UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~October~~January 32, ~~2010~~2011.

[ ] 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 1-5109

TODD SHIPYARDS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	91-1506719
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

1801-16th Avenue SW
Seattle, WA	98134
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:

(206) 623-1635

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. [X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "“accelerated filer"”, "“large accelerated filer"” and "“smaller reporting company"” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer [ ]; Accelerated Filer [X]; Non-Accelerated Filer [ ]; Smaller Reporting Company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

There were 5,~~782~~787,~~731~~231 shares of the corporation’s $0.01 par value common stock outstanding at ~~November~~February 103, ~~2010~~2011.

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“SAFE HARBOR” STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Statements contained in this Report which are not historical facts or information are “forward-looking statements.” Words such as “believe,” “expect,” “intend,” “will,” “should,” and other expressions that indicate future events and trends identify such forward-looking statements. These forward-looking statements involve risks and uncertainties which could cause the outcome to be materially different than stated. Such risks and uncertainties include both general economic risks and uncertainties, the completion and timing of the consummation of the transactions contemplated by the Merger Agreement (as defined below), and matters discussed in the Company’s annual report on Form 10-K which relate directly to the Company’s operations and properties. The Company cautions that any forward-looking statement reflects only the belief of the Company or its management at the time the statement was made. Although the Company believes such forward-looking statements are based upon reasonable assumptions, such assumptions may ultimately prove to be inaccurate or incomplete. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement was made.

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TODD SHIPYARDS CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS

Periods ended ~~October~~January 32, ~~2010~~2011 and ~~September~~December 27, 2009

(in thousands, except per share data)

	Three Months Ended						~~Six~~Nine Months Ended
	10/03/10			09/27/09			10/03/10			09/27/09
	01/02/11			12/27/09			01/02/11			12/27/09
Revenues	$	8358,~~302~~287		$	4947,~~571~~129		$	~~153~~211,~~509~~796		$	84131,~~206~~335
Operating expenses:
Cost of revenue		5845,~~881~~619			3735,~~092~~545			~~114~~159,~~285~~904			6197,~~880~~425
Administrative and manufacturing overhead		1311,~~240~~276			9,~~657~~311			2435,~~303~~579			1727,~~753~~064
Other insurance settlements		(3527	)		(824	)		(~~117~~144	)		(3862	)
Total operating expenses		7256,~~086~~868			4644,~~741~~832			~~138~~195,~~471~~339			79124,~~595~~427
Operating income		111,~~216~~419			2,~~830~~297			1516,~~038~~457			46,~~611~~908
Investment and other income:
Lease income		~~152~~127			~~167~~163			~~288~~416			~~581~~744
Lease expense		(1513	)		(1512	)		(1730	)		(3547	)
Other income, net		48			102			75			233
Other income/(expense), net		228			(77	)		302			156
Gain on available-for-sale securities		701			54(5	)		7071			5449
Total investment and other income		~~255~~343			~~308~~69			~~416~~759			~~833~~902
Income before income tax expense		111,~~471~~762			32,~~138~~366			1517,~~454~~216			57,~~444~~810
Income tax expense		(~~3,687~~963	)		(~~1,069~~783	)		(56,~~093~~056	)		(12,~~853~~636	)
Net income	$	~~7,784~~799		$	21,~~069~~583		$	1011,~~361~~160		$	35,~~591~~174
Net income per common share
Basic	$	10.3514		$	0.3627		$	1.7993		$	0.6290
Diluted	$	10.3414		$	0.3627		$	1.7992		$	0.6289
Dividends declared per common share	$	~~0.10~~-		$	0.05		$	0.18		$	0.1015
Weighted average shares outstanding
Basic		5,781			5,~~775~~776			5,~~780~~782			5,~~769~~771
Diluted		5,~~802~~809			5,~~790~~794			5,~~796~~805			5,~~785~~787
Retained earnings at beginning of period	$	8895,~~706~~915		$	8183,~~288~~068		$	86,564		$	80,056
Net income for the period		~~7,784~~799			21,~~069~~583			1011,~~361~~160			35,~~591~~174
Dividends declared on common stock		~~(575~~-	)		(~~289~~290	)		(1,010	)		(~~579~~869	)
Retained earnings at end of period	$	9596,~~915~~714		$	8384,~~068~~361		$	9596,~~915~~714		$	8384,~~068~~361

The accompanying notes are an integral part of these statements.

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TODD SHIPYARDS CORPORATION

UNAUDITED CONSOLIDATED BALANCE SHEETS

Balances as of ~~October~~January 32, ~~2010~~2011 and March 28, 2010

(in thousands of dollars, except share data)

	10/03/10			03/28/10
	01/02/11			03/28/10
ASSETS
Cash and cash equivalents	$	141,~~227~~575		$	8,171
Securities available-for-sale		2428,~~687~~007			20,021
Accounts receivable
U.S. Government		912,~~058~~109			6,689
Other, net		1113,~~416~~160			15,592
Costs and estimated profits in excess of billings on incomplete contracts		2925,~~247~~166			20,675
Inventory		1,~~834~~956			1,491
Insurance receivable		447			447
Restricted cash		5,~~003~~889			-
Other current assets		23,~~109~~647			2,068
Deferred taxes		1,~~643~~131			402
Total current assets		9993,~~671~~087			75,556
Property, plant, and equipment, net		28,~~373~~211			29,716
Restricted cash		3,~~240~~803			5,627
Deferred pension assets		1110,~~124~~858			11,657
Insurance receivable		76,~~603~~869			7,180
Intangible assets, net		1,~~400~~323			1,553
Goodwill		1,109			1,109
Other long-term assets		~~882~~838			898
Total assets	$	~~153~~146,~~402~~098		$	133,296
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable and accruals	$	3224,~~501~~265		$	16,635
Accrued payroll and related liabilities		3,541			3,586
Line of credit		2,100			-
Billings in excess of costs and estimated profits on incomplete contracts		9,718			13,624
Accrued payroll and related liabilities		2,685			3,586
Billings in excess of costs and estimated profits on incomplete contracts		10,024			13,624
Environmental and other reserves		447			447
Taxes payable other than income taxes		~~1,325~~794			1,559
Income taxes payable		~~546~~-			676
Total current liabilities		4840,~~078~~315			36,527
Environmental and other reserves		8,~~504~~264			10,415
Accrued post retirement health benefits		6,~~072~~022			6,171
Deferred taxes		2,~~891~~712			2,648
Other non-current liabilities		2,~~607~~695			2,133
Total liabilities		6860,~~152~~008			57,894
Stockholders’ equity
Common stock $.01 par value, authorized 19,500,000 shares, issued 11,828,305 shares at October 3, 2010 and March 28, 2010, and outstanding 5,787,231 shares at October 3, 2010 and 5,775,691 shares at March 28, 2010		118			118
Common stock $.01 par value, authorized 19,500,000 shares, issued 11,828,305 shares at January 2, 2011 and March 28, 2010, and outstanding 5,787,231 shares at January 2, 2011 and 5,775,691 shares at March 28, 2010		118			118
Paid-in capital		3839,~~935~~010			38,885
Retained earnings		9596,~~915~~714			86,564
Accumulated other comprehensive loss		(5,~~945~~979	)		(6,308	)
Treasury stock (6,041,074 shares at October 3, 2010 and 6,052,614 at March 28, 2010)		(43,773	)		(43,857	)
Treasury stock (6,041,074 shares at January 2, 2011 and 6,052,614 at March 28, 2010)		(43,773	)		(43,857	)
Total stockholders' equity		8586,~~250~~090			75,402
Total liabilities and stockholders' equity	$	~~153~~146,~~402~~098		$	133,296

The accompanying notes are an integral part of these statements.

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TODD SHIPYARDS CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

Periods ended ~~October~~January 32, ~~2010~~2011 and ~~September~~December 27, 2009

(in thousands of dollars)

	Six Months Ended
	Nine Months Ended
	10/03/10			09/27/09
	01/02/11			12/27/09
OPERATING ACTIVITIES
Net income	$	1011,~~361~~160		$	35,~~591~~174
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		23,~~299~~422			23,~~255~~395
(Gain) loss on disposal of fixed assets		(53	)		27169
Gain on available-for-sale securities		(7071	)		(5449	)
Pension expense		~~533~~799			1,~~077~~615
Post retirement health expense (benefit)		(99149	)		3654
Deferred income tax		(~~903~~570	)		(~~492~~1,255	)
Stock based compensation		~~134~~209			~~129~~196
Change in operating assets and liabilities
Accounts receivable		1(2,~~807~~988	)		(34,~~627~~578	)
Costs and estimated profits in excess of billings on incomplete contracts		(84,~~572~~491	)		(85,~~409~~021	)
Inventory		(~~343~~465	)		27132
Insurance receivable		~~(423~~311	)		81(15	)
Other assets		~~194~~(747	)		~~937~~59
Accounts payable and accruals		167,~~111~~858			61,~~987~~621
Accrued payroll and related liabilities		(45901	)		~~507~~(81	)
Billings in excess of costs and estimated profits on incomplete contracts		(3,~~906~~600	)		~~(728~~606	)
Environmental and other reserves		(12,~~911~~151	)		~~(273~~1,252	)
Income taxes payable		(~~130~~1,024	)		(~~465~~621	)
Other liabilities		96(329	)		(~~711~~861	)
Net cash provided by operating activities		156,~~128~~270			~~895~~1,792
INVESTING ACTIVITIES
Purchases of marketable securities		(1317,~~252~~549	)		(57,~~079~~411	)
Sales of marketable securities		4,384			4,688
Maturities of marketable securities		4,~~186~~879			13,~~003~~054
Capital expenditures		(~~764~~1,606	)		(~~976~~1,493	)
Net cash used in investing activities		(59,~~446~~892	)		(~~364~~1,162	)
FINANCING ACTIVITIES
Restricted cash		(24,~~616~~064	)		(~~540~~1,481	)
Dividends paid on common stock		(1,010	)		(579	)
Proceeds from line of credit borrowing		2,100			-
Net cash used in financing activities		(3,626	)		(1,119	)
Dividends paid on common stock		(1,010	)		(869	)
Net increase (decrease) in cash and cash equivalents		6,056			(588	)
Net cash used in financing activities		(2,974	)		(2,350	)
Net decrease in cash and cash equivalents		(6,596	)		(1,720	)
Cash and cash equivalents at beginning of period		8,171			4,551
Cash and cash equivalents at end of the period	$	141,~~227~~575		$	32,~~963~~831
Cash paid for income taxes		67,~~310~~810			24,~~800~~450
Cash paid for interest		1138			-
Supplemental disclosures of non-cash information:
Liability for capital expenditure		3478			4267

The accompanying notes are an integral part of these statements.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Todd Shipyards Corporation (“we”, “us”, “our”, or the “~~our~~Company”) was organized in 1916 and has operated a shipyard in Seattle, Washington (the “Shipyard”) since incorporation. We are incorporated under the laws of the State of Delaware and operate shipyards through our wholly owned subsidiaries, Todd Pacific Shipyards Corporation (“Todd Pacific”) and Everett Shipyard, Inc. (“ESI”). Todd Pacific has historically been engaged in the repair/overhaul, conversion and construction of commercial and military ships. On March 31, 2008, our subsidiary Everett Ship Repair and Drydock, Inc. (“Everett”) acquired the assets of ESI and subsequently changed its name to ESI. ESI is engaged in repair, overhaul, and conversion work of commercial and government owned vessels. We consider ourselves to operate under one segment.

Today, we are the largest private (or non-Governmental) shipyard operator in the Pacific Northwest. A substantial amount of our business is repair and maintenance work on commercial and federal government vessels engaged in various maritime activities in the Pacific Northwest. We also provide new construction and industrial fabrication services for a wide variety of customers. Our customers include the US Navy (“Navy”), the US Coast Guard (“Coast Guard”), Military Sealift Command, National Oceanic & Atmospheric Administration (“NOAA”), Washington State Ferries (“WSF”), the Alaska Marine Highway System, fishing fleets, cargo shippers, tug and barge operators and cruise lines.

We filed ~~the~~ Consolidated Financial Statements for the fiscal year ended March 28, 2010 with the Securities and Exchange Commission on Form 10-K. The Consolidated Financial Statements, Notes to Consolidated Financial Statements and Management’s Discussion and Analysis contained in that report should be read in connection with this Form 10-Q. The Company’s fiscal year consists of 52 or 53 weeks, ending on the Sunday closest to March 31. The 2010 fiscal year consisted of 52 weeks ending on March 28, 2010 while the 2011 fiscal year consists of 53 weeks ending April 3, 2011. All quarters of both fiscal years 2010 and 2011 consist of 13 weeks, except for the first quarter of 2011, which consisted of 14 weeks. The additional week did not materially affect the comparability of operating results between the first ~~six~~nine months of fiscal years 2011 and 2010. All references to years relate to fiscal years rather than calendar years.

Merger Agreement

On December 22, 2010, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Vigor Industrial LLC, an Oregon limited liability company (“Parent”), and Nautical Miles, Inc., a Delaware corporation and a direct wholly owned subsidiary of Parent (“Purchaser”) providing for the merger (the “Merger”) of Purchaser with and into the Company with the Company surviving the Merger as a wholly-owned subsidiary of Parent. Pursuant to the Merger Agreement, upon the terms and subject to the conditions thereof, Purchaser commenced a tender offer on December 30, 2010 (the “Offer”) to acquire all of the outstanding shares of common stock, $0.01 par value per share, of the Company at a purchase price of $22.27 per share, net to the holder in cash (the “Offer Price”) without interest and less any applicable withholding and transfer taxes. In certain circumstances, the parties have agreed to complete the Merger without the prior completion of the Offer, after receipt of the approval of a majority of the Company’s stockholders for the adoption of the Merger Agreement. On January 31, 2011, the Purchaser and the Company announced the extension of the expiration of the Offer until 12:00 midnight New York City time, on Friday, February 4, 2011, unless further extended in accordance with the Merger Agreement. The Offer, which was previously scheduled to expire at 12:00 midnight, New York City time on Friday, January 28, 2011, was extended in accordance with the Merger Agreement because certain conditions to the Offer were not satisfied as of such expiration date, including without limitation the Minimum Tender Condition (as defined in the Merger Agreement). American Stock Transfer & Company, LLC, the depository for the Offer, has indicated that, as of the initial expiration date, approximately 2,934,298 Shares had been validly tendered and not withdrawn pursuant to the Offer, representing approximately 50.7% of the Outstanding Shares.

If the transactions contemplated by the Merger Agreement are consummated, each share of our common stock issued and outstanding immediately prior to closing will automatically be cancelled and converted into the right to receive the Offer Price, without interest and net of applicable withholdings and transfer taxes, and the Company will cease to be a publicly traded company. The closing of the Merger Agreement is subject to approval by the holders of a majority of the outstanding shares of our common stock entitled to vote on the Merger, the receipt of any required approvals and other customary closing conditions.

1. BASIS OF PRESENTATION

We have included all adjustments (consisting of normal recurring accruals) necessary for a fair presentation in the interim financial statements. Certain financial information that is required in the annual financial statements and prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) may not be required for interim financial reporting purposes and may have been condensed or omitted. Our results of operations for the ~~six~~nine months ended ~~October~~January 32, ~~2010~~2011 are not necessarily indicative of the operating results for the full year. Our interim financial statements should be read in conjunction with the audited consolidated financial statements, including the notes thereto included in our 2010 Annual Report on Form 10-K.

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The Consolidated Financial Statements include the accounts of Todd Shipyards Corporation and our wholly owned subsidiaries Todd Pacific, ESI, and TSI Management, Inc. (“TSI”). We have eliminated all intercompany transactions.

Preparing our interim financial statements requires us to make estimates and assumptions that may affect the amounts reported in our Consolidated Financial Statements and Notes to Consolidated Financial Statements. Actual results could differ from those estimates.

2. RECENT ACCOUNTING PRONOUNCEMENTS

The International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) have published a draft standard to improve and align the financial reporting of revenue from contracts with customers and related costs. If adopted as currently drafted, the proposal would create a single revenue recognition standard for International Financial Reporting Standards (IFRSs) and ~~US generally accepted accounting principles (~~GAAP) that would be applied across various industries and capital markets, and would likely have a material impact on our financial statements.

In December 2010, FASB issued an accounting standards update that modifies goodwill impairment testing for reporting units with a zero or negative carrying amount. Under the new guidance, an entity must consider whether it is more likely than not that goodwill impairment exists for each reporting unit with a zero or negative carrying amount. The amended guidance is effective for fiscal years, and for interim periods within those years, beginning after December 15, 2010, with early adoption prohibited. The adoption of this standard is not expected to have a material impact on our financial statements.

3. REVENUES

Overview

We recognize revenue, contract costs, and profit on the percentage-of-completion method based upon costs incurred. Using the percentage-of-completion method requires us to make certain estimates of the total cost to complete a project, estimates of project schedule and completion dates, estimates of the percentage at which the project is complete, estimates of award fees earned, estimates of annual overhead rates and estimates of amounts of any probable unapproved claims and/or change orders. These estimates are continuously evaluated and updated by experienced project management and accounting personnel assigned to these activities, and senior management also reviews them on a periodic basis. When adjustments in contract value or estimated costs are determined, we generally reflect any changes from prior estimates ~~are generally reflected~~ as a cumulative catch-up in revenue and/or direct costs in the current period.

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The percentage-of-completion method of accounting involves the use of multiple estimating techniques to project costs at completion, and in some cases includes estimates of recoveries asserted against the customer for changes or work delays. Contract estimates involve various assumptions and projections relative to the future outcome of events over a period of several months or years, including future labor productivity and availability, the complexity and nature of the work to be performed, the cost and availability of materials, the impact of delayed performance, the impact of weather conditions, the impact of timing of deliveries and the impact of late or early arrival of vessels. We use our best judgment to predict the impact to the profitability of the work. Management bases its estimates on actual past performance of similar projects and our anticipated performance on these projects. A significant change in one or more of these estimates could affect the profitability of one or more of our contracts.

Performance Incentives and Award Fees

Many contracts contain positive and negative profit incentives based upon performance relative to predetermined targets that may occur during or subsequent to completion of the job. ~~Estimates~~We base estimates of award or incentive fees ~~are based~~ on actual award experience and anticipated performance. These incentives take the form of potential additional fees earned or penalties incurred. We record ~~incentives~~award and ~~award~~incentive fees that we can reasonably estimate over the performance period of the contract. We record ~~incentives~~award and ~~award~~incentive fees that we cannot reasonably estimate when they are awarded. ~~Estimates~~We base estimates of award or incentive fees ~~are based~~ on past fee experience and our anticipated performance on these projects.

Loss Provisions

When estimates of total costs incurred on a contract exceed estimates of total revenue to be earned, we record a provision for the entire loss on the contract as cost of revenues in the period the estimated loss becomes evident. We recognize a potential loss on a claim only when we can reasonably estimate the amount of the claim and management considers that the claim loss is probable. Anticipated losses cover all costs allocable to the contracts, including manufacturing overhead. In evaluating these criteria, we consider the contractual and legal basis for the claim, the cause of the additional cost incurred, the reasonableness of the costs and the objective evidence to support the claim.

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Fixed-Price Contracts

We perform a share of our work on a fixed-price basis. Under fixed-price contracts, we execute the work with a risk that we may not be able to perform all of the work profitably for the specified contract amount. We bear the risk of increases in costs due to inflation, inefficiency, faulty estimates, and labor productivity, unless otherwise provided for in the contract. We track information about the bid process and the historical results of prior fixed-price contracts, evaluate the availability of materials and labor, and consider other factors on an ongoing basis. We use our best judgment to forecast the impact of changes in these factors on the profitability of our work. A significant change in one or more of these estimates could affect the reported or future profitability of one or more of our contracts.

Claims

We recognize revenue from claims as either income or as an offset against a potential loss when the amount of the claim can be ~~reliably~~reasonably estimated and its realization is probable. In evaluating these criteria, we consider the contractual and legal basis for the claim, the cause of any additional costs incurred, the reasonableness of those costs and the objective evidence available to support the claim.

Other Changes in Estimates

We recognize other changes in estimates of revenue, costs, and profits using the cumulative catch-up method of accounting. This method recognizes in the current period the cumulative effect of the changes on current and prior periods. Hence, we recognize the effect of the changes on future periods of contract performance as if the revised estimate had been the original estimate. A significant change in an estimate of revenues earned or costs incurred or allocated to one or more contracts could have a material effect on our financial position or results of operations and the catch-up method of accounting could render periodic results misleading.

4. RESERVES AND ~~OTHER~~ CONTINGENCIES

We are named as defendants in four putative stockholder class action suits arising from the Merger Agreement, the Offer and the Merger. The complaints include, among others, allegations that (i) the consideration to be received by the holders of Shares is unfair, inadequate and less than the “intrinsic value” of the Shares, (ii) the provisions of the Merger Agreement unfairly protect the transactions proposed between the Company and Parent, including through a grossly excessive termination fee and inadequate go-shop period, (iii) the option granted to Purchaser is coercive, (iv) the Individual Defendants did not seek competitive bids prior to entering into the Merger Agreement, and (v) the Schedule 14D-9 is misleading and/or insufficient. Plaintiffs in the actions seek, among other relief, injunctive relief preventing the defendants from consummating the Offer and the Merger, compensatory damages and attorneys’ fees and expenses. The Company believes the aforementioned complaints are without merit.

As discussed in our Form 10-K for the fiscal year ended March 28, 2010, we face significant potential liabilities in connection with the alleged presence of hazardous waste materials at our Seattle shipyard, and at other additional sites used by us, for disposal of alleged hazardous waste. We are named as a defendant in civil actions by parties alleging damages from past exposure to toxic substances, mainly asbestos, at our current and former facilities.

We continue to analyze environmental matters and associated liabilities for which we may be responsible. ~~The~~We cannot determine the eventual outcome of all environmental matters ~~cannot be determined~~ at this time; however, ~~the~~our analyses of the known matters have progressed sufficiently to warrant the establishment of reserve provisions in the accompanying consolidated financial statements.

Harbor Island Site

In fiscal year 2001, we entered into a 30-year agreement with an insurance company that provides broad-based insurance coverage for the remediation of our operable units at the Harbor Island Superfund Site (“Site”).

-The 7agreement -provides coverage for the known liabilities in an amount not to exceed the policy limits. As of January 2, 2011 we have current recorded reserves of approximately $5.9 million and a corresponding insurance receivable of $5.6 million. We included remediation costs for Harbor Island of $0.4 million in the reserves that we expect to incur in the next 12 months. We reflect these costs as current liabilities in our balance sheet. Likewise, we reflect the insurance receivable of $0.4 million relating to these reserves as a current asset in our balance sheet.

The agreement provides coverage for the known liabilities in an amount not to exceed the policy limits. As of October 3, 2010 we have current recorded reserves of approximately $5.9 million and a corresponding insurance receivable of $5.7 million. Included in the reserves are remediation costs for Harbor Island of $0.4 million that we expect to incur in the next 12 months. We reflect these costs as current liabilities in our balance sheet. Likewise, we reflect the insurance receivable of $0.4 million relating to these reserves as a current asset in our balance sheet.

Additionally, in 2001 we entered into a 15-year agreement for coverage of any new environmental conditions discovered at the Seattle shipyard property that would require environmental remediation.

During the fourth quarter of fiscal year 2003, we entered into a Consent Decree with the Environmental Protection Agency (“EPA”) for the cleanup of the Shipyards Sediments Operable Unit (“SSOU”), which was subsequently approved by the Department of Justice. Remediation of the SSOU began in the second quarter of fiscal year 2005. We finished the pier demolition and required dredging in its entirety during fiscal year 2006. The EPA formally accepted our work at the site during the second quarter of fiscal year 2008.

- 8 -

Environmental regulations limit the period of time during the year that dredging may occur. Given these limits, dredging in the SSOU required several years to accomplish. We completed our first year of dredging during fiscal year 2005 and the second and final year of dredging during fiscal year 2006. As part of the sediment remedial action on our property, we placed a temporary sand cap over the sediments that are beneath Piers 1, 3 and 2P, and the building berth adjacent to Pier 1. When those piers reach the end of their usable lives (estimated to occur within the next 15 years), we are obligated to demolish those piers and conduct final cleanup of the under-pier sediments. We have included the estimated cost of these final sediment Superfund remedial actions on our property in the stated reserve.

Under the Federal Superfund law, a potentially responsible party (“PRP”) may have liability for damages to natural resources in addition to liability for remediation. In the fourth quarter of fiscal year 2010, we received a claim for natural resource damages pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) on behalf of the Elliott Bay Natural Resource Trustees relating to the Site. We have included our best estimate of natural resource damage liability in the environmental remediation reserve. We believe that our estimated potential loss for this claim will be covered by our existing insurance, provided we do not exceed aggregate policy limits, which we do not anticipate.

Other Environmental Sites

The Port of Tacoma, Washington filed a civil action against us during the fourth quarter of fiscal year 2008 in the United States District Court (Western District of Washington in Tacoma) for contribution under CERCLA and Model Toxics Control Act (“MTCA”). We previously disclosed our involvement with the CERCLA and MTCA remediation efforts in the Hylebos Waterway of Commencement Bay in Tacoma, Washington and subsequent natural resources assessment by the statutorily named trustees (“Commencement Bay Trustees”). A former subsidiary of ours operated a shipbuilding operation on the Hylebos Waterway under contract to the Navy during World War I and World War II. The contract between our subsidiary and the Navy for the operation of the shipyard site included an indemnification clause flowing from the Navy to our subsidiary. We have tendered any potential liability to the Navy pursuant to this contract. The Government to date has not accepted this tender nor has it agreed to indemnify us. In the fourth quarter of fiscal year 2010, we reached a contingent settlement agreement in this litigation with the Port of Tacoma. The agreement was subject to approval by the Government, which was received during the second quarter of the current fiscal year. We paid the final settlement amount, of $2.~~175~~2 million, to the Port of Tacoma in the second quarter of the current fiscal year. We intend to file a claim against the Government for indemnification pursuant to our contracts with the Government during World War II. ~~Any~~We have not included any potential recovery from this claim ~~has not been included~~ in reported revenues and there can be no assurance that our claim will be successful.

We entered into a Consent Decree with the EPA for the clean up of the Casmalia Resources Hazardous Waste Management Facility in Santa Barbara County, California under the Resource Conservation and Recovery Act in 1996. We included an estimate of the potential liability for this site in our environmental reserve.

During the second quarter of fiscal year 2010, we received a settlement demand from the Chevron Environmental Management Company, a PRP at the EPC Eastside Disposal site outside of Bakersfield, California. The California Department of Toxic Substances Control first notified us of our PRP status at the site in 1995, and having asserted that any potential related liability was discharged in our 1987 bankruptcy filing, we have not been contacted by any agency since that time. We continue to believe that we have no liability at this site as a result of our 1987 bankruptcy filing and intend to continue to assert this defense. We have not established a reserve for this issue as we are unable to estimate the probable outcome.

During the first quarter of fiscal year 2010, we received notification from the EPA that we, along with approximately 125 other companies and organizations, are a PRP for the costs incurred in connection with contamination at the Omega Chemical Corporation Superfund Site in Whittier, California. We ~~included~~executed an ~~estimate~~agreement ofwith the ~~potential~~Omega ~~liability~~PRP ~~for~~Group ~~this~~that forever discharges any and all clean up liabilities at the site in ~~our~~return ~~environmental~~for a one-time payment which was within the reserve established for the contingent liability. We made the payment subsequent to the end of the third quarter of fiscal year 2011.

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We received notification in the third quarter of fiscal year 2007 regarding the discovery of sub surface oil on the property we formerly owned in Galveston, Texas. We sold the property to the Port of Galveston in 1992 and there have been several intervening owners and operators at the site since 1992. There have been no further investigations of this matter since Hurricane Ike struck Galveston in 2008. We have not established a reserve for this issue as we are unable to estimate the probable outcome.

During fiscal year 2005, we received notification that we, along with 55 other companies and organizations, are a PRP at the BKK Landfill Facility in West Covina, California (“BKK”). The site is the subject of an investigation and remedial order from the California Department of Toxic Substances Control. It is alleged that our San Pedro, CA shipyard (closed in 1990) caused shipyard waste to be sent to the BKK facility during the 1970s and 1980s. We have been invited to join the BKK Working Group and we are considering this request. We have not established a reserve for this issue as we are unable to estimate the probable outcome.

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Asbestos-Related Claims

As reported in our Form 10-K for fiscal year 2010, we are named as a defendant in civil actions by parties alleging damages from past exposure to toxic substances, generally asbestos, at closed former facilities.

In addition to us, the cases generally include other ship builders and repairers, ship owners, asbestos manufacturers, distributors and installers, and equipment manufacturers and arise from injuries or illnesses allegedly caused by exposure to asbestos or other toxic substances. We assess claims as they are filed and as the cases develop, dividing them into three different categories based on severity of illness and whether the claim is considered to be active or inactive litigation. Based on current fact patterns, we categorize certain active claims for diseases including mesothelioma, lung cancer and fully developed asbestosis as “malignant” claims. We categorize claims of a less medically serious nature as “non-malignant.” We are currently defending approximately 87 “malignant” claims and approximately ~~172~~166 “non-malignant” claims. We also include in our reserves acknowledgement of ~~354~~352 “inactive” claims that could become active upon the presentation of additional evidence of disease and/or exposure by those claimants and/or renewed prosecution of their claims.

As of ~~October~~January 32, ~~2010~~2011, we have recorded a bodily injury liability reserve of $2.75 million and a bodily injury insurance receivable of $1.97 million. This compares to a previously recorded bodily injury reserve and insurance receivable of $3.0 million and $2.1 million, respectively, at March 28, 2010. We classify these bodily injury liabilities and receivables within our balance sheet as environmental and other reserves, and insurance receivables, respectively.

Other Reserves

During the first quarter of fiscal year 2004, we recorded a reserve of $2.5 million related to the unanticipated bankruptcy of one of our previous workers’ compensation insurance carriers. The remaining reserve balance as of ~~October~~January 32, ~~2010~~2011 was $1.1 million, which reflects our best estimate of the known liabilities associated with unpaid workers’ compensation claims arising from the two-year coverage period commencing October 1, 1998, and is subject to change as additional facts are uncovered. These claims have reverted to us due to the liquidation of the insurance carrier. Although we expect to recover at least a portion of these costs from the liquidation and other sources, we cannot currently estimate the amount and the timing of any such recovery and therefore have not included an estimate of amounts recoverable in the current financial results. We have cumulatively paid approximately $1.4 million and $1.3 million in claims through ~~October~~January 32, ~~2010~~2011 and March 28, 2010, respectively, which have been charged against the reserve.

Other Contingencies

We previously reported that we received notice from the Defense Contract Audit Agency (“DCAA”) questioning the reasonableness of a payment to one of our subcontractors on the 2005 ~~dPIA~~docking of the aircraft carrier USS John C. Stennis. During the first quarter of our fiscal year 2009 the DCAA issued its final report disapproving $3.1 million of costs related to payments made to the subcontractor and costs incurred by us to perform work which was contracted to the subcontractor. The Navy contracting officer then issued the decision to disallow the costs and withhold the above stated amount from payments due on our current contracts with the Navy. In response, we filed a Request for Equitable Adjustment (“REA”) with the Navy contracting officer to allow the $3.1 million in incurred costs. In the event of an unfavorable decision on our REA, we will file an appeal to the Armed Services Board of Contract Appeals or directly to federal court. We established a reserve for this item in the amount of $3.1 million and recorded the resulting transaction as a reduction in revenue in the first quarter of fiscal year 2009. The Navy collected the entire amount in the second quarter of fiscal year 2009 through the non-payment of other outstanding project receivables. In the third quarter of fiscal year 2009, the Navy agreed to return the $3.1 million while the REA and additional information we have provided is under consideration. There are no assurances that the Navy will agree with our REA. Our current financial statements continue to reflect a reserve in billings in excess of sales for the $3.1 million in question.

During the first quarter of fiscal year 2011, we received a Notice of Noncompliance with Cost Accounting Standards (“CAS”) from the Navy’s Puget Sound contracting office relating to our previous five-year phased maintenance contract to perform repair work on the aircraft carriers located in the Puget Sound. This contract was completed in fiscal year 2009. During the fourth quarter of fiscal year 2007, we reported that the Navy’s Puget Sound contracting office notified us of several potential noncompliance issues. The Notice of Noncompliance primarily focuses on our cost allocation methods applicable to our Navy contracts and the allocation methods we use for indirect costs for our work on cost-type contracts. We began discussions with the Navy in the first quarter of fiscal year 2011 in an effort to reach a resolution acceptable to us and the Navy. There is no assurance that an acceptable resolution will be reached. We believe that we have valid positions and defenses to the findings of noncompliance and will pursue all available avenues of appeal in the event an acceptable resolution is not reached. An unfavorable outcome in this matter could have a significant impact on our cost structure with the Navy and, depending upon the scope of any retroactive relief sought by the Navy, could be material in the period recorded. At this time, we are unable to estimate our potential exposure for this item.

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2007, we reported that the Navy’s Puget Sound contracting office notified us of several potential noncompliance issues. The Notice of Noncompliance primarily focuses on our cost allocation methods applicable to our Navy contracts and the allocation methods we use for indirect costs for our work on cost-type contracts. We began discussions with the Navy in the first quarter of fiscal year 2011 in an effort to reach a resolution acceptable to us and the Navy. There is no assurance that an acceptable resolution will be reached. We believe that we have valid positions and defenses to the findings of noncompliance and will pursue all available avenues of appeal in the event an acceptable resolution is not reached. An unfavorable outcome in this matter could have a significant impact on our cost structure with the Navy and, depending upon the scope of any retroactive relief sought by the Navy, could be material in the period recorded. At this time, we are unable to estimate our potential exposure for this item.

Additionally, in the current and prior fiscal year, the Navy and the DCAA questioned several modifications we made to our cost allocation methods and the degree to which we allocate indirect costs to work performed under our government cost-type contracts. We believe that we are in compliance with the Federal Acquisition Regulations and are making every effort to resolve these outstanding issues with the Navy’s Puget Sound contracting officer. We have submitted proposals for consideration by the Navy to resolve all outstanding government cost accounting issues and began discussions with the Navy during fiscal year 2010. These discussions are currently ongoing. An unfavorable outcome in these matters could have a significant impact on our cost structure with the Navy and, depending upon the scope of any retroactive relief sought by the Navy, could be material in the period recorded.

5. COMPREHENSIVE INCOME

We reported comprehensive income of $70.58 million for the quarter ended ~~October~~January 32, ~~2010~~2011, which consisted of net income of $70.8 million, ~~less pension adjustments net of tax of $0.1 million~~ and immaterial unrealized losses on ~~foreign~~available-for-sale ~~currency~~securities ~~contracts~~and offoreign ~~$0.2~~currency ~~million.~~forward contracts. For the ~~six~~nine months ended ~~October~~January 32, ~~2010~~2011, we reported comprehensive income of $10.09 million, which consisted of net income of $1011.42 million, less pension adjustments net of tax of $0.1 million, unrealized losses on ~~available-for~~foreign ~~sale~~currency ~~securities~~contracts of $0.12 million, and immaterial unrealized losses on ~~foreign~~available-for ~~currency~~sale ~~contracts of $0~~securities.~~2 million.~~

For the ~~second~~third quarter of fiscal year 2010, ended ~~September~~December 27, 2009, we reported comprehensive income of $2.1.5 million, which consisted of net income of $2.1.6 million and an immaterial unrealized ~~gain~~losses on available-for-sale securities and foreign currency forward contracts. For the ~~six~~nine months ended ~~September~~December 27, 2009, we reported comprehensive income of $35.61 million, which consisted of net income of $35.62 million and an immaterial unrealized ~~gain~~losses on available-for-sale securities. and foreign currency forward contracts

6. NET INCOME PER SHARE

The following table represents the calculation of net income per common equivalent share, diluted.

	Three Months Ended				~~Six~~Nine Months Ended
(in thousands of dollars except per share data)	1001/0302/1011		0912/27/09		1001/0302/1011		0912/27/09
Net income	$	~~7,784~~799	$	21,~~069~~583	$	1011,~~361~~160	$	35,~~591~~174
Weighted average common shares outstanding, basic		5,781		5,~~775~~776		5,~~780~~782		5,~~769~~771
Dilutive effect of stock awards on weighted average common shares		2128		1518		1623		16
Weighted average common shares outstanding, diluted		5,~~802~~809		5,~~790~~794		5,~~796~~805		5,~~785~~787
Net income per common share, diluted	$	10.3414	$	0.3627	$	1.7992	$	0.6289

We excluded ~~56,000 units and~~ 44,000 units of Stock Settled Appreciation Rights (“SSARs”) from the calculations for the ~~six~~nine month ~~periods~~period ended ~~October~~December ~~3, 2010 and September~~ 27, 2009 because their affect would be anti-dilutive.

7. STOCK COMPENSATION EXPENSE

The Todd Shipyards Corporation 2003 Incentive Stock Option Plan (“2003 Plan”) provides for the granting of incentive stock options, non-qualified stock options, stock appreciation rights, performance share awards and restricted stock grants, or any combination of such grants or awards to directors, officers and our key employees to purchase shares of the common stock of the Company. The Board of Directors has authorized an aggregate of 250,000 shares of common stock for issuance under the 2003 Plan.

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We account for stock compensation associated with the restricted stock awards, restricted stock grant agreements, and performance share awards by estimating the compensation cost for all stock based awards at fair value on the date of the grant, and recognition of compensation over the service period for awards expected to vest. We estimate the fair value of stock-based awards using the Black-Scholes option-pricing model, and amortize the fair value on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. We estimate future forfeitures and recognize compensation costs only for those equity awards expected to vest. Estimating the percentage of stock awards that will ultimately vest requires judgment. We will record such amounts as an increase or decrease in stock-based compensation in the period we revise the estimates, to the extent that actual results or updated estimates differ from our current estimates. We consider many factors when estimating expected forfeitures, including historical voluntary terminations. Actual forfeitures could differ from our current estimates.

The remaining future compensation costs relating to unvested performance share awards and stock grants as of October 3, 2010 are $0.7 million, which will be recognized over a weighted average of 2.9 years, inclusive of estimated forfeitures. We amortize stock compensation costs on a straight-~~line~~ ~~basis~~11 ~~over the requisite service period, and we include such costs in administrative and manufacturing overhead expense.~~-

The remaining future compensation costs relating to unvested performance share awards and stock grants as of January 2, 2011 are $0.7 million, which will be recognized over a weighted average of 2.7 years, inclusive of estimated forfeitures. We amortize stock compensation costs on a straight-line basis over the requisite service period, and we include such costs in administrative and manufacturing overhead expense.

Restricted Stock Units

Number of Units		Recipients	Grant Date	Value Per Unit At Grant Date		Vesting Period
	9,600	Officers	7/1/2010	$	14.55	5 Years
	4,500	Non-employee Board Members	8/20/2010	$	15.18	3 Years
	9,600	Officers	7/1/2009	$	16.98	5 Years
	4,500	Non-employee Board Members	8/21/2009	$	16.98	3 Years
	9,600	Officers	7/1/2008	$	14.48	5 Years
	5,250	Non-employee Board Members	8/22/2008	$	14.10	3 Years
	16,000	Officers	7/6/2007	$	21.02	5 Years

We assume that the officers and the non-employee members of our Board will continue service until their units vest. The forfeiture rate assumed on these units is zero.

Stock-settled Appreciation Rights

Number of Units		Recipients	Grant Date	Fair Value Per Unit At Grant Date		Vesting Period
	16,000	Officers	7/1/2010	$	4.33	3 Years
	12,000	Non-employee Board Members	8/20/2010	$	4.70	3 Years
	16,000	Officers	7/1/2009	$	3.67	3 Years
	12,000	Non-employee Board Members	8/21/2009	$	3.67	3 Years
	16,000	Officers	7/1/2008	$	2.38	3 Years

We assume that the officers and the non-employee members of our Board will continue service until their units vest~~. We~~, and consider the achievement of the underlying performance criteria to be probable. The forfeiture rate assumed on these units is zero.

Determining Fair Value - We calculate the fair value of SSARs issued to employees and non-employee members of the Board using the Black-Scholes pricing model. We then amortize the fair value on a straight-line basis over the requisite vesting period of the awards. ~~The table below shows current quarter activity.~~

Black-Scholes Pricing Model
	2011			2010
Expected Volatility	39.72% to 39.85%	~~39.72~~	%		38.35	%
Expected term (in years)		4			4
Risk-free interest rate	0.78% to 1.01%	~~0.78~~	%		1.88	%
Expected Dividend	1.40% to 1.41%	~~1.41~~	%		1.50	%
Fair Value per share	$	$4.33 to $4.68		$	$3.67

-At 11the -effective time of the Merger, each of (i) the SSARs outstanding as of such date, whether vested or unvested and (ii) the restricted stock unit awards outstanding as of such date, which have not then vested and become converted into shares of common stock, will vest in full and be converted into the right to receive an amount in cash equal to the Offer Price, less any applicable withholding, less, in the case of the SSARs, the exercise price per share of Company common stock linked to such SSAR. Immediately prior to the consummation of the Merger, each outstanding share of restricted stock that has not vested, will vest, will be treated as a share of common stock in the Merger, and will be exchanged for the right to receive the Offer Price, less any applicable withholding and transfer taxes.

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8. PENSIONS AND OTHER POSTRETIREMENT BENEFIT PLANS

Non-union Pension Plan - We sponsor the Todd Shipyards Corporation Retirement System (the “Plan”), a noncontributory defined benefit plan under which all nonunion employees hired on or before April 9, 2007 are covered. On January 25, 2010, the Board of Directors adopted a restatement of the Plan with an effective date of July 1, 2009. Plan benefits are based on years of service and the employee's compensation before retirement. Our funding policy is to fund such retirement costs as required to meet allowable deductibility limits under current Internal Revenue Service regulations. The Plan assets consist principally of common stocks and Government and corporate obligations. The Plan was amended as of April 6, 2007, to freeze membership in the Plan effective for new hires and employees transferring from union to non-union employment status on and after April 10, 2007, and to provide that employees rehired on and after April 10, 2007 are ineligible to accrue benefits on and after that date.

Pension Benefits	Three Months Ended						~~Six~~Nine Months Ended
(in thousands of dollars)	1001/0302/1011			0912/27/09			1001/0302/1011			0912/27/09
Components of net periodic benefit cost
Service cost	$	185		$	137		$	~~370~~555		$	~~274~~411
Interest cost on projected benefit obligation		379			424			~~759~~1,137			~~847~~1,272
Expected return on plan assets		(642	)		(522	)		(1,~~284~~926	)		(1,~~044~~566	)
Recognized actuarial loss		341			497			~~682~~1,023			~~994~~1,491
Amortization of prior service cost		3			3			69			69
Net periodic cost	$	266		$	539		$	~~533~~798		$	1,~~077~~617

Post Retirement Health Insurance Program - We sponsor a retirement health care plan that provides post retirement medical benefits to former full-time exempt employees, and their spouses, who meet specified criteria. We do not provide post retirement health benefits for any employees who retired subsequent to May 15, 1988. The retirement health care plan contains cost-sharing features such as deductibles and coinsurance.

Because such benefit obligations do not accrue to current employees, there is no current year service cost component of the accumulated post retirement health benefit obligation.

Other Post Retirement Benefits	Three Months Ended						~~Six~~Nine Months Ended
(in thousands of dollars)	1001/0302/1011			0912/27/09			1001/0302/1011			0912/27/09
Components of net periodic benefit cost
Interest cost on projected benefit obligation	$	104		$	162		$	~~208~~312		$	~~324~~486
Recognized actuarial gain		(2	)		(39	)		(46	)		(78117	)
Amortization of net gain		(152	)		(105	)		(~~304~~456	)		(~~210~~315	)
Net periodic cost (benefit)	$	(50	)	$	18		$	(~~100~~150	)	$	3654

We maintain a Voluntary Employee Beneficiary Association Trust (“VEBA Trust”) to fund health benefits for certain retired employees. The balance in the VEBA ~~trust~~Trust was $1.76 million as of ~~October~~January 32, ~~2010~~2011. We anticipate that we will continue to fund retiree health benefits from the VEBA Trust until this fund is exhausted.

On December 8, 2003 the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“MMA”) was signed into law. MMA introduces prescription drug benefits under Medicare Part D as well as a ~~Federal~~federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. We sponsor a post retirement health care benefit plan that provides prescription drug benefits that are deemed actuarially equivalent to Medicare Part D. We began reflecting the impact due to MMA effective March 31, 2005 and assume it will be in place for the lifetime of the plan. The Patient Protection and Affordable Care Act, which was signed into law in March 2010, will result in our Medicare Part D subsidy becoming taxable in 2013.

Fair Value Measurements

The following table presents our VEBA Trust and Plan assets using the fair value hierarchy as of ~~October~~January 32, ~~2010~~2011. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value.

Level 1 – Valuations based on quoted prices for identical assets and liabilities in active markets.

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Level 2 – Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

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Level 3 – Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonable available assumptions made by other market participants. These valuations require significant judgment.

The following table summarizes, by major security type, our VEBA Trust and Plan assets that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy as of ~~October~~January 32, ~~2010~~2011:

(In thousands of dollars)	~~Level 1 Estimated Fair Value~~Cash		Level 21 Estimated Fair Value		Level 32 Estimated Fair Value		~~Total~~Level 3 Estimated Fair Value		Total Estimated Fair Value
Money Market Funds		1,847		-		-		1,847
Cash	$	2		-		-		-	$	2
Domestic Common Stock		18,588		-		-		18,588
Money Market Funds		-		1,523		-		-		1,523
Foreign Common Stock		2,581		2,563		-		5,144
Domestic Common Stock		-		20,430		-		-		20,430
US Government and Agency Securities		-		8,655		-		8,655
Foreign Common Stock		-		2,872		2,715		-		5,587
Corporate Debt Securities		-		7,382		-		7,382
US Government and Agency Securities		-		-		8,254		-		8,254
Total	$	23,016	$	18,600	$	-	$	41,616
Corporate Debt Securities		-		-		7,074		-		7,074
Total	$	2	$	24,825	$	18,043	$	-	$	42,870

Union Pension Plans - Operating Shipyard - We participate in several multi-employer defined benefit and/or defined contribution pension plans, which provide benefits to our collective bargaining unit employees. The expense under these plans totaled $1.5 million and $1.1 million for the quarters ended January 2, 2011 and December 27, 2009, respectively, and $4.4 million and $2.6 million for the nine months ended January 2, 2010 and December 27, 2009, respectively.

Union Pension Plans - Operating Shipyard - We participate in several multi-employer defined benefit and/or defined contribution pension plans, which provide benefits to our collective bargaining unit employees. The expense under these plans totaled $1.8 million and $0.9 million for the quarters ended October 3, 2010 and September 27, 2009, respectively, and $3.0 million and $1.5 million for the six months ended October 3, 2010 and September 27, 2009, respectively.

9. INCOME TAXES

We account for income taxes using the asset and liability method, whereby deferred income taxes are recorded for the temporary differences between the amounts of assets and liabilities for financial reporting purposes and amounts as measured for tax purposes. We report the tax effects of these temporary differences as deferred income tax assets and liabilities on the balance sheet, measured using federal income tax laws and tax rates that are currently in effect. We record a valuation allowance to reduce deferred tax assets when it is more likely than not that some portion or the entire deferred income tax asset will not be realized. We have determined that no valuation allowance was necessary in the first ~~six~~nine months of fiscal ~~year~~years 2011 or ~~in fiscal year~~ 2010.

We use a more-likely-than-not threshold for the financial statement recognition and measurement of tax positions taken or expected to be taken in our tax returns. We record a liability for the difference between the benefit recognized and measured for financial statement purposes and the tax position taken or expected to be taken in our tax returns. To the extent that our assessment of such tax positions changes, we record the change in estimate in the period in which the determination is made. We classify tax-related interest and penalties as interest expense and operating expense, respectively.

We recognized no material interest or penalties during the ~~six~~nine months ended ~~October~~January 32, ~~2010~~2011. We classify penalties incurred in connection with tax matters as general and administrative expenses, and we classify interest assessments incurred in connection with tax matters as interest expense.

As of ~~October~~January 32, ~~2010~~2011, we have a liability for unrecognized tax benefits of $0.21 million related to certain positions which we concluded are more likely than not to not be sustained upon audit. The following table summarizes the movement in uncertain tax benefits from March 28, 2010 to ~~October~~January 32, ~~2010~~2011 (in thousands of dollars):

	Gross			Net
March 28, 2010 balance	$	529		$	180
Additions based on current year tax positions		-			-
Additions for prior years' tax positions		-			-
Reductions for prior year's tax positions		-			-
Reductions due to a lapse of the statute of limitations		-(308	)		-(103	)
Settlements with tax authorities		-			-
October 3, 2010 balance	$	529		$	180
January 2, 2011 balance	$	221		$	77

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Tax years that remain open for examination by federal taxing authorities include 2007, 2008, 2009, and 2010.

~~10. FAIR~~- ~~VALUE~~14 ~~OF FINANCIAL ASSETS AND LAIBILITIES~~-

As of October 3, 2010 and March 28, 2010 our cash, cash equivalents, and marketable securities primarily consisted of cash, government and government agency securities, money market funds, and other investment grade securities10. WeFAIR ~~record~~VALUE ~~such~~OF ~~amounts~~FINANCIAL atASSETS ~~fair~~AND ~~value.~~LIABILITIES

As of January 2, 2011 and March 28, 2010 our cash, cash equivalents, and marketable securities primarily consisted of cash, government and government agency securities, money market funds, and other investment grade securities. We record such amounts at fair value.

We use a hierarchy based on the inputs to measure fair value. The three-tier fair value hierarchy, which prioritizes the inputs used in our valuation methodologies, is:

Level 1 – Valuations based on quoted prices for identical assets and liabilities in active markets.

The following table summarizes, by major security type, our assets and liabilities that we measured at fair value on a recurring basis and are categorized using the fair value hierarchy as of ~~October~~January 32, ~~2010~~2011 (in thousands of dollars):

(in thousands of dollars)

Cash

Level 1 Estimated Fair Value

Level 2 Estimated Fair Value

Level 3 Estimated Fair Value

Total Estimated Fair Value

Cash

Level 1 Estimated Fair Value

Level 2 Estimated Fair Value

Level 3 Estimated Fair Value

Total Estimated Fair Value

Cash and Restricted Cash

1810,~~750~~876

Money Market Funds

~~3,720~~391

US Government and Agency Securities

1,~~530~~522

910,~~613~~257

11,~~143~~779

Corporate Debt Securities

1316,~~544~~228

Total

1810,~~750~~876

51,~~250~~913

2326,~~157~~485

4739,~~157~~274

11. PROPERTY AND EQUIPMENT

~~11. PROPERTY~~Our ~~AND~~property ~~EQUIPMENT~~and equipment consisted of the following assets and accumulated depreciation at January 2, 2011 and March 28, 2010 (in thousands of dollars):

Our property and equipment consisted of the following assets and accumulated depreciation at October 3, 2010 and March 28, 2010 (in thousands of dollars):

	01/02/11			03/28/10

Land and buildings	$	27,611		$	27,565
Drydocks		16,976			16,789
Piers and wharves		26,673			26,514
Computer hardware		2,221			1,958
Computer software		3,917			3,645
Equipment		34,220			33,668

Property and equipment, gross		111,618			110,139

Less: accumulated depreciation		(83,407	)		(80,423	)

Property and equipment, net	$	28,211		$	29,716

	10/03/10			03/28/10
Land and buildings	$	27,547		$	27,565
Drydocks		16,900			16,789
Piers and wharves		26,542			26,514
Computer hardware		1,954			1,958
Computer software		3,741			3,645
Equipment		34,111			33,668
Property and equipment, gross		110,795			110,139
Less: accumulated depreciation		(82,422	)		(80,423	)
Property and equipment, net	$	28,373		$	29,716

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12. INTANGIBLE ASSETS

The following table presents the components of our intangible assets as of ~~October~~January 32, ~~2010~~2011 (in thousands of dollars):

	Cost Basis		Accumulated Amortization			Net Book Value		Weighted Average Useful Life (in years)
Customer base	$	1,402	$	(~~438~~482	)	$	~~964~~920		8
Non-compete agreements		603		(~~301~~332	)		~~302~~271		5
Trade name		161		(2729	)		~~134~~132		15
Total	$	2,166	$	(~~766~~843	)	$	1,~~400~~323

For the ~~six~~nine months ended ~~October~~January 32, ~~2010~~2011 and ~~September~~December 27, 2009, we recorded amortization expense of $0.2 million and $0.2 million, respectively. For the quarters ended ~~October~~January 32, ~~2010~~2011 and ~~September~~December 27, 2009, we recorded amortization expense of $0.1 million and $0.1 million, respectively.

Estimated amortization expense for the remaining estimated useful life of the intangible assets is as follows as of ~~October~~January 32, ~~2010~~2011 (in thousands of dollars):

Years ending March	Amortization of Intangible Assets
2011 (October 4, 2010 through April 3, 2011)	$	153
2011 (January 3, 2011 through April 3, 2011)	$	76
2012		307
2013		307
2014		186
Thereafter		447
2015		186
Total	$	1,400
Thereafter		261
Total	$	1,323

13. DERIVATIVE FINANCIAL INSTRUMENTS

Cash Flow Hedges

Our cash flow hedges consist of foreign currency forward contracts. We use these forward contracts to mange currency risk associated with purchases made in foreign currencies. Our foreign currency forward contracts are normally for periods less than two years. We do not expect to convert the foreign currencies to U.S. dollars at maturity because we have entered into banking arrangements to deposit these foreign currency funds until the point in time at which we will fulfill our liability commitments.

We have ~~Euro-denominated~~ forward contracts ~~with~~denominated ain ~~notional~~Australian ~~value~~dollars ofand ~~$0.4~~Euros ~~million~~with ~~that~~a ~~will~~notional bevalue ~~largely~~of ~~settled~~approximately ~~within the next seven months. We also have~~ $0.32 million ~~of forward contracts denominated in Australian dollars~~ with settlement horizons up to 1512 months into the future. The combined ~~fair~~mark ~~value~~to ofmarket ~~these~~adjustment ~~is $8,000~~ as of ~~October~~January 32, ~~2010~~2011 is immaterial and is recorded as an unrealized gain, which is reflected net of taxes in Other Comprehensive Income. Our forward contracts are a Level 2 instrument and we use observable inputs including currency spot rates to determine reportable values.

We translate our foreign currency assets and liabilities at the exchange rate on the balance sheet date, and the foreign exchange hedging assets and liabilities using quoted market rates on the balance sheet date. We charge our translation adjustments resulting from this process to other comprehensive income (a component of stockholders’ equity), net of taxes. Realized gains and losses resulting from the effects of changes in exchange rates on assets and liabilities denominated in foreign currencies are included in non-operating expense as foreign currency transaction gains and losses.

We do not hold or issue derivative financial instruments for trading purposes. The purpose of our hedging activities is to reduce the risk that the valuation of the underlying assets, liabilities and firm commitments will be adversely affected by changes in exchange rates. Our derivative activities do not create foreign currency exchange rate risk because fluctuations in the value of the instruments used for hedging purposes are offset by fluctuations in the value of the underlying exposures being hedged.

- 1516 -

14. ~~SUBSEQUENT~~REVOLVING ~~EVENTS~~LINE OF CREDIT

We ~~evaluated~~have ~~subsequent~~a ~~events~~$10 ~~through~~million ~~the~~revolving ~~filing~~line ~~date~~of credit, which expires July 31, 2012. Borrowings under this line of ~~these~~credit ~~financial~~accrue ~~statements~~interest based upon LIBOR plus 1. ~~The~~5%. There ~~following~~were ~~event~~$2.1 ~~occurred~~million ~~between~~of ~~the~~borrowings ~~period~~under ~~ended~~this ~~October~~agreement 3as of January 2, ~~2010~~2011. We ~~and~~were in compliance with all covenants contained in the ~~filing~~credit ofagreement ~~these~~at ~~financial~~January ~~statements~~2, 2011.

~~On November 2, 2010, we were awarded a multi-year maintenance contract from the U~~15.S. MERGER ~~Coast Guard for the icebreaker USCGC Healy. The award is for a Multi-Option Firm Fixed-Price supply contract that will be in effect from November 2010 to February 2015.~~AGREEMENT

On December 22, 2010, we entered into the Merger Agreement with Parent and Purchaser providing for the Merger of Purchaser with and into the Company with the Company surviving the Merger as a wholly-owned subsidiary of Parent. Pursuant to the Merger Agreement, upon the terms and subject to the conditions thereof, Purchaser commenced the Offer on December 30, 2010 to acquire all of the outstanding shares of common stock, $0.01 par value per share, of the Company at the Offer Price without interest and less any applicable withholding and transfer taxes. In certain circumstances, the parties have agreed to complete the Merger without the prior completion of the Offer, after receipt of the approval of a majority of the Company’s stockholders for the adoption of the Merger Agreement. On January 31, 2011, the Purchaser and the Company announced the extension of the expiration of the Offer until 12:00 midnight New York City time, on Friday, February 4, 2011, unless further extended in accordance with the Merger Agreement. The Offer, which was previously scheduled to expire at 12:00 midnight, New York City time on Friday, January 28, 2011, was extended in accordance with the Merger Agreement because certain conditions to the Offer were not satisfied as of such expiration date, including without limitation the Minimum Tender Condition (as defined in the Merger Agreement). American Stock Transfer & Company, LLC, the depository for the Offer, has indicated that, as of the initial expiration date, approximately 2,934,298 Shares had been validly tendered and not withdrawn pursuant to the Offer, representing approximately 50.7% of the Outstanding Shares.

The terms of the Merger Agreement limit our ability to engage in certain business activities without the prior consent of Parent. The most significant of these restrictions limit our ability to issue or repurchase shares of our common stock, incur new indebtedness, modify our existing credit facility, enter into or modify material contracts, grant liens on our assets and effect any significant change in our corporate structure or the nature of our business. The Merger Agreement also restricts the Company’s ability to pay dividends, other than the dividend of ten cents ($0.10) per share paid on December 23, 2010.

The Merger Agreement contains certain termination rights and reimbursement obligations. Upon termination of the Merger Agreement, under specified circumstances, the Company may be required to pay Parent a termination fee of $4.55 million. If the Merger Agreement is not consummated, we will continue to be a publicly traded company.

Putative stockholder class action lawsuits have been filed in King County, Washington regarding the Merger Agreement, the Offer and the Merger (See note 4).

16. SUBSEQUENT EVENTS

We evaluated subsequent events through the filing date of these financial statements. The following events occurred between our quarter ended January 2, 2011 and February 3, 2011.

On February 1, 2011 the United States Navy awarded us a five-year Multi-Ship/Multi-Option contract (“MS/MO”) for the drydocking of the surface combatant ships homeported at Naval Station Everett or visiting the Puget Sound region. This contract represents the third successive five-year MS/MO contract awarded to us for the drydocking of the surface combatants. This is a cost-type-incentive/award-fee contract. We estimate the value may be in the range of $50-$80 million over five years, if all options are exercised. There is no assurance that all options will be exercised, in whole or in part.

No other events occurred between the period ended January 2, 2011 and the filing of these financial statements, except as disclosed in Note 15 and throughout these financial statements.

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

The Notes to Consolidated Financial Statements are an integral part of Management’s Discussion and Analysis of Financial Condition and Results of Operations and should be read in conjunction herewith.

OVERVIEW

We derive a significant portion of our revenues from work performed under our contracts with the Navy and the Coast Guard. The Navy and the Coast Guard schedule work under such contracts at their convenience.

The Company’s fiscal year consists of 52 or 53 weeks, ending on the Sunday closest to March 31. The 2010 fiscal year consisted of 52 weeks ending on March 28, 2010 while the 2011 fiscal year consists of 53 weeks ending April 3, 2011. All quarters of both fiscal years 2010 and 2011 consist of 13 weeks, except for the first quarter of 2011, which consisted of 14 weeks. The additional week did not materially affect the comparability of operating results between the first ~~six~~nine months of fiscal years 2011 and 2010. All references to years relate to fiscal years rather than calendar years.

We ~~currently~~have ~~hold~~completed athe last availability under the CMT Multi- Ship/Multi- Option ~~cost-type~~ contract with the Navy. The Navy has announced that all dockings for surface combatants (~~“CVN~~frigates ~~Contract”~~and destroyers) homeported in Puget Sound for the ~~non-nuclear~~next ~~repair~~five ~~work~~years will be performed through a contract with Todd Pacific (see Note 16 above). The Navy has further announced that the pier side availabilities on the ~~aircraft~~surface ~~carriers~~combatants home ported ~~or stationed~~ in Puget Sound will be competed and it is anticipated that a Request for Proposal will be issued by the Navy in the spring of 2011. The Navy ~~first~~is ~~awarded~~currently usawarding ~~the~~known ~~CVN~~future ~~Contract~~work inon ~~1999~~these ~~and~~surface wecombatants ~~completed~~on ~~our~~firm ~~second~~fixed price competitive basis. We were first awarded this five-year contract ~~during~~in fiscal year 2001 for the ~~third~~repair ~~quarter~~and maintenance of ~~fiscal~~all ~~year~~surface ~~2009~~combatants stationed at the Naval Station in Everett. ~~During~~The Navy extended this cost-plus-award-fee contract by approximately five years in September of 2005. We were the ~~second~~prime ~~quarter~~contractor and led a team of ~~fiscal~~subcontractors ~~year~~who ~~2009,~~at times performed as much as half of the ~~Navy~~work. ~~awarded~~The uswork awas ~~new~~completed ~~five~~either at our Seattle shipyard or pier-~~year~~side ~~contract~~at tothe ~~continue~~Naval ~~our~~Station ~~work~~in onEverett. We performed the ~~aircraft~~work ~~carriers~~under ~~through~~this ~~fiscal~~contract ~~year~~at ~~2014~~the option of the Navy.

WeOn ~~are~~December ~~currently~~1, ~~completing~~2008, ~~the~~Washington ~~last~~State ~~availability~~Ferries ~~under~~(“WSF”) ~~this~~awarded ~~2005~~us ~~Multi~~a ~~Ship/Multi Option contract~~$65. ~~The~~5 ~~Navy~~million ~~is awarding known future work on these surface combatants on~~ firm fixed -price ~~competitive~~contract ~~basis~~for ~~and~~the ~~has~~construction ~~not~~of ~~yet~~one ~~announced~~64–Auto ~~whether or not there will be another five-year cost type MS/MO solicitation~~Ferry. We ~~were~~Construction ~~first~~commenced ~~awarded this five-year contract~~ in fiscal year ~~2001~~2009 ~~for the repair~~ and ~~maintenance of all surface combatants (frigates and destroyers) stationed at~~ the ~~Naval~~ferry ~~Station~~was indelivered ~~Everett. The~~on ~~Navy extended this cost-plus-award-fee contract by approximately five years in~~ September of15, ~~2005~~2010. We ~~are the prime contractor and lead a team of subcontractors who at times may perform as much as half of the work.~~ The ~~work~~final iscontract ~~done~~value ~~either~~has atbeen ~~our~~negotiated ~~Seattle~~with ~~shipyard or pier-side at the Naval Station in Everett~~WSF. WeResults ~~perform~~for the ~~work~~nine ~~under~~months ~~this~~ended ~~contract~~January at2, ~~the~~2011 ~~option~~include of the ~~Navy, which has not established a dollar~~ value ~~for~~of ~~the~~all ~~work~~such changes.

On December 1, 2008, Washington State Ferries (“WSF”) awarded us a $65.5 million firm fixed-price contract for the construction of one 64–Auto Ferry. Construction commenced in fiscal year 2009 and the ferry was delivered on September 15, 2010. The final contract value has been negotiated with WSF. Results for the six months ended October 3, 2010 include the value of all such changes. Our wholly owned subsidiary, ESI, was a subcontractor on the project.

On October 13, 2009, WSF awarded us a $114.1 million contract for the construction of two additional 64-Auto Ferries. As part of this award, WSF has an option for the construction of a third additional vessel for $50.8 million, which they must exercise no later than May 31, 2011. The contract commenced upon receiving the Notice to Proceed from WSF on November 9, 2009. The contract contemplates delivery of the second vessel in the class 18 months after Notice to Proceed, and delivery of the third vessel nine months after the delivery date of the second. Our wholly owned subsidiary, ESI, is a subcontractor on the project.

In July 2007, we, as prime contractor, commenced negotiations with WSF for the terms and conditions of a contract to build up to four 144-Auto Ferries. We concluded those negotiations and executed the prime contract with WSF in December 2007. WSF issued the contract in two parts: Part A provides for the design of the ferries and Part B will dictate the terms of the actual construction of the ferries. Part A of the contract, which was awarded for $2.4 million, is performed by us and our primary subcontractor, Guido Perla & Associates of Seattle, Washington (“GPA”), who will provide ferry design services. We reached agreement on the terms and conditions of a subcontract with Martinac Shipbuilding of Tacoma, Washington in December 2007 to be a subcontractor to us for Part B of the contract. Once the design and cost estimate are complete, we are contractually obligated to negotiate a price and delivery schedule for Part B of the contract, covering the construction of the ferry, with WSF. The timetable for the contract execution of Part B is dependent upon the availability of funds from WSF. There are no assurances that we will reach agreement with WSF on a price for construction of the ferries, a mutually acceptable delivery schedule, or that the necessary funding will be available from the State of Washington to build any or all of the ferries.

- 16 -

for construction of the ferries, a mutually acceptable delivery schedule, or that the necessary funding will be available from the State of Washington to build any or all of the ferries.

In the fourth quarter of fiscal year 2010, we negotiated a change order to Part A of the contract with WSF for the execution of the detailed production design of the 144-Auto Ferries in the amount of $8.3 million. The change order was effective January 27, 2010 and the design work is scheduled to be complete in fiscal year 2012. We have subcontracted substantial production design services to GPA.

- 18 -

Merger Agreement

On December 22, 2010, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Vigor Industrial LLC, an Oregon limited liability company (“Parent”), and Nautical Miles, Inc., a Delaware corporation and a direct wholly owned subsidiary of Parent (“Purchaser”) providing for the merger (the “Merger”) of Purchaser with and into the Company with the Company surviving the Merger as a wholly-owned subsidiary of Parent. Pursuant to the Merger Agreement, upon the terms and subject to the conditions thereof, Purchaser commenced a tender offer on December 30, 2010 (the “Offer”) to acquire all of the outstanding shares of common stock, $0.01 par value per share, of the Company (the “Shares”) at a purchase price of $22.27 per share, net to the holder in cash (the “Offer Price”) without interest and less any applicable withholding and transfer taxes. In certain circumstances, the parties have agreed to complete the Merger without the prior completion of the Offer, after receipt of the approval of a majority of the Company’s stockholders for the adoption of the Merger Agreement. On January 31, 2011, the Purchaser and the Company announced the extension of the expiration of the Offer until 12:00 midnight New York City time, on Friday, February 4, 2011, unless further extended in accordance with the Merger Agreement. The Offer, which was previously scheduled to expire at 12:00 midnight, New York City time on Friday, January 28, 2011, was extended in accordance with the Merger Agreement because certain conditions to the Offer were not satisfied as of such expiration date, including without limitation the Minimum Tender Condition (as defined in the Merger Agreement). American Stock Transfer & Company, LLC, the depository for the Offer, has indicated that, as of the initial expiration date, approximately 2,934,298 Shares had been validly tendered and not withdrawn pursuant to the Offer, representing approximately 50.7% of the Outstanding Shares.

The terms of the Merger Agreement limit our ability to engage in certain business activities without the prior consent of Parent. The most significant of these restrictions limit or ability to issue or repurchase shares of our common stock, incur new indebtedness, modify our existing credit facility, enter into or modify material contracts, grant liens on our assets and effect any significant change in our corporate structure or the nature of our business. The Merger Agreement also restricts the Company’s ability to pay dividends, other than the dividend of ten cents ($0.10) per share paid on December 23, 2010.

Putative stockholder class action lawsuits have been filed in King County, Washington regarding the Merger Agreement, the Offer and the Merger. See PART II, Item 1 “Legal Proceedings,” below.

OPERATING RESULTS

Revenue

Our ~~second~~third quarter revenue of $8358.3 million reflects a $3311.72 million, or 6824% increase from the same period last fiscal year. The increase largely results from higher volumes associated with ~~new~~cost-type, ~~construction~~and time and ~~cost-type~~material ship repair projects. Cost-type and ~~firm~~time ~~fixed~~and ~~price~~material contracts revenues increased 5759% and 84138%, respectively, ~~while time-and-material contracts decreased 6%,~~ between the ~~second~~third quarters of fiscal years 2010 and 2011. Cost-type volumes increased due to the timing of Navy and Coast Guard vessel availabilities, the most significant of which were the USS Ingraham, USS Stennis, ~~USCGC~~USS ~~Polar~~Nimitz, ~~Star~~ and the USCGC Polar ~~Sea~~Star. ~~Firm~~Time ~~fixed~~and ~~price~~material contract revenue increased due to higher ~~new~~volumes ~~construction~~on ~~volumes~~such ~~and~~contracts toin the ~~recognition~~current offiscal ~~change order revenue associated with new construction work that we completed in prior periods~~quarter.

Revenue for the first ~~six~~nine months of fiscal year 2011 was $~~153~~211.58 million, which reflects aan $6980.35 million, or 8261% increase from the same period last year. The year to year increase results largely from higher ~~new~~volumes ~~construction~~associated with fixed price and cost-type ~~and~~ ship repair ~~volumes~~and vessel new construction contracts. Cost-type, ~~firm~~and fixed price, ~~and time-and-material~~ contracts revenues increased 5556%, ~~124%~~ and 1267% respectively, between the first ~~half~~nine months of fiscal years 2010 and 2011. The increase in ~~firm fixed price contract~~ revenue is due to the ~~two~~ factors mentioned above.

Our ship repair business consists of individual and short duration repair events, some of which the government exercises under its various multi-ship, multi-option contracts. Our new construction business consists of individual and multiple vessel construction contracts typically of one to two years duration. Consequently, our operating results for any period presented are not necessarily indicative of results that may be expected in any other period.

- 19 -

Cost of Revenue

Cost of revenue during the ~~second~~third quarter of fiscal year 2011 was $5845.96 million, or 7178% of revenue. Cost of revenue during the ~~second~~third quarter of fiscal year 2010 was $3735.15 million, or 75% of revenue. The increase in the cost of revenue in the ~~second~~third quarter of fiscal year 2011 is primarily attributable to the increase in business volumes versus the same period in the prior year. The ~~decrease~~increase in the cost of revenue as a percentage of ~~total~~ revenue ~~for~~in the ~~second~~third quarter is2011 ~~due~~versus the same period in the prior year is primarily attributed to an increase in the ~~recognition~~estimate for costs at completion of ~~change~~fixed ~~order~~price ~~revenue~~projects ~~associated~~and ~~with~~reduced ~~new~~estimates ~~construction~~for ~~work~~award ~~that~~fees weearned ~~completed~~on incost ~~prior~~type ~~periods~~contracts executed during the quarter.

Cost of revenue during the first ~~six~~nine months of fiscal year 2011 was $~~114~~159.39 million, or 7475% of revenue. During the same period of fiscal year 2010, cost of revenue was $6197.94 million, or 7374% of revenue. The increases in cost of revenue and cost of revenue as a percentage of revenue in the first three quarters of fiscal 2011 versus the same period in the prior year are driven by the factors discussed above.

Administrative and Manufacturing Overhead Expense

Overhead costs for administrative and manufacturing activities were $1311.23 million, or 1619% of revenue, for the ~~second~~third quarter of fiscal year 2011. During the same period of fiscal year 2010, administrative and manufacturing overhead costs were $9.73 million, or 1920% of revenue. As our overhead cost pools ~~comprise~~are comprised of both variable and fixed costs, increases or decreases in volumes generally translate into less than proportionate changes in overhead spending. Accordingly, the $32.50 million increase in administrative and manufacturing overhead is primarily attributable to the volume increases in the ~~second~~third quarter of fiscal year 2011 versus the same period in the prior fiscal year~~. Since~~ ~~the~~and ~~increase~~$0.8 inmillion ~~such~~of ~~costs~~overhead ~~was~~expense ~~less~~associated ~~than proportionate~~ with the ~~increases~~Merger ~~in revenue~~Agreement, ~~overhead~~the ~~costs~~Offer asand ~~a percentage of revenue decreased over~~ the ~~same period~~Merger.

Administrative and manufacturing overhead costs for the first ~~six~~nine months of fiscal year 2011 were $2435.36 million, or 1617% of revenue. During the same period of fiscal year 2010, administrative and manufacturing overhead costs were $1727.81 million, or 21% of revenue. The $68.5 million increase in overhead expense during the first ~~six~~nine months of fiscal year 2011 versus the same period in fiscal year 2010 is primarily the result of year on year volume increases discussed above and $0.8 million of overhead expense associated with the Merger Agreement, the Offer and the Merger during the first three quarters of fiscal 2011. As overhead costs increased in a smaller proportion than the increases in revenue, overhead costs as a percentage of revenue decreased over the same period.

Investment & Other Income

Investment and other income was $0.3 million for the ~~second~~third quarter of fiscal year 2011 and $0.48 million for the first ~~six~~nine months ended ~~October~~January 32, ~~2010~~2011. During the same periods in fiscal year 2010 investment and other income was $0.31 million and $0.89 million, respectively.

- 17 -

Income Taxes

Our effective income tax rate was 3354.06% and 3433.01% in the ~~second~~third quarters of fiscal year 2011 and 2010, respectively. In the ~~second~~third quarter of fiscal year 2011 we recorded $31.70 million of expense associated with federal income tax. During the same period in fiscal year 2010 we recorded $10.18 million in federal income tax expense. The increase in our effective income tax rate in the current quarter primarily results from expenses associated with the Merger Agreement that are not tax deductible. These amounts totaled $0.8 million in the third quarter of fiscal 2011 and on a year to date basis.

Our effective income tax rate was 3335.02% and 3433.08% in the first ~~half~~nine months of fiscal years 2011 and 2010, respectively. We recorded $56.1 million in federal tax expense in the first ~~half~~nine months of fiscal year 2011, and $12.96 million in federal income tax expense in the first ~~half~~nine months of fiscal year 2010.

LIQUIDITY AND CAPITAL RESOURCES

We anticipate that our cash, cash equivalents and marketable securities position, anticipated fiscal year ~~2011~~2012 cash flow, access to credit facilities and, if necessary, capital markets, taken together, will provide sufficient liquidity to fund operations for fiscal year ~~2011~~2012. However, we expect to finance shipyard capital expenditures from working capital. Changes in the composition and/or timing of projected work could cause planned capital expenditures and repair and maintenance expenditures to change.

- 20 -

Working Capital

Working capital at ~~October~~January 32, ~~2010~~2011 was $5152.68 million, an increase of $1213.67 million, or 3235% from the working capital reported at the end of fiscal year 2010. The overall increase is due to an increase in current restricted cash of $65.19 million, an increase in securities available for sale of $48.70 million, an increase in ~~cost~~accounts inreceivable ~~excess~~ of ~~billings of~~ $83.60 million, ~~and~~an aincrease ~~decrease~~ in ~~billings~~cost in excess of ~~costs~~billings of $34.95 million, and ana ~~increase~~decrease in ~~current~~billings ~~restricted~~in ~~cash~~excess of costs of $53.06 million, which are partially offset by a decrease in ~~accounts~~cash ~~receivable~~ of $16.86 million and an increase in accounts payable of $~~15.~~9.7 million. These changes are primarily due to increased volumes and timing of billings and payments for our Navy, Coast Guard and new construction customers as well as the reclassification of a portion of our restricted cash from long term to short ~~terms~~term assets in the second quarter of fiscal year 2011. The reclassification of restricted cash is due to new construction escrow funds that are expected to be released within the next twelve months.

Capital Expenditures

We made capital acquisitions of $0.28 million and $0.5 million in the ~~second~~third quarters of fiscal years 2011 and 2010, and $01.86 million and $1.05 million in the first ~~half~~nine months of fiscal years 2011 and 2010, respectively, for planned improvements to our shipyard facilities.

Credit Facility

In ~~July~~September ~~2009~~2010, we renegotiated certain terms of our $10.0 million revolving credit facility, which expires July 31, ~~2011~~2012. In July 2009, we also added a new $15.0 million credit facility, which expires July 31, 2013, to support the issuance of letters of credit to meet our performance security obligations on our WSF 64–Auto Ferry new construction contracts and other commercial new construction projects when performance security is required. As of ~~October~~January 32, ~~2010~~2011, we have borrowings and letters of credit outstanding of $13.19 million on our revolving credit facility and $11.4 million on our performance letter of credit facility. These reduced our available revolving credit facility and performance letter of credit facility to $86.91 million and $3.6 million, respectively, at ~~October~~January 32, ~~2010~~2011. The revolving credit facility and the performance letter of credit facility, which are renewable on a bi-annual basis, provide us with flexibility in funding our operating cash flow needs. We have certain financial debt covenants that we must meet in order to maintain these credit lines. As of ~~October~~January 32, ~~2010~~2011, we were compliant with all bank covenants. We have noborrowings ~~debt~~of ~~outstanding~~$2.1 million as of ~~October~~January 32, ~~2010~~2011.

Dividends

On December 23, 2010 we paid a dividend of ten cents ($0.10) per share to all shareholders of record as of December 8, 2010. On September 23, 2010 we paid a dividend of seven and one-half cents ($0.075) per share to all shareholders of record as of September 8, 2010. On June 23, 2010 we paid a dividend of seven and one-half cents ($0.075) per share to all shareholders of record as of June 8, 2010. The cumulative amount of dividends paid on a year-to-date basis as of ~~October~~January 32, ~~2010~~2011 was $01.84 million.

OnThe ~~August~~terms 20of the Merger Agreement limit our ability to pay dividends, ~~2010~~other wethan ~~declared~~the ~~and~~payment ~~authorized~~of athe quarterly cash dividend of ten cents ($0.10) per share ~~payable~~paid on December 23, 2010 ~~to all shareholders of records as of December 8, 2010~~.

Cash Flow Hedges

Our cash flow hedges consist of foreign currency forward contracts. We use these forward contracts to manage currency risk associated with purchases made in foreign currencies. Our foreign currency forward contracts are normally for periods less than two years. We do not expect to convert the foreign currencies to U.S. dollars at maturity because we have entered into banking arrangements to deposit these foreign currency funds until the point in time at which we will fulfill our liability commitments.

-Merger 18Termination -Fee

~~RESERVES~~The ~~AND~~Merger ~~OTHER~~Agreement ~~CONTINGENCIES~~contains certain termination rights and reimbursement obligations. Upon termination of the Merger Agreement, under specified circumstances, the Company will be required to pay Parent a termination fee of $4.55 million. If the Merger Agreement is not consummated, we will continue to be a publicly traded company.

AsRESERVES ~~reflected~~AND in the balance sheet and discussed in Note 4 of the Notes to Consolidated Financial Statements, we provided total aggregate reserves of $9.0 million at October 3, 2010 for our contingent environmental and bodily injury liabilities. As of March 28, 2010, we had recorded aggregate reserves of $10.9 million. Due to the complexities and extensive history of our environmental and bodily injury matters, the amounts and timing of future expenditures are uncertain. As a result, there can be no assurance that the ultimate resolution of these environmental and bodily injury matters will not have a material adverse effect on our financial position, cash flows or results of operations.CONTINGENCIES

As reflected in the balance sheet and discussed in Note 4 of the Notes to Consolidated Financial Statements, we provided total aggregate reserves of $8.7 million at January 2, 2011 for our contingent environmental and bodily injury liabilities. As of March 28, 2010, we had recorded aggregate reserves of $10.9 million. Due to the complexities and extensive history of our environmental and bodily injury matters, the amounts and timing of future expenditures are uncertain. As a result, we can provide no assurance that the ultimate resolution of these environmental and bodily injury matters will not have a material adverse effect on our financial position, cash flows or results of operations.

We maintain various insurance policies and agreements that provide coverage for the costs to remediate environmental sites and for the defense and settlement of bodily injury cases. These policies and agreements are primarily with two insurance companies. Based upon the current credit ratings of both of these companies, we anticipate that both parties will be able to perform under the terms of their respective policy or agreement.

As- of21 October 3, 2010, we recorded aggregate assets of $8.1 million related to our reserves for environmental and bodily injury liabilities. As of March 28, 2010, we recorded aggregate assets of $7.6 million. These assets reflect receivables under contractual arrangements with the insurance companies to share costs for certain environmental and other matters, as well as amounts deposited to securitize certain remediation activities. We record amounts recoverable from insurance companies within our Consolidated Balance Sheets as insurance receivables and, in the case of reimbursements currently due, as a current asset. We record amounts held in security deposits within our balance sheet as restricted cash.-

WeAs ~~previously reported that we received notice from the DCAA questioning the reasonableness~~ of aJanuary ~~payment~~2, to2011, ~~one~~we ofrecorded ~~our~~aggregate ~~subcontractors~~assets ~~on the 2005 dPIA~~ of ~~the aircraft carrier USS John C. Stennis. During the first quarter of our fiscal year 2009 the DCAA issued its final report disapproving~~ $37.13 million ~~of costs~~ related to ~~payments~~our ~~made~~reserves tofor ~~the~~environmental ~~subcontractor~~ and ~~costs~~bodily ~~incurred~~injury ~~by us to perform work which was contracted to the subcontractor~~liabilities. ~~The~~As ~~Navy~~of ~~contracting~~March ~~officer~~28, ~~then issued the decision to disallow the costs and withhold the above stated amount from payments due on our current contracts with the Navy. In response~~2010, we ~~filed~~recorded aaggregate ~~Request~~assets ~~for~~of ~~Equitable Adjustment (“REA”) with the Navy contracting officer to allow the~~ $37.16 million ~~in incurred costs~~. In ~~the~~These ~~event~~assets ofreflect anreceivables ~~unfavorable~~under ~~decision~~contractual onarrangements ~~our~~with ~~REA, we will file an appeal to~~ the ~~Armed~~insurance ~~Services~~companies ~~Board of Contract Appeals or directly~~ to ~~federal~~share ~~court. We~~costs ~~established a reserve~~ for ~~this~~certain ~~item~~environmental ~~in the amount of $3.1 million~~ and ~~recorded~~other ~~the~~matters, ~~resulting~~as ~~transaction~~well as aamounts ~~reduction~~deposited into ~~revenue~~securitize incertain ~~the~~remediation ~~first quarter of fiscal year 2009~~activities. ~~The~~We ~~Navy~~record ~~collected~~amounts ~~the~~recoverable ~~entire~~from ~~amount~~insurance incompanies ~~the~~within ~~second~~our ~~quarter~~Consolidated ofBalance ~~fiscal~~Sheets ~~year~~as ~~2009~~insurance ~~through~~receivables ~~the~~and, ~~non-payment~~in ~~of other outstanding project receivables. In~~ the ~~third~~case ~~quarter~~ of ~~fiscal~~reimbursements ~~year~~currently ~~2009~~due, ~~the~~as ~~Navy~~a ~~agreed~~current ~~to return the $3~~asset.~~1 million while the REA and additional information we have provided is under consideration.~~ ~~There~~We ~~are~~record noamounts ~~assurances~~held ~~that~~in ~~the~~security ~~Navy~~deposits ~~will~~within ~~agree with~~ our ~~REA. Our~~balance ~~current~~sheet ~~financial~~as ~~statements~~restricted ~~continue to reflect a reserve in billings in excess of sales for the $3~~cash.~~1 million in question.~~

We previously reported that we received notice from the DCAA questioning the reasonableness of a payment to one of our subcontractors on the 2005 docking of the aircraft carrier USS John C. Stennis. During the first quarter of our fiscal year 2009 the DCAA issued its final report disapproving $3.1 million of costs related to payments made to the subcontractor and costs incurred by us to perform work which was contracted to the subcontractor. The Navy contracting officer then issued the decision to disallow the costs and withhold the above stated amount from payments due on our current contracts with the Navy. In response, we filed a Request for Equitable Adjustment (“REA”) with the Navy contracting officer to allow the $3.1 million in incurred costs. In the event of an unfavorable decision on our REA, we will file an appeal to the Armed Services Board of Contract Appeals or directly to federal court. We established a reserve for this item in the amount of $3.1 million and recorded the resulting transaction as a reduction in revenue in the first quarter of fiscal year 2009. The Navy collected the entire amount in the second quarter of fiscal year 2009 through the non-payment of other outstanding project receivables. In the third quarter of fiscal year 2009, the Navy agreed to return the $3.1 million while the REA and additional information we have provided is under consideration. There are no assurances that the Navy will agree with our REA. Our current financial statements continue to reflect a reserve in billings in excess of sales for the $3.1 million in question.

Subsequent to the end of fiscal year 2010, in June 2010, we received a Notice of Noncompliance with CAS from the Navy’s Puget Sound contracting office relating to our five-year phased maintenance contract to perform repair work on the aircraft carriers located in the Puget Sound. This contract was completed in fiscal year 2009. During the fourth quarter of fiscal year 2007, we reported that the Navy’s Puget Sound contracting office notified us of several potential noncompliance issues. The Notice of Noncompliance primarily focuses on our cost allocation methods applicable to our Navy contracts and the allocation methods we use for indirect costs for our work on cost-type contracts. We began negotiations with the Navy in the first quarter of fiscal year 2011 in an effort to reach a resolution acceptable to us and the Navy. There is no assurance that an acceptable resolution will be reached. We believe that we have valid positions and defenses to the findings of noncompliance and will pursue all available avenues of appeal in the event an acceptable resolution is not reached. An unfavorable outcome in this matter could have a significant impact on our cost structure with the Navy and, depending upon the scope of any retroactive relief sought by the Navy, could be material in the period recorded. At this time, we are unable to estimate our potential exposure for this item.

Additionally, in the prior fiscal year, the Navy and the DCAA questioned several modifications we made to our cost allocation methods and the degree to which we allocate indirect costs to work performed under our government cost-type contracts. We believe that we are in compliance with the Federal Acquisition Regulations and are making every effort to resolve these outstanding issues with the Navy’s Puget Sound contracting officer. We have submitted proposals for consideration by the Navy to resolve all outstanding government cost accounting issues and began discussions with the Navy during the second quarter of fiscal year 2010. These discussions are currently ongoing. An unfavorable outcome in these matters could have a significant impact on our cost structure with the Navy and, depending upon the scope of any retroactive relief sought by the Navy, could be material in the period recorded.

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BACKLOG

At ~~October~~January 32, ~~2010~~2011 our firm shipyard backlog consisted of approximately $~~100~~86.67 million of repair, overhaul, and new construction work. Our backlog at March 28, 2010 was approximately $144.9 million. The decrease in the backlog of work at the end of the ~~six~~nine months of fiscal year 2011 is primarily attributed to the progress of work on new construction projects and cost-type project availabilities.

LABOR RELATIONS

In September 2008, we reached an agreement for a new collective bargaining agreement with the Puget Sound Metal Trades Council (the bargaining umbrella for all unions at Todd Pacific) which the rank and file members at the Seattle shipyard subsequently ratified. The five-year agreement, which was retroactive to August 1, 2008, will expire on July 31, 2013. The shipyard workers employed by Everett are represented by the Boilermakers and Carpenters Unions under a separate collective bargaining agreement that expired July 31, 2010. A new five-year collective bargaining agreement covering the Everett workforce was ratified during the second quarter of fiscal year 2011. The new agreement will expire July 31, 2015. We consider our relations with the various unions to be stable.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks in the ordinary course of our business. There ~~are~~have been no significant changes to our market risk since March 28, 2010.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. Management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a−15(e) and 15d−15(e) of the Exchange Act. Based on this review, management, including our Chief Executive Officer and our Chief Financial Officer, has concluded that our disclosure controls and procedures were not effective as of ~~October~~January 32, ~~2010~~2011, due to the existence of a material weakness. A material weakness is a deficiency, or a combination of deficiencies, in internal control over reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness was discovered during the preparation of our Annual Report on Form 10−K for the year ended March 28, 2010, and related to our process for the annual transmission of pension asset balances to the pension actuary. Despite the occurrence of this material weakness, management believes that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

(b) Changes in Internal Controls Over Financial Reporting. During the first quarter of fiscal year 2011, management implemented an improved reconciliation process to ensure that payments related to period end accruals are properly recorded. We believe that this change to our internal control over financial reporting has successfully remediated the material weakness related to the processing of payments for period end accruals. However, as the transmission of pension asset balances to the pension actuary only occurs on an annual basis, we will not be able to remediate this issue until the fourth quarter of fiscal year 2011.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Between December 27, 2010 and January 13, 2011, the following class action lawsuits were filed by purported stockholders of the Company in the Superior Court of King County, Washington, in connection with the Merger Agreement, the Offer and the Merger:

·	Cheryl Marshall v. Todd Shipyards Corporation, et. al., Case No. 10-2-4502701;

·	Karl Graulich v. Todd Shipyards Corporation, et. al., Case No. 10-2-45398-9;

·	Oscar Lee Walker v. Todd Shipyards Corporation, et. al., Case No. 11-2-02713-9; and

·	Renee Sternheim and Isaac Sternheim v. Todd Shipyards Corporation, et. al., Case No. 11-2-03059-8.

The above-referenced actions variously name as defendants the Company, the directors and executive officers of the Company (the “Individual Defendants”), Woodbourne Partners, L.P., Parent and Purchaser. The complaints generally allege, among other things, that the Individual Defendants have breached their fiduciary duties to the Company’s stockholders, including the duties of good faith, loyalty and due care, and that Parent, Purchaser and Woodbourne Partners, L.P. aided and abetted the Individual Defendants’ alleged breaches of their fiduciary duties. The complaints variously include, among others, allegations that (i) the consideration to be received by the holders of Shares is unfair, inadequate and less than the “intrinsic value” of the Shares, (ii) the provisions of the Merger Agreement unfairly protect the transactions proposed between the Company and Parent, including through a grossly excessive termination fee and inadequate go-shop period, (iii) the Top-Up is coercive, (iv) the Individual Defendants did not seek competitive bids prior to entering into the Merger Agreement, and (v) the Schedule 14D-9 is misleading and/or insufficient. Plaintiffs in the actions seek, among other relief, injunctive relief preventing the defendants from consummating the Offer and the Merger, compensatory damages and attorneys’ fees and expenses. The Company believes the aforementioned complaints are without merit.

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ITEM 6. EXHIBITS

(a) Exhibits

No. 2.1	Agreement and Plan of Merger, dated as of December 22, 2010, by and among Todd Shipyards Corporation, Nautical Miles, Inc. and Vigor Industrial LLC*
No. 10.4	Tender and Support Agreement, dated as of December 22, 2010, by and among Vigor Industrial LLC, Nautical Miles, Inc., Brent D. Baird, Steven A. Clifford, Patrick W.E. Hodgson, Joseph D. Lehrer, William L. Lewis, J. Paul Reason, Stephen G. Welch, Michael G. Marsh, Berger A. Dodge and Woodbourne Partners, L.P.*
No. 10.5	Transition Agreement, dated as of December 22, 2010, by and between Todd Pacific Shipyards Corporation and Michael G. Marsh*
No. 10.6	Transition Agreement, dated as of December 22, 2010, by and between Todd Pacific Shipyards Corporation and Berger A. Dodge*
No. 31.1	Certification of Chief Executive Officer in accordance with Rule 13a-14a or 15d-14 of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
No. 31.2	Certification of Chief Financial Officer in accordance with Rule 13a-14a or 15d-14 of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
No. 32.1	Certification of Chief Executive Officer pursuant to Rule 14(b) and section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code. (furnished herewith)**
No. 32.2	Certification of Chief Financial Officer pursuant to Rule 14(b) and section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code. (furnished herewith)**
No. 99.1	Press Release dated ~~November~~February 103, ~~2010~~2011 announcing financial results for our quarterly period ended ~~October~~January 32, ~~2010~~2011 (furnished herewith)**

*~~Notwithstanding~~ ~~any~~Incorporated ~~incorporation~~by ofreference ~~this~~to ~~Quarterly~~the Company’s Current Report on Form 108-QK infiled ~~any other filing by the Registrant, Exhibits furnished herewith and designated~~ with ~~an asterisk (*) shall not be deemed incorporated by reference to any other filing under~~ the Securities ~~Act~~and ~~of 1933 or the Securities~~ Exchange ~~Act~~Commission ofon ~~1934~~December ~~unless~~23, ~~specifically otherwise set forth therein~~2010.

-**Notwithstanding 21any incorporation of this Quarterly Report on Form 10-Q in any other filing by the Registrant, Exhibits furnished herewith and designated with an asterisk (*) shall not be deemed incorporated by reference to any other filing under the Securities Act of 1933 or the Securities Exchange Act of 1934 unless specifically otherwise set forth therein.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TODD SHIPYARDS CORPORATION

Registrant

/s/Berger A. Dodge

Berger A. Dodge

Chief Financial Officer and Treasurer

~~November~~February 103, ~~2010~~2011

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