NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Clorox Company

Years Ended June 30, 2002, 2001 and 2000

(Millions of Dollars, Except Share and Per-Share Amounts)

1. Significant Accounting Policies

NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION

The Company is principally engaged in the production and marketing of nondurable 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. Minority investments in foreign entities are accounted for under the equity method, the most significant of which is an equity investment in Henkel Iberica, S.A. of Spain. All significant intercompany transactions and accounts are eliminated in consolidation.

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 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. Actual results could differ from estimates and assumptions made.

NEW ACCOUNTING STANDARDS

As of July 1, 2001, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 requires all business combinations entered into after June 30, 2001 to be accounted for under the purchase method. SFAS No. 142 sets forth new financial accounting and reporting standards for the acquisition of intangible assets, other than those acquired in a business combination, and for goodwill and other intangible assets subsequent to their acquisition. This accounting standard requires that goodwill be reported separately from other identifiable intangible assets and no longer amortized but tested for impairment on an annual basis. The Company’s policy is to separately identify, value, and determine the useful lives for all intangible assets acquired in acquisitions occurring after June 30, 2001. Those assets with a definite life shall be amortized over such periods, and those with indefinite lives shall not be amortized, but tested for impairment. The annual impairment tests will be performed at the same time each year unless events suggest an impairment may have occurred in the interim. The Company tests for impairment by comparing the carrying value with the fair value of each reporting unit. An impairment loss is recorded for the excess of the carrying value over the fair value of the goodwill, trademarks and other intangible assets. In connection with the transition provisions for adopting this standard, the Company performed a transitional impairment test and found no impairment, and reviewed the classification of its intangible assets. Amounts determined to be other than goodwill were reallocated as of July 1, 2001. Approximately $301 was assigned to trademarks not subject to amortization and $23 to other intangible assets subject to amortization.

In accordance with SFAS No. 142, the Company discontinued the amortization of goodwill and indefinite-lived trademarks effective July 1, 2001. The financial statement impact was to reduce amortization expense by $47 and increase net earnings by $34 (net of tax benefits of $13), or $0.14 per diluted share for the year ended June 30, 2002 compared to June 30, 2001.

A reconciliation of previously reported net earnings and earnings per share to the amounts adjusted to exclude goodwill and indefinite-lived trademarks amortization, net of the related income tax effect, follows:

		Year Ended June 30
		2002		2001		2000
Reported net earnings		$	322	$	323	$	394
	Add: Goodwill and indefinite-lived trademarks amortization, net of tax benefits		—		34		31
Adjusted net earnings		$	322	$	357	$	425
Basic earnings per common share:
Reported net earnings		$	1.39	$	1.37	$	1.67
	Add: Goodwill and indefinite-lived trademarks amortization, net of tax benefits		—		0.14		0.13
Adjusted net earnings		$	1.39	$	1.51	$	1.80
Diluted earnings per common share:
Reported net earnings		$	1.37	$	1.35	$	1.64
	Add: Goodwill and indefinite-lived trademarks amortization, net of tax benefits		—		0.14		0.13
Adjusted net earnings		$	1.37	$	1.49	$	1.77

In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143, “Accounting for Asset Retirement Obligations,” which addresses financial accounting requirements for retirement obligations associated with tangible long-lived assets. SFAS No. 143 is effective for fiscal year 2003. The Company is evaluating what impact, if any, SFAS No. 143 may have on its consolidated financial statements.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” that replaces SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” SFAS No. 144 requires that long-lived assets to be disposed of by sale, including those of discontinued operations, be measured at the lower of carrying value or fair value less costs to sell, whether reported in continuing operations or in discontinued operations. Discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet been incurred. SFAS No. 144 also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and will be eliminated from the ongoing operations of the entity in a disposal transaction. The provisions of SFAS No. 144 are effective for fiscal year 2003 and are to be applied prospectively.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force (“EITF”) Issue No. 94-3. The Company will adopt the provisions of SFAS No. 146 for restructuring activities, if any, initiated after December 31, 2002. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue No. 94-3, a liability for an exit cost was recognized at the date of the Company’s commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amounts recognized.

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 (net realizable value). Cost for the majority of the domestic inventories, approximately 41% and 35% of inventories at June 30, 2002 and 2001, respectively, is determined on the last-in, first-out (LIFO) method. The cost method for all other inventories, including inventories of all international businesses, is determined on the first-in, first-out (FIFO) method. When necessary, the Company provides allowances to adjust the carrying value of its inventory to the lower of cost or net realizable value, 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.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Depreciation is calculated by the straight-line method over estimated useful lives generally ranging from 3-40 years. Property, plant and equipment is reviewed periodically for possible impairment in accordance with SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets to be Disposed Of.” The Company’s impairment review is based on an undiscounted cash flow analysis of assets at the lowest level for which identifiable cash flows exist. Impairment occurs when the carrying value of the asset exceeds the future undiscounted cash flows and the impairment is viewed as other than temporary. When an impairment is indicated, the future cash flows are then discounted to determine the estimated fair value of the asset and an impairment charge is recorded for the difference between the carrying value and the net present value of future cash flows.

CAPITALIZED SOFTWARE COSTS

The Company follows the accounting guidance as specified in Statement of Position (SOP) 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use”. The Company capitalizes significant costs incurred in the acquisition or development of software for internal use, including the costs of the software, materials, consultants, interest and payroll and payroll-related costs for employees incurred in developing internal-use computer software once final selection of the software is made. Costs incurred prior to the final selection of software and costs not qualifying for capitalization are charged to expense. Capitalized software amortization expense was $18, $18, and $13, in fiscal years 2002, 2001 and 2000, respectively. The net book value of capitalized software costs included in other assets at June 30, 2002 and 2001 was $102 and $59, respectively.

EMPLOYEE BENEFITS

The Company has qualified and non-qualified defined benefit plans that cover substantially all of the Company’s domestic employees and certain of its international employees. The Company follows the accounting guidance as specified in SFAS No. 87, “Employers Accounting for Pensions,” for the recognition of net periodic pension cost. (See Note 17).

The Company provides certain health care benefits for employees who meet age, participation and length of service requirements at retirement. The Company follows the accounting guidance as specified in SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pension,” for the recognition of postretirement benefits. (See Note 17).

The Company provides for medical, dental, vision, life and other benefits to its employees. The Company accrues for estimated claims incurred but not reported based on estimates provided by its actuaries.

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 has various incentive compensation programs, including a performance unit program and The Clorox Company Retirement Investment Plan (ERIP). Certain payments or contributions under these programs are subject to the Company achieving certain performance targets. The Company reviews these performance targets on a periodic basis and accrues for incentive compensation costs accordingly.

ENVIRONMENTAL COSTS

The Company is involved in various environmental remediation and on-going compliance activities. As sites are identified and assessed, the Company determines its potential environmental liability. The Company follows the accounting guidance as specified in SOP 96-1, “Environmental Remediation Liabilities”. Based on engineering studies and management judgment, the Company has estimated and accrued for future remediation and on-going monitoring costs on an undiscounted basis, and environmental expenditures are included in other expense, net.

RESTRUCTURING LIABILITIES

The Company follows the guidance of Emerging Issues Tasks Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring),” for recognition of 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 group impacted has been notified. Other qualified exit and disposal costs are recognized at the time a plan has been approved by management.

REVENUE RECOGNITION

Customer sales are recognized as revenue when the risk of loss and title pass to the customer, generally at the time of shipment. Customer sales are recorded net of allowances for damaged goods returns, trade promotions, coupons and other discounts, which are recognized as a deduction from sales at the time of sale.

The Company routinely commits to one-time or on-going trade promotion and coupon programs with customers that require the Company to estimate and accrue the ultimate costs of such programs. The Company records an accrual at the end of each period for the earned, but unpaid costs related to the programs. Trade promotion and coupon costs are recorded as a deduction from sales. The Company also provides for an allowance for estimated damaged goods returns, which is recognized as a deduction from sales at the time of sale.

The Company provides for an allowance for doubtful accounts based on historical experience and a review of its receivables. Receivables are presented net of an allowance for doubtful accounts of $15 at both June 30, 2002 and 2001. The Company’s provision for doubtful accounts and deductions for charge-offs of receivables were $11 and $6, respectively, in fiscal year 2002, $5 and $3, respectively, in fiscal year 2001, and $8 and $5, respectively, in fiscal year 2000.

ADVERTISING

The Company expenses advertising costs in the year incurred.

INCOME TAXES

The Company uses the asset and liability method to account for income taxes, including recognition of deferred tax assets included in other current assets and liabilities for the anticipated future tax consequences attributable to differences between financial statement amounts and their respective tax bases. Income tax expense is recognized currently for taxes payable on remittances of foreign earnings, while no provision for expense is made for taxes on foreign earnings that are deemed to be permanently reinvested. The Company reviews its deferred tax assets for recovery. 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. Changes in valuation allowances from period to period are included in the Company’s tax provision in the period of change. (See Note 16).

FOREIGN CURRENCY TRANSLATION

Local currencies are the functional currencies for most of the Company’s foreign operations. Assets and liabilities are translated using the exchange rates in effect at the balance sheet date. Income and expenses are translated at the average exchange rates during the year. Translation gains and losses not reflected in earnings are reported in accumulated other comprehensive net losses in stockholders’ equity. Deferred taxes are not provided on translation gains and losses where the Company expects earnings of a foreign subsidiary to be permanently reinvested. During fiscal year 2002, the Company has determined that, at this time, foreign earnings from certain countries and joint ventures are no longer permanently reinvested and, therefore, the income tax effects of $119 have been recorded to other assets with an offset to accumulated other comprehensive net losses. Transaction gains and losses where the U.S. dollar is the functional currency are included in other expense (income), net.

EARNINGS PER COMMON SHARE

Basic earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding each period. Diluted earnings per share is computed by dividing net earnings by the diluted weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution from common shares issuable through stock options, restricted stock and share repurchase contracts.

DERIVATIVE INSTRUMENTS

Effective July 1, 2000, the Company adopted SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities.” SFAS No. 133, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The effect of this new standard was a reduction of fiscal year 2001 net earnings of $2 (net of tax benefit of $1), which was recognized as a cumulative effect of a change in accounting principle and an increase in fiscal year 2001 accumulated other comprehensive income of $10 (net of tax benefit of $7). The ongoing effects are dependent on future market conditions and the Company’s hedging activities.

The use of derivative instruments, principally swap, forward and option contracts, is limited to non-trading purposes and includes management of interest rate movements, foreign currency exposure and commodity exposure. Most interest rate swaps and commodity purchase and foreign exchange contracts are designated as fair-value or cash-flow hedges of fixed and variable rate debt obligations, 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 or not overall risk is being reduced and (c) if there is correlation between the value of the derivative instrument and the underlying obligation. Changes in the fair value of such derivatives are recorded as either assets or liabilities in the balance sheet with an offset to current earnings or other comprehensive income, depending on whether the derivative is designated 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 other comprehensive income and are recognized into earnings in the period or periods during which the hedge transaction effects earnings. The Company also has contracts with no hedging designations. At June 30, 2002 and 2001, the Company held a written put option contract for the purchase of resin that does not qualify for hedge accounting treatment. Additionally, in fiscal year 2002, the Company elected to discontinue hedge accounting treatment for its foreign exchange contracts that are considered immaterial. The financial statement impact of this change to the Company’s consolidated statement of earnings and balance sheet as of and for the fiscal year ended June 30, 2002 is insignificant. These contracts are accounted for by adjusting the carrying amount of the contracts to market and recognizing any gain or loss in other expense (income), net.

The Company uses several different methodologies to estimate the fair value of its derivative contracts. The estimated fair values of the Company’s interest rate swaps, certain commodity derivative contracts and foreign exchange contracts are based on quoted market prices, traded exchange market prices or broker quotes and represent the estimated amounts that the Company would pay or receive to terminate the contracts. The estimated fair values of the Company’s resin commodity contracts were previously determined using valuation models, including a Black-Scholes model for the written option, with forward resin market price curves provided by market makers. Starting in fiscal year 2002, the Company is using forward resin market price curves provided by other external sources because of a lack of available market quotations. Factors used to determine the fair value of the resin forward curve are based on resin market information, which considers many economic factors, including technology, labor, material and capital costs, capacity, world supply and demand.

STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation using the intrinsic value method prescribed in APB Opinion No. 25 whereby the options are granted at market price, and therefore no compensation costs are recognized. Compensation cost for stock options, if any, would be measured as the excess of the quoted market price of the Company’s stock at the date of grant over the amount an employee must pay to acquire the stock. Restricted stock awards are recorded as compensation cost over the requisite vesting periods based on the market value on the date of grant. Unearned compensation cost on restricted stock awards is shown as a reduction to stockholder’s equity. SFAS No. 123, “Accounting for Stock-Based Compensation,” established accounting and disclosure requirements using a fair-value based method of accounting for stock-based employee compensation plans. The Company has elected to retain its current method of accounting as described above and has adopted the disclosure requirements of SFAS No. 123. (See Note 13).

RECLASSIFICATIONS

Certain reclassifications have been made to the prior years’ financial statements to conform to the current year’s presentation, including the reclassification of income related to the Company’s low income housing partnerships to income tax expense, previously reported as a part of other income, to conform to the current year’s presentation.

2. Merger, Restructuring and Asset Impairment

Merger, restructuring and asset impairment charges were $241, $59 and $36 in fiscal years 2002, 2001 and 2000, respectively.

			2002			2001			2000
Restructuring:
	Severance costs		$	23		$	1		$	5
	Plant closure costs and other			9			3			6
		Total restructuring		32			4			11
Asset impairment:
	Goodwill and other intangibles (including deferred translation and deferred charges)			196			8			7
	Machinery and equipment			13			47			1
		Total asset impairment		209			55			8
Merger costs				—			—			17
		Total expense	$	241		$	59		$	36
Accrued restructuring at beginning of year			$	11		$	16		$	23
Payments				(29	)		(9	)		(35	)
Restructuring expense and merger costs, net				32			4			28
Accrued restructuring at end of year			$	14		$	11		$	16

During fiscal year 2002, the Company recorded $196 for the impairment of goodwill and trademarks associated with its businesses in Argentina, Brazil and Colombia. Other charges include severance related to the elimination of 369 positions in the Company’s Latin America division and approximately 260 positions from the Company’s U.S. divisions, the write-off of equipment and the closure of certain plants.

The $59 of merger, restructuring and asset impairment charges in fiscal year 2001 relates primarily to the obsolete equipment that was written off due to changes in technology, elimination of redundancies and discontinued product lines. The Company also closed its cat litter manufacturing plant in Wrens, Georgia during fiscal year 2001.

The $36 of merger, restructuring and asset impairment charges in fiscal year 2000 is primarily composed of First Brands merger-related costs and charges associated with the restructuring of the Company’s Asia operations.

3. Businesses Sold and Acquired

The aggregate sales price and estimated net pre-tax gain (included in other income) on the sale of the Maxforce professional insecticides business and the Himolene industrial trash can liner business were $65 and $33, respectively, for the fiscal year ended 2002. The aggregate sales price of the firelogs business was $2 in fiscal year 2001, with no gain or loss recognized on the sale.

Acquisitions in fiscal year 2001 totaled $126. These acquisitions included the purchase for $122 (or $116, net of cash acquired) from Brita GmbH of the rights to the Brita trademark and other intellectual property in North and South America, an increase in the Company’s ownership from 50% to 100% in Brita Limited and Brita South America Inc. and certain other net assets. The Company also increased its ownership to 100% in its two joint ventures in Costa Rica, previously 49% and 51% owned. The investments in Brita Limited, Brita South America Inc. and Costa Rica were previously accounted for under the equity method of accounting

and are fully consolidated from the date of acquisition. Net assets acquired included net working capital assets of $11, property, plant and equipment of $9, goodwill of $11 and trademarks and other intangible assets of $110 to be amortized over estimated lives of ten years, less the additional investment to acquire the remaining interest for $15. Because the Company previously owned 50% to 51% in these equity investments, only the incremental equity and its underlying net book value of the net assets were adjusted to their fair value.

Acquisitions in fiscal year 2000 totaled $120. These acquisitions included the Bon Bril cleaning utensils business in Colombia, Venezuela and Peru, the Agrocom S.A. distribution business in Argentina, an increase in ownership to 100% in Clorox de Colombia S.A. (formerly Tecnoclor, S.A. and previously 72% owned), and the Astra rubber glove business purchased in Australia. Net assets, acquired at fair value, included net working capital assets of $6, property, plant and equipment of $12, goodwill of $24 and trademarks and other intangible assets of $70 to be amortized over estimated lives of five years. In addition, approximately $8 was paid to acquire minority interests in Clorox de Colombia S.A.

Operating results of acquired businesses are included in the consolidated net earnings from the date of acquisition. All acquisitions were funded from cash provided by operations or debt. In any year presented, the operating results of businesses acquired were not significant to the consolidated results.

4. Inventories

Inventories at June 30 are comprised of the following:

	2002			2001
Finished goods and work in process	$	194		$	219
Raw materials and packaging		87			122
LIFO allowances		(11	)		(11	)
Allowances for obsolescence		(12	)		(49	)
Total	$	258		$	281

The LIFO method was used to value approximately 41% of inventories at June 30, 2002, and 35% at June 30, 2001. If the cost of LIFO inventories had been determined using the FIFO method, inventory amounts would have increased by approximately $11 at June 30, 2002 and 2001. The effect on earnings of the liquidation of any LIFO layers was not material for fiscal years ended June 30, 2002, 2001 and 2000.

Inventories at June 30 are presented net of an allowance for inventory obsolescence as follows:

	2002			2001
Allowance for inventory obsolescence at beginning of year	$	(49	)	$	(15	)
Provision for inventory obsolescence		(15	)		(54	)
Deductions for inventory write-offs		52			20
Allowance for inventory obsolescence at end of year	$	(12	)	$	(49	)

Provision for inventory obsolescence totaling $15, $54 and $15 was charged to cost of products sold during the fiscal years ended June 30, 2002, 2001 and 2000 respectively, and included charges of $39 in fiscal year 2001 that were related primarily to discontinued products, packaging, and unsuccessful product launches.

5. Property, Plant and Equipment

The components of property, plant and equipment at June 30 are as follows:

	2002			2001
Land and improvements	$	97		$	93
Buildings		459			448
Machinery and equipment		1,173			1,256
Computer hardware		100			77
Construction in progress and other		41			97
		1,870			1,971
Less accumulated depreciation		(948	)		(925	)
Net	$	922		$	1,046

Depreciation expense was $147, $134 and $121 in fiscal years 2002, 2001 and 2000, respectively.

6. Goodwill, Trademarks and Other Intangible Assets

Changes in the carrying amount of goodwill for the years ended June 30, 2002 and 2001 by operating segment are summarized below. Goodwill is net of accumulated amortization of $365 at June 30, 2001.

	Household Products
										Corporate
	North			Latin America			Specialty			Interest
	America			and Other			Products			and Other			Total
Balance as of June 30, 2000	$	369		$	415		$	408		$	77		$	1,269
Amortization		(12	)		(15	)		(11	)		(1	)		(39	)
Acquisitions		5			10			—			—			15
Asset impairment		—			(2	)		(4	)		—			(6	)
Translation adjustments and other		2			(13	)		2			—			(9	)
Reallocated to trademarks and other intangible assets		(243	)		(54	)		(20	)		(7	)		(324	)
Balance as of June 30, 2001		121			341			375			69			906
Asset impairment		—			(63	)		—			—			(63	)
Translation adjustments and other		(2	)		(108	)		(5	)		—			(115	)
Balance as of June 30, 2002	$	119		$	170		$	370		$	69		$	728

Changes in trademarks and other intangible assets for the years ended June 30, 2002 and 2001 are summarized below. Trademarks and other intangible assets subject to amortization are net of accumulated amortization of $123 and $111 at June 30, 2002 and 2001, respectively. Trademarks not subject to amortization are net of accumulated amortization of $139 at June 30, 2001. Estimated amortization expense of trademarks and other intangible assets for each of the fiscal years 2003, 2004, 2005, 2006 and 2007 is $11, $8, $4, $3 and $3, respectively. Trademarks and other intangible assets are amortized over lives ranging from 5 to 40 years.

	Trademarks and other intangible assets
	subject to amortization												Trademarks
													not subject to
	Patents			Technology			Other			Sub-Total			amortization			Total
Net balance as of June 30, 2000	$	19		$	4		$	47		$	70		$	197		$	267
Acquisitions		—			13			—			13			93			106
Asset impairment		—			—			—			—			(2	)		(2	)
Amortization		(6	)		(2	)		(5	)		(13	)		(8	)		(21	)
Translation adjustment		—			—			—			—			(6	)		(6	)
Reallocation from goodwill		—			—			23			23			301			324
Net balance as of June 30, 2001		13			15			65			93			575			668
Asset impairment		—			—			(8	)		(8	)		(27	)		(35	)
Sales		—			—			—			—			(6	)		(6	)
Translation adjustment		—			—			(19	)		(19	)		(23	)		(42	)
Amortization		(5	)		(2	)		(5	)		(12	)		—			(12	)
Net balance as of June 30, 2002	$	8		$	13		$	33		$	54		$	519		$	573

During fiscal year 2002, the Company undertook a review of its domestic and international operations for impairment. The Company’s impairment review and methodology is based on internal valuations using 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. Based on this review, the Company concluded that the goodwill, trademarks and other intangible assets associated with its domestic operations were not impaired but that certain international assets were impaired. The Company has recognized a pre-tax charge of $196 for the year ended June 30, 2002, to write-down goodwill and trademarks associated with its businesses in Argentina, Brazil and Colombia. A reassessment of the Company’s Brazilian strategy due to termination of a pending acquisition and a weakening economy, resulted in the recognition of an impairment loss of $57 for the year ended June 30, 2002, of which $34 was recorded to goodwill, $7 to deferred charges and $16 as a reduction in deferred translation. The Company recognized a pre-tax impairment loss of $39 in the year ended June 30, 2002 related to its Colombian business due to a weakening market and poor economic conditions in that country, of which $8 was recorded to goodwill, $22 to trademarks, and $9 as a reduction in deferred translation. The Company also recognized a pre-tax impairment loss of $100 for the year ended June 30, 2002 related to its Argentina business due to significant currency devaluations, a weakening market and poor economic conditions, of which $21 was recorded to goodwill, $13 to trademarks, and $66 as a reduction in deferred translation. The fair values were determined using the discounted present values of estimated future cash flows.

7. Other Assets

Other assets at June 30 are comprised of the following:

		2002		2001
Tax effect of deferred translation		$	119	$	—
Deferred software costs, net			102		59
Equity investments in:
	Henkel Iberica, S.A. of Spain		65		46
	Other		39		44
Investment in low income housing partnerships			44		43
Investment fund			15		19
Qualified retirement income plans			—		23
Other			21		38
Total		$	405	$	272

TAX EFFECT OF DEFERRED TRANSLATION

At June 30, 2002, the tax effect associated with deferred currency translation adjustments of $119 for the Company’s foreign subsidiary and equity investments, is included in other assets with an offset to accumulated other comprehensive net losses. The income tax effects on other comprehensive income are not provided when foreign earnings are deemed to be permanently reinvested. During fiscal year 2002, the Company has determined that foreign earnings from certain countries and joint ventures are no longer permanently reinvested.

LOW INCOME HOUSING

The Company is a 99% limited partner in low income housing partnerships, which are accounted for on an equity basis. The purpose of the partnerships is to develop low-income housing rental properties. The Company’s estimated future contributions are approximately $23, $11, $7, $4, $2 and $4 in fiscal years 2003, 2004, 2005, 2006, 2007 and thereafter, respectively. These partnerships also generate tax credits that reduce the Company’s federal income tax liability. Tax credits net of amortization of the investment in the low income housing partnerships were $11 in both fiscal years 2002 and 2001 and $12 in fiscal year 2000. Other than the expected tax credits, the Company does not anticipate any cash distributions from these partnerships.

INVESTMENT FUND

The Company is a 99% limited partner in an investment fund with a $15 and $19 interest at June 30, 2002 and 2001, respectively, which is accounted for on an equity basis. The Company invested in the fund, as a more cost-effective alternative to traditional hedging strategies, to help manage a portion of its emerging markets foreign exchange and economic investment risk. The fund invests in financial instruments such as foreign currency options and foreign currency and interest rate swap agreements. The general partner, an unrelated party, manages the investment fund. The fund’s assets and liabilities are transacted primarily with two counter-parties. The assets in the investment fund carry a tax basis significantly in excess of book basis. The Company does not control the investment decisions of the fund, and therefore the amounts and timing of any realization of such tax basis is uncertain. The Company’s risk of loss is limited to the amount of its investment and it has no ongoing capital commitments, loan requirements, guarantees or any other types of arrangements with the fund or its general partner that would require any future cash contributions to the fund.

At June 30, 2002 and 2001, the investment fund consisted, at estimated fair value, of assets of $109 and $95, respectively, and liabilities of $94 and $76, respectively. Mark-to-market losses were $4 for the year ended June 30, 2002 and were insignificant for the years ended June 30, 2001 and 2000.

The fund’s financial instruments are measured and recorded at their estimated fair values based on prices obtained from securities exchanges or over-the-counter markets, quotations from brokers, or estimates of fair value when market quotations are not readily available. When market quotations are not readily available, such estimates are based on counter-party quotes and pricing models utilizing quoted values. Because of the inherent uncertainty of valuing these investments, the estimate of fair value may differ from the values that would have been used had a ready market existed and the differences could be material.

The fund’s liabilities primarily include non-recourse Euro denominated loans secured by the Euro denominated options. The loans are carried at face value plus accrued interest payable. The loans have an open maturity date and could be terminated by both parties at any time. The interest rates for the loans are based on three-month Euribor plus 0.25%.

8. Accrued Liabilities

Accrued liabilities at June 30 consist of the following:

	2002		2001
Sales promotion costs	$	140	$	123
Taxes other than income		175		173
Compensation and employee benefit costs		90		40
Other		106		100
Total	$	511	$	436

9. Debt

Notes and loans payable, which mature in less than one year include the following at June 30:

	2002		2001
Canadian dollar-denominated commercial paper	$	163	$	105
U.S. dollar-commercial paper		158		—
Notes payable		9		12
Total	$	330	$	117

At June 30, 2002 and 2001 the Company had $163 and $105, respectively, of Canadian dollar-denominated commercial paper that was fully hedged by a forward currency contract. The terms of the forward currency contract match the terms of the underlying commercial paper.

The weighted average interest rate for notes and loans payable was 2.8%, 6.1% and 6.4% for fiscal years 2002, 2001 and 2000, respectively. The carrying value of notes and loans payable at June 30, 2002 and 2001 approximates the fair value of such debt.

Long-term debt at June 30 includes the following:

		2002			2001
Senior unsecured notes and debentures:
	6.125%, $300 due February 2011	$	314		$	301
	8.8%, $200 due July 2001		—			200
	7.25%, $150 due March 2007		150			150
Preferred interest transferable securities, $200 due July 2003, with a preferred dividend rate of 4.6%			192			200
Industrial revenue bond, $13 due October 2003, interest at bond market association index, secured by manufacturing facility in Belle, Missouri			13			13
Foreign bank loans			11			23
Total			680			887
Less: current maturities			(2	)		(202	)
Long-term debt		$	678		$	685

The weighted average interest rate on long-term debt was 5.0%, 6.3% and 6.4% for fiscal years 2002, 2001 and 2000, respectively. The estimated fair value of long-term debt at June 30, 2002 and 2001 is $693 and $696, respectively.

At June 30, 2002 the Company had the following interest rate swaps:

			Interest Rate
	Notional								Variable
Maturity Dates	Principal Amount		Paid			Received			Rate Index
February 2011	$	100		4.15	%		6.125	%	3 month LIBOR
February 2011		100		2.12	%		6.125	%	6 month LIBOR
July 2003		200		2.34	%		5.78	%	3 month LIBOR

The Company has domestic credit agreements of $550 that expire on various dates through March 2007. At June 30, 2002 there were no borrowings under any of these agreements, which are available for general corporate purposes and to support commercial paper issuance. In addition, the Company had $53 of foreign working capital credit lines and overdraft facilities at June 30, 2002, of which $33 is available for borrowing.

Certain of the Company’s unsecured notes, debentures and credit agreements contain restrictive covenants and limitations, including limitations on certain sale and leaseback transactions to the greater of $100, or 15% of the Company’s consolidated net tangible assets, as defined, and require the maintenance of a consolidated leverage ratio, as defined. The Company is in compliance with all restrictive covenants and limitations at June 30, 2002.

Debt maturities as of June 30, 2002 are $2, $207, $2, $2, $152 and $315 in fiscal years 2003, 2004, 2005, 2006, 2007 and thereafter, respectively.

10. Fair Value of Financial Instruments

The Company’s derivative financial instruments are recorded at fair value in the condensed consolidated balance sheets as assets (liabilities) at June 30 as follows:

		2002			2001
Current assets:
	Commodity purchase contracts	$	1		$	—
	Foreign exchange contracts		2			—
Other assets:
	Interest rate swaps		15			2
	Commodity purchase contracts		—			5
Current liabilities — foreign exchange contracts			(3	)		—
Long-term debt:
	Interest rate swaps		(6	)		(7	)
	Foreign exchange contracts		(1	)		5
Other long-term obligations — commodity option contracts			(9	)		(1	)

The Company utilizes derivative instruments, principally swaps, forward contracts and options to enhance its ability to manage risk, including interest rates, foreign currency fluctuations, commodity price changes and share repurchase obligations, which exist as part of its ongoing business operations. These contracts hedge transactions and balances for periods consistent with the related exposures and do not constitute investments independent of these exposures. The Company is not a party to any leveraged contracts.

The Company has policies with restrictions on the usage of derivatives, including a prohibition of the use of any leveraged instrument. Derivative contracts are entered into with several major creditworthy institutions, thereby minimizing the risk of credit loss. Exposure to counterparty credit risk is considered low because these agreements have been entered into with major credit-worthy institutions with strong credit ratings, and they are expected to perform fully under the terms of the agreements. In the normal course of business, the Company employs practices and procedures to manage its exposure to changes in interest rates, foreign currencies and commodity prices using a variety of derivative instruments.

Most interest rate swap, commodity purchase and foreign exchange contracts are designated as fair-value or cash-flow hedges of fixed and variable rate debt obligations, raw material purchase obligations, or foreign currency-denominated debt instruments. At June 30, 2002 and 2001, the Company also had certain derivative contracts with no hedging designations, including a written put option contract for the purchase of resin that does not qualify for hedge accounting treatment. These contracts are accounted for by adjusting the carrying amount of the contracts to market value, and recognizing any gain or loss in other income or expense.

Interest rate swap agreements are used to manage interest rate exposure and to achieve a desired proportion of variable and fixed rate debt. The Company also has preferred interest transferable securities, which is a Deutsche mark (DM) denominated financing arrangement. The Company manages its interest rate and DM risks through a series of swaps with notional amounts totaling $200 to eliminate foreign currency exposure risks and to effectively convert the Company’s 4.6% fixed DM obligation to a floating U.S. dollar rate of 90 day LIBOR less 133 basis points. The terms of the swap agreements match the terms of the underlying debt. The estimated amount of existing pre-tax gains for this swap agreement in accumulated other comprehensive net losses that is expected to be reclassified into earnings in fiscal year 2003 is approximately $7.

The Company uses foreign exchange contracts, including forward, swap and option contracts to hedge existing foreign exchange exposures. Foreign currency contracts require the Company, at a future date, to either buy or sell foreign currency in exchange for U.S. dollars and other currencies. Such currency contracts existed at June 30, 2002 and 2001 for Canadian dollars and certain other currencies. Contracts outstanding as of June 30, 2002 will mature over the next year.

The Company uses commodity futures contracts to fix the price on a portion of its raw material purchase requirements and swap contracts to hedge the market risk of diesel fuel included as part of carrier contracts. Contract maturities are correlated to actual purchases, and contract gains and losses are reflected as adjustments of the cost of the related item. The Company also uses swap and option contracts to fix the price and to partially stabilize the cost of its polyethylene resin requirements. These contracts cover a portion of the Company’s domestic resin requirements. The Company’s commodity contracts have varying maturities until December 2006. Considerable judgment is required in interpreting market data and developing assumptions to estimate the fair value of resin commodity contracts. Actual results could differ materially from estimates because of the volatility inherent in the resin markets where a 10% change in the forward resin market price curve would impact pre-tax expense by approximately $3 and accumulated other comprehensive net losses by approximately $7. The estimated amount of existing pre-tax net losses for commodity contracts in accumulated other comprehensive net losses that is expected to be reclassified into earnings in fiscal year 2003 is approximately $4. All hedges accorded hedge accounting treatment are considered highly effective.

The estimated notional and fair values of the Company’s derivative instruments are summarized below as of June 30:

		2002					2001
		Notional		Fair Value			Notional		Fair Value
Derivative Instruments
	Debt-related contracts	$	400	$	8		$	350	$	—
	Foreign exchange contracts		393		(1	)		335		(1	)
	Commodity purchase contracts		90		1			126		5
	Commodity option contracts		35		(9	)		46		(1	)

The carrying values of cash, short-term investments, accounts and notes receivable, accounts payable, forward purchase financing agreements and other derivative instruments approximate their fair values at June 30, 2002 and 2001. The Company has used market information for similar instruments and applied judgment in estimating fair values. See Note 9 for fair values of notes and loans payable and long-term debt.

11. Other Liabilities

Other liabilities consist of the following at June 30:

	2002		2001
Qualified retirement income plans	$	43	$	2
Retirement healthcare costs		81		80
Non-qualified retirement income plans		25		20
Environmental costs		17		10
Other		65		82
Total	$	231	$	194

12. Stockholders’ Equity

As of December 31, 2000, the Company adopted the accounting and financial reporting standards in EITF Issue No. 00-19, “Determination of Whether Share Settlement is within the Control of the Company for Purposes of Applying EITF Issue No. 96-13, ‘Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock’ ”. The Company is using the “equity” treatment of accounting, which allows for classification of such contracts as treasury shares. At June 30, 2001, the Company had three share repurchase agreements totaling approximately $246, whereby the Company contracted for future delivery of 2,260,000 shares each on September 15, 2002 and on September 15, 2004, at a strike price of $43 per share, and for future delivery of 1,000,000 shares on November 1, 2003 at a strike price of $51.70 per share. All share repurchase contracts were settled as of June 30, 2002, including the settlement and delivery of 5,520,000 shares for $257 in fiscal year 2002 and the settlement and receipt of net cash proceeds of $76 in fiscal year 2000.

Treasury share purchases and related premiums were $412 (10,000,000 shares) in fiscal year 2002, $10 in fiscal year 2001, and $135 (or 3,123,000 shares) in fiscal year 2000. In July 2002, the Board of Directors authorized the Company to increase its previously announced share repurchase program by an additional $500. The share repurchase program was first announced in August 2001, with an authorization of $500, of which $417 of treasury share repurchases, excluding related premiums, has been spent with $83 remaining to be spent.

Accumulated other comprehensive net losses at June 30, 2002 and 2001 included cumulative translation adjustments, net of tax, of $249 and $237, respectively, estimated fair value of the Company’s derivative contracts, net of tax, of $(9) and $(5), respectively, and minimum pension liability of $68 and $3, respectively.

The Company has various employee restricted stock and performance unit programs. Compensation cost related to restricted stock programs was $5, $7 and $3, for the fiscal years ending 2002, 2001 and 2000, respectively. Compensation cost related to performance unit programs was $2 and $4 for the fiscal years ending 2001 and 2000, respectively. At June 30, 2002, the Company reviewed the vesting criteria for its performance unit programs for the Company’s officers and determined that the initial vesting criteria had not been met as of June 30, 2002 and may not be met as of June 30, 2003. As a result, the Company reversed its net accrued liability of $10 for the performance unit program, resulting in a net credit to income of $7.

13. Stock Compensation Plans

At June 30, 2002, the Company has various non-qualified stock-based compensation programs which include stock options, performance units and restricted stock awards. The Company’s various stock options plans, which include the pre-merger plans of First Brands, provide for the granting of stock options to officers, key employees and directors. The 1996 Stock Incentive Plan (“1996 Plan”) and the 1993 Directors’ Stock Option Plan are the only plans with stock option awards currently available for grant. The 1996 Plan, the 1993 Directors’ Stock Option Plan and prior plans have shares exercisable at June 30, 2002. Effective July 1, 2001, the Board authorized and reserved for issuance an additional 11.5 million common shares under the 1996 Plan. The Company is authorized to grant options for up to 25.5 million common shares under the 1996 Plan, of which 12.6 million common shares are remaining and could be granted in the future. The Company is authorized to grant options for up to 400,000 common shares under the 1993 Directors’ Stock Option Plan, of which 111,000 common shares are remaining and could be granted in the future. Options outstanding under the Company’s plans (except First Brands options which became exercisable upon the merger) 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 a one to seven-year period, and expire no later than ten years after the grant date.

The following table gives 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, 2002:

Number of securities to be issued upon exercise (in thousands)		16,334
Weighted-average exercise price	$	31
Number of securities remaining for future issuance (in thousands)		12,757

The status of the Company’s stock option plans at June 30, 2002 is summarized below:

		Number of			Weighted-Average
		Shares			Exercise Price
		(in thousands)
Outstanding at June 30, 1999			13,640		$	34
	Granted		3,104			40
	Exercised		(1,381	)		20
	Cancelled		(301	)		44
Outstanding at June 30, 2000			15,062			36
	Granted		3,077			36
	Exercised		(1,077	)		19
	Cancelled		(3,367	)		62
Outstanding at June 30, 2001			13,695			31
	Granted		3,785			35
	Exercised		(1,591	)		23
	Cancelled		(677	)		38
Outstanding at June 30, 2002			15,212		$	33
Options exercisable at:
	June 30, 2002		9,063		$	29
	June 30, 2001		8,570			26
	June 30, 2000		7,687			21

If compensation expense for the Company’s various stock option plans had been determined based upon fair values at the grant dates for awards under those plans in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation”, then the Company’s pro-forma net earnings, basic and diluted earnings per common share would have been as follows for the fiscal years ended June 30:

			2002		2001		2000
Net earnings:
	As reported		$	322	$	323	$	394
	Pro forma			296		286		373
Earnings per share:
	Basic
		As reported	$	1.39	$	1.37	$	1.67
		Pro forma		1.28		1.21		1.58
	Diluted
		As reported	$	1.37	$	1.35	$	1.64
		Pro forma		1.26		1.19		1.56

The weighted-average fair value per share of each option granted during fiscal years 2002, 2001 and 2000, estimated as of the grant date using the Black-Scholes option pricing model, was $11.53, $12.76 and $12.43, respectively.

The following assumptions were used to estimate the fair value of fiscal year 2002, 2001 and 2000 option grants:

	2002	2001	2000
Dividend yield	2.07%	2.28%	1.80%
Expected volatility	38.4%	38.9%	36.5%
Risk-free interest rate	3.5% to 4.8%	4.6% to 6.5%	5.7% to 6.8%
Expected life	4 to 5 years	4 to 5 years	3 to 6 years

Summary information about the Company’s stock options outstanding at June 30, 2002 is as follows (number of shares in thousands):

				Weighted-Average
Range of				Remaining
Exercise		Options		Contractual Life		Weighted-Average		Options		Weighted-Average
Price		Outstanding		in Years		Exercise Price		Exercisable		Exercise Price
$	10-$13		745		1.6	$	13		745	$	13
	13- 20		1,024		2.2		16		1,024		16
	20- 27		2,718		3.8		22		2,718		22
	27- 34		80		5.7		33		63		33
	34- 40		9,504		8.1		36		3,957		37
	40- 47		250		7.5		44		153		43
	47- 54		54		6.6		50		52		51
	54- 61		342		6.8		54		342		54
	61- 67		495		6.6		67		9		67
$	10-$67		15,212		6.5	$	33		9,063	$	29

14. Leases

The Company leases transportation equipment and various manufacturing, warehousing, and office facilities. Leases are classified as operating leases and will expire over the next 15 years. The Company expects that in the normal course of business, leases will be renewed or replaced by other leases. The following is a schedule by fiscal year of future minimum rental payments required under the non-cancelable operating lease agreements:

	Future Minimum
Fiscal Year	Rental Payments
2003	$	30
2004		24
2005		18
2006		10
2007		10
Thereafter		15
Total	$	107

Rental expense for all operating leases was $56, $50 and $49 in fiscal years 2002, 2001 and 2000, respectively. Space not occupied by the Company in its headquarters building is rented to other tenants under operating leases expiring in 2008. Future minimum rentals to be received total $7 and do not exceed $2 in any one year.

15. Other Expense (Income), Net

The major components of other expense (income), net for the fiscal years ended June 30 are:

	2002			2001			2000
Amortization of trademarks and other intangible assets (and goodwill in 2001 and 2000)	$	12		$	60		$	55
Equity in earnings of unconsolidated affiliates		(16	)		(16	)		(17	)
Interest income		(4	)		(10	)		(10	)
Gain on sale of businesses, net		(33	)		—			—
Foreign exchange gains, net		(22	)		(2	)		(1	)
Other, net		37			15			9
Total other expense (income), net	$	(26	)	$	47		$	36

16. Income Taxes

The provision for income taxes consists of the following for the fiscal years ended June 30:

		2002			2001			2000
Current
	Federal	$	147		$	132		$	164
	State		16			23			25
	Foreign		28			19			25
Total current			191			174			214
Deferred
	Federal		1			(24	)		5
	State		(3	)		(1	)		1
	Foreign		(13	)		1			(4	)
Total deferred			(15	)		(24	)		2
Total expense (net of tax benefit of $1 on cumulative effect of change in accounting principle in fiscal year 2001)		$	176		$	150		$	216

The components of earnings (loss) before income taxes and cumulative effect of change in accounting principle are as follows for the fiscal years ended June 30:

	2002			2001		2000
United States	$	582		$	427	$	556
Foreign		(84	)		49		54
Total	$	498		$	476	$	610

Income taxes receivable at June 30, 2001 was $3 and is included in other current assets.

A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate follows for the fiscal years ended June 30:

	2002			2001			2000
Statutory federal tax rate		35.0	%		35.0	%		35.0	%
State taxes (net of federal tax benefits)		1.8			3.0			2.7
Incremental tax on foreign earnings		2.6			1.8			(1.1	)
Net reversal of prior year federal and state tax accruals		(3.6	)		(3.4	)		—
Brazil impairment loss		(2.8	)		—			—
Change in valuation allowance		7.7			(0.3	)		1.9
Low income housing tax credits		(2.3	)		(2.4	)		(1.9	)
Other differences		(3.1	)		(2.0	)		(1.2	)
Effective tax rate		35.3	%		31.7	%		35.4	%

Applicable U.S. income and foreign withholding taxes have not been provided on approximately $54 of undistributed earnings of certain foreign subsidiaries at June 30, 2002. Accumulated undistributed earnings of certain foreign subsidiaries are considered permanently reinvested and are not subject to such taxes.

The tax benefit related to the Company’s stock option plans is recorded as an increase to equity when realized. In fiscal years 2002, 2001 and 2000, the Company realized tax benefits of approximately $12, $9 and $14, respectively. Stock option tax benefits are reflected as part of operating cash flows.

The net deferred income tax assets (liabilities), both current and non-current at June 30, result from the tax effects of the following temporary differences:

			2002			2001
Deferred taxes — current
	Safe harbor lease agreements		$	(1	)	$	(2	)
	Compensation and benefit programs			11			(2	)
	Net operating loss and tax credit carryforwards			1			11
	Inventory costs			6			2
	Accruals and reserves			37			9
	Other, net			4			8
		Subtotal		58			26
	Valuation allowance			(1	)		—
	Total current assets, net			57			26
Deferred taxes — noncurrent
	Basis difference in fixed and intangible assets			(118	)		(195	)
	Safe harbor lease agreements			(11	)		(13	)
	Unremitted foreign earnings			(11	)		(2	)
	Compensation and benefit programs			43			37
	Merger and restructuring costs			7			18
	Income recorded for book purposes only			(23	)		(22	)
	Net operating loss and tax credit carryforwards			33			42
	Accruals and reserves			5			6
	Mark-to-market adjustments			8			—
	Interest			(10	)		(5	)
	Other, net			—			15
		Subtotal		(77	)		(119	)
	Valuation allowance			(65	)		(28	)
	Total noncurrent liabilities, net			(142	)		(147	)
	Deferred tax liabilities — net		$	(85	)	$	(121	)

As of June 30, 2002, the Company has foreign tax credit carryforwards of $5 with expiration dates between fiscal years 2004 and 2007. The Company also has income tax credit carryforwards in foreign jurisdictions of $1, which have expiration dates between fiscal years 2003 and 2005, and $1, which may be carried forward indefinitely. The tax benefits from foreign net operating loss carryforwards of $25 have expiration dates between fiscal year 2003 and 2009. Additionally, the tax benefit from foreign net operating loss carryforwards of $2 may be carried forward indefinitely.

The Company 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, 2002 and 2001 were $66 and $28, respectively and have been provided to reduce deferred tax assets to amounts considered recoverable. Details of the valuation allowance at June 30 are as follows:

	2002			2001
Valuation allowance at beginning of year	$	(28	)	$	(29	)
Impairment losses		(45	)		—
Other		7			1
Valuation allowance at end of year	$	(66	)	$	(28	)

17. Employee Benefit Plans

RETIREMENT INCOME PLANS

The Company has qualified and non-qualified defined benefit plans that cover substantially all of the Company’s domestic employees and certain of its international employees. Benefits are based on either employee years of service and compensation or a stated dollar amount per year of service. Except for its Canadian plan, which has both the Company and employees contributing to the plan, 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.

At June 30, 2002 and 2001, the Company had minimum pension liabilities of $68 and $3, respectively, which were recorded to accumulated other comprehensive net losses, with an offset to other liabilities. Minimum pension liability adjustments were required to recognize a liability equal to the unfunded accumulated benefit obligation based on the market value of the assets that decreased due to asset performance.

The projected benefit obligation, accumulated benefit obligation (“ABO”) and fair value of plan assets for those pension plans with an ABO in excess of plan assets were $288, $273 and $222, respectively, as of June 30, 2002 and $34, $28, and $23, respectively, as of June 30, 2001.

RETIREMENT HEALTH CARE

The Company provides certain health care benefits for employees who meet age, participation and length of service requirements at retirement. The health care plans were amended in fiscal year 2001 to limit the Company’s contribution to certain levels for non-union retirees. 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 unfunded, 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 15% for 2002-2003. These rates were assumed to gradually decrease by 2% for the next two years, then by 1% each year thereafter until an ultimate trend of 5.5% is reached in 2010-2011. Changes in these rates can have a significant effect on amounts reported. A one percentage point increase in the trend rates would increase the June 30, 2002 APBO by $1 and increase the fiscal year 2002 expense by less than $1. A one percentage point decrease in the trend rates would decrease the June 30, 2002 APBO by $1 and decrease the fiscal year 2002 expense by less than $1.

Summarized information for the Company’s retirement income and health care plans are as follows as of and for the fiscal years ended June 30:

																	Retirement
					Retirement Income Plans												Health Care
					2002					2001							2002						2001
Change in benefit obligations
	Benefit obligation at beginning of year				$	308				$		278					$	77					$	79
	Service cost					14						11						2						2
	Interest cost					23						22						5						5
	Plan amendments					1						4						(7			)			(14			)
	Actuarial loss					14						15						4						9
	Benefits paid					(25		)				(22		)				(6			)			(5			)
	Benefit obligation at end of year					335						308						75						76
Change in plan assets
	Fair value of assets at beginning of year					288						331						—						—
	Actual return on plan assets					(21		)				(27		)				—						—
	Employee contribution					—						4						—						—
	Employer contribution					3						2						6						5
	Benefits paid					(25		)				(22		)				(6			)			(5			)
	Fair value of plan assets at end of year					245						288						—						—
	Unfunded status					(90		)				(20		)				(75			)			(76			)
	Unrecognized prior service cost					(5		)				(7		)				(11			)			(5			)
	Unrecognized loss					95						31						5						1
	Prepaid/(accrued) benefit cost				$	—				$		4					$	(81			)		$	(80			)
Amount recognized in the balance sheets consists of:
	Prepaid benefit cost				$	9				$		28					$	—					$	—
	Accrued benefit liability					(77		)				(27		)				(81			)			(80			)
	Accumulated other comprehensive net losses					68						3						—						—
	Net amount recognized				$	—				$		4					$	(81			)		$	(80			)
						2002						2001						2002						2001
Weighted-average assumptions as of June 30:
	Discount rate					6.75% to 7.25		%				7% to 7.5		%				7.25			%			7.50			%
	Rate of compensation increase					3.5% to 7.25		%				3.5% to 7.5		%				N/A						N/A
	Expected return on plan assets					8% to 9.5		%				8% to 9.5		%				N/A						N/A
		Retirement													Retirement
		Income Plans													Health Plans
		2002			2001				2000						2002					2001					2000
Components of net periodic benefit cost
	Service cost	$	14		$	12			$		12				$	2				$		2			$	3
	Interest cost		23			21					18					5						5				5
	Expected return on plan assets		(31	)		(31	)				(30		)			—						—				—
	Amortization of unrecognized items		(1	)		(7	)				(6		)			(1			)			1				—
	Total net periodic benefit cost or (income)		5			(5	)				(6		)			6						8				8
	Total benefits and curtailment gains		—			—					(1		)			—						—				—
	Total expense (income)	$	5		$	(5	)		$		(7		)		$	6				$		8			$	8

The Company has defined contribution plans for most of its domestic employees not covered by collective bargaining agreements. The cost of those plans is based on the Company’s profitability and participants’ deferrals. The plans include The Clorox Company Employee Retirement Investment Plan (ERIP) which has two components, a 401(k) component and a profit sharing component. Employee contributions made to the 401(k) component are matched with the Company’s contributions. Company contributions to the profit sharing component are discretionary and are based on performance targets that are measured by the “Clorox Value Measure.” The aggregate cost of the defined contribution plans, including the ERIP, was $38 in fiscal year 2002, $3 in fiscal year 2001 and $15 in fiscal year 2000.

18. Industry Segment Information

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. Starting in fiscal year 2002, the Glad business unit is reported under the Household Products — North America segment and the European automotive care businesses are reported under the Specialty Products segment due to management realignment and organizational changes effective in fiscal year 2002. Information presented below for prior years has been reclassified to conform to the current year’s presentation of segment results. Intersegment sales are insignificant. The operating segments include:

•	Household Products — North America: Includes cleaning, bleach, water filtration products, and the food storage and disposal categories marketed in the United States and all products marketed in Canada.
•	Household Products — Latin America/Other: Includes operations outside the United States and Canada, excluding the European automotive care business.

18. Industry Segment Information (Continued)

The table below represents operating segment information as of and for the fiscal years ended June 30:

						Household
				Household		Products —					Corporate
				Products —		Latin America/			Specialty		Interest			Total
		Fiscal Year		North America		Other			Products		and Other			Company
Net sales			2002	$	2,198	$	559		$	1,304	$	—		$	4,061
			2001		2,097		584			1,222		—			3,903
			2000		2,175		605			1,209		—			3,989
Earnings (losses) before income			2002		535		(129	)		517		(425	)		498
	taxes and cumulative effect of		2001		453		72			397		(446	)		476
	change in accounting principle		2000		599		68			403		(460	)		610
Equity in earnings of affiliates			2002		—		16			—		—			16
			2001		—		16			—		—			16
			2000		—		17			—		—			17
Identifiable assets			2002		1,403		740			876		611			3,630
			2001		1,432		1,011			888		664			3,995
			2000		1,593		1,062			987		711			4,353
Capital expenditures			2002		46		10			30		91			177
			2001		62		31			32		67			192
			2000		73		21			28		36			158
Depreciation and amortization			2002		82		23			26		59			190
			2001		92		42			38		53			225
			2000		82		36			35		48			201
Non-cash charges included in costs of products sold and			2002		9		200			—		—			209
	merger, restructuring and asset		2001		60		10			24		—			94
	impairment		2000		—		5			6		1			12

Corporate, Interest and Other includes certain non-allocated administrative costs, amortization of trademarks and other intangible assets (and goodwill in fiscal years 2001 and 2000), interest income, interest expense, and other income and expense. Merger, restructuring and asset impairment costs and related inventory write-offs totaling $237, $98, and $40 in fiscal years 2002, 2001 and 2000, respectively, have been allocated to the applicable segment. These charges by segment, have been allocated as follows: Household Products — North America, $14 in fiscal year 2002 and $61 in fiscal year 2001; Specialty Products, $26 in fiscal year 2001, and $6 in fiscal year 2000; Household Products — Latin America/ Other, $216 in fiscal year 2002, $11 in fiscal year 2001, $11 in fiscal year 2000; and Corporate, Interest and Other, $7 in fiscal year 2002 and $23 in fiscal year 2000. Corporate assets include cash and cash equivalents, the Company’s headquarters and research and development facilities. The aggregate net pre-tax gain on divestitures totaling $33 for fiscal year ended 2002 is included in the Specialty Products and Household Products — North America segments.

Net sales to the Company’s largest customer, Wal-Mart Stores, Inc. and its affiliates, were 23%, 20%, and 19% of consolidated net sales in fiscal years 2002, 2001 and 2000, respectively. The Household Products — North America and Specialty Products segments net sales to Wal-Mart Stores, Inc. and its affiliates were no greater than 29% and 21%, respectively, of net sales for those segments for any of the fiscal years ended June 30, 2002, 2001 and 2000. No other customer exceeded 6% of net sales in any year.

Sales of Clorox liquid bleach represent approximately 10% of total Company net sales. No other brand exceeded 10% of net sales in any year.

19. Commitments and Contingent Liabilities

The Company has entered into an obligation to purchase raw materials at various indexed prices through September 2010. Estimated annual purchase commitments based on annual requirements and current market prices are $5 in each of fiscal years 2003 through 2007, and $18 thereafter.

The Company is subject to various lawsuits and claims, which include contract disputes, environmental issues, product liability, patent and trademark, advertising and tax matters. Although the results of claims and litigation cannot be predicted with certainty, it is the opinion of management, after consultation with counsel, 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.

20.	Earnings per Share

A reconciliation of the weighted average number of common shares outstanding (in thousands) used to calculate basic and diluted earnings per share is as follows for the fiscal years ended June 30:

	2002		2001		2000
Basic		231,849		236,149		236,108
Stock options and other		2,855		3,334		3,506
Diluted		234,704		239,483		239,614

21. Quarterly Data (Unaudited)

The Company’s quarterly data is as follows:

			Quarters Ended
			September 30				December 31				March 31					June 30				Total Year(5)
In millions, except per-share amounts.
Fiscal year ended June 30, 2002
	Net sales		$			991	$			901	$			1,033		$		1,136		$		4,061
	Cost of products sold					566				514				597				631				2,308
	Net earnings(1), (2), (3), (4)					79				51				46				145				322
Per common share:
	Net earnings
		Basic	$			0.34	$			0.22	$			0.20		$		0.64		$		1.39
		Diluted				0.33				0.22				0.20				0.63				1.37
	Dividends					0.21				0.21				0.21				0.21				0.84
Market price (NYSE)
		High	$			39.71	$			40.85	$			45.35		$		47.95		$		47.95
		Low				33.85				34.83				38.45				40.60				33.85
		Year-end																				41.35
				Quarters Ended
				September 30				December 31				March 31			June 30				Total Year(5)
In millions, except per-share amounts.
Fiscal year ended June 30, 2001
	Net sales			$	963			$	876			$	962		$		1,102		$		3,903
	Cost of products sold				549				525				584				662				2,319
	Earnings before cumulative effect of change in accounting principle			$	100			$	64			$	79		$		81		$		325
	Cumulative effect of change in accounting principle				(2		)		—				—				—				(2		)
	Net earnings(1), (2)			$	98			$	64			$	79		$		81		$		323
Per common share:
	Basic
		Earnings before cumulative effect of change in accounting principle		$	0.43			$	0.27			$	0.33		$		0.34		$		1.38
		Cumulative effect of change in accounting principle			(0.01		)		—				—				—				(0.01		)
		Net earnings		$	0.42			$	0.27			$	0.33		$		0.34		$		1.37
	Diluted
		Earnings before cumulative effect of change in accounting principle		$	0.42			$	0.27			$	0.33		$		0.34		$		1.36
		Cumulative effect of change in accounting principle			(0.01		)		—				—				—				(0.01		)
		Net earnings		$	0.41			$	0.27			$	0.33		$		0.34		$		1.35
	Dividends			$	0.21			$	0.21			$	0.21		$		0.21		$		0.84
	Market price (NYSE)
		High		$	45.88			$	48.63			$	37.40		$		36.18		$		48.63
		Low			33.44				28.38				30.15				29.95				28.38
		Year-end																			33.85

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(1)	The Company expenses advertising costs in the year incurred, although such costs for interim periods are generally expensed ratably in relation to revenues.
(2)	Net earnings for the first, second, third and fourth quarters of fiscal year 2002 include the pre-tax effect of restructuring and asset impairment charges of $40, $66, $100 and $35, respectively. Net earnings for the second, third and fourth quarters of fiscal year 2001 include the pre-tax effect of restructuring and asset impairment charges of $4, $23 and $32, respectively.
(3)	Net earnings for the third quarter of fiscal year 2002 include the pre-tax effect of the net gain of $33 recognized on the sales of the Maxforce and Himolene businesses.
(4)	Net earnings for the fourth quarter of fiscal year 2002 includes the pre-tax effect of the reversal to income of the net accrued liability of $10 related to the Company’s performance unit program.
(5)	Due to rounding, totals for the year may not equal the sum of the quarterly amounts.

RESPONSIBILITY FOR CONSOLIDATED FINANCIAL STATEMENTS

The Company’s management is responsible for the preparation of the accompanying consolidated financial statements and for their content as well as other information contained in this annual report. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include amounts which are based on management’s best estimates and judgments.

The Company maintains a system of internal accounting controls that includes selection and development of employees, division of duties, and written accounting and operating policies and procedures augmented by a continuing internal audit program. Although there are inherent limitations in the effectiveness of any system of accounting controls, the Company believes that its system provides reasonable, but not absolute, assurance that its assets are safeguarded from unauthorized use or disposition and that its accounting records are sufficiently reliable to permit the preparation of financial statements that conform in all material respects with accounting principles generally accepted in the United States of America. See also certification section of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2002 after Signatures under the heading “Certifications.”

The Company has retained Deloitte & Touche LLP, independent public accountants, to audit the financial statements. Their accompanying report is based on an examination conducted in accordance with auditing standards generally accepted in the United States of America, which includes a review of the Company’s systems of internal control as well as tests of accounting records and procedures sufficient to enable them to render an opinion on the Company’s financial statements, taken as a whole.

The Board of Directors has an audit committee composed of independent directors. The Committee meets periodically and independently throughout the year with management, internal auditors and the independent accountants to discuss the Company’s internal accounting controls, auditing and financial reporting matters. The internal auditors and independent accountants have unrestricted access to the audit committee.

INDEPENDENT AUDITORS’ REPORT

The Stockholders and Board of Directors of The Clorox Company:

We have audited the accompanying consolidated balance sheets of The Clorox Company and its subsidiaries (the “Company”) as of June 30, 2002 and 2001, and the related consolidated statements of earnings, stockholders’ equity and cash flows for the fiscal years ended June 30, 2002, 2001 and 2000. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2002 and 2001, and the results of its operations and its cash flows for the fiscal years ended June 30, 2002, 2001, and 2000 in conformity with accounting principles generally accepted in the United States of America.

DELOITTE & TOUCHE LLP

Oakland, California

September 4, 2002

FIVE-YEAR FINANCIAL SUMMARY

The Clorox Company

Years ended June 30				2002			2001			2000			1999			1998
In millions, except share and per-share data.
OPERATIONS
	Net sales			$	4,061		$	3,903		$	3,989		$	3,886		$	3,762
	Cost of products sold				2,308			2,319			2,250			2,181			2,124
	Operating expenses				1,001			914			959			974			965
	Interest and other expense, net				13			135			134			132			124
	Merger, restructuring and asset impairment				241			59			36			180			3
	Total costs and expenses				3,563			3,427			3,379			3,467			3,216
	Earnings before income taxes and cumulative effect of change in accounting principle				498			476			610			419			546
	Income taxes				176			151			216			173			196
	Earnings before cumulative effect of change in accounting principle				322			325			394			246			350
	Cumulative effect of change in accounting principle				—			(2	)		—			—			(7	)
	Net earnings			$	322		$	323		$	394		$	246		$	343
	Change in net sales				4	%		-2	%		3	%		3	%		8	%
	Change in net earnings				—			-18	%		60	%		-28	%		14	%
COMMON STOCK
	Weighted average shares (in thousands)
		Basic			231,849			236,149			236,108			235,364			234,666
		Diluted			234,704			239,483			239,614			240,002			239,540
	Net earnings per common share
		Basic
			Earnings before cumulative effect of change in accounting principle	$	1.39		$	1.38		$	1.67		$	1.05		$	1.49
			Cumulative effect of change in accounting principle		—			(0.01	)		—			—			(0.03	)
		Net earnings		$	1.39		$	1.37		$	1.67		$	1.05		$	1.46
		Diluted
			Earnings before cumulative effect of change in accounting principle	$	1.37		$	1.36		$	1.64		$	1.03		$	1.46
			Cumulative effect of change in accounting principle		—			(0.01	)		—			—			(0.03	)
		Net earnings		$	1.37		$	1.35		$	1.64		$	1.03		$	1.43
	Dividends per common share			$	0.84		$	0.84		$	0.80		$	0.71		$	0.63
	Stockholders’ equity per common share at end of year			$	6.07		$	8.03		$	7.62		$	6.67		$	6.32
OTHER DATA
	Property, plant and equipment, net			$	922		$	1,046		$	1,079		$	1,054		$	1,016
	Capital expenditures				177			192			158			176			190
	Long-term debt				678			685			590			702			704
	Total assets				3,630			3,995			4,353			4,132			4,065
	Stockholders’ equity				1,354			1,900			1,794			1,570			1,473
	Return on net sales(1)				8	%		8	%		10	%		6	%		9	%
	Return on average stockholders’ equity(2)				19	%		18	%		23	%		16	%		24	%

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(1)	Return on net sales is calculated by dividing net earnings by net sales.
(2)	Return on average stockholders’ equity is calculated by dividing net earnings by the average of the last five quarters of stockholders’ equity.

Exhibit 99.2

Certification by the

Chairman of the Board and Chief Executive Officer

of The Clorox Company

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the annual report of The Clorox Company (the "Company") on Form 10-K for the fiscal year ended June 30, 2002 as filed with the Securities and Exchange Commission on September 26, 2002 (the "Report"), I, G. Craig Sullivan, Chairman of the Board and Chief Executive Officer, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that I have reviewed the Report and, based on my 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 26th day of September, 2002

/s/ G. Craig Sullivan

G. Craig Sullivan                                                          

Chairman of the Board and                                           

Chief Executive Officer                                    

Exhibit 99.3

Certification by the

Group Vice President - Chief Financial Officer

of The Clorox Company

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the annual report of The Clorox Company (the "Company") on Form 10-K for the fiscal year ended June 30, 2002 as filed with the Securities and Exchange Commission on September 26, 2002 (the "Report"), I, Karen Rose, Group Vice President - Chief Financial Officer of The Clorox Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that I have reviewed the Report and, based on my 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 26th day of September, 2002

/s/ Karen Rose

Karen Rose

Group Vice President - Chief Financial Chief Executive Officer