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

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

For the quarterly period ended July 4, 2010.

OR

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

For the transition period from ____ to ____

Commission File Number 1-5109

Registrant's telephone number, including area code:

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 5,782,731 shares of the corporation's $0.01 par value common stock outstanding at August 12, 2010.

TODD SHIPYARDS CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Periods ended July 4, 2010 and June 28, 2009
(in thousands of dollars, except per share data)

The accompanying notes are an integral part of these statements.

TODD SHIPYARDS CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEETS
Balances as of July 4, 2010 and March 28, 2010
(in thousands of dollars, except share data)

The accompanying notes are an integral part of these statements.

TODD SHIPYARDS CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Periods ended July 4, 2010 and June 28, 2009
(in thousands of dollars)

The accompanying notes are an integral part of these statements.

Todd Shipyards Corporation ("we", "us", or "our") 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 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 three months ended July 4, 2010 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.

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.

New accounting pronouncements that we adopted or will adopt in the near future are as follows:

In September 2009, the FASB issued new accounting guidance relating to revenue recognition, which provides principles and application guidance on whether multiple deliverables exist, determining the unit of accounting for each deliverable, and the consideration allocated to the separate units of accounting.  Additionally, this guidance requires an entity to allocate revenue in an arrangement using estimated selling prices of deliverables if a vendor does not have vendor-specific objective evidence or third-party evidence of selling price, eliminates the use of the residual method, and requires an entity to allocate revenue using the relative selling price method.  However, guidance on determining when the criteria for revenue recognition are met and how an entity should recognize revenue for a given unit of accounting are contained in other accounting literature.  The guidance is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010.  We do not believe the adoption of this accounting standard will have a material effect on our consolidated financial statements.

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, any changes from prior estimates are generally reflected as a cumulative catch-up in revenue and/or direct costs in the current period.

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.

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 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 and award fees that we can reasonably estimate over the performance period of the contract. We record incentives and award fees that we cannot reasonably estimate when they are awarded. Estimates of award or incentive fees are based on past fee experience and our anticipated performance on these projects.

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.

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 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.

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 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.

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.

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 eventual outcome of all environmental matters cannot be determined at this time; however, the analyses of the known matters have progressed sufficiently to warrant the establishment of reserve provisions in the accompanying consolidated financial statements.

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 agreement provides coverage for the known liabilities in an amount not to exceed the policy limits. As of July 4, 2010 we have current recorded reserves of approximately $5.3 million and a corresponding insurance receivable of $5.1 million. Included in the reserves are sediment remediation costs for Harbor Island of $0.4 million that we expect to occur 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.

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. Subsequent to the end of the third 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.

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 is subject to approval by the Government, which is necessary to protect our potential right of indemnification. We recorded a reserve for the full amount of the contingent settlement.

The Commencement Bay Trustees filed a claim against the Navy for natural resources damages caused by the Government. The Commencement Bay Trustees and the Navy have entered into a consent decree resolving the claim, releasing the Navy from further liability in connection with the site. We appeared at the consent decree hearing in United States District Court in Tacoma, Washington in October 2007 to protect our indemnification agreement with the Navy. The judge approved entry of the consent decree but also ruled that the consent decree would not operate to relieve the Navy from any contractual indemnification obligations it may owe us.

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. 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 an estimate of the potential liability for this site in our environmental reserve.

We received notification in November 2006 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. We are investigating the factual allegations and any potential liability. 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. 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 not established a reserve for this issue as we are unable to estimate the probable outcome.

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 9 "malignant" claims and approximately 175 "non-malignant" claims. We also include in our reserves acknowledgement of 360 "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 July 4, 2010, we have recorded a bodily injury liability reserve of $2.8 million and a bodily injury insurance receivable of $1.9 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.

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 insurance carriers. The remaining reserve balance as of July 4, 2010 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 July 4, 2010 and March 28, 2010, respectively, which have been charged against the reserve.

During our third quarter of fiscal year 2009, we discovered an error in how we reported several funds held by one of our health insurance carriers. These funds were held in a premium stabilization fund account ("PSF Account") and an incurred but not reported claims reserve account ("IBNR Reserve"). Although we did not previously report these funds on our balance sheet, we determined that they were reportable assets and that we should include their value in our consolidated financial statements. We also determined that the annual amounts transferred in prior periods from the Todd Shipyards Corporation Retirement System defined benefit plan ("Plan") to fund health benefits for our retired employees did not consider the funds available in the PSF Account and the IBNR Reserve. We calculated the amount to transfer from the Plan based on the requirements provided by Section 420 of the Internal Revenue Code. At the end of the first quarter of fiscal year 2011, we held a $0.5 million reserve for excise taxes associated with this issue.

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 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 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.

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.

We reported comprehensive income of $2.6 million for the quarter ended July 4, 2010, which consisted of net income of $2.6 million, and immaterial gains and losses on available-for sale securities and foreign currency contracts.

For the first quarter of fiscal year 2010, ended June 28, 2009, we reported comprehensive income of $1.5 million, which consisted of net income of $1.5 million and no net unrealized gain or loss on available-for-sale securities.

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

We excluded 76,000 units and 16,000 units of Stock Settled Appreciation Rights ("SSARs") from the calculations for the three month periods ended July 4, 2010 and June 28, 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, 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.

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 July 4, 2010 are $0.7 million, which will be recognized over a weighted average of 3.1 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.

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.

We assume that the officers and the non-employee members of our Board will continue service until their units vest. We 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.

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.

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.

We maintain a Voluntary Employee Beneficiary Association Trust ("VEBA Trust") to fund health benefits for certain retired employees. The balance in the VEBA trust was $2.0 million as of July 4, 2010.  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 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.

The following table presents our VEBA Trust and Plan assets using the fair value hierarchy as of July 4, 2010. 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.

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.

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 July 4, 2010:

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 $1.2 million and $0.6 million for the quarters ended July 4, 2010 and June 28, 2009, respectively.

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 three months of fiscal year 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. A liability is recorded 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, the change in estimate is recorded in the period in which the determination is made. Tax-related interest and penalties are classified as interest expense and operating expense, respectively.

We recognized no material interest or penalties during the three months ended July 4, 2010. 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 July 4, 2010, we have a liability for unrecognized tax benefits of $0.2 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 July 4, 2010 (in thousands of dollars):

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

As of July 4, 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 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.

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.

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 assets and liabilities that we measured at fair value on a recurring basis and are categorized using the fair value hierarchy as of July 4, 2010:

Our property and equipment consisted of the following assets and accumulated depreciation at July 4, 2010 and March 28, 2010 (in thousands of dollars):

The following table presents the components of our intangible assets, created by our acquisition of ESI, as of July 4, 2010 (in thousands of dollars):

For the three months ended July 4, 2010 and June 28, 2009, we recorded amortization expense of $0.1million and $0.1million, respectively.

Estimated amortization expense for the remaining estimated useful life of the intangible assets is as follows as of July 4, 2010 (in thousands of dollars):

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 a notional value of $1.3 million that will be largely settled within the next nine months. We also have $0.3 million of forward contracts denominated in Australian dollars with settlement horizons up to 18 months into the future. The combined fair value of these is ($0.2) million as of July 4, 2010 and is recorded as an unrealized loss, 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 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.

We evaluated subsequent events through the filing date of these financial statements. There were no subsequent events between the period ended July 4, 2010 and the filing of these financial statements.

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.

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.

We currently hold a Multi-Ship/Multi-Option cost-type contract ("CVN Contract") for the non-nuclear repair work on the aircraft carriers home ported or stationed in Puget Sound. The Navy first awarded us the CVN Contract in 1999 and we completed our second five-year contract during the third quarter of fiscal year 2009. During the second quarter of fiscal year 2009, the Navy awarded us a new five-year contract to continue our work on the aircraft carriers through fiscal year 2014.

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, currently under construction, is scheduled to be delivered during fiscal year 2011. We have signed $7.0 million in change orders since the award of this contract, bringing the total contract value to $72.5 million as of July 4, 2010.  Our wholly owned subsidiary, ESI, is 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.

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.

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.

Our first quarter revenue of $70.2 million reflects a $35.6 million, or 103% increase from the same period last fiscal year. The increase largely results from higher ship repair and new construction volumes. Cost-type, firm fixed price, and time-and-material contracts revenues increased 53%, 216% and 15%, respectively, between the first quarters of fiscal years 2010 and 2011. New construction volumes increased primarily due to the construction of the 64-Auto Ferries for WSF and cost-type volumes increased due to the timing of Navy and Coast Guard vessel availabilities, the most significant of which were the USS Abraham Lincoln, USS Ingraham, USS Stennis and the USCGC Polar Sea.

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.

Cost of revenue during the first quarter of fiscal year 2011 was $55.4 million, or 79% of revenue. Cost of revenue during the first quarter of fiscal year 2010 was $24.8 million, or 72% of revenue. The increase in the cost of revenue in the first quarter of fiscal year 2011 is primarily attributable to the increase in business volumes versus the same period in the prior year. The increase in cost of revenue as a percentage of total revenue for the first quarter is due primarily to an increase in work under cost-type contracts and new construction on the 64-Auto Ferries which are characterized by lower relative profitability due to the volume of work being performed by subcontractors.

Overhead costs for administrative and manufacturing activities were $11.1 million, or 16% of revenue, for the first quarter of fiscal year 2011. During the same period of fiscal year 2010, administrative and manufacturing overhead costs were $8.1 million, or 23% of revenue. The $3.0 million increase in administrative and manufacturing overhead is primarily attributable to the volume increases in the first quarter of fiscal year 2011 versus the same period in the prior fiscal year. The decrease in administrative costs and manufacturing overhead as a percentage of revenue is attributable to the fixed nature of some of these costs in combination with the volume increases noted above.

Investment and other income was $0.2 million for the first quarter of fiscal year 2011. During the same periods in fiscal year 2010 investment and other income was $0.5 million. Lease income and lease expense in the first quarter of fiscal year 2011 were lower than the same period in the prior year due to the completion in the first quarter of fiscal year 2010 of contracts to lease certain facilities and provide related services to Kiewit-General in connection with their construction of the Hood Canal Floating Bridge.

We anticipate that our cash, cash equivalents and marketable securities position, anticipated fiscal year 2011 cash flow, access to credit facilities and, if necessary, capital markets, taken together, will provide sufficient liquidity to fund operations for fiscal year 2011. 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.

Working capital at July 4, 2010 was $40.7 million, an increase of $1.7 million, or 4%, from the working capital reported at the end of fiscal year 2010. The overall increase is due to an increase in accounts receivable of $3.4 million, an increase in securities available for sale of $6.7 million, an increase in cost in excess of billings of $5.4 million, and a decrease in billings in excess of costs of $3.8 million, which are partially offset by a decrease in cash of $6.1 million and an increase in accounts payable of $11.7 million. These changes are primarily due to increased volumes and timing of billings and payments for our Navy, Coast Guard and new construction customers.

We made capital acquisitions of $0.6 million and $0.5 million in the first quarters of fiscal years 2011 and 2010, respectively, for planned improvements to our shipyard facilities.

In July 2009, we renegotiated certain terms of our $10.0 million revolving credit facility, which expires July 31, 2011. 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 July 4, 2010, we have letters of credit outstanding of $1.1 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 $8.9 million and $3.6 million, respectively. 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 July 4, 2010, we were compliant with all bank covenants.

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.

As reflected in the balance sheet and discussed in Note 4 of the Notes to Consolidated Financial Statements, we provided total aggregate reserves of $10.6 million at July 4, 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.

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 of July 4, 2010, we recorded aggregate assets of $7.5 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.

We previously reported that we received notice from the DCAA questioning the reasonableness of a payment to one of our subcontractors 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 $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.

At July 4, 2010 our firm shipyard backlog consisted of approximately $147.8 million of repair, overhaul, and new construction work. Our backlog at March 28, 2010 was approximately $144.9 million. The increase in the backlog of work at the end of the three nine months of fiscal year 2011 is primarily attributed to the increase of cost-type project availabilities offset by progress on new construction projects.

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. Everett continues to operate under the expired agreement while negotiations for a new agreement continue. We consider our relations with the various unions to be stable.

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

(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 July 4, 2010, due to the existence of the following material weaknesses. 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 weaknesses were found to exist during the preparation of our Annual Report on Form 10−K for the year ended March 28, 2010, and consisted of the following weaknesses in (i) our process for the annual transmission of pension asset balances to the pension actuary, and (ii) the processing of payments related to period end accruals. Despite the existence of these material weaknesses, 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 most recently completed fiscal quarter, management implemented an improved reconciliation process to ensure that payments related to period end accruals are properly recorded. This change is reasonably likely to materially affect our internal control over financial reporting.

We consider the remediation of material weaknesses in our internal control over financial reporting to be a significant priority. We have taken immediate action to implement the above change in our controls, and we will test its effectiveness during the second fiscal quarter of 2011. Completion of testing with positive results will enable management to establish that remediation has been effective. However, as the transmission of pension asset balances to the pension actuary only happens on an annual basis, we will not be able to remediate this issue until the fourth quarter of fiscal year 2011.

(a) Exhibits

*Notwithstanding any 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.

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
August 12, 2010