Months Ended									For the Nine Months Ended
	Sep. 30,			Sep. 30,			June 30,			Sep. 30,			Sep. 30,
	2004			2003			2004			2004			2003
							(dollars in thousands)
Medusa Spar LLC	$	2,178		$	—		$	2,503		$	5,818		$	—
Smit-Oceaneering Cable Systems, L.L.C.		(49	)		(231	)		(468	)		(689	)		(810	)
Pro-Dive Oceaneering Co.		351			266			285			807			624
	$	2,480		$	35		$	2,320		$	5,936		$	(186	)

In December 2003, we acquired 50% of Medusa Spar LLC, which owns a 75% interest in the Medusa Spar production platform in the Gulf of Mexico. Medusa Spar LLC earns revenue on a tariff basis on oil and gas production throughput processed by the spar from the Medusa field and surrounding dedicated blocks. The decrease in earnings of Medusa Spar LLC from the prior quarter resulted from an interruption of production associated with Hurricane Ivan in mid-September. Production was resumed in mid-October.

We own 50% of Smit-Oceaneering Cable Systems, L.L.C., which is a telecommunications cable laying and maintenance venture. Due to the current condition of the telecommunications market, the venture is currently inactive and the single vessel owned by the venture is being marketed for oilfield and other uses.

We own 49% of Pro-Dive Oceaneering Co., a venture that operates our ROVs in Canada.

Interest expense for the three- and nine-month periods ended September 30, 2004 increased compared to the corresponding period in the prior year due to higher debt levels. Our debt had been incurred to fund business acquisitions, including the ROV drill support business of Stolt Offshore S.A. in 2004 and OIS International Inspection plc in 2003, additional equipment, including the Ocean Legend, and expansion of our Subsea Products production capacity. We capitalized $81,000 and $126,000 of interest during the three- and nine-month periods ended September 30, 2004, respectively. We did not capitalize any interest during 2003.

We recognized additional interest income in the three months ended September 30, 2004 from interest on tax refunds associated with amended U.S. tax returns.

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 2004 to be 35%.

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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. See note 3 of notes to the consolidated financial statements contained in this report and note 3 of notes to consolidated financial statements contained in our annual report on Form 10-K for the year ended December 31, 2003 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 $1.4 million adjustment to our equity accounts for the three- and nine-month periods ended September 30, 2004 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 2003 related to our operations in Brazil. Foreign currency gains and (losses) related to Brazil were $503,000 and ($43,000) for the three-month periods ended September 30, 2004 and 2003 and $2,000 and ($420,000) for the nine-month periods ended September 30, 2004 and 2003, 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 September 30, 2004 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 control over financial reporting that occurred during the three months ended September 30, 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 5. Other Information.

In conjunction with its self-assessment of its independence from us, our independent audit firm, Ernst & Young LLP, recently considered the impact of the following matters on its independence: (1) the provision of recordkeeping services by Ernst & Young’s Brazilian affiliate to an inactive Brazilian subsidiary of ours whose accounts are not consolidated into our financial statements, (2) the provision of treasury-related services to that same subsidiary by an individual who had a contractor relationship with Ernst & Young’s Brazilian affiliate and (3) the maintenance by Ernst & Young’s Indonesian affiliate of a small cash float account into which we periodically advanced funds in connection with the payment of Indonesian withholding taxes. Each of these service relationships and arrangements with Ernst & Young has been discontinued. Based on its review of the facts and circumstances involved, Ernst & Young concluded that, notwithstanding the prior existence of these relationships and arrangements, it was, in the course of its prior audit engagements with us, and continues to be, independent with respect to Oceaneering. Our management and the Audit Committee of our Board of Directors have reviewed the facts and circumstances involved and have concurred with Ernst & Young’s conclusions.

Item 6. Exhibits.

		Registration
		or File		Form or		Report	Exhibit
		Number		Report		Date	Number
*3.01	Restated Certificate of Incorporation		1-10945		10-K	Dec. 2000		3.01
*3.02	Amended and Restated By-Laws		1-10945		10-K	Dec. 2002		3.02
31.01	Rule 13a-14(a)/15d-14(a) Certification by John R. Huff, Chief Executive Officer
31.02	Rule 13a-14(a)/15d-14(a) Certification by Marvin J. Migura, Chief Financial Officer
32.01	Section 1350 Certification by John R. Huff, Chief Executive Officer
32.02	Section 1350 Certification by Marvin J. Migura, Chief Financial Officer

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

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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:	November 4, 2004	By:	/S/ JOHN R. HUFF John R. Huff Chairman and Chief Executive Officer
Date:	November 4, 2004	By:	/S/ MARVIN J. MIGURA Marvin J. Migura Senior Vice President and Chief Financial Officer
Date:	November 4, 2004	By:	/S/ JOHN L. ZACHARY John L. Zachary Controller and Chief Accounting Officer

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Index to Exhibits

		Registration
		or File		Form or		Report	Exhibit
		Number		Report		Date	Number
*3.01	Restated Certificate of Incorporation		1-10945		10-K	Dec. 2000		3.01
*3.02	Amended and Restated By-Laws		1-10945		10-K	Dec. 2002		3.02
31.01	Rule 13a-14(a)/15d-14(a) Certification by John R. Huff, Chief Executive Officer
31.02	Rule 13a-14(a)/15d-14(a) Certification by Marvin J. Migura, Chief Financial Officer
32.01	Section 1350 Certification by John R. Huff, Chief Executive Officer
32.02	Section 1350 Certification by Marvin J. Migura, Chief Financial Officer

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

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