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## (15) FINANCIAL INSTRUMENTS AND RISK MANAGEMENT 

Foreign Currency Contracts – Energizer enters into foreign exchange forward contracts and, to a lesser extent, purchases options and enters into zero-cost option collars to mitigate potential losses in earnings or cash flows on foreign currency transactions. Foreign currency exposures are primarily related to anticipated intercompany purchase transactions and intercompany borrowings. Other foreign currency transactions to which Energizer is exposed include external purchase transactions and intercompany receivables, dividends and service fees. 

The table below summarizes, by instrument and by major currency, the contractual amounts of Energizer’s forward exchange contracts and purchased currency options in U.S. dollar equivalents at year-end. These contractual amounts represent transaction volume outstanding and do not represent the amount of Energizer’s exposure to credit or market loss. Foreign currency contracts are generally for one year or less. 

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Concentration of Credit Risk – The counterparties to foreign currency contracts consist of a number of major international financial institutions and are generally institutions with which Energizer maintains lines of credit. Energizer does not enter into foreign exchange contracts through brokers nor does it trade foreign exchange contracts on any other exchange or over-the-counter markets. Risk of currency positions and market-to-market valuation of positions are strictly monitored at all times. 

Energizer continually monitors positions with, and credit ratings of, counterparties both internally and by using outside rating agencies. 

Energizer has implemented policies which limit the amount of agree- ments it enters into with any one party. While nonperformance by these counterparties exposes Energizer to potential credit losses, such losses are not anticipated due to the control features mentioned. 

Energizer sells to a large number of customers primarily in the retail trade, including those in mass merchandising, drugstore, supermarket and other channels of distribution throughout the world. Energizer performs ongoing evaluations of its customers’ financial condition and creditworthiness, but does not generally require collateral. While the competitiveness of the retail industry presents an inherent uncertainty, Energizer does not believe a significant risk of loss from a concentration of credit risk exists with respect to accounts receivable. 

Fair Value of Financial Instruments – Energizer’s financial instruments include cash and cash equivalents, short-term and long-term debt, foreign currency contracts and interest rate swap agreements. Due to the nature of cash and cash equivalents and short-term borrowings, including notes payable, carrying amounts on the balance sheet approximate fair value. 

At September 30, 2000, the fair market value of long-term debt was $371.9 compared to its carrying value of $370.0. The fair value of the long-term debt is estimated using yields obtained from independent pricing sources for similar types of borrowing arrangements. As of September 30, 1999, Energizer’s long-term debt represented borrowings in foreign countries under various credit facilities that provided for periodic interest rate resets, at least annually. Therefore, the fair market value of Energizer’s long-term debt was deemed to approximate its book value at September 30, 1999. 

The fair value of foreign currency contracts is the amount that Energizer would receive or pay to terminate the contracts, consider- ing first, quoted market prices of comparable agreements, or in the absence of quoted market prices, such factors as interest rates, currency exchange rates and remaining maturities. Based on these considerations, Energizer would be required to make a total net 

