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

FORM 10-K

x                               Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended June 30, 2005
OR
o                                  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: 1-07151
THE CLOROX COMPANY
(Exact name of registrant as specified in its charter)

Delaware	31-0595760	
(State or other jurisdiction of
incorporation or organization)	(I.R.S. Employer
Identification Number)	
 
1221 Broadway, Oakland, California 94612-1888
(Address of principal executive offices) (Zip code)
(510) 271-7000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered	
Common Stock—$1.00 par value	New York Stock Exchange
Pacific Exchange	
 
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
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.   Yes  x   No  o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   Yes  o   No  x
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes  x   No  o
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes  o   No  x
The aggregate market value of the Registrant’s Common Stock held by non-affiliates of the Registrant, based upon the closing sales price of the Common Stock on December 31, 2004 as reported by the New York Stock Exchange, was approximately $9.0 billion.
As of August 9, 2005, the registrant had outstanding 151,716,438 shares of Common Stock.
Documents Incorporated by Reference:
Certain specified portions of the registrant’s definitive proxy statement (the “Proxy Statement”) to be filed within 120 days after June 30, 2005, are incorporated herein by reference in response to Part III, Items 10 through 14, inclusive.

THE CLOROX COMPANY
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 2005
TABLE OF CONTENTS

	 	 	Page	
PART I	 	 	 	
 	ITEM 1.	BUSINESS	 	1	 	
 	ITEM 2.	PROPERTIES	 	14	 	
 	ITEM 3.	LEGAL PROCEEDINGS	 	15	 	
 	ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	 	15	 	
PART II	 	 	 	
 	ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SHARES	 	17	 	
 	ITEM 6.	SELECTED FINANCIAL DATA	 	18	 	
 	ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION	 	18	 	
 	ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK       	 	18	 	
 	ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	 	18	 	
 	ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	 	18	 	
 	ITEM 9A.	CONTROLS AND PROCEDURES	 	18	 	
 	ITEM 9B.	OTHER INFORMATION	 	18	 	
PART III	 	 	 	 	
 	ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	 	19	 	
 	ITEM 11.	EXECUTIVE COMPENSATION	 	19	 	
 	ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	 	19	 	
 	ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	 	19	 	
 	ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	 	19	 	
PART IV	 	 	 	
 	ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	 	20	 	
SIGNATURES	 	24	 	

 PART I
This Annual Report on Form 10-K (this “Report”), including the exhibits hereto and the information incorporated by reference herein, contains “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and such forward looking statements involve risks and uncertainties. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and variations on such words, and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are only predictions, subject to risks and uncertainties, and actual results could differ materially from those discussed in this Report. These risks and uncertainties include those discussed below under “Risk Factors,” as updated from time to time in the Company’s SEC filings. These factors include, but are not limited to, general economic and marketplace conditions and events; competitors’ actions; the Company’s costs, including changes in exposure to commodity costs; the Company’s actual cost performance; risks inherent in litigation and international operations; the ability to manage and realize the benefits of joint ventures and other cooperative relationships, including the Company’s joint venture with The Procter & Gamble Company (“P&G”) regarding the Company’s Glad ® plastic bags, wraps and containers business; the success of new products and product pricing changes; the integration of acquisitions and mergers; the divestiture of non-strategic businesses; the implementation of the Company’s strategy; and environmental, regulatory, product liability and intellectual property matters. In addition, the Company’s future performance is subject to risks particular to the share exchange transaction with Henkel KGaA (“Henkel”), including the sustainability of cash flows and the actual level of debt costs. Declines in cash flow, whether resulting from tax payments, debt payments, share repurchases, P&G’s increased equity in the joint venture, interest cost increases greater than management expects, or otherwise, could adversely affect the Company’s earnings.
The Company’s forward-looking statements in this Report are and will be based on management’s then current views and assumptions regarding future events and speak only as of their dates. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by the federal securities laws.
In this Report, unless the context requires otherwise, the terms “the Company” and “Clorox” refer to The Clorox Company and its subsidiaries.
 ITEM 1.                 BUSINESS
 GENERAL DEVELOPMENT OF BUSINESS.
The Company was originally founded in Oakland, California in 1913 as the Electro-Alkaline Company. It was reincorporated as Clorox Chemical Corporation in 1922, as Clorox Chemical Co. in 1928 and as The Clorox Company (an Ohio corporation) in 1957, when the business was acquired by P&G. The Company was fully divested by P&G in 1969 and, as an independent company, was reincorporated in 1973 in California as The Clorox Company. In 1986, the Company was reincorporated in Delaware. In January 1999, the Company acquired First Brands Corporation.
In November 2004, the Company completed the exchange of its ownership interest in a subsidiary for approximately 61.4 million shares of its common stock held by Henkel, which represented approximately 29% of the Company’s outstanding common stock prior to the exchange. The parties agreed that the Company would provide exchange value equal to $46.25 per share of Company common stock being acquired in the exchange. The subsidiary transferred to Henkel contained the Company’s existing insecticides and Soft Scrub® cleaner businesses, its 20% interest in the Henkel Iberica, S.A. joint venture and approximately $2.1 billion in cash. For further information on recent business developments, refer to
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the information set forth under the caption “Management’s Discussion and Analysis,” on pages 1 through 23 of Exhibit 99-1 hereto, incorporated herein by reference.
 FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
The Company has three business segments: Household Group — North America (formerly known as Household Products — North America), Specialty Group (formerly known as Specialty Products) and International (formerly known as Household Products — Latin America/Other). Financial information for the last three fiscal years for each of the Company’s segments is set forth below:

(Millions)	 	 	 	Fiscal
Year	 	Household
Group	 	Specialty
Group	 	International	 	Corporate	 	Total
Company	 	
Net sales	 	 	2005	 	 	 	$	2,038	 	 	 	$	1,788	 	 	 	$	562	 	 	 	$	—	 	 	 	$	4,388	 	 	
 	 	 	2004	 	 	 	1,986	 	 	 	1,677	 	 	 	499	 	 	 	—	 	 	 	4,162	 	 	
 	 	 	2003	 	 	 	1,995	 	 	 	1,549	 	 	 	442	 	 	 	—	 	 	 	3,986	 	 	
Earnings (losses) from continuing
operations before income taxes	 	 	2005	 	 	 	633	 	 	 	435	 	 	 	119	 	 	 	(458	)	 	 	729	 	 	
 	 	 	2004	 	 	 	634	 	 	 	417	 	 	 	115	 	 	 	(414	)	 	 	752	 	 	
 	 	 	2003	 	 	 	613	 	 	 	442	 	 	 	55	 	 	 	(392	)	 	 	718	 	 	
Identifiable assets	 	 	2005	 	 	 	1,360	 	 	 	862	 	 	 	549	 	 	 	846	 	 	 	3,617	 	 	
 	 	 	2004	 	 	 	1,355	 	 	 	908	 	 	 	660	 	 	 	911	 	 	 	3,834	 	 	
 	 	 	2003	 	 	 	1,445	 	 	 	907	 	 	 	664	 	 	 	636	 	 	 	3,652	 	 	
 
 NARRATIVE DESCRIPTION OF BUSINESS.
The Company’s business operations, represented by the aggregate of its Household Group — North America, Specialty Group and International segments, include the production and marketing of consumer products sold primarily through grocery, mass merchandise, club and other retail stores.
 PRINCIPAL PRODUCTS.
The products of the Household Group — North America segment include:
·               U.S. bleach and cleaning products, including:
·               laundry products, such as liquid bleaches, laundry stain removers and dry and liquid color-safe bleaches under the brands Clorox® and Clorox 2®; and
·               home care cleaning products, such as disinfecting sprays and wipes, toilet bowl cleaners, dilutable and spray glass and surface cleaners, carpet cleaners, reusable cleaning cloths, drain openers, steel-wool soap pads and scrubber sponges, mildew removers, soap scum removers and bathroom cleaners, floor mopping systems, toilet and bath cleaning tools, daily shower cleaners and pre-moistened towelettes, primarily under the brands Clorox, Formula 409®, Liquid-Plumr®, Pine-Sol®, Tilex® and S.O.S®.
·               Water filtration systems and filters under the Brita® brand.
·      Professional products for institutional, janitorial and food service markets, including:
·               bleaches, toilet bowl cleaners, disinfectants, disinfecting sprays and wipes, dilutable cleaners, food-storage bags, wraps, trash bags, dressings, barbecue sauces, charcoal briquets, clog removers, cleaners, steel-wool soap pads, mildew removers, soap scum removers and bathroom cleaners.
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·               The auto care business, including:
·               auto care products, such as protectants, cleaners and wipes, tire- and wheel-care products, washes, gel washes and waxes and automotive fuel and oil additives, primarily under the Armor All® and STP® brands.
·               All products marketed in Canada.
The products of the Specialty Group segment include:
·               Plastic bags, wraps and containers, under the Glad brand.
·               Cat litter products, including:
·               clumping cat litter and scoopable and silica-gel crystals cat litter, primarily under the Fresh Step® and Scoop Away® brands.
·               Food products, including:
·               salad dressings and dip mixes, seasoned mini-croutons, seasonings, sauces and marinades, primarily under the Hidden Valley® and K C Masterpiece® brands.
·               Seasonal products, including:
·               charcoal briquets, charcoal lighter and wood chips under the Kingsford® and Match Light® brands.
The products of the International segment include:
·               In the Asia-Pacific region:
·               bleaches, disposable gloves, cleaning cloths, floor cleaners, sponges and scourers, non-stick baking paper, ice cube bags, non-stick frying pan sheets, aluminum foil, foil trays, plastic covers, oven bags, reclosable bags, paste cleaner, food bags, cling films and trash bags, primarily under the Glad, Chux® and Clorox brands.
·               In the Latin American region:
·               laundry additives, waxes, bleaches, spray and gel cleaners, liquid household cleaners, toilet bowl cleaners, bathroom cleaners, disinfecting sprays, cleaning utensils, brooms, candles, air fresheners and fabric refreshers, primarily under the Clorox, Ayudin®, Limpido®, Clorinda®, Los Conejos®, Poett®, Mistolin®, Lestoil® and Bon Bril® brands.
The Company has two product lines that have accounted for 10% or more of net sales during any of the past three fiscal years. Sales of Clorox liquid bleach represented 12%, 10% and 10% of the Company’s total net sales in fiscal years 2005, 2004 and 2003, respectively. Sales of Glad trash bags represented approximately 12% and 10%, respectively, of total net sales in fiscal years 2005 and 2004. Other than Clorox liquid bleach and Glad trash bags, no other product line accounted for 10% or more of net sales in fiscal years 2005 or 2004, and no product line other than Clorox liquid bleach accounted for 10% or more of net sales in fiscal year 2003.
PRINCIPAL MARKETS — METHODS OF DISTRIBUTION. Most non-durable household consumer products are nationally advertised and sold within the United States to grocery stores and grocery wholesalers primarily through a network of brokers, and to mass merchandisers, warehouse clubs, and military and other retail stores primarily through a direct sales force. Within the United States, the Company also sells institutional versions of many of its products. Outside the United States, the Company sells consumer products to the retail trade through subsidiaries, licensees, distributors and joint-venture arrangements with local partners.
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FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS.
The following table shows net sales and assets by geographic area for the last three fiscal years.
 Net Sales by Geographic Area:

(Millions)	 	 	 	2005	 	2004	 	2003	 	
Foreign	 	$	696	 	$	615	 	$	553	 	
United States	 	$	3,692	 	$	3,547	 	$	3,433	 	
 
Long-Lived Assets at June 30:

(Millions)	 	 	 	2005	 	2004	 	2003	 	
Foreign	 	$	116	 	$	115	 	$	120	 	
United States	 	$	883	 	$	937	 	$	952	 	
 
SOURCES AND AVAILABILITY OF RAW MATERIALS. The Company purchases raw materials, packaging supplies, transportation and other services, products and energy from numerous unaffiliated firms. Interruptions in the delivery of these materials or services could adversely impact the Company. Significant raw materials were available from a sufficient number of sources during fiscal year 2005. The Company is exposed to changes in the price of commodities used as raw materials in the manufacturing of its products. For further information regarding the impact of changes in commodity prices, see “Quantitative and Qualitative Disclosure about Market Risk” in “Management’s Discussion and Analysis” on pages 16 through 17 of Exhibit 99-1 hereto, incorporated herein by reference.
PATENTS AND TRADEMARKS. Most of the Company’s brand name consumer products are protected by registered trademarks. Its brand names and trademarks are highly important to its business, and the Company pursues a course of vigorous action against apparent infringements. The Company’s patents, patent licenses and similar arrangements are also material to its business and are defended against apparent infringements.
SEASONALITY. Most sales of the Company’s charcoal briquets, foods and auto appearance product lines occur in the first six months of each calendar year. Operating cash flow is used to build inventories of those products in the off-season.
CUSTOMERS AND ORDER BACKLOG. During fiscal years 2005, 2004 and 2003, net sales to the Company’s largest customer, Wal-Mart Stores, Inc. and its affiliates, were 27%, 25% and 25%, respectively, of the Company’s consolidated net sales. Except for this relationship, the Company is not dependent upon any other single customer or group of affiliated customers. Order backlog is not a significant factor in the Company’s business.
RENEGOTIATION. None of the Company’s operations is subject to renegotiation or termination at the election of the federal government.
COMPETITION. The markets for consumer products are highly competitive. Most of the Company’s products compete with other nationally advertised brands within each category and with “private label” brands and “generic” non-branded products of grocery chains and wholesale cooperatives. Competition is encountered from similar and alternative products, some of which are produced and marketed by major multinational or national concerns having financial resources greater than those of the Company. Depending on the product, the Company’s products compete on price, quality or other benefits to consumers. A newly introduced consumer product (whether improved or newly developed) usually encounters intense competition requiring substantial expenditures for advertising and sales promotion. If a product gains consumer acceptance, it normally requires continuing advertising and promotional support to maintain its relative market position.
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RESEARCH AND DEVELOPMENT. The Company incurred expenses of approximately $88 million, $84 million and $75 million in fiscal years 2005, 2004 and 2003, respectively, on research activities relating to the development of new products or the maintenance and improvement of existing products. None of this research activity was customer-sponsored.
ENVIRONMENTAL MATTERS. In general, the Company anticipates spending increasing amounts annually for facility upgrades and for environmental programs as existing facilities age. The amount of capital expenditures for environmental compliance was approximately $0.6 million in fiscal year 2005 and is not expected to be material in the next fiscal year. For non-capital expenditures, see the discussions below under “Risk Factors —  Environmental matters create potential liability risks” and “Legal Proceedings” in Item 3.
NUMBER OF PERSONS EMPLOYED. At the end of fiscal year 2005, the Company employed approximately 7,600 people.
 RISK FACTORS
 The Company faces intense competition in its markets.
The Company faces intense competition from consumer product companies both in the U.S. and in its international markets. Most of the Company’s products compete with other widely advertised brands within each product category and with “private label” brands and “generic” non-branded products of grocery chains and wholesale cooperatives, which typically are sold at lower prices. The Company also encounters competition from similar and alternative products, many of which are produced and marketed by major multinational or national concerns. The Company’s products generally compete on the basis of price, quality or other benefits to consumers. Advertising, promotion, merchandising and packaging also have a significant impact on consumer purchasing decisions.
A newly introduced consumer product (whether improved or newly developed) usually encounters intense competition requiring substantial expenditures for advertising and sales promotion. If a product gains consumer acceptance, it normally requires continuing advertising and promotional support to maintain its relative market position. Some of the Company’s competitors are larger and have financial resources greater than those of the Company, and may therefore be able to spend more aggressively on advertising and promotional activities and respond more effectively to changing business and economic conditions than the Company can. In addition, the Company’s competitors may attempt to gain market share by offering products at prices at or below those typically offered by the Company. Competitive pricing may require the Company to reduce prices and could lead to a reduction in its sales or its profit margins.
 Volume growth may be difficult to achieve.
A large percentage of the Company’s revenues comes from mature markets that are subject to increased competition. During fiscal year 2005, approximately 84% of the Company’s net sales were generated in U.S. markets. U.S. markets for household products are considered mature and are generally characterized by high household penetration. The Company’s ability to achieve volume growth will depend on its ability to drive growth through innovation and investment in its established brands and its ability to capture market share from competitors. If the Company is unable to increase market share in existing product lines, or bring innovation to grow the categories, or develop, acquire or successfully launch new products, it may not achieve its growth objectives.
 The Company’s financial performance depends on continuous and successful new product introductions.
In most categories in which the Company competes, there are frequent introductions of new products and line extensions. An important factor in the Company’s future performance will be its ability to identify emerging consumer and technological trends and to maintain and improve the competitiveness of its products. The Company cannot be certain that it will successfully achieve those goals. The development
5

and introduction of new products requires substantial and effective research, development and marketing expenditures, which the Company may be unable to recoup if the new products do not gain widespread market acceptance. Continued product development and marketing efforts have inherent risks, including product development or launch delays, the failure of new products and line extensions to achieve anticipated levels of market acceptance and the cost of failed product introductions.
 Operating results and net earnings may not meet expectations.
The Company cannot be certain that its operating results and net earnings will meet its expectations. If the Company’s assumptions and estimates are incorrect or do not come to fruition, or if the Company does not achieve all of its key goals, then its actual performance could vary materially from its expectations. The Company’s operating results and net earnings may be influenced by a number of factors, including the following:
·        the introduction of new products and line extensions by the Company or its competitors;
·        the mix of products with varying profitability sold in a given quarter;
·        the Company’s ability to control internal costs;
·        the effectiveness of the Company’s advertising, marketing and promotional programs;
·        changes in product pricing policies by the Company or its competitors;
·   the ability of the Company to maintain and enhance profit margins in the face of a consolidating retail environment;
·   the ability of the Company to successfully implement and achieve the expected benefits of its process improvement initiatives;
·   the ability of the Company to achieve its business plans, including volume growth and pricing plans, as a result of high levels of competitive activity;
·   the ability to maintain key retail customer relationships;
·   the potential inability to generate expected cost savings and efficiencies from the Company’s enterprise resource planning and customer relationship data processing systems;
·   the potential inability to generate expected cost savings and efficiencies from restructuring the Company’s supply chain;
·   the ability of major customers and other debtors to meet their obligations as they come due;
·   the failure of parties contracting with the Company to perform their obligations, and the loss of or inability to renew contracts of importance to the Company’s performance;
·   the ability to successfully manage regulatory, tax and legal matters, including resolution of pending matters within current estimates;
·   changes to cash flow resulting from tax payments, tax settlements and share repurchases;
·   the ability of the Company to manage inventory at appropriate levels, including decisions regarding obsolescence;
·   expenses for impairment and obsolescence of property, plant and equipment in excess of projections;
·   expenses for impairment of goodwill, trademarks and other intangible assets and equity investments in excess of projections;
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·   charges resulting from any restructuring that management may, from time to time, choose to undertake;
·   the ability of the Company to make up for lost revenues resulting from divestitures;
·   the purchase by P&G on January 5, 2005, of an additional 10% interest in the profits, losses and cash flows of the Glad bags, wraps and containers business, with the resultant increase in the Company’s net terminal obligation liability by $133 million, reflecting the additional fair value of the Company’s contractual requirement to purchase P&G’s interest at the termination of the joint venture agreement;
·   significant increases in the costs of key raw materials including but not limited to energy, resin, chlor-alkali, linerboard, soy bean oil, diesel, solvent and other miscellaneous chemicals;
·   changes in accounting policies;
·   significant increases in interest rates, insurance costs, or in pension, healthcare or other employee benefit costs;
·   the ability to attract and retain qualified personnel;
·   the impact of environmental remediation costs;
·   the impact of currency devaluations and fluctuations;
·   the impact of foreign import and export restrictions or other trade regulations; and
·   the impact of general economic conditions in the United States and in other countries in which the Company currently does business.
In addition, sales volume growth, whether due to acquisitions or to internal growth, can place burdens on management resources and financial controls that, in turn, can have a negative impact on operating results and net earnings. To some extent, the Company sets its expense levels in anticipation of future revenues. If actual revenue falls short of these expectations, operating results and net earnings are likely to be adversely affected.
 The Company depends on a limited number of customers for a large portion of its net sales.
A limited number of customers account for a large percentage of the Company’s net sales. The Company’s largest customer, Wal-Mart Stores, Inc. and its affiliated companies, accounted for approximately 27% of the Company’s net sales during fiscal year 2005 and 25% of net sales in each of fiscal years 2004 and 2003. During fiscal years 2005, 2004 and 2003, the Company’s five largest customers accounted for 41%, 39% and 39% of its net sales, respectively. The Company expects that a significant portion of its revenues will continue to be derived from a small number of customers and that these percentages may increase if the growth of mass merchandisers continues. As a result, changes in the strategies of the Company’s largest customers, including a reduction in the number of brands they carry or a shift of shelf space to private label products, may harm the Company’s sales. In addition, the Company’s business is based primarily upon individual sales orders, and the Company typically does not enter into long-term contracts with its customers. Accordingly, these customers could reduce their purchasing levels or cease buying products from the Company at any time and for any reason. If the Company loses a significant customer or if sales of its products to a significant customer materially decrease, it may have a material adverse effect on the Company’s business, financial condition and results of operations.
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 Large sophisticated customers may take actions that adversely affect the Company’s margins and results of operations.
In recent years, the Company has experienced a consumer trend away from traditional grocers and toward mass merchandisers, which include super centers and club stores. This trend has resulted in the increased size and influence of these mass merchandisers. As these mass merchandisers grow larger and become more sophisticated, they may demand lower pricing, special packaging, or impose other requirements on product suppliers. These business demands may relate to inventory practices, logistics, or other aspects of the customer-supplier relationship. If the Company does not effectively respond to the demands of these mass merchandisers, they could decrease their purchases from the Company, causing the Company’s sales and profitability to decline.
 Operations outside the United States expose the Company to uncertain conditions and other risks in international markets.
The Company’s sales outside the United States were approximately 16% of net sales in fiscal year 2005, and the Company owns and operates 21 manufacturing facilities outside the United States. The Company has and will continue to face substantial risks associated with having foreign operations, including:
·      economic or political instability in its international markets;
·      restrictions on repatriating foreign profits back to the United States; and
·      the imposition of tariffs or trade restrictions.
The Company is also exposed to foreign currency exchange rate risk with respect to its sales, profits and assets and liabilities denominated in currencies other than the U.S. dollar. Although the Company uses instruments to hedge certain foreign currency risks, it is not fully protected against foreign currency fluctuations and its reported earnings will be affected by changes in foreign exchange rates.
As a result of these factors, the Company took substantial impairment charges related to its international operations in fiscal years 2003 and 2002 and, due to uncertainties and possible deterioration in the overseas markets, it may have to take additional charges in the future. In addition, these risks could have a significant impact on the Company’s ability to sell its products on a timely and competitive basis in international markets and may have a material adverse effect on its results of operations or financial position. The Company’s small volume in some countries, relative to some multinational and local competitors, could exacerbate such risks. Also, the Company’s operations outside the United States are subject to the risk of new and different legal and regulatory requirements in local jurisdictions, potential difficulties in staffing and managing local operations, potentially higher incidence of fraud or corruption, credit risk of local customers and distributors, and potentially adverse tax consequences.
 The share exchange with Henkel could result in significant tax liability.
On November 22, 2004, the Company completed the exchange of its ownership interest in a subsidiary for Henkel’s approximately 61.4 million shares of the Company’s common stock, which represented approximately 29% of the Company’s common stock prior to the exchange. At the time of the share exchange with Henkel, the Company received an opinion from its special tax counsel to the effect that, among other things, the share exchange should qualify as a tax-free distribution under Section 355 of the Internal Revenue Code (the “Code”), and that the Company should recognize no gain or loss upon the distribution of its subsidiary’s stock to Henkel for U.S. federal income tax purposes. In addition, at the time of the share exchange, Henkel received an opinion from its special tax counsel to the effect that, among other things, the share exchange of the subsidiary’s stock to Henkel should qualify as a tax-free distribution under Section 355 of the Code for U.S. federal income tax purposes. These opinions are based in part upon various factual representations that Henkel and the Company have made. The Company is not aware of any facts or circumstances that would cause such representations to be untrue or incomplete
8

in any material respect. Nonetheless, the Company cannot be certain that the share exchange will qualify for tax-free treatment to it or to Henkel. The Company has not applied for an advance tax ruling from the Internal Revenue Service (the “IRS”) with respect to the U.S. federal income tax consequences of the share exchange. Opinions of counsel are not binding on the IRS, and the conclusions expressed in the opinions could be challenged by the IRS.
If the share exchange does not qualify for tax-free treatment for U.S. federal income tax purposes under Section 355 of the Code, then, in general, the Company would be subject to tax as if it had sold the common stock of its subsidiary in a taxable sale for its fair market value. Henkel would be subject to tax as if it had sold the Clorox stock that it exchanged in a taxable sale for the value of the stock of the subsidiary it acquired in the exchange. It is expected that the amount of any such taxes to Henkel and to the Company would be substantial. Although certain of the taxes described above would be imposed on Henkel, the Company would, in certain circumstances, be liable for all or a portion of such taxes. See “—If the share exchange with Henkel is treated as a taxable transaction, and the Company is required to indemnify Henkel for certain tax liabilities pursuant to the tax matters agreement, it could materially affect the Company’s liquidity.”
Even if the share exchange is tax-free to Henkel under Section 355 of the Code, it could be taxable to the Company if Section 355(e) of the Code applies to the share exchange. Section 355(e) of the Code will apply if 50% or more of the Company’s stock or its former subsidiary’s stock, by vote or value, is acquired by one or more persons, acting pursuant to a plan or a series of related transactions that includes the share exchange. The Company cannot be certain that Section 355(e) of the Code will not apply to the share exchange. Risk of the applicability of Section 355(e) of the Code may also discourage, delay or prevent a merger, change of control, or other strategic or capital raising transaction involving the Company’s outstanding equity or issuance of new equity.
 If the share exchange with Henkel is treated as a taxable transaction, and the Company is required to indemnify Henkel for certain tax liabilities pursuant to the tax matters agreement, it could materially affect the Company’s liquidity.
In general, pursuant to the tax matters agreement that the Company entered into with Henkel in connection with the share exchange, the Company agreed to be responsible for any taxes, including the taxes of Henkel, that result from certain of the Company’s actions or that result from the Company’s breach of a representation or a covenant that it has given in connection with the tax opinion delivered to the Company by its special tax counsel and the tax opinion delivered to Henkel by its special tax counsel, described above, in a manner that causes the share exchange to fail to qualify for tax-free treatment under Section 355 of the Code or from the application of Section 355(e) of the Code. Henkel has agreed to similar obligations in the tax matters agreement. The Company’s indemnification obligations to Henkel are not limited in amount or subject to any cap. If the Company is required to indemnify Henkel under the circumstances set forth in the tax matters agreement, it may be subject to substantial liabilities that may materially affect its liquidity and, therefore, its ability to service the senior notes it issued in connection with the share exchange.
 Resolutions of tax disputes may impact the Company’s earnings and cash flow.
Significant judgment is required in determining the Company’s effective tax rate and in evaluating its tax positions. The Company establishes accruals for certain tax contingencies when, despite the belief that its tax return positions are fully supported, it believes that certain positions will be challenged and that its positions may not be fully sustained. The tax contingency accruals are adjusted in light of changing facts and circumstances, such as the progress of tax audits, case law development and emerging legislation. The Company’s effective tax rate includes the impact of tax contingency accruals and changes to the accruals, including related interest and penalties, as considered appropriate by management. When particular
9

matters arise, a number of years may elapse before such matters are audited and finally resolved. Favorable resolution of such matters could be recognized as a reduction to the Company’s effective tax rate in the year of resolution. Unfavorable settlement of any particular issue could increase the effective tax rate. Any resolution of a tax issue may require the use of cash in the year of resolution.
The IRS completed its audit of the Company’s 1997 through 2000 tax returns, and the audit of the 2001 and 2002 tax years is now in progress. In April 2005, the Company announced an agreement with the IRS resolving certain tax issues arising in the period from 1997 through 2000 under which the Company is paying approximately $247 million in federal and state taxes and interest. The Company paid $94 million during fiscal year 2005 and paid the majority of the balance, approximately $150 million, in the first quarter of fiscal year 2006. These payments negatively impacted the Company’s cash flows. The Company had previously accrued for this contingency and released tax-contingency accruals associated with this settlement in the third quarter of fiscal year 2005. For additional information, refer to the information set forth under the caption “Contingencies” in “Management’s Discussion and Analysis,” beginning on page 15 of Exhibit 99-1 hereto, incorporated herein by reference.
 Price increases in raw materials could harm the Company’s profit margins.
The Company utilizes several key raw materials in the production of its products, including but not limited to energy, resin, chlor-alkali, linerboard, soy bean oil, diesel, solvent and other miscellaneous chemicals. In some cases, the Company relies on a limited number of suppliers for these raw materials. If price increases in any of the primary raw materials occur, the Company may not be able to increase the prices of its products or achieve cost savings to offset the increase in raw material prices, which could harm its profit margins. For further information regarding the impact of changes in commodity prices, see “Quantitative and Qualitative Disclosure about Market Risk” in “Management’s Discussion and Analysis” on pages 16 through 17 of Exhibit 99-1 hereto, incorporated herein by reference.
 Identification of good acquisition candidates or joint venture partners may be difficult and integration and management of acquisitions may not be successful.
One of the elements of the Company’s growth plan is to look at the possibility of increasing its sales volumes, earnings and the markets it serves through acquisitions of, or joint ventures with, other businesses in the United States and international markets. Not only is the identification of good acquisition or joint venture candidates difficult and competitive, but these transactions also involve numerous risks, including the following:
·               difficulties in integrating the acquired companies, products or personnel into the Company’s existing business;
·               difficulties in retaining key relationships with employees, customers, partners and suppliers of the acquired company; and
·               difficulties in maintaining uniform standards, controls, procedures and policies throughout acquired companies.
In addition, there can be no assurance that companies or operations acquired or joint ventures created will be profitable at their inception or that they will achieve sales levels and profitability that justify the investments made. Future acquisitions could also result in potentially dilutive issuances of equity securities, the incurrence of debt, contingent liabilities and/or amortization expenses related to certain intangible assets and increased operating expenses, which could adversely affect the Company’s results of operations and financial condition. In addition, to the extent that the economic benefits associated with any of the Company’s acquisitions diminish in the future, the Company may be required to record additional write downs of goodwill, intangible assets or other assets associated with such acquisitions, which could adversely affect its operating results.
10

 Government regulations could impose material costs.
Generally, the manufacture, packaging, labeling, storage, distribution and advertising of the Company’s products and the conduct of its business operations must all comply with extensive federal, state and foreign laws and regulations. For example, in the United States, many of the Company’s products are regulated by the Environmental Protection Agency, the Food and Drug Administration and the Consumer Product Safety Commission and the Company’s product claims and advertising are regulated by the Federal Trade Commission. Most states have agencies that regulate in parallel to these federal agencies. In addition, the Company’s international operations are subject to regulation in each of the foreign jurisdictions in which it manufactures or distributes its products. During the past year, the Company experienced an increase in the number of regulatory inspections at its facilities in the U.S. If the Company is found to be out of compliance with applicable laws and regulations in these or other areas, it could be subject to civil remedies, including fines, injunctions, recalls or asset seizures, as well as potential criminal sanctions, any of which could have a material adverse effect on its business. Loss of or failure to obtain necessary permits and registrations could delay or prevent the Company from meeting current product demand, introducing new products, building new facilities or acquiring new businesses and could adversely affect operating results, particularly with respect to its charcoal business. It is possible that the federal government will increase regulation of the transportation, storage or use of certain chemicals to enhance homeland security or protect the environment and that such regulation could negatively impact raw material supply or costs.
Product liability claims could adversely affect the Company’s sales and operating results.
The Company may be required to pay for losses or injuries purportedly caused by its products. Claims could be based on allegations that, among other things, the Company’s products contain contaminants, provide inadequate instructions regarding their use, or inadequate warnings concerning interactions with other substances. Product liability claims could result in negative publicity that could harm the Company’s sales and operating results. In addition, if one of the Company’s products is found to be defective, the Company could be required to recall it, which could result in adverse publicity and significant expenses. Although the Company maintains product liability insurance coverage, potential product liability claims may exceed the amount of insurance coverage or potential product liability claims may be excluded under the terms of the policy.
 Environmental matters create potential liability risks.
The Company must comply with various environmental laws and regulations in the jurisdictions in which it operates, including those relating to air emissions, water discharges, the handling and disposal of solid and hazardous wastes and the remediation of contamination associated with the use and disposal of hazardous substances. The Company handles and transports hazardous substances, including but not limited to chlorine, at its plant sites. A release of such chemicals due to accident or an intentional act could result in substantial liability to governmental authorities and/or to third parties. The Company has incurred, and will continue to incur, capital and operating expenditures and other costs in complying with environmental laws and regulations and in providing physical security for its worldwide operations.
The Company is currently involved in or has potential liability with respect to the remediation of past contamination in the operation of some of its presently and formerly owned and leased facilities. In addition, some of its present and former facilities have been or had been in operation for many years and, over that time, some of these facilities may have used substances or generated and disposed of wastes that are or may be considered hazardous. It is possible that those sites, as well as disposal sites owned by third parties to which the Company has sent waste, may in the future be identified and become the subject of remediation. It is possible that the Company could become subject to additional environmental liabilities in the future that could result in a material adverse effect on its results of operations or financial condition.
11

At June 30, 2005, the Company had a recorded liability of $33 million for its future remediation costs. One matter in Dickinson County, Michigan, for which the Company is jointly and severally liable, accounts for a substantial majority of the recorded liability. The Company is subject to a cost-sharing arrangement with another party for this matter, and the Company has agreed to be liable for 24.3% of the aggregate remediation and associated costs, other than legal fees, as it and the other party are each responsible for their own such fees. In October 2004, the Company and the other party agreed to a consent judgment with the Michigan Department of Environmental Quality, which sets forth certain remediation goals and monitoring activities. Based on the current status of this matter, and with the assistance of environmental consultants, the Company maintains an undiscounted liability representing its best estimate of its share of costs associated with the capital expenditures, maintenance and other costs to be incurred over an estimated 30-year remediation period. The most significant components of the liability relate to the estimated costs associated with the remediation of groundwater contamination and excess levels of subterranean methane deposits. Currently, the Company cannot accurately predict the timing of the payments that will likely be made under this estimated obligation. In addition, the estimated loss exposure is sensitive to a variety of uncertain factors, including the efficacy of remediation efforts, changes in remediation requirements and the timing, varying costs and alternative clean-up technologies that may become available in the future. Although it is possible that the Company’s exposure may exceed the amount recorded, any amount of such additional exposures, or range of exposures, is not estimable at this time.
 Failure to maximize or to successfully assert the Company’s intellectual property rights could impact its competitiveness.
The Company relies on trademark, trade secret, patent and copyright laws to protect its intellectual property rights. The Company cannot be sure that these intellectual property rights will be maximized or that they can be successfully asserted. There is a risk that the Company will not be able to obtain and perfect its own or, where appropriate, license intellectual property rights necessary to support new product introductions. The Company cannot be certain that these rights, if obtained, will not be invalidated, circumvented or challenged in the future, and the Company could incur significant costs in connection with legal actions to defend its intellectual property rights. In addition, even if such rights are obtained in the United States, the laws of some of the other countries in which the Company’s products are or may be sold do not protect intellectual property rights to the same extent as the laws of the United States. If other parties infringe the Company’s intellectual property rights, they may dilute the value of its brands in the marketplace, which could diminish the value that consumers associate with the Company’s brands and harm its sales. The failure to perfect or successfully assert its intellectual property rights could make the Company less competitive and could have a material adverse effect on its business, operating results and financial condition.
 If the Company is found to have infringed the intellectual property rights of others it could impact its competitiveness.
It is possible that the Company will be found to have violated the trademark, trade secret, copyright, patent or other intellectual property rights of others. Such a finding could result in the need to cease use of a trademark, trade secret, copyrighted work or patented invention in the Company’s business and to pay a substantial amount for past infringement. It could also be necessary to pay a substantial amount in the future if the rights holder is willing to permit the Company to continue to use the intellectual property right. Either having to cease use or pay such amounts could make the Company less competitive and could have a material adverse impact on its business, operating results and financial condition.
12

 The Company’s substantial indebtedness could adversely affect its operations and financial results and prevent the Company from fulfilling its obligations.
The Company has a significant amount of indebtedness. As of June 30, 2005, the Company had approximately $2.1 billion of long-term debt and stockholders’ deficit of approximately $513 million.
The Company’s substantial indebtedness could have important consequences. For example, it could:
·        make it more difficult for the Company to satisfy its obligations;
·        increase the Company’s vulnerability to general adverse economic and industry conditions;
·        require the Company to dedicate a substantial portion of its cash flow from operations to payments on its indebtedness, which would reduce the availability of its cash flow to fund working capital requirements, capital expenditures, expansion efforts and other general corporate purposes;
·        limit the Company’s flexibility in planning for, or reacting to, changes in its business and the industry in which it operates;
·        place the Company at a competitive disadvantage compared to its competitors that have less debt; and
·        limit, along with the financial and other restrictive covenants in the Company’s indebtedness, among other things, its ability to borrow additional funds. Failure to comply with these covenants could result in an event of default that, if not cured or waived, could have a significant adverse effect on the Company.
 To service its indebtedness and pay cash dividends, the Company will require a significant amount of cash. The Company’s ability to generate cash depends on many factors beyond its control. In addition, to pay cash dividends, the Company must have sufficient surplus or net profits as defined by
Delaware law.
The Company’s ability to make payments on and to refinance its indebtedness and to fund planned capital expenditures and expansion efforts will depend on its ability to generate cash in the future. In addition, the Company’s ability to pay cash dividends will depend on its ability to generate cash and net profits. The ability to generate cash and net profits, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond the Company’s control.
 The Company may still be able to incur substantially more debt, which could further exacerbate the risks described above.
The Company may be able to incur substantial additional indebtedness in the future. As of June 30, 2005, approximately $1.3 billion was available to borrow under the Company’s $1.3 billion revolving credit facility. If new debt is added to the current debt levels, the related risks that the Company now faces could intensify.
 The Company may be unable to attract and retain key personnel.
Much of the Company’s future success depends on the continued service and availability of skilled personnel, including members of the executive team, and those in technical, marketing and staff positions. Experienced personnel in the Company’s industry are in high demand, and competition for their talents is intense, especially in the San Francisco Bay Area, where the Company’s corporate headquarters and many of its employees are located. Although the Company strives to be an employer of choice, it may not be able to continue to successfully attract and retain key personnel, which would cause its business to suffer.
13

 The Company’s manufacturing and other facilities may be subject to disruption from natural disasters, work stoppages or terrorism.
Operations at the Company’s manufacturing facilities are subject to disruption for a variety of reasons, including work stoppages, acts of war, terrorism, fire, earthquake, flooding or other natural disasters. In addition, the Company’s corporate headquarters and technical center are located near major earthquake fault lines in California. If a major disruption were to occur, it could result in temporary loss of access to critical data, delays in shipments of products to customers, suspension of operations, or harm to people or the natural environment.
 The Company may be liable for unauthorized disclosure of data.
In connection with some of the Company’s customer loyalty programs and promotional programs, it gathers and stores limited personal data regarding the consumers of its products. These programs typically provide that the Company enter into contracts, which specify limits on use of this data. If any person, including any of the Company’s employees or partners, circumvents the Company’s security measures, they could misappropriate this data. If this occurs, the Company could be subject to liability as a result of the security breach or misappropriation of its registered consumers’ personal data.  
 AVAILABLE INFORMATION
The Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are available on the Company’s Internet website, free of charge, as soon as reasonably practicable after the reports are electronically filed with or furnished to the SEC. These reports are available at http://www.thecloroxcompany.com/investors/financialinfo/annreports/ in the “Investors — Financial Information — SEC Filings” section. Information relating to corporate governance at Clorox, including the Company’s Code of Ethics, Board of Directors Governance Guidelines and Board Committees, including charters for each of the Management Development and Compensation Committee, the Audit Committee and the Nominating and Governance Committee, is available at http://www.thecloroxcompany.com/company/standards.html in the “Company Information — Governance” section. The Company will provide any of the foregoing information without charge upon written request to Dan Staublin, Manager of Corporate External Communications, The Clorox Company, 1221 Broadway; Oakland, CA 94612-1888.
 ITEM 2.                 PROPERTIES
PRODUCTION AND DISTRIBUTION FACILITIES.   The Company owns and operates 21 manufacturing facilities in the United States, 11 of which serve primarily the Household Group   —   North America segment and 10 of which serve primarily the Specialty Group segment. In June 2005, the Company closed the Glad plant in Cartersville, Georgia and sold or redistributed its assets. The Company owns and operates 21 manufacturing facilities internationally, which serve primarily the International segment. The Company also leases 6 regional distribution centers in the United States, which serve primarily the Household Group   —   North America and Specialty Group segments, and leases and operates two regional distribution centers in Canada and owns and operates a regional distribution center in Chile, which serve primarily the Household Group   —   North America and International segments, respectively. Management believes that the Company’s production and distribution facilities, together with additional facilities owned or leased and operated by various unaffiliated finished product suppliers and distribution center service providers that serve the Company, are adequate to support the business efficiently and that the Company’s properties and equipment have been well maintained.
14

OFFICES AND RESEARCH AND DEVELOPMENT FACILITIES.   The Company owns its general office building located in Oakland, California. The Company also owns its Technical Center and Data Center located in Pleasanton, California. The Company leases its research and development center and its engineering research facilities for Glad and GladWare brand products, which are located in Willowbrook, Illinois, Cincinnati, Ohio and Kennesaw, Georgia, respectively. The Company owns a research and development facility at its plant in Aldo Bonzi, Argentina. Leased sales and other office facilities are located at a number of other locations.
ENCUMBRANCES .   None of the Company’s owned facilities are encumbered to secure debt owed by the Company.
 ITEM 3.                 LEGAL PROCEEDINGS
The Company is involved in certain environmental matters, including Superfund and other response actions at various locations. The Company has a recorded liability of $33 million at June 30, 2005 for its share of the related aggregate future remediation cost. One matter in Dickinson County, Michigan, for which the Company is jointly and severally liable, accounts for a substantial majority of the recorded liability. The Company is subject to a cost-sharing arrangement with another party for this matter, under which Clorox has agreed to be liable for 24.3% of the aggregate remediation and associated costs, other than legal fees, as the Company and the other party are each responsible for their own such fees. In October 2004, the Company and the other party agreed to a consent judgment with the Michigan Department of Environmental Quality (“MDEQ”), which sets forth certain remediation goals and monitoring activities. Based on the current status of this matter, and with the assistance of environmental consultants, the Company maintains an undiscounted liability representing its best estimate of its share of costs associated with the capital expenditures, maintenance and other costs to be incurred over an estimated 30-year remediation period. The most significant components of the liability relate to the estimated costs associated with the remediation of groundwater contamination and excess levels of subterranean methane deposits. Currently, the Company cannot accurately predict the timing of the payments that will likely be made under this estimated obligation. In addition, the Company’s estimated loss exposure is sensitive to a variety of uncertain factors, including the efficacy of remediation efforts, changes in remediation requirements and the timing, varying costs and alternative clean-up technologies that may become available in the future. Although it is possible that the Company’s exposure may exceed the amount recorded, any amount of such additional exposures, or range of exposures, is not estimable at this time.
 ITEM 4.                 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
 EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and current positions of the executive officers of the Company as of July 31, 2005 are set forth below:

Name, Age and
Fiscal Year Elected to Current Position	 	Title and Current Position(s)	 	 	
G. E. Johnston	 	58	 	2003	 	Chairman and Chief Executive Officer	
L. S. Peiros	 	50	 	1999	 	Group Vice President	
M. B. Springer	 	40	 	2005	 	Group Vice President	
F. A. Tataseo	 	51	 	2005	 	Group Vice President	
D. J. Heinrich	 	49	 	2005	 	Senior Vice President — Chief Financial Officer	
J. P. Kane	 	53	 	2005	 	Senior Vice President — Human Resources and
Corporate Affairs	
L. Stein	 	43	 	2005	 	Senior Vice President — General Counsel	
W. Every-Burns	 	52	 	2005	 	Vice President — General Manager, International	
 
15

There is no family relationship between any of the above-named persons, or between any of such persons and any of the directors of the Company or any person nominated for election as a director of the Company. See Item 10 of Part III of this Report.
G. E. Johnston was elected chairman of the board effective January 2005 and has served as chief executive officer since July 2003. He joined the Company in July 1981 as regional sales manager — special markets. He was vice president — corporate development from June 1992 through November 1993, vice president — Kingsford products from November 1993 through June 1996, group vice president from July 1996 through January 1999 and president and chief operating officer from January 1999 through June 2003. Mr. Johnston is a director of Del Monte Foods Company.
L. S. Peiros was elected group vice president effective January 1999. He joined the Company in 1981 as a brand assistant. He served as vice president — corporate marketing services from September 1993 until July 1995, vice president — food products from July 1995 through June 1998 and vice president — household products from June 1998 through January 1999.
M. B. Springer was elected group vice president effective January 2005. She joined the Company in August 1990 as an assistant marketing manager. She served as vice president, marketing for Glad products from October 1999 through September 2002 and as vice president, general manager of Glad products from October 2002 through December 2004.
F. A. Tataseo was elected group vice president effective July 2004. He joined the Company in October 1994 as vice president — sales. He served as vice president — sales from October 1994 through September 1999 and as senior vice president — sales from September 1999 through June 2004.
D. J. Heinrich was elected senior vice president — chief financial officer effective July 2004. He joined the Company in March 2001 as vice president — controller. He was elected vice president — chief financial officer in October 2003. From October 1996 through February 2001, he was employed by Transamerica Corporation, most recently as senior vice president — treasurer, Transamerica Finance Corporation. Prior to that, he was employed by Granite Management Corporation, an indirect subsidiary of Ford Motor Company, as senior vice president — treasurer and controller.
J. P. Kane was elected senior vice president — human resources and corporate affairs effective January 2005. She joined the Company as vice president — human resources in March 2004 and was elected senior vice president — human resources in July 2004. From September 2000 to February 2004, Ms. Kane was employed by Hewlett-Packard Company, most recently as vice president of executive leadership and human resources for corporate functions. Prior to that, she was employed by Bank of America from 1978 to September 2000, most recently as senior vice president of human resources.
L. Stein was elected senior vice president — general counsel effective January 2005. From January 2000 through January 2005, Ms. Stein was senior vice president — general counsel for H.J. Heinz Company. Immediately prior to that, she spent eight years working for the Company, lastly as its assistant general counsel responsible for regulatory affairs.
W. Every-Burns was elected vice president — general manager, international effective January 2005. He joined the Company in 1990 as the general manager, sales and marketing — Glad Australia. From February 1999 through December 2002, he served as vice president — general manager, Australia and New Zealand and as vice president — general manager, Asia Pacific Division from January 2003 through December 2004.
16

 PART II
 ITEM 5.                 MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SHARES
 MARKET INFORMATION.
The principal markets for the Company’s common stock are the New York Stock Exchange and the Pacific Exchange. The high and low sales prices quoted for the New York Stock Exchange-Composite Transactions Report for each quarterly period during the past two fiscal years appear in Note 22 — Unaudited Quarterly Data of the Notes to Consolidated Financial Statements, which appears on pages 62 and 63 of Exhibit 99-1 hereto, incorporated herein by reference.
 HOLDERS.
The approximate number of record holders of the Company’s common stock as of July 31, 2005 was 13,750, based on information provided by the Company’s transfer agent.
 DIVIDENDS.
The amount of quarterly dividends paid with respect to the Company’s common stock during the past two fiscal years appears in Note 22 — Unaudited Quarterly Data of the Notes to Consolidated Financial Statements, which appears on pages 62 and 63 of Exhibit 99-1 hereto, incorporated herein by reference.
 EQUITY COMPENSATION PLAN INFORMATION.
This information appears in Part III, Item 12(A) hereof.
 ISSUER PURCHASES OF EQUITY SECURITIES.
The following table sets out the purchases of the Company’s securities by the Company and any affiliated purchasers within the meaning of Rule 10b-18(a)(3) (17 CFR 240.10b-18(a)(3)) during the fourth quarter of fiscal year 2005.

 	 	[a]	 	[b]	 	[c]	 	[d]	 	
Period	 	Total Number of
Shares (or Units)
Purchased(1)	 	Average Price Paid
per Share (or Unit)	 	Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs	 	Maximum Number (or
Approximate Dollar
Value) that May Yet
Be Purchased Under the
Plans or Programs(2)	 	
April 1 to 30, 2005	 	 	0	 	 	 	-	 	 	 	0	 	 	 	$	767,723,099	 	 	
May 1 to 31, 2005	 	 	1,778,301	 	 	 	$	58.32	 	 	 	1,777,500	 	 	 	$	767,723,099	 	 	
June 1 to 30, 2005	 	 	972,500	 	 	 	$	57.95	 	 	 	972,500	 	 	 	$	767,723,099	 	 	

(1)           The shares purchased in May 2005 include 1,777,500 shares of common stock acquired pursuant to the share repurchase program to offset the potential impact of stock option dilution the Company announced on September 1, 1999, and 801 shares of common stock to satisfy withholding obligations in connection with the vesting of restricted stock granted to employees. There were no surrenders to the Company of already-owned shares of common stock to pay the exercise price or to satisfy tax withholding obligations in connection with the exercise of employee stock options. The shares purchased in June 2005 relate entirely to common stock acquired pursuant to the share repurchase program to offset the potential impact of stock option dilution the Company announced on September 1, 1999.
(2)           The board of directors approved a $500,000,000 share repurchase program on August 7, 2001, all of which has been utilized; a $500,000,000 share repurchase program on July 17, 2002, of which $67,723,099 remains available for repurchases; and a $700,000,000 share repurchase program on July 16, 2003, all of which remains available for repurchases. On September 1, 1999, the Company also announced a share repurchase program to offset the potential impact of stock option dilution. The program initiated in 1999 has no specified cap and therefore is not included in column [d] above. None of these programs has a specified termination date.
17

 ITEM 6.                 SELECTED FINANCIAL DATA
This information appears under “Five-Year Financial Summary,” on page 67 of Exhibit 99-1 hereto, incorporated herein by reference.
 ITEM 7.                 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
This information appears under “Management’s Discussion and Analysis,” on pages 1 through 23 of Exhibit 99-1 hereto, incorporated herein by reference.
 ITEM 7A.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information appears under “Quantitative and Qualitative Disclosure about Market Risk” in “Management’s Discussion and Analysis,” on pages 16 and 17 of Exhibit 99-1 hereto, incorporated herein by reference.
 ITEM 8.                 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
These statements and data appear on pages 24 through 66 of Exhibit 99-1 hereto, incorporated herein by reference.
 ITEM 9.                 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
 ITEM 9A.         CONTROLS AND PROCEDURES
 DISCLOSURE CONTROLS AND PROCEDURES
The Company’s management, with the participation of the Company’s chief executive officer and chief financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this report, were designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding disclosure.
 MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management’s report on internal control over financial reporting is set forth on page 64 of Exhibit 99-1 hereto, and is incorporated herein by reference. Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of June 30, 2005 has been audited by Ernst & Young, LLP, the Company’s independent registered public accounting firm, as stated in their report, which appears on page 66 of Exhibit 99-1 hereto.
 CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
This information is set forth on page 64 of Exhibit 99-1 hereto, and is incorporated herein by reference.
 ITEM 9B.        OTHER INFORMATION
Not applicable.
18

 PART III
 ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding each nominee for election as a director, including those who are executive officers of the Company, appears under “Nominees for Election as Directors” of the Proxy Statement, incorporated herein by reference.
Pursuant to Instruction 3 to Item 401(b) of Regulation S-K, information regarding the executive officers of the registrant is reported in Part I of this Report.
The information required by Item 405 of Regulation S-K appears under “Section 16(a) Beneficial Ownership Reporting Compliance” of the Proxy Statement, incorporated herein by reference.
The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer and controller, among others. The code of ethics is located on the Company’s Internet website at http://www.thecloroxcompany.com/company/standards.html under “Company Information.” The Company intends to satisfy the requirement under Item 5.05 of Form 8-K regarding disclosure of amendments to, or waivers from, provisions of its code of ethics by posting such information on the Company’s Internet website. The Company’s Internet website also contains its corporate governance guidelines and the charters of its principal board committees.
 ITEM 11.          EXECUTIVE COMPENSATION
The information required by this Item appears under “Organization of the Board of Directors,” “Compensation Interlocks and Insider Participation,” “Summary Compensation Table,” “Options and Stock Appreciation Rights,” “Comparative Stock Performance,” and “Pension Benefits” of the Proxy Statement, all incorporated herein by reference.
 ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 (A)          EQUITY COMPENSATION PLAN INFORMATION
The information required by this Item appears under “Equity Compensation Plan Information” of the Proxy Statement, incorporated herein by reference. Additional information concerning the Company’s equity compensation plans appears in Note 13 — Stock Compensation Plans of the Notes to Consolidated Financial Statements, which appears on pages 47 through 49 of Exhibit 99-1 hereto, incorporated herein by reference.
 (B)         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning the beneficial ownership of the Company’s common stock by certain beneficial owners and management appears under “Beneficial Ownership of Voting Securities” of the Proxy Statement, incorporated herein by reference.
 ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning transactions with directors, nominees for election as directors, management and certain beneficial owners of the Company’s common stock appears under “Certain Relationships and Transactions” of the Proxy Statement, incorporated herein by reference.
 ITEM 14.          PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information concerning principal accountant fees and services appears under “Audit Committee Report” of the Proxy Statement, incorporated herein by reference.
19

 PART IV
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)   (1)	Financial Statements:	
 	Consolidated Financial Statements and Report of Independent Registered Public Accounting Firm included in Exhibit 99-1 hereto, incorporated herein by reference:	
 	Consolidated Statements of Earnings for the years ended June 30, 2005, 2004 and 2003	
 	Consolidated Balance Sheets as of June 30, 2005 and 2004	
 	Consolidated Statements of Stockholders’ Equity for the years ended June 30, 2005, 2004 and 2003	
 	Consolidated Statements of Cash Flows for the years ended June 30, 2005, 2004 and 2003	
 	Notes to Consolidated Financial Statements	
 	Report of Independent Registered Public Accounting Firm	
(a)   (2)	Except for the Financial Statement Schedule in Exhibit 99-2, Financial Statement Schedules have been omitted because of the absence of conditions under which they are required.	
(a)   (3)	Exhibits	
3.1	Restated Certificate of Incorporation (filed as Exhibit 3(iii) to the Quarterly Report on Form 10-Q for the quarter ended December 31, 1999, incorporated herein by reference).	
3.2	Bylaws (restated) of the Company (filed as Exhibit 3(ii) to the Annual Report on Form 10-K for the year ended June 30, 2003, incorporated herein by reference).	
4.1	Indenture dated as of December 3, 2004 by and between the Company and The Bank of New York Trust Company N.A., as trustee (filed as Exhibit 4.1 to the Current Report on Form 8-K filed on December 3, 2004, incorporated herein by reference).	
4.2	Exchange and Registration Agreement dated December 3, 2004 relating to the Company’s Floating Rate Notes due 2007, 4.20% Senior Notes due 2010 and 5.00% Notes due 2015 (filed as Exhibit 4.2 to the Current Report on Form 8-K filed on December 3, 2004, incorporated herein by reference).	
4.3	Cross-reference table for Indenture dated as of December 3, 2004 (listed as Exhibit 4.1 above) and the Trust Indenture Act of 1939, as amended (filed as Exhibit 4.3 to the Registration Statement on Form S-4 (File No. 333-123115), as declared effective by the Securities and Exchange Commission on April 29, 2005).	
10.1*	Long-Term Compensation Program dated October 21, 1987, amended November 17, 1993, which was adopted by the stockholders at the Company’s annual meeting of stockholders on November 17, 1993 (filed as Exhibit 10.1(i) to the Annual Report on Form 10-K for the year ended June 3, 2002, incorporated herein by reference).	
10.2*	Supplemental Executive Retirement Plan Restated dated July 17, 1991 and amended May 18, 1994, January 1, 1996, January 19, 2000 and July 20, 2004 (filed as Exhibit 10(vi) to the Annual Report on Form 10-K for the year ended June 30, 2004, incorporated herein by reference).	
10.3(i)*	1993 Directors’ Stock Option Plan dated November 17, 1993, which was adopted by the stockholders at the Company’s annual meeting of stockholders on November 17, 1993, and amended and restated on September 15, 2004 (filed as Exhibit 10-2 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, incorporated herein by reference).	
			
20

 

10.3(ii)*	Form of Option Award under the 1993 Directors’ Stock Option Plan as amended and restated September 15, 2004 (filed as Exhibit 10-3 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, incorporated herein by reference).	
10.4*	Form of Officer Employment Agreement (filed as Exhibit 10(viii) to the Annual Report of Form 10-K for the year ended June 30, 2004, incorporated herein by reference).	
10.5*	Form of Officer Change in Control Employment Agreement (filed as Exhibit 10(ix) to the Annual Report on Form 10-K for the year ended June 30, 2004, incorporated herein by reference).	
10.6*	Non-Qualified Deferred Compensation Plan adopted as of January 1, 1996 and amended and restated as of July 20, 2004 (filed as Exhibit 10(x) to the Annual Report on Form 10-K for the year ended June 30, 2004, incorporated herein by reference).	
10.7*	The Clorox Company 1995 Performance Unit Plan (filed as Exhibit 10(xi) to the Annual Report on Form 10-K for the year ended June 30, 2002, incorporated herein by reference).	
10.8*	The Clorox Company 1996 Stock Incentive Plan, which was adopted by the stockholders at the Company’s annual meeting of stockholders on November 28, 2001, amended and restated as of September 15, 2004 (filed as Exhibit 10-4 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, incorporated herein by reference).	
10.9(i)*	The Clorox Company Executive Incentive Compensation Plan, adopted in 1996, re-adopted in 2001, and amended and restated as of July 20, 2004 (filed as Exhibit 10(xiii) to the Annual Report on Form 10-K for the year ended June 30, 2004, incorporated herein by reference).	
10.9(ii)*	Form of Option Award under the Company’s 1996 Stock Incentive Plan as amended and restated September 15, 2004 (filed as Exhibit 10-5 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, incorporated herein by reference).	
10.9(iii)*	Form of Performance Unit Award under the Company’s 1996 Stock Incentive Plan as amended and restated September 15, 2004 (filed as Exhibit 10-6 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, incorporated herein by reference).	
10.9(iv)*	Form of Award under the Company’s Executive Incentive Compensation Plan (filed as Exhibit 10-7 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, incorporated herein by reference).	
10.10*	The Clorox Company Independent Directors’ Stock-Based Compensation Plan (filed as Exhibit 10(xiv) to the Annual Report on Form 10-K for the year ended June 30, 2002, which was adopted by the stockholders at the Company’s annual meeting of stockholders on November 19, 2003, incorporated herein by reference).	
10.11*	The Clorox Company Annual Incentive Plan (formerly named The Clorox Company Management Incentive Compensation Plan), amended and restated as of July 20, 2004 (filed as Exhibit 10(xvi) to the Annual Report on Form 10-K for the year ended June 30, 2004, incorporated herein by reference).	
10.12*	Agreement between The Clorox Company and G. Craig Sullivan, effective as of November 1, 2001 (filed as Exhibit 10(xvii) to the Quarterly Report on Form 10-Q for the quarter ended December 31, 2001, incorporated herein by reference).	
10.13*	The Clorox Company 1996 Stock Incentive Plan Restricted Stock Unit Award Agreement entered into by The Clorox Company and Gerald E. Johnston, effective as of July 15, 2003 (filed as Exhibit 10(xxi) to the Annual Report on Form 10-K for the year ended June 30, 2003, incorporated herein by reference).	
10.14*	The Severance Pay Plan for Level 2 and Level 3 Executives effective as of July 1, 2004 (filed as Exhibit 10(xx) to the Annual Report on Form 10-K for the year ended June 30, 2004, incorporated herein by reference).	
21

 

10.15	Share Exchange Agreement dated as of October 6, 2004 by and among the Company, Henkel KGaA and HC Investments, Inc. (filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, incorporated herein by reference).	
10.16	Commercial Paper Dealer Agreement between The Clorox Company, as Issuer, and Banc of America Securities LLC, as Dealer (filed as Exhibit 10.1 to the Report on Form 8-K, filed November 16, 2004, incorporated herein by reference).	
10.17	Commercial Paper Dealer Agreement between The Clorox Company, as Issuer, and Citicorp Global Markets Inc., as Dealer (filed as Exhibit 10.2 to the Report on Form 8-K, filed November 16, 2004, incorporated herein by reference).	
10.18	Commercial Paper Dealer Agreement between The Clorox Company, as Issuer, and Goldman, Sachs & Co., as Dealer (filed as Exhibit 10.3 to the Report on Form 8-K, filed November 16, 2004, incorporated herein by reference).	
10.19	Commercial Paper Dealer Agreement between The Clorox Company, as Issuer, and J.P. Morgan Securities Inc., as Dealer (filed as Exhibit 10.4 to the Report on Form 8-K, filed November 16, 2004, incorporated herein by reference).	
10.20	Issuing and Paying Agency Agreement by and between The Clorox Company and J.P. Morgan Trust Company, National Association (filed as Exhibit 10.5 to the Report on Form 8-K, filed November 16, 2004, incorporated herein by reference).	
10.21	Credit Agreement dated as of November 15, 2004 among The Clorox Company, the Banks listed therein, Citicorp North America, Inc. and J.P. Morgan Chase Bank, N.A., as Administrative Agents, Citicorp North America, Inc., as Servicing Agent, and Goldman Sachs Credit Partners L.P., as Syndication Agent (filed as Exhibit 10-1 to the Report on Form 8-K, filed November 19, 2004, incorporated herein by reference).	
10.22	Purchase Agreement dated November 30, 2004 relating to the Floating Rate Senior Notes due December 2007, 4.20% Senior Notes due January 2010 and 5.00% Senior Notes due January 2015 (filed as Exhibit 10.1 to the Report on Form 8-K, filed December 3, 2004,  incorporated herein by reference).	
10.23	$1,300,000,000 Credit Agreement dated as of December 7, 2004 among The Clorox Company, the Banks listed therein, Citicorp USA, Inc. and J.P. Morgan Chase Bank, N.A. as Administrative Agents, Wachovia Bank, N.A. and Bank of America, N.A. as Syndication Agents, and BNP Paribas, ING Capital LLC, Calyon New York Branch and The Bank of Tokyo-Mitsubishi, Ltd. Seattle Branch as Documentation Agents (filed as Exhibit 10-1 to the Report on Form 8-K, filed December 9, 2004, incorporated herein by reference).	
10.24(+)	Amended and Restated Joint Venture Agreement dated as of January 31, 2003 between The Glad Products Company and certain affiliates and The Procter and Gamble Company and certain affiliates (filed as Exhibit 10 to the amended Quarterly Report on Form 10-Q/A for the quarter ended December 31, 2004, incorporated herein by reference).	
10.25*	Form of Employment Offer Letter for Executive Committee Members.	
10.26*	Schedule of Director Compensation.	
21.1	Subsidiaries.	
23.1	Consent of Independent Registered Public Accounting Firm.	
24.1	Power of Attorney (see page 24).	
31.1	Certification of the Chief Executive Officer of The Clorox Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
31.2	Certification of the Chief Financial Officer of The Clorox Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
32.1	Certification of the Chief Executive Officer and Chief Financial Officer of The Clorox Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
22

 

99-1	Management’s Discussion and Analysis of Financial Condition and Results of Operations, Financial Statements, Management’s Report on Internal Control over Financial Reporting and Report of Independent Registered Accounting Firm.	
99-2	Valuation and Qualifying Accounts and Reserves.	
99-3	Return on Invested Capital.	
 
(+) Confidential treatment has been granted for certain information contained in this document. Such information has been omitted and filed separately with the Securities and Exchange Commission.
(*) Indicates a management or director contract or compensatory plan or arrangement required to be filed as an exhibit to this report.
23

 SIGNATURES
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.

	THE CLOROX COMPANY	
Date: August 31, 2005	By: /s/	G. E. JOHNSTON	
 	 	G. E. Johnston, Chairman and Chief Executive Officer	

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Laura Stein, Daniel J. Heinrich, and Thomas D. Johnson jointly and severally, attorneys-in-fact and agents, with full power of substitution, for him or her in any and all capacities to sign any and all amendments to this Form 10-K, and to file the same and all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact and agents, and his, her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	 	 	 	Title	 	 	 	Date	 	
/S/ D. BOGGAN, JR.	 	 	 	 	
D. Boggan, Jr.	 	Director	 	August 31, 2005	
/S/ T. M. FRIEDMAN	 	 	 	 	
T. M. Friedman	 	Director	 	August 31, 2005	
/S/ W. R. JOHNSON	 	 	 	 	
W. R. Johnson	 	Director	 	August 31, 2005	
/S/ G. E. JOHNSTON	 	 	 	 	
G. E. Johnston	 	Chairman and Chief Executive Officer	 	August 31, 2005	
/S/ R. W. MATSCHULLAT	 	 	 	 	
R. W. Matschullat	 	Presiding Director	 	August 31, 2005	
/S/ G. G. MICHAEL	 	 	 	 	
G. G. Michael	 	Director	 	August 31, 2005	
/S/ J. L. MURLEY	 	 	 	 	
J. L. Murley	 	Director	 	August 31, 2005	
/S/ L. R. SCOTT	 	 	 	 	
L. R. Scott	 	Director	 	August 31, 2005	
/S/ M. E. SHANNON	 	 	 	 	
M. E. Shannon	 	Director	 	August 31, 2005	
/S/ C. M. TICKNOR	 	 	 	 	
C. M. Ticknor	 	Director	 	August 31, 2005	
/S/ D. J. HEINRICH	 	 	 	 	
D. J. Heinrich	 	Senior Vice President – Chief Financial
Officer (Principal Financial Officer)	 	August 31, 2005	
/S/ T. D. JOHNSON	 	 	 	 	
T. D. Johnson	 	Vice President – Controller
(Principal Accounting Officer)	 	August 31, 2005	
 
24

 INDEX OF EXHIBITS

3.1	Restated Certificate of Incorporation (filed as Exhibit 3(iii) to the Quarterly Report on Form 10-Q for the quarter ended December 31, 1999, incorporated herein by reference).	
3.2	Bylaws (restated) of the Company (filed as Exhibit 3(ii) to the Annual Report on Form 10-K for the year ended June 30, 2003, incorporated herein by reference).	
4.1	Indenture dated as of December 3, 2004 by and between the Company and The Bank of New York Trust Company N.A., as trustee (filed as Exhibit 4.1 to the Current Report on Form 8-K filed on December 3, 2004, incorporated herein by reference).	
4.2	Exchange and Registration Agreement dated December 3, 2004 relating to the Company’s Floating Rate Notes due 2007, 4.20% Senior Notes due 2010 and 5.00% Notes due 2015 (filed as Exhibit 4.2 to the Current Report on Form 8-K filed on December 3, 2004, incorporated herein by reference).	
4.3	Cross-reference table for Indenture dated as of December 3, 2004 (listed as Exhibit 4.1 above) and the Trust Indenture Act of 1939, as amended (filed as Exhibit 4.3 to the Registration Statement on Form S-4 (File No. 333-123115), as declared effective by the Securities and Exchange Commission on April 29, 2005).	
10.1*	Long-Term Compensation Program dated October 21, 1987, amended November 17, 1993, which was adopted by the stockholders at the Company’s annual meeting of stockholders on November 17, 1993 (filed as Exhibit 10.1(i) to the Annual Report on Form 10-K for the year ended June 3, 2002, incorporated herein by reference).	
10.2*	Supplemental Executive Retirement Plan Restated dated July 17, 1991 and amended May 18, 1984, January 1, 1996, January 19, 2000 and July 20, 2004 (filed as Exhibit 10(vi) to the Annual Report on Form 10-K for the year ended June 30, 2004, incorporated herein by reference).	
10.3(i)*	1993 Directors’ Stock Option Plan dated November 17, 1993, which was adopted by the stockholders at the Company’s annual meeting of stockholders on November 17, 1993, and amended and restated on September 15, 2004 (filed as Exhibit 10-2 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, incorporated herein by reference).	
10.3(ii)*	Form of Option Award under the 1993 Directors’ Stock Option Plan as amended and restated September 15, 2004 (filed as Exhibit 10-3 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, incorporated herein by reference).	
10.4*	Form of Officer Employment Agreement (filed as Exhibit 10(viii) to the Annual Report of Form 10-K for the year ended June 30, 2004, incorporated herein by reference).	
10.5*	Form of Officer Change in Control Employment Agreement (filed as Exhibit 10(ix) to the Annual Report on Form 10-K for the year ended June 30, 2004, incorporated herein by reference).	
10.6*	Non-Qualified Deferred Compensation Plan adopted as of January 1, 1996 and amended and restated as of July 20, 2004 (filed as Exhibit 10(x) to the Annual Report on Form 10-K for the year ended June 30, 2004, incorporated herein by reference).	
10.7*	The Clorox Company 1995 Performance Unit Plan (filed as Exhibit 10(xi) to the Annual Report on Form 10-K for the year ended June 30, 2002, incorporated herein by reference).	
10.8*	The Clorox Company 1996 Stock Incentive Plan, which was adopted by the stockholders at the Company’s annual meeting of stockholders on November 28, 2001, amended and restated as of September 15, 2004 (filed as Exhibit 10-4 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, incorporated herein by reference).	
10.9(i)*	The Clorox Company Executive Incentive Compensation Plan, adopted in 1996, re-adopted in 2001, and amended and restated as of July 20, 2004 (filed as Exhibit 10(xiii) to the Annual Report on Form 10-K for the year ended June 30, 2004, incorporated herein by reference).	
10.9(ii)*	Form of Option Award under the Company’s 1996 Stock Incentive Plan as amended and restated September 15, 2004 (filed as Exhibit 10-5 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, incorporated herein by reference).	

 

10.9(iii)*	Form of Performance Unit Award under the Company’s 1996 Stock Incentive Plan as amended and restated September 15, 2004 (filed as Exhibit 10-6 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, incorporated herein by reference).	
10.9(iv)*	Form of Award under the Company’s Executive Incentive Compensation Plan (filed as Exhibit 10-7 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, incorporated herein by reference).	
10.10*	The Clorox Company Independent Directors’ Stock-Based Compensation Plan (filed as Exhibit 10(xiv) to the Annual Report on Form 10-K for the year ended June 30, 2002, which was adopted by the stockholders at the Company’s annual meeting of stockholders on November 19, 2003, incorporated herein by reference).	
10.11*	The Clorox Company Annual Incentive Plan (formerly named The Clorox Company Management Incentive Compensation Plan), amended and restated as of July 20, 2004 (filed as Exhibit 10(xvi) to the Annual Report on Form 10-K for the year ended June 30, 2004, incorporated herein by reference).	
10.12*	Agreement between The Clorox Company and G. Craig Sullivan, effective as of November 1, 2001 (filed as Exhibit 10(xvii) to the Quarterly Report on Form 10-Q for the quarter ended December 31, 2001, incorporated herein by reference).	
10.13*	The Clorox Company 1996 Stock Incentive Plan Restricted Stock Unit Award Agreement entered into by The Clorox Company and Gerald E. Johnston, effective as of July 15, 2003 (filed as Exhibit 10(xxi) to the Annual Report on Form 10-K for the year ended June 30, 2003, incorporated herein by reference).	
10.14*	The Severance Pay Plan for Level 2 and Level 3 Executives effective as of July 1, 2004 (filed as Exhibit 10(xx) to the Annual Report on Form 10-K for the year ended June 30, 2004, incorporated herein by reference).	
10.15	Share Exchange Agreement dated as of October 6, 2004 by and among the Company, Henkel KGaA and HC Investments, Inc. (filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, incorporated herein by reference).	
10.16	Commercial Paper Dealer Agreement between The Clorox Company, as Issuer, and Banc of America Securities LLC, as Dealer (filed as Exhibit 10.1 to the Report on Form 8-K, filed November 16, 2004, incorporated herein by reference).	
10.17	Commercial Paper Dealer Agreement between The Clorox Company, as Issuer and Citicorp Global Markets Inc., as Dealer (filed as Exhibit 10.2 to the Report on Form 8-K, filed November 16, 2004, incorporated herein by reference).	
10.18	Commercial Paper Dealer Agreement between The Clorox Company, as Issuer and Goldman, Sachs & Co., as Dealer (filed as Exhibit 10.3 to the Report on Form 8-K, filed November 16, 2004, incorporated herein by reference).	
10.19	Commercial Paper Dealer Agreement between The Clorox Company, as Issuer and J.P. Morgan Securities Inc., as Dealer (filed as Exhibit 10.4 to the Report on Form 8-K, filed November 16, 2004, incorporated herein by reference).	
10.20	Issuing and Paying Agency Agreement by and between The Clorox Company and J.P. Morgan Trust Company, National Association (filed as Exhibit 10.5 to the Report on Form 8-K, filed November 16, 2004, incorporated herein by reference).	
10.21	Credit Agreement dated as of November 15, 2004 among The Clorox Company, The Banks listed therein, Citicorp North America, Inc. and J.P. Morgan Chase Bank, N.A., as Administrative Agents, Citicorp North America, Inc., as Servicing Agent, and Goldman Sachs Credit Partners L.P., as Syndication Agent (filed as Exhibit 10-1 to the Report on Form 8-K, filed November 19, 2004, incorporated herein by reference).	
10.22	Purchase Agreement dated November 30, 2004 relating to the Floating Rate Senior Notes due December 2007, 4.20% Senior Notes due January 2010 and 5.00% Senior Notes due January 2015 (filed as Exhibit 10.1 to the Report on Form 8-K, filed December 3, 2004, incorporated herein by reference).	

 

10.23	$1,300,000,000 Credit Agreement dated as of December 7, 2004 among The Clorox Company, the Banks listed therein, Citicorp USA, Inc. and J.P. Morgan Chase Bank, N.A. as Administrative Agents, Wachovia Bank, N.A. and Bank of America, N.A. as Syndication Agents, and BNP Paribas, ING Capital LLC, Calyon New York Branch and The Bank of Tokyo-Mitsubishi, Ltd. Seattle Branch as Documentation Agents (filed as Exhibit 10-1 to the Report on Form 8-K, filed December 9, 2004, incorporated herein by reference).	
10.24(+)	Amended and Restated Joint Venture Agreement dated as of January 31, 2003 between The Glad Products Company and certain affiliates and The Procter and Gamble Company and certain affiliates (filed as Exhibit 10 to the amended Quarterly Report on Form 10-Q/A for the quarter ended December 31, 2004, incorporated herein by reference).	
10.25*	Form of Employment Offer Letter for Executive Committee Members.	
10.26*	Schedule of Director Compensation.	
21.1	Subsidiaries.	
23.1	Consent of Independent Registered Public Accounting Firm.	
24.1	Power of Attorney (see page 24).	
31.1	Certification of the Chief Executive Officer of The Clorox Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
31.2	Certification of the Chief Financial Officer of The Clorox Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
32.1	Certification of the Chief Executive Officer and Chief Financial Officer of The Clorox Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
99-1	Management’s Discussion and Analysis of Financial Condition and Results of Operations, Financial Statements, Management’s Report on Internal Control over Financial Reporting and Report of Independent Registered Accounting Firm.	
99-2	Valuation and Qualifying Accounts and Reserves.	
99-3	Return on Invested Capital.	
 
(+) Confidential treatment has been granted for certain information contained in this document. Such information has been omitted and filed separately with the Securities and Exchange Commission.
(*) Indicates a management or director contract or compensatory plan or arrangement required to be filed as an exhibit to this report.

 
Exhibit 10.25
[FORM OF EMPLOYMENT OFFER LETTER FOR CLOROX EXECUTIVE COMMITTEE MEMBERS]
[Date]
Dear                         ,
Congratulations. I am delighted to confirm our employment offer to you for the position of                       for the Clorox Company. We believe you will be an excellent addition to the Company’s senior management team and that you will be able to play a key role in the growth and development of the Company in the years ahead.
The key points of our employment offer are as follows:

Annual Salary	Your annual base salary will be $              , payable semimonthly, per the Company’s Salary Administration Policy.	
Reporting Relationship	You will report directly to                      .	
Responsibilities	In this position you will be responsible for                   .	
 	You will also be a member of the Clorox Executive Committee (CEC) and a member of the Clorox Leadership (CLC) and Clorox Management (CMC) Committees.	
Sign-on Cash	You will receive an acceptance allowance of $             .	
Sign-on Stock Options	You will receive              of non-qualified stock options within 90 days of your hire date. This grant will be effective on your hire date and the option price will be the fair market value on your date of hire. Fair market value is defined as the closing sales price for a share on the last market-trading day prior to the grant date. Your options will vest over four years: 25% each year beginning one year from the grant date. At today’s price of approximately $             , the value of this award is approximately $             using the Black-Scholes valuation methodology.	
Sign-on Restricted Stock	After you have been employed with the Company for 30 days, you will receive           shares of Restricted Stock ($          approximate value at today’s price). The Restricted Stock grant will be released 50% at the end of two years and 50% at the end of four years.	
Sign-on Performance Units	You will receive              performance units within 90 days of your hire date. This grant will be effective on your hire date. These shares will vest in              based on Clorox’s ROIC performance during this timeframe. At today’s price of approximately $              , the value of this award is approximately $              using the Black-Scholes valuation methodology.	
Executive Incentive Compensation Plan	You will be a participant in our Executive Incentive Compensation (“EIC”) plan. Awards under this plan are based on the progress of the Company’s business and performance against key Clorox initiatives. Your annual cash bonus target award under this plan will be         % of your base salary. The payout amounts range from 0% to 200%. The actual award will be adjusted upward or downward depending upon the Company’s performance and an evaluation of your individual performance. (For this fiscal year, you will be paid a guaranteed payout at target (based on a 100% Corporate and individual payout), prorated from the date of hire).	

 

Long-Term Incentive Program	You will be eligible to participate in the Company’s long-term incentive program, which currently includes awards of stock options and performance shares. Awards are normally granted in September. Awards are targeted at the median of the compensation comparator group with an opportunity to reach the 75 th percentile for top tier company performance. You will be eligible for consideration for an annual award in             .	
Supplemental Executive Retirement Plan	You will be a participant in the Supplemental Executive Retirement Plan (“SERP”), which is currently targeted to provide 55% of your average annual cash compensation, including bonus (EIC), for the highest three years of employment for participants retiring at age 65 with a minimum of 15 years of service. A reduced benefit is available to those who retire at or after age 55 with at least 10 years of service.	
Employment Agreement	You will be provided a two-year Employment Agreement.	
Change in Control Agreement	You will be provided a Change in Control Employment Agreement with a three-year term.	
Company Car	You will be provided a Company automobile or an allowance ($             per year) plus parking and a cell phone.	
Benefits	You will participate in all of The Clorox Company’s Employee Plans for Salaried Employees. Any waiting period will be waived, except for the Value Sharing and Pension Plan where participation begins after one year of employment. Participation in the 401(k) Plan will start immediately, but eligibility to receive the Company matching contribution will begin one year after employment.	
Vacation	You will be eligible for four (4) weeks of vacation in addition to regular Company holidays. Your first year of vacation will be pro-rated based on your start date. The accrual and usage of vacation is subject to the provisions set forth in the Company’s Vacation policy.	
Club Membership	You will be entitled to membership in a local luncheon club or athletic club.	
Financial Planning	You will receive an annual credit of $             toward financial planning services. Financial planning is provided either by Kochis Fitz or Price-WaterhouseCoopers (forty percent of the annual fee is considered imputed income and has applicable taxes withheld from each paycheck).	
Air Travel	You may travel by Business Class, or First Class if Business Class is not available, for flights longer than 3 hours.	
Relocation	We will cover relocation expenses associated with your move per our relocation policy.	
Start date	              , pending satisfactorily meeting the requirements listed below.	
 
Your offer and employment are contingent upon the following:
·        Successful completion of pre-employment screening, which may include a background check and credit report.
·        Verification of your right-to-work status, as required under the 1986 Immigration Reform and Control Act. You will be required to present original documents as proof of your identity and right to work on your first day of employment. A list of acceptable documents is attached.
·        Satisfying the Company’s pre-employment drug testing requirements. Once you have advised us of your acceptance of this offer, please contact the National Scheduling Center within 72 hours at (888) 695-3465 (8 a.m. – 6 p.m., Eastern time, Monday – Friday) to arrange for a pre-employment

drug screening. Take the enclosed Chain of Custody form and air bill with you to the collection facility.
·        Our receipt of your signed letter of acceptance.
Also, enclosed is a copy of the Invention Assignment and Secrecy Agreement that you will be required to sign when you start employment.
Please acknowledge acceptance of our offer by signing and dating a copy of this letter below and faxing a copy to              and returning the original in the self-addressed envelope to              by             .
I’m excited about the prospect of you joining Clorox and the opportunity for us to work together. I believe you will have a positive impact on the growth, the long-term strategy and direction of the Company.
If you have any questions or need clarification on any of the above items, please call me at             .

	Best Regards,	

 	 	 	
 	
This offer remains valid through	 	 	
I accept the employment offer under the terms listed above.	
 	
Signature:	 	 	
 	
Date:	 	 	

									

 
Exhibit 10.26
 Summary Schedule of Director Compensation
Non-management directors of The Clorox Company receive annual fees for service on the Board of Directors and Board Committees as follows:

Annual director retainer	 	$	75,000	 	
Presiding director retainer	 	25,000	 	
Committee chair retainers:	 	 	 	
Nominating and Governance Committee*	 	0	 	
Finance Committee	 	5,000	 	
Audit Committee	 	15,000	 	
Management Development and Compensation Committee	 	15,000	 	

*                     The presiding director is currently chair of the Nominating and Governance Committee and does not receive a Committee chair retainer in addition to the Presiding Director retainer.
Under the Company’s Independent Directors’ Stock-Based Compensation Plan, a director may annually elect to receive all or a portion of his or her annual retainer and fees in the form of cash, Common Stock, deferred cash or deferred stock units. In addition, each non-management director receives an annual grant of deferred stock units with a value of $75,000. Interest accrues on deferred cash amounts at an annual interest rate equal to Wells Fargo Bank’s prime lending rate in effect on January 1 of each year. Each deferred stock unit represents a hypothetical share of Common Stock, and additional deferred stock units are allocated to a participant’s deferred stock unit account in amounts equivalent to Common Stock dividends paid by the Company. Upon termination of service as a director, the amounts accrued for the account of the director under the Independent Directors’ Stock-Based Compensation Plan are paid out at the director’s election in five annual installments or in one lump sum payment. In addition, each non-management director is entitled to receive $2,500 per day for any special assignment requested of any such director by the Board. No special assignment fees were paid in fiscal year 2005.
In addition to the annual fees described above, each new director receives a one-time grant of 8,000 options upon joining the Board.
Other than compensation described above, directors who are not employees of the Company do not receive any additional form of direct compensation, nor do they participate in any of the Company’s employee benefit plans, except the Company’s higher education matching gifts program, under which the Company will match up to $5,000 annually in gifts to an eligible institution of higher learning. Management directors receive no additional compensation for their service as directors.

 
Exhibit 21.1

Name of Company	 	Jurisdiction of Incorporation	
1221 Olux, LLC	 	Delaware	
A & M Products Manufacturing Company	 	Delaware	
Andover Properties, Inc.	 	Delaware	
The Armor All/STP Products Company	 	Delaware	
BGP Switzerland S. a. r. l.	 	Switzerland	
Brita Canada Corporation	 	Nova Scotia	
Brita Canada Holdings Corporation	 	Nova Scotia	
Brita GP	 	Ontario	
Brita LP	 	Ontario	
Brita Manufacturing Company	 	Delaware	
The Brita Products Company	 	Delaware	
Chesapeake Assurance Limited	 	Hawaii	
Clorox Africa (Holdings) Pty. Ltd.	 	South Africa	
Clorox Africa Pty. Ltd.	 	South Africa	
Clorox Argentina S.A.	 	Argentina	
Clorox Australia Pty. Ltd.	 	Australia	
Clorox (Barbados) Inc.	 	Barbados	
Clorox Brazil Holdings LLC	 	Delaware	
Clorox do Brasil Ltda.	 	Brazil	
Clorox Car Care Limited	 	United Kingdom	
Clorox (Cayman Islands) Ltd.	 	Cayman Islands	
Clorox de Centro America, S.A.	 	Costa Rica	
Clorox Chile S.A.	 	Chile	
Clorox China (Guangzhou) Ltd.	 	Guangzhou, P.R.C.	
Clorox de Colombia S.A.	 	Colombia	
Clorox Commercial Company	 	Delaware	
The Clorox Company of Canada Ltd.	 	Canada (Federal)	
The Clorox Company of Puerto Rico	 	Delaware	
Clorox Diamond Production Company	 	Delaware	
Clorox Dominicana, C. por A.	 	Dominican Republic	
Clorox Eastern Europe LLC	 	Russia	
Clorox Eastern Europe Holdings LLC	 	Delaware	
Clorox (Europe) Financing S.a.r.l.	 	Luxembourg	
The Clorox Far East Company Limited	 	Hong Kong	
Clorox Germany GmbH	 	Germany	
Clorox Holdings Pty. Limited	 	Australia	
Clorox Hong Kong Limited	 	Hong Kong	
Clorox Hungary Liquidity Management Kft	 	Hungary	
The Clorox International Company	 	Delaware	
Clorox International Philippines, Inc.	 	The Philippines	
Clorox Mexicana S. de R.L. de C.V.	 	Mexico	

 

Clorox de Mexico, S.A. de C.V.	 	Mexico	
Clorox Netherlands B.V.	 	The Netherlands	
Clorox New Zealand Limited	 	New Zealand	
Clorox de Panama S.A.	 	Panama	
Clorox Peru S.A.	 	Peru	
The Clorox Outdoor Products Company	 	Delaware	
The Clorox Pet Products Company	 	Texas	
Clorox Professional Products Company	 	Delaware	
The Clorox Sales Company	 	Delaware	
Clorox Services Company	 	Delaware	
Clorox Servicios Corporativos S. de R.L. de C.V.	 	Mexico	
Clorox Switzerland S.a.r.l.	 	Switzerland	
Clorox Uruguay S.A.	 	Uruguay	
Corporacion Clorox de Venezuela, S.A..	 	Venezuela	
CLX Realty Co.	 	Delaware	
Electroquimicas Unidas S.A.I.C.	 	Chile	
Evolution Sociedad S.A.	 	Uruguay	
Fabricante de Productos Plasticos, S.A. de C.V.	 	Mexico	
First Brands (Bermuda) Limited	 	Bermuda	
First Brands do Brasil Ltda.	 	Brazil	
First Brands Corporation	 	Delaware	
First Brands Mexicana, S.A. de C.V.	 	Mexico	
Forest Technology Corporation	 	Delaware	
Fully Will Limited	 	Hong Kong	
Gazoontite, LLC	 	Delaware	
Glad Manufacturing Company	 	Delaware	
The Glad Products Company	 	Delaware	
The Household Cleaning Products Company of Egypt Ltd.	 	Egypt	
The HV Food Products Company	 	Delaware	
HV Manufacturing Company	 	Delaware	
Invermark S.A.	 	Argentina	
Jingles LLC	 	Delaware	
Kaflex S.A.	 	Argentina	
Kingsford Manufacturing Company	 	Delaware	
The Kingsford Products Company	 	Delaware	
Lerwood Holdings Limited	 	British Virgin Islands	
The Mexco Company	 	Delaware	
Multifoil Trading (Pty) Ltd.	 	South Africa	
National Cleaning Products Company Limited	 	Saudi Arabia	
Pacico International Limited	 	Hong Kong	
Paulsboro Packaging Inc.	 	New Jersey	
Petroplus Produtos Automotivos S.A.	 	Brazil	
Petroplus Sul Comercio Exterior S.A.	 	Brazil	
Polysak, Inc.	 	Connecticut	

 

Quimica Industrial S. A.	 	Chile	
Round Ridge Production Company	 	Delaware	
Sarah Resources Limited	 	Ontario	
STP do Brasil Ltda.	 	Brazil	
STP Products Manufacturing Company	 	Delaware	
Traisen S.A.	 	Uruguay	
United Cleaning Products Manufacturing Company Limited	 	Yemen	
Yuhan-Clorox Co., Ltd.	 	Korea	

 
 Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements:
(1)          Registration Statement (Form S-3 No. 333-75455) and in the related Prospectus of The Clorox Company, and
(2)          Registration Statements (Form S-8 No. 33-41131, including post effective amendments No. 1 and No. 2, and Nos. 33-23582, 33-56565, 33-56563, 333-29375, 333-16969, 333-44675 and 333-90386) of The Clorox Company;
of our reports dated August 26, 2005, with respect to the consolidated financial statements and schedule of The Clorox Company, The Clorox Company management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of The Clorox Company, included in its Annual Report on Form 10-K for the fiscal year ended June 30, 2005.

/s/ ERNST & YOUNG LLP	 	
San Francisco, California	
August 26, 2005	

 
Exhibit 31.1
CERTIFICATION
I, Gerald E. Johnston, certify that:
1.                                      I have reviewed this annual report on Form 10-K of The Clorox Company;
2.                                      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.                                      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.                                      The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)                Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b)               Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)                Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)               Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.                                      The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a)                                    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to affect the registrant’s ability to record, process, summarize and report financial information; and
b)                                   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: August 31, 2005	 	
 	/s/ Gerald E. Johnston	
 	Gerald E. Johnston	
 	Chairman and Chief Executive Officer	

 
 Exhibit 31.2
 CERTIFICATION
I, Daniel J. Heinrich, certify that:
1.                                      I have reviewed this annual report on Form 10-K of The Clorox Company;
2.                                      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.                                      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.                                      The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 13d-15(f)) for the registrant and have:
a)                Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b)               Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)                Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)               Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.                                      The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a)                                    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to affect the registrant’s ability to record, process, summarize and report financial information; and
b)                                   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: August 31, 2005	 	
 	/s/ Daniel J. Heinrich	
 	Daniel J. Heinrich	
 	Senior Vice President — Chief Financial Officer	

 
 Exhibit 32.1
 CERTIFICATION
In connection with the annual report of The Clorox Company (the “Company”) on Form 10-K for the fiscal year ended June 30, 2005 as filed with the Securities and Exchange Commission (the “Report”), we, Gerald E. Johnston, Chief Executive Officer and Daniel J. Heinrich, Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to our knowledge:
(1)                              the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and
(2)                              the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

Dated this 31st day of August, 2005.	
/s/ Gerald E. Johnston	
Gerald E. Johnston	
Chairman and Chief Executive Officer	
/s/ Daniel J. Heinrich	
Daniel J. Heinrich	
Senior Vice President — Chief Financial Officer	

 
Exhibit 99-1
Management’s Discussion and Analysis of Financial Condition,
Financial Statements, Management’s Report on Internal Control over Financial Reporting
and Report of Independent Registered Accounting Firm
MANAGEMENT’S DISCUSSION & ANALYSIS
The Clorox Company
(Dollars in millions, except per-share amounts)
 EXECUTIVE OVERVIEW
The Clorox Company (the “Company” or “Clorox”) is a leading manufacturer and marketer of consumer products with fiscal year 2005 revenues of $4,388. Clorox markets some of consumers’ most trusted and recognized brand names, including its namesake bleach and cleaning products, Armor All® and STP® auto care products, Fresh Step® and Scoop Away® cat litters, Kingsford® charcoal briquets, Hidden Valley® and K C Masterpiece® dressings and sauces, Brita® water-filtration systems, and Glad® bags, wraps and containers. With approximately 7,600 employees worldwide, the Company manufactures products in more than 20 countries and markets them in more than 100 countries.
 GOAL AND STRATEGIES
The Company’s goal is to develop and market products that are the most successful in their categories and that make consumers’ lives easier, healthier and better. Brands like Glad Press ‘n Seal® and GladWare®, that help make storing and protecting food easier; Clorox® bleach and Clorox disinfecting wipes, that help make homes healthier; and Kingsford charcoal, which helps make grilled foods taste better, are products that are consistent with this goal. The Company competes in mid-sized categories that generally have a regional profile, like the United States or Latin America, and usually have limited major competitors.
The Company evaluates the brands and businesses in its portfolio to assess whether they have a strong market position and solid profit-growth potential, or are likely to establish such a competitive position and growth potential. The Company plans to make further investments in those brands or businesses that have the greatest potential to accelerate top-line and profit growth over time. The Company plans to sustain its investments in those brands or businesses where strong market positions and growth potential already exist, and plans to optimize for value, or in some cases, exit, the few brands or businesses in which less growth potential is expected.
The Company’s strategy is to continue to expand strategic capabilities that drive value into the categories in which it competes. In order to win over the long term, the Company plans to continue to develop its strategic capabilities in six cornerstone areas: consumers, customers, cost, people, process and partnerships. The most important success factor is the ability to build and apply world-class consumer insights into brand-building activities. The other major keys to success include the ability to deliver value-creating services to retail customers based on mutual growth and profit potential, and the ability to improve productivity, enhance margins and lower costs . The ability to successfully execute these core business strategies rests on the strength of the enabling strategies: the leadership capabilities and bench strength of our people, processes that create a seamless organization and partnerships that create virtual scale and drive growth.
 FISCAL YEAR 2005 FINANCIAL PERFORMANCE AND BUSINESS EVENTS
The Company leveraged its corporate capabilities to deliver strong performance against its annual financial targets, while continuing to strive for consistency in its annual financial results. The following
1

MANAGEMENT’S DISCUSSION & ANALYSIS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
discussion highlights the most significant aspects of its fiscal year 2005 financial performance, along with other key events and trends.
 FINANCIAL PERFORMANCE
·        Net sales increased 5% during fiscal year 2005 reflecting results of brand-building efforts from our consumer insights process. Innovative new products developed from our consumer insights process provided meaningful growth, including the fiscal year 2004 fourth quarter launch of Clorox ToiletWand™ disposable toilet-cleaning system, and the fiscal year 2005 launches of Glad ForceFlex™ trash bags, and Clorox BathWand™ cleaning system. The Company expects annual net sales growth of 3% to 5% through 2008 supported by growth from established brands and new products. In fiscal year 2006, this includes, among other items, the expansion of the Glad ForceFlex technology into the OdorShield® line of trash bags, and the launch of improved Kingsford charcoal, which offers improved cooking performance for consumers.
·        Diluted net earnings per common share from continuing operations increased 26% despite a challenging commodities cost environment and increased investment in advertising and other brand-building activities. Gross margin decreased 1% driven in large part by rapidly rising commodities costs. The Company responded to these margin pressures through price increases and cost savings initiatives. In fiscal year 2005, the Company delivered approximately $104 in cost savings through trade spending efficiencies, reductions in unsaleables, logistics and manufacturing efficiencies and procurement savings. The Henkel share exchange (described below) also contributed to earnings per share accretion in fiscal year 2005.
·        In fiscal year 2005, the Company delivered free cash flow of 14% of net sales , ahead of its longer term target range of 10% to 12%. Strong performance in free cash flow, defined as cash flow from operations less capital expenditures, was delivered through strong earnings and continued discipline in fixed and working capital management (see page 5 for a reconciliation of free cash flow).
·        The Company’s return on invested capital (“ROIC”) (see page 5 for a discussion of ROIC and exhibit 99-3 for a reconciliation of ROIC) was 13.9% in fiscal year 2005 reflecting a modest improvement for the fiscal year. Strong capital management helped to mitigate the impact of commodity cost increases on the return on invested capital in fiscal year 2005. The Company is targeting 150 to 250 basis point improvement in its return on invested capital by 2008 through continued focus on top-line growth, margin enhancement and capital management.
SHARE EXCHANGE AGREEMENT
The Company completed the largest transaction in its history with Henkel KG&A (“Henkel”) during November 2004, by exchanging its ownership interest in a subsidiary for Henkel’s interest in Clorox common stock. Prior to the completion of the exchange, Henkel owned approximately 61.4 million shares, or about 29% of the Company’s outstanding common stock. The parties agreed that the Company would provide exchange value equal to $46.25 per share of Company stock being acquired in the exchange. The subsidiary transferred to Henkel contained Clorox’s existing insecticides and Soft Scrub® cleanser operating businesses, its 20% interest in the Henkel Iberica joint venture, and $2,095 in cash. This transaction was structured to qualify as a tax-free exchange and was ultimately financed through the issuance of $1,650 in senior notes. The Company experienced earnings-per-share accretion in fiscal year
2

MANAGEMENT’S DISCUSSION & ANALYSIS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
2005 due to the lower amount of outstanding shares caused by this transaction, partially offset by lost profits related to the exchanged operating businesses and higher interest costs. The Company expects this accretion to continue into fiscal year 2006.
GLAD SUPPLY CHAIN RESTRUCTURING
In July 2004, the board of directors approved the second phase of a restructuring plan involving the Glad plastic bags, wraps and containers business, part of the Specialty Group operating segment. This phase included closing a manufacturing facility and assigning remaining production between certain of the Company’s North American plants and third-party suppliers during fiscal year 2005. The Company recorded pretax restructuring charges of $32 during fiscal year 2005 in conjunction with this phase, including asset impairment charges of $26, and employee severance and other charges of $6. In addition to restructuring charges, the Company recorded $7 of incremental operating costs, which were associated primarily with equipment and inventory transfer charges. Together with the first phase of the Glad restructuring plan, which was approved in fiscal year 2004 and included $10 of asset impairment charges related to certain manufacturing equipment taken out of service and $1 of employee severance charges, the Company expects annual pretax cost savings of approximately $15 to $20 from the Glad supply chain restructuring.
OTHER DEVELOPMENTS
In January 2005, the Company announced new management responsibilities, which resulted in the transfer of the automotive and professional products businesses from the Specialty Group segment to the Household Group — North America segment, and the transfer of the domestic Glad plastic bags, wraps and containers business from the Household Group — North America segment to the Specialty Group segment.
The following are highlights of other key fiscal year 2005 developments, which are discussed in more detail on the parenthetically-referenced pages of Management’s Discussion and Analysis:
·        In January 2005, The Procter & Gamble Company (“P&G”) paid the Company $133 to exercise its option to increase its interest in the Venture Agreement from 10% to 20% (Page 13). The Company expects that the scale created by this business partnership, which has already yielded consumer product innovations such as Glad Press ‘n Seal and Glad ForceFlex, will continue to drive product innovation in future periods.
·        In April 2005, the Company settled a tax contingency with the Internal Revenue Service (“IRS”), which resulted in tax payments of $94 (excluding $6 of tax benefits) in fiscal year 2005 and $150 in the first quarter of fiscal year 2006 (Page 16).
·        The Company expects to repatriate approximately $200 of earnings from its foreign subsidiaries in fiscal year 2006 in order to receive a one-time dividends-received deduction allowed under the terms of the American Jobs Creation Act of 2004 (the “Act”). The Company expects that the cash made available to the parent company by the Company’s foreign locations will be used for reinvestment in qualifying activities (Page 18).
·        Beginning in fiscal year 2006, the Company will begin to record compensation cost for its stock option grants and implement other new rules related to share-based payments, which the Company
3

MANAGEMENT’S DISCUSSION & ANALYSIS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
expects to reduce annual diluted net earning per common share by $0.14 to $0.16 in fiscal year 2006 (Page 17).
The Company believes the success of its strategies is reflected in its strong financial performance in fiscal year 2005. For a more detailed analysis of the Company’s fiscal year results, please refer to the “Results of Worldwide Operations” and “Financial Position and Liquidity” in the sections that follow.
 RESULTS OF WORLDWIDE OPERATIONS
Management’s discussion and analysis of the results of operations, unless otherwise noted, compares fiscal year 2005 to fiscal year 2004 and fiscal year 2004 to fiscal year 2003, using percent changes calculated on an unrounded basis. In certain instances, parenthetical references are made to relevant sections of the Notes to Consolidated Financial Statements to direct the reader to a further detailed discussion.
As described in Note 1 in the Notes to Consolidated Financial Statements, certain reclassifications have been made to all prior periods presented to conform to the current year presentation, including the reclassifications necessary to reflect the fiscal year 2005 realignment of management responsibilities in the reporting of segment information, which was discussed in the Executive Overview. On March 3, 2005, the Company filed reclassified financial statements to reflect as discontinued operations the operating businesses that it exchanged as part of the Henkel share exchange, which is also discussed above in the Executive Overview.
 FINANCIAL PERFORMANCE MEASURES

 	 	 	 	 	 	 	 	% Change	 	
 	 	2005	 	2004	 	2003	 	2005
to
2004	 	2004
to
2003	 	
Net sales	 	$	4,388	 	$	4,162	 	$	3,986	 	 	5	%	 	 	4	%	 	
Gross profit	 	1,895	 	1,831	 	1,815	 	 	3	 	 	 	1	 	 	
Diluted net earnings per common share from continuing operations	 	2.88	 	2.28	 	2.08	 	 	26	 	 	 	10	 	 	
Free cash flow as a % of net sales	 	14.0	%	17.5	%	15.1	%	 	 	 	 	 	 	 	 	
Return on invested capital	 	13.9	%	13.5	%	13.9	%	 	 	 	 	 	 	 	 	

Net sales in fiscal year 2005 increased 5% compared to the prior period, driven primarily by overall volume growth of 5%. Other factors impacting net sales included price increases offset by increased trade-promotion spending. The improvement in volume was driven by new product introductions and increased shipments of established products. During fiscal year 2005, the Company introduced several new products, including Glad ForceFlex trash bags, the Clorox BathWand cleaning system, Clorox dual action toilet bowl cleaner, Clorox disinfecting bathroom cleaner, Glad Press ‘n Seal Freezer™ wrap, and three new flavors of K C Masterpiece food items.
Net sales in fiscal year 2004 increased 4% compared to fiscal year 2003, driven by overall volume growth of 4%, resulting from new product introductions and increased shipments of established products. During fiscal year 2004, the Company introduced several new products, including Glad Press ‘n Seal sealable plastic wrap, Clorox Bleach Pen ® gel and Clorox ToiletWand disposable toilet-cleaning system, three new flavors of Hidden Valley salad dressings and two new K C Masterpiece barbeque items.
4

MANAGEMENT’S DISCUSSION & ANALYSIS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
Gross profit increased 3% in fiscal year 2005, and decreased as a percentage of net sales to 43% in fiscal year 2005 from 44% in fiscal year 2004. This decline as a percentage of net sales was primarily due to higher expenses for raw materials, transportation and warehousing, partially offset by price increases and cost savings.
Gross profit increased 1% in fiscal year 2004, and decreased as a percentage of net sales to 44% in fiscal year 2004, from 45% in fiscal year 2003. This decrease as a percentage of net sales was driven by higher raw material, transportation and warehousing costs, the third-party production of some Match Light® charcoal and start-up costs for new products, partially offset by cost savings.
Diluted net earnings per common share from continuing operations increased by $0.60 in fiscal year 2005. This improvement was driven by a $27 increase in earnings from continuing operations as well as a decrease in common shares outstanding during fiscal year 2005 due to the Henkel share exchange. Increased earnings from continuing operations were driven by sales growth and cost savings, partially offset by higher expenses for raw materials, interest and logistics.
Diluted net earnings per common share from continuing operations increased $0.20 in fiscal year 2004. This improvement reflected a $29 increase in earnings from continuing operations as well as a decrease in common shares outstanding during fiscal year 2004 due to the repurchase of 5 million shares. Increased earnings from continuing operations were principally due to volume and sales growth from new products and increased shipments of established brands. This growth was partially offset by commodity and other manufacturing cost increases.
Free cash flow is a “non-GAAP measure” used by the Company’s management to help assess funds available for investing and financing activities such as debt payments, dividend payments and share repurchases, and also to fund potential acquisitions. As shown below, free cash flow is calculated as cash provided by operations less capital expenditures. Free cash flow does not represent cash available only for discretionary expenditures, since the Company has mandatory debt service requirements and other contractual and non-discretionary expenditures.

 	 	2005	 	2004	 	2003	 	
Cash provided by operations	 	$	765	 	$	899	 	$	803	 	
Less: capital expenditures	 	(151	)	(170	)	(203	)	
Free cash flow	 	$	614	 	$	729	 	$	600	 	
 
Free cash flow as a percentage of net sales decreased approximately 350 basis points in fiscal year 2005 primarily due to a $94 tax settlement payment and sales growth, partially offset by increased earnings from continuing operations. Free cash flow as a percentage of net sales increased approximately 250 basis points in fiscal year 2004 primarily due to strong earnings from continuing operations and decreases in working capital, partially offset by sales growth of 4%.
ROIC is a “non-GAAP measure” used by management to evaluate the efficiency of its capital spending (for a detailed reconciliation of ROIC, refer to exhibit 99-3). ROIC is generally defined as net operating profit after taxes, excluding certain costs and expenses, divided by average invested capital. ROIC increased approximately 40 basis points during fiscal year 2005 due to a higher adjusted net operating profit after taxes driven primarily by sales growth, partially offset by higher average invested capital. ROIC decreased approximately 40 basis points in fiscal year 2004 primarily due to higher average invested capital.
5

MANAGEMENT’S DISCUSSION & ANALYSIS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
 CONSOLIDATED RESULTS
 OPERATING EXPENSES

 	 	 	 	 	 	 	 	%  Change	 	% of Net Sales	 	
 	 	 	 	 	 	 	 	2005
to	 	2004
to	 	 	 	
 	 	2005	 	2004	 	2003	 	2004	 	2003	 	2005	 	2004	 	2003	 	
Gross profit	 	$	1,895	 	$	1,831	 	$	1,815	 	 	3	%	 	 	1	%	 	43.2	%	44.0	%	45.5	%	
Selling and administrative expenses	 	551	 	543	 	523	 	 	2	 	 	 	4	 	 	12.6	 	13.0	 	13.1	 	
Advertising costs	 	435	 	420	 	446	 	 	3	 	 	 	(6	)	 	9.9	 	10.1	 	11.2	 	
Research and development costs	 	88	 	84	 	75	 	 	6	 	 	 	10	 	 	2.0	 	2.0	 	1.9	 	
Operating profit	 	$	821	 	$	784	 	$	771	 	 	5	%	 	 	2	%	 	18.7	%	18.9	%	19.3	%	
 
Selling and administrative expenses increased 2% in fiscal year 2005 due to compensation cost and professional fee increases but declined slightly as a percentage of net sales.
Selling and administrative expenses increased 4% in fiscal year 2004, primarily due to higher amortization of $12 related to the Company’s information systems and a contribution of $6 to The Clorox Company Foundation.
Advertising costs increased 3% in fiscal year 2005 as a result of spending to support established brands and new product launches.
Advertising costs decreased 6% in fiscal year 2004, which reflected a shift in spending from advertising to trade promotions.
Operating profit increased 5% in fiscal year 2005. Operating profit margin, which is the ratio of operating profit to net sales, declined approximately 20 basis points in fiscal year 2005 driven primarily by a lower gross profit margin.
Operating profit increased 2% in fiscal year 2004 compared to fiscal year 2003. Operating profit margin declined approximately 40 basis points primarily due to a decrease in gross profit margin during the year, partially offset by lower advertising costs.
 NON-OPERATING EXPENSES AND INCOME TAXES

 	 	 	 	 	 	 	 	%  Change	 	
 	 	2005	 	2004	 	2003	 	2005
to
2004	 	2004
to
2003	 	
Restructuring and asset impairment costs	 	$	36	 	$	11	 	$	33	 	221	%	(65	)%	
Interest expense	 	79	 	30	 	28	 	168	 	7	 	
Other (income), net	 	(23	)	(9	)	(8	)	168	 	2	 	
Income taxes on continuing operations	 	212	 	262	 	257	 	(19	)	2	 	

Restructuring and asset impairment costs of $36 in fiscal year 2005 included $26 for asset impairment and $6 for severance and other costs related to the second phase of the Glad supply chain restructuring. The Company also recorded asset impairment charges and severance costs of $4 related to manufacturing operations in the International segment.
6

MANAGEMENT’S DISCUSSION & ANALYSIS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
Restructuring and asset impairment costs of $11 in fiscal year 2004 included $10 for asset impairment and $1 for severance costs related to the first phase of the Glad supply chain restructuring.
Restructuring and asset impairment costs of $33 in fiscal year 2003 related primarily to a $30 goodwill impairment charge for the Company’s business in Argentina. This charge was driven by economic and currency instability in the local market and significant changes in competitor actions that resulted in a change to the Company’s marketing strategy.
Interest expense increased $49 in fiscal year 2005, driven primarily by interest costs associated with the offering of $1,650 in senior notes in connection with the Henkel share exchange. There was no significant change in the interest expense in fiscal year 2004.
Other income, net of $23 in fiscal year 2005 included $25 related to the gain on the exchange and equity earnings from the Company’s investment in Henkel Iberica, which was transferred to Henkel as part of the share exchange. In addition, the Company recorded an $11 foreign currency transaction gain in the fourth quarter of fiscal year 2005 (Note 15). Partially offsetting these gains were losses of $16 from the Company’s investment in low-income housing partnerships (Note 7).
Other income, net of $9 in fiscal year 2004 included $17 of equity earnings (of which $11 related to the investment in Henkel Iberica), $9 related to favorable legal settlements, and $4 of interest income. These gains were partially offset by expenses of $14 for environmental remediation and monitoring at a former plant site in Michigan (Note 19) and $7 related to the amortization of intangible assets.
Other income, net of $8 in fiscal year 2003 included $9 of equity earnings (of which $2 related to the investment in Henkel Iberica), an $8 gain on the sale of land, and a $6 gain from the sale of the Black Flag® insecticide business. These gains were partially offset by expenses of $11 from the amortization of intangibles, and a $4 loss from the sale of the Jonny Cat® cat litter business.
The effective tax rate on continuing operations was 29.1%, 34.9% and 35.8% in fiscal years 2005, 2004 and 2003, respectively. The lower rate in fiscal year 2005 was primarily due to the release of tax accruals related to the tax settlement with the IRS (refer to the “Contingencies” section for further discussion) and to the nontaxable gain on the exchange of the equity investment in Henkel Iberica. These two benefits were partially offset by the tax on earnings to be repatriated under the American Jobs Creation Act. The lower rate in fiscal year 2004 was primarily due to lower taxes on foreign activities.
7

MANAGEMENT’S DISCUSSION & ANALYSIS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
 EARNINGS FROM DISCONTINUED OPERATIONS

 	 	2005	 	2004	 	2003	 	
Gain on exchange	 	$	550	 	—	 	—	 	
Earnings from exchanged businesses	 	37	 	$	87	 	$	84	 	
Reversal of deferred taxes from exchanged businesses	 	6	 	—	 	—	 	
Losses from Brazil operations	 	—	 	(4	)	(26	)	
Income tax expense on discontinued operations	 	(14	)	(24	)	(26	)	
Total earnings from discontinued operations	 	$	579	 	$	59	 	$	32	 	
Diluted earnings per share from discontinued operations	 	$	3.23	 	$	0.28	 	$	0.15	 	
 
The gain on share exchange, earnings from exchanged businesses and reversal of deferred taxes were related to the Company’s transaction with Henkel. Losses from Brazil operations in fiscal years 2004 and 2003 were related to the Company’s decision to exit its Brazil business and included a pretax impairment charge of $23 in fiscal year 2003 (Note 2).
Diluted earnings per share from discontinued operations increased in fiscal year 2005 primarily due to the gain on the Henkel share exchange. Diluted earnings per share from discontinued operations increased in fiscal year 2004 primarily due to the impairment charge recorded related to the discontinuation of the Brazil operations in fiscal year 2003.
SEGMENT RESULTS
HOUSEHOLD GROUP — NORTH AMERICA

 	 	 	 	 	 	 	 	% Change	 	
 	 	 	 	 	 	 	 	2005	 	2004	 	
 	 	 	 	 	 	 	 	to	 	to	 	
 	 	2005	 	2004	 	2003	 	2004	 	2003	 	
Net sales	 	$	2,038	 	$	1,986	 	$	1,995	 	 	3	%	 	 	—	 	 	
Earnings from continuing operations before income taxes	 	633	 	634	 	613	 	 	—	 	 	 	3	%	 	

Fiscal Year 2005 versus Fiscal Year 2004: Volume and net sales increased while earnings from continuing operations before income taxes declined slightly during fiscal year 2005. Volume growth of 4% was driven primarily by increased shipments of established products and new product launches. The variance between volume and sales growth was due to higher trade-promotion spending to support new product launches and unfavorable product mix. The slight decline in earnings from continuing operations before income taxes was primarily due to higher advertising expenses to support established products and new product launches, trade-promotion spending, and higher raw material costs, offsetting the favorable impact of increased sales and cost savings.
Shipments of laundry and homecare products increased 7%, driven by increased shipments of established brands including Clorox disinfecting wipes, and new product launches including the Clorox BathWand cleaning system, Clorox disinfecting bathroom cleaner and the fiscal year 2004 launch of Clorox ToiletWand cleaning system.
Shipments of Brita U.S. products declined 4% during fiscal year 2005 primarily due to decreased sales promotion, partially offset by the product launch of Brita AquaView™ .
8

MANAGEMENT’S DISCUSSION & ANALYSIS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
Shipments of automotive care products decreased 5%, driven by overall decreased category market demand, partially offset by the Armor All gels new product launch.
Fiscal Year 2004 versus Fiscal Year 2003: Volume and earnings from continuing operations before income taxes increased while net sales remained flat during fiscal year 2004. The increase in volume of 1% was driven primarily by new product launches, increased shipments of established products and distribution gains in new channels. The variance between volume and net sales was due to unfavorable product mix. The increase in earnings from continuing operations before income taxes was primarily due to reduced levels of advertising expense.
Shipments of laundry and homecare products increased 3%, driven by the introduction of the Clorox ToiletWand disposable cleaning system and Clorox Bleach Pen gel. Additionally, increased shipments of Clorox disinfecting wipes and Tilex® products were driven by effective advertising campaigns and merchandising programs. These volume gains were partially offset by lower shipments of the Clorox ReadyMop ® mopping system and Pine-Sol® cleaners due to fewer merchandising events.
Total volume for Brita water-filtration products increased 6%, driven by growth in faucet-mount products and pour-through systems, primarily due to increased merchandising.
Volume increases in the segment were partially offset by volume declines of 7% in the segment’s automotive care business, primarily due to discontinuing private label fuel additives and increased competitive activity.
SPECIALTY GROUP

 	 	 	 	 	 	 	 	% Change	 	
 	 	 	 	 	 	 	 	2005	 	2004	 	
 	 	 	 	 	 	 	 	to	 	to	 	
 	 	2005	 	2004	 	2003	 	2004	 	2003	 	
Net sales	 	$	1,788	 	$	1,677	 	$	1,549	 	 	7	%	 	 	8	%	 	
Earnings from continuing operations before income taxes	 	435	 	417	 	442	 	 	4	 	 	 	(5	)	 	

Fiscal Year 2005 versus Fiscal Year 2004: Volume, net sales and earnings from continuing operations before income taxes increased during fiscal year 2005. Increases in volume of 3% and net sales of 7% were driven primarily by new product launches, increased shipments of established products, and price increases. The increase in earnings from continuing operations before income taxes was primarily due to volume growth, cost savings and price increases, partially offset by an asset impairment charge due to the Glad business supply chain restructuring initiative and increased raw material, manufacturing and logistics costs.
Shipments of Glad products increased 7% during fiscal year 2005. This gain was primarily driven by increased shipments of Glad trash bags, due to the product launch of Glad ForceFlex in fiscal year 2005, and continued growth of Glad Press ‘n Seal sealable plastic wrap, launched in fiscal year 2004.
Shipments of food products decreased 1%, driven by category softness, partially offset by new product line extensions including the launch of three new K C Masterpiece food items. Shipments of cat litter increased 2% in fiscal year 2005, driven by record shipments of Scoop Away and Fresh Step scoopable cat litters, partially offset by competitive promotional activity.
Shipments of Kingsford charcoal products declined 1%, driven primarily due to poor weather.
9

MANAGEMENT’S DISCUSSION & ANALYSIS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
Fiscal Year 2004 versus Fiscal Year 2003 : The segment’s volume and net sales grew during fiscal year 2004, while earnings from continuing operations before income taxes declined. Growth in net sales was primarily driven by volume gains of 8%. Earnings from continuing operations before income taxes decreased due to charges of $11 for the Glad supply chain restructuring initiative, increased expenses associated with third-party production of some Match Light charcoal products and higher commodity costs. Research and development costs also increased during fiscal year 2004, primarily to support launches of new Glad products. Partially offsetting these cost increases were increased volume and cost savings.
Shipments of Glad products increased 9% due to the launch of Glad Press ‘n Seal sealable wrap, and increased shipments of trash bags and GladWare containers resulting from increased merchandising activity. These volume gains were slightly offset by decreased shipments of food bags due to category softness.
Shipments of food products increased 11% behind Hidden Valley salad dressings and K C Masterpiece barbeque products. This volume growth was driven by the launch of three new Hidden Valley salad dressing flavors and two new K C Masterpiece barbecue products, and increased distribution and marketing support.
Shipments of cat litter grew 6%, driven by Scoop Away and Fresh Step scoopable cat litters. Shipments of seasonal products grew 7%, driven primarily by strong shipments of Kingsford charcoal due to increased merchandising, distribution growth and increased advertising and marketing support.
INTERNATIONAL

 	 	 	 	 	 	 	 	% Change	 	
 	 	 	 	 	 	 	 	2005	 	2004	 	
 	 	 	 	 	 	 	 	to	 	to	 	
 	 	2005	 	2004	 	2003	 	2004	 	2003	 	
Net sales	 	$	562	 	$	499	 	$	442	 	 	13	%	 	13	%	
Earnings from continuing operations before income taxes	 	119	 	115	 	55	 	 	3	 	 	111	 	

Fiscal Year 2005 versus Fiscal Year 2004: Volume, net sales and earnings from continuing operations before income taxes increased during fiscal year 2005. Volume growth of 11% was driven by economic, category and share growth in Latin America, primarily within the laundry and homecare businesses, and increased shipments of cleaning products in Asia Pacific. The variance between sales and volume growth was driven by favorable foreign exchange rates and price increases in Latin America. The increase in earnings from continuing operations before income taxes was driven by volume growth, price increases and cost savings, partially offset by increased raw material costs.
Fiscal Year 2004 versus Fiscal Year 2003: Year-over-year growth in fiscal year 2004 in volume, net sales and earnings from continuing operations before income taxes was principally due to the overall economic recovery in Latin America, the Company’s continued focus on its strategic core brands, favorable foreign exchange rates, and impairment charges that occurred in fiscal year 2003.
The volume increase of 5% during fiscal year 2004 was driven by gains in Latin America and Asia Pacific. The Company’s investment in its core brands contributed to volume and sales growth in Latin America. Volume increases in Asia Pacific also contributed to the segment’s sales growth, due primarily to the launch of new products in Australia, and stronger sales in the bags and wraps category.
10

MANAGEMENT’S DISCUSSION & ANALYSIS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
The 111% increase in fiscal year 2004 earnings from continuing operations before income taxes was due to a $30 asset impairment charge in fiscal year 2003 for Argentina, volume and net sales growth, pricing and cost cutting initiatives in the Latin America and Asia Pacific businesses, partially offset by higher promotional activities across all countries in Latin America and incremental advertising spending in Latin America and Asia Pacific to support new product launches and core brands. Gross margins and pretax earnings in Latin America have benefited from the restructuring initiated in fiscal year 2002, strategic initiatives to reduce low-margin products, as well as continuing cost-reduction efforts during fiscal year 2004.
C ORPORATE, INTEREST AND OTHER

 	 	 	 	 	 	 	 	% Change	 	
 	 	 	 	 	 	 	 	2005	 	2004	 	
 	 	 	 	 	 	 	 	to	 	to	 	
 	 	2005	 	2004	 	2003	 	2004	 	2003	 	
Losses from continuing operations before income taxes	 	$	(458	)	$	(414	)	$	(392	)	 	11	%	 	 	6	%	 	

Fiscal Year 2005 versus Fiscal Year 2004 : The losses from continuing operations before income taxes attributable to Corporate, Interest and Other increased by $44, or 11%, in fiscal year 2005, primarily due to higher interest costs associated with the offering of $1,650 in senior notes in connection with the Henkel share exchange.
Fiscal Year 2004 versus Fiscal Year 2003 : Losses from continuing operations before income taxes attributable to Corporate, Interest and Other increased by $22, or 6%, in fiscal year 2004, due primarily to higher amortization of $12 related to the Company’s information systems and additional environmental expenses.
FINANCIAL POSITION AND LIQUIDITY
The Company’s financial position and liquidity remained strong during fiscal year 2005, driven by continued strong cash flows and effective working capital management, resulting in ready access to capital markets at competitive rates. The Company resumed making share repurchases in the fourth quarter of fiscal year 2005 to offset the impact of fiscal year stock option exercises, a repurchase program that had been temporarily suspended pending the completion of the Henkel share exchange.
As discussed further on page 15 under the heading “Contingencies,” the Company reached a settlement agreement with the IRS in April 2005, which resulted in tax payments of $94 in fiscal year 2005 and $150 in the first quarter of fiscal year 2006. During fiscal year 2006, the Company expects to repatriate approximately $200 of foreign earnings under the terms of the American Jobs Creation Act (the “Act”). The Company expects that the tax savings allowed under the Act, along with the cash made available at the parent company level by the Company’s foreign locations, will be used for reinvestment in qualifying activities.
The following table summarizes the cash activities of continuing operations:

 	 	2005	 	2004	 	2003	 	
Cash provided by continuing operations	 	$	728	 	$	844	 	$	760	 	
Cash used for investing by continuing operations	 	(154	)	(234	)	(201	)	
Cash used for financing by continuing operations	 	(552	)	(596	)	(627	)	

11

MANAGEMENT’S DISCUSSION & ANALYSIS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
OPERATING ACTIVITIES
Net cash provided by continuing operations decreased by 14% to $728 in fiscal year 2005 from $844 in fiscal year 2004, primarily due to the $94 of tax payments referenced above, partially offset by an increase in earnings from continuing operations. In addition to the settlement of income tax contingencies, significant working capital changes between June 30, 2005 and 2004 included a decline in receivables due to improved collections and shorter customer payment terms, a decline in payable and accrued liability balances driven by the timing of payments, and an increase in inventory levels, which was primarily driven by higher commodity costs.
Net cash provided by continuing operations increased 11% in fiscal year 2004 due to strong earnings from continuing operations and decreases in working capital. Decreases in the cash effects of working capital changes during fiscal year 2004 were driven by increases in tax contingency accruals, partially offset by increases in inventories due to new product launches, and a build in charcoal inventories to normal seasonal levels. The Company also contributed $41 to its pension plans, which decreased cash provided by operations.
Net cash provided by continuing operations was $760 in fiscal year 2003 due to strong net earnings from continuing operations and the timing of tax payments, partially offset by $55 of pension contributions.
INVESTING ACTIVITIES
Capital expenditures were $151 in fiscal year 2005, $170 in fiscal year 2004 and $203 in fiscal year 2003. Fiscal year 2005 capital spending as a percentage of net sales of 3% was within the Company’s current goal of 4% or less. Fiscal year 2004 and 2003 included capital expenditures related to the Company’s implementation of an enterprise resource planning and customer relationship data processing system of $45 and $91, respectively. The Company completed the implementation by June 30, 2004.
FINANCING ACTIVITIES
CAPITAL RESOURCES AND LIQUIDITY
In December 2004, the Company issued $1,650 in private placement senior notes in connection with the Henkel share exchange as discussed in the Executive Overview. The senior notes consist of $500 aggregate principal amount of floating-rate senior notes due December 2007, $575 aggregate principal amount of 4.20% senior notes due January 2010 and $575 aggregate principal amount of 5.00% senior notes due January 2015. The floating-rate senior notes incur interest at a rate equal to three-month LIBOR plus 0.125%, reset quarterly. The interest rate at June 30, 2005 for the floating-rate senior notes was 3.53%. The Company used the full amount of the net proceeds from the offering to repay a portion of the amount outstanding under its commercial paper program used to finance the cash contribution made in connection with the share exchange with Henkel. In April 2005, the Company completed an exchange offering that allowed debt holders to exchange the private placement senior notes for senior notes registered under the Securities Act of 1933, as amended. The Company anticipates increased levels of future cash outflows to service the principal and interest payments of these new senior notes.
12

MANAGEMENT’S DISCUSSION & ANALYSIS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
The Company continues to maintain strong credit ratings as of June 30, 2005, as shown in the table below, and was in compliance with all restrictive covenants and limitations as of June 30, 2005.

 	 	Short-Term	 	Long-Term	 	
Standard and Poor’s	 	 	A-2	 	 	 	A -	 	 	
Moody’s	 	 	P-2	 	 	 	A3	 	 	
Fitch	 	 	F2	 	 	 	A -	 	 	
 
The Company’s credit facilities as of June 30 were as follows:

 	 	2005	 	2004	 	
Domestic credit facilities:	 	 	 	 	 	
Credit line, scheduled to expire in December 2009	 	$	1,300	 	—	 	
Credit line, scheduled to expire in June 2005	 	—	 	$	600	 	
Credit line, scheduled to expire in March 2007	 	—	 	350	 	
Foreign and other credit lines	 	16	 	12	 	
Total	 	$	1,316	 	$	962	 	
 
At June 30, 2005, there were no borrowings under the $1,300 credit agreement, which is available for general corporate purposes and to support additional commercial paper issuance. During the quarter ended December 31, 2004, the $600 and $350 credit facilities were cancelled. In addition, as of June 30, 2005, the Company had $14 available for borrowing under foreign and other credit lines.
Based on the Company’s working capital requirements, the current borrowing availability under its credit agreements, its strong credit ratings, and its expected ability to generate positive cash flows from operations in the future, the Company believes that it will have the funds necessary to meet all of its financing requirements and other fixed obligations as they come due. Should the Company undertake transactions requiring funds in excess of its current cash levels and available credit lines, it might consider the issuance of debt or other securities to finance acquisitions, to refinance debt or to fund other activities for general business purposes.
VENTURE AGREEMENT
In January 2003, the Company entered into an agreement with P&G to form a business relationship (the “Venture Agreement”) related to the Company’s Glad plastic bags, wraps and containers business. For the first five years of the agreement, P&G had an option to purchase an additional 10% interest in the profit, losses and cash flows of the Glad business, as defined, at pre-determined prices. In January 2005, P&G paid the Company $133 to exercise this option to increase its interest from 10% to 20%, which is the maximum investment P&G can make under the Venture Agreement. The Company recorded a corresponding $133 increase to other liabilities in its third fiscal quarter to reflect the contractual requirement to purchase P&G’s interest at the termination of the agreement. In addition, the Company established a $34 deferred tax asset in the third quarter of fiscal year 2005 related to this option exercise.
SHARE REPURCHASES AND DIVIDEND PAYMENTS
The Company has two share repurchase programs, consisting of an open-market program, which has a total authorization of $1,700, and a program to offset the impact of share dilution related to the exercise of
13

MANAGEMENT’S DISCUSSION & ANALYSIS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
stock options (“evergreen program”), which has no authorization limit. Due mainly to the acquisition of 61.4 million of the Company’s shares in the transaction with Henkel, there were no repurchases under the open-market program during fiscal year 2005 and no repurchases under the evergreen program until the fourth quarter of 2005. The total number of shares repurchased to-date under the open-market program was 22 million shares at a cost of $932, leaving $768 of authorized repurchases remaining under that program as of June 30, 2005. Share repurchases under the evergreen program were $160 (3 million shares) during fiscal year 2005.
On November 17, 2004, the Company announced an increase in the quarterly dividend rate from $0.27 per share to $0.28 per share. Dividends paid in fiscal year 2005 were $201 or $1.10 per share. The Company’s June 30, 2005, Consolidated Balance Sheet has also been updated to include dividends of $42 that were declared in May 2005 and paid in August 2005. The share exchange transaction with Henkel will result in a reduction of future dividend payments due to the lower number of shares outstanding.
#ONTRACTUAL /BLIGATIONS
The Company had contractual obligations payable or maturing (excluding commercial paper borrowings, planned funding of pensions and other post-retirement benefits) in the following fiscal years:

At June 30, 2005	 	 	 	2006	 	2007	 	2008	 	 2009 	 	2010	 	Thereafter	 	Total	 	
Operating leases	 	$	23	 	$	23	 	$	21	 	 	$	16	 	 	$	12	 	 	$	55	 	 	$	150	 	
Purchase obligations	 	187	 	38	 	32	 	 	11	 	 	4	 	 	4	 	 	276	 	
Capital requirements for low-income housing partnerships	 	5	 	2	 	2	 	 	1	 	 	—	 	 	—	 	 	10	 	
Long-term debt maturities including interest payments (1)	 	102	 	249	 	580	 	 	71	 	 	635	 	 	1,016	 	 	2,653	 	
Net terminal obligation pursuant to Venture Agreement	 	—	 	—	 	—	 	 	—	 	 	—	 	 	258	 	 	258	 	
Total contractual obligations	 	$	317	 	$	312	 	$	635	 	 	$	99	 	 	$	651	 	 	$	1,333	 	 	$	3,347	 	

(1)     The interest rate in effect as of June 30, 2005 was used to estimate the future interest payments on the floating rate debt.
Purchase obligations are defined as purchase agreements that are enforceable and legally-binding and that specify all significant terms, including quantity, price and the approximate timing of the transaction. For purchase obligations subject to variable price and/or quantity provisions, an estimate of the price and/or quantity has been made. Examples of the Company’s purchase obligations include firm commitments for raw material purchases and contract manufacturing services, utility agreements, capital expenditure agreements, software acquisition and license commitments, and service contracts.
/FF "ALANCE 3HEET !RRANGEMENTS
In conjunction with divestitures and other transactions, the Company may provide indemnifications relating to the enforceability of trademarks, pre-existing legal, tax, environmental and employee liabilities, as well as provisions for product returns and other items. The Company has indemnification agreements in effect that specify a maximum possible indemnification exposure. The Company’s aggregate maximum exposure from these agreements is $291, which consists primarily of an indemnity of up to $250 made to Henkel in connection with the Share Exchange Agreement, subject to a minimum threshold of $12 before
14

MANAGEMENT’S DISCUSSION & ANALYSIS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
any payments would be made. The general representations and warranties made by the Company in connection with the Henkel Share Exchange Agreement were made to guarantee statements of fact at the time of the transaction closing and pertain to environmental, legal, and other matters and have terms with varying expiration dates.
In addition to the indemnifications related to the general representations and warranties, the Company entered into an agreement with Henkel regarding certain tax matters. The Company made certain representations of fact as of the closing date of the exchange transaction and certain representations and warranties regarding future performance designed to preserve the tax-free status of the exchange transaction. In general, the Company agreed to be responsible for Henkel’s taxes on the transaction if the Company’s actions result in a breach of the representations and warranties in a manner that causes the share exchange to fail to qualify for tax-free treatment. Henkel has agreed to similar obligations. The Company is unable to estimate the amount of maximum potential liability relating to the tax indemnification as the agreement does not specify a maximum amount and the Company does not know Henkel’s tax basis in the shares exchanged in the exchange transaction nor the effective tax rate that would be applied, although the Company believes Henkel’s tax basis in the shares exchanged is low. The Company does note, however, that the potential tax exposure, if any, could be very significant as the value of the subsidiary stock transferred to Henkel in the exchange transaction was approximately $2,800. Although the agreement does not specify an indemnification term, any exposure under the agreement would be limited to taxes assessed prior to the expiration of the statute of limitations period for assessing taxes on the share exchange transaction. Based on the nature of the representations and warranties as well as other factors, the Company has not accrued any liability under this indemnity.
The Company is a party to a $22 letter of credit issued to one of its insurance carriers. The Company has not recorded any liabilities on any of the aforementioned guarantees at June 30, 2005.
#ONTINGENCIES
The Company is involved in certain environmental matters, including Superfund and other response actions at various locations. The Company has a recorded liability of $33 and $29 at June 30, 2005 and 2004, respectively, for its share of the related aggregate future remediation cost, of which $8 was accrued during the year ended June 30, 2005. One matter in Dickinson County, Michigan, for which the Company is jointly and severally liable, accounts for a substantial majority of the recorded liability at both June 30, 2005 and 2004. The Company is subject to a cost-sharing arrangement with another party for this matter, under which the Company has agreed to be liable for 24.3% of the aggregate remediation and associated costs, other than legal fees, as the Company and the other party are each responsible for their own such fees. In October 2004, the Company and the other party agreed to a consent judgment with the Michigan Department of Environmental Quality (“MDEQ”), which sets forth certain remediation goals and monitoring activities. Based on the current status of this matter, and with the assistance of environmental consultants, the Company maintains an undiscounted liability representing its best estimate of its share of costs associated with the capital expenditures, maintenance and other costs to be incurred over an estimated 30-year remediation period. The most significant components of the liability relate to the estimated costs associated with the remediation of groundwater contamination and excess levels of subterranean methane deposits. Currently, the Company cannot accurately predict the timing of the payments that will likely be made under this estimated obligation. In addition, the Company’s estimated loss exposure is sensitive to a variety of uncertain factors, including the efficacy of remediation efforts,
15

MANAGEMENT’S DISCUSSION & ANALYSIS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
changes in remediation requirements and the timing, varying costs and alternative clean-up technologies that may become available in the future. Although it is possible that the Company’s exposure may exceed the amount recorded, any amount of such additional exposures, or range of exposures, is not estimable at this time.
The Company is also subject to various other lawsuits and claims relating to issues such as contract disputes, product liability, patents and trademarks, advertising, employment and other matters. Although the results of claims and litigation cannot be predicted with certainty, it is the opinion of management that the ultimate disposition of these matters, to the extent not previously provided for, will not have a material adverse effect, individually or in the aggregate, on the Company’s consolidated financial statements taken as a whole.
The IRS has completed its audit of the Company’s 1997 through 2000 tax returns. The audit of the 2001 and 2002 tax years is now in progress. In April 2005, the Company reached an agreement with the IRS resolving certain tax issues originally arising in the period from 1997 through 2000. As a result of the settlement agreement, the Company is paying $247 in federal and state taxes and interest related to the years 1997 through 2004. After considering tax savings from increased state tax and interest deductions, net federal and state taxes and interest total $228. Of the $247 in federal and state taxes and interest, the Company paid $94 in the third and fourth quarters of fiscal year 2005 and paid the majority of the balance, approximately $150, in the first quarter of fiscal year 2006. The Company had previously accrued for this contingency. In the third quarter of fiscal year 2005, the Company released approximately $23 in tax accruals related to this matter.
 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As a multinational company, the Company is exposed to the impact of foreign currency fluctuations, commodity prices, interest rate risk and other types of market risk. In the normal course of business, the Company manages its exposure to market risk using a variety of derivative instruments. The Company’s objective in managing its exposure to market risk is to limit the impact of fluctuations on earnings and cash flow through the use of swaps, forward purchase, options and futures contracts. Derivative contracts are entered into for non-trading purposes with major credit-worthy institutions, thereby decreasing the risk of credit loss.
 SENSITIVITY ANALYSIS
For fiscal year 2005, the Company’s exposure to market risk was estimated using sensitivity analysis, which illustrates the change in the fair value of a derivative financial instrument assuming hypothetical changes in foreign exchange rates, market rates or prices. The results of the sensitivity analysis for foreign currency derivative contracts and commodity derivative contracts are summarized below. Actual changes in foreign exchange rates or market prices may differ from the hypothetical changes, and any changes in the fair value of the contracts, real or hypothetical, would be partly offset by an inverse change in the value of the underlying hedged items.
The Company periodically assesses and takes action to mitigate its exposure to interest rate risk, and as of June 30, 2005, the Company had no outstanding interest rate contracts.
16

MANAGEMENT’S DISCUSSION & ANALYSIS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
FOREIGN CURRENCY DERIVATIVE CONTRACTS
The Company seeks to minimize the impact of certain foreign currency fluctuations by hedging transactional exposures with foreign currency forward and option contracts. The Company’s foreign currency transactional exposures exist primarily with the Canadian Dollar and certain other currencies. Based on a hypothetical decrease (or increase) of 10% in the value of the U.S. Dollar against the currencies that the Company has derivative instruments for at June 30, 2005, the Company would incur foreign currency losses (or gains) of $3.
COMMODITY DERIVATIVE CONTRACTS
The Company is exposed to changes in the price of commodities used as raw materials in the manufacturing of its products. These commodities include resin, chlor-alkali, linerboard, diesel, solvent, jet fuel and soybean oil. The Company uses various strategies to manage cost exposures on certain raw material purchases with the objective of obtaining more predictable costs for these commodities, including long-term contracts and commodity futures and swap contracts. The commodity price sensitivity analysis includes commodity futures, swaps, and option contracts affected by commodity price risk. Based on a hypothetical decrease (or increase) of 10% in commodity prices, the estimated fair value of the Company’s commodity derivative contracts would decrease (or increase) by $7, resulting in decreases (or increases) to accumulated other comprehensive income and net earnings of $5 and $2, respectively for fiscal year 2005.
In fiscal year 2004, the Company discontinued hedge accounting treatment for its resin commodity contracts since the contracts no longer met the accounting requirements for a cash flow hedge. These contracts are used as an economic hedge of resin prices and changes in the fair value of these contracts are recorded in other (income) expense.
 NEW ACCOUNTING STANDARDS
SHARE-BASED PAYMENT
In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123-R, “Share-Based Payment.” This Statement addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for (a) equity instruments of the company, such as stock options, or (b) liabilities, such as those related to performance units, that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments. The Company currently accounts for stock options using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” whereby stock options are granted at market price and no compensation cost is recognized, and discloses the pro forma effect on net earnings assuming compensation cost had been recognized in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 123-R, which is effective for the Company beginning in the first quarter of fiscal year 2006, eliminates the ability to account for share-based compensation transactions using APB Opinion No. 25, and generally requires that such transactions be accounted for using prescribed fair-value-based methods. SFAS No. 123-R permits public companies to adopt its requirements using one of two methods: (a) a “modified prospective” method in which compensation costs are recognized beginning with the effective date based on the requirements of SFAS No. 123-R for all share-based payments granted or modified after the effective date, and based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123-R that remain unvested on the effective date or (b) a “modified retrospective” method which includes the requirements of the modified
17

MANAGEMENT’S DISCUSSION & ANALYSIS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
prospective method described above, but also permits companies to restate based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures either for all periods presented or prior interim periods of the year of adoption.
In March 2005, the U.S. Securities & Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 107, which provides additional guidance on the implementation of SFAS No. 123-R for public companies. Among other topics related to share-based payment, SAB No. 107 includes guidance on equity compensation valuation methods, income statement classification and presentation, capitalization of compensation costs, and income tax accounting. The Company has decided to adopt SFAS No. 123-R using the modified prospective method under which the Company currently expects to record a reduction to net income ranging from $21 to $24 or $0.14 to $0.16 per diluted share in fiscal year 2006, which includes the incremental accounting impact from the issuance of stock options and performance units. The Company plans to continue to use the Black-Scholes option pricing model to determine the fair value of awards.
OTHER NEW ACCOUNTING STANDARDS AND DEVELOPMENTS
In November 2004, the FASB ratified the consensus reached by the Emerging Issues Task Force (“EITF”) regarding EITF Issue No. 03-13, “Applying the Conditions in Paragraph 42 of FASB Statement No. 144 in Determining Whether to Report Discontinued Operations.” SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” requires that the results of operations of a component of an entity that either has been disposed of or classified as held for sale should be reported in discontinued operations if: (a) the operations and cash flows of the component have been (or will be) eliminated from the ongoing operations of the entity as a result of the disposal transaction, and (b) the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction. EITF Issue No. 03-13 addresses how companies should evaluate whether the operations and cash flows of a disposed component have been or will be eliminated from its ongoing operations and the types of continuing involvement that constitute “significant” continuing involvement. The consensus ratified in EITF Issue No. 03-13 is effective for a component of an entity that is disposed of or classified as held for sale in fiscal periods beginning after December 15, 2004 or earlier, at the option of the company, if disposed of or classified as held for sale within the company’s fiscal year that includes the date of consensus ratification. Based on the guidance in EITF Issue No. 03-13, the Company has classified the operating results of its insecticides and Soft Scrub businesses, which were transferred as part of the share exchange transaction with Henkel, as discontinued operations for all periods presented herein.
In November 2004, the FASB issued SFAS No. 151, “Inventory Costs — an amendment of Accounting Research Bulletin No. 43, Chapter 4.” SFAS No. 151 clarifies the accounting that requires abnormal amounts of idle facility expenses, freight, handling costs, and spoilage costs to be recognized as current-period charges. It also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 will be effective for inventory costs incurred on or after July 1, 2005. The adoption of this standard is currently not expected to have a material impact on the consolidated financial statements.
In October 2004, the American Jobs Creation Act (“the Act”) was signed into law. The Act provides a special deduction with respect to income of certain U.S. manufacturing activities and a one-time 85% dividends-received deduction for certain foreign earnings that are repatriated, as defined in the Act. The Company is currently evaluating the impact of the manufacturing deduction, which should affect its consolidated financial statements as early as fiscal year 2006. In the quarter ended March 31, 2005, the
18

MANAGEMENT’S DISCUSSION & ANALYSIS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
Company completed its evaluation of the effects of the Act on its plans for repatriation. The Company recognized incremental income tax expense of $12 in fiscal year 2005, which represents the net tax on foreign earnings accumulated through June 30, 2005 that are expected to be repatriated in fiscal year 2006. The Company anticipates repatriation of approximately $200 in fiscal year 2006, with a resulting tax provision increase of $4 in fiscal year 2006.
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The methods, estimates, and judgments the Company uses in applying its most critical accounting policies have a significant impact on the results the Company reports in its consolidated financial statements. Specific areas requiring the application of management’s estimates and judgment include assumptions pertaining to credit worthiness of customers, future product volume and pricing estimates, accruals for coupon and promotion programs, foreign currency exchange rates, interest rates, discount rates, useful lives of assets, future cost trends, investment returns, tax strategies, and other external market and economic conditions. Accordingly, a different financial presentation could result depending on the judgments, estimates, or assumptions that are used. The most critical accounting policies are the ones that are most important to the portrayal of the Company’s financial condition and results, and require the Company to make its most difficult and subjective judgments, often estimating the outcome of future events that are inherently uncertain. The Company’s most critical accounting policies are: revenue recognition; valuation of intangible assets and property, plant and equipment; employee benefits; and income taxes. The Company’s critical accounting policies have been reviewed with the Audit Committee of the Board of Directors. A summary of the Company’s significant accounting policies is contained in Note 1 of the Notes to Consolidated Financial Statements.
REVENUE RECOGNITION
Sales are recognized as revenue when the risk of loss and title pass to the customer, generally at the time of shipment for domestic sales and at the time of customer receipt for international sales, and when all of the following have occurred: a firm sales arrangement exists, pricing is fixed and determinable, and collection is reasonably assured. Sales are recorded net of allowances for returns, trade promotions, coupons and other discounts.
The Company routinely commits to one-time or on-going trade-promotion programs with customers, and consumer coupon programs that require the Company to estimate and accrue the expected costs of such programs. Programs include introductory marketing funds, cooperative marketing programs, shelf price reductions, advantageous end-of-aisle or in-store displays of the Company’s products, graphics, and other trade-promotion activities conducted by the customer. Coupons are recognized as a liability when distributed based upon expected consumer redemptions. The Company has accrued liabilities at the end of each period for the estimated expenses incurred, but unpaid for these programs. Trade-promotion and coupon costs are recorded as a reduction of sales.
Costs recognized as revenue reductions for established brands’ on-going trade-promotion and coupon programs are estimated based upon the Company’s and industry historical experience and current trends. Estimating the costs of such programs for certain new products can be more difficult and subject to additional judgment, because the Company must rely on its assumptions as to the success of the new product and make estimates when it does not have experience with similar new products nor readily available historical information.
19

MANAGEMENT’S DISCUSSION & ANALYSIS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
The Company allocates trade-promotion funds for each customer. Promotional payments and off-invoice allowances are given to customers based upon program participation and results throughout the year and are deducted from fund allocations. The Company tracks trade spending and accrues for the estimated incurred but unpaid portion of trade-promotion events. The determination of trade spending liabilities requires the Company to use judgment for estimates which include current and past trade-promotional spending patterns, status of trade-promotional activities, and interpretation of historical spending trends by customer and category. If the Company’s June 30, 2005 accrual estimates were to differ by 10%, the impact on net sales would be approximately $7.
VALUATION OF INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT
The carrying values of goodwill, trademarks and other indefinite-lived intangible assets are reviewed for possible impairment in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” The Company’s impairment review is based on a discounted cash flow approach that requires significant management judgment with respect to future volume, revenue and expense growth rates, changes in working capital use, foreign exchange rates, devaluation, inflation and the selection of an appropriate discount rate. Impairment occurs when the carrying value of a reporting unit exceeds the fair value of that reporting unit. An impairment charge is recorded for the difference between the carrying value and the fair value of the reporting unit, which is determined based on the net present value of estimated future cash flows. The Company tests its intangible assets annually in the third fiscal quarter unless there are indications during an interim period that assets may have become impaired. The Company uses its judgment in assessing whether assets may have become impaired between annual valuations. Indicators such as unexpected adverse economic factors, unanticipated technological change or competitive activities, loss of key personnel and acts by governments and courts may signal that an asset has become impaired.
The Company performed its annual review of intangible assets in the third quarter of fiscal year 2005 and determined that there were no instances of impairment. Business valuations of the Colombia and Venezuela reporting units were performed, as these businesses operate under continuing economic and political uncertainties. The fair value for Colombia was only slightly in excess of the carrying amount. The Company is closely monitoring any events, circumstances, or changes in the businesses that might imply a reduction in the fair value and might lead to an impairment.
Property, plant and equipment and definite-lived intangible assets are reviewed periodically for possible impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The Company’s impairment review is based on an undiscounted cash flow approach that requires significant management judgment with respect to future volume, revenue and expense growth rates, changes in working capital use, foreign exchange rates, devaluation, inflation and the selection of an appropriate discount rate. The Company conducts annual reviews for idle and underutilized equipment, and reviews business plans for possible impairment indicators. Impairment occurs when the carrying value of the asset exceeds its future undiscounted cash flows and the impairment is viewed as other than temporary. When an impairment is indicated, an impairment charge is recorded for the difference between the asset’s carrying value and its fair market value. Depending on the asset, fair market value may be determined either by use of a discounted cash flow model or by reference to estimated selling values of assets in similar condition. During fiscal year 2005, the Company recorded pretax asset impairment charges of $26 related to the supply chain restructuring initiative for the Glad business (refer to Note 3 of the Notes to Consolidated Financial Statements for further discussion).
20

MANAGEMENT’S DISCUSSION & ANALYSIS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
The estimates and assumptions used in the impairment analysis are consistent with the business plans and estimates that the Company uses to manage its business operations and to make acquisition and divestiture decisions. The use of different assumptions would increase or decrease the estimated fair value of assets and would increase or decrease any impairment measurement. Future outcomes may also differ. If the Company’s products fail to achieve estimated volume and pricing targets, market conditions unfavorably change or other significant estimates are not realized, then the Company’s revenue and cost forecasts may not be achieved, and the Company may be required to recognize additional impairment charges.
EMPLOYEE BENEFITS
The Company has various individual and group compensation programs, including performance unit programs, an incentive compensation program, and a profit sharing element of The Clorox Company 401(k) plan. Company contributions to the 401(k) plan and payments to managerial staff for the annual incentive compensation program are subject to the Company achieving certain fiscal year performance targets. Payments to participants under the three existing performance unit grants are subject to the Company’s stock achieving specified market performance compared to selected peer companies. The Company compares actual performance against these targets on a periodic basis and accrues for incentive compensation costs when it becomes probable that the targets will be achieved.
The Company’s three performance unit grants vest in September of 2005, 2006 and 2007, respectively. These grants provide for the issuance of Company stock to certain senior management if the Company’s stock performance meets specified hurdle rates based on comparisons with the performance of a selected peer group of companies. In fiscal year 2005, the Company determined that it was likely that certain hurdle rates will be met related to the grant vesting in September 2005 and began accruing a liability for the estimated expense. The Company continues to monitor the status of the grants vesting in September 2006 and 2007; the Company has not yet recorded a liability related to these grants because the vesting dates extend too far into the future to reasonably estimate whether the hurdle rates will be achieved. Based on the June 30, 2005 market price of the Company’s stock, the expense for the remaining unvested performance unit grants would be $13.
The 401(k) plan has two components: a 401(k) component and a profit sharing component. Employee contributions made to the 401(k) component are partially matched with Company contributions. The Company’s contributions to the profit sharing component above 3% of eligible employee earnings are discretionary and are based on achieving financial targets including sales, operating margin, and ROIC. The Company accrues for these costs quarterly based on estimated annual results. At June 30, 2005, the Company accrued $18 for such costs and anticipates making a profit sharing contribution to the 401(k) plan in the first quarter of fiscal year 2006.
The Company reported pension assets and (liabilities) of $2 and ($119) at June 30, 2005 and $119 and ($42) at June 30, 2004. The net change in pension liability resulted from the accumulated benefit obligations exceeding the market value of plan assets for the qualified plans at June 30, 2005. This resulted in a charge to other comprehensive income of $118, net of deferred income taxes. The accumulated benefit obligation increased by $105 primarily due to a decrease in the discount rate assumption from 6.50% to 5.00%. The total market value of retirement plan assets increased by $5 during fiscal year 2005. Refer to Note 17 of the Notes to Consolidated Financial Statements for further discussion of pension and other retirement plan obligations.
21

MANAGEMENT’S DISCUSSION & ANALYSIS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
The determination of net periodic pension cost is based on actuarial assumptions including a discount rate to reflect the time value of money, employee compensation rates, demographic assumptions to determine the probability and timing of benefit payments, and the long-term rate of return on plan assets. The selection of assumptions is based on historical trends and known economic and market conditions at the time of valuation. Actual results could differ from expected results because assumptions and estimates are used. In the calculation of pension expense related to domestic plans for 2005, the Company used a long-term rate of return on plan assets assumption of 8.25% and a beginning of year discount rate assumption of 6.50%. The use of a different discount rate or long-term rate of return on plan assets can significantly impact pension expense. For example, as of June 30, 2005, a decrease of 1% in the discount rate would increase pension expense and the pension liability by approximately $5 and $58, respectively, and a 1% decrease in the long-term rate of return on plan assets would increase pension expense by $3. The Company also has defined benefit pension plans for eligible Canadian and Australian employees and different assumptions may be used in the determination of pension expense for those plans, as appropriate.
INCOME TAXES
The Company’s effective tax rate is based on expected income, statutory tax rates and tax planning opportunities available to the Company in the various jurisdictions in which the Company operates. Significant judgment is required in determining the Company’s effective tax rate and in evaluating its tax positions.
The Company maintains valuation allowances where it is likely that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances from period to period are included in the Company’s income tax provision in the period of change. In determining whether a valuation allowance is warranted, the Company takes into account such factors as prior earnings history, expected future earnings, unsettled circumstances that, if unfavorably resolved, would adversely affect utilization of a deferred tax asset, carry-back and carry-forward periods, and tax strategies that could potentially enhance the likelihood of a realization of a deferred tax asset. Valuation allowances maintained by the Company relate mostly to deferred tax assets arising from prior impairment charges and to the Company’s ability to use net operating losses in certain foreign countries.
In addition to valuation allowances, the Company establishes accruals for certain tax contingencies when, despite the belief that the Company’s tax return positions are fully supported, the Company believes that certain positions are likely to be challenged and that the Company’s positions may not be fully sustained. The tax contingency accruals are adjusted in light of changing facts and circumstances, such as the progress of tax audits, case law and emerging legislation. The Company’s effective tax rate includes the impact of tax contingency accruals as considered appropriate by management. The fiscal year 2005 results were favorably affected by a reduction in tax contingency accruals primarily related to the settlement of a significant tax issue with the IRS.
A number of years may elapse before a particular matter, for which the Company has accrued, is audited and finally resolved. The number of years with open tax audits varies by jurisdiction. In the United States, the IRS has completed its audits of fiscal years 1997 through 2000 and is now auditing fiscal years 2001 and 2002. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, the Company believes its tax contingency accruals are adequate to address known tax contingencies. Favorable resolution of such contingencies could be recognized as a reduction to the Company’s effective tax rate in the period of resolution. Unfavorable settlement of any particular issue
22

MANAGEMENT’S DISCUSSION & ANALYSIS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
could increase the effective tax rate and may require the use of cash in the year of resolution. The Company’s tax contingency accruals are presented in the balance sheet within accrued liabilities.
United States income taxes and foreign withholding taxes are not provided when foreign earnings are indefinitely reinvested in accordance with APB Opinion No. 23, “Accounting for Income Taxes, Special Areas.” The Company determines whether its foreign subsidiaries will invest their undistributed earnings indefinitely and reassesses this determination on a periodic basis. Change to the Company’s determination may be warranted based on the Company’s experience as well as plans regarding future international operations and expected remittances. The American Jobs Creation Act provides a one-time 85% dividends-received deduction for certain foreign earnings that are repatriated, as defined in the Act. To take advantage of the 85% dividends-received deduction, many of the Company’s foreign subsidiaries ceased to invest their undistributed earnings indefinitely beginning in the third quarter of fiscal year 2005. The Company anticipates repatriation of approximately $200 in fiscal year 2006, with a resulting tax provision increase of $4 in that year.
 CAUTIONARY STATEMENT
Except for historical information, matters discussed above and in the financial statements and footnotes and other parts of this report, including statements about future volume, sales, costs, cost savings, earnings, plans, objectives, expectations, growth or profitability, are forward-looking statements based on management’s estimates, assumptions and projections. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and variations on such words, and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are only predictions, subject to risks and uncertainties, and actual results could differ materially from those discussed in this document. Important factors that could affect performance and cause results to differ materially from management’s expectations are described in the section entitled “Risk Factors” in Part One of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2005, as updated from time to time in the Company’s SEC filings. Those factors include, but are not limited to, general economic and marketplace conditions and events; competitors’ actions; the Company’s costs, including changes in exposure to commodity costs; the Company’s actual cost performance; risks inherent in litigation and international operations; the ability to manage and realize the benefits of joint ventures and other cooperative relationships, including the Company’s joint venture with P&G regarding the Company’s Glad plastic bags, wraps and containers business (the “Joint Venture”); the success of new products and product pricing changes; the integration of acquisitions and mergers; the divestiture of non-strategic businesses; the implementation of the Company’s strategy; and environmental, regulatory, product liability and intellectual property matters. In addition, the Company’s future performance is subject to risks particular to the share exchange transaction with Henkel, including the sustainability of cash flows and the actual level of debt costs. Declines in cash flow, whether resulting from tax payments, debt payments, share repurchases, P&G’s increased equity in the business relationship with the Company’s Glad business or otherwise, or interest cost increases greater than management expects, could adversely affect the Company’s earnings.
The Company’s forward-looking statements in this document are and will be based on management’s then current views and assumptions regarding future events and speak only as of their dates. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by the federal securities laws.
23

 CONSOLIDATED STATEMENTS OF EARNINGS
The Clorox Company

Years ended June 30	 	2005	 	2004	 	2003	 	
Dollars in millions, except per-share amounts	 	 	 	 	 	 	 	
Net sales	 	$	4,388	 	$	4,162	 	$	3,986	 	
Cost of products sold	 	2,493	 	2,331	 	2,171	 	
Gross profit	 	1,895	 	1,831	 	1,815	 	
Selling and administrative expenses	 	551	 	543	 	523	 	
Advertising costs	 	435	 	420	 	446	 	
Research and development costs	 	88	 	84	 	75	 	
Restructuring and asset impairment costs	 	36	 	11	 	33	 	
Interest expense	 	79	 	30	 	28	 	
Other (income) expense:	 	 	 	 	 	 	 	
Equity earnings and gain on exchange of Henkel Iberica, S.A.	 	(25	)	(11	)	(2	)	
Other, net	 	2	 	2	 	(6	)	
Earnings from continuing operations before income taxes	 	729	 	752	 	718	 	
Income taxes on continuing operations	 	214	 	262	 	257	 	
Reversal of deferred taxes from equity investment in Henkel Iberica, S.A. 	 	(2	)	—	 	—	 	
Earnings from continuing operations	 	517	 	490	 	461	 	
Discontinued operations:	 	 	 	 	 	 	 	
Gain on exchange	 	550	 	—	 	—	 	
Earnings from exchanged businesses	 	37	 	87	 	84	 	
Reversal of deferred taxes from exchanged businesses	 	6	 	—	 	—	 	
Losses from Brazil operations	 	—	 	(4	)	(26	)	
Income tax expense on discontinued operations	 	(14	)	(24	)	(26	)	
Earnings from discontinued operations	 	579	 	59	 	32	 	
Net earnings	 	$	1,096	 	$	549	 	$	493	 	
Earnings per common share	 	 	 	 	 	 	 	
Basic	 	 	 	 	 	 	 	
Continuing operations	 	$	2.92	 	$	2.31	 	$	2.11	 	
Discontinued operations	 	3.28	 	0.28	 	0.15	 	
Basic net earnings per common share	 	$	6.20	 	$	2.59	 	$	2.26	 	
Diluted	 	 	 	 	 	 	 	
Continuing operations	 	$	2.88	 	$	2.28	 	$	2.08	 	
Discontinued operations	 	3.23	 	0.28	 	0.15	 	
Diluted net earnings per common share	 	$	6.11	 	$	2.56	 	$	2.23	 	
Weighted average common shares outstanding (in thousands)	 	 	 	 	 	 	 	
Basic	 	176,586	 	211,683	 	218,174	 	
Diluted	 	179,176	 	214,371	 	220,692	 	
 
See Notes to Consolidated Financial Statements
24

 CONSOLIDATED BALANCE SHEETS
The Clorox Company

As of June 30	 	2005	 	2004	 	
Dollars in millions, except per-share amounts	 	 	 	 	 	
Assets	 	 	 	 	 	
Current assets	 	 	 	 	 	
Cash and cash equivalents	 	$	293	 	$	232	 	
Receivables, net	 	411	 	460	 	
Inventories	 	323	 	301	 	
Other current assets	 	63	 	50	 	
Total current assets	 	1,090	 	1,043	 	
Property, plant and equipment, net	 	999	 	1,052	 	
Goodwill, net	 	743	 	742	 	
Trademarks and other intangible assets, net	 	599	 	633	 	
Other assets	 	186	 	364	 	
Total assets	 	$	3,617	 	$	3,834	 	
Liabilities and Stockholders’ (Deficit) Equity	 	 	 	 	 	
Current liabilities	 	 	 	 	 	
Notes and loans payable	 	$	359	 	$	289	 	
Current maturities of long-term debt	 	2	 	2	 	
Accounts payable	 	347	 	310	 	
Accrued liabilities	 	614	 	643	 	
Income taxes payable	 	26	 	24	 	
Total current liabilities	 	1,348	 	1,268	 	
Long-term debt	 	2,122	 	475	 	
Other liabilities	 	618	 	377	 	
Deferred income taxes	 	82	 	174	 	
Stockholders’ (deficit) equity	 	 	 	 	 	
Common stock: $1.00 par value; 750,000,000 shares authorized; 249,826,934 shares issued; and 151,683,314 and 212,988,540 shares outstanding at June 30, 2005 and 2004, respectively	 	250	 	250	 	
Additional paid-in capital	 	328	 	301	 	
Retained earnings	 	3,684	 	2,846	 	
Treasury shares, at cost: 98,143,620 and 36,838,394 shares at June 30, 2005 and 2004, respectively	 	(4,463	)	(1,570	)	
Accumulated other comprehensive net losses	 	(336	)	(274	)	
Unearned compensation	 	(16	)	(13	)	
Stockholders’ (deficit) equity	 	(553	)	1,540	 	
Total liabilities and stockholders’ (deficit) equity	 	$	3,617	 	$	3,834	 	
 
See Notes to Consolidated Financial Statements
25

 CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
The Clorox Company

 	 	Common Stock	 	Additional	 	 	 	Treasury Shares	 	Accumulated
Other	 	 	 	 	 	Total	 	
 	 	Shares
(000)	 	Amount	 	Paid-in
Capital	 	Retained
Earnings	 	Shares
(000)	 	 Amount 	 	Comprehensive
Net Losses	 	Unearned
Compensation	 	Total	 	Comprehensive
Income	 	
Dollars in millions, except per-share amounts	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at June 30, 2002	 	249,827	 	 	$	250	 	 	 	$	222	 	 	 	$	2,270	 	 	(26,817	)	 	$	(1,070	)	 	 	$	(296	)	 	 	$	(10	)	 	$	1,366	 	 	 	 	 	
Comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings	 	 	 	 	 	 	 	 	 	 	 	 	493	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	493	 	 	$	493	 	 	
Translation adjustments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	48	 	 	 	 	 	 	48	 	 	48	 	 	
Tax effect on translation adjustments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(94	)	 	 	 	 	 	(94	)	 	(94	)	 	
Translation related to impairment charges	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	13	 	 	 	 	 	 	13	 	 	13	 	 	
Change in valuation of derivatives, net of tax of $(4)  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(5	)	 	 	 	 	 	(5	)	 	(5	)	 	
Minimum pension liability adjustments, net of tax	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(5	)	 	 	 	 	 	(5	)	 	(5	)	 	
Total comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	450	 	 	
Dividends paid ($0.88 per share)	 	 	 	 	 	 	 	 	 	 	 	 	(193	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(193	)	 	 	 	 	
Employee stock plans	 	 	 	 	 	 	 	 	33	 	 	 	(5	)	 	2,333	 	 	49	 	 	 	 	 	 	 	1	 	 	78	 	 	 	 	 	
Treasury stock purchased	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(11,666	)	 	(486	)	 	 	 	 	 	 	 	 	 	(486	)	 	 	 	 	
Balance at June 30, 2003	 	249,827	 	 	250	 	 	 	255	 	 	 	2,565	 	 	(36,150	)	 	(1,507	)	 	 	(339	)	 	 	(9	)	 	1,215	 	 	 	 	 	
Comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings	 	 	 	 	 	 	 	 	 	 	 	 	549	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	549	 	 	$	549	 	 	
Translation adjustments, net of tax of $1	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	3	 	 	 	 	 	 	3	 	 	3	 	 	
Change in valuation of derivatives, net of tax of $2	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(4	)	 	 	 	 	 	(4	)	 	(4	)	 	
Minimum pension liability adjustments, net of tax	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	66	 	 	 	 	 	 	66	 	 	66	 	 	
Total comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	614	 	 	
Dividends paid ($1.08 per share)	 	 	 	 	 	 	 	 	 	 	 	 	(229	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(229	)	 	 	 	 	
Employee stock plans	 	 	 	 	 	 	 	 	46	 	 	 	(39	)	 	4,275	 	 	157	 	 	 	 	 	 	 	(4	)	 	160	 	 	 	 	 	
Treasury stock purchased	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(4,963	)	 	(220	)	 	 	 	 	 	 	 	 	 	(220	)	 	 	 	 	
Balance at June 30, 2004	 	249,827	 	 	250	 	 	 	301	 	 	 	2,846	 	 	(36,838	)	 	(1,570	)	 	 	(274	)	 	 	(13	)	 	1,540	 	 	 	 	 	
Comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings	 	 	 	 	 	 	 	 	 	 	 	 	1,096	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1,096	 	 	$	1,096	 	 	
Share Exchange with Henkel KGaA	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(61,387	)	 	(2,843	)	 	 	 	 	 	 	 	 	 	(2,843	)	 	 	 	 	
Translation adjustments resulting from the Henkel KGaA exchange, net of tax of $(10)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	21	 	 	 	 	 	 	21	 	 	21	 	 	
Other translation adjustments, net of tax of $(2)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	29	 	 	 	 	 	 	29	 	 	29	 	 	
Change in valuation of derivatives, net of tax of $(3)  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	6	 	 	 	 	 	 	6	 	 	6	 	 	
Minimum pension liability adjustments, net of tax	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(118	)	 	 	 	 	 	(118	)	 	(118	)	 	
Total comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	1,034	 	 	
Dividends paid ($1.10 per share)	 	 	 	 	 	 	 	 	 	 	 	 	(201	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(201	)	 	 	 	 	
Dividends accrued ($0.28 per share)	 	 	 	 	 	 	 	 	 	 	 	 	(42	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(42	)	 	 	 	 	
Employee stock plans	 	 	 	 	 	 	 	 	27	 	 	 	(15	)	 	2,831	 	 	110	 	 	 	 	 	 	 	(3	)	 	119	 	 	 	 	 	
Treasury stock purchased	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(2,750	)	 	(160	)	 	 	 	 	 	 	 	 	 	(160	)	 	 	 	 	
Balance at June 30, 2005	 	249,827	 	 	$	250	 	 	 	$	328	 	 	 	$	3,684	 	 	(98,144	)	 	$	(4,463	)	 	 	$	(336	)	 	 	$	(16	)	 	$	(553	)	 	 	 	 	
 
See Notes to Consolidated Financial Statements
26

CONSOLIDATED STATEMENTS OF CASH FLOWS
The Clorox Company

Years ended June 30	 	2005	 	2004	 	2003	 	
Dollars in millions   	 	 	 	 	 	 	 	
Operations:	 	 	 	 	 	 	 	
Earnings from continuing operations	 	$	517	 	$	490	 	$	461	 	
Adjustments to reconcile earnings from continuing operations to net cash provided by continuing operations:	 	 	 	 	 	 	 	
Depreciation and amortization	 	190	 	195	 	189	 	
Deferred income taxes	 	(45	)	26	 	98	 	
Restructuring and asset impairment activities	 	38	 	11	 	30	 	
Gain on exchange of Henkel Iberica, S.A.	 	(20	)	—	 	—	 	
Net loss on disposition of assets	 	6	 	5	 	(4	)	
Other	 	34	 	29	 	36	 	
Changes in:	 	 	 	 	 	 	 	
Receivables, net	 	33	 	8	 	19	 	
Inventories	 	(17	)	(37	)	(10	)	
Other current assets	 	5	 	—	 	(1	)	
Accounts payable and accrued liabilities	 	59	 	72	 	(44	)	
Income taxes payable	 	22	 	86	 	41	 	
Settlement of income tax contingency (Note 16)	 	(94	)	—	 	—	 	
Pension contributions to qualified plans	 	—	 	(41	)	(55	)	
Net cash provided by continuing operations	 	728	 	844	 	760	 	
Net cash provided by discontinued operations	 	37	 	55	 	43	 	
Net cash provided by operations	 	765	 	899	 	803	 	
Investing Activities:	 	 	 	 	 	 	 	
Capital expenditures	 	(151	)	(170	)	(203	)	
Businesses acquired	 	—	 	(13	)	—	 	
Proceeds from the sale of businesses	 	—	 	—	 	15	 	
Low-income housing contributions	 	(9	)	(17	)	(15	)	
Other	 	6	 	(34	)	2	 	
Net cash used for investing by continuing operations	 	(154	)	(234	)	(201	)	
Net cash (used for) provided by investing by discontinued operations	 	—	 	(2	)	8	 	
Net cash used for investing activities	 	(154	)	(236	)	(193	)	
Financing Activities:	 	 	 	 	 	 	 	
Notes and loans payable, net	 	68	 	(75	)	30	 	
Long-term debt borrowings	 	1,635	 	8	 	8	 	
Long-term debt repayments	 	—	 	(215	)	(27	)	
Proceeds from option exercise pursuant to Venture Agreement (Note 11)	 	133	 	—	 	—	 	
Treasury stock acquired from related party, Henkel KGaA (Note 2)	 	(2,119	)	(65	)	—	 	
Treasury stock purchased from non-affiliates	 	(160	)	(155	)	(486	)	
Cash dividends paid	 	(201	)	(229	)	(193	)	
Issuance of common stock for employee stock plans	 	93	 	111	 	41	 	
Other	 	(1	)	24	 	—	 	
Net cash used for financing by continuing operations	 	(552	)	(596	)	(627	)	
Net cash (used for) provided by financing by discontinued operations	 	—	 	(9	)	10	 	
Net cash used for financing activities	 	(552	)	(605	)	(617	)	
Effect of exchange rate changes on cash and cash equivalents	 	2	 	2	 	2	 	
Net increase (decrease) in cash and cash equivalents	 	61	 	60	 	(5	)	
Cash and cash equivalents:	 	 	 	 	 	 	 	
Beginning of year	 	232	 	172	 	177	 	
End of year	 	$	293	 	$	232	 	$	172	 	
Supplemental cash flow information:	 	 	 	 	 	 	 	
Cash paid for:	 	 	 	 	 	 	 	
Interest, net of amounts capitalized	 	$	81	 	$	31	 	$	30	 	
Income taxes, net of refunds	 	335	 	81	 	126	 	
Non-cash investing and financing activities:	 	 	 	 	 	 	 	
Venture Agreement	 	 	 	 	 	 	 	
Equipment and technologies obtained	 	$	—	 	$	—	 	$	125	 	
Terminal obligation recorded	 	—	 	—	 	125	 	
Share Exchange Agreement	 	 	 	 	 	 	 	
As part of the Share Exchange Agreement, the Company obtained 61,386,509 shares of its common stock in exchange for businesses valued at $745 and cash (Note 2).	 	 	 	 	 	 	 	
Dividends declared but not paid	 	$	42	 	—	 	—	 	
 
S
See Notes to Consolidated Financial Statements
27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Clorox Company
(Dollars in millions, except per-share amounts)
1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 NATURE OF OPERATIONS AND BASIS OF PRESENTATION
The Company is principally engaged in the production, marketing and sales of consumer products through grocery stores, mass merchandisers, and other retail outlets. The consolidated financial statements include the statements of the Company and its majority-owned and controlled subsidiaries. All significant intercompany transactions and accounts were eliminated in consolidation. Certain reclassifications were made in the consolidated financial statements and related notes to consolidated financial statements to conform to the current year presentation. In addition, as described in Note 2, all periods presented include the financial results of the operating businesses exchanged with Henkel KGaA (“Henkel”) in November 2004 as discontinued operations.
 USE OF ESTIMATES
The preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts and related disclosures. Specific areas, among others, requiring the application of management’s estimates and judgment include assumptions pertaining to accruals for consumer and trade-promotion programs, future product volume and pricing estimates, future cost trends, pension and post-employment benefits, future cash flows associated with impairment testing of goodwill and other long-lived assets, credit worthiness of customers, potential income tax assessments and tax strategies. Actual results could materially differ from estimates and assumptions made.
 NEW ACCOUNTING STANDARDS & DEVELOPMENTS
SHARE-BASED PAYMENT
In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123-R, “Share-Based Payment.” This Statement addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for (a) equity instruments of the company, such as stock options, or (b) liabilities, such as those related to performance units, that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments. The Company currently accounts for stock options using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” whereby stock options are granted at market price and no compensation cost is recognized, and discloses the pro forma effect on net earnings assuming compensation cost had been recognized in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation.”
SFAS No. 123-R, which is effective for the Company beginning in the first quarter of fiscal year 2006, eliminates the ability to account for share-based compensation transactions using APB Opinion No. 25, and generally requires that such transactions be accounted for using prescribed fair-value-based methods. SFAS No. 123-R permits public companies to adopt its requirements using one of two methods: (a) a “modified prospective” method in which compensation costs are recognized beginning with the effective date based on the requirements of SFAS No. 123-R for all share-based payments granted after the effective date and based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123-R that remain unvested on the effective date or (b) a “modified
28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
retrospective” method which includes the requirements of the modified prospective method described above, but also permits companies to restate based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures either for all periods presented or prior interim periods of the year of adoption.
In March 2005, the U.S. Securities & Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 107, which provides additional guidance on the implementation of SFAS No. 123-R for public companies. Among other topics related to share-based payment, SAB No. 107 includes guidance on equity compensation valuation methods, income statement classification and presentation, capitalization of compensation costs, and income tax accounting. The Company has decided to adopt SFAS No. 123-R using the modified prospective method under which the Company currently expects to record a reduction to net income ranging from $21 to $24 or $0.14 to $0.16 per diluted share in fiscal year 2006, which includes the incremental accounting impact from the issuance of stock options and performance units. The Company plans to continue to use the Black-Scholes option pricing model to determine the fair value of awards.
OTHER NEW ACCOUNTING STANDARDS AND DEVELOPMENTS
In November 2004, the FASB ratified the consensus reached by the Emerging Issues Task Force (“EITF”) regarding EITF Issue No. 03-13, “Applying the Conditions in Paragraph 42 of FASB Statement No. 144 in Determining Whether to Report Discontinued Operations.” SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” requires that the results of operations of a component of an entity that either has been disposed of or classified as held for sale should be reported in discontinued operations if: (a) the operations and cash flows of the component have been (or will be) eliminated from the ongoing operations of the entity as a result of the disposal transaction, and (b) the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction. EITF Issue No. 03-13 addresses how companies should evaluate whether the operations and cash flows of a disposed component have been or will be eliminated from its ongoing operations and the types of continuing involvement that constitute “significant” continuing involvement. The consensus ratified in EITF Issue No. 03-13 is effective for a component of an entity that is disposed of or classified as held for sale in fiscal periods beginning after December 15, 2004 or earlier if disposed of or classified as held for sale within the company’s fiscal year that includes the date of consensus ratification. Based on the guidance in EITF Issue No. 03-13, the Company has classified the operating results, gain on exchange and certain transitional services related to its insecticides and Soft Scrub® businesses, which were transferred as part of the share exchange transaction with Henkel, as discontinued operations (Note 2).
In November 2004, the FASB issued SFAS No. 151, “Inventory Costs — an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 clarifies the accounting that requires abnormal amounts of idle facility expenses, freight, handling costs, and spoilage costs to be recognized as current-period charges. It also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 will be effective for inventory costs incurred on or after July 1, 2005. The Company’s adoption of this standard is currently not expected to have a material impact on the consolidated financial statements.
29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In October 2004, the American Jobs Creation Act (“the Act”) was signed into law. The Act provides a special deduction with respect to income of certain U.S. manufacturing activities and a one-time 85% dividends-received deduction for certain foreign earnings that are repatriated, as defined in the Act. The Company is currently evaluating the impact of the manufacturing deduction, which should affect its consolidated financial statements as early as fiscal year 2006. In December 2004, the FASB issued FASB Staff Position 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004.” In the quarter ended March 31, 2005, the Company completed its evaluation of the effects of the Act on its plans for repatriation. The Company recognized incremental income tax expense of $12 in fiscal year 2005, which represents the net tax on foreign earnings accumulated through June 30, 2005 that are expected to be repatriated in fiscal year 2006. The Company anticipates repatriation of approximately $200 in fiscal year 2006, with a resulting tax provision increase of $4 in that year.
 CASH AND CASH EQUIVALENTS
Cash equivalents consist of money market and other high quality instruments with an initial maturity of three months or less. Such investments are stated at cost, which approximates market value.
 INVENTORIES
Inventories are stated at the lower of cost or market. When necessary, the Company provides allowances to adjust the carrying value of its inventory to the lower of cost or market, including any costs to sell or dispose. Appropriate consideration is given to obsolescence, excessive inventory levels, product deterioration and other factors in evaluating net realizable value for the purposes of determining the lower of cost or market.
 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation and amortization expense are calculated by the straight-line method using the estimated useful lives of the related assets. The following table provides estimated useful lives of property, plant and equipment by asset classification:

 	Classification	Expected Useful Lives	 	
 	Land improvements	10 to 30 years	 	
 	Buildings	10 to 40 years	 	
 	Machinery and equipment	3 to 15 years	 	
 	Computer equipment	3 years	 	
 	Capitalized software costs	3 to   7 years	 	
 	Furniture and fixtures	5 to 10 years	 	
 	Transportation equipment	5 to 10 years	 	
 
Property, plant and equipment to be held and used is reviewed periodically for possible impairment. The Company’s impairment review is based on an estimate of the undiscounted cash flow at the lowest level for which identifiable cash flows exist. Impairment occurs when the carrying value of the asset exceeds the estimated future undiscounted cash flows generated by the asset and the impairment is viewed as other
30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
than temporary. When an impairment is indicated, an impairment charge is recorded for the difference between the carrying value of the asset and its fair market value. Depending on the asset, fair market value may be determined either by use of a discounted cash flow model, or by reference to estimated selling values of assets in similar condition.
 IMPAIRMENT R EVIEW OF INTANGIBLE ASSETS
The carrying values of goodwill, trademarks and other intangible assets are reviewed annually for possible impairment. The Company’s impairment review is based on a discounted cash flow approach that requires significant management judgment with respect to future volume, revenue and expense growth rates, changes in working capital use, foreign exchange rates, devaluation, inflation and the selection of an appropriate discount rate. Impairment occurs when the carrying value of the reporting unit exceeds the fair value of that reporting unit. An impairment charge is recorded for the difference between the carrying value and the fair value of the reporting unit, which is determined based on the net present value of estimated future cash flows. The Company tests its intangible assets annually in the third fiscal quarter unless there are indications during an interim period that assets may have become impaired. The Company uses its judgment in assessing whether assets may have become impaired between annual valuations. Indicators such as unexpected adverse economic factors, unanticipated technological change or competitive activities, loss of key personnel, and acts by governments and courts, may signal that an asset has become impaired.
 EMPLOYEE BENEFITS
 The Company has qualified and non-qualified defined benefit plans that cover substantially all domestic employees and certain international employees and provides health care benefits for domestic employees who meet age, participation and length of service requirements at retirement. The Company accounts for its defined benefit and retirement health care plans using actuarial methods required by SFAS No. 87, “Employers’ Accounting for Pensions,” and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” respectively. These methods use an attribution approach that generally spreads “plan events” over the service lives of plan participants. Examples of plan events are plan amendments and changes in actuarial assumptions such as the expected return on plan assets, discount rate, and rate of compensation increase. The principle underlying the attribution approach is that employees render service over their service lives on a relatively “smooth” basis, and therefore the statement of earnings effects of defined benefit and retirement heath care plans are recognized in the same pattern.
One of the principal assumptions used in the net periodic benefit cost calculation is the expected return on plan assets. The required use of an expected return on plan assets may result in recognized pension expense or income that differs from the actual returns of those plan assets in any given year. Over time, however, the goal is for the expected long-term returns to approximate the actual returns, and therefore are expected to result in a pattern of income and expense recognition that more closely matches the pattern of the services provided by the participants. The differences between actual and expected returns are recognized in the net periodic benefit cost calculation over the average remaining service period of the plan participants. In developing its expected return on plan assets, the Company considers the long-term

31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
actual returns relative to the mix of investments that comprise its plan assets and also develops estimates of future investment returns by considering external sources.
The Company follows the accounting guidance as specified in SFAS No. 112, “Employers Accounting for Postemployment Benefits,” for the recognition of certain disability benefits. The Company recognizes an actuarial based obligation at the onset of disability for certain benefits provided to individuals after employment but before retirement that include medical, dental, vision, life and other.
The Company also has various individual and group incentive compensation programs, including a performance unit program, a bonus program, and a profit sharing element of the Company 401(k) plan. Company contributions to the profit sharing element of the 401(k) plan and payments to managerial staff for the annual bonus program are based on Company performance targets including sales growth, operating margins and return on invested capital (“ROIC”). ROIC is generally defined as net operating profit after taxes, excluding certain costs and expenses, divided by average invested capital. Payments to officers under the three existing performance unit programs are subject to the Company’s stock achieving specified market performance compared to selected peer companies. The Company compares actual performance against these targets on a periodic basis and accrues for incentive compensation costs when it becomes probable that the targets will be achieved.
 % NVIRONMENTAL # OSTS
 The Company is involved in certain environmental remediation and on-going compliance activities. Accruals for environmental matters are recorded on a site-by-site basis when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. The Company’s accruals reflect the anticipated participation of other potentially responsible parties in those instances where it is probable that such parties are legally responsible and financially capable of paying their respective shares of the relevant costs. These accruals are adjusted periodically as assessment and remediation efforts progress or as additional technical or legal information becomes available. Actual costs to be incurred at identified sites in future periods may vary from the estimates, given the inherent uncertainties in evaluating environmental exposures. The aggregate accrual for environmental matters is included in other liabilities in the Company’s consolidated balance sheets on an undiscounted basis due to the uncertainty and timing of future payments.
 RESTRUCTURING LIABILITIES
The Company recognizes liabilities and expenses associated with exit and disposal costs when facilities are partially or completely closed. Employee termination and severance costs are recognized at the time the severance plan is approved, the amount of termination and severance costs can be estimated and the impacted group of employees is notified, provided the group will not be retained to render service beyond a minimum retention period. Other qualified exit and disposal costs are recognized and measured at fair value in the period in which the related liability is incurred.
32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
REVENUE RECOGNITION
Sales are recognized as revenue when the risk of loss and title pass to the customer, generally at the time of shipment for domestic sales and at the time of customer receipt for international sales, and when all of the following have occurred: a firm sales arrangement exists, pricing is fixed and determinable, and collection is reasonably assured. Sales are recorded net of allowances for returns, trade promotions, coupons and other discounts. Estimated shipping and handling costs are considered in establishing product prices billed to customers and reflected in net customer sales.The Company routinely commits to one-time or on-going trade-promotion programs with customers, and consumer coupon programs that require the Company to estimate and accrue the expected costs of such programs. Programs include introductory marketing funds, cooperative marketing programs, shelf price reductions, advantageous end-of-aisle or in-store displays of the Company’s products, graphics, and other trade-promotion activities conducted by the customer. Coupons are recognized as a liability when distributed based upon expected consumer redemptions. The Company maintains liabilities at the end of each period for the estimated expenses incurred, but unpaid for these programs. Trade-promotion and coupon costs are recorded as a reduction of sales.
The Company provides for an allowance for doubtful accounts based on its historical experience and a periodic review of its accounts receivable. Receivables were presented net of an allowance for doubtful accounts of $5 and $8 at June 30, 2005 and 2004, respectively. The Company’s (recovery) provision for doubtful accounts was $(2), $(1) and $4 in fiscal years 2005, 2004 and 2003, respectively.
 COST OF PRODUCTS SOLD
Cost of products sold represents the costs directly related to the manufacture and distribution of the Company’s products and primarily includes raw materials, packaging, contract packer fees, shipping and handling, warehousing, package design, direct and indirect labor and operating costs for the Company’s manufacturing facilities including salary, benefit costs and incentive compensation.
Costs associated with developing and designing new packaging are expensed as incurred and include design, artwork, films, and labeling. Expenses for fiscal years ended June 30, 2005, 2004 and 2003 were $13, $15 and $18, respectively, of which $12, $14, and $18 were classified as cost of products sold, and the remainder was classified as selling and administrative expenses, respectively.
 SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses represent costs incurred by the Company in generating revenues and managing the business and include market research, commissions, and certain administrative expenses. Administrative expenses include salary, benefits, incentive compensation, professional fees and services, software and licensing fees, and other operating costs associated with the Company’s non-manufacturing, non-research and development staff, facilities and equipment.
 ADVERTISING
The Company expenses advertising costs in the period incurred.
33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES
The Company uses the asset and liability method to account for income taxes. Deferred tax assets and liabilities are recognized for the anticipated future tax consequences attributable to differences between financial statement amounts and their respective tax bases. Management reviews the Company’s deferred tax assets to determine whether their value can be realized based upon available evidence. A valuation allowance is established when management believes that it is more likely than not that some portion of its deferred tax assets will not be realized. Changes in valuation allowances from period to period are included in the Company’s tax provision in the period of change.In addition to valuation allowances, the Company establishes accruals for certain tax contingencies when, despite the belief that the Company’s tax return positions are fully supported, the Company believes that certain positions are likely to be challenged and that the Company’s positions may not be fully sustained. The tax contingency accruals are adjusted in light of changing facts and circumstances, such as the progress of tax audits, case law and emerging legislation. The Company’s tax contingency accruals are reflected as a component of accrued liabilities.
A number of years may elapse before a particular matter, for which the Company has recognized an accrual, is audited and finally resolved. The number of years with open tax audits varies by jurisdiction. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, the Company believes its tax contingency accruals are adequate to address known tax contingencies. Favorable resolution of such contingencies could be recognized as a reduction to the Company’s effective tax rate in the period of resolution. Unfavorable settlement of any particular issue could increase the effective tax rate and may require the use of cash in the year of resolution.
U.S. income tax expense and foreign withholding taxes are provided on remittances of foreign earnings and on unremitted foreign earnings that are not indefinitely reinvested. Where unremitted foreign earnings are indefinitely reinvested, no provision for federal and state tax expense is made. When circumstances change and the Company determines that some or all of the undistributed earnings will be remitted in the foreseeable future, such as with the anticipated repatriation of dividends under the American Jobs Creation Act, the Company accrues an expense in the current period for income taxes attributable to that remittance.
 FOREIGN CURRENCY TRANSLATION
Local currencies are the functional currencies for substantially all of the Company’s foreign operations. When the transactional currency is different than the functional currency, transaction gains and losses are included as a component of other (income) expense. Assets and liabilities of foreign operations are translated into U.S. Dollars using the exchange rates in effect at the balance sheet reporting date. Income and expenses are translated at the average monthly exchange rates during the year. Gains and losses on foreign currency translations are reported as a component of accumulated other comprehensive income. Deferred taxes are not provided on cumulative translation adjustments where the Company expects earnings of a foreign subsidiary to be indefinitely reinvested. The income tax effect of currency translation adjustments related to foreign earnings from certain countries and joint ventures that are not considered indefinitely reinvested is recorded as a component of deferred taxes with an offset to accumulated other comprehensive net losses.
34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
NET EARNINGS PER COMMON SHARE
Basic net earnings per common share is computed by dividing net earnings by the weighted average number of common shares outstanding each period on an unrounded basis. Diluted net earnings per common share is computed by dividing net earnings by the diluted weighted average number of common shares outstanding during each period on an unrounded basis. Diluted net earnings per common share reflects the earnings dilution that would occur from the issuance of in-the-money common shares related to stock options, restricted stock and performance units.
 DERIVATIVE INSTRUMENTS
The Company’s use of derivative instruments, principally swap, futures, forward, and option contracts, is limited to non-trading purposes and is designed to manage exposure to changes in interest rates, foreign currencies and commodity prices. The Company’s contracts are economic hedges for transactions with notional balances and periods consistent with the related exposures and do not constitute investments independent of these exposures. Exposure to counterparty credit risk is considered low because these agreements have been entered into with major institutions with strong credit ratings.
Most interest rate swaps and commodity purchase and foreign exchange contracts are designated as fair value or cash flow hedges of long-term debt, raw material purchase obligations or foreign currency denominated debt instruments, based on certain hedge criteria. The criteria used to determine if hedge accounting treatment is appropriate are: (a) the designation of the hedge to an underlying exposure, (b) whether overall risk is being reduced and, (c) if there is sufficient correlation between the value of the derivative instrument and the underlying obligation. The changes in the fair value of derivatives are recorded as either assets or liabilities in the balance sheet with an offset to net earnings or other comprehensive income, depending on whether, for accounting purposes, the derivative is designated and qualified as a hedge transaction and the type of hedge transaction. For fair value hedge transactions, changes in fair value of the derivative and changes in the fair value of the item being hedged are recorded in earnings. For cash flow hedge transactions, changes in fair value of derivatives are reported as a component of other comprehensive income. The Company also has contracts not designated as hedges for accounting purposes and recognizes changes in the fair value of these contracts in other (income) expense.
The Company uses different methodologies, when necessary, to estimate the fair value of its derivative contracts. The estimated fair values of the majority of the Company’s contracts are based on quoted market prices, traded exchange market prices, or broker price quotations, and represent the estimated amounts that the Company would pay or receive to terminate the contracts. Due to the lack of available market price quotations, the Company’s resin commodity contracts are valued using a model which employs forward price curves provided by external sources. The determination of the resin forward curve is based on many economic factors, including technology, labor, material and capital costs, capacity, and supply and demand.
 STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the intrinsic value method, whereby stock options are granted at market price and no compensation cost is recognized. SFAS No. 123, “Accounting for Stock-Based Compensation,” and SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” prescribe the accounting and disclosure requirements using a fair-value based
35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
method of accounting for stock-based employee compensation plans. The Company has elected to use the intrinsic value method of accounting for its stock options and has adopted the disclosure requirements of SFAS Nos. 123 and 148. Restricted stock awards are amortized as compensation expense on a straight-line basis over the related vesting periods based on the share’s market value on the date of grant. Unearned compensation cost on restricted stock awards is recorded as a reduction to stockholders’ equity. The Company will adopt the provisions of SFAS 123-R effective July 1, 2005.
If compensation expense for the Company’s various stock option plans had been determined based upon estimated fair values at the grant dates for awards under those plans in accordance with SFAS No. 123, the Company’s pro forma net earnings, and basic and diluted earnings per common share would have been as follows for the fiscal years ended June 30:

 	 	2005	 	2004	 	2003	 	
Net earnings:	 	 	 	 	 	 	 	
As reported	 	$	1,096	 	$	549	 	$	493	 	
Fair value-based expense, net of tax	 	(18	)	(19	)	(21	)	
Pro forma	 	$	1,078	 	$	530	 	$	472	 	
Net earnings per common share:	 	 	 	 	 	 	 	
Basic	 	 	 	 	 	 	 	
As reported	 	$	6.20	 	$	2.59	 	$	2.26	 	
Pro forma	 	6.10	 	2.50	 	2.16	 	
Diluted	 	 	 	 	 	 	 	
As reported	 	$	6.11	 	$	2.56	 	$	2.23	 	
Pro forma	 	6.02	 	2.47	 	2.14	 	
 
2.    HENKEL TRANSACTIONS AND DISCONTINUED OPERATIONS
 SHARE EXCHANGE AGREEMENT
On November 22, 2004, the Company completed the exchange of its ownership interest in a subsidiary for Henkel’s interest in Clorox common stock. Prior to the completion of the exchange, Henkel owned approximately 61.4 million shares, or about 29%, of the Company’s outstanding common stock. The parties agreed that the Company would provide exchange value equal to $46.25 per share of Company stock being acquired in the exchange. The subsidiary transferred to Henkel contained Clorox’s existing insecticides and Soft Scrub cleanser businesses (jointly, the “Operating Businesses”), its 20% interest in the Henkel Iberica, S.A. (“Henkel Iberica”) joint venture, and $2,095 in cash.
Upon closing, the Company recognized a gain of $570 and reversed a total of $8 of deferred income taxes. The gain reflects an aggregate fair value of $745 for the exchanged Operating Businesses and Henkel Iberica, and was based on specified working capital balances that would exist at the closing date. As the specified working capital balances exceeded the actual balances at the closing date by $11, the Company was obligated to pay Henkel approximately $11 by the end of the third quarter of fiscal year 2005. The fair value of the businesses was determined through arms-length negotiations supported by traditional valuation methodologies that included discounted cash flow calculations and sales and earnings multiples.
36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
2.    HENKEL TRANSACTIONS AND DISCONTINUED OPERATIONS (Continued)
In addition, the Company paid $13 of transaction costs related to the share exchange during the second quarter, including $9 that was charged to the gain and $4 that was attributed to treasury shares.
The transaction was structured to qualify as a tax-free exchange under Section 355 of the Internal Revenue Code. The Company initially funded the transaction with commercial paper and subsequently refinanced a portion of the commercial paper borrowings by issuing $1,650 in senior notes.
 DISCONTINUED OPERATIONS
Based on the guidance in EITF Issue No. 03-13, the Company has classified the financial results of the Operating Businesses, which were transferred as part of the share exchange transaction with Henkel as discontinued operations for all periods presented herein. In order to facilitate the share exchange, certain transitional services are being provided by the Company to Henkel, including some interim production of insecticides and Soft Scrub for periods of approximately one year (the “Assessment Period”). The purpose of these services is to provide short-term assistance to Henkel in assuming the operations of the Operating Businesses. The Company’s cash inflows and outflows from these services are expected to be insignificant after the Assessment Period. The Company’s share of the financial results of Henkel Iberica are included as a component of other (income) expense. Other than the transitional services being provided, the Company has no material ongoing relationship with Henkel, and Henkel’s right to representation on the Company’s board of directors has ended.
The following table presents the net sales and earnings from the exchanged Operating Businesses related to the Henkel Share Exchange Agreement:

 	 	 2005 	 	2004	 	2003	 	
Net sales	 	 	$	87	 	 	$	162	 	$	158	 	
Income from discontinued operations before income taxes	 	 	$	37	 	 	$	87	 	$	84	 	
Income tax expense	 	 	(8	)	 	(31	)	(31	)	
Earnings from discontinued operations	 	 	$	29	 	 	$	56	 	$	53	 	
 
The following table presents the net assets of the businesses exchanged as of the closing date, November 22, 2004 and June 30, 2004:

 	 	 11/22/2004 	 	 6/30/2004 	 	
Current assets, net of current liabilities of $5 and $21	 	 	$	8	 	 	 	$	31	 	 	
Property, plant and equipment, net	 	 	9	 	 	 	9	 	 	
Goodwill, net	 	 	15	 	 	 	15	 	 	
Trademarks and other intangible assets, net	 	 	31	 	 	 	31	 	 	
Equity investment in Henkel Iberica	 	 	69	 	 	 	62	 	 	
Other assets	 	 	3	 	 	 	3	 	 	
Deferred income tax assets (liabilities)	 	 	1	 	 	 	(6	)	 	
Net assets exchanged	 	 	$	136	 	 	 	$	145	 	 	
 
37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
 2.    HENKEL TRANSACTIONS AND DISCONTINUED OPERATIONS (Continued)
BRAZIL BUSINESS
In fiscal year 2003, the Company announced its intent to exit its business in Brazil, a reporting unit included in the International segment, due to the poor economic and market conditions and the Company’s lack of business scale in that country. The Company has closed its offices in Brazil and has sold nearly all of the remaining assets of this business, which is classified as a discontinued operation. There were no sales or other significant financial results during fiscal year 2005 from the Brazil business. The following table presents the net sales and earnings (losses) from the Brazil business:

 	 	  2004  	 	2003	 	
Net sales	 	 	—	 	 	$	27	 	
Losses from discontinued operations before income taxes	 	 	$	(4	)	 	$	(3	)	
Asset impairment charges	 	 	—	 	 	(23	)	
Income tax benefits	 	 	7	 	 	5	 	
Earnings (losses) from discontinued operations	 	 	$	3	 	 	$	(21	)	
 
3.    RESTRUCTURING AND ASSET IMPAIRMENT
Restructuring and asset impairment charges were $36, $11 and $33 in fiscal years 2005, 2004 and 2003, respectively.

 	 	 2005 	 	 2004 	 	 2003 	 	
Restructuring:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Severance	 	 	$	6	 	 	 	$	1	 	 	 	—	 	 	
Plant closure and other	 	 	1	 	 	 	—	 	 	 	—	 	 	
Total restructuring	 	 	7	 	 	 	1	 	 	 	—	 	 	
Asset impairment:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Machinery and equipment	 	 	29	 	 	 	10	 	 	 	—	 	 	
Goodwill and other intangibles (including deferred translation and deferred charges)	 	 	—	 	 	 	—	 	 	 	$	33	 	 	
Total asset impairment	 	 	29	 	 	 	10	 	 	 	33	 	 	
Total restructuring and asset impairment expense	 	 	$	36	 	 	 	$	11	 	 	 	$	33	 	 	
Accrued restructuring at beginning of year	 	 	$	3	 	 	 	$	6	 	 	 	$	14	 	 	
Restructuring expense	 	 	7	 	 	 	1	 	 	 	—	 	 	
Payments	 	 	(8	)	 	 	(4	)	 	 	(8	)	 	
Accrued restructuring at end of year	 	 	$	2	 	 	 	$	3	 	 	 	$	6	 	 	
 
During fiscal years 2005 and 2004, the Company recorded restructuring and asset impairment charges of $32 and $11 in conjunction with the Glad® supply chain restructuring. The restructuring involved closing a manufacturing facility and distributing the remaining production between Glad’s North American plants and third-party suppliers to optimize available capacity and operating costs. The charges in fiscal year 2005 included asset impairment charges of $26, employee severance of approximately $5, and lease termination
38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
3.    RESTRUCTURING AND ASSET IMPAIRMENT (Continued)
fees of $1. The Company also recorded incremental operating costs of $7 associated primarily with equipment and inventory transfer charges. The charges in fiscal year 2004 consisted of asset impairment charges of $10 for certain manufacturing equipment and $1 of employee severance costs.
In fiscal year 2005, the Company also recorded asset impairment charges and severance costs of $4 related to manufacturing operations in the International segment. The fair values of all impaired assets were determined based on the estimated selling values of assets in similar conditions.
During fiscal year 2003, the Company recorded $33 of restructuring and asset impairment costs, which was driven primarily by a $30 goodwill impairment charge related to the Company’s business in Argentina, of which $8 was recorded as a reduction to goodwill, $9 to deferred charges and $13 to deferred translation. The impairment charges were driven by the continued unsettled conditions in the local market and significant changes in competitor actions that resulted in a change to the Company’s marketing strategy for Argentina.
4.    INVENTORIES
Inventories at June 30 were comprised of the following:

 	 	2005	 	2004	 	
Finished goods	 	$	256	 	$	243	 	
Raw materials and packaging	 	76	 	68	 	
Work in process	 	6	 	3	 	
LIFO allowances	 	(9	)	(9	)	
Allowances for obsolescence	 	(6	)	(4	)	
Total	 	$	323	 	$	301	 	
 
The last-in, first-out (“LIFO”) method was used to value approximately 43% and 44% of inventories at June 30, 2005, and 2004, respectively. The carrying values for all other inventories, including inventories of all international businesses, are determined on the first-in, first-out (“FIFO”) method. If the carrying value of LIFO inventories had been determined using the FIFO method, inventory amounts would have increased by approximately $9 at both June 30, 2005 and 2004. The effect on earnings of the liquidation of any LIFO layers was not material for the fiscal years ended June 30, 2005, 2004 and 2003.
Changes in the allowance for inventory obsolescence were as follows:

 	 	2005	 	2004	 	2003	 	
Beginning of year	 	$	(4	)	$	(3	)	$	(12	)	
Inventory obsolescence	 	(16	)	(14	)	(8	)	
Deductions for inventory write-offs	 	14	 	13	 	17	 	
End of year	 	$	(6	)	$	(4	)	$	(3	)	
 
39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
5.    PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment at June 30 were as follows:

 	 	2005	 	2004	 	
Land and improvements	 	$	96	 	$	93	 	
Buildings	 	487	 	480	 	
Machinery and equipment	 	1,245	 	1,255	 	
Computer hardware	 	120	 	113	 	
Capitalized software costs	 	235	 	219	 	
Construction in progress	 	69	 	50	 	
 	 	2,252	 	2,210	 	
Less: accumulated depreciation and amortization	 	(1,253	)	(1,158	)	
Net balance	 	$	999	 	$	1,052	 	
 
Depreciation and amortization expense related to property, plant and equipment was $170, $167 and $147 in fiscal years 2005, 2004 and 2003, respectively.
 6.    GOODWILL, TRADEMARKS, AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill for the fiscal years ended June 30, 2005 and 2004, by operating segment are summarized below. Goodwill is reported net of accumulated amortization of $345 and $357 at June 30, 2005 and 2004, respectively.

 	 	Household	 	Specialty	 	 	 	 	 	 	 	
 	 	Group	 	Group	 	International	 	Corporate	 	Total	 	
Balance at June 30, 2003 (as reported)	 	 	$	125	 	 	 	$	381	 	 	 	$	155	 	 	 	$	69	 	 	$	730	 	
Segment realignment (Note 18)	 	 	298	 	 	 	(298	)	 	 	—	 	 	 	—	 	 	—	 	
Balance at June 30, 2003 (as realigned)	 	 	423	 	 	 	83	 	 	 	155	 	 	 	69	 	 	730	 	
Acquisitions and sales	 	 	—	 	 	 	—	 	 	 	6	 	 	 	—	 	 	6	 	
Translation adjustments and other	 	 	(2	)	 	 	—	 	 	 	8	 	 	 	—	 	 	6	 	
Balance at June 30, 2004	 	 	421	 	 	 	83	 	 	 	169	 	 	 	69	 	 	742	 	
Henkel exchange	 	 	—	 	 	 	(15	)	 	 	—	 	 	 	—	 	 	(15	)	
Translation adjustments and other	 	 	5	 	 	 	—	 	 	 	11	 	 	 	—	 	 	16	 	
Balance at June 30, 2005	 	 	$	426	 	 	 	$	68	 	 	 	$	180	 	 	 	$	69	 	 	$	743	 	
 
40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
6.    GOODWILL, TRADEMARKS, AND OTHER INTANGIBLE ASSETS (Continued)
Changes in trademarks and other intangible assets for the fiscal years ended June 30, 2005 and 2004 are summarized below. The intangible assets, which are subject to amortization, are reported net of accumulated amortization of $164 and $152 at June 30, 2005 and 2004, respectively, of which $38 and $28, respectively, related to technology. The estimated amortization expense for these intangible assets is $11 for each of the fiscal years 2006, 2007, 2008, 2009 and 2010.

 	 	Trademarks and other intangible assets	 	Trademarks	 	 	 	
 	 	subject to amortization	 	not subject to	 	 	 	
 	 	   Technology  	 	  Other  	 	  Sub-Total  	 	amortization	 	Total	 	
Net balance at June 30, 2003	 	 	$	105	 	 	 	$	31	 	 	 	$	136	 	 	 	$	515	 	 	$	651	 	
Acquisitions	 	 	1	 	 	 	—	 	 	 	1	 	 	 	2	 	 	3	 	
Translation adjustments and other	 	 	—	 	 	 	(4	)	 	 	(4	)	 	 	(2	)	 	(6	)	
Amortization	 	 	(9	)	 	 	(6	)	 	 	(15	)	 	 	—	 	 	(15	)	
Net balance at June 30, 2004	 	 	97	 	 	 	21	 	 	 	118	 	 	 	515	 	 	633	 	
Henkel exchange	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(32	)	 	(32	)	
Translation adjustments and other	 	 	—	 	 	 	1	 	 	 	1	 	 	 	9	 	 	10	 	
Amortization	 	 	(10	)	 	 	(2	)	 	 	(12	)	 	 	—	 	 	(12	)	
Net balance at June 30, 2005	 	 	$	87	 	 	 	$	20	 	 	 	$	107	 	 	 	$	492	 	 	$	599	 	
Weighted average life (in years)	 	 	13	 	 	 	19	 	 	 	14	 	 	 	 	 	 	14	 	
 
The Company performed its annual review of intangible assets in the third fiscal quarter and no instances of impairment were identified. Business valuations of the Colombia and Venezuela reporting units were performed, as these businesses operate under continuing economic and political uncertainties. The fair value for Colombia was only slightly in excess of the carrying amount. The Company is closely monitoring any events, circumstances, or changes in the businesses that might imply a reduction in the fair value and might lead to additional impairments. The Company will continue to test annually for impairment in the third fiscal quarter unless there are indications during an interim period that intangible assets may have become impaired.
 7.    OTHER ASSETS
Other assets were comprised of the following at June 30:

 	 	   2005   	 	   2004   	 	
Pension benefit assets	 	 	$	2	 	 	 	$	119	 	 	
Equity investments in:	 	 	 	 	 	 	 	 	 	
Henkel Iberica	 	 	—	 	 	 	62	 	 	
Other entities	 	 	47	 	 	 	45	 	 	
Investment in low-income housing partnerships	 	 	33	 	 	 	51	 	 	
Investment in insurance contracts	 	 	49	 	 	 	47	 	 	
Non-qualified retirement plan assets	 	 	18	 	 	 	21	 	 	
Other	 	 	37	 	 	 	19	 	 	
Total	 	 	$	186	 	 	 	$	364	 	 	
 
41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
7.    OTHER ASSETS (Continued)
PENSION BENEFIT ASSETS
The Company reported a net pension liability at June 30, 2005 compared to net pension assets at June 30, 2004. The pension liability resulted from the accumulated benefit obligations exceeding the market value of plan assets for the qualified plans as of June 30, 2005. This resulted in a charge to other comprehensive income of $118, net of deferred income taxes.
 EQUITY INVESTMENTS
The Company holds various equity investments in a number of consumer products businesses, most of which operate outside the United States. The most significant of these investments was a 20 percent joint venture interest in Henkel Iberica, a subsidiary of Henkel, which was a related party of the Company until November 2004. Under the terms of the Share Exchange Agreement (Note 2), the investment was transferred to Henkel in November 2004. The Company has no ongoing capital commitments, loan requirements, guarantees or any other types of arrangements under the terms of its joint venture agreements that would require any future cash contributions or disbursements arising out of a variable interest entity or equity investment, except for the investment in low-income housing partnerships described in the following paragraph.
 INVESTMENT IN LOW-INCOME HOUSING PARTNERSHIPS
The Company owns, directly or indirectly, limited partnership interests of up to 99% in 55 low-income housing partnerships, which are accounted for on the equity basis. The purpose of the partnerships is to develop and operate low-income housing rental properties. The general partners, who typically hold 1% of the partnership interests, are third parties unrelated to the Company and its affiliates, and are responsible for controlling and managing the business and financial operations of the partnerships. The partnerships provide the Company with low-income housing tax credits, which are accounted for in accordance with EITF Issue 94-1, “Accounting for Tax Benefits Resulting from Investments in Affordable Housing Projects.” Tax benefits, net of equity in the (losses) of the low-income housing partnerships, were $(4), $8, and $14 in fiscal years 2005, 2004 and 2003, respectively. The Company’s estimated future capital requirements for the partnerships are approximately $5, $2, $2, and $1 in fiscal years 2006, 2007, 2008, and 2009, respectively. As a limited partner, the Company is not responsible for any of the liabilities and obligations of the partnerships nor do the partnerships or their creditors have any recourse to the Company other than for the capital requirements. Recovery of the Company’s investments in the partnerships is accomplished through the utilization of low-income housing tax credits, the tax benefits of partnership losses and proceeds from the disposition of rental properties. The risk of these tax credits being unavailable to the Company is considered very low. For the combined group of low-income housing partnerships in which the Company invests, the aggregate underlying assets and liabilities were approximately $449 and $536 as of June 30, 2005. The Company does not consolidate the investment in low-income housing partnerships.
In the third quarter of fiscal year 2005, the Company recorded a $13 pretax charge ($9 after tax) in other (income) expense to recognize certain partnership operating losses realized in prior fiscal years. The aggregate charge accumulated over the approximate 14-year period during which the Company invested in the partnerships. The Company does not believe these losses are material to the periods in which they
42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
7.    OTHER ASSETS (Continued)
should have been reflected or were and, therefore, recorded the entire charge in the third quarter of fiscal year 2005.
 INVESTMENT IN INSURANCE CONTRACTS
The Company invests in life insurance policies and records the cash surrender value of the contracts, net of any policy loans, at fair value. Any change in the cash surrender value is reflected in other (income) expense.
 NON-QUALIFIED RETIREMENT PLAN ASSETS
The majority of the non-qualified retirement plan assets at June 30, 2005 are held in a trust owned life insurance policy, whose investment assets are a separately-managed portfolio administered by an insurance company. The assets held under this insurance policy are recorded at estimated fair value with changes in estimated value recorded in net earnings.
8.    ACCRUED LIABILITIES
Accrued liabilities at June 30 consisted of the following:

 	 	   2005   	 	   2004   	 	
Taxes	 	 	$	281	 	 	 	$	377	 	 	
Trade and sales promotion	 	 	107	 	 	 	122	 	 	
Compensation and employee benefit costs	 	 	85	 	 	 	88	 	 	
Interest and other	 	 	141	 	 	 	56	 	 	
Total	 	 	$	614	 	 	 	$	643	 	 	
 
In the first quarter of fiscal year 2006, the Company paid $150 as part of a tax settlement agreement reached in fiscal year 2005 (Note 16). The payment was applied to the accrued taxes balance.
 9.    DEBT
Notes and loans payable, which mature in less than one year, included the following at June 30:

 	 	2005	 	2004	 	
Commercial paper	 	$	357	 	$	286	 	
Notes payable	 	—	 	3	 	
Foreign borrowings	 	2	 	—	 	
Total	 	$	359	 	$	289	 	
 
The weighted average interest rate for notes and loans payable was 2.4%, 1.1% and 2.3% for fiscal years 2005, 2004 and 2003, respectively. The carrying value of notes and loans payable at June 30, 2005 and 2004 approximated the fair value of such debt.
43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
9.    DEBT (Continued)
Long-term debt at June 30 included the following:

 	 	     2005     	 	   2004   	 	
Senior unsecured notes and debentures:	 	 	 	 	 	 	 	 	 	
Floating rate, $500 due December 2007	 	 	$	500	 	 	 	—	 	 	
4.20%, $575 due January 2010, including premiums	 	 	577	 	 	 	—	 	 	
5.00%, $575 due January 2015	 	 	575	 	 	 	—	 	 	
6.125%, $300 due February 2011, including premiums	 	 	317	 	 	 	$	321	 	 	
7.25%, $150 due March 2007	 	 	150	 	 	 	150	 	 	
Foreign bank loans	 	 	—	 	 	 	6	 	 	
Other	 	 	5	 	 	 	—	 	 	
Total	 	 	2,124	 	 	 	477	 	 	
Less: current maturities	 	 	(2	)	 	 	(2	)	 	
Long-term debt	 	 	$	2,122	 	 	 	$	475	 	 	
 
The weighted average interest rate on long-term debt, including the effect of interest rate swaps, was 4.7%, 5.8% and 3.1% for fiscal years 2005, 2004 and 2003, respectively. The estimated fair value of long-term debt, including current maturities, was $2,146 and $493 at June 30, 2005 and 2004, respectively.
In December 2004, the Company issued $1,650 in private placement senior notes in connection with the share exchange with Henkel (Note 2). The senior notes consist of $500 aggregate principal amount of floating-rate senior notes due December 2007, $575 aggregate principal amount of 4.20% senior notes due January 2010 and $575 aggregate principal amount of 5.00% senior notes due January 2015. The floating-rate senior notes incur interest at a rate equal to three-month LIBOR plus 0.125%, reset quarterly. The interest rate at June 30, 2005 for the floating-rate senior notes was 3.53%. The Company used the full amount of the net proceeds from the offering to repay a portion of the amount outstanding under its commercial paper program used to finance the cash contribution made in connection with the share exchange with Henkel. In April 2005, the Company completed an exchange offering that allowed debt holders to exchange private placement senior notes for senior notes registered under the Securities Act of 1933, as amended.
Credit facilities as of June 30 were as follows:

 	 	2005	 	2004	 	
Domestic credit facilities:	 	 	 	 	 	
Credit line, scheduled to expire in December 2009	 	$	1,300	 	—	 	
Credit line, scheduled to expire in June 2005	 	—	 	$	600	 	
Credit line, scheduled to expire in March 2007	 	—	 	350	 	
Foreign and other credit lines	 	16	 	12	 	
Total	 	$	1,316	 	$	962	 	
 
At June 30, 2005, there were no borrowings under the $1,300 credit agreement, which is available for general corporate purposes and to support additional commercial paper issuances. During the quarter
44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
9.    DEBT (Continued)
ended December 31, 2004, the $600 and $350 credit facilities were cancelled. In addition, as of June 30, 2005, the Company had $14 available for borrowing under foreign and other credit lines.
Debt maturities as of June 30, 2005 are $2, $152, $500, $0, $575 and $875 in fiscal years 2006, 2007, 2008, 2009, 2010, and thereafter, respectively. The Company was in compliance with all restrictive covenants and limitations as of June 30, 2005.
10.    FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s derivative financial instruments were recorded at fair value in the consolidated balance sheets as assets at June 30 as follows:

 	 	2005	 	2004	 	
Current assets:	 	 	 	 	 	 	 	 	 	
Commodity purchase contracts	 	 	$	7	 	 	 	—	 	 	
Foreign exchange contracts	 	 	—	 	 	 	$	1	 	 	
Other assets:	 	 	 	 	 	 	 	 	 	
Commodity purchase contracts	 	 	5	 	 	 	3	 	 	

In fiscal year 2004, the Company discontinued hedge accounting treatment for its resin commodity contracts since the contracts no longer met the accounting requirements for a cash flow hedge. These contracts are used as an economic hedge of resin prices and changes in the fair value of these contracts are recorded to other (income) expense. The pretax effect on net earnings from these contracts was a gain of $2 in both fiscal year 2005 and 2004. All instruments accorded hedge accounting treatment are considered effective.
In fiscal year 2004, the Company terminated the interest rate swap agreements associated with its senior unsecured note maturing in February 2011. The fair value of these swaps, which totaled $24 upon termination, is being recognized in net earnings on a straight-line basis over the remaining life of the note.
The Company uses commodity futures, swap, and option contracts to fix the price of a portion of its raw material requirements. Contract maturities, which extend to fiscal year 2007, are matched to the length of the raw material purchase contracts. Realized contract gains and losses are reflected as adjustments to the cost of the raw materials. The estimated amount of existing pretax net gains for commodity contracts in accumulated other comprehensive net income that is expected to be reclassified into net earnings during the year ending June 30, 2006 is $6.
The Company also enters into certain foreign-currency related derivative contracts with no specific hedge designations. These contracts, which have been entered into to manage a portion of the Company’s foreign exchange risk, are accounted for by adjusting the carrying amount of the contracts to market value and recognizing any gain or loss in other (income) expense.
45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
10.    FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The notional and estimated fair values of the Company’s derivative instruments are summarized below as of June 30:

 	 	2005	 	2004	 	
 	 	Notional	 	Fair Value	 	Notional	 	Fair Value	 	
Derivative Instruments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Foreign exchange contracts	 	 	$	32	 	 	 	—	 	 	 	$	36	 	 	 	$	1	 	 	
Commodity purchase contracts	 	 	73	 	 	 	$	12	 	 	 	43	 	 	 	3	 	 	
Commodity option contracts	 	 	—	 	 	 	—	 	 	 	2	 	 	 	—	 	 	

The carrying values of cash, short-term investments, accounts receivable and accounts payable approximate their fair values at June 30, 2005 and 2004 due to the short maturity and nature of those balances. See Note 9 for fair values of notes and loans payable and long-term debt.
11.    OTHER LIABILITIES
Other liabilities consisted of the following at June 30:

 	 	2005	 	2004	 	
Venture agreement net terminal obligation	 	$	258	 	$	125	 	
Retirement healthcare benefits	 	88	 	82	 	
Qualified and nonqualified pension plans	 	119	 	42	 	
Deferred compensation plans	 	61	 	50	 	
Environmental remediation	 	33	 	29	 	
Long term disability post employment obligation	 	21	 	19	 	
Other	 	38	 	30	 	
Total	 	$	618	 	$	377	 	
 
VENTURE AGREEMENT
On January 31, 2003, the Company entered into an agreement with The Procter & Gamble Company (“P&G”) to form a venture related to the Company’s Glad plastic bags, wraps and containers business. P&G contributed production and research and development equipment, licenses to use a range of current and future trademarks, and other proprietary technologies to the Company in exchange for an interest in the profits and losses, and cash flows, as contractually defined, of the Glad business. P&G is also providing and being reimbursed for research and development support to the Glad business for the first ten years of the venture, subject to renewal options. At inception of the agreement, the production and research and development equipment, and the technologies contributed by P&G were valued and recorded at $29 and $96, respectively. The production and research and development equipment is being depreciated on a straight-line basis over useful lives ranging from two to ten years and intangible assets are being amortized on a straight-line basis over a twelve-year period. The Company also recorded $125 as a net terminal obligation liability at inception of the agreement, which reflected the initial fair value of the contractual requirement to repurchase P&G’s interest at the termination of the agreement.
46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
11.    OTHER LIABILITIES (Continued)
In January 2005, P&G paid the Company $133 to exercise its option to increase its interest from 10% to 20%, which is the maximum investment P&G is allowed under the venture agreement. The Company recorded a corresponding $133 increase to other liabilities in the third quarter of fiscal year 2005 to reflect the contractual requirement to purchase P&G’s interest at the termination of the agreement. This obligation is being adjusted to fair value on an annual basis. In addition, the Company established a $34 deferred tax asset in the third quarter of fiscal year 2005 related to this option exercise.
During the period ended December 31, 2003, all profits, losses and cash flows, as contractually defined, of the Glad business were allocated to the Company. During calendar year 2004, profits, losses, and cash flows, as contractually defined, of the Glad business were allocated 95% to the Company and 5% to P&G. For all subsequent calendar year periods, the allocation is 80% to the Company and 20% to P&G.
The agreement can be terminated under certain circumstances including, at the option of P&G, a change in control of the Company, or, at either party’s option, the sale of the Glad business by the Company. Upon termination of the agreement, the Company will purchase P&G’s interest for cash at fair value as established by a pre-determined valuation procedure. Following termination, the Glad business will retain the exclusive intellectual property licenses contributed by P&G for the licensed products marketed.
12.    STOCKHOLDERS’ (DEFICIT) EQUITY
The Company has two share repurchase programs, consisting of an open-market program, which has a total authorization of $1,700, and a program to offset the impact of share dilution related to the exercise of stock options (“evergreen program”), which has no authorization limit. Due mainly to the acquisition of approximately 61.4 million of the Company’s shares in the transaction with Henkel (Note 2), there were no repurchases under the open-market program during fiscal year 2005. The total number of shares repurchased as of June 30, 2005 under the open-market program was 22 million shares at a cost of $932, leaving $768 of authorized repurchases remaining under that program. Share repurchases under the evergreen program were $160 (3 million shares) in fiscal year 2005.
Accumulated other comprehensive net losses at June 30, 2005, 2004, and 2003 included the following net-of-tax losses (gains):

 	 	2005	 	2004	 	2003	 	
Currency translation	 	$	(217	)	$	(267	)	$	(270	)	
Derivatives	 	5	 	(1	)	3	 	
Minimum pension liabilities	 	(124	)	(6	)	(72	)	
Total	 	$	(336	)	$	(274	)	$	(339	)	
 
For fiscal years 2005, 2004 and 2003, the Company recorded charges (benefits) to deferred taxes of $72, $(41), and $44, respectively, which were related to its minimum pension liability adjustments and were reflected as components of total comprehensive income.
13.    STOCK COMPENSATION PLANS
At June 30, 2005, the Company had various non-qualified stock-based compensation programs, which include stock options, performance units and restricted stock awards. The 1996 Stock Incentive Plan
47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
13.    STOCK COMPENSATION PLANS (Continued)
(“1996 Plan”) and the 1993 Directors’ Stock Option Plan are the only plans with stock awards currently available for grant as of June 30, 2005. The Company is authorized to grant up to 26 million common shares under the 1996 Plan, of which 7 million common shares are remaining and could be granted in the future. The Company is authorized to grant up to 400,000 common shares under the 1993 Directors’ Stock Option Plan, of which 37,000 common shares are remaining and could be granted in the future. Stock awards outstanding under the Company’s plans have been granted at prices which are either equal to or above the market value of the stock on the date of grant, vest over periods from one to seven years and expire no later than ten years after the grant date.
The following table provides information about the Company’s common stock that may be issued upon the exercise of options, performance units and restricted stock awards under all the Company’s existing non-qualified stock-based compensation programs at June 30, 2005:

Number of shares to be issued upon exercise (in thousands)	 	12,776	 	
Weighted-average exercise price	 	$38	 	
Number of shares remaining for future issuance (in thousands)	 	6,756	 	
 
The status of the Company’s stock option plans at June 30 is summarized below:

 	 	Number of
Shares	 	Weighted-Average
Exercise Price	 	
 	 	(in thousands)	 	 	 	
Outstanding at June 30, 2002	 	 	15,212	 	 	 	$	33	 	 	
Granted	 	 	2,009	 	 	 	41	 	 	
Exercised	 	 	(2,202	)	 	 	25	 	 	
Cancelled	 	 	(424	)	 	 	41	 	 	
Outstanding at June 30, 2003	 	 	14,595	 	 	 	35	 	 	
Granted	 	 	2,337	 	 	 	45	 	 	
Exercised	 	 	(3,982	)	 	 	29	 	 	
Cancelled	 	 	(395	)	 	 	43	 	 	
Outstanding at June 30, 2004	 	 	12,555	 	 	 	38	 	 	
Granted	 	 	2,398	 	 	 	53	 	 	
Exercised	 	 	(2,686	)	 	 	35	 	 	
Cancelled	 	 	(576	)	 	 	49	 	 	
Outstanding at June 30, 2005	 	 	11,691	 	 	 	42	 	 	
Options exercisable at:	 	 	 	 	 	 	 	 	 	
June 30, 2003	 	 	9,208	 	 	 	$	32	 	 	
June 30, 2004	 	 	8,173	 	 	 	35	 	 	
June 30, 2005	 	 	7,229	 	 	 	36	 	 	
 
The Company accounts for stock-based compensation using the intrinsic value method whereby the options are granted at market price, and therefore no compensation costs are recognized. Pro forma disclosures of net earnings, basic and diluted earnings per common share reflecting the Company’s financial results if compensation expense for the various stock option plans had been determined based upon fair values at the grant date are presented in Note 1.
48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
13.    STOCK COMPENSATION PLANS (Continued)
The weighted-average fair value per share of each option granted during fiscal years 2005, 2004 and 2003, estimated as of the grant date using the Black-Scholes option pricing model, was $14.33, $12.64 and $11.59, respectively.
The following assumptions were used to estimate the fair value of fiscal year 2005, 2004 and 2003 option grants:

 	 	2005	 	2004	 	2003	 	
Dividend yield	 	2.06%	 	2.45%	 	2.11%	 	
Expected volatility	 	29.2%	 	33.1%	 	35.0%	 	
Risk-free interest rate	 	3.1% to 5.4%	 	2.5% to 4.0%	 	2.1% to 4.1%	 	
Expected life	 	4 to 6 years	 	4 to 6 years	 	5 years	 	
 
Summary information about the Company’s stock options outstanding at June 30, 2005 is as follows (number of shares in thousands):

	 	Weighted-Average	 	 	 	 	 	 	 	 	 	
Range of 	 	Remaining	 	Options Outstanding	 	Options Exercisable	 	
Exercise
Price	 	Contractual Life
in Years	 	Outstanding	 	Weighted-Average 
Exercise Price	 	Exercisable	 	Weighted-Average 
Exercise Price	 	
	$	    13–$20	 	 	 	0.2	 	 	 	59	 	 	 	$	18	 	 	 	59	 	 	 	$	18	 	 	
 	20–27	 	 	 	0.9	 	 	 	838	 	 	 	22	 	 	 	838	 	 	 	22	 	 	
	27–34	 	 	 	3.2	 	 	 	41	 	 	 	33	 	 	 	41	 	 	 	33	 	 	
 	34–40	 	 	 	5.3	 	 	 	5,506	 	 	 	37	 	 	 	5,123	 	 	 	37	 	 	
	40–47	 	 	 	7.8	 	 	 	2,278	 	 	 	45	 	 	 	773	 	 	 	44	 	 	
 	47–54	 	 	 	9.0	 	 	 	2,228	 	 	 	53	 	 	 	65	 	 	 	50	 	 	
	54–61	 	 	 	7.2	 	 	 	378	 	 	 	55	 	 	 	285	 	 	 	54	 	 	
 	61–67	 	 	 	1.7	 	 	 	363	 	 	 	67	 	 	 	45	 	 	 	67	 	 	
	$	    13–$67	 	 	 	6.1	 	 	 	11,691	 	 	 	$	42	 	 	 	7,229	 	 	 	$	36	 	 	
 
The Company’s performance unit grants provide for the issuance of common stock to certain senior management if the Company’s stock performance meets specified hurdle rates based on comparisons with the performance of a selected peer group of companies. In fiscal year 2005, the Company determined that it was likely that certain hurdle rates will be met related to the grant vesting in September 2005 and began accruing a liability for the estimated payment. The Company continues to monitor the status of the remaining grants; however, the Company has not yet recorded a liability related to these units because the vesting dates extend too far into the future to reasonably estimate whether the hurdle rates will be achieved. Based on the June 30, 2005 market price of the Company’s stock, the expense for the remaining unvested performance unit grants would be $13. Compensation expense related to the performance unit grants was $6, $0, and $7 for fiscal years 2005, 2004 and 2003, respectively. Compensation expense related to the Company’s restricted stock programs was $6 for each of the fiscal years 2005, 2004 and 2003.
14.    LEASES AND OTHER COMMITMENTS
The Company leases transportation equipment and various manufacturing, warehousing, and office facilities. The Company’s leases are classified as operating leases and the Company’s existing contracts will
49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
14.    LEASES AND OTHER COMMITMENTS (Continued)
expire by 2019. The Company expects that in the normal course of business, existing contracts will be renewed or replaced by other leases. The following is a schedule of future minimum rental payments required under the Company’s existing non-cancelable lease agreements:

Fiscal Year	 	 	 	Future Minimum
Rental Payments	 	
2006	 	 	$	23	 	 	
2007	 	 	23	 	 	
2008	 	 	21	 	 	
2009	 	 	16	 	 	
2010	 	 	12	 	 	
Thereafter	 	 	55	 	 	
Total	 	 	$	150	 	 	
 
Rental expense for all operating leases was $46, $68 and $56 in fiscal years 2005, 2004 and 2003, respectively. Space not occupied by the Company in its headquarters building is rented to other tenants under operating leases expiring through 2014. Future minimum rentals to be received under these leases total $8 and do not exceed $1 in any one year.
The Company is also party to certain purchase obligations, which are defined as purchase agreements that are enforceable and legally-binding and that specify all significant terms, including quantity, price and the approximate timing of the transaction. Examples of the Company’s purchase obligations include firm commitments for raw material and contract packing purchases, utility agreements, capital expenditure agreements, software acquisition and license commitments, and service contracts. As of June 30, 2005, the Company’s purchase obligations totaled $187, $38, $32, $11, $4 and $4 for fiscal years 2006 through 2010, and thereafter, respectively.
15.    OTHER (INCOME) EXPENSE
The major components of other (income) expense for the fiscal years ended June 30 were:

 	 	2005	 	2004	 	2003	 	
Henkel Iberica:	 	 	 	 	 	 	 	
Gain on exchange	 	$	(20	)	—	 	—	 	
Equity in earnings	 	(5	)	$	(11	)	$	(2	)	
 	 	(25	)	(11	)	(2	)	
Interest income	 	(10	)	(4	)	(3	)	
Foreign exchange (gains) losses, net	 	(8	)	—	 	2	 	
Equity in earnings of other unconsolidated affiliates	 	(5	)	(6	)	(7	)	
Low-income housing partnerships losses (Note 7)	 	16	 	—	 	—	 	
Amortization of trademarks and other intangible assets	 	4	 	7	 	11	 	
Other, net	 	5	 	5	 	(9	)	
 	 	2	 	2	 	(6	)	
Total other (income) expense	 	$	(23	)	$	(9	)	$	(8	)	
 
50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
15.    OTHER (INCOME) EXPENSE (Continued)
The Company recorded an $11 benefit ($8 after tax) to other (income) expense in the fourth quarter of fiscal year 2005 to recognize certain currency transaction gains which accumulated over a four-year period in a foreign subsidiary. The Company does not believe the foreign currency transaction gains are material to the periods in which they should have been reflected or were and therefore, recorded the entire benefit in the fourth quarter of fiscal year 2005.
16.    INCOME TAXES
The provision for income taxes on continuing operations, by tax jurisdiction, consisted of the following for the fiscal years ended June 30:

 	 	2005	 	2004	 	2003	 	
Current	 	 	 	 	 	 	 	
Federal	 	$	209	 	$	186	 	$	122	 	
State	 	24	 	19	 	12	 	
Foreign	 	26	 	32	 	23	 	
Total current	 	259	 	237	 	157	 	
Deferred	 	 	 	 	 	 	 	
Federal	 	(62	)	29	 	95	 	
Federal — American Jobs Creation Act	 	12	 	—	 	—	 	
State	 	(5	)	(4	)	7	 	
Foreign	 	8	 	—	 	(2	)	
Total deferred	 	(47	)	25	 	100	 	
Total	 	$	212	 	$	262	 	$	257	 	
 
The components of earnings from continuing operations before income taxes, by tax jurisdiction, were as follows for the fiscal years ended June 30:

 	 	2005	 	2004	 	2003	 	
United States	 	$	587	 	$	639	 	$	642	 	
Foreign	 	142	 	113	 	76	 	
Total	 	$	729	 	$	752	 	$	718	 	
 
A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate on continuing operations follows for the fiscal years ended June 30:

 	 	2005	 	2004	 	2003	 	
Statutory federal tax rate	 	35.0	%	35.0	%	35.0	%	
State taxes (net of federal tax benefits)	 	1.7	 	1.9	 	1.7	 	
Tax differential on foreign earnings	 	(0.6	)	(1.2	)	(1.0	)	
Net adjustment of prior year federal and state tax accruals	 	(2.9	)	0.5	 	0.1	 	
Change in valuation allowance	 	(1.4	)	(0.4	)	0.8	 	
Low-income housing tax credits	 	(0.9	)	(1.1	)	(1.9	)	
Other differences	 	(1.8	)	0.2	 	1.1	 	
Effective tax rate	 	29.1	%	34.9	%	35.8	%	
 
51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
16.    INCOME TAXES (Continued)
Applicable U.S. income and foreign withholding taxes have not been provided on approximately $18 of undistributed earnings of certain foreign subsidiaries at June 30, 2005 since these earnings are considered indefinitely reinvested. The net federal income tax liability that would arise if these earnings were not indefinitely reinvested is approximately $4. The Company anticipates repatriating earnings from certain foreign subsidiaries under the American Jobs Creation Act. Applicable U.S. income and foreign withholding taxes have been or will be provided on these earnings in the periods in which they are repatriated.
The tax benefit related to the Company’s stock option plans is recorded as an increase to additional paid-in capital when realized. In fiscal years 2005, 2004 and 2003, the Company realized tax benefits of approximately $22, $32 and $16, respectively. Stock option tax benefits are reflected as a component of operating cash flows.
The components of deferred tax assets and liabilities at June 30 are shown below:

 	 	2005	 	2004	 	
Deferred tax assets	 	 	 	 	 	
Minimum pension funding obligation	 	$	75	 	$	3	 	
Compensation and benefit programs	 	55	 	38	 	
Basis difference related to Venture Agreement (Note 11)	 	34	 	—	 	
Net operating loss and tax credit carryforwards	 	26	 	38	 	
Tax effect of deferred translation	 	—	 	12	 	
Other	 	33	 	27	 	
Subtotal	 	223	 	118	 	
Valuation allowance	 	(33	)	(39	)	
Total deferred tax assets	 	190	 	79	 	
Deferred tax liabilities	 	 	 	 	 	
Fixed and intangible assets	 	(173	)	(191	)	
Low-income housing partnerships	 	(24	)	(26	)	
Tax effect of deferred translation	 	(2	)	—	 	
Other	 	(50	)	(29	)	
Total deferred tax liabilities	 	(249	)	(246	)	
Net deferred tax liabilities	 	$	(59	)	$	(167	)	
 
The net deferred tax assets and liabilities included in the consolidated balance sheet at June 30 were as follows:

 	 	2005	 	2004	 	
Current deferred tax assets	 	$	16	 	$	7	 	
Noncurrent deferred tax assets	 	8	 	—	 	
Current deferred tax liabilities	 	(1	)	—	 	
Noncurrent deferred tax liabilities	 	(82	)	(174	)	
Net deferred tax liabilities	 	$	(59	)	$	(167	)	
 
52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
16.    INCOME TAXES (Continued)
The Company periodically reviews its deferred tax assets for recoverability. A valuation allowance is established when the Company believes that it is more likely than not that some portion of its deferred tax assets will not be realized. Valuation allowances as of June 30, 2005 and 2004 were $33 and $39, respectively, and have been provided to reduce deferred tax assets to amounts considered recoverable. Details of the valuation allowance at June 30 were as follows:

 	 	2005	 	2004	 	
Valuation allowance at beginning of year	 	$	(39	)	$	(97	)	
Impairment	 	—	 	49	 	
Other	 	6	 	9	 	
Valuation allowance at end of year	 	$	(33	)	$	(39	)	
 
The valuation allowance reduction for fiscal year 2004 impairment losses is the result of a reassessment of deferred tax assets for certain Argentina intangibles originally impaired in fiscal year 2002. A private ruling was received from Argentine tax authorities during fiscal year 2004 indicating the Company had no tax basis in these intangibles. The Company previously carried a 100% valuation allowance on the deferred tax assets for these intangibles.
As of June 30, 2005, the Company had income tax credit carryforwards in foreign jurisdictions of $2, which have expiration dates between fiscal years 2006 and 2010. Tax benefits from foreign net operating loss carryforwards of $22 have expiration dates between fiscal years 2006 and 2015. Additionally, tax benefits from foreign net operating loss carryforwards of $2 may be carried forward indefinitely.
The IRS has completed its audit of the Company’s 1997 through 2000 tax returns. The audit of the 2001 and 2002 tax years is now in progress. In April 2005, the Company reached an agreement with the IRS resolving certain tax issues originally arising in the period from 1997 through 2000. As a result of the settlement agreement, the Company is paying $247 in federal and state taxes and interest related to the years 1997 through 2004. After considering tax savings from increased state tax and interest deductions, net federal and state taxes and interest total $228. Of the $247 in federal and state taxes and interest, the Company paid $94 (excluding $6 of tax benefits) in the third and fourth quarters of fiscal year 2005 and paid the majority of the balance, approximately $150, in the first quarter of fiscal year 2006. The Company had previously accrued for this contingency. In the third quarter of fiscal year 2005, the Company released approximately $23 in tax accruals related to this matter.
17.   EMPLOYEE BENEFIT PLANS
RETIREMENT INCOME PLANS
The Company has qualified and non-qualified defined benefit plans that cover substantially all domestic employees and certain international employees. Benefits are based on either employee years of service and compensation or a stated dollar amount per year of service. The Company is the sole contributor to the plans in amounts deemed necessary to provide benefits and to the extent deductible for federal income tax purposes. Assets of the plans consist primarily of marketable equity and debt security investments. The Company made a discretionary qualified domestic pension contribution of $37 to its domestic qualified retirement income plans in fiscal year 2004. The Company has also contributed $1 and $4 to its foreign
53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
17.    EMPLOYEE BENEFIT PLANS (Continued)
retirement income plans for fiscal years 2005 and 2004, respectively. The Company’s funding policy is to contribute amounts sufficient to meet minimum funding requirements as set forth in employee benefit tax laws plus additional amounts as the Company may determine to be appropriate. In fiscal year 2006, Clorox does not expect to make any significant contributions to its domestic and foreign pension plans.
RETIREMENT HEALTH CARE
The Company provides certain health care benefits for employees who meet age, participation and length of service requirements at retirement. The plans pay stated percentages of covered expenses after annual deductibles have been met. Benefits paid take into consideration payments by Medicare. The plans are funded as claims are paid, and the Company has the right to modify or terminate certain of these plans.
The assumed health care cost trend rate used in measuring the accumulated post-retirement benefit obligation (“APBO”) was 10% for medical and 15% for prescription drugs for fiscal year 2005. These rates have been assumed to gradually decrease by 1% for each year until an assumed ultimate trend of 5% is reached in 2010 for medical and 2016 for prescription drugs. The healthcare cost trend rate assumption has a significant effect on the amounts reported. The effect of a one percentage point increase or decrease in the assumed healthcare cost trend rate on the total service and interest cost components and the postretirement benefit obligation was less than $1 as of June 30, 2005, 2004 and 2003.
54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
17.    EMPLOYEE BENEFIT PLANS (Continued)
Summarized information for the Company’s retirement income and healthcare plans as of and for the fiscal year ended June 30:

 	 	Retirement Income	 	Retirement Health Care	 	
 	 	    2005    	 	    2004    	 	      2005      	 	     2004     	 	
Change in benefit obligations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Benefit obligation at beginning of year	 	 	$	404	 	 	 	$	387	 	 	 	$	77	 	 	 	$	76	 	 	
Service cost	 	 	13	 	 	 	12	 	 	 	2	 	 	 	2	 	 	
Interest cost	 	 	26	 	 	 	24	 	 	 	5	 	 	 	5	 	 	
Employee contributions to deferred compensation plans	 	 	7	 	 	 	8	 	 	 	—	 	 	 	—	 	 	
Actuarial loss (gain)	 	 	112	 	 	 	3	 	 	 	6	 	 	 	(3	)	 	
Benefits paid	 	 	(32	)	 	 	(30	)	 	 	(6	)	 	 	(3	)	 	
Benefit obligation at end of year	 	 	530	 	 	 	404	 	 	 	84	 	 	 	77	 	 	
Change in plan assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fair value of assets at beginning of year	 	 	334	 	 	 	272	 	 	 	—	 	 	 	—	 	 	
Actual return on plan assets	 	 	29	 	 	 	45	 	 	 	—	 	 	 	—	 	 	
Employer contributions to qualified and nonqualified plans	 	 	8	 	 	 	47	 	 	 	6	 	 	 	3	 	 	
Benefits paid	 	 	(32	)	 	 	(30	)	 	 	(6	)	 	 	(3	)	 	
Fair value of plan assets at end of year	 	 	339	 	 	 	334	 	 	 	—	 	 	 	—	 	 	
Unfunded status	 	 	(191	)	 	 	(70	)	 	 	(84	)	 	 	(77	)	 	
Unrecognized prior service cost	 	 	(3	)	 	 	(4	)	 	 	(10	)	 	 	(12	)	 	
Unrecognized loss	 	 	220	 	 	 	118	 	 	 	12	 	 	 	7	 	 	
Prepaid (accrued) benefit cost	 	 	$	26	 	 	 	$	44	 	 	 	$	(82	)	 	 	$	(82	)	 	
Amount recognized in the balance sheets consists of:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Pension benefit assets	 	 	$	2	 	 	 	$	119	 	 	 	—	 	 	 	—	 	 	
Accrued benefit liability	 	 	(175	)	 	 	(84	)	 	 	$	(82	)	 	 	$	(82	)	 	
Accumulated other comprehensive net losses, before deferred tax benefits	 	 	199	 	 	 	9	 	 	 	—	 	 	 	—	 	 	
Net amount recognized	 	 	$	26	 	 	 	$	44	 	 	 	$	(82	)	 	 	$	(82	)	 	
 
The projected benefit obligation, accumulated benefit obligation (“ABO”) and fair value of plan assets for those retirement income plans with an ABO in excess of plan assets were $460, $445, and $326, respectively, as of June 30, 2005 and $47, $46 and $4, respectively, as of June 30, 2004. The ABO for all retirement income plans was $457 and $353 as of June 30, 2005 and 2004. The Company uses a June 30 measurement date for its significant benefit plans.
At June 30, 2005 and 2004, the Company had additional minimum pension liabilities of $199 and $9, respectively, which were included in accumulated other comprehensive net losses, with an offset to other liabilities. These balances represent the excess of the accumulated benefit obligation over the market value of plan assets. At June 30, 2005 and 2004 the Company recorded deferred taxes of $75 and $3 associated
55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
17.    EMPLOYEE BENEFIT PLANS (Continued)
with the additional minimum pension liabilities with an offset to accumulated other comprehensive net losses.

 	 	Retirement Income	 	Retirement   Health Care	 	
 	 	2005	 	2004	 	2003	 	 2005 	 	 2004 	 	 2003 	 	
Components of net periodic benefit cost	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service cost	 	$	13	 	$	12	 	$	11	 	 	$	2	 	 	 	$	2	 	 	 	$	2	 	 	
Interest cost	 	26	 	24	 	24	 	 	5	 	 	 	5	 	 	 	5	 	 	
Expected return on plan assets	 	(28	)	(29	)	(30	)	 	—	 	 	 	—	 	 	 	—	 	 	
Plan adjustments	 	—	 	—	 	11	 	 	—	 	 	 	—	 	 	 	(4	)	 	
Amortization of unrecognized items	 	8	 	6	 	(2	)	 	(2	)	 	 	(1	)	 	 	(1	)	 	
Total net periodic benefit cost	 	$	19	 	$	13	 	$	14	 	 	$	5	 	 	 	$	6	 	 	 	$	2	 	 	
 
The target allocations and weighted average asset allocations of the investment portfolio for the Company’s domestic qualified retirement income plan at June 30 are:

 	 	% Target	 	% of Plan Assets
at June 30	 	
 	 	Allocation	 	  2005  	 	  2004  	 	
Asset Category	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. equity	 	 	57	 	 	 	58	 	 	 	60	 	 	
International equity	 	 	18	 	 	 	18	 	 	 	16	 	 	
Fixed income	 	 	25	 	 	 	24	 	 	 	24	 	 	
Total	 	 	100	%	 	 	100	%	 	 	100	%	 	

The expected long-term rate of return assumption is based on an analysis of historical experience of the portfolio and the summation of prospective returns for each asset class in proportion to the fund’s current asset allocation. The discount rate assumption is determined annually based on the Moody’s Aa-rated long-term bonds, which approximate the timing and cash outflows of the Company’s defined benefit payments. The target asset allocation was determined based on the risk tolerance characteristics of the plan and, at times, may be adjusted to achieve the Company’s overall investment objective and to minimize any concentration of investment risk. The Company’s objective is to invest plan assets in a manner that will generate resources to pay current and projected plan obligations over the life of the domestic qualified retirement income plan.
56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
17.    EMPLOYEE BENEFIT PLANS (Continued)
Weighted-average assumptions used to estimate the actuarial present value of benefit obligations at June 30 and the net periodic pension and other postretirement benefit expenses (income) for the fiscal year ended June 30, are as follows:

 	 	Retirement Income	 	Retirement Health Care	 	
 	 	 	2005	 	 	 	2004	 	 	 	2005	 	 	 	2004	 	 	
Benefit Obligation	 	 	 	 	 	 	 	 	 	
Discount rate	 	 	 	 	 	 	 	 	 	
Range	 	5.00% to 5.25%	 	5.50% to 6.50%	 	5.00% to 5.25%	 	6.25% to 6.50%	 	
Weighted average	 	5.01%	 	6.48%	 	5.01%	 	6.49%	 	
Rate of compensation increase	 	 	 	 	 	 	 	 	 	
Range	 	3.50% to 5.50%	 	3.50% to 5.50%	 	n/a	 	n/a	 	
Weighted average	 	4.17%	 	4.17%	 	n/a	 	n/a	 	
Expected return on plan assets	 	 	 	 	 	 	 	 	 	
Range	 	6.50% to 8.25%	 	6.50% to 8.25%	 	n/a	 	n/a	 	
Weighted average	 	8.18%	 	8.19%	 	n/a	 	n/a	 	

 	 	Retirement Income	 	
 	 	 	2005	 	 	 	2004	 	 	 	2003	 	 	
Net periodic expense (income)	 	 	 	 	 	 	 	
Discount rate	 	 	 	 	 	 	 	
Range	 	5.50% to 6.50%	 	4.75% to 6.25%	 	5.75% to 7.25%	 	
Weighted average	 	6.49%	 	6.24%	 	7.23%	 	
Rate of compensation increase	 	 	 	 	 	 	 	
Range	 	3.50% to 5.50%	 	3.50% to 5.50%	 	3.50% to 5.50%	 	
Weighted average	 	4.17%	 	4.17%	 	4.16%	 	
Expected return on plan assets	 	 	 	 	 	 	 	
Range	 	6.50% to 8.25%	 	6.50% to 8.25%	 	6.50% to 9.50%	 	
Weighted average	 	8.18%	 	8.19%	 	9.41%	 	

 	 	Retirement Health Care	 	
 	 	 	2005	 	 	 	2004	 	 	 	2003	 	 	
Net periodic expense (income)	 	 	 	 	 	 	 	
Discount rate	 	 	 	 	 	 	 	
Range	 	6.25% to 6.50%	 	6.25% to 6.50%	 	6.25% to 6.75%	 	
Weighted average	 	6.49%	 	6.49%	 	6.27%	 	

Expected benefit payments for the Company’s pension and other postretirement plans are as follows:

 	 	Retirement
Income	 	Retirement
Health Care	 	
2006	 	 	$	30	 	 	 	$	7	 	 	
2007	 	 	31	 	 	 	7	 	 	
2008	 	 	32	 	 	 	7	 	 	
2009	 	 	32	 	 	 	6	 	 	
2010	 	 	34	 	 	 	6	 	 	
Fiscal years 2011–2015	 	 	168	 	 	 	31	 	 	
 
57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
17.    %MPLOYEE "ENEFIT 0LANS # ontinued  
Expected benefit payments are based on the same assumptions used to measure the benefit obligations and include estimated future employee service.
 DEFINED CONTRIBUTION PLANS
The Company has defined contribution plans for most of its domestic employees. The cost of those plans is based on the Company’s profitability and level of participants’ deferrals qualifying for match. The plans include The Clorox Company 401(k) Plan, which has two components, a 401(k) component and a profit sharing component. Employee contributions made to the 401(k) component are partially matched with Company contributions. Company contributions to the profit sharing component above 3% of employee eligible earnings are discretionary and are based on Company performance targets including sales growth, operating margins, and ROIC. The aggregate cost of the defined contribution plans was $22, $26 and $38 in fiscal years 2005, 2004 and 2003, respectively, including $18, $22 and $33, respectively, of discretionary contributions. The Company also has defined contribution plans for certain of its international employees. The aggregate cost of these foreign plans was $2, $2 and $2 in fiscal years 2005, 2004 and 2003, respectively.
18.    SEGMENT REPORTING
Information regarding the Company’s operating segments is shown below. Each segment is individually managed with separate operating results that are reviewed regularly by the chief operating decision makers. Certain information presented below for prior years has been reclassified to conform to the current year’s presentation, including the reclassifications necessary to reflect the realignment of business responsibilities for the Company’s senior leadership, which was effective in January 2005. Intersegment sales are insignificant. The operating segments include:
·        Household Group — North America, formerly known as Household Products — North America: Includes U.S. bleach, cleaning, water-filtration and professional products; the automotive-care business; and all products marketed in Canada. The automotive-care business and professional products were previously included in the Specialty Products segment. The Soft Scrub business, previously part of the Household Products — North America segment, is included in discontinued operations.
·        Specialty Group, formerly known as Specialty Products: Includes the plastic bags, wraps and containers businesses marketed in the United States, charcoal, cat litter and food products. The plastic bags, wraps and containers businesses were previously included in the Household Products — North America segment. The domestic insecticide business, previously part of the Specialty Products segment, is included in discontinued operations.
·        International, formerly known as Household Products — Latin America/Other: Includes operations outside the United States and Canada, excluding the European automotive-care business. The international insecticide business and Henkel Iberica, both previously part of the Household Products — Latin America/Other segment, are included in discontinued operations.
58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
18.    SEGMENT REPORTING (Continued)
Corporate includes certain non-allocated administrative costs, amortization of trademarks and other intangible assets, interest income, interest expense, foreign exchange gains and losses, and other non-operating income and expense. Corporate assets include cash and cash equivalents, the Company’s headquarters and research and development facilities, information systems hardware and software, pension balances, and other investments.

	 	Fiscal Year	 	Household
Group	 	 Specialty 
Group	 	International	 	Corporate	 	Total
Company	 	
Net sales	 	 	2005	 	 	 	$	2,038	 	 	 	$	1,788	 	 	 	$	562	 	 	 	$	—	 	 	 	$	4,388	 	 	
	 	 	2004	 	 	 	1,986	 	 	 	1,677	 	 	 	499	 	 	 	—	 	 	 	4,162	 	 	
	 	 	2003	 	 	 	1,995	 	 	 	1,549	 	 	 	442	 	 	 	—	 	 	 	3,986	 	 	
Earnings (losses) from continuing operations before income taxes	 	 	2005	 	 	 	633	 	 	 	435	 	 	 	119	 	 	 	(458	)	 	 	729	 	 	
 	 	 	2004	 	 	 	634	 	 	 	417	 	 	 	115	 	 	 	(414	)	 	 	752	 	 	
 	 	 	2003	 	 	 	613	 	 	 	442	 	 	 	55	 	 	 	(392	)	 	 	718	 	 	
Equity in earnings of affiliates	 	 	2005	 	 	 	—	 	 	 	—	 	 	 	13	 	 	 	(1	)	 	 	12	 	 	
	 	 	2004	 	 	 	—	 	 	 	—	 	 	 	17	 	 	 	—	 	 	 	17	 	 	
	 	 	2003	 	 	 	—	 	 	 	—	 	 	 	9	 	 	 	—	 	 	 	9	 	 	
Identifiable assets	 	 	2005	 	 	 	1,360	 	 	 	862	 	 	 	549	 	 	 	846	 	 	 	3,617	 	 	
 	 	 	2004	 	 	 	1,355	 	 	 	908	 	 	 	660	 	 	 	911	 	 	 	3,834	 	 	
Capital expenditures	 	 	2005	 	 	 	39	 	 	 	61	 	 	 	9	 	 	 	42	 	 	 	151	 	 	
	 	 	2004	 	 	 	30	 	 	 	61	 	 	 	6	 	 	 	73	 	 	 	170	 	 	
	 	 	2003	 	 	 	29	 	 	 	55	 	 	 	7	 	 	 	112	 	 	 	203	 	 	
Depreciation and amortization	 	 	2005	 	 	 	42	 	 	 	64	 	 	 	9	 	 	 	75	 	 	 	190	 	 	
 	 	 	2004	 	 	 	40	 	 	 	63	 	 	 	11	 	 	 	81	 	 	 	195	 	 	
 	 	 	2003	 	 	 	43	 	 	 	54	 	 	 	10	 	 	 	82	 	 	 	189	 	 	
Significant non-cash charges included in earnings from continuing operations before income taxes:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Asset impairment costs	 	 	2005	 	 	 	—	 	 	 	26	 	 	 	3	 	 	 	—	 	 	 	29	 	 	
 	 	 	2004	 	 	 	—	 	 	 	10	 	 	 	—	 	 	 	—	 	 	 	10	 	 	
 	 	 	2003	 	 	 	—	 	 	 	—	 	 	 	33	 	 	 	—	 	 	 	33	 	 	
 
The aggregate net pretax gain on divestitures in fiscal year 2003 was $2 and was included in the Specialty Group segment. There were no divestitures in fiscal year 2004 or 2005. The $20 gain recorded on the exchange of Henkel Iberica was included in the Corporate segment.
Net sales to the Company’s largest customer, Wal-Mart Stores, Inc. and its affiliates, were 27%, 25% and 25% of consolidated net sales in fiscal years 2005, 2004 and 2003, respectively, and occurred primarily within the Household Group and Specialty Group segments. No other customers exceeded 6% of consolidated net sales in any year.
Sales of Glad trash bags represented approximately 12% and 10%, respectively, of total Company net sales in fiscal year 2005 and 2004. Sales of Clorox liquid bleach represented approximately 11% and 12%, respectively, of total Company net sales in fiscal year 2005 and 2004. No other product line exceeded 10%
59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
18.    SEGMENT REPORTING (Continued)
of net sales in either fiscal year 2005 or 2004. Other than Clorox liquid bleach, no other product line exceeded 10% of net sales in fiscal year ended June 30, 2003.
Net sales and long-lived assets by geographic area as of and for the fiscal years ended June 30 were as follows:

	 	Fiscal Year	 	United States	 	Foreign	 	Total
Company	 	
Net sales	 	 	2005	 	 	 	$	3,692	 	 	 	$	696	 	 	 	$	4,388	 	 	
	 	 	2004	 	 	 	3,547	 	 	 	615	 	 	 	4,162	 	 	
	 	 	2003	 	 	 	3,433	 	 	 	553	 	 	 	3,986	 	 	
Long-lived assets	 	 	2005	 	 	 	883	 	 	 	116	 	 	 	999	 	 	
 	 	 	2004	 	 	 	937	 	 	 	115	 	 	 	1,052	 	 	
 
19.    /THER #ONTINGENCIES
The Company is involved in certain environmental matters, including Superfund and other response actions at various locations. The Company has a recorded liability of $33 and $29 at June 30, 2005 and 2004, respectively, for its share of the related aggregate future remediation cost, of which $8 was accrued during the year ended June 30, 2005. One matter in Dickinson County, Michigan, for which the Company is jointly and severally liable, accounts for a substantial majority of the recorded liability at both June 30, 2005 and 2004. The Company is subject to a cost-sharing arrangement with another party for this matter, under which Clorox has agreed to be liable for 24.3% of the aggregate remediation and associated costs, other than legal fees, as the Company and the other party are each responsible for their own such fees. In October 2004, the Company and the other party agreed to a consent judgment with the Michigan Department of Environmental Quality (“MDEQ”), which sets forth certain remediation goals and monitoring activities. Based on the current status of this matter, and with the assistance of environmental consultants, the Company maintains an undiscounted liability representing its best estimate of its share of costs associated with the capital expenditures, maintenance and other costs to be incurred over an estimated 30-year remediation period. The most significant components of the liability relate to the estimated costs associated with the remediation of groundwater contamination and excess levels of subterranean methane deposits. Currently, the Company cannot accurately predict the timing of the payments that will likely be made under this estimated obligation. In addition, the Company’s estimated loss exposure is sensitive to a variety of uncertain factors, including the efficacy of remediation efforts, changes in remediation requirements and the timing, varying costs and alternative clean-up technologies that may become available in the future. Although it is possible that the Company’s exposure may exceed the amount recorded, any amount of such additional exposures, or range of exposures, is not estimable at this time.
The Company is also subject to various other lawsuits and claims relating to issues such as contract disputes, product liability, patents and trademarks, advertising, employee and other matters. Although the results of claims and litigation cannot be predicted with certainty, it is the opinion of management that the ultimate disposition of these matters, to the extent not previously provided for, will not have a material adverse effect, individually or in the aggregate, on the Company’s consolidated financial statements taken as a whole.
60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
 20.    'UARANTEES
In conjunction with divestitures and other transactions, the Company may provide indemnifications relating to the enforceability of trademarks, pre-existing legal, tax, environmental and employee liabilities, as well as provisions for product returns and other items. The Company has indemnification agreements in effect that specify a maximum possible indemnification exposure. The Company’s aggregate maximum exposure from these agreements is $291, which consists primarily of an indemnity of up to $250 made to Henkel in connection with the Share Exchange Agreement, subject to a minimum threshold of $12 before any payments would be made. The general representations and warranties made by the Company in connection with the Henkel Share Exchange Agreement were made to guarantee statements of fact at the time of the transaction closing and pertain to environmental, legal, and other matters and have terms with varying expiration dates.
In addition to the indemnifications related to the general representations and warranties, the Company entered into an agreement with Henkel regarding certain tax matters. The Company made certain representations of fact as of the closing date of the exchange transaction and certain representations and warranties regarding future performance designed to preserve the tax-free status of the exchange transaction. In general, the Company agreed to be responsible for Henkel’s taxes on the transaction if the Company’s actions result in a breach of the representations and warranties in a manner that causes the share exchange to fail to qualify for tax-free treatment. Henkel has agreed to similar obligations. The Company is unable to estimate the amount of maximum potential liability relating to the tax indemnification as the agreement does not specify a maximum amount and the Company does not know Henkel’s tax basis in the shares exchanged in the exchange transaction nor the effective tax rate that would be applied, although the Company believes Henkel’s tax basis in the shares exchanged is low. The Company does note, however, that the potential tax exposure, if any, could be very significant as the value of the subsidiary stock transferred to Henkel in the exchange transaction was approximately $2,800. Although the agreement does not specify an indemnification term, any exposure under the agreement would be limited to taxes assessed prior to the expiration of the statute of limitations period for assessing taxes on the share exchange transaction. Based on the nature of the representations and warranties as well as other factors, the Company has not accrued any liability under this indemnity.
The Company is a party to a $22 letter of credit issued to one of its insurance carriers. The Company has not recorded any liabilities on any of the aforementioned guarantees at June 30, 2005.
 21.    %ARNINGS PER 3HARE
A reconciliation of the weighted average number of common shares outstanding (in thousands) used to calculate basic and diluted earnings per common share is as follows for the fiscal years ended June 30:

 	 	2005	 	2004	 	2003	 	
Basic	 	176,586	 	211,683	 	218,174	 	
Stock options and other	 	2,590	 	2,688	 	2,518	 	
Diluted	 	179,176	 	214,371	 	220,692	 	
 
61

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
21.    %ARNINGS PER 3HARE # ontinued  
Stock options to purchase 502,326, 832,815, and 1,045,413 shares of common stock for the fiscal years ended June 30, 2005, 2004 and 2003, respectively, were not included in the computation of diluted net earnings per common share because the exercise price of the stock options was greater than the average market price of the common shares and therefore the effect would be antidilutive.
 22.    5NAUDITED 1UARTERLY $ATA

 	 	Quarters Ended	 	 	 	
 	 	September 30	 	December 31	 	March 31	 	June 30	 	Total Year	 	
Fiscal year ended June 30, 2005	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net sales	 	 	$	1,048	 	 	 	$	1,000	 	 	 	$	1,086	 	 	$	1,254	 	 	$	4,388	 	 	
Cost of products sold	 	 	591	 	 	 	569	 	 	 	632	 	 	701	 	 	2,493	 	 	
Earnings from continuing
operations (1)(2)(3)(4)	 	 	$	109	 	 	 	$	136	 	 	 	$	116	 	 	$	156	 	 	$	517	 	 	
Earnings from discontinued operations, net of tax	 	 	14	 	 	 	563	 	 	 	2	 	 	—	 	 	579	 	 	
Net earnings (5)	 	 	$	123	 	 	 	$	699	 	 	 	$	118	 	 	$	156	 	 	$	1,096	 	 	
Per common share (6):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Continuing operations	 	 	$	0.51	 	 	 	$	0.73	 	 	 	$	0.76	 	 	$	1.02	 	 	$	2.92	 	 	
Discontinued operations	 	 	0.07	 	 	 	3.00	 	 	 	0.01	 	 	—	 	 	3.28	 	 	
Net earnings	 	 	$	0.58	 	 	 	$	3.73	 	 	 	$	0.77	 	 	$	1.02	 	 	$	6.20	 	 	
Diluted	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Continuing operations	 	 	$	0.50	 	 	 	$	0.72	 	 	 	$	0.75	 	 	$	1.00	 	 	$	2.88	 	 	
Discontinued operations	 	 	0.07	 	 	 	2.96	 	 	 	0.01	 	 	—	 	 	3.23	 	 	
Net earnings	 	 	$	0.57	 	 	 	$	3.68	 	 	 	$	0.76	 	 	$	1.00	 	 	$	6.11	 	 	
Dividends paid	 	 	$	0.27	 	 	 	$	0.27	 	 	 	$	0.28	 	 	$	0.28	 	 	$	1.10	 	 	
Dividends accrued (7)	 	 	—	 	 	 	—	 	 	 	—	 	 	$	0.28	 	 	$	0.28	 	 	
Market price (NYSE)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
High	 	 	$	54.93	 	 	 	$	59.45	 	 	 	$	63.48	 	 	$	66.04	 	 	$	66.04	 	 	
Low	 	 	48.90	 	 	 	53.20	 	 	 	56.80	 	 	55.15	 	 	48.90	 	 	
Year-end	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	55.72	 	 	

(1)           In the first quarter of fiscal year 2005, the Company recorded pretax asset impairment charges of $27 related to the supply chain restructuring initiative for the Glad business, part of the Specialty Group operating segment.
(2)           The Company released approximately $23 in tax accruals in the third quarter as a result of reaching settlement on an income tax contingency, thereby reducing income tax expense on continuing operations.
(3)           In the third quarter, the Company recorded a $9 after tax charge to recognize certain low-income housing partnership operating losses realized in prior fiscal years. The aggregate charge accumulated over the approximate 14-year period during which the Company invested in the partnerships.
62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Clorox Company
(Dollars in millions, except per-share amounts)
(Continued) (Continued)
(4)           The Company recorded an $8 after tax benefit in the fourth quarter of fiscal year 2005 to recognize certain currency transaction gains which accumulated over a four-year period in a foreign subsidiary.
(5)           Upon closing of the Henkel exchange transaction in the second quarter, the Company recognized a total gain of $570 and reversed a total of $8 of deferred income taxes. Of the total gain recognized, $550 relates to the Operating Businesses and is included in discontinued operations and $20 relates to Henkel Iberica and is included in continuing operations. Of the total deferred tax reversal, $6 relates to the Operating Businesses and is included in discontinued operations and $2 relates to Henkel Iberica and is included in continuing operations.
(6)           On November 22, 2004, the Company acquired 61.4 million shares of its common stock from Henkel as part of the share exchange.
(7)   At June 30, 2005, the Company accrued $42 of dividends declared in May 2005 and paid in August 2005. In the first quarter of fiscal year 2005, the Company paid $58 of dividends which should have been accrued at June 30, 2004. The Company does not believe the accrual was material to the period to which it relates.

 	 	Quarters Ended	 	 	 	
 	 	September 30	 	December 31	 	March 31	 	June 30	 	Total Year	 	
Fiscal year ended June 30, 2004	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net sales	 	 	$	1,006	 	 	 	$	920	 	 	 	$	1,051	 	 	$	1,185	 	 	$	4,162	 	 	
Cost of products sold	 	 	577	 	 	 	527	 	 	 	584	 	 	643	 	 	2,331	 	 	
Earnings from continuing operations (1)	 	 	$	115	 	 	 	$	101	 	 	 	$	115	 	 	$	159	 	 	$	490	 	 	
Earnings from discontinued operations, net of tax (2)	 	 	14	 	 	 	8	 	 	 	11	 	 	26	 	 	59	 	 	
Net earnings	 	 	$	129	 	 	 	$	109	 	 	 	$	126	 	 	$	185	 	 	$	549	 	 	
Per common share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Continuing operations	 	 	$	0.54	 	 	 	$	0.48	 	 	 	$	0.55	 	 	$	0.75	 	 	$	2.31	 	 	
Discontinued operations	 	 	0.07	 	 	 	0.04	 	 	 	0.05	 	 	0.12	 	 	0.28	 	 	
Net earnings	 	 	$	0.61	 	 	 	$	0.52	 	 	 	$	0.60	 	 	$	0.87	 	 	$	2.59	 	 	
Diluted	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Continuing operations	 	 	$	0.54	 	 	 	$	0.47	 	 	 	$	0.54	 	 	$	0.74	 	 	$	2.28	 	 	
Discontinued operations	 	 	0.06	 	 	 	0.04	 	 	 	0.05	 	 	0.12	 	 	0.28	 	 	
Net earnings	 	 	$	0.60	 	 	 	$	0.51	 	 	 	$	0.59	 	 	$	0.86	 	 	$	2.56	 	 	
Dividends paid	 	 	$	0.27	 	 	 	$	0.27	 	 	 	$	0.27	 	 	$	0.27	 	 	$	1.08	 	 	
Market price (NYSE)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
High	 	 	$	46.52	 	 	 	$	49.16	 	 	 	$	50.95	 	 	$	54.29	 	 	$	54.29	 	 	
Low	 	 	41.60	 	 	 	44.44	 	 	 	46.50	 	 	48.73	 	 	41.60	 	 	
Year-end	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	53.78	 	 	

(1)   Earnings from continuing operations for the fourth quarter include pretax restructuring and asset impairment charges of $11.
(2)           The Company recognized $5 of income tax benefits in earnings from discontinued operations in the fourth quarter of fiscal year 2004, which includes $3 (or $0.02 per diluted share based upon average shares outstanding during the fourth quarter) of income tax benefits related to losses incurred in the first three quarters of fiscal year 2004.
63

 MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of its Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting in accordance with accounting principles generally accepted in the United States of America. A company’s internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management evaluated the effectiveness of the Company’s internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework . Management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2005 and concluded that it is effective.
The Company’s independent registered public accounting firm, Ernst & Young, LLP has audited the effectiveness of the Company’s internal control over financial reporting and management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of June 30, 2005.
 CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There was no change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
64

 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of The Clorox Company
We have audited the accompanying consolidated balance sheets of The Clorox Company as of June 30, 2005 and 2004, and the related consolidated statements of earnings, stockholders’ equity, and cash flows for each of the three years in the period ended June 30, 2005. Our audits also included the financial statement schedule in Exhibit 99-2. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Clorox Company at June 30, 2005 and 2004, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of The Clorox Company’s internal control over financial reporting as of June 30, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 26, 2005 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP

San Francisco, California	
August 26, 2005	
65

 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of The Clorox Company
We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that The Clorox Company maintained effective internal control over financial reporting as of June 30, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Clorox Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that The Clorox Company maintained effective internal control over financial reporting as of June 30, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, The Clorox Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2005, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of The Clorox Company as of June 30, 2005 and 2004, and the related consolidated statements of earnings, stockholders’ equity, and cash flows for each of the three years in the period ended June 30, 2005 and our report dated August 26, 2005 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP

San Francisco, California	
August 26, 2005	
 
66

 FIVE-YEAR FINANCIAL SUMMARY
The Clorox Company

Years ended June 30	 	 	 	2005	 	2004	 	2003	 	2002	 	2001	 	
Dollars in millions, except per-share data and percentages	 	 	 	 	 	 	 	 	 	 	 	
OPERATIONS	 	 	 	 	 	 	 	 	 	 	 	
Net sales	 	$	4,388	 	$	4,162	 	$	3,986	 	$	3,859	 	$	3,697	 	
Cost of products sold	 	2,493	 	2,331	 	2,171	 	2,222	 	2,228	 	
Gross profit	 	1,895	 	1,831	 	1,815	 	1,637	 	1,469	 	
Selling and administrative expenses	 	551	 	543	 	523	 	516	 	472	 	
Advertising costs	 	435	 	420	 	446	 	381	 	336	 	
Research and development costs	 	88	 	84	 	75	 	64	 	67	 	
Restructuring and asset impairment costs	 	36	 	11	 	33	 	184	 	59	 	
Interest expense	 	79	 	30	 	28	 	38	 	88	 	
Other (income) expense, net	 	(23	)	(9	)	(8	)	(23	)	46	 	
Earnings from continuing operations before income taxes	 	729	 	752	 	718	 	477	 	401	 	
Income taxes on continuing operations	 	214	 	262	 	257	 	173	 	124	 	
Reversal of deferred taxes from equity investment in Henkel Iberica S.A.	 	(2	)	—	 	—	 	—	 	—	 	
Earnings from continuing operations	 	517	 	490	 	461	 	304	 	277	 	
Earnings from discontinued operations, net of tax(1)  	 	579	 	59	 	32	 	18	 	48	 	
Cumulative effect of change in accounting principle	 	—	 	—	 	—	 	—	 	(2	)	
Net earnings	 	$	1,096	 	$	549	 	$	493	 	$	322	 	$	323	 	
Change in net sales	 	5	%	4	%	3	%	4	%	- 2	%	
Change in net earnings	 	100	%	11	%	53	%	—	 	- 18	%	
COMMON STOCK	 	 	 	 	 	 	 	 	 	 	 	
Weighted average shares outstanding (in thousands)	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	176,586	 	211,683	 	218,174	 	231,849	 	236,149	 	
Diluted	 	179,176	 	214,371	 	220,692	 	234,704	 	239,483	 	
Earnings (loss) per common share	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	 	 	 	 	 	 	 	 	 	 	
Continuing operations	 	$	2.92	 	$	2.31	 	$	2.11	 	$	1.31	 	$	1.18	 	
Discontinued operations	 	3.28	 	0.28	 	0.15	 	0.08	 	0.20	 	
Cumulative effect of change in accounting principle	 	—	 	—	 	—	 	—	 	(0.01	)	
Basic net earnings per common share	 	$	6.20	 	$	2.59	 	$	2.26	 	$	1.39	 	$	1.37	 	
Diluted	 	 	 	 	 	 	 	 	 	 	 	
Continuing operations	 	$	2.88	 	$	2.28	 	$	2.08	 	$	1.29	 	$	1.16	 	
Discontinued operations	 	3.23	 	0.28	 	0.15	 	0.08	 	0.20	 	
Cumulative effect of change in accounting principle	 	—	 	—	 	—	 	—	 	(0.01	)	
Diluted net earnings per common share	 	$	6.11	 	$	2.56	 	$	2.23	 	$	1.37	 	$	1.35	 	
Dividends paid	 	$	1.10	 	$	1.08	 	$	0.88	 	$	0.84	 	$	0.84	 	
Dividends accrued	 	$	0.28	 	—	 	—	 	—	 	—	 	
OTHER DATA	 	 	 	 	 	 	 	 	 	 	 	
Property, plant and equipment, net	 	$	999	 	$	1,052	 	$	1,072	 	$	992	 	$	1,036	 	
Capital expenditures	 	151	 	170	 	203	 	174	 	190	 	
Long-term debt	 	2,122	 	475	 	495	 	678	 	685	 	
Total assets	 	3,617	 	3,834	 	3,652	 	3,524	 	4,028	 	
Stockholders’ (deficit) equity	 	(553	)	1,540	 	1,215	 	1,366	 	1,933	 	

(1)   In fiscal year 2003, the Company announced its intent to sell its business in Brazil. In fiscal year 2005, the Company completed the exchange of its ownership interest in a subsidiary for Henkel KG&A’s interest in Clorox common stock.
67

  
 Exhibit 99-2
 6ALUATION AND 1UALIFYING !CCOUNTS AND 2ESERVES  MILLION 

Column A	 	Column B	 	Column C	 	Column D	 	Column E	 	
 	 	 	 	Additions	 	Deductions	 	 	 	
Description	 	 	 	Balance at
beginning
of period	 	Charged to
costs and
expenses	 	Charged
 to other
accounts	 	Credited to
costs and
expenses	 	Credited
 to other
accounts	 	Balance at
end
of period	 	
Allowance for doubtful accounts	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Year ended June 30, 2005	 	 	(8	)	 	 	 	 	 	 	 	 	 	 	2	 	 	 	1	 	 	 	(5	)	 	
Year ended June 30, 2004	 	 	(10	)	 	 	 	 	 	 	 	 	 	 	1	 	 	 	1	 	 	 	(8	)	 	
Year ended June 30, 2003	 	 	(15	)	 	 	(4	)	 	 	 	 	 	 	 	 	 	 	9	 	 	 	(10	)	 	
Allowance for inventory obsolescence	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Year ended June 30, 2005	 	 	(4	)	 	 	(16	)	 	 	 	 	 	 	 	 	 	 	14	 	 	 	(6	)	 	
Year ended June 30, 2004	 	 	(3	)	 	 	(14	)	 	 	 	 	 	 	 	 	 	 	13	 	 	 	(4	)	 	
Year ended June 30, 2003	 	 	(12	)	 	 	(8	)	 	 	 	 	 	 	 	 	 	 	17	 	 	 	(3	)	 	
Valuation allowance on deferred tax assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Year ended June 30, 2005	 	 	(39	)	 	 	 	 	 	 	(4	)	 	 	10	 	 	 	 	 	 	 	(33	)	 	
Year ended June 30, 2004	 	 	(97	)	 	 	 	 	 	 	 	 	 	 	58	 	 	 	 	 	 	 	(39	)	 	
Year ended June 30, 2003	 	 	(66	)	 	 	(31	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(97	)	 	
Accrued environmental remediation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Year ended June 30, 2005	 	 	(29	)	 	 	(8	)	 	 	 	 	 	 	 	 	 	 	4	 	 	 	(33	)	 	
Year ended June 30, 2004	 	 	(17	)	 	 	(14	)	 	 	 	 	 	 	 	 	 	 	2	 	 	 	(29	)	 	
Year ended June 30, 2003	 	 	(17	)	 	 	(2	)	 	 	 	 	 	 	 	 	 	 	2	 	 	 	(17	)	 	
LIFO allowance	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Year ended June 30, 2005	 	 	(9	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(9	)	 	
Year ended June 30, 2004	 	 	(8	)	 	 	(1	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(9	)	 	
Year ended June 30, 2003	 	 	(11	)	 	 	 	 	 	 	 	 	 	 	3	 	 	 	 	 	 	 	(8	)	 	
Accrued restructuring	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Year ended June 30, 2005	 	 	(3	)	 	 	(7	)	 	 	 	 	 	 	 	 	 	 	8	 	 	 	(2	)	 	
Year ended June 30, 2004	 	 	(6	)	 	 	(1	)	 	 	 	 	 	 	 	 	 	 	4	 	 	 	(3	)	 	
Year ended June 30, 2003	 	 	(14	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	8	 	 	 	(6	)	 	

 
 Exhibit 99-3
 4HE #LOROX #OMPANY
2ETURN ON )NVESTED #APITAL

Dollars in millions	 	 	 	FY05	 	FY04	 	FY03	 	FY02	 	FY01	 	
Gross profit	 	$	1,895	 	$	1,831	 	$	1,815	 	$	1,637	 	$	1,469	 	
Selling and administrative expenses	 	551	 	543	 	523	 	516	 	472	 	
Advertising costs	 	435	 	420	 	446	 	381	 	336	 	
Research and development costs	 	88	 	84	 	75	 	64	 	67	 	
Operating profit	 	821	 	784	 	771	 	676	 	594	 	
Restructuring and intangible amortization in operating profit	 	15	 	8	 	4	 	(4	)	39	 	
Adjusted operating profit	 	836	 	792	 	775	 	672	 	633	 	
After tax adjusted operating profit	 	543	 	516	 	508	 	480	 	430	 	
Average invested capital (1)	 	3,898	 	3,819	 	3,658	 	3,841	 	4,157	 	
Return on invested capital	 	13.9	%	13.5	%	13.9	%	12.5	%	10.3	%	
change versus prior year	 	 +40 bps	 	- 40 bps	 	+140 bps	 	+220 bps	 	      n/a	 	

(1)           Average Invested Capital includes total assets less current liabilities (excluding short-term debt) adjusted to add back goodwill amortization, impairment and restructuring charges.