The private-sector ship repair, maintenance and modernization industry in the United States can be divided into three primary markets.

The U.S. Navy represents the largest individual market opportunity for U.S. ship repair companies. This work is performed on guided missile Cruisers, Destroyers, Mine Countermeasures Ships, Amphibious Ships, Aircraft Carriers and Command Ships. As of March 1, 2002, the U.S. Navy had 225 surface ships, each of which is required to adhere to a rigorous maintenance schedule that includes both topside repairs and periodic drydockings. Private yards typically provide all of the ship repair services for non-Navy U.S. defense-related agencies, which include the Military Sealift Command, or MSC, the Maritime Administration, or MARAD, the U.S. Coast Guard and the U.S. Army. This work is largely performed on MSC tankers and support ships, the MARAD Ready Reserve Fleet ships berthed in San Francisco Bay, the James River Inactive Fleet Facility, the U.S. Coast Guard fleet and U.S. Army support craft. These vessels are required to be drydocked at least twice every five years. The commercial market in the United States is comprised of ship repair work for both U.S. and foreign-flagged vessels and is serviced exclusively by private yards. Commercial ship owners generally select repair facilities, either in the United States or abroad, located close to their trading routes. The commercial market primarily consists of cruise ships, cargo ships and tankers, each of which generally must be drydocked at least twice every five years in order to be insured.

The defense-related private-sector ship repair, maintenance and modernization market in the United States totaled $1.7 billion in the U.S. government’s fiscal year ended September 30, 2001. The U.S. Navy represented approximately $1.2 billion and other U.S. defense-related agencies represented approximately $483 million of this market.

During modernization work, the Company upgrades the ship with capabilities not provided in the original design or prior upgrade periods. Modernization can involve installing the latest weapons systems, communications equipment and command and control technology, and rearranging and upgrading the ship’s electrical and environmental control equipment.

The Company operatea six facilities, which are located in Norfolk, Virginia; San Diego, San Francisco, and San Pedro, California; Pearl Harbor, Hawaii; and Ingleside, Texas. Norfolk, Virginia facility is located in the port of Hampton Roads in Norfolk, with direct access to the Atlantic Ocean and is one of the largest private-sector ship repair, maintenance and modernization complexes in the United States. The shipyard is located in close proximity to the Atlantic Fleet, which is stationed at the Norfolk Naval Base, one of the two U.S. Navy mega-ports. San Diego, California facility is located in San Diego Bay. San Diego is a mega-port for the U.S. Navy. In 2001, San Diego received the largest share of the U.S. Navy private-sector ship repair dollars. The Company’s San Diego facility offers a complete range of ship repair capabilities, as well as off-site repair services for ships located at the naval station, the naval air station and the submarine base. San Francisco, California facility is located in San Francisco Bay and benefits from a growing number of large cruise ships that have repair work conducted in San Francisco. The Company’s San Francisco facility has the largest floating commercial drydock on the West Coast that can accommodate large cruise ships, tankers and cargo ships. The Company’s San Pedro facility is located in Los Angeles Harbor on Terminal Island. The San Pedro shipyard primarily services the commercial market, which is comprised of tugs and barges working in the port and emergency repair work on ships calling on the port.

Gross profit for the year ended December 31, 2001 was $63.5 million, a decrease of $2.9 million, or 4.3%, compared with gross profit of $66.4 million for the year ended December 31, 2000.

Interest expense for the year ended December 31, 2001 was $14.9 million, a decrease of $2.6 million, or 15.1%, from interest expense of $17.5 million for the year ended December 31, 2000.

Interest income for the year ended December 31, 2001 was $0.2 million, a decrease of $0.4 million from $0.6 million for the year ended December 31, 2000.

Net income was $10.1 million for the year ended December 31, 2001 compared to $9.2 million for the year ended December 31, 2000, an increase of 10.4%.