## iteM 7a quantitative and qualitative Disclosures about Market risk 

Our earnings, cash flows, and financial position are exposed to market risks relating to fluctuations in commodity prices, interest rates and foreign currency exchange rates. Our policy is to minimize exposure to our cash flow over time caused by changes in commodity, interest and currency exchange rates. To accomplish this we have implemented a controlled program of risk management consisting of appropriate derivative contracts entered into with major financial institutions. See Note 17 to our consolidated financial statements included in this Form 10-K for additional discussion surrounding the accounting treatment of our financial instruments. 

## Commodity price risk 

Energy costs are approximately 9 percent of our costs of sales and services and are diversified among coal, electricity and natural gas. We attempt to mitigate our exposure to increasing energy costs by hedging the cost of future deliveries of natural gas and by entering into fixed-price contracts for the purchase of coal and fuel oil. To analyze the effect of changing energy prices, we have performed a sensitivity analysis in which we assume an instantaneous 10 percent change in energy market prices from their levels at December 31, 2010 and December 31, 2009 with all other variables (including interest rates) held constant. A 10 percent 

## Foreign Currency exchange rate risk 

The primary currencies for which we have exchange rate exposure are the U.S. dollar versus the euro, the U.S. dollar versus the Chinese yuan and the U.S. dollar versus the Brazilian real. Foreign currency debt and foreign exchange forward contracts are used in countries where we do business, thereby reducing our net asset exposure. Foreign exchange forward contracts are also used to hedge firm and highly anticipated foreign currency cash flows. 

To analyze the effects of changing foreign currency rates, we have performed a sensitivity analysis in which we assume an instantaneous 10 percent change in the foreign currency exchange rates from their levels at December 31, 2010 and December 31, 2009, with all other variables 

## interest rate risk 

One of the strategies that we can use to manage interest rate exposure is to enter into interest rate swap agreements. In these agreements, we agree to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated on an agreed-upon notional principal amount. As of December 31, 2010 and December 31, 2009, we had no interest rate swap agreements. 

Our debt portfolio, at December 31, 2010, is composed of 93 percent fixed-rate debt and 7 percent variable-rate debt. The variable-rate component of our debt portfolio principally consists of borrowings under our Domestic and European Credit Agreements, variable-rate 

The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in market rates and prices. The range of changes chosen reflects our view of changes that are reasonably possible over a one-year period. Market-value estimates are based on the present value of projected future cash flows considering the market rates and prices chosen. 

At December 31, 2010, our net financial instrument position was a net liability of $6.8 million compared to a net asset of $0.3 million at December 31, 2009. The change in the net financial instrument position was primarily due to higher unrealized losses in our commodity and foreign exchange portfolios. 

increase in energy market prices would result in a decrease of the net liability position of $3.4 million at December 31, 2010 compared to a $5.1 million increase in the net asset position at December 31, 2009. A 10 percent decrease in energy market prices would result in an increase of $3.4 million in the net liability position at December 31, 2010, compared to a decrease of $7.0 million in the net asset position at December 31, 2009. As a result, at December 31, 2009, the net asset position would have become a net liability position. 

(including interest rates) held constant. A 10 percent strengthening of hedged currencies versus our functional currencies would have resulted in an increase of $33.3 million in the net liability position at December 31, 2010 compared to an increase of $17.5 million in the net liability position at December 31, 2009. A 10 percent weakening of hedged currencies versus our functional currencies would have resulted in a decrease of $31.1 million in the net liability position at December 31, 2009, compared to a decrease of $17.8 million in the net liability position at December 31, 2009. As a result, at December 31, 2010 and 2009, the net liability position would have become a net asset position. 

industrial and pollution control revenue bonds, and amounts outstanding under foreign subsidiary credit lines. Changes in interest rates affect different portions of our variable-rate debt portfolio in different ways. 

Based on the variable-rate debt in our debt portfolio at December 31, 2010, a one percentage point increase in interest rates then in effect would have increased gross interest expense for 2010 by $0.4 million and a one percentage point decrease in interest rates then in effect would have decreased gross interest expense for 2010 by $0.3 million. 

