Strong fundamentals in the global energy industry experienced in the past few years have also increased  the activity levels at shipyards worldwide, and until the recent global recession, the price of steel had  increased dramatically due to increased worldwide demand for the metal. The price of steel is high by  historical standards. Although prices have recently eased with the reduced global demand of all  commodities, availability of iron ore, the main component of steel, is tighter today than in 2005 when prices  for iron ore increased dramatically. If the price of steel rises, the cost of new vessels will result in higher  capital expenditures and depreciation expenses which will reduce the company’s future operating profits,  unless day rates increase commensurately. During calendar year 2009, steel market participants announced that they would reduce steel output in an effort to stabilize steel prices. The stabilization of steel  prices will depend upon many factors that will ultimately relate to worldwide demand for the product.  During the ordinary course of business, the company’s operations are subject to a wide variety of  environmental laws and regulations that govern the discharge of oil and pollutants into navigable waters.  Violations of these laws may result in civil and criminal penalties, fines, injunction and other sanctions.  Compliance with the existing governmental regulations that have been enacted or adopted regulating the  discharge of materials into the environment, or otherwise relating to the protection of the environment has  not had, nor is expected to have, a material effect on the company. However, environmental laws and  regulations are subject to change and may impose increasingly strict requirements and, as such, the  company cannot estimate the ultimate cost of complying with such laws and regulations.  Further, the company is involved in various legal proceedings that relate to asbestos and other  environmental matters. In the opinion of management, based on current information, the amount of ultimate  liability, if any, with respect to these proceedings is not expected to have a material adverse effect on the  company’s financial position, results of operations, or cash flows. The company is proactive in establishing  policies and operating procedures for safeguarding the environment against any hazardous materials  aboard its vessels and at shore base locations. Whenever possible, hazardous materials are maintained or  transferred in confined areas in an attempt to ensure containment if accidents occur. In addition, the  company has established operating policies that are intended to increase awareness of actions that may  harm the environment.  Market risk refers to the potential losses arising from changes in interest rates, foreign currency fluctuations  and exchange rates, equity prices and commodity prices including the correlation among these factors and  their volatility. The company is primarily exposed to interest rate risk and foreign currency fluctuations and  exchange risk. The company enters into derivative instruments only to the extent considered necessary to  meet its risk management objectives and does not use derivative contracts for speculative purposes.  Changes in interest rates may result in changes in the fair market value of the company’s financial  instruments, interest income and interest expense. The company’s financial instruments that are exposed to  interest rate risk are its cash equivalents and long-term borrowings. Due to the short duration and  conservative nature of the cash equivalent investment portfolio, the company does not expect any material  loss with respect to its investments. The book value for cash equivalents is considered to be representative  of its fair value. At March 31, 2010, the company had $300.0 million outstanding of senior unsecured notes that were issued  in July 2003. The multiple series of notes were originally issued with maturities ranging from seven years to  12 years and had a weighted average remaining life of 2.85 years as of March 31, 2010. These notes can  be retired in whole or in part prior to maturity for a redemption price equal to the principal amount of the  notes redeemed plus a make-whole premium. The weighted average interest rate on the notes is 4.35%.  The terms of the notes provide for a maximum ratio of consolidated debt to total capitalization of 55%. The  fair value of this debt at March 31, 2010 was estimated to be $314.8 million. Because the debt outstanding  at March 31, 2010 bears interest at fixed rates, interest expense would not be impacted by changes in  market interest rates. A 100 basis-point increase in market interest rates would result in a decrease in the  estimated fair value of this debt at March 31, 2010 of approximately $8.2 million. A 100 basis-point decrease  -60-  ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk Environmental Compliance 