CAL DIVE INTERNATIONAL INC - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

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FORM 10-Q

(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
for the quarterly period ended June 30, 2002

( ) 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: 0-22739

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Cal Dive International, Inc.
(Exact Name of Registrant as Specified in its Charter)

Minnesota 95-3409686
(State or Other Jurisdiction of Incorporation or (IRS Employer Identification
Organization) Number)

400 N. Sam Houston Parkway E.
Suite 400
Houston, Texas 77060
(Address of Principal Executive Offices)

(281) 618-0400
(Registrant's telephone number,
Including area code)

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Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13(b) or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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 [ ]

At August 8, 2002 there were 37,272,429 shares of common stock, no par
value outstanding.

CAL DIVE INTERNATIONAL, INC.
INDEX

PART I. FINANCIAL STATEMENTS

Item 1. Financial Statements

CAL DIVE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

The accompanying notes are an integral part of these
consolidated financial statements.

- 1 -

CAL DIVE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The accompanying notes are an integral part of these
consolidated financial statements.

- 2 -

CAL DIVE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The accompanying notes are an integral part of these
consolidated financial statements.

- 3 -

CAL DIVE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

The accompanying notes are an integral part of these
consolidated financial statements.

- 4 -

CAL DIVE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1 - Basis of Presentation and Significant Accounting Policies

The accompanying financial statements include the accounts of Cal Dive
International, Inc. (Cal Dive, CDI or the Company) and its wholly owned
subsidiaries, Energy Resource Technology, Inc. (ERT), Aquatica, Inc. and Canyon
Offshore, Inc. All significant intercompany accounts and transactions have been
eliminated. These financial statements are unaudited, have been prepared
pursuant to instructions for the Quarterly Report on Form 10-Q required to be
filed with the Securities and Exchange Commission and do not include all
information and footnotes normally included in financial statements prepared in
accordance with generally accepted accounting principles.

Management has reflected all adjustments (which were normal recurring
adjustments) which it believes are necessary for a fair presentation of the
consolidated balance sheets, results of operations, and cash flows, as
applicable. Operating results for the period ended June 30, 2002, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002. These financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's 2001 Annual Report on Form 10-K.

Certain reclassifications were made to previously reported amounts in
the consolidated financial statements and notes to make them consistent with the
current presentation format.

Note 2 - Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 142, Goodwill and Intangible Assets, which supersedes APB Opinion No.
17, Intangible Assets. SFAS 142 eliminates the current requirement to amortize
goodwill and indefinite-lived intangible assets, addresses the amortization of
intangible assets with a defined life and addresses the impairment testing and
recognition for goodwill and intangible assets. SFAS 142, which is effective for
2002, applies to goodwill and intangible assets arising from transactions
completed before and after the Statement's effective date. The Company adopted
this standard effective January 1, 2002, the effect of which was immaterial to
CDI's financial position and results of operations.

In July 2001, the FASB released SFAS No. 143, Accounting for Asset
Retirement Obligations, which is required to be adopted by the Company no later
than January 1, 2003. SFAS 143 addresses the financial accounting and reporting
obligations and retirement costs related to the retirement of tangible
long-lived assets. The Company is currently reviewing provisions of SFAS 143 to
determine the standard's impact on the financial statements upon adoption. Among
other things SFAS 143 will require oil and gas companies to reflect
decommissioning liabilities on the face of the balance sheet, something ERT has
done since inception on an undiscounted basis.

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which is effective for the Company
beginning January 1, 2002. SFAS No. 144 supersedes SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
and the accounting and reporting provisions relating to the disposal of a
segment of a business of APB Opinion No. 30. The Company adopted this standard
effective January 1, 2002, the effect of which was immaterial to CDI's financial
position and results of operations.

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Note 3 - Derivatives

In March 2002 and April 2002, ERT entered into swap contracts that
require payments to, or receipts from, an energy trading company based on the
difference between a fixed and a variable price for a commodity. Under SFAS No.
133, we record the transactions as assets or liabilities, as applicable, and
record any gain or loss on settled transactions, and the change in market value
of unsettled positions in our consolidated statement of operations at the end of
each reporting period. The impact of the swap contracts for the quarter and six
months ended June 30, 2002 was immaterial to the financial statements.

In June 2002, CDI signed the agreement with Coflexip to acquire the
Subsea Well Operations Business Unit for 44.8 million British pounds (which at
the time equaled $67.5 million) which subsequently closed in July. CDI entered
into a foreign currency forward contract to lock in the British pound to U.S.
dollar exchange rate. Under SFAS No. 133, we accounted for this transaction with
changes in its fair value reported in earnings. Accordingly, a $1.1 million gain
was recorded in other income for the period ended June 30, 2002 as a result of
the change in market value of the contract as of June 30, 2002.

Note 4 - Business Segment Information (in thousands)

With respect to the second quarter of 2002, Canyon Offshore, Inc.
(which is included in the subsea and salvage segment) generated revenues and
gross profit of $2.3 million and $400,000, respectively, from the
telecommunications industry. For the three months ended June 30, 2002, Canyon
derived $2.5 million and $500,000 of its revenues and gross profit,
respectively, from Southeast Asia.

Note 5 - Long-Term Financings

In August 2000, the Company closed a $138.5 million long-term financing
for construction of the Q4000. This U.S. Government guaranteed financing is
pursuant to Title XI of he Merchant Marine Act of 1936 which is administered by
the Maritime Administration ("MARAD Debt"). In January 2002, the Maritime
Administration agreed to expand the facility to $160 million to include the
modifications to the vessel which had been approved during 2001. At the time the
financing closed in 2000, the Company made an initial draw of $40.1 million
toward construction costs. During 2001, the Company borrowed an additional $59.5
million on this facility and during the first half of 2002 drew an additional
$38.9 million. The MARAD Debt will be payable in equal semi-annual installments
beginning in August 2002 and maturing 25 years from such date. It is
collateralized by the Q4000, with CDI guaranteeing 50% of the debt, and bears
interest at a rate which currently floats at a rate approximating AAA Commercial
Paper yields plus 20 basis points (approximately 2% as of June 30, 2002). For a
period up to four years from delivery of the vessel in April 2002, CDI has
options to lock in a fixed rate. In accordance with the MARAD Debt agreements,
CDI is required to comply with certain covenants and restrictions, including the
maintenance of minimum net worth and debt-to-equity requirements. As of December
31, 2001 and June 30, 2002, the Company was in compliance with these covenants.

Since April 1997, the Company has had a revolving credit facility of
$40 million available. The Company drew upon this facility only 134 days during
the past four years with maximum borrowing of $11.9 million. The Company had no
outstanding balance under this facility as of Decemer 31, 2001. In February
2002, the Company amended this facility, expanding the amount

6

available to $60 million and extending the term three years. This facility is
collateralized by accounts receivable and most of the remaining vessel fleet,
bears interest at LIBOR plus 125-250 basis points depending on CDI leverage
ratios and, among other restrictions, includes three financial covenants (cash
flow leverage, minimum interest coverage and fixed charge coverage). As of June
30, 2002, the Company had drawn $5.0 million under this revolving credit
facility and was in compliance with these covenants.

In November 2001, ERT (with a corporate guarantee by CDI) entered into
a five-year lease transaction with an entity owned by a third party to fund
CDI's portion of the construction costs ($67 million) of the spar for the
Gunnison field. As of December 31, 2001 and June 30, 2002, the entity had drawn
down $5.6 million and $22.8 million, respectively, on this facility. Accrued
interest cost on the outstanding balance is capitalized to the cost of the
facility during construction and is payable monthly thereafter. The facility
bears interest at LIBOR plus 225-300 basis points depending on CDI leverage
ratios and includes, among other restrictions, three financial covenants (cash
flow leverage, minimum interest coverage and debt to total book capitalization).
The Company was in compliance with these covenants as of December 31, 2001 and
June 30, 2002. In August 2002, CDI acquired 100% of the equity of the entity and
converted the notes into a term loan. The total commitment of the loan was
reduced to $35 million and will be payable in quarterly installments of $1.75
million for three years after delivery of the spar with the remaining $15.75
million due at the end of the three years. Interest cost and financial covenants
are consistent with the facility in place at June 30, 2002. The debt ($22.8
million at June 30, 2002) and related asset will be reflected on CDI's balance
sheet beginning in the third quarter of 2002.

Note 6 - Litigation

The Company is involved in various routine legal proceedings primarily
involving claims for personal injury under the General Maritime Laws of the
United States and Jones Act as a result of alleged negligence. In addition, the
Company from time to time incurs other claims, such as contract disputes, in the
normal course of business. The Company believes that the outcome of all such
proceedings would not have a material adverse effect on its consolidated
financial position, results of operations or cash flows.

In 1998, one of the Company's subsidiaries entered into a subcontract
with Seacore Marine Contractors Limited to provide the Sea Sorceress to a
Coflexip subsidiary in Canada. Due to difficulties with respect to the sea
states and soil conditions the contract was terminated and an arbitration to
recover damages was commenced. A preliminary liability finding has been made by
the arbitrator against Seacore and in favor of the Coflexip subsidiary. Cal Dive
was not a party to this arbitration proceeding. Only one of the grounds is
potentially applicable to our subsidiary. In the event that Seacore chooses to
seek contribution from our subsidiary which could entail another arbitration, it
is anticipated that the Company's exposure if any, should be less than $500,000.
In another lengthy commercial dispute, EEX Corporation sued Cal Dive and others
alleging breach of fiduciary duty by a former EEX employee and damages resulting
from certain construction and property acquisition agreements. Cal Dive has
responded alleging EEX Corporation breached various provisions of the same
contracts and is defending the litigation vigorously. Although such litigation
has the potential of significant liability, the Company believes that the
outcome of all such proceedings is not likely to have a material adverse effect
on its consolidated financial position, results of operations or cash flows.

Note 7 - Canyon Offshore, Inc. Acquisition

In January 2002, CDI purchased Canyon, a supplier of remotely operated
vehicles (ROVs) and robotics to the offshore construction and telecommunications
industries. CDI

7

purchased approximately 85% of Canyon's stock for cash of $52.9
million, the assumption of $9.0 million of Canyon debt (offset by $3.1 million
of cash acquired) and 181,000 shares of our common stock (143,000 shares of
which we purchased as treasury shares during the fourth quarter of 2001). Cal
Dive committed to purchase the remaining 15% for cash at a price to be
determined by Canyon's performance during the years 2002 through 2004 from
continuing employees at a minimum purchase price of $13.53 per share. As they
are employees, amounts paid, if any, in excess of the $13.53 per share will be
recorded as compensation expense. These remaining shares have been classified as
redeemable stock in subsidiary in the accompanying balance sheet and will be
adjusted to their estimated redemption value at each reporting period based on
Canyon's performance. The acquisition was accounted for as a purchase with the
acquisition price allocated to the assets acquired and liabilities assumed based
upon their estimated fair values, with the excess being recorded as goodwill,
which totaled approximately $45.1 million. The allocation of the purchase price
to the fair market value of the net assets acquired in the Canyon acquisition
are based on preliminary estimates of fair market values and may be revised when
additional information concerning asset and liability valuation is obtained;
however, management does not anticipate the adjustments, if any, will have a
material impact on the Company's results of operations or financial position.
The results of Canyon are included in the accompanying statements of operations
since the date of the purchase, January 2, 2002.

Note 8 - Offshore Property Acquisitions

In June 2002, ERT acquired a package of offshore properties from
Williams exploration and production. ERT paid $5.5 million and assumed the
pro-rata share of the abandonment obligation for the acquired interests. The
blocks purchased represent an average 30% net working interest in 26 Gulf of
Mexico leases.

In April 2002, ERT acquired a 100% interest in East Cameron Block 374,
including existing wells, equipment and improvements. The property, located in
425 feet of water, was jointly owned by Murphy Exploration & Production Company
and Callon Petroleum Operating Company. Terms include a cash payment to
reimburse the owners for the inception-to-date cost of the subsea wellhead and
umbilical, and an overriding royalty interest in future production. Cal Dive
plans to complete the temporarily abandoned number one well and perform a subsea
tie-back to a host platform. The cost of completion and tie-back is estimated at
$7 million, with first production expected in September 2002.

Note 9 - Equity Offering

In May 2002 CDI sold 3.4 million shares of primary common stock for
$23.16 per share, along with 517,000 additional shares to cover over-allotments.
Net proceeds to the Company of approximately $87.2 million were used for the
Coflexip Well Operations acquisition (see below), ERT acquisitions and to retire
debt under the Company's revolver.

Note 10 - Marco Polo Project

In June 2002 CDI, along with El Paso Energy Partners, formed Deepwater
Gateway L.L.C. (a 50/50 venture) to design, construct, install, own and operate
a tension leg platform ("TLP") production hub primarily for Anadarko Petroleum
Corporation's Marco Polo field discovery in the Deepwater Gulf of Mexico. CDI's
share of the construction costs is estimated to be approximately $110 million.
The Company, along with El Paso, is currently negotiating non-recourse project
financing for this venture, terms of which would include a minimum equity
investment for CDI of $33 million, $12 million of which had been paid as of June
30, 2002 and is recorded as Investment in Deepwater Gateway L.L.C. in the
accompanying consolidated balance sheet.

8

Note 11 - Subsequent Events - Coflexip Well Operations Acquisition and Offshore
Property Acquisition

In July 2002, CDI purchased the Subsea Well Operations Business Unit of
CSO Ltd., a wholly owned subsidiary of Technip-Coflexip, for $68.6 million. The
acquisition was accounted for as a purchase with the acquisition price allocated
to the assets acquired and liabilities assumed based upon their estimated fair
values, with the excess being recorded as goodwill, which totaled approximately
$28.6 million. The allocation of the purchase price to the fair market value of
the net assets acquired in this acquisition are based on preliminary estimates
of fair market values and may be revised when additional information concerning
asset and liability valuation is obtained; however, management does not
anticipate the adjustments, if any, will have a material impact on the Company's
results of operations or financial position.

In August 2002, ERT signed a definitive Purchase and Sale Agreement to
acquire the interests of Amerada Hess Corporation in seven Gulf of Mexico
fields, six of which Amerada Hess operates. Terms of the purchase, which is
expected to close by the end of August, involve $15 million in cash and ERT's
assumption of the pro-rata share of the related decommissioning liability.

9

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

FORWARD LOOKING STATEMENTS AND ASSUMPTIONS

This Quarterly Report on Form 10-Q includes or incorporates by
reference certain statements that may be deemed "forward looking statements"
under applicable law. Forward looking statements and assumptions in this Form
10-Q that are not statements of historical fact involve risks and assumptions
that could cause actual results to vary materially from those predicted,
including among other things, unexpected delays and operational issues
associated with turnkey projects, the price of crude oil and natural gas,
offshore weather conditions, change in site conditions, and capital expenditures
by customers. The Company strongly encourages readers to note that some or all
of the assumptions, upon which such forward looking statements are based, are
beyond the Company's ability to control or estimate precisely, and may in some
cases be subject to rapid and material change.

RESULTS OF OPERATIONS

Comparison of Three Months Ended June 30, 2002 and 2001

Revenues. During the three months ended June 30, 2002, our revenues
increased 48% to $72.3 million compared to $48.8 million for the three months
ended June 30, 2001. The increase was attributable to the Subsea and salvage
segment, partially offset by a decrease in the Natural gas and oil production
segment. Subsea and salvage revenue increased $27.1 million to $59.7 million in
the second quarter of 2002 compared to $32.6 million for the comparable
prior-year period. This increase was mainly due to the contribution of Canyon
($8.8 million) and new additions to our DP fleet: the Q4000 ($8.0 million), the
Eclipse ($6.2 million) and the Intrepid ($3.7 million).

Natural gas and oil production revenue for the three months ended June
30, 2002 decreased $3.6 million to $12.6 million from $16.2 million during the
comparable prior year period. The decrease was solely due to lower commodity
prices. Production of 3.5 Bcfe in the second quarter of 2002 was almost
identical with volumes during the three months ended June 30, 2001. The average
realized natural gas price of $3.34 per Mcf during the second quarter of 2002
was 26% below the $4.50 per Mcf realized in the comparable prior-year period.
Decreasing oil prices had less of an impact on revenues, dropping only 4% to
$25.11 per barrel during the second quarter of 2002 from $26.20 per barrel
during the comparable prior year quarter.

Gross Profit. Gross profit of $17.2 million for the second quarter of
2002 is slightly higher than the $16.9 million recorded in the comparable prior
year period as Subsea and Salvage gross profit increased $1.9 million. However,
margins declined 11 points to 24% for the second quarter of 2002 from 35% during
the second quarter of 2001. The margin decrease is due to softened demand in the
construction market and continued work on the low-margin Nansen/Boomvang
project, which included a high level of pass-through revenues.

Natural Gas and Oil Production gross profit decreased $1.6 million to
$6.4 million in the second quarter of 2002 compared to $8.0 for the three months
ended June 30, 2001, due to the aforementioned decreases in average realized
natural gas and oil prices, while margins remained at the 50% level.

Selling & Administrative Expenses. Selling and administrative expenses
were $6.2 million in the second quarter of 2002, which is 27% more than the $4.9
million incurred in the second quarter of 2001 due entirely to the Canyon
acquisition. Overhead decreased to 9% of revenues for the three months ended
June 30, 2002 from 10% for the comparable prior-year period.

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Net Interest (Income) and Other. We reported net interest income and
other of $105,000 for the three months ended June 30, 2002 in contrast to the
$442,000 of net interest expense and other for the three months ended June 30,
2001 as a result of the $1.1 million gain on our foreign currency hedge
associated with the Coflexip acquisition recorded in other income in June 2002.
Interest expense of $840,000 for the second quarter of 2002 exceeded that
incurred in the comparable prior year quarter due to the increase in our debt.

In June 2002, CDI signed the agreement with Coflexip to acquire the
Subsea Well Operations Business Unit for 44.8 million British pounds (which at
the time equaled $67.5 million) which subsequently closed in July. CDI entered
into a foreign currency forward contract to lock in the British pound to U.S.
dollar exchange rate. Under SFAS No. 133, we accounted for this transaction with
changes in its fair value reported in earnings. Accordingly, a $1.1 million gain
was recorded in other income for the period ended June 30, 2002 as a result of
the change in market value of the contract as of June 30, 2002.

Income Taxes. Income taxes decreased slightly to $3.9 million for the
three months ended June 30, 2002 compared with the $4.1 million in the
comparable prior year period due to a slight drop in profitability.

Net Income. Net income of $7.2 million for the three months ended June
30, 2002 was $332,000, or 4%, less than the comparable period in 2001 as a
result of factors described above.

Comparison of Six Months Ended June 30, 2002 and 2001

Revenues. During the six months ended June 30, 2002, our revenues
increased 18% to $126.2 million compared to $107.3 million for the six months
ended June 30, 2001 with the Subsea and Salvage segment contributing an
additional $40.2 million this period, offsetting a decline of $21.2 million in
the Natural Gas and Oil Production segment. Adding four Deepwater construction
vessels and Canyon robotics provided almost all of the incremental revenue in
the Subsea and Salvage segment.

Natural gas and oil production revenue for the six months ended June
30, 2002 decreased 49% to $22.2 million from $43.4 million during the comparable
prior year period. The decrease was due to a 39% decline in our average realized
commodity prices to $3.28 per Mcfe ($2.99 per Mcf of natural gas and $22.74 per
barrel of oil) in the first half of 2002 from $5.36 per Mcfe ($5.70 per Mcf of
natural gas and $26.74 per barrel of oil) in the first half of 2001. Production
also decreased 18% from 7.8 Bcfe in the first half of 2001 to 6.4 Bcfe during
the first half of 2002.

Gross Profit. Gross profit of $28.3 million for the first half of 2002
was $10.9 million, or 28%, less than the $39.2 million gross profit recorded in
the comparable prior year period due mainly to the revenue decrease in Natural
Gas and Oil Production mentioned above. Natural Gas and Oil gross profit
decreased $13.3 million from $24.1 million in the first half of 2001 to $10.8
million for the six months ended June 30, 2002, due to the decreases in average
realized commodity prices and production described above. Slightly offsetting
this decline was a 17% increase in the Subsea and Salvage segment gross profit
to $17.5 million for the six months ended June 30, 2002 from $15.0 million in
the comparable prior year primarily due to the acquisition of Canyon.

Gross margins decreased from 37% for the six months ended June 30, 2001
to 22% in the first half of 2002. Subsea and Salvage margins decreased from 24%
for the first half of 2001 to 17% during the first half of 2002 due mainly to
the softened demand in the construction and ROV support markets, as well as low
margins on the Nansen/Boomvang project, which included a high level of
pass-through revenues. Natural Gas and Oil Production gross margins declined 7
points to 49% for the first half of 2002 from 56% in the comparable prior year
period due to the aforementioned declines in average realized commodity prices.

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Selling & Administrative Expenses. Selling and administrative expenses
were $12.5 million in the first half of 2002, which is 19% more than the $10.5
million incurred in the first half of 2001, with all of the increase
attributable to the acquisition of Canyon.

Net Interest (Income) and Other. The Company reported net interest
expense and other of $91,000 for the six months ended June 30, 2002 in contrast
to $733,000 for the six months ended June 30, 2001. Included in net interest
expense and other for the first half of 2002 is the $1.1 million gain on our
foreign currency hedge, as discussed above. Interest expense for the first half
of 2002 is higher than in the comparable prior year period as a result of our
increase in debt related to our construction projects and the assumption of
Canyon's capital leases.

Income Taxes. Income taxes decreased to $5.5 million for the six months
ended June 30, 2002, compared to $9.8 million in the comparable prior year
period due to decreased profitability.

Net Income. Net income of $10.2 million for the six months ended June
30, 2002 was $8.1 million, or 44%, less than the comparable period in 2001 as a
result of factors described above.

LIQUIDITY AND CAPITAL RESOURCES

During the three years following our initial public offering in 1997,
internally generated cash flow funded approximately $164 million of capital
expenditures and enabled us to remain essentially debt-free. During the third
quarter of 2000, we closed a $138.5 million long-term MARAD financing for
construction of the Q4000. This U.S. Government guaranteed financing is pursuant
to Title XI of the Merchant Marine Act of 1936 which is administered by the
Maritime Administration. We refer to this debt as MARAD Debt. In January 2002,
the Maritime Administration agreed to expand the facility to $160 million to
include the modifications to the vessel which had been approved during 2001.
Through June 30, 2002, we have drawn $138.5 million on this facility.
Significant internally generated cash flow during 2001, coupled with the
collection of a $10 million tax refund, enabled us to acquire the Mystic Viking,
the Eclipse and Professional Divers, while maintaining cash balances of $37.1
million as of December 31, 2001. In January 2002, we acquired Canyon Offshore,
Inc. See further discussion below. In July 2002, CDI purchased the Subsea Well
Operations Business Unit of CSO Ltd., a wholly owned subsidiary of
Technip-Coflexip, for $68.6 million using existing cash balances and our
revolving credit facility. The acquisition was accounted for as a purchase with
the acquisition price allocated to the assets acquired and liabilities assumed
based upon their estimated fair values, with the excess being recorded as
goodwill, which totaled approximately $28.6 million. The allocation of the
purchase price to the fair market value of the net assets acquired in this
acquisition are based on preliminary estimates of fair market values and may be
revised when additional information concerning asset and liability valuation is
obtained; however, management does not anticipate the adjustments, if any, will
have a material impact on the Company's results of operations or financial
position. As of July 31, 2002, we had $138.5 million of debt outstanding under
the MARAD facility and $19.6 million of debt outstanding under our $60 million
revolving credit facility. In addition, as of July 31, 2002, $26.8 million had
been drawn on the project financing facility covering our share of costs for the
construction of the spar production facility at Gunnison.

In March 2002 and April 2002, ERT entered into swap contracts that
require payments to, or receipts from, an energy trading company based on the
difference between a fixed and a variable price for a commodity. Under SFAS No.
133, we record the transactions as assets or liabilities, as applicable, and
record any gain or loss on settled transactions, and the change in market value,
of unsettled positions at the end of each reporting period in our consolidated
statement of operations. The impact of the swap contracts for the quarter and
six months ended June 30, 2002 was immaterial to the financial statements.

12

Operating Activities. Net cash provided by operating activities was
$30.8 million during the six months ended June 30, 2002, as compared to $46.3
million during the first six months of 2001. This decrease was due mainly to
decreased profitability and to last year's collection of a $10 million tax
refund from the Internal Revenue Service relating to the deduction of Q4000
construction costs as research and development expenditures for federal tax
purposes. In addition, accounts payable/accrued liabilities increased $9.7
million during the first six months of 2002 due primarily to invoices for the
vessels under construction and in drydock. In addition, depreciation and
amortization decreased $3.1 million to $15.7 million for the first half of 2002
due mainly to lower ERT depletion as a result of the decreased production.

Investing Activities. Capital expenditures have consisted principally
of strategic asset acquisitions related to the purchase of DP vessels;
construction of the Q4000 and conversion of the Intrepid; acquisition of
Aquatica, Professional Divers and Canyon; improvements to existing vessels and
the acquisition of offshore natural gas and oil properties. As a result of our
anticipation of an acceleration in Deepwater demand over the next several years,
we incurred $153.0 million of capital expenditures (including the acquisition of
Canyon and investment in Deepwater Gateway L.L.C.) during the first half of
2002, $151.3 million during 2001, $95.1 million during 2000 and $77.4 million
during 1999.

We incurred $91.2 million of capital expenditures during the first six
months of 2002 compared to $63.2 million during the comparable prior year
period. Included in the capital expenditures during the first half of 2002 was
$36.5 million for the construction of the Q4000 and $20.3 million relating to
the Intrepid DP conversion and Eclipse upgrade. Included in the $63.2 million of
capital expenditures in the first six months of 2001 is $23.4 million for the
construction of the Q4000 and $14.5 million relating to the Intrepid DP
conversion project. In addition, in May 2001, Cal Dive acquired a DP marine
construction vessel, the Mystic Viking. The remaining capital expenditures
relate primarily to rig recompletion and exploitation work of ERT.

In January 2002, we acquired Canyon Offshore, a supplier of ROVs and
robotics to the offshore construction and telecommunications industries, in
exchange for cash of $52.9 million, the assumption of $9.0 million of Canyon
debt (offset by $3.1 million of cash acquired) and 181,000 shares of our common
stock, 143,000 shares of which we purchased as treasury shares during the fourth
quarter of 2001 for $2.6 million. We will purchase the remaining 15% at a price
to be determined by Canyon's performance during the years 2002 through 2004 from
continuing employees at a minimum purchase price of $13.53 per share. As they
are employees, amounts paid, if any, in excess of the $13.53 per share will be
recorded as compensation expense. The acquisition was accounted for as a
purchase with the acquisition price being allocated to the assets acquired and
liabilities assumed based upon their estimated fair values, with the excess of
$45.1 million being recorded as goodwill.

In April 2002, ERT acquired a 100% interest in East Cameron Block 374,
including existing wells, equipment and improvements. The property, located in
425 feet of water, is jointly owned by Murphy Exploration & Production Company
and Callon Petroleum Operating Company. Terms include a cash payment to
reimburse the owners for the inception-to-date cost of the subsea wellhead and
umbilical, and an overriding royalty interest in future production. Cal Dive
plans to complete the temporarily abandoned number one well and perform a subsea
tie-back to host platform. The cost of completion and tie-back is estimated at
$7 million with first production expected in September 2002.

In June 2002, ERT acquired a package of offshore properties from
Williams exploration and production. ERT paid $5.5 million and assumed the
pro-rata share of the abandonment obligation for the acquired interests. The
blocks purchased represent an average 30% net working interest in 26 Gulf of
Mexico leases.

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In June 2002 CDI, along with El Paso Energy Partners, formed Deepwater
Gateway L.L.C. (a 50/50 venture) to design, construct, install, own and operate
a tension leg platform ("TLP") production hub primarily for Anadarko Petroleum
Corporation's Marco Polo field discovery in the Deepwater Gulf of Mexico. Our
share of the construction costs is estimated to be approximately $110 million.
We, along with El Paso, are currently negotiating non-recourse project financing
for this venture, terms of which would include a minimum investment for CDI of
$33 million, $12 million of which had been paid as of June 30, 2002 as is
recorded as Equity Investment in Deepwater Gateway L.L.C. in the Company's
consolidated balance sheet.

In March 2001, we acquired substantially all of the assets of
Professional Divers of New Orleans in exchange for $11.5 million. The assets
purchased included the Mr. Sonny, a 165-foot, four-point moored DSV, three
utility vessels and associated diving equipment including two saturation diving
systems. This acquisition was accounted for as a purchase with the acquisition
price of $11.5 million being allocated to the assets acquired and liabilities
assumed based upon their estimated fair values with the balance of the purchase
price ($2.8 million) being recorded as goodwill.

In April 2000, ERT acquired a 20% working interest in Gunnison, a
deepwater Gulf of Mexico project of Kerr-McGee Oil & Gas Corporation. Consistent
with our philosophy of avoiding exploratory risk, financing for the exploratory
costs, initially estimated at $15 million, was provided by an investment
partnership, the investors of which are Cal Dive senior management, in exchange
for a 25% revenue override of our 20% working interest. We provide no guarantees
to the investment partnership. At that time, the Board of Directors established
three criteria to determine a commercial discovery and the commitment of Cal
Dive funds: 75 million barrels (gross) of reserves, total development costs of
$500 million consistent with such a reserve level, and a Cal Dive estimated
shareholder return of no less than 12%. Kerr-McGee, the operator, drilled
several exploration wells and sidetracks in 3,200 feet of water at Garden Banks
667, 668 and 669 (the Gunnison project) and encountered significant potential
reserves resulting in the three criteria being achieved during 2001. The
exploratory phase was expanded to ensure field delineation resulting in the
investment partnership, which assumed the exploratory risk, funding $20 million
of exploratory drilling costs, considerably above the initial $15 million
estimate. With a commercial discovery being approved for development, we will
fund our 20% share of ongoing development and production costs estimated in a
range of $100 million to $110 million, $36.8 million of which had been incurred
by June 30, 2002, with over half of that for construction of the spar production
facility.

Financing Activities. We have financed seasonal operating requirements
and capital expenditures with internally generated funds, borrowings under
credit facilities, the sale of common stock and project financings. In August
2000, we closed a $138.5 million long-term financing for construction of the
Q4000. In January 2002, the Maritime Administration agreed to expand the
facility to $160 million to include the modifications to the vessel which had
been approved during 2001. At the time the financing closed in 2000, we made an
initial draw of $40.1 million toward construction costs. During 2001, we
borrowed $59.5 million on this facility and during the first half of 2002 drew
another $38.9 million. The MARAD dept will be payable in equal semi-annual
installments beginning six months after delivery of the newbuild Q4000 and
maturing 25 years from such date. It is collateralized by the Q4000, with Cal
Dive guaranteeing 50% of the debt, and bears an interest rate which currently
floats at a rate approximately AAA Commercial Paper yields plus 20 basis points
(approximately 2% as of June 30, 2002). For a period up to four years from
delivery of the vessel we have options to lock in a fixed rate. In accordance
with the MARAD dept agreements, we are required to comply with certain covenants
and restrictions, including the maintenance of minimum net worth and
dept-to-equity requirements. As of June 30, 2002, we were in compliance with
these covenants.

Since April 1997, we have had a $40 million revolving credit facility.
We drew upon this facility only 134 days during the four years ended December
31, 2001 with maximum borrowing of $11.9 million. We had no outstanding balance
under this facility as of December 31, 2001. In

14

February 2002, we amended this facility, expanding the amount available to $60
million and extending the term to February 2005. We had $5.0 million outstanding
under this facility as of June 30, 2002. This facility is collateralized by
accounts receivable and most of the remaining vessel fleet, bears interest at
LIBOR plus 125-250 basis points financial covenants relating to cash flow
leverage, minimum interest coverage and fixed charge coverage. We were in
compliance with these covenants as of June 30, 2002.

In November 2001, ERT, with a corporate guarantee by Cal Dive, entered
into a five-year lease transaction with an entity owned by a third party to fund
our $67.0 million portion of the construction costs of the spar production
facility for the Gunnison field. As of June 30, 2002, the entity had drawn down
$22.8 million on this facility. Accrued interest cost on the outstanding balance
is capitalized to the cost of the facility during construction and is payable
monthly thereafter. The facility bears interest at LIBOR plus 225-300 basis
points depending on our leverage ratios and includes, among other restrictions,
financial covenants relating to cash flow leverage, minimum interest coverage
and debt to total book capitalization. We were in compliance with these
covenants as of June 30, 2002. In August 2002, CDI acquired 100% of the equity
of the entity and converted the notes into a term loan. The total commitment of
the loan was reduced to $35 million and will be payable in quarterly
installments of $1.75 million for three years after delivery of the spar with
the remaining $15.75 million due at the end of the three years. Interest cost
and financial covenants are consistent with the facility in place at June 30,
2002. The debt ($22.8 million at June 30, 2002) and related asset will be
reflected on CDI's balance sheet beginning in the third quarter of 2002.

In May 2002 CDI sold 3.4 million shares of primary common stock for
$23.16 per share, along with 517,000 additional shares to cover over-allotments.
Net proceeds to the Company of approximately $87.2 million were used for the
Coflexip Well Operation acquisition, ERT acquisitions and to retire debt under
the Company's revolver.

During the first half of 2002, we made payments of $4.0 million on
capital leases assumed in the Canyon acquisition. The only other financing
activity during the six months ended June 30, 2002 and 2001 involved the
exercise of employee stock options.

The following table summarizes our contractual cash obligations as of
June 30, 2002 and the scheduled years in which the obligation are contractually
due, including the Gunnison term loan closed in August 2002:

In addition, in connection with our business strategy, we evaluate
acquisition opportunities (including additional vessels as well as interest in
offshore natural gas and oil properties). In August 2002, ERT signed a
definitive Purchase and Sale Agreement to acquire the interests of Amerada Hess
Corporation in seven Gulf of Mexico fields, six of which Amerada Hess operates.
Terms of the purchase, which is expected to close by the end of August, involve
$15 million in cash and ERT's assumption of the pro-rata share of the related
decommissioning liability. We believe that internally-generated cash flow,
borrowings under existing credit facilities and use of project financings along
with other debt

15

and equity alternatives will provide the necessary capital to meet these
obligations and achieve our planned growth.

ITEM 3. Quantitative and qualitative disclosure about market risk

A variety of quantitative and qualitative factors affect the operations
of the Company. For more information see "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Forward Looking Statements
and Assumptions".

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

See Part I, Item 1, Note 6 to Consolidated Financial Statements, which
is incorporated herein by reference.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits -

Exhibit 99.1 - Certification of Periodic Report by Chief Executive
Officer

Exhibit 99.2 - Certification of Periodic Report by Chief Financial
Officer

(b) Reports on Form 8-K -

Current Report on Form 8-K filed May 2, 2002 to report the
Company's 2002 first quarter financial results and its forecasted
results for the quarter ending June 30, 2002.

Current Report on Form 8-K filed May 22, 2002 to report the filing
of a Registration Statement on Form S-3 for the sale by the Company
of its Common Stock.

Current Report on Form 8-K filed June 19, 2002 to report the change
in the Company's certifying accountant.

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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.

CAL DIVE INTERNATIONAL, INC.

Date: August 14, 2002 By: /s/ Owen Kratz
----------------------------------------
Owen Kratz, Chairman
and Chief Executive Officer

Date: August 14, 2002 By: /s/ A. Wade Pursell
----------------------------------------
A. Wade Pursell, Senior Vice President
And Chief Financial Officer

17

INDEX TO EXHIBITS