10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2007 Commission File No. 1-9328

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

For the transition period from                        to                        

ECOLAB INC.

(Exact name of registrant as specified in its charter)

Delaware	41-0231510
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
370 Wabasha Street North, St. Paul, Minnesota	55102
(Address of principal executive offices)	(Zip Code)

      Registrant’s telephone number, including area code:  1-800-232-6522

      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, Inc.
Preferred Stock Purchase Rights	New York Stock Exchange, Inc.

      Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

x  YES  o  NO

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

o  YES  x  NO

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.

x  YES  o  NO

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,”  “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer x     Accelerated filer o     Non-accelerated filer o (Do not check if a smaller reporting company)      Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o YES  x NO

Aggregate market value of voting and non-voting common equity held by non-affiliates of registrant on June 30, 2007:  $10,446,188,400 (see Item 12, under Part III hereof), based on a closing price of registrant’s Common Stock of $42.70 per share.

The number of shares of registrant’s Common Stock, par value $1.00 per share, outstanding as of January 31, 2008: 247,200,121 shares.

DOCUMENTS INCORPORATED BY REFERENCE

1.Portions of the registrant’s Annual Report to Stockholders for the year ended December 31, 2007 (hereinafter referred to as “Annual Report”) are incorporated by reference into Parts I and II.

2.Portions of the registrant’s Proxy Statement for the Annual Meeting of Stockholders to be held May 2, 2008 and to be filed within 120 days after the registrant’s fiscal year ended December 31, 2007 (hereinafter referred to as “Proxy Statement”) are incorporated by reference into Part III.

TABLE OF CONTENTS

PART I
Forward-Looking Statements
Item 1(a)	General Development of Business
Item 1(b)	Financial Information About Operating Segments
Item 1(c)	Narrative Description of Business
Item 1(d)	Financial Information About Geographic Areas
Item 1(e)	Available Information
Executive Officers of the Company
Item 1A.	Risk Factors
Item 1B.	Unresolved Staff Comments
Item 2.	Properties
Item 3.	Legal Proceedings
Item 4.	Submission of Matters to a Vote of Security Holders
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer purchases of Equity Securities
Item 6.	Selected Financial Data
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk
Item 8.	Financial Statements and Supplementary Data
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.	Controls and Procedures
Item 9B.	Other Information
PART III
Item 10.	Directors, Executive Officers of the Registrant and Corporate Governance
Item 11.	Executive Compensation
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.	Certain Relationships and Related Transactions
Item 14.	Principal Accountant Fees and Services
PART IV
Item 15.	Exhibits and Financial Statement Schedules
SIGNATURES
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT INDEX

PART I

Except where the context otherwise requires, references in this Form 10-K to either “Ecolab,” “Company,” “we” and “our” are to Ecolab Inc. and its subsidiaries, collectively.

Forward-Looking Statements

This Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operation” incorporated by reference into Item 7 of this Form 10-K,  contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements include expectations concerning business progress and expansion, business acquisitions, currency translation, cash flows, debt repayments, environmental and regulatory considerations, share repurchases, global economic conditions, pension expenses and potential contributions, income taxes and liquidity requirements.  Without limiting the foregoing, words or phrases such as “will likely result,” “are expected to,” “will continue,” “is anticipated,” “we believe,” “we expect,” “estimate,” “project” (including the negative or variations thereof) or similar terminology, generally identify forward-looking statements.  Forward-looking statements may also represent challenging goals for us.  We caution that undue reliance should not be placed on such forward-looking statements, which speak only as of the date made.  Some of the factors which could cause results to differ from those expressed in any forward-looking statement are set forth under Item 1A of this Form 10-K, entitled Risk Factors.

Item 1.  Business.

Item 1(a) General Development of Business.

Ecolab was incorporated as a Delaware corporation in 1924.  Our fiscal year is the calendar year ending December 31.

During 2007, we continued to make business acquisitions to broaden our product offerings and expand our geographic coverage, consistent with our “Circle the Customer – Circle the Globe” strategy.

In January 2007, we established a direct operation in the United Arab Emirates.  We previously operated in the country through a distributor, and purchased that business to form the new direct operation in the country.  Annual sales are approximately $3 million and became part of our International operations beginning in the first quarter of 2007.

In February 2007, we acquired Apprise Technologies, Inc., a Minnesota-based developer of optical sensor technology solutions.  Annual sales are approximately $1 million and became part of our U.S. Cleaning & Sanitizing operations beginning in the first quarter of 2007.

In March 2007, we acquired Green Harbour, a Hong Kong-based provider of pest elimination services in China and Hong Kong.  Annual sales are approximately $4 million and became part of our International operations beginning in the second quarter of 2007.

In May 2007, we acquired Fuma Pest, a New Zealand-based provider of pest elimination services.  Annual sales are approximately $2 million and became part of our International operations beginning in the second quarter of 2007.

In June 2007, we acquired Eagle Environmental Systems, a provider of pest elimination services based in Sydney, Australia.  Annual sales are approximately $4 million and became part of our International operations beginning in the third quarter of 2007.

In September 2007, we made a minority investment in Site Controls, LLC, a leading provider of energy management and business intelligence solutions.

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In November 2007, we acquired Microtek Medical Holdings, Inc., a manufacturer and marketer of infection control products for healthcare and acute care facilities. Microtek’s specialized product lines include infection barrier equipment drapes, patient drapes, fluid control products and operating room cleanup systems.    Microtek’s 2006 sales were approximately $150 million and became part of our U.S. Cleaning & Sanitizing and International operations.

Regarding business dispositions, we completed the sale of Peter Cox Limited, a leading United Kingdom provider of damp proofing, waterproofing, timber preservation and wall stabilization for residential, commercial and public properties, in September 2007. We acquired Peter Cox Limited in connection with our 2002 purchase of the Terminix Pest Control business in the United Kingdom.  2006 revenues for the Peter Cox business were GBP 16 million (approximately $32 million).

Additional details regarding certain of the above transactions are found in Note 5 located on pages 35 and 36 of the Annual Report, and incorporated into Item 8 of this Form 10-K.

Item 1(b) Financial Information About Operating Segments.

The financial information about reportable segments appearing under the heading “Operating Segments” in Note 16, located on pages 45 and 46 of the Annual Report, is incorporated herein by reference.

Item 1(c) Narrative Description of Business.

General:  Ecolab develops and markets premium products and services for the hospitality, foodservice, healthcare and industrial markets.  We provide cleaning and sanitizing products and programs, as well as pest elimination, maintenance and repair services primarily to hotels and restaurants, healthcare and educational facilities, quick-service (fast-food and other convenience store) units, grocery stores, commercial and institutional laundries, light industry, dairy plants and farms, food and beverage processors and the vehicle wash industry.  A strong commitment to customer support and sustainable solutions is a distinguishing characteristic of our business.  Additional information on our business philosophy is found below under the heading “Additional Information – Competition” of this Item 1(c).

The following description of our business is based upon our three reportable segments as reported in our consolidated financial statements.  However, we pursue a “Circle the Customer – Circle the Globe” strategy by providing products, systems and services which serve our customer base, and do so on a global basis to meet the needs of our customers’ various operations around the world.  Therefore, one customer may utilize the products or services of all three of the segments and there is interdependence among the operating segments.  Revenues of our International segment include sales outside the United States by our Kay and Pest Elimination businesses.

United States Cleaning & Sanitizing Segment

The “United States Cleaning & Sanitizing” segment is comprised of seven business units which provide cleaning and sanitizing products and programs to United States markets.

Institutional:  Our Institutional Division is our largest division and sells specialized cleaners and sanitizers for washing dishes, glassware, flatware, foodservice utensils and kitchen equipment (“warewashing”), for on-premise laundries (typically used by hotel and health care customers) and for general housekeeping functions, as well as food safety products and equipment, dishwasher racks and related kitchen sundries to the foodservice, lodging, educational and healthcare industries, and water filters to the foodservice industry.  The Institutional Division also provides pool and spa treatment programs for hospitality and other commercial customers.  The Institutional Division manufactures and markets various chemical dispensing device systems, which are made available to customers, to dispense our cleaners and sanitizers. In addition, the Institutional Division markets a lease program comprised of energy-efficient dishwashing machines, detergents, rinse additives and sanitizers, including full machine maintenance.

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We believe we are the leading supplier of chemical warewashing products and programs to institutions in the United States.

The Institutional Division sells its products and programs primarily through company-employed field sales personnel.  However, to a significant degree, we also utilize independent, third-party foodservice distributors to market and sell our products to smaller accounts or accounts which purchase through food distributors.  We provide the same customer support to accounts supplied by food distributors as to direct customers.

Effective January 1, 2007, we integrated our former Professional Products division into the Institutional Division to deliver a broad range of cleaning and floor care products and programs to customers in hospitality, health care and commercial facilities.  The Institutional sales force, along with a network of independent, third-party distributors serving the commercial janitorial industry, market Professional Products’ proprietary offerings (detergents, general purpose cleaners, carpet care, stone care, furniture polishes, disinfectants, floor care products, hand soaps and odor counteractants).

Kay:  Our Kay Division (which consists of certain wholly-owned subsidiaries of Ecolab Inc.) supplies chemical cleaning and sanitizing products primarily to national and regional quick-service restaurant chains.  Kay’s products include specialty and general purpose hard surface cleaners, degreasers, sanitizers, polishes, hand care products and assorted cleaning tools.  Products are sold under the “Kay” brand or the customer’s private label. In addition, Kay supports its product sales with employee training programs and technical support designed to meet the special needs of its customers.  Kay’s customized cleaning and sanitation programs are designed to reduce labor costs and product usage while increasing sanitation levels, cleaning performance, equipment life and safety levels.

Kay employs a direct field sales force which primarily calls upon national and regional quick-service restaurants and franchisees, although the sales are made to distributors who supply the chain or franchisee’s units.

We believe that our Kay Division is the leading supplier of chemical cleaning and sanitizing products to the traditional quick-service restaurant industry in the United States.  While Kay’s customer base has been growing, Kay’s business is largely dependent upon a limited number of major quick-service restaurant chains and franchisees.  Kay continues to seek growth and diversification opportunities.

In addition, through Kay’s Food Retail business, the Division supplies cleaning and sanitizing products to the food retail (i.e., grocery store) industry.  Food Retail products are sold primarily through distributors and include specialty and general purpose hard surface cleaners, degreasers, sanitizers, polishes, hand care products, assorted cleaning tools and floor care products. We provide the same customer support to accounts supplied by distributors as to direct customers.

Food & Beverage:  Our Food & Beverage Division addresses cleaning and sanitation at the beginning of the food chain to facilitate the production of products for human consumption.  The Division provides detergents, cleaners, sanitizers, lubricants and animal health products, as well as cleaning systems, electronic dispensers and chemical injectors for the application of chemical products, primarily to dairy plants, dairy farms, breweries, soft-drink bottling plants, and meat, poultry and other food processors.  The Food & Beverage Division is also a leading developer and marketer of antimicrobial products used in direct contact with meat, poultry, seafood and produce during processing in order to reduce microbial contamination on those surfaces.  The Division also designs, engineers and installs CIP (“clean-in-place”) process control systems and facility cleaning systems for its customer base.   Farm products are sold through dealers and independent, third-party distributors, while plant products are sold primarily by our field sales personnel.

We believe that we are one of the leading suppliers of cleaning and sanitizing products to the dairy plant, dairy farm, food, meat and poultry, and beverage/brewery processor industries in the United States.

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Textile Care: Our Textile Care Division provides chemical laundry products and proprietary dispensing systems, as well as related programs, to large industrial and commercial laundries.  Typically these customers process a minimum of 1,000,000 pounds of linen each year and include free-standing laundry plants used by institutions such as hotels, restaurants and healthcare facilities as well as industrial and textile rental laundries.  Products and programs include laundry cleaning and specialty products, related dispensing equipment, plus water and energy management which are marketed primarily through a Company-employed sales force and, to a lesser extent, through independent, third-party distributors. The Division’s programs are designed to meet our customer’s need for exceptional cleaning, while extending the useful life of linen and reducing the customer’s overall operating cost.

Healthcare:  Our Healthcare Division provides infection prevention and healthcare offerings to hospital, acute care and long-term care markets in the United States.  Healthcare’s proprietary infection prevention/healthcare products (skin care, disinfectants and instrument cleaners) are sold primarily under the “Ecolab”, “Huntington” and “Microtek” brand names.

Vehicle Care:  Our Vehicle Care Division provides vehicle appearance products which include soaps, polishes, sealants, wheel and tire treatments and air fresheners. Products are sold to vehicle rental, fleet and consumer car wash and detail operations.  Brand names utilized by the Vehicle Care Division include Blue Coral^Ò, Black Magic^Ò and Rain-X^Ò.

Water Care Services:  Water Care Services provides water and wastewater treatment products, services and systems for commercial/institutional customers (full service hotels, cruise ships, hospitals, healthcare, commercial real estate, government, and commercial laundries), food and beverage customers (dairies, meat, poultry, food processing and beverage) and other light industry. Water Care Services works closely with our Institutional, Textile Care and Food & Beverage Divisions to offer customized water care strategies to their accounts that have water care needs, primarily to treat water used in heating and cooling systems and manufacturing processes and to treat wastewater.

United States Other Services Segment

The “United States Other Services” segment is comprised of two business units:  Pest Elimination and GCS Service.  In general, these businesses provide service or equipment which can augment or extend our product offering to our business customers as a part of our “Circle the Customer” approach.

Pest Elimination:  Our Pest Elimination Division provides services for the detection, elimination and prevention of pests to restaurants, food and beverage processors, educational and healthcare facilities, hotels, quick-service restaurant and grocery operations and other institutional and commercial customers.  These services are sold and performed by Company-employed sales and service personnel.  In addition, through our EcoSure Food Safety Management business, we provide customized on-site evaluations, training and quality assurance services to foodservice operations.

GCS Service:  GCS Service provides commercial cooking and refrigeration equipment repair and maintenance services for restaurant and other foodservice operations.  Repair services are offered for in-warranty repair, acting as the Manufacturer’s Authorized Service Agent, as well as after warranty repair.  In addition, GCS Service operates as a parts distributor to repair service companies and end users.

International Segment

We conduct business in approximately 70 countries outside of the United States through wholly-owned subsidiaries or, in the case of Israel and Venezuela, through joint ventures with local partners.  In other countries, selected products are sold by our export operations to distributors, agents or licensees, although the volume of those sales is not significant in terms of our overall revenues.  Our largest International operations are located in Europe, Asia Pacific, Latin America

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and Canada, with smaller operations in Africa and the Middle East.

In general, the businesses conducted internationally are similar to those conducted in the United States but are managed on a geographic basis.  The businesses which are similar to the United States’ Institutional and Food & Beverage businesses are the largest businesses in our International operations.  They are conducted in virtually all our International locations and, compared to the United States, constitute a larger portion of the overall business.  Kay also has sales in a number of International locations.  A significant portion of Kay’s international sales are to international units of United States-based quick-service restaurant chains. Consequently, a substantial portion of Kay’s international sales are made either to domestic or internationally-located third-party distributors who serve these chains.

Our Pest Elimination business continues to expand its geographic coverage.  Since 2001, we have entered markets in Asia, Western Europe and Latin America, with the largest operations in France and the United Kingdom.

Our other businesses are conducted less extensively in our International locations.  However, in general, most of the principal businesses conducted in the United States are operated in Canada.

International businesses are subject to the usual risks of foreign operations, including possible changes in trade and foreign investment laws, tax laws, currency exchange rates and economic and political conditions abroad.  The profitability of our International operations has historically been lower than the profitability of our businesses in the United States.  This has been due to the smaller scale of the International operations as well as the additional cost of operating in numerous and diverse foreign jurisdictions.

Additional Information

Competition:  Our business units have two significant classes of competitors.  First, each business unit competes with a small number of large companies selling directly or through distributors on a national or international scale.  Second, all of our business units have numerous smaller regional or local competitors which focus on more limited geographies, product lines and/or end-user segments.

Our objective is to achieve a significant presence in each of our business markets.  In general, competition is based on customer support, product performance and price.  We believe we compete principally by providing superior value, premium customer support and differentiated products to help our customer protect its brand reputation.  Value is provided by state-of-the-art cleaning, sanitation and maintenance products and systems coupled with high customer support standards and continuing dedication to customer satisfaction.  This is made possible, in part, by our significant on-going investment in training and technology and by our standard practice of advising customers on means to lower operating costs and helping them comply with safety, environmental and sanitation regulations. In addition, we emphasize our ability to uniformly provide a variety of related premium cleaning and sanitation programs to our customers and to provide that level of customer support to multiple locations of chain customer organizations worldwide.  This approach is succinctly stated in our “Circle the Customer - Circle the Globe” strategy which is discussed above in this Item 1(c) under the heading “General.”

Sales: Products, systems and services are primarily marketed in domestic and international markets by Company-trained sales personnel who also advise and assist our customers in the proper and efficient use of the products and systems in order to meet a full range of cleaning and sanitation needs.  Independent, third-party distributors are utilized in several markets, as described in the business unit descriptions found under the discussion of the three reportable segments above.

Number of Employees:  We have approximately 26,050 employees.

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Customers and Classes of Products:  We believe that our business is not materially dependent upon a single customer although, as described above in this Item 1(c) under the description of the Kay business, Kay is largely dependent upon a limited number of national and international quick-service chains and franchisees.  Additionally, although we have a diverse customer base and no customer or distributor constitutes 10 percent or more of our consolidated revenues, we do have customers and independent, third-party distributors, the loss of which could have a material negative effect on results of operations for the affected earnings periods; however, we consider it unlikely that such an event would have a material adverse impact on our financial position.  No material part of our business is subject to renegotiation or termination at the election of a governmental unit.  We sell two classes of products which each constitute 10 percent or more of our sales.  Sales of warewashing products in 2007, 2006 and 2005 approximated 22, 21 and 21 percent, respectively, of our consolidated net sales. In addition, through our Institutional and Textile Care businesses, we sell laundry products and provide customer support to a broad range of laundry customers.  Sales of laundry products and services in 2007, 2006 and 2005 approximated 10, 10 and 11 percent, respectively, of our consolidated net sales.

Patents and Trademarks:  We own and license a number of patents, trademarks and other intellectual property, including through a license agreement with Henkel KGaA.  While we have an active program to protect our intellectual property by filing for patents or trademarks, and pursuing legal action, when appropriate, to prevent infringement, we do not believe that our overall business is materially dependent on any individual patent or trademark.

Seasonality:  Overall our business does not have a significant degree of seasonality.  However, we do experience variability in our quarterly operating results due to sales volume and business mix fluctuations in our operating segments.  Note 17, entitled “Quarterly Financial Data” located on page 47 of the Annual Report, is incorporated herein by reference.

Working Capital:  We have invested in the past, and will continue to invest in the future, in merchandising equipment consisting primarily of systems used by customers to dispense our cleaning and sanitizing products.  Otherwise, we have no unusual working capital requirements.

Manufacturing and Distribution:  We manufacture most of our products and related equipment in Company-owned manufacturing facilities.  Some products are also produced for us by third-party contract manufacturers, including Henkel KGaA.  Other products and equipment are purchased from third-party suppliers.  Additional information on product/equipment sourcing is found in the segment discussions above and additional information on our manufacturing facilities is located beginning at page 16 of this Form 10-K under the heading “Properties.”

Deliveries to customers are made from our manufacturing plants and a network of distribution centers and public warehouses.  We use common carriers, our own delivery vehicles, and distributors.  Additional information on our plant and distribution facilities is located beginning at page16 of this Form 10-K under the heading “Properties.”

Raw Materials:  Raw materials purchased for use in manufacturing our products are inorganic chemicals, including alkalis, acids, phosphates, silicates and salts, and organic chemicals, including surfactants and solvents. These materials are generally purchased on an annual contract basis from a diverse group of chemical manufacturers.  When practical, global sourcing is used so that purchasing or production locations can be shifted to control product costs at globally competitive levels. Pesticides used by our Pest Elimination Division are purchased as finished products under contract or purchase order from the producers or their distributors.  We also purchase packaging materials for our manufactured products and components for our specialized cleaning equipment and systems.  Most raw materials, or substitutes for those materials, used by us, with the exception of a few specialized chemicals which we manufacture, are available from several suppliers.

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Research and Development:  Our research and development program consists principally of devising and testing new products, processes, techniques and equipment, improving the efficiency of existing ones, improving service program content, and evaluating the environmental compatibility of products.  Key disciplines include analytical and formulation chemistry, microbiology, process and packaging engineering and product dispensing technology.  Substantially all of our principal products have been developed by our research, development and engineering personnel.  At times, technology has also been licensed from third parties to develop offerings.  Note 13, entitled “Research Expenditures” located on page 41 of the Annual Report, is incorporated herein by reference.

Environmental and Regulatory Considerations:  Our businesses are subject to various legislative enactments and regulations relating to the protection of the environment and public health. While we cooperate with governmental authorities and take commercially practicable measures to meet regulatory requirements and avoid or limit environmental effects, some risks are inherent in our businesses. Among the risks are costs associated with transporting and managing hazardous substances, waste disposal and plant site clean-up, fines and penalties if we are found to be in violation of law, as well as modifications, disruptions or discontinuation of certain operations or types of operations including product recalls and reformulations. Additionally, although we are not currently aware of any such circumstances, there can be no assurance that future legislation or enforcement policies will not have a material adverse effect on our consolidated results of operations, financial position or cash flows. Environmental and regulatory matters most significant to us are discussed below.

Ingredient Legislation:  Various laws and regulations have been enacted by state, local and foreign jurisdictions pertaining to the sale of products which contain phosphorous, volatile organic compounds, or other ingredients that may impact human health or the environment. Under California Proposition 65, label disclosures are required for certain products containing chemicals listed by California. “Green” chemistry initiatives that promote pollution prevention through research and development of safer chemicals and safer chemical processes are being advanced by certain states, including California, Maine, Massachusetts and Vermont. To date, we generally have been able to comply with such legislative requirements by reformulation or labeling modifications. Such legislation has not had a material negative effect on our consolidated results of operations, financial position or cash flows to date.

Pesticide Legislation:  Various international, federal and state environmental laws and regulations govern the manufacture and/or use of pesticides. We manufacture and sell certain disinfecting and sanitizing products which kill or reduce microorganisms (bacteria, viruses, fungi) on hard environmental surfaces and on certain food products. Such products constitute “pesticides” or “antimicrobial pesticides” under the current definitions of the Federal Insecticide Fungicide and Rodenticide Act (“FIFRA”), as amended by the Food Quality Protection Act of 1996, the principal federal statute governing the manufacture, labeling, handling and use of pesticides. We maintain approximately 350 product registrations with the U.S. Environmental Protection Agency (“EPA”). Registration entails the necessity to meet certain efficacy, toxicity and labeling requirements and to pay on-going registration fees. In addition, each state in which these products are sold requires registration and payment of a fee. In general, the states impose no substantive requirements different from those required by FIFRA. However, California and certain other states have adopted additional regulatory programs, and California imposes a tax on total pesticide sales in that State. While the cost of complying with rules as to pesticides has not had a material adverse effect on our consolidated results of operations, financial condition, or cash flows to date, the costs and delays in receiving necessary approvals for these products continue to increase. Total fees paid to the EPA and the states to obtain or maintain pesticide registrations, and for the California tax, were approximately $2,800,000 in 2007 and $3,400,000 in 2006. In Europe, the Biocidal Product Directive (98/8/EC) (“BPD”) established a program to evaluate and authorize marketing of biocidal active substances and products. We are working with suppliers and industry

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groups to manage requirements associated with the BPD, and have met the first relevant deadline of the program by the timely submission of dossiers for active substances. Anticipated registration costs are not expected to significantly affect our consolidated results of operations, financial position or cash flows.

In addition, our Pest Elimination Division applies restricted-use pesticides which it generally purchases from third parties. That Division must comply with certain standards pertaining to the use of such pesticides and to the licensing of employees who apply such pesticides. Such regulations are enforced primarily by the states or local jurisdictions in conformity with federal regulations. We have not experienced material difficulties in complying with these requirements.

FDA Antimicrobial Product Requirements:  Various laws and regulations have been enacted by federal, state, local and foreign jurisdictions regulating certain products manufactured and sold by us for controlling microbial growth on humans, animals, foods and medical devices. In the United States, these requirements generally are administered by the U.S. Food and Drug Administration (“FDA”). However, the U.S. Department of Agriculture and EPA also may share in regulatory jurisdiction of antimicrobials applied to food. The FDA also has been expanding requirements applicable to such products, including proposing regulations in a Tentative Final Monograph for Healthcare Antiseptic Drug Products dated June 17, 1994, which may impose additional requirements associated with antimicrobial hand care products and associated costs when finalized by the FDA. To date, such requirements have not had a material adverse effect on our consolidated results of operations, financial position or cash flows.

Europe:  The European Union is developing a new regulatory framework for the Registration, Evaluation and Authorization of Chemicals (REACH). The European Parliament and Council adopted the REACH regulation in December 2006, which became effective in June 2007. It established a new European Chemicals Agency in Helsinki, Finland, which is responsible for evaluating data to determine hazards and risks and to manage this program for authorizing chemicals for sale and distribution in Europe. All “new” and “existing” chemicals produced or imported into the European Union in quantities above one ton per year must be registered in a central database. For chemicals deemed to be of most concern, industry must gain specific authorization for particular uses which have been demonstrated to be safe. Other uses would be prohibited. To manage this new program, we are simplifying our product line and working with chemical suppliers to comply with registration requirements. The eventual impact of REACH will also be felt by our competitors. Potential costs to us are not yet fully quantifiable, but are not expected to significantly affect our consolidated results of operations, financial position or cash flows.

In 2003, the United Nations issued a standard on hazard communication and labeling of chemical products known as the Globally Harmonized System of Classification and Labeling of Chemicals (“GHS”). GHS is designed to facilitate international trade and increase safe handling and use of hazardous chemicals through a worldwide, uniform system that classifies chemicals based on their intrinsic hazards and communicates information about those hazards through standardized safety labeling and safety warnings. Individual countries and regional organizations either have begun to implement GHS or are considering what portions of it will be adopted and within what timeframe. Most countries in which we operate will adopt GHS-related legislation. The primary cost of compliance will revolve around labeling, and we are working toward a phased-in approach to mitigate risks of GHS implementation. Potential costs to us are not yet fully quantifiable but are not expected to have a material adverse effect on our consolidated results of operations, financial position or cash flows.

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Other Environmental Legislation:  Our manufacturing plants are subject to federal, state, local or foreign jurisdiction laws and regulations relating to discharge of hazardous substances into the environment and to the transportation, handling and disposal of such substances. The primary federal statutes that apply to our activities are the Clean Air Act, the Clean Water Act and the Resource Conservation and Recovery Act. We are also subject to the Superfund Amendments and Reauthorization Act of 1986, which imposes certain reporting requirements as to emissions of hazardous substances into the air, land and water. We make capital investments and expenditures to comply with environmental laws and regulations, to ensure employee safety and to carry out our announced environmental sustainability principles. To date, such expenditures have not had a significant adverse effect on our consolidated results of operations, financial position or cash flows. Our capital expenditures for environmental health and safety projects worldwide were approximately $8,100,000 in 2007 and $6,400,000 in 2006. Approximately $7,800,000 has been budgeted globally for projects in 2008.

Climate Change:  Various laws and regulations pertaining to climate change have been implemented or are being considered for implementation at the international, national, regional and state levels, particularly as they relate to the reduction of greenhouse gas (GHG) emissions. None of these laws and regulations directly applies to Ecolab at the present time, however, as a matter of corporate policy, Ecolab supports a balanced approach to reducing GHG emissions while sustaining economic growth and competitiveness. Ecolab has joined U.S. EPA’s Climate Leaders program, and as part of that program we have pledged to develop a corporate-wide U.S. GHG emission inventory and work with EPA to set a GHG reduction goal in 2008.

Environmental Remediation and Proceedings:  Along with numerous other potentially responsible parties (“PRPs”), we are currently involved with waste disposal site clean-up activities imposed by the federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) or state equivalents at 19 sites in the United States. Additionally, we have similar liability at nine sites outside the United States. In general, under CERCLA, we and each other PRP that actually contributes hazardous substances to a Superfund site are jointly and severally liable for the costs associated with cleaning up the site. Customarily, the PRPs will work with the EPA to agree and implement a plan for site remediation. Pursuant to an Environmental Agreement dated December 7, 2000 with Henkel KGaA, Henkel agreed to indemnify us for certain environmental liabilities associated with the parties’ former joint venture in Europe. We received euro 626,763 (approximately $917,000) from Henkel in 2007 for such environmental liabilities and we recently requested an additional euro 203,890 (approximately $300,000 at December 31, 2007) for new environmental costs.

Based on an analysis of our experience with such environmental proceedings, our estimated share of all hazardous materials deposited on the sites referred to in the preceding paragraph, and our estimate of the contribution to be made by other PRPs which we believe have the financial ability to pay their shares, we have accrued our best estimate of our probable future costs relating to such known sites. Unasserted claims are not reflected in the accrual. In establishing accruals, potential insurance reimbursements are not included. The accrual is not discounted. It is not feasible to predict when the amounts accrued will be paid due to the uncertainties inherent in the environmental remediation and associated regulatory processes.

10

Our worldwide net expenditures for contamination remediation were approximately $1,060,000 in 2007 and $950,000 in 2006. Including the ChemLawn matters described below, our worldwide accruals at December 31, 2007 for probable future remediation expenditures totaled approximately $3,990,000. We review our exposure for contamination remediation costs periodically and our accruals are adjusted as considered appropriate. While the final resolution of these issues could result in costs below or above current accruals and, therefore, have an impact on our consolidated financial results in a future reporting period, we believe the ultimate resolution of these matters will not have a material effect on our consolidated results of operations, financial condition or liquidity. In addition, we have retained responsibility for certain sites where our former ChemLawn business is a PRP. Currently there are five such locations and, at each, ChemLawn is a de minimis party. Anticipated costs currently accrued for these matters were included in our loss from our discontinued ChemLawn operations in 1991. The accrual remaining reflects our best estimate of probable future costs.

Item 1(d) Financial Information About Geographic Areas.

The financial information about geographic areas appearing under the heading “Operating Segments” in Note 16, located on pages 45 and 46 of the Annual Report, is incorporated herein by reference.

Item 1(e) Available Information.

Our Internet address is www.ecolab.com. Copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports, are available free of charge on our website at www.ecolab.com/investor as soon as reasonably practicable after such material is filed with, or furnished to, the Securities and Exchange Commission.

In addition, the following governance materials are available on our website at www.ecolab.com/investor/governance and the same information is available in print to any requesting persons, free of charge, by writing to the Corporate Secretary at our headquarters address, or by submitting an e-mail request to investor.info@ecolab.com:  (i)  charters of the Audit, Compensation, Finance and Governance Committees of our Board of Directors; (ii) our Board’s Corporate Governance Principles; and (iii) our Code of Conduct and Code of Ethics for Senior Officers and Finance Associates.

Executive Officers of the Company

The persons listed in the following table are our current executive officers. Officers are elected annually. There is no family relationship among any of the directors or executive officers, and no executive officer has been involved during the past five years in any legal proceedings described in applicable Securities and Exchange Commission regulations.

11

Name	Age	Office	Positions Held Since Jan. 1, 2003
Douglas M. Baker, Jr.	49	Chairman of the Board, President and Chief Executive Officer	May 2006 – Present
		President and Chief Executive Officer	Jul. 2004 – Apr. 2006
		President and Chief Operating Officer	Jan. 2003 – Jun. 2004
Lawrence T. Bell	59	General Counsel and Secretary	Feb. 2008 – Present
		Senior Vice President, General Counsel and Secretary	Jan. 2003 – Jan. 2008
Steven L. Fritze	53	Chief Financial Officer	Feb. 2008 – Present
		Executive Vice President and Chief Financial Officer	Feb. 2004 – Jan. 2008
		Senior Vice President and Chief Financial Officer	Jan. 2003 – Jan. 2004
Robert K. Gifford	50	Senior Vice President – Global Supply Chain	Oct. 2005 – Present
		Vice President – Supply Chain Management	Sep. 2004 – Sep. 2005 (1)
Thomas W. Handley	53	President – Industrial and Services North America Sector	Dec. 2007 – Present
		Executive Vice President – Industrial Sector	Apr. 2006 – Nov. 2007
		Executive Vice President – Specialty Sector	Jan. 2004 – Mar. 2006
		Senior Vice President – Strategic Planning	Aug. 2003 – Dec. 2003 (2)
Michael A. Hickey	46	Senior Vice President – Global Business Development	Jan. 2006 – Present
		Senior Vice President – Global / Corporate Accounts	Nov. 2005 – Dec. 2005
		Vice President – Global/Corporate Accounts, Institutional Division	Jan. 2003 – Oct. 2005
Phillip J. Mason	57	President – International Sector	Dec. 2007 – Present

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Name	Age	Office	Positions Held Since Jan. 1, 2003
Phillip J. Mason (con’t.)		Executive Vice President – Asia Pacific and Latin America	Dec. 2004 – Nov. 2007
		Senior Vice President – Strategic Business Development	May 2004 – Nov. 2004 (3)
Michael L. Meyer	50	Senior Vice President-Human Resources	Feb. 2008 – Present (4)
James A. Miller	51	President – Institutional North America Sector	Dec. 2007 – Present
		Executive Vice President – Institutional Sector North America	Jan. 2004 – Nov. 2007
		Vice President and General Manager – Institutional	Jan. 2003 – Dec. 2003
Susan K. Nestegard	47	Senior Vice President – Research, Development and Engineering and Chief Technical Officer	Dec. 2004 – Present
		Vice President – Research, Development and Engineering and Chief Technical Officer	Mar. 2003 – Nov. 2004 (5)
Daniel J. Schmechel	48	Senior Vice President and Controller	Dec. 2005 – Present
		Vice President and Controller	Jan. 2003 – Nov. 2005
Robert P. Tabb	57	Vice President and Chief Information Officer	Sep. 2003 – Present (6)
James H. White	43	President-EMEA Sector	Dec. 2007 – Present
		Executive Vice President – EMEA	Apr. 2007 – Nov. 2007
		Senior Vice President – Strategy and Marketing Development	May 2006 – Mar. 2007
		Senior Vice President – Strategic Planning	Oct. 2005 – Apr. 2006 (7)

(1)  Prior to joining Ecolab in 2004, Mr. Gifford served as Vice President, World Logistics and Program Manager of Hewlett Packard Corporation for three years. Prior to Hewlett Packard, Mr. Gifford was employed by Compaq and Tandem.

(2)  Prior to joining Ecolab in 2003, Mr. Handley was employed by the Procter & Gamble Company for 22 years in various management, marketing and executive positions including assignments in Japan and Mexico. Mr. Handley’s last position at P&G was Vice President - Feminine Care Strategic Planning.

(3)  Mr. Mason re-joined Ecolab in 2004, where he formerly served 23 years in various management and executive positions, most recently as Vice President – Asia Pacific. Prior to re-joining Ecolab, Mr. Mason was employed by HAVI Group, LP, serving as President, HPR Partners from 1997-2004.

(4)  Prior to joining Ecolab in February 2008, Mr. Meyer was employed for 24 years by Abbott Laboratories, most recently as Vice President Vascular Business Latin America and Canada. Mr. Meyer’s management and executive experience includes 22 years in Human Resources and assignments in Canada and Hong Kong.

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(5)  Prior to joining Ecolab in March 2003, Ms. Nestegard was employed by 3M Company for 20 years, most recently as Business Director of Optical Components. Ms. Nestegard’s experience includes product and process development and technical management as Director Engineering Systems Technology Center and as Technical Director of the Electronic Products Division of 3M in Austin, Texas.

(6)  Prior to joining Ecolab in September 2003, Mr. Tabb held various executive positions in the systems technology industry, most recently with Focus IT Group, a consulting firm. From 2000 – 2001 Mr. Tabb served as Vice President, Global Information Technology at Nike, Inc. From 1997 – 2000 Mr. Tabb was employed by CNF Transportation, Inc. as Vice President and Chief Information Officer.

(7)  Prior to joining Ecolab in 2005, Mr. White was employed by International Multifoods, and served as President of its U.S. Consumer Products Division. Mr. White’s employment also includes marketing experience at General Mills, and nine years at the Pillsbury Company in a succession of management positions.

Item 1A. Risk Factors.

The following are important factors which could affect our financial performance and could cause our actual results for future periods to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statements made in this Form 10-K. See the section entitled Forward-Looking Statements located on page 2 of this Form 10-K.

We may also refer to this disclosure to identify factors that may cause results to differ from those expressed in other forward-looking statements made in oral presentations, including telephone conference and/or webcasts open to the public.

Except as may be required under applicable law, we undertake no duty to update our Forward-Looking Statements.

Our results depend upon the continued vitality of the markets we serve:  Economic downturns, and in particular downturns in the foodservice, hospitality, travel, health care and food processing industries, can adversely impact our end-users who are sensitive to changes in travel and dining activities. During such downturns, these end-users typically reduce their volume of purchases of cleaning, hygiene and appearance products, which would likely in turn have an adverse impact on our consolidated results of operations, financial condition, or cash flows.

Our growth depends upon our ability to successfully compete with respect to value, product offerings and customer support:  Our competitive market is made up of numerous national, regional and local competitors. Our ability to compete depends in part upon our ability to maintain a superior technological capability and to continue to identify, develop and commercialize innovative, high value-added products for niche applications. There can be no assurance that we will be able to accomplish this or that technological developments by our competitors will not place certain of our products at a competitive disadvantage in the future. In addition, certain of the new products that we have under development will be offered in markets in which we do not currently compete, and there can be no assurance that we will be able to compete successfully in those new markets. If we fail to timely introduce new technologies, we may lose market share and our consolidated results of operations, financial condition, or cash flows could be adversely affected.

We enter into multi-year contracts with customers that can impact our results:  We enter into multi-year contracts with some of our customers which include terms affecting our pricing flexibility. There can be no assurance that these restraints will not have an adverse impact on our margins and operating income.

Consolidation of our customers and vendors can affect our results:  Customers and vendors in the foodservice, hospitality and lodging industry have been consolidating in recent years and that trend may continue. This consolidation could have an adverse impact on our ability to retain customers and on our margins and operating income.

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Our results can be adversely affected by fluctuations in the cost of raw materials:  The prices of raw materials used in our business can fluctuate significantly from time to time, and have increased in recent years. Changes in oil or raw material prices, unavailability of adequate and reasonably priced raw materials or substitutes for those raw materials, or the inability to obtain or renew supply agreements on favorable terms can adversely affect our consolidated results of operations, financial position or cash flows.

If we are unsuccessful in integrating acquisitions, our business could be adversely affected: As part of our long-term strategy, we seek to acquire complementary businesses. There can be no assurance that we will find attractive acquisition candidates or succeed at effectively managing the integration of acquired businesses into existing businesses. If the expected synergies from such transactions do not materialize or we fail to successfully integrate new businesses into our existing businesses, our consolidated results of operations, financial position or cash flows could be adversely affected.

If we are unsuccessful in executing on business investments, our business could be adversely affected:  We are making investments to develop business systems and optimize our business structure as part of our ongoing efforts to improve our efficiency and returns. If the projects in which we are investing are not successfully executed, our consolidated results of operations, financial position or cash flows could be adversely affected.

Our business depends on our ability to comply with governmental regulations:  Our business is subject to numerous regulations relating to the environment and to the manufacture, storage, distribution, sale and use of our products. Compliance with these regulations, as well as changes in tax, fiscal, governmental and other regulatory policies expose us to potential financial liability and increase our operating costs. Regulation of our products and operations continues to increase with more stringent standards, causing increased costs of operations and potential for liability if a violation occurs. The potential cost to us relating to environmental and product registration laws and regulations is uncertain due to factors such as the unknown magnitude and type of possible contamination and clean-up costs, the complexity and evolving nature of laws and regulations, and the timing and expense of compliance. In addition, changes in accounting standards, including the adoption effective January 1, 2007 of FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109”, could increase the volatility of our quarterly tax rate.

Our results are impacted by general worldwide economic factors:  Economic factors such as the worldwide economy, interest rates and currency movements including, in particular, our exposure to foreign currency risk have affected our business in the past and may have a material adverse impact on our consolidated results of operations, financial condition, or cash flows in the future.

Extraordinary events may significantly impact our business:  The occurrence of (a) litigation or claims, (b) the loss or insolvency of a major customer or distributor, (c) war (including acts of terrorism or hostilities which impact our markets), (d) natural or manmade disasters, or (e) severe weather conditions or public health epidemics affecting the foodservice, hospitality and travel industries may have a significant, adverse impact on our business.

Defense of litigation, particularly certain types of actions such as antitrust, patent infringement, wage hour and class action lawsuits, can be costly and time consuming even if ultimately successful, and if not successful could have a material adverse impact on our consolidated results of operations, financial position or cash flows.

15

While we have a diverse customer base and no customer or distributor constitutes 10 percent or more of our consolidated revenues, we do have customers and independent, third-party distributors, the loss of which could have a material negative effect on our consolidated results of operations for the affected earnings periods; however, we consider it unlikely that such an event would have a material adverse impact on our financial position.

War (including acts of terrorism or hostilities), natural or manmade disasters or severe weather conditions or public health epidemics affecting the foodservice, hospitality and travel industries cause a downturn in the business of restaurants, motels and hotels and other of our customers, which in turn can have a material adverse impact on our business, financial condition, results of operations and cash flows.

We depend on key personnel to lead our business:  Our continued success will largely depend on our ability to attract and retain a high caliber of talent and on the efforts and abilities of our executive officers and certain other key employees. Our operations could be adversely affected if for any reason such officers or key employees did not remain with us.

Item 1B. Unresolved Staff Comments.

We have no unresolved comments from the staff of the Securities and Exchange Commission.

Item 2.  Properties.

Our manufacturing philosophy is to manufacture products wherever an economic, process or quality assurance advantage exists or where proprietary manufacturing techniques dictate internal production processes. Currently, most products sold by us are manufactured at our facilities.

Our manufacturing facilities produce chemical products or equipment for all of our businesses, although the businesses constituting the United States Other Services segment purchase the majority of their products and equipment from outside suppliers. Our chemical production process consists primarily of blending and packaging powders and liquids and casting solids. Our equipment manufacturing operations consist primarily of producing chemical product dispensers and injectors and other mechanical equipment and dishwasher racks and related sundries.

The following chart profiles our main manufacturing facilities with ongoing production activities. In general, manufacturing facilities located in the United States serve the “United States Cleaning & Sanitizing” segment and facilities located outside of the United States serve the “International” segment. However, certain of the United States facilities do manufacture products for export and which are used by the International segment. The facilities having export involvement are marked with an asterisk (*).

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ECOLAB OPERATIONS PLANT PROFILES

Location	Size (Sq. Ft.)	Types of Products	Majority Owned or Leased
UNITED STATES
Joliet, IL*	610,000	Solids, Liquids, Powders	Owned
South Beloit, IL*	313,000	Equipment	Owned
Garland, TX*	239,000	Solids, Liquids	Owned
Martinsburg, WV	228,000	Liquids	Owned
Hebron, OH	196,000	Liquids	Owned
Greensboro, NC	193,000	Liquids, Powders	Owned
San Jose, CA	175,000	Liquids	Owned
McDonough, GA*	141,000	Solids, Liquids	Owned
Eagan, MN*	133,000	Solids, Liquids, Emulsions, Powders	Owned
Huntington, IN*	127,000	Liquids	Owned
City of Industry, CA	125,000	Liquids	Owned
Elk Grove Village, IL*	115,000	Equipment	Leased
Fort Worth, TX	101,000	Equipment	Leased
Jacksonville, FL*	88,000	Medical Devices	Leased
Carrollton, TX	70,000	Liquids	Owned
Tyler, TX*	63,000	Medical Devices	Leased
Columbus, MS	49,000	Medical Devices	Owned
St. Louis, MO	37,000	Equipment	Leased
INTERNATIONAL
Chalons, FRANCE	280,000	Liquids, Powders	Owned
Nieuwegein, NETHERLANDS	168,000	Powders	Owned
La Romana, DOMINICAN REPUBLIC	160,000	Medical Devices	Leased
Tessenderlo, BELGIUM	153,000	Solids, Liquids	Owned
Melbourne, AUSTRALIA	145,300	Liquids, Powders	Owned
Rozzano, ITALY	126,000	Liquids	Owned
Mississauga, CANADA	120,400	Liquids	Leased
Johannesburg, SOUTH AFRICA	100,000	Liquids, Powders	Owned
Hamilton, NEW ZEALAND	96,000	Solids, Liquids, Powders	Owned
Mullingar, IRELAND	74,300	Liquids	Leased
Mosta, MALTA	73,000	Medical Devices	Leased
Valby, DENMARK	70,000	Liquids	Owned
Sao Paulo, BRAZIL	62,325	Solids, Liquids	Leased
Shika, JAPAN	60,000	Liquids	Owned
Santiago, CHILE	60,000	Liquids, Powders	Leased
Revesby, AUSTRALIA	59,200	Liquids, Powders	Owned
Cheadle (Hulme), UNITED KINGDOM	52,575	Liquids	Leased

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Location	Size (Sq. Ft.)	Types of Products	Majority Owned or Leased
Guangzhou, CHINA	50,230	Liquids, Powders	Leased
Noda, JAPAN	49,000	Solids, Liquids, Powders	Owned
Siegsdorf, GERMANY	42,000	Equipment	Owned
Zutphen, NETHERLANDS	41,000	Medical Devices	Leased
Mexico City, MEXICO	40,000	Liquids, Powders	Owned
Maribor, SLOVENIA	39,000	Liquids, Powders	Owned
Leeds, UNITED KINGDOM	35,000	Liquids	Owned
Pilar, ARGENTINA	30,000	Liquids, Powders	Owned
Shanghai, CHINA	27,000	Solids, Liquids, Powders	Owned
Perth, AUSTRALIA	26,900	Liquids, Powders	Owned
Dorado, PUERTO RICO	25,000	Liquids, Powders	Leased
Singapore, SINGAPORE	25,000	Liquids, Powders	Owned
Dar es Salaam, TANZANIA	22,900	Liquids, Powders	Leased
Seoul, SOUTH KOREA	22,160	Liquids, Powders	Owned
Racibor, POLAND	20,000	Liquids	Leased
Toulon, FRANCE	20,000	Medical Devices	Leased
Mandras, GREECE	18,000	Liquids	Owned
Varssesveld, NETHERLANDS	17,000	Medical Devices	Leased
San Jose, COSTA RICA	11,000	Liquids, Powders	Owned
Bogota, COLOMBIA	11,000	Liquids	Leased
Cikarang, INDONESIA	10,000	Solids, Liquids, Powders	Owned
Bangkok, THAILAND	10,000	Liquids, Powders	Owned
Manilla, PHILIPPINES	7,600	Liquids, Powders	Owned

We believe our manufacturing facilities are in good condition and are adequate to meet our existing production needs. A new manufacturing facility in Wales, U.K. is nearing completion.

Most of our manufacturing plants also serve as distribution centers.  In addition, we operate distribution centers around the world, all of which are leased, and utilize various public warehouses to facilitate the distribution of our products and services.  In the United States, our sales and service associates are located in approximately 90 leased offices. Additional sales offices are located internationally.

Our corporate headquarters is comprised of three adjacent multi-storied buildings located in downtown St. Paul, Minnesota.  The main 19-story building was constructed to our specifications and is leased through 2013. Thereafter, it is subject to multiple renewals at our option.  The second building is leased through 2011 with additional options available.  The third building is owned.  The corporate headquarters includes an employee training center.  In April 2004, we purchased a 90 acre campus in Eagan, Minnesota to provide for future growth.  The acquired facility houses the research and development and data center requirements as well as several of our administrative functions.  Renovations of the buildings on this property, comprising approximately 500,000 square feet, have been completed and more than 900 associates now work at this site.

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Item 3.  Legal Proceedings.

Note 14, entitled “Commitments and Contingencies” located on page 41 of the Annual Report, is incorporated herein by reference.

Other matters arising under laws relating to protection of the environment are discussed at Item 1(c) above, under the heading “Environmental and Regulatory Considerations.”

Item 4.  Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of our security holders during the fourth quarter of 2007.

PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information:  Our Common Stock is listed on the New York Stock Exchange under the symbol “ECL.”  The Common Stock is also traded on an unlisted basis on certain other United States exchanges.  The high and low sales prices of our Common Stock on the consolidated transaction reporting system during 2007 and 2006 were as follows:

	2007				2006
Quarter	High		Low		High		Low
First	$	45.37	$	37.01	$	40.50	$	33.64
Second	$	44.79	$	41.12	$	41.20	$	37.00
Third	$	47.59	$	39.01	$	45.44	$	39.57
Fourth	$	52.78	$	44.82	$	46.40	$	42.17

The closing Common Stock price on January 31, 2008 was $48.14.

Holders:  On January 31, 2008, we had 5,167 holders of Common Stock of record.

Dividends:  We have paid Common Stock dividends for 71 consecutive years.  Quarterly cash dividends of $0.10 per share were declared in February, May and August 2006.  Cash dividends of $0.115 per share were declared in December 2006, and February, May and August 2007. A dividend of $0.13 per share was declared in December 2007.

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Issuer Purchases of Equity Securities:

Period	(a) Total number of shares purchased (1)	(b) Average price paid per share (2)		(c) Number of shares purchased as part of publicly announced plans or programs(3)	(d) Maximum number of shares that may yet be purchased under the plans or programs(3)
October 1-31, 2007	9,209	$	46.8075	0	4,711,600
November 1-30, 2007	12,318	$	46.5698	0	4,711,600
December 1-31, 2007	114,547	$	51.3961	0	4,711,600
Total	136,074	$	50.6487	0	4,711,600

(1)Represents 136,074 shares reacquired from employees and/or directors as swaps for the cost of stock options, or shares surrendered to satisfy minimum statutory tax obligations under our stock incentive plans.

(2)The average price paid per share includes brokerage commissions associated with publicly announced plan purchases plus the value of such other reacquired shares.

(3)As announced on October 26, 2006, our Board of Directors authorized the repurchase of up to 10,000,000 shares of Common Stock, including shares to be repurchased under Rule 10b5-1.  We intend to repurchase all shares under this authorization, for which no expiration date has been established, in open market or privately negotiated transactions, subject to market conditions.

Item 6.  Selected Financial Data.

The comparative data for the years ended December 31, 2007, 2006, 2005, 2004 and 2003 inclusive, which are set forth under the heading entitled “Summary Operating and Financial Data” located on pages 50 and 51 of the Annual Report, are incorporated herein by reference.

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operation.

The material appearing under the heading entitled “Financial Discussion,” located on pages 19 through 27 of the Annual Report, is incorporated herein by reference.

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk.

The material appearing under the heading entitled “Market Risk,” located on page 27 of the Annual Report, is incorporated herein by reference.

Item 8.  Financial Statements and Supplementary Data.

The financial statements and material which are an integral part of the financial statements listed under Item 15(a)(1) below and located on pages 28 through 51 of the Annual Report, are incorporated herein by reference.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

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Item 9A. Controls and Procedures.

Disclosure Controls and Procedures:  As of December 31, 2007, we carried out an evaluation, under the supervision and with the participation of our management, including the Chairman of the Board, President and Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 as amended). Based upon that evaluation, our Chairman of the Board, President and Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective.

Internal Control Over Financial Reporting: Our management is responsible for establishing and maintaining adequate internal control over financial reporting.  Under the supervision and with the participation of our management, including our Chairman of the Board,  President and Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on our evaluation under this framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2007.

The Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, has audited the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007. Their report, and our management reports, can be found in our Annual Report, the relevant portion of which has been filed as Exhibit (13) to this Form 10-K and is incorporated into Item 8 of this Form 10-K.

During the period October 1 - December 31, 2007, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.  Other Information.

The following disclosures would otherwise be filed on Form 8-K under the heading “Item 5.02(e) – Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.”

In the paragraphs below describing certain of our executive compensation plans and programs, the “Named Executive Officers or NEOs” refer to our Principal Executive Officer and Principal Financial Officer during 2007 and the next three most-highly compensated executive officers who were serving in those capacities at December 31, 2007, and the “Committee” refers to the Compensation Committee of the Board of Directors.

General:  The components of the overall compensation program for the Company’s executive officers include base salary, long-term incentives in the form of annual stock option awards, cash-based annual bonus incentives, participation in deferred compensation and retirement plans, and certain perquisites.  Information regarding the compensation awarded to the NEOs in respect of and during the year ended December 31, 2007 will be provided in the definitive proxy statement for the Company’s 2008 annual meeting of stockholders, which is expected to be filed with the Securities and Exchange Commission on or around March 19, 2008.

Base Salary:  For the 2008 fiscal year, base salaries for the NEOs, other than the CEO, are scheduled to increase on an annualized basis by an average of 6.2%.  The salary of the CEO has been established at $1,000,000, representing an increase of $100,000 over 2007. The base salaries established for the 2008 fiscal year for the NEOs are included as a part of the Named Executive Officer Summary of Base Salary, Bonus Award Opportunities, and Executive Benefits and Perquisites filed as Exhibit (10)S to this Form 10-K and incorporated by reference herein.

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Establishment of 2008 Non-Equity Incentive Plan Compensation Criteria:  The Company maintains annual cash incentive programs for executives referred to as the Management Incentive Plan or MIP and Management Performance Incentive Plan or MPIP. The Company’s stockholders approved the current version of the MPIP in 2004, an annual incentive plan under which awards should qualify as performance based under Internal Revenue Code Section 162(m). On February 20, 2008, as required under the terms of the MPIP, the Committee selected the CEO and CFO and the three other NEOs to participate in the MPIP for 2008, established the 2008 performance goal based upon the performance criteria of diluted earnings per share (“EPS”), set an EPS performance target of a designated earnings per share, and a designated cash award of 300% of the base salary of each such officer for 2008 to the extent the goal is achieved. The award is subject to and interpreted in accordance with the terms and conditions of the MPIP and no amount will be paid under the MPIP unless and until the Committee has determined the extent to which the performance goal has been met and the corresponding amount of the award earned by the participant.  The MPIP permits the Committee to exercise downward discretion so as to pay an amount which is less than the amount of the award earned by the participant.  In applying this downward discretion, the Committee considers underlying operable metrics communicated to the participant, which are described as a part of the Named Executive Officer Summary of Base Salary, Bonus Award Opportunities, and Executive Benefits and Perquisites filed as Exhibit (10)S to this Form 10-K and incorporated by reference herein.  One other NEO will participate in the MIP in 2008 and the operating metrics with respect to such NEOs’ participation are similarly included as a part of Exhibit (10)S.

The following disclosures would otherwise be filed on Form 8-K under the heading “Item 5.03 - Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.”

On February 22, 2008, Ecolab’s Board of Directors approved the following amendments to the Company’s By-Laws:  (1) Article IV, Section 1 was amended to reflect that the Board may elect one or more Sector Presidents; (2) Article VII, Section 1 was amended to include the position of Sector Presidents and General Counsel among the officers entitled to sign contracts and other instruments; and (3) Article VI, Section 1 and Section 2 were amended to allow stock to be issued in book-entry form without a physical stock certificate.

PART III

Item 10.  Directors, Executive Officers of the Registrant and Corporate Governance.

Information about our directors is incorporated by reference from the discussion under the heading “Proposal to Elect Directors” located in the Proxy Statement.  Information about compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, is incorporated by reference from the discussion under the heading “Section 16(a) Beneficial Ownership Reporting Compliance” located in the Proxy Statement.  Information about our Audit Committee, including the members of the Committee, and our Audit Committee financial experts, is incorporated by reference from the discussion under the heading “Corporate Governance,” and sub-headings “Board Committees” and “Audit Committee,” located in the Proxy Statement.  Information about our Code of Conduct is incorporated by reference from the discussion under the heading “Corporate Governance Materials and Code of Conduct” located in the Proxy Statement.  Information regarding our executive officers is presented under the heading “Executive Officers of the Company” in Part I on pages 11 through 14 of this Form 10-K, and is incorporated herein by reference.

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Item 11.  Executive Compensation.

Information appearing under the headings entitled “Executive Compensation” and “Director Compensation” located in the Proxy Statement is incorporated herein by reference.  However, pursuant to Instructions to Item 407(e)(5) of Securities and Exchange Commission Regulation S-K, the material appearing under the sub-heading “Compensation Committee Report” shall not be deemed to be “filed” with the Commission, other than as provided in this Item 11.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Information appearing under the heading entitled “Security Ownership” located in the Proxy Statement is incorporated herein by reference.  The holdings of Henkel KGaA and Henkel Corporation are subject to certain limitations with respect to our voting securities as more fully described in our Proxy Statement under the heading “Stockholder Agreement,” and is incorporated herein by reference.

A total of 622,677 shares of Common Stock held by our directors and executive officers, some of whom may be deemed to be “affiliates” of the Company, have been excluded from the computation of market value of our Common Stock on the cover page of this Form 10-K.  This total represents that portion of the shares reported as beneficially owned by our directors and executive officers as of June 30, 2007, which are actually issued and outstanding.

Equity Compensation Plan Information:  The following table presents, as of December 31, 2007, compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance.

Plan Category	(a) Number of securities to be issued upon exercise of  outstanding options, warrants and rights		(b) Weighted average exercise price of outstanding options, warrants and rights			(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders	20,614,343	(1)(2)	$	33.57	(2)	9,110,758	(3)
Equity compensation plans not approved by security holders	-0-		—			-0-
Total	20,614,343	(1)(2)	$	33.57	(2)	9,110,758	(3)

(1)	Includes 125,534 Common Stock equivalents under our 2001 Non-Employee Director Stock Option and Deferred Compensation Plan. These Common Stock equivalents represent deferred compensation earned by non-employee directors and are excluded from the calculation of weighted average exercise price of outstanding options, warrants and rights in column (b) of this table.
(2)	Includes 4,392 shares of our Common Stock subject to stock options with a weighted-average exercise price of $26.97, which we assumed in connection with our acquisition of Alcide Corporation effective July 30, 2004. These assumed options are deemed exempt from shareholder approval under Rule 303A.08 of the New York Stock Exchange in accordance with our notice to the NYSE dated August 18, 2004. The respective Alcide plans were amended to prohibit future grants.
(3)	Includes 1,100,000 shares restored to reserves as part of a refueling feature of our 2002 Stock Incentive Plan. The refueling feature permits the restoration of shares repurchased on the open market using proceeds from options exercised under the Plan.

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Item 13.  Certain Relationships and Related Transactions.

Information appearing under the heading entitled “Director Independence Standards and Determinations” and “Related Person Transactions” located in the Proxy Statement as well as the biographical material pertaining to Messrs. Stefan Hamelmann, Kasper Rorsted and Hans Van Bylen, located in the Proxy Statement under the heading “Proposal to Elect Directors” are incorporated herein by reference.

Item 14.  Principal Accountant Fees and Services.

Information appearing under the heading entitled “Audit Fees” located in the Proxy Statement is incorporated herein by reference.

PART IV

Item 15.  Exhibits and Financial Statement Schedules.

(a)(1)	The following financial statements of the Company, included in the Annual Report, are incorporated into Item 8 hereof.
	(i)		Consolidated Statement of Income for the years ended December 31, 2007, 2006 and 2005, Annual Report page 28.
	(ii)		Consolidated Balance Sheet at December 31, 2007 and 2006, Annual Report page 29.
	(iii)		Consolidated Statement of Cash Flows for the years ended December 31, 2007, 2006 and 2005, Annual Report page 30.
	(iv)		Consolidated Statement of Comprehensive Income and Shareholders’ Equity for the years ended December 31, 2007, 2006 and 2005, Annual Report page 31.
	(v)		Notes to Consolidated Financial Statements, Annual Report pages 32 through 47.
	(vi)		Report of Independent Registered Public Accounting Firm, Annual Report page 49.
(b)(2)	All financial statement schedules are omitted because they are not applicable or, the required information is shown in the consolidated financial statements or the accompanying notes to the consolidated financial statements.  All significant majority-owned subsidiaries are included in the filed consolidated financial statements.
	The following documents are filed as exhibits to this Report.  We will, upon request and payment of a fee not exceeding the rate at which copies are available from the Securities and Exchange Commission, furnish copies of any of the following exhibits to stockholders.
	(3)	A.	Restated Certificate of Incorporation of Ecolab Inc., dated as of February 27, 2006, effective as of March 13, 2006 – Incorporated by reference to Exhibit (3)A of our Form 10-K Annual Report for the year ended December 31, 2005.
		B.	Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock of Ecolab Inc., dated as of February 27, 2006, effective as of March 13, 2006 – Incorporated by reference to Exhibit (3)C of our Form 10-K Annual Report for the year ended December 31, 2005.
		C.	By-Laws, as amended through February 22, 2008.
	(4)	A.	Common Stock – see Exhibits (3)A and (3)C.

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			B.	Form of Common Stock Certificate effective February 28, 2007 – Incorporated by reference to Exhibit (4)B of our Form 10-K Annual Report for the year ended December 31, 2006.
			C.	Rights Agreement, dated as of February 24, 2006, between Ecolab Inc. and Computershare Investor Services, LLC, as Rights Agent, which includes the following exhibits thereto: (i) Exhibit A – Form of Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock and (ii) Exhibit B – Form of Rights Certificate – Incorporated by reference to Exhibit (4)C of our Form 10-K Annual Report for the year ended December 31, 2005.
			D.	Second Amended and Restated Stockholder’s Agreement between Henkel KGaA and Ecolab Inc., dated November 30, 2001 – Incorporated by reference to Exhibit (4) of our Form 8-K dated November 30, 2001.
			E.	Amended and Restated Indenture, dated as of January 9, 2001, between Ecolab Inc. and The Bank of New York Trust Company, N.A. (as successor in interest to J. P. Morgan Trust Company, National Association and Bank One, NA) as Trustee – Incorporated by reference to Exhibit (4)(A) of our Current Report on Form 8-K dated January 23, 2001.
			F.	Officer’s Certificate establishing terms and conditions of 6.875% Notes due February 1, 2011 – Incorporated by reference to Exhibit 4(B) of our Form 8-K dated January 23, 2001.
			G.	Form of 6.875% Note due February 2, 2011 – Incorporated by reference to Exhibit 4(c) of our Form 8-K dated January 23, 2001.
			H.	Supplemental Indenture, dated as of February 8, 2008, between Ecolab Inc. and The Bank of New York Trust Company, N.A., as Trustee – Incorporated by reference to Exhibit 4.2 of our Current Report on Form 8-K dated February 8, 2008.
			I.	Form of 4.875% Note due February 15, 2015 – Included in Exhibit (4)H above.
		Copies of other constituent instruments defining the rights of holders of our long-term debt are not filed herewith, pursuant to Section (b)(4)(iii) of Item 601 of Regulation S-K, because the aggregate amount of securities authorized under each of such instruments is less than 10% of our total assets on a consolidated basis.  We will, upon request by the Securities and Exchange Commission, furnish to the Commission a copy of each such instrument.
(10)	A.	(i)		Multicurrency Credit Agreement, dated as of September 29, 1993, as amended and restated as of June 1, 2006, among Ecolab Inc., the financial institutions party thereto as Banks from time to time, the financial institutions party thereto as Issuing Banks from time to time, Citibank, N.A., as administrative agent for the Banks and Issuing Banks thereunder, Citibank International PLC, as agent for the Banks in connection with certain of the Eurocurrency Advances, and JPMorgan Chase Bank, N.A., as syndication agent – Incorporated by reference to Exhibit (10) of our Form 8-K dated June 1, 2006.
		(ii)		Extension Confirmation Notice, dated May 14, 2007, under the Multicurrency Credit Agreement, dated as of September 29, 1993, as amended and restated as of June 1, 2006 – Incorporated by reference to Exhibit (10) of our Form 8-K dated May 14, 2007.

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	(iii)	Increase of Commitments Agreement dated as of October 29, 2007 by and among Ecolab Inc., Citibank, N.A., JPMorgan Chase Bank, N.A., Credit Suisse, Cayman Islands Branch, National Association, Wells Fargo Bank, National Association, ABN AMRO Bank N.A., Bank of America, N.A. and Barclays Bank PLC, as increasing banks, and Citibank, N.A., as agent – Incorporated by reference to Exhibit (10) of our Form 10-Q for the quarter ended September 30, 2007.
B.	Documents comprising global Commercial Paper Programs
	(i)	U.S. $200,000,000 Euro-Commercial Paper Programme
		(a)	Amended and Restated Dealer Agreement dated 2 December 2005 between Ecolab Inc. (as Guarantor), Ecolab B.V. and Ecolab Holding GmbH (as Issuers), Ecolab Inc., Credit Suisse First Boston (Europe) Limited (as Arranger), and Citibank International plc and Credit Suisse First Boston (Europe) Limited (as Dealers) – Incorporated by reference to Exhibit (10)B(i)(a) of our Form 10-K Annual Report for the year ended December 31, 2005.
		(b)	Amended and Restated Note Agency Agreement dated as of 2 December 2005 between Ecolab Inc., Ecolab B.V. and Ecolab Holding GmbH (as Issuers) and Citibank, N.A. as Issue and Paying Agent – Incorporated by reference to Exhibit (10)B(i)(b) of our Form 10-K Annual Report for the year ended December 31, 2005.
		(c)	Deed of Covenant made on 2 December 2005 by Ecolab Inc., Ecolab B.V. and Ecolab Holding GmbH – Incorporated by reference to Exhibit (10)B(i)(c) of our Form 10-K Annual Report for the year ended December 31, 2005.
		(d)	Deed of Guarantee made on 2 December 2005 – Incorporated by reference to Exhibit (10)B(i)(d) of our Form 10-K Annual Report for the year ended December 31, 2005.
	(ii)	U.S. $600,000,000 U.S. Commercial Paper Program
		(a)	Form of Commercial Paper Dealer Agreement for 4 (2) Program.  Agreements have been executed with Salomon Smith Barney, Inc. and Banc One Capital Markets, Inc – Incorporated by reference to Exhibit (10)A(ii)(a) of our Form 10-Q for the quarter ended June 30, 2003.
		(b)	Issuing and Paying Agency Agreement dated as of July 10, 2000 between Ecolab Inc. and Bank One, National Association as Issuing and Paying Agent – Incorporated by reference to Exhibit (10)A(ii)(b) of our Form 10-Q for the quarter ended June 30, 2003.
C.	(i)	Ecolab Inc. 1997 Stock Incentive Plan, as Amended and Restated as of August 18, 2000 – Incorporated by reference to Exhibit (10) of our Form 10-Q for the quarter ended September 30, 2000.
	(ii)	Non-Statutory Stock Option Agreement as in effect for grants through May 12, 2000 – Incorporated by reference to Exhibit (10)B(i) of our Form 10-Q for the quarter ended June 30, 2004.
	(iii)	Non-Statutory Stock Option Agreement as in effect for grants beginning May 13, 2000 through May 10, 2002 – Incorporated by reference to Exhibit (10)B(ii) of our Form 10-Q for the quarter ended June 30, 2004.

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D.	(i)	1995 Non-Employee Director Stock Option Plan – Incorporated by reference to Exhibit (10)D(i) of our Form 10-K Annual Report for the year ended December 31, 2006.
	(ii)	Amendment No. 1 to 1995 Non-Employee Director Stock Option Plan effective February 25, 2000 – Incorporated by reference to Exhibit (10)E(ii) of our Form 10-K Annual Report for the year ended December 31, 1999.
	(iii)	Amendment No. 2 to 1995 Non-Employee Director Stock Option Plan effective May 11, 2001 – Incorporated by reference to Exhibit (10)G(iii) of our Form 10-K Annual Report for the year ended December 31, 2002.
E.	(i)	Ecolab Inc. 2001 Non-Employee Director Stock Option and Deferred Compensation Plan as amended effective May 1, 2004 – Incorporated by reference to Exhibit (10)H(ii) of our Form 10-K Annual Report for the year ended December 31, 2003.
	(ii)	Amendment No. 1 adopted December 15, 2004 to Ecolab Inc. 2001 Non-Employee Director Stock Option and Deferred Compensation Plan, as amended and restated effective May 1, 2004, with respect to the American Jobs Creation Act of 2004 – Incorporated by reference to Exhibit (10)F(ii) of our Form 10-K Annual Report for the year ended December 31, 2004.
	(iii)	Master Agreement Relating to Options (as in effect through May 7, 2004) – Incorporated by reference to Exhibit (10)D(i) of our Form 10-Q for the quarter ended June 30, 2004.
	(iv)	Master Agreement Relating to Periodic Options, as amended effective as of May 1, 2004 – Incorporated by reference to Exhibit (10)D(ii) of our Form  10-Q for the quarter ended June 30, 2004.
F.	Note Purchase Agreement, dated as of July 26, 2006 by and among Ecolab Inc. and the Purchasers party thereto – Incorporated by reference to Exhibit (10) of our Form 8-K dated July 26, 2006.
G.	Form of Director Indemnification Agreement.  Substantially identical agreements are in effect as to each of our directors – Incorporated by reference to Exhibit (10)I of our Form 10-K Annual Report for the year ended December 31, 2003.
H.	(i)	Ecolab Executive Death Benefits Plan, as amended and restated effective March 1, 1994 – Incorporated by reference to Exhibit (10)H(i) of our Form 10-K Annual Report for the year ended December 31, 2006. See also Exhibit (10)N hereof.
	(ii)	Amendment No. 1 to Ecolab Executive Death Benefits Plan – Incorporated by reference to Exhibit (10)H(ii) of our Form 10-K Annual Report for the year ended December 31, 1998.
	(iii)	Second Declaration of Amendment to Ecolab Executive Death Benefits Plan, effective March 1, 1998 – Incorporated by reference to Exhibit (10)H(iii) of our Form 10-K Annual Report for the year ended December 31, 1998.
	(iv)	Amendment No. 3 to the Ecolab Executive Death Benefits Plan, effective August 12, 2005 – Incorporated by reference to Exhibit (10)B of our Form 8-K dated December 13, 2005.
I.	Ecolab Executive Long-Term Disability Plan, as amended and restated effective January 1, 1994 – Incorporated by reference to Exhibit (10)I of our Form 10-K Annual Report for the year ended December 31, 2004. See also Exhibit (10)N hereof.

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J.	Ecolab Executive Financial Counseling Plan – Incorporated by reference to Exhibit (10)J of our Form 10-K Annual Report for the year ended December 31, 2004.
K.	(i)	Ecolab Supplemental Executive Retirement Plan, as amended and restated effective January 1, 2003 – Incorporated by reference to Exhibit (10)M of our Form 10-K Annual Report for the year ended December 31, 2003.
	(ii)	Amendment No. 1 and Instrument of Benefit Freeze adopted December 16, 2004 to the Ecolab Supplemental Executive Retirement Plan (As Amended and Restated effective January 1, 2003) With Respect to the American Jobs Creation Act of 2004 – Incorporated by reference to Exhibit (10)K(ii) of our Form 10-K Annual Report for the year ended December 31, 2004.
L.	(i)	Ecolab Mirror Savings Plan, as amended and restated effective as of March 1, 2002 – Incorporated by reference to Exhibit (10)N of our Form 10-K Annual Report for the year ended December 31, 2002.
	(ii)	Amendment No. 1 adopted December 16, 2004 to the Ecolab Mirror Savings Plan (As Amended and Restated Effective as of March 1, 2002) With Respect to the American Jobs Creation Act of 2004 – Incorporated by reference to Exhibit (10)L(ii) of our Form 10-K Annual Report for the year ended December 31, 2004.
	(iii)	Amendment No. 2 to the Ecolab Mirror Savings Plan, effective January 1, 2005 – Incorporated by reference to Exhibit (10)A of our Form 8-K dated December 13, 2005.
M.	(i)	Ecolab Mirror Pension Plan, as amended and restated effective as of January 1, 2003 – Incorporated by reference to Exhibit (10)B of our Form 10-Q for the quarter ended June 30, 2003.  See also Exhibit (10)N hereof.
	(ii)	Amendment No. 1 and Instrument of Benefit Freeze adopted December 16, 2004 to the Ecolab Mirror Pension Plan (As Amended and Restated effective January 1, 2003) With Respect to the American Jobs Creation Act of 2004 – Incorporated by reference to Exhibit (10)M(ii) of our Form 10-K Annual Report for the year ended December 31, 2004.
N.	(i)	Ecolab Inc. Administrative Document for Non-Qualified Benefit Plans, as amended and restated effective as of January 1, 2003 – Incorporated by reference to Exhibit (10)P of our Form 10-K Annual Report for the year ended December 31, 2003.
	(ii)	Amendment No. 1 adopted December 16, 2004 to the Ecolab Inc. Administrative Document for Non-Qualified Benefit Plans (As Amended and Restated effective January 1, 2003) With Respect to the American Jobs Creation Act of 2004 – Incorporated by reference to Exhibit (10)N(ii) of our Form 10-K Annual Report for the year ended December 31, 2004.
O.	(i)	Ecolab Inc. Management Performance Incentive Plan, as amended and restated on February 28, 2004 – Incorporated by reference to Exhibit (10)A of our Form 10-Q for the quarter ended March 31, 2004.
	(ii)	Amendment No. 1 adopted February 26, 2005 to the Ecolab Inc. Management Performance Incentive Plan – Incorporated by reference to Exhibit (10)O(ii) of our Form 10-K Annual Report for the year ended December 31, 2004.
P.	Ecolab Inc. Change in Control Severance Compensation Policy, effective February 22, 2002 – Incorporated by reference to Exhibit (10)R of our Form 10-K Annual Report for the year ended December 31, 2001.

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	Q.	(i)	Master Agreement, dated as of December 7, 2000, between Ecolab Inc. and Henkel KGaA – Incorporated by reference to Exhibit 18 of HC Investments, Inc.’s and Henkel KGaA’s Amendment No. 5 to Schedule 13D dated December 14, 2000.
		(ii)	Amendment No. 1 to the Master Agreement, dated December 7, 2000, between Ecolab Inc. and Henkel KGaA – Incorporated by reference to Exhibit (10) of our Form 10-Q for the quarter ended September 30, 2001.
		(iii)	Intellectual Property Agreement dated November 30, 2001, between Ecolab and Henkel KGaA – Incorporated by reference to Exhibit (10) of our Form 8-K dated November 30, 2001.
	R.	(i)	Ecolab Inc. 2002 Stock Incentive Plan – Incorporated by reference to Exhibit (10) of our Form 10-Q for the quarter ended June 30, 2002.
		(ii)	Non-statutory Stock Option Agreement as in effect for grants beginning May 11, 2002 through August 12, 2003 – Incorporated by reference to Exhibit (10)A(i) of our Form 10-Q for the quarter ended June 30, 2004.
		(iii)	Non-statutory Stock Option Agreement as in effect for grants beginning August 13, 2003 – Incorporated by reference to Exhibit (10)A(ii) of our Form 10-Q for the quarter ended June 30, 2004.
	S.	2008 Named Executive Officer Summary of Base Salary, Bonus Award Opportunities, and Executive Benefits and Perquisites.
	T.	Non-Employee Director Compensation and Benefits Summary.
	U.	(i)	Ecolab Inc. 2005 Stock Incentive Plan – Incorporated by reference to Exhibit (10)A of our Form 8-K dated May 6, 2005.
		(ii)	Sample form of Non-Statutory Stock Option Agreement under the Ecolab Inc. 2005 Stock Incentive Plan – Incorporated by reference to Exhibit (10)B of our Form 8-K dated May 6, 2005.
		(iii)	Sample form of Restricted Stock Award Agreement under the Ecolab Inc. 2005 Stock Incentive Plan – Incorporated by reference to Exhibit (10)W(iii) of our Form 10-K Annual Report for the year ended December 31, 2006.
(13)		Those portions of our Annual Report to Stockholders for the year ended December 31, 2007 which are incorporated by reference into Parts I and II hereof.
(21)		List of Subsidiaries as of February 15, 2008.
(23)		Consent of Independent Registered Public Accounting Firm at page 32 hereof is filed as a part hereof.
(24)		Powers of Attorney.
(31)		Rule 13a-14(a) Certifications.
(32)		Section 1350 Certifications.

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EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS

Included in the preceding list of exhibits are the following management contracts or compensatory plans or arrangements:

Exhibit No.	Description
(10)C.	Ecolab Inc. 1997 Stock Incentive Plan.
(10)D.	1995 Non-Employee Director Stock Option Plan.
(10)E.	Ecolab Inc. 2001 Non-Employee Director Stock Option and Deferred Compensation Plan.
(10)G.	Form of Director Indemnification Agreement.
(10)H.	Ecolab Executive Death Benefits Plan.
(10)I.	Ecolab Executive Long-Term Disability Plan.
(10)J.	Ecolab Executive Financial Counseling Plan.
(10)K.	Ecolab Supplemental Executive Retirement Plan.
(10)L.	Ecolab Mirror Savings Plan.
(10)M.	Ecolab Mirror Pension Plan.
(10)N.	Ecolab Inc. Administrative Document for Non-Qualified Benefit Plans.
(10)O.	Ecolab Inc. Management Performance Incentive Plan.
(10)P.	Ecolab Inc. Change in Control Severance Compensation Policy.
(10)R.	Ecolab Inc. 2002 Stock Incentive Plan.
(10)S.	2008 Named Executive Officer Summary of Base Salary, Bonus Award Opportunities, and Executive Benefits and Perquisites.
(10)T.	Non-Employee Director Compensation and Benefits Summary.
(10)U.	Ecolab Inc. 2005 Stock Incentive Plan.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Ecolab Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 25^th day of February, 2008.

ECOLAB INC.
(Registrant)
By:	/s/Douglas M. Baker, Jr.
	Douglas M. Baker, Jr.
	Chairman of the Board, President
	and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Ecolab Inc. and in the capacities indicated, on the 25^th day of February 2008.

/s/Douglas M. Baker, Jr.	Chairman of the Board, President
Douglas M. Baker, Jr.	and Chief Executive Officer (Principal Executive Officer and Director)
/s/Steven L. Fritze	Chief Financial Officer
Steven L. Fritze	(Principal Financial Officer)
/s/Daniel J. Schmechel	Senior Vice President and Controller
Daniel J. Schmechel	(Principal Accounting Officer)
/s/Lawrence T. Bell	Directors
Lawrence T. Bell
as attorney-in-fact for: Les S. Biller, Richard U. De Schutter, Stefan Hamelmann, Jerry A. Grundhofer, Joel W. Johnson, Jerry W. Levin, Robert L. Lumpkins, Beth M. Pritchard, Kasper Rorsted, Hans Van Bylen and John J. Zillmer
Director not signing: Barbara J. Beck

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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Registration Nos. 2-60010; 2-74944; 33-1664; 33-41828; 2-90702; 33-18202; 33-55986; 33-56101; 333-95043; 333-109890; 33-26241; 33-34000; 33-56151; 333-18627; 333-109891; 33-39228; 33-56125; 333-70835; 33-60266; 333-95041; 33-65364; 333-18617; 333-79449; 333-40239; 333-95037; 333-50969; 333-58360; 333-97927; 333-115567; 333-129427; 333-129428; 333-140988; 333-115568; 333-132139; and 333-147148) and Form S-3 (Registration No. 333-147052) of Ecolab Inc. of our report dated February 22, 2008 relating to the consolidated financial statements and the effectiveness of internal control over financial reporting, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K.

	/s/ PricewaterhouseCoopers LLP
	PricewaterhouseCoopers LLP
Minneapolis, Minnesota
February 25, 2008

32

EXHIBIT INDEX

The following documents are filed as exhibits to this Report.

Exhibit No.		Document	Method of Filing
(3)	A.	Restated Certificate of Incorporation of Ecolab Inc., dated as of February 27, 2006, effective as of March 13, 2006.	Incorporated by reference to Exhibit (3)A of our Form 10-K Annual Report for the year ended December 31, 2005.
	B.	Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock of Ecolab Inc., dated as of February 27, 2006, effective as of March 13, 2006.	Incorporated by reference to Exhibit (3)C of our Form 10-K Annual Report for the year ended December 31, 2005.
	C.	By-Laws, as amended through February 22, 2008.	Filed herewith electronically.
(4)	A.	Common Stock.	See Exhibits (3)A and (3)C.
	B.	Form of Common Stock Certificate effective February 28, 2007.	Incorporated by reference to Exhibit (4)B of our Form 10-K Annual Report for the year ended December 31, 2006.
	C.	Rights Agreement, dated as of February 24, 2006, between Ecolab Inc. and Computershare Investor Services, LLC, as Rights Agent, which includes the following exhibits thereto: (i) Exhibit A — Form of Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock and (ii) Exhibit B — Form of Rights Certificate.	Incorporated by reference to Exhibit (4)C of our Form 10-K Annual Report for the year ended December 31, 2005.
	D.	Second Amended and Restated Stockholder’s Agreement between Henkel KGaA and Ecolab Inc., dated November 30, 2001.	Incorporated by reference to Exhibit (4) of our Form 8-K dated November 30, 2001.
	E.	Amended and Restated Indenture dated as of January 9, 2001 between Ecolab Inc. and The Bank of New York Trust Company, N.A.	Incorporated by reference to Exhibit (4)(A) of our Current Report on Form 8-K dated January 23, 2001.
	F.	Officer’s Certificate establishing terms and conditions of 6.875% Notes due February 1, 2011.	Incorporated by reference to Exhibit 4(B) of our Form 8-K dated January 23, 2001.
	G.	Form of 6.875% Note due February 2, 2011.	Incorporated by reference to Exhibit 4(c) of our Form 8-K dated January 23, 2001.

Exhibits - 1

Exhibit No.			Document	Method of Filing
	H.		Supplemental Indenture, dated as of February 8, 2008, between Ecolab Inc. and The Bank of New York Trust Company, N.A., as Trustee.	Incorporated by reference to Exhibit 4.2 of our Current Report on Form 8-K dated February 8, 2008.
	I.		Form 4.875% Note due February 15, 2015.	Included in Exhibit (4)H above.
(10)	A.	(i)	Multicurrency Credit Agreement, dated as of September 29, 1993, as amended and restated as of June 1, 2006, among Ecolab Inc., the financial institutions party thereto as Banks from time to time, the financial institutions party thereto as Issuing Banks from time to time, Citibank, N.A., as administrative agent for the Banks and Issuing Banks thereunder, Citibank International PLC, as agent for the Banks in connection with certain of the Eurocurrency Advances, and JPMorgan Chase Bank, N.A., as syndication agent.	Incorporated by reference to Exhibit (10) of our Form 8-K dated June 1, 2006.
		(ii)	Extension Confirmation Notice, dated May 14, 2007, under the Multicurrency Credit Agreement, dated as of September 29, 1993, as amended and restated as of June 1, 2006.	Incorporated by reference to Exhibit (10) of our Form 8-K dated May 14, 2007.
		(iii)	Increase of Commitments Agreement dated as of October 29, 2007 by and among Ecolab Inc., Citibank, N.A., JPMorgan Chase Bank, N.A., Credit Suisse, Cayman Islands Branch, National Association, Wells Fargo Bank, National Association, ABN AMRO Bank N.A., Bank of America, N.A. and Barclays Bank PLC, as increasing banks, and Citibank, N.A., as agent.	Incorporated by reference to Exhibit (10) of our Form 10-Q for the quarter ended September 30, 2007.
	B.		Documents comprising global Commercial Paper Programs.
		(i)	U.S. $200,000,000 Euro-Commercial Paper Programme.
			(a)Amended and Restated Dealer Agreement dated 2 December 2005 between Ecolab Inc. (as Guarantor), Ecolab B.V. and Ecolab Holding GmbH (as Issuers), Ecolab Inc., Credit Suisse First Boston (Europe) Limited (as Arranger), and Citibank International plc and Credit Suisse First Boston (Europe) Limited (as Dealers).	Incorporated by reference to Exhibit (10)B(i)(a) of our Form 10-K Annual Report for the year ended December 31, 2005.
			(b)Amended and Restated Note Agency Agreement dated as of 2 December 2005 between Ecolab Inc., Ecolab B.V. and Ecolab Holding GmbH (as Issuers) and Citibank, N.A. as Issue and Paying Agent.	Incorporated by reference to Exhibit (10)B(i)(b) of our Form 10-K Annual Report for the year ended December 31, 2005.

Exhibits - 2

Exhibit No.			Document	Method of Filing
			(c)Deed of Covenant made on 2 December 2005 by Ecolab Inc., Ecolab B.V. and Ecolab Holding GmbH.	Incorporated by reference to Exhibit (10)B(i)(c) of our Form 10-K Annual Report for the year ended December 31, 2005.
			(d)Deed of Guarantee made on 2 December 2005.	Incorporated by reference to Exhibit (10)B(i)(d) of our Form 10-K Annual Report for the year ended December 31, 2005.
		(ii)	U.S. $600,000,000 U.S. Commercial Paper Program.
			(a)Form of Commercial Paper Dealer Agreement for 4 (2) Program. Agreements have been executed with Salomon Smith Barney, Inc. and Banc One Capital Markets, Inc.	Incorporated by reference to Exhibit (10)A(ii)(a) of our Form 10-Q for the quarter ended June 30, 2003.
			(b)Issuing and Paying Agency Agreement dated as of July 10, 2000 between Ecolab Inc. and Bank One, National Association as Issuing and Paying Agent.	Incorporated by reference to Exhibit (10)A(ii)(b) of our Form 10-Q for the quarter ended June 30, 2003.
	C.	(i)	Ecolab Inc. 1997 Stock Incentive Plan, as Amended and Restated as of August 18, 2000.	Incorporated by reference to Exhibit (10) of our Form 10-Q for the quarter ended September 30, 2000.
		(ii)	Non-Statutory Stock Option Agreement as in effect for grants through May 12, 2000.	Incorporated by reference to Exhibit (10)B(i) of our Form 10-Q for the quarter ended June 30, 2004.
		(iii)	Non-Statutory Stock Option Agreement as in effect for grants beginning May 13, 2000 through May 10, 2002.	Incorporated by reference to Exhibit (10)B(ii) of our Form 10-Q for the quarter ended June 30, 2004.
	D.	(i)	1995 Non-Employee Director Stock Option Plan.	Incorporated by reference to Exhibit (10)D(i) of our Form 10-K Annual Report for the year ended December 31, 2006.
		(ii)	Amendment No. 1 to 1995 Non-Employee Director Stock Option Plan effective February 25, 2000.	Incorporated by reference to Exhibit (10)E(ii) of our Form 10-K Annual Report for the year ended December 31, 1999.
		(iii)	Amendment No. 2 to 1995 Non-Employee Director Stock Option Plan effective May 11, 2001.	Incorporated by reference to Exhibit (10)G(iii) of our Form 10-K Annual Report for the year ended December 31, 2002.

Exhibits - 3

Exhibit No.			Document	Method of Filing
	E.	(i)	Ecolab Inc. 2001 Non-Employee Director Stock Option and Deferred Compensation Plan as amended effective May 1, 2004.	Incorporated by reference to Exhibit (10)H(ii) of our Form 10-K Annual Report for the year ended December 31, 2003.
		(ii)	Amendment No. 1 adopted December 15, 2004 to Ecolab Inc. 2001 Non-Employee Director Stock Option and Deferred Compensation Plan, as amended and restated effective May 1, 2004, with respect to the American Jobs Creation Act of 2004.	Incorporated by reference to Exhibit (10)F(ii) of our Form 10-K Annual Report for the year ended December 31, 2004.
		(iii)	Master Agreement Relating to Options (as in effect through May 7, 2004).	Incorporated by reference to Exhibit (10)D(i) of our Form 10-Q for the quarter ended June 30, 2004.
		(iv)	Master Agreement Relating to Periodic Options, as amended effective as of May 1, 2004.	Incorporated by reference to Exhibit (10)D(ii) of our Form 10-Q for the quarter ended June 30, 2004.
	F.		Note Purchase Agreement, dated as of July 26, 2006 by and among Ecolab Inc. and the Purchasers party thereto.	Incorporated by reference to Exhibit (10) of our Form 8-K dated July 26, 2006.
	G.		Form of Director Indemnification Agreement. Substantially identical agreements are in effect as to each of our directors.	Incorporated by reference to Exhibit (10)I of our Form 10-K Annual Report for the year ended December 31, 2003.
	H.	(i)	Ecolab Executive Death Benefits Plan, as amended and restated effective March 1, 1994. See also Exhibit (10)N hereof.	Incorporated by reference to Exhibit (10)H(i) of our Form 10-K Annual Report for the year ended December 31, 2006. See also Exhibit (10)N hereof.
		(ii)	Amendment No. 1 to Ecolab Executive Death Benefits Plan.	Incorporated by reference to Exhibit (10)H(ii) of our Form 10-K Annual Report for the year ended December 31, 1998.
		(iii)	Second Declaration of Amendment to Ecolab Executive Death Benefits Plan, effective March 1, 1998.	Incorporated by reference to Exhibit (10)H(iii) of our Form 10-K Annual Report for the year ended December 31, 1998.
		(iv)	Amendment No. 3 to the Ecolab Executive Death Benefits Plan, effective August 12, 2005.	Incorporated by reference to Exhibit (10)B of our Form 8-K dated December 13, 2005.

Exhibits - 4

Exhibit No.			Document	Method of Filing
	I.		Ecolab Executive Long-Term Disability Plan, as amended and restated effective January 1, 1994. See also Exhibit (10)N hereof.	Incorporated by reference to Exhibit (10)I of our Form 10-K Annual Report for the year ended December 31, 2004.
	J.		Ecolab Executive Financial Counseling Plan.	Incorporated by reference to Exhibit (10)J of our Form 10-K Annual Report for the year ended December 31, 2004.
	K.	(i)	Ecolab Supplemental Executive Retirement Plan, as amended and restated effective January 1, 2003.	Incorporated by reference to Exhibit (10)M of our Form 10-K Annual Report for the year ended December 31, 2003.
		(ii)	Amendment No. 1 and Instrument of Benefit Freeze adopted December 16, 2004 to the Ecolab Supplemental Executive Retirement Plan (As Amended and Restated effective January 1, 2003) With Respect to the American Jobs Creation Act of 2004.	Incorporated by reference to Exhibit (10)K(ii) of our Form 10-K Annual Report for the year ended December 31, 2004.
	L.	(i)	Ecolab Mirror Savings Plan, as amended and restated effective as of March 1, 2002.	Incorporated by reference to Exhibit (10)N of our Form 10-K Annual Report for the year ended December 31, 2002.
		(ii)	Amendment No. 1 adopted December 16, 2004 to the Ecolab Mirror Savings Plan (As Amended and Restated Effective as of March 1, 2002) With Respect to the American Jobs Creation Act of 2004.	Incorporated by reference to Exhibit (10)L(ii) of our Form 10-K Annual Report for the year ended December 31, 2004.
		(iii)	Amendment No. 2 to the Ecolab Mirror Savings Plan, effective January 1, 2005.	Incorporated by reference to Exhibit (10)A of our Form 8-K dated December 13, 2005.
	M.	(i)	Ecolab Mirror Pension Plan, as amended and restated effective as of January 1, 2003.	Incorporated by reference to Exhibit (10)B of our Form 10-Q for the quarter ended June 30, 2003. See also Exhibit (10)N hereof.
		(ii)	Amendment No. 1 and Instrument of Benefit Freeze adopted December 16, 2004 to the Ecolab Mirror Pension Plan (As Amended and Restated effective January 1, 2003) With Respect to the American Jobs Creation Act of 2004.	Incorporated by reference to Exhibit (10)M(ii) of our Form 10-K Annual Report for the year ended December 31, 2004.
	N.	(i)	Ecolab Inc. Administrative Document for Non-Qualified Benefit Plans, as amended and restated effective as of January 1, 2003.	Incorporated by reference to Exhibit (10)P of our Form 10-K Annual Report for the year ended December 31, 2003.

Exhibits - 5

Exhibit No.			Document	Method of Filing
		(ii)	Amendment No. 1 adopted December 16, 2004 to the Ecolab Inc. Administrative Document for Non-Qualified Benefit Plans (As Amended and Restated effective January 1, 2003) With Respect to the American Jobs Creation Act of 2004.	Incorporated by reference to Exhibit (10)N(ii) of our Form 10-K Annual Report for the year ended December 31, 2004.
	O.	(i)	Ecolab Inc. Management Performance Incentive Plan, as amended and restated on February 28, 2004.	Incorporated by reference to Exhibit (10)A of our Form 10-Q for the quarter ended March 31, 2004.
		(ii)	Amendment No. 1 adopted February 26, 2005 to the Ecolab Inc. Management Performance Incentive Plan.	Incorporated by reference to Exhibit (10)O(ii) of our Form 10-K Annual Report for the year ended December 31, 2004.
	P.		Ecolab Inc. Change in Control Severance Compensation Policy, effective February 22, 2002.	Incorporated by reference to Exhibit (10)R of our Form 10-K Annual Report for the year ended December 31, 2001.
	Q.	(i)	Master Agreement, dated as of December 7, 2000, between Ecolab Inc. and Henkel KGaA.	Incorporated by reference to Exhibit 18 of HC Investments, Inc.’s and Henkel KGaA’s Amendment No. 5 to Schedule 13D dated December 14, 2000.
		(ii)	Amendment No. 1 to the Master Agreement, dated December 7, 2000, between Ecolab Inc. and Henkel KGaA.	Incorporated by reference to Exhibit (10) of our Form 10-Q for the quarter ended September 30, 2001.
		(iii)	Intellectual Property Agreement dated November 30, 2001, between Ecolab and Henkel KGaA.	Incorporated by reference to Exhibit (10) of our Form 8-K dated November 30, 2001.
	R.	(i)	Ecolab Inc. 2002 Stock Incentive Plan.	Incorporated by reference to Exhibit (10) of our Form 10-Q for the quarter ended June 30, 2002.
		(ii)	Non-statutory Stock Option Agreement as in effect for grants beginning May 11, 2002 through August 12, 2003.	Incorporated by reference to Exhibit (10)A(i) of our Form 10-Q for the quarter ended June 30, 2004.
		(iii)	Non-statutory Stock Option Agreement as in effect for grants beginning August 13, 2003.	Incorporated by reference to Exhibit (10)A(ii) of our Form 10-Q for the quarter ended June 30, 2004.

Exhibits - 6

Exhibit No.			Document	Method of Filing
	S.		2008 Named Executive Officer Summary of Base Salary, Bonus Award Opportunities, and Executive Benefits and Perquisites.	Filed herewith electronically.
	T.		Non-Employee Director Compensation and Benefits Summary.	Filed herewith electronically.
	U.	(i)	Ecolab Inc. 2005 Stock Incentive Plan.	Incorporated by reference to Exhibit (10)A of our Form 8-K dated May 6, 2005.
		(ii)	Sample form of Non-Statutory Stock Option Agreement under the Ecolab Inc. 2005 Stock Incentive Plan.	Incorporated by reference to Exhibit (10)B of our Form 8-K dated May 6, 2005.
		(iii)	Sample form of Restricted Stock Award Agreement under the Ecolab Inc. 2005 Stock Incentive Plan	Incorporated by reference to Exhibit (10)W(iii) of our Form 10-K Annual Report for the year ended December 31, 2006.
(13)			Those portions of our Annual Report to Stockholders for the year ended December 31, 2007 which are incorporated by reference into Parts I and II hereof.	Filed herewith electronically
(21)			List of Subsidiaries as of February 15, 2008.	Filed herewith electronically
(23)			Consent of Independent Registered Public Accounting Firm at page 32 hereof is filed as a part hereof.	See page 32 hereof.
(24)			Powers of Attorney.	Filed herewith electronically.
(31)			Rule 13a-14(a) Certifications.	Filed herewith electronically.
(32)			Section 1350 Certifications.	Filed herewith electronically

Exhibits - 7

EX-3.(C)

Exhibit 3(C)

BY-LAWS

OF

ECOLAB INC.

(A Delaware corporation)

AS AMENDED THROUGH FEBRUARY 22, 2008

ARTICLE I

OFFICES

Section 1.  Registered Office.  The registered office of the Corporation in the State of Delaware shall be at 1209 Orange Street, City of Wilmington, County of New Castle, Delaware.  The name of the resident agent in charge thereof shall be The Corporation Trust Company.

Section 2.  Other Offices.  The Corporation may also have offices at such other places, within or without the State of Delaware, as the Board of Directors may from time to time determine or the business of the Corporation may require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

Section 1.  Place of Meetings.  Meetings of stockholders may be held at such place, within or without the State of Delaware, as the Board of Directors or the officer calling the same shall designate.

Section 2.  Annual Meeting.  An annual meeting of the stockholders of the Corporation for the election of directors by written ballot and for the transaction of such other business as may properly come before the meeting shall be held at such time and on such day of each year as shall be designated by the Board of Directors, the Chairman of the Board, the President or the Secretary.

Section 3.  Notice of Stockholder Nominations of Directors.  Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation, except as may be otherwise provided in the Restated Certificate of Incorporation of the Corporation.  Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders (a) by or at the direction of the Board of Directors (or any duly authorized Committee thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 3 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 3.

In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.

To be timely, a stockholder’s notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred thirty-five (135) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such an anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs.  In no event shall the public disclosure of an adjournment of an annual meeting commence a new time period for the giving of a stockholder’s notice as described above.

To be in proper written form, a stockholder’s notice to the Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder.  Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.

No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 3.  If the Chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded.

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Notwithstanding anything in the third paragraph of this Section 3 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public disclosure by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least 100 days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice required by this By-Law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public disclosure is first made by the Corporation.

Section 4.  Notice of Stockholder Proposals of Business.  No business may be transacted at an annual meeting of stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the annual meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 4 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 4.

In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.

To be timely, a stockholder’s notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred thirty-five (135) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs.  In no event shall the public disclosure of an adjournment of an annual meeting commence a new time period for the giving of a stockholder’s notice as described above.

To be in proper written form, a stockholder’s notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of

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capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting.

No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 4; provided, however, that, once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 4 shall be deemed to preclude discussion by any stockholder of any such business.  If the Chairman of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted.

Section 5.  Definition.  For purposes of Sections 3 and 4 of these By-Laws, “public disclosure” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.”

Section 6.  Special Meetings.  Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called at any time by the Board of Directors or by the Chairman of the Board, and shall be called by the Chairman of the Board, the President or the Secretary at the written request of the majority of the Board of Directors or at the written request of stockholders owning capital stock having eighty percent (80%) of the voting power of the entire issued and outstanding capital stock of the Corporation.  Such request shall state the purpose or purposes of the proposed meeting.  No business shall be transacted at any special meeting of the stockholders except that stated in the notice of the meeting.

Section 7.  Notice of Meetings.  Written notice stating the place, date and hour of each annual and special meeting of the stockholders and, in the case of a special meeting, the purpose or purposes thereof, shall be given not less than twenty (20) nor more than sixty (60) days before the date of such meeting to each stockholder entitled to vote at such meeting.  If mailed, notice shall be deemed given when deposited in the United States mail, postage prepaid, directed to the stockholder at such address as appears on the records of the Corporation.  Notice of any meeting of stockholders shall not be required to be given to any stockholder who shall attend such meeting in person or by proxy and shall not, at the beginning of such meeting, object to the transaction of any business because the meeting is not lawfully called or convened, or who shall, either before or after the meeting, submit a signed waiver of notice.

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Section 8.  Quorum.  At all meetings of the stockholders the holders of a majority of the shares of stock of the Corporation issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall be requisite to constitute a quorum for the transaction of business, except as otherwise provided by statute or in the Restated Certificate of Incorporation.  In the absence of a quorum, the holders of a majority of the shares of stock present in person or by proxy and entitled to vote may adjourn the meeting until the requisite amount of stock shall be present.

Section 9.  Organization and Order of Business.  At each meeting of the stockholders, the Chairman of the Board, or in his absence the President, or in his absence any other person selected by the Board of Directors, shall act as Chairman of the meeting.  The Secretary, or in his absence an Assistant Secretary, or any person appointed by the Chairman of the meeting, shall act as Secretary of the meeting and keep the minutes thereof.  The order of business at all meetings of the stockholders shall be as determined by the Chairman of the meeting.

Section 10.  Voting.  Except as otherwise provided by statute or by the Restated Certificate of Incorporation, at each meeting of the stockholders each stockholder having the right to vote thereat shall be entitled to (i) one vote for each share of common stock of the Corporation standing in his name on the record of stockholders of the Corporation, and (ii) such voting rights, if any, as are provided in the applicable Certificate of Designation, Preferences and Rights with respect to any series of preferred stock of the Corporation standing in his name on the record of stockholders of the Corporation, in all such instances on the date fixed by the Board of Directors as the record date for the determination of the stockholders who shall be entitled to notice of and vote at such meeting; or if no record date shall have been fixed, then at the close of business on the day next preceding the day on which notice thereof shall be given.  Each stockholder entitled to vote at any meeting of stockholders may authorize another person or persons to act for him by a proxy signed or otherwise authorized in accordance with Section 212 of the General Corporation Law of Delaware by such stockholder or his attorney-in-fact.  No proxy shall be valid after the expiration of three (3) years from the date thereof, unless otherwise provided in the proxy.  Except as otherwise provided by statute, these By-Laws or the Restated Certificate of Incorporation, any corporate action to be taken by vote of the stockholders shall be authorized by a majority of the total votes cast at a meeting of stockholders by the holders of shares present in person or represented by proxy and entitled to vote on such action.  Unless required by statute, or determined by the chairman of the meeting to be advisable, the vote on any question other than elections need not be by written ballot.  On a vote by written ballot, each ballot shall be signed by the stockholder, his attorney-in-fact, or his proxy if there be such proxy, and shall state the stockholder’s name and the number of shares voted.

Section 11.  Stockholder List.  The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder.

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Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held.  This list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

Section 12.  Inspectors.  The Board of Directors may, in advance of any meeting of stockholders, appoint or provide for the appointment of one or more inspectors to act at such meeting or any adjournments thereof.  If the inspector or inspectors shall not be appointed, or if any of them shall fail to appear or act, the Chairman of the meeting may, and on the request of any stockholder entitled to vote thereat shall, appoint one or more inspectors.  Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability.  On request of the Chairman of the meeting or any stockholder entitled to vote thereat, the inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them.  No director or candidate for the office of director shall act as inspector of any election of directors.  Inspectors need not be stockholders of the Corporation.

Section 13.  Adjourned Meetings.  A meeting of stockholders may be adjourned to another time and to another place by either the chairman of the meeting or by the stockholders and proxies present.  When a meeting is adjourned to another time or place, notice of such adjourned meeting need not be given if the time and place to which the meeting shall be adjourned are announced at the meeting at which the adjournment is taken.  At the adjourned meeting, if a quorum is present any business may be transacted which might have been transacted at the original meeting.  If the adjournment is for more than thirty (30) days or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

Section 14.  Consent of Stockholders.  Unless otherwise provided in the Restated Certificate of Incorporation, any action required or permitted to be taken at any Annual or Special Meeting of Stockholders of the Corporation, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.  Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.

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ARTICLE III

BOARD OF DIRECTORS

Section 1.  General Powers.  The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.  The Board of Directors may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by statute or the Restated Certificate of Incorporation or these By-Laws directed or required to be exercised or done by the stockholders.

Section 2.  Number and Election of Directors.  The number of directors of the Corporation which shall constitute the entire Board of Directors shall be such number as is fixed by the Board of Directors in accordance with the provisions of the Restated Certificate of Incorporation.  Directors shall be elected and shall hold office in accordance with the provisions of the Restated Certificate of Incorporation.  Directors need not be stockholders of the Corporation.

Section 3.  Required Vote for Directors.  A nominee for director shall be elected to the Board of Directors by the vote of the majority of the votes cast at any meeting for the election of directors at which a quorum is present; provided, however, that directors shall be elected by a plurality of the votes cast at any meeting of stockholders for which (i) the Secretary of the Corporation receives a notice that a stockholder has nominated a person for election to the Board of Directors in compliance with the advance notice requirements for stockholder nominees for directors set forth in Article II, Section 3, of these By-Laws and (ii) such nomination has not been withdrawn by such stockholder on or prior to the tenth (10^th) day preceding the date the Corporation first mails its notice of meeting for such meeting to the stockholders.  For purposes of this By-Law, a majority of votes cast shall mean that the number of shares voted “for” a nominee exceeds fifty percent (50%) of the number of votes cast with respect to such nominee.  Votes cast with respect to a nominee shall include votes to withhold authority and exclude abstentions with respect to such nominee.

Section 4.  Place of Meeting.  The Board of Directors may hold meetings at such place, within or without the State of Delaware, as the Board of Directors or the officer calling the meeting may from time to time determine.

Section 5.  Organization Meeting.  Promptly following the adjournment of the annual meeting of the stockholders, and without other notice than this By-Law, the newly constituted Board of Directors shall meet for the purpose of organization, the election of officers, and the transaction of other business, with power to adjourn and re-adjourn.

Section 6.  Meetings.  Regular meetings of the Board of Directors shall be held at such time and place as the Board of Directors may from time to time determine.  Special meetings of the Board of Directors may be called by the Chairman of the Board, the President or any two (2) or more Directors.

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Section 7.  Notice of Meetings.  Notice of regular meetings of the Board of Directors need not be given except as otherwise required by statute or these By-Laws.  Notice of the place, date and time of the holding of each special meeting of the Board of Directors, and the purpose or purposes thereof, shall be delivered to each director either personally or by mail, telephone, telegraph, cable, or similar means, three (3) days before the day on which such meeting is to be held, or on such shorter notice as the person or persons calling such meeting deem appropriate in the circumstances.  Such notice shall be deemed to be given at the time it is dispatched by depositing it in the United States mail with postage prepaid, by transmission by telephone, telegraph or cable, or by personal delivery.  Notice of any such meeting need not be given to any director who shall, either before or after the meeting, submit a signed waiver of notice or who shall attend such meeting without protesting, prior to or at its commencement, the lack of notice to him.

Section 8.  Quorum and Manner of Acting.  Except as otherwise provided by statute, the Restated Certificate of Incorporation or these By-Laws, at all meetings of the Board of Directors a majority of the directors then in office shall constitute a quorum for the transaction of business; provided, however, that if by reason of catastrophe or emergency, a majority of the entire Board is not available or capable of acting, one third (1/3) of the entire Board of Directors, but in any event not less than two (2) directors, shall constitute a quorum for the transaction of business at any meeting of the Board of Directors.  The act of a majority of the directors present at any meeting at which there is a quorum, as herein provided, shall be the act of the Board of Directors except as may be otherwise specifically provided by statute, the Restated Certificate of Incorporation or these By-Laws.  In the absence of a quorum at any meeting of the Board of Directors, a majority of the directors present thereat, or if no director be present, the Secretary or an Assistant Secretary, may adjourn such meeting to another time and place until the quorum is had.  Notice of any adjourned meeting need not be given.  At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called.

Section 9.  Organization and Order of Business.  At each meeting of the Board of Directors, the Chairman of the Board, or in his absence the President, or in his absence, a member of the Board of Directors selected by the directors in attendance, shall act as Chairman of the meeting.  The Secretary, or in his absence, an Assistant Secretary, or any person appointed by the Chairman of the meeting, shall act as Secretary of the meeting and keep the minutes thereof.  The order of business at all meetings of the directors shall be as determined by the Chairman of the meeting.

Section 10.  Action Without Meeting.  Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board of Directors or committee.

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Section 11.  Conference Telephone.  Members of the Board of Directors, or of any committee thereof, may participate in a meeting of the Board of Directors or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting in this manner shall constitute presence in person at such meeting.

Section 12.  Committees.  The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of three (3) or more of the directors of the Corporation.  The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee.  Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers of the Board of Directors in the management of the business and affairs of the Corporation which the Board of Directors may lawfully delegate, and may authorize the seal of the Corporation to be affixed to all papers which may require it.  Meetings of committees may be called by the committee chairman, if any, or as provided in Section 5 of this Article III.  Notice of such meetings shall be given to each member of the committee in the manner set forth in Section 6 of this Article III.  Notice of any such meeting need not be given to any committee member who shall, either before or after the meeting, submit a signed waiver of notice or who shall attend such meeting without protesting prior to or at its commencement, the lack of notice to him.  A notice or waiver of notice of any regular or special meeting of any committee need not state the purposes of such meeting.  A majority of any committee may determine its action, unless the Board of Directors shall otherwise provide.  Each committee shall keep written minutes of its formal proceedings and shall report such proceedings to the Board.  All such proceedings shall be subject to revision or alteration by the Board of Directors; provided, however, that third parties shall not be prejudiced by such revision or alteration.  The Board of Directors shall have power at any time to fill vacancies in, to change the membership, duties or authority of, or to dissolve any such committee.

Section 13.  Resignations.  Any director of the Corporation may resign at any time by giving written notice of his resignation to the Board of Directors, the Chairman of the Board, the President or the Secretary.  Such resignation shall take effect at the date of the receipt of such notice, or at any later time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 14.  Removal.  Except as otherwise provided in the Restated Certificate of Incorporation or in these By-Laws, any director may be removed at any time, at a special meeting of the stockholders called and held for the purpose, but, for so long as the Board of Directors is classified, only for cause, by the affirmative vote of the holders of a majority of the shares then entitled to vote at an election of directors; and the vacancy in the Board caused by any such removal shall be filled as the Restated Certificate of Incorporation provides.

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Section 15.  Vacancies.  Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, in accordance with the Restated Certificate of Incorporation.

Section 16.  Compensation.  The Board of Directors shall have authority to fix the compensation, including fees and reimbursement of expenses, of directors for services to the Corporation in any capacity and no such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.

ARTICLE IV

OFFICERS

Section 1.  Number and Qualification.  The officers of the Corporation shall be elected by the Board of Directors.  The officers shall be a Chairman of the Board, a President, one or more Vice Presidents, a Secretary, a Treasurer, and a Controller.  The Board of Directors may also elect a Vice Chairman of the Board, one or more Sector Presidents and one or more Assistant Secretaries, Assistant Treasurers, and Assistant Controllers, and the Board of Directors may designate any Vice President as an Executive Vice President, a Senior Vice President or a Group Vice President.  The Board of Directors may also designate from such officers (i) a Chief Executive Officer who shall have general supervision and authority over the business and affairs of the Corporation subject to the control of the Board of Directors, (ii) a Chief Operating Officer who shall have general supervision and authority over the operations of the Corporation subject to the control of the Chief Executive Officer, if that designation has been made, and subject to the control of the Board of Directors, or (iii) both a Chief Executive Officer and a Chief Operating Officer.  The Chairman of the Board, the Vice Chairman of the Board and the President shall be chosen from among the directors, but no other officer need be a director.  Any two or more offices may be held by the same person.

Section 2.  Election and Term.  The officers of the Corporation shall be chosen annually by the Board of Directors at the first meeting of the Board of Directors following the annual meeting of stockholders or as soon thereafter as is conveniently possible.  Officers may also be elected from time to time at any other meeting of the Board of Directors to fill vacancies and otherwise.  Each officer, except such officers as may be appointed in accordance with the provisions of Section 3 of this Article IV, shall continue in office until his successor shall have been duly elected and qualified or until his earlier resignation or removal.

Section 3.  Other Officers and Agents.  The Board of Directors or the Chairman of the Board, or in his absence or disability, the President, may appoint such other officers and agents, each of whom shall hold office for such period, have such authority and perform such duties as are provided for in these By-Laws, or as the Board of Directors or Chairman of the Board, or the President, may from time to time determine.

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Section 4.  Resignation.  Any officer may resign at any time by giving written notice to the Chairman of the Board, the President or the Secretary of the Corporation.  Such resignation shall take effect at the date of the receipt of such notice, or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 5.  Removal.  Any officer or agent may be removed, either with or without cause, at any time by the vote of the majority of the whole Board of Directors.  Any subordinate officer or agent appointed in accordance with the provisions of Section 3 of this Article IV may be removed, either with or without cause, by a vote of the majority of the whole Board of Directors or, except in the case of an officer or agent elected or appointed by the Board of Directors, by the Chairman of the Board or the President.

Section 6.  Vacancies.  A vacancy in any office because of death, resignation, removal, disqualification or any other cause may be filled for the unexpired portion of the term in the manner prescribed in these By-Laws for the regular election or appointment to such office.

Section 7.  Compensation.  The compensation of the officers of the Corporation shall be fixed from time to time by the Board of Directors or by such officers or a committee of the Board of Directors to which the Board of Directors has delegated such authority.  An officer of the Corporation shall not be prevented from receiving compensation by reason of the fact that he is also a director of the Corporation, but any such officer who shall also be a director shall not have any vote in the determination of the amount of compensation paid to him.

Section 8.  Chairman of the Board.  The Chairman of the Board shall preside at all meetings of the stockholders and of the Board of Directors.  He shall perform such duties with such authority as may be prescribed from time to time by the Board of Directors.

Section 9.  President.  The President shall be responsible to the Chief Executive Officer and shall perform such duties with such authority as may be prescribed in these By-Laws and from time to time by the Board of Directors and the Chief Executive Officer.

Section 10.  Vice Presidents.  Each Vice President shall have such powers and shall perform such duties as shall from time to time be prescribed by the Board and as shall from time to time be assigned to him by the Chairman of the Board or the President.

Section 11.  Secretary.  The Secretary shall give or cause to be given all required notices of meetings of stockholders and of the Board of Directors, shall record all of the proceedings and act as custodian of the minutes of all such meetings, shall have charge of the corporate seal and the corporate minute books, and shall make such reports and perform such other duties as may be assigned from time to time by the Board of Directors, the Chairman of the Board, or the President.  The Secretary shall keep in safe custody the seal of the Corporation and the Secretary or any Assistant

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Secretary shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or any Assistant Secretary.  The Assistant Secretaries, or any of them, shall perform such of the duties of the Secretary as may from time to time be assigned to them by the Board of Directors, the Chairman of the Board, the President, or the Secretary, and in the absence of the Secretary or in the event of his disability or refusal to act, shall perform the duties of the Secretary, and when so acting shall have all the powers of and be subject to all the restrictions upon the Secretary.

Section 12.  Treasurer.  The Treasurer shall have custody of all moneys and securities of the Corporation, shall have responsibility for disbursement of the funds of the Corporation, shall make payment of the just demands on the Corporation, shall invest surplus cash of the Corporation and manage its investment portfolio under the direction of the Board of Directors, and shall render to the Board of Directors an account of all transactions of the Corporation and of the financial condition of the Corporation as may be required of him.  The Treasurer shall also perform such other duties as may be assigned to him from time to time by the Board of Directors, the Chairman of the Board, the President or by the Chief Financial Officer.  The Assistant Treasurers, or any of them, shall perform such of the duties of the Treasurer as may from time to time be assigned to them by the Board of Directors, the Chairman of the Board, the President, the Chief Financial Officer, or the Treasurer, and in the absence of the Treasurer or in the event of his disability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer.

Section 13.  Controller.  The Controller shall provide and maintain a system of accounts and accounting records of the Corporation, shall provide and administer a system of internal financial controls, and shall present such financial statements to the Board of Directors as may be required.  The Controller shall also perform such other duties as may from time to time be assigned to him by the Board of Directors, the Chairman of the Board, the President or by the Chief Financial Officer.  The Assistant Controllers, or any of them, shall perform such of the duties of the Controller as may from time to time be assigned to them by the Board of Directors, the Chairman of the Board, the President, the Chief Financial Officer, or the Controller, and in the absence of the Controller or in the event of his disability or refusal to act, shall perform the duties of the Controller, and when so acting shall have all the powers of and be subject to all the restrictions upon the Controller.

ARTICLE V

INDEMNIFICATION

Section 1.  Right to Indemnification.  Every person who was or is a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by

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reason of the fact that he is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation or for its benefit as a director, officer, employee or agent of another corporation, or as its representative in a partnership, joint venture, trust or other enterprise, including any employee benefit plan, shall be indemnified and held harmless by the Corporation to the fullest extent legally permissible under the General Corporation Law of the State of Delaware in the manner prescribed therein, from time to time, against all expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection therewith.  Similar indemnification may be provided by the Corporation to an employee or agent of the Corporation who was or is a party or is threatened to be made a party to or is involved in any such threatened, pending or completed action, suit or proceeding, by reason of the fact that he is or was an employee or agent of the Corporation or is or was serving at the request of the Corporation or for its benefit as a director, officer, employee, or agent of another corporation or as its representative in a partnership, joint venture, trust or other enterprise, including any employee benefit plan.

Section 2.  Other Indemnification.  The rights of indemnification conferred by this Article shall not be exclusive of any other rights which such directors, officers, employees or agents may have or hereafter acquire and, without limiting the generality of such statement, they shall be entitled to their respective rights of indemnification under any by-law, agreement, vote of stockholders, provision of law or otherwise, as well as their rights under this Article.

ARTICLE VI

SHARES AND THEIR TRANSFER

Section 1.  Shares of Stock.  The shares of stock in the Corporation shall be represented by a certificate, unless and until the Board of Directors of the Corporation adopts a resolution permitting shares to be uncertificated.  Notwithstanding the adoption of any such resolution providing for uncertificated shares, every holder of stock of the Corporation theretofore represented by certificates and, upon request, every holder of uncertificated shares, shall be entitled to have a numbered certificate in such form as shall be approved by the Board of Directors, certifying the number of shares owned by him and signed in the name of the Corporation by the Chairman of the Board or the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary, and sealed with the seal of the Corporation (which seal may be a facsimile, engraved or printed).  Any or all the signatures on the certificate may be a facsimile.  In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue.

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Section 2.  Transfer of Stock.  Stock of the Corporation shall be transferable in the manner prescribed by applicable law and in these By-Laws. Transfers of shares of stock of the Corporation shall be made on the stock records of the Corporation, and in the case of certificated shares of stock, only upon authorization by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary or with a transfer agent or transfer clerk, and on surrender of the certificate or certificates for such shares properly endorsed or accompanied by a duly executed stock transfer power with reasonable assurances given that such endorsement is genuine and that all taxes thereon have been paid; or, in the case of uncertificated shares of stock, upon receipt of proper transfer instructions from the registered holder of the shares or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary or with the transfer agent or transfer clerk, and reasonable assurances that all taxes thereon have been paid and compliance with appropriate procedures for transferring shares in uncertificated form; provided, however, that such surrender and endorsement, compliance or payment of taxes shall not be required in any case in which the authorized officers of the Corporation shall determine to waive such requirement.  Except as otherwise provided by law, the Corporation shall be entitled to recognize the exclusive right of a person in whose name any share or shares stand on the record of stockholders as the owner of such share or shares for all purposes, including, without limitation, the rights to receive dividends or other distributions, and to vote as such owner, and the Corporation may hold any such stockholder or record liable for calls and assessments, and the Corporation shall not be bound to recognize any equitable or legal claim to or interest in any such share or shares on the part of any other person whether or not it shall have express or other notice thereof.

Section 3.  Lost Certificates.  The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, or which shall have been mutilated, and the Board of Directors may, in its discretion, require the owner of the lost, stolen, destroyed or mutilated certificate, or his legal representative, to give the Corporation a bond, limited or unlimited, in such sum and in such form and with such surety or sureties as the Board of Directors in its absolute discretion shall determine is sufficient to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft, destruction or mutilation of any such certificate, or the issuance of a new certificate.  Anything herein to the contrary notwithstanding, the Board of Directors in its absolute discretion may refuse to issue any such new certificate except pursuant to legal proceedings under the laws of the State of Delaware.

Section 4.  Rules and Regulations.  The Board of Directors may make such additional rules and regulations, not inconsistent with these By-Laws, the Restated Certificate of Incorporation or the laws of the State of Delaware, as it may deem expedient concerning the issuance, transfer and registration of certificates for shares of stock of the Corporation.  The Board of Directors may appoint, or authorize any officer or officers of the Corporation to appoint, one or more independent transfer agents and one

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or more independent registrars, and may require all certificates for shares of stock to bear the signature or signatures of any of them.

Section 5.  Record Date.  In order to determine the stockholders entitled to notice and to vote at any meeting of stockholders or adjournment thereof, or to express consent to corporate action in writing without a meeting, or  entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be less than ten (10) nor more than sixty (60) days before the date of such meeting, nor more than sixty (60) days prior to any other action.  A determination of stockholders of record entitled to notice of and to vote at a meeting of stockholders shall apply to any adjournment of the meeting unless the Board of Directors shall elect to fix a record date for the adjourned meeting.

ARTICLE VII

GENERAL PROVISIONS

Section 1.  Contracts and Other Instruments.  The Chairman of the Board, the Vice Chairman of the Board, the President, the Chief Operating Officer, the Chief Financial Officer, the General Counsel, any Sector President, any Senior Executive Vice President, any Executive Vice President and any Senior Vice President may enter into any contract or execute and deliver any instrument in the name of the Corporation and on behalf of the Corporation except as in these By-Laws or by resolution otherwise provided.  The Board of Directors, except as in these By-Laws otherwise provided, may authorize any other officer or officers, agent or agents of the Corporation, to enter into any contract or execute and deliver any instrument in the name of the Corporation and on behalf of the Corporation, and such authority may be general or confined to specific instances, and unless so authorized by the Board of Directors, no such other officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable pecuniarily for any purpose or to any amount.

Section 2.  Loans.  No loans shall be contracted on behalf of the Corporation and no negotiable paper shall be issued in its name unless, and on such terms as shall be, authorized by the Board of Directors.

Section 3.  Disbursements.  All checks, drafts, demands for money, notes or other evidences of indebtedness of the Corporation shall be signed by such officer or officers or such other person or persons as may from time to time be designated by the Board of Directors or by any officer or officers or person or persons authorized by the Board of Directors to make such designations.  Facsimile signatures may be authorized in any such case where authorized by the Board of Directors.

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Section 4.  Deposits.  All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation under such conditions and in such banks or other depositories as the Board of Directors may designate, or as may be designated by any officer or officers, agent or agents of the Corporation to whom such power of designation may from time to time be delegated by the Board of Directors.  For the purpose of deposit and for the purpose of collection for the account of the Corporation, checks, drafts, and other orders for the payment of money which are payable to the order of the Corporation may be endorsed, assigned and delivered by any officer or agent of the Corporation as the Board of Directors may determine by resolution.

Section 5.  Voting Securities of Other Corporations.  Unless otherwise ordered by the Board of Directors, the Chairman of the Board, the President or any person either may designate, shall have full power and authority on behalf of the Corporation, in person or by proxy, to attend and to act and to vote at any meeting of the security holders of any other corporation in which this Corporation may hold securities, and at any such meeting he or his proxy shall possess and may exercise any and all rights and powers incident to the ownership of such securities and which as the owner thereof the Corporation might have possessed and exercised if present.  The Board of Directors, by resolution from time to time, may confer like powers upon any other person or persons.

Section 6.  Corporate Seal.  The Board of Directors shall provide a corporate seal, which shall be in the form of a circle, and which shall bear the words and figures:

ECOLAB INC.

CORPORATE SEAL

1924

DELAWARE

Section 7.  Fiscal Year.  The fiscal year of the Corporation shall be as determined by the Board of Directors.

Section 8.  Gender.  Whenever used in these By-Laws, words in the masculine gender shall include the feminine gender.

ARTICLE VIII

AMENDMENTS

Except as otherwise provided in the Restated Certificate of Incorporation or these By-Laws, the Board of Directors may from time to time, by vote of a majority of its members, alter, amend or rescind all or any of these By-Laws as permitted, by law, subject to the power of the stockholders to change or repeal such By-Laws.

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EX-10.S

EXHIBIT (10)S

2008 NAMED EXECUTIVE OFFICER

SUMMARY OF BASE SALARY, BONUS AWARD OPPORTUNITIES,

AND EXECUTIVE BENEFITS AND PERQUISITES

Base Salary

The table below sets forth the base salaries established for the 2008 fiscal year for the Company’s Principal Executive Officer and Principal Financial Officer and the next three most-highly compensated executive officers who were serving in those capacities at December 31, 2007 (the “NEOs”).

Name and Principal Position	Amount
Douglas M. Baker, Jr. Chairman of the Board, President and Chief Executive Officer	$	1,000,000
Steven L. Fritze Chief Financial Officer	$	475,000
James A. Miller President Institutional North America Sector	$	425,000
Thomas W. Handley President Industrial and Services North America Sector	$	400,000
Lawrence T. Bell General Counsel and Secretary	$	375,000

Bonus Award Opportunities

The Company maintains annual cash incentive programs for executives referred to as the Management Incentive Plan or MIP and Management Performance Incentive Plan or MPIP.  The Company’s stockholders approved the current version of the MPIP in 2004, an annual incentive plan under which awards should qualify as performance based under Internal Revenue Code Section 162(m).  On February 20, 2008, as required under the terms of the MPIP, the Compensation Committee of the Board (“Committee”) selected each of the NEOs to participate in the MPIP for 2008 and established the 2008 performance goal based upon the performance criteria of diluted earnings per share (“EPS”), and EPS performance target of a designated earnings per share, and a cash award of 300% of the base salary of each such officer for 2008 to the extent the goal is achieved.  The award is subject to and interpreted in accordance with the terms and conditions of the MPIP and no amount will be paid under the MPIP unless and until the Committee has determined the extent to which the performance goal has been met and the corresponding amount of the award earned by the participant.  The MPIP permits the Committee to exercise downward discretion so as to pay an amount which is less than the amount of the award earned by the participant.  In applying this downward discretion, the Committee considers underlying operable metrics communicated to the participant, which are noted in the table below.  Although the chart below indicates a threshold payment, a named executive officer may receive no payment as determined by results and approved by the Committee.

Name	Target Award Opportunity (% of base salary)	Potential Award Payouts at Different Levels of Performance (% of Target Award)			Performance Measure Mix
		Threshold	Target	Max	EPS	Business  Unit	Individual
Douglas M. Baker, Jr.	110%	40%	100%	200%	100%	0%	0%
Steven L. Fritze	70%	40%	100%	200%	70%	0%	30%
James A. Miller	70%	40%	100%	200%	30%	70%	0%
Lawrence T. Bell	60%	40%	100%	200%	70%	0%	30%
Thomas W. Handley	70%	40%	100%	200%	30%	70%	0%

Executive Benefits and Perquisites

The following table sets forth the executive benefits and perquisites made available by the Company to the NEOs for the 2008 fiscal year.

Executive Benefit or Perquisite	Description
Physical Examination	·      Annual reimbursement not to exceed $3,000
Mirror Savings and Pension Plan	·      Nonqualified ERISA excess benefit plans intended to restore benefits limited by law under the tax-qualified savings and pension plans ·      Executives may also elect to defer up to 25% of base salary and annual bonus, subject to the same investment alternatives (with the exception of the Ecolab Stock Fund) and returns as under the tax-qualified savings plan
Supplemental Executive Retirement Plan	·      Maximum annual benefit of 60% of highest five consecutive years of base salary and annual bonus (offset by other qualified and nonqualified pension benefits) ·      Provides past service credit
Post-Retirement Death Benefit	·      Two times final average pay
Executive Life, Accidental Death and Dismemberment and Business Travel Accident Insurance	·      Each are three times annual compensation for the preceding year
Long-Term Disability Insurance	·      60% of compensation, less the amount of the qualified benefit
Company Automobile	·      Allowance to replace prior executive company automobile lease program at same value
Financial Counseling	·      Up to five percent of base salary plus unused amounts for the prior two years for principal executive officer ·      Up to three percent of base salary plus unused amounts for the prior two years for other named executive officers
Club Memberships	·      Limited to principal executive officer
Private Aircraft Usage	·      Limited to principal executive officer
	(Not used in 2007)
Spousal Travel	·      Only when related to a business purpose

EX-10.T

EXHIBIT (10)T

NON-EMPLOYEE DIRECTOR COMPENSATION AND BENEFITS SUMMARY

(Revised January 1, 2008)

COMPENSATION

Annual Payments
Annual Retainer	$     70,000
Committee Chair Fee
- Audit	$     15,000 / 7,500 (for other members)
- Compensation and Finance	$     10,000
- Governance / Presiding Director	$     15,000

In addition, a number of shares of stock units are credited annually to each director’s deferred stock unit account. The Board has fixed the annual value of the stock units to one-half the value of the annual retainer, or $35,000.

All reasonable travel, telephone and other expenses incurred on behalf of Ecolab are reimbursable.

Directors may choose, at the time of initial election to the Board and annually thereafter, to have the portions of their compensation which are paid in cash deferred into an interest bearing deferred account or the stock unit account.

Deferred Accounts

Deferred accounts are of two types: (i) stock unit accounts which are comprised of stock equivalents, which increase/decrease with Ecolab’s stock price and are credited with dividend equivalents; and (ii) interest-bearing accounts, which are credited with interest at the prime rate.

Deferred accounts for a director are tax deferred until the director ceases Board service. At that time, the proceeds are paid in a lump sum or in equal annual installments for up to 10 years depending on the director’s election, which can be made, generally, as late as one year prior to leaving the Board for amounts deferred before 2005. Amounts deferred in 2005 or later must be paid in a lump sum. Amounts deferred to the interest-bearing account, are paid in cash. Amounts in the stock unit account are paid in Ecolab stock. Upon death, a lump sum of any remaining amounts will be paid to the director’s beneficiary.

BENEFITS

Stock Option Plan

Directors receive a non-qualified option to purchase a number of shares of Common Stock, as fixed from time-to-time by the fair market value on such date. The right to exercise the option vests on grant. Currently, the Board has fixed the value of the annual stock option grant at $55,000.

Options may be exercised for a period of 10 years from grant. However, in the event a director ceases to be a director, the exercise period is shortened to the lesser of five years from the date the director terminates director status or the remaining term of the original option period.

Matching Gifts

Ecolab will match, up to $1,000 per fiscal year, a director’s contributions to accredited U.S. educational institutions and an additional $100 for contributions to qualifying U.S. public radio and television stations.

Eligibility for this program continues through the calendar year in which a director ceases to be a director.

Travel Insurance

Directors are covered by $150,000 business travel accident coverage while traveling on Ecolab business.

Director Liability Protection

·The current D&O coverage is $75 million. There is no individual deductible.

·Ecolab’s Certificate of Incorporation eliminates the ability of Ecolab or its stockholders to recover monetary damages resulting from good-faith breaches of certain fiduciary duties by a director.

·Directors are entitled to indemnification by Ecolab for actions as a director taken in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of Ecolab.

EX-13

Exhibit (13)

FINANCIAL DISCUSSION

EXECUTIVE SUMMARY

This Financial Discussion should be read in conjunction with the information on Forward-Looking Statements and Risk Factors found at the end of this Financial Discussion.

Ecolab continued its trend of exceptionally strong financial performance in 2007.  It was an outstanding year of growth, development and investment for the future.  Results for 2007 marked another year of record sales and earnings and we did this while continuing to invest in our people and business to drive our future long-term growth. We demonstrated our commitment to building for the future while delivering today. Below are the highlights of another successful year.

We once again exceeded all three of our long-term financial objectives:

	2007 RESULTS	LONG-TERM OBJECTIVE
EPS Growth	19%	15%
ROBE	25%	20%
Balance Sheet	A	Investment Grade

FINANCIAL PERFORMANCE

   Consolidated net sales increased 12% reaching a record $5.5 billion for 2007.

Operating income increased 9% in 2007 to a record $667 million, including $20 million of special gains and charges which decreased operating income growth by 3%.

Diluted net income per share increased 19% to $1.70 per share for 2007, compared to $1.43 per share in 2006. The 2007 per share amount was favorably impacted by $0.04 per share of special gains and charges and discrete tax benefits.

Cash flow from operating activities reached a record $798 million in 2007. We repurchased $371 million of our common stock during 2007. Our return on beginning shareholders’ equity was 25.4% in 2007, the 16th consecutive year in which we achieved our long-term financial objective of a 20% return on beginning shareholders’ equlty. We increased our cash dividend 13% to an indicated annual rate of $0.52 per share.  This is our 71st consecutive year of paying a cash dividend and 16th consecutive year of cash dividend increases. The increase reflects the continued growth we achieved in 2007, our solid financial position and cash flows, and our confidence in the ongoing strength of the business for the years ahead. OPERATING HIGHLIGHTS We significantly expanded our healthcare offerings by acquiring Microtek Medical Holdings, Inc., a manufacturer and marketer of infection control products for healthcare and acute care facilities with annual sales of approximately $150 million in 2007. In 2007 we launched more than 40 new innovative products and services including Apex™, a revolutionary warewashing system, a new Hand Hygiene Monitoring Compliance Program for hospitals and healthcare facilities and the Inspexx^® sanitization system which helps poultry producers save water, energy and labor. Our legendary service is what sets Ecolab apart. We continued to invest in our sales-and-service team adding more than 650 associates to our global field organization. We completed the management transition in Europe and made significant progress toward transforming the region by committing to establishing a European headquarters in Zurich, Switzerland and beginning the development of Ecolab Business Solution (EBS), an extensive project to implement a common set of business processes and systems across all of Europe. We launched a new business platform for GCS Service that will allow us to more effectively and efficiently grow the GCS business and realize its significant market potential. We continued to execute our aggressive stock keeping unit (SKU) reduction initiative, designed to standardize product offerings, improve operating efficiencies and provide consistent performance for our customers across businesses and around the world. To date, we have eliminated nearly 3,000 SKUs. We continue to utilize Lean Six Sigma to improve operational performance and efficiency. By applying these tools, we have achieved a 35% reduction in order entry cycle time, 10% reduction in backorders, 17% improvement in shipment quality and 10% increase in shipment size.

OUTLOOK

We will remain focused on achieving strong and steady growth and superior returns for our shareholders.

We plan to leverage our Circle the Customer - Circle the Globe growth strategy in new and improved ways.

We intend to continue to invest in the necessary people, systems, R&D, new products and infrastructure that will equity support our drive for superior long-term growth.

We will drive our initiatives in Europe, establishing our new European headquarters in Switzerland and achieving pan-European integration as we begin implementation of EBS. 2008 will be a year of significant investment in Europe and these investments will be reflected in Ecolab’s results; however, we believe the investments will be critical to generating higher growth and profitability in Europe in subsequent years.

We will continue to leverage our investments in GCS, using them to help us enhance our service offering and take advantage of the huge opportunity we see in commercial kitchen equipment repair.

We will work to build our opportunities in the high-potential healthcare market, utilizing both internal development and acquisitions.

We intend to continue to make targeted acquisitions, following our disciplined approach to ensure strong strategic business fit and solid financial performance.

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CRITICAL ACCOUNTING ESTIMATES

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). We have adopted various accounting policies to prepare the consolidated financial statements in accordance with U.S. GAAP. Our most significant accounting policies are disclosed in Note 2 of the notes to the consolidated financial statements.

Preparation of our consolidated financial statements, in conformity with U.S. GAAP, requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Estimates are considered to be critical if they meet both of the following criteria: (1) the estimate requires assumptions to be made about matters that are highly uncertain at the time the accounting estimate is made, and (2) different estimates that the company reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, have a material impact on the presentation of the company’s results of operations.

Besides estimates that meet the “critical” estimate criteria, we make many other accounting estimates in preparing our financial statements and related disclosures. All estimates, whether or not deemed critical, affect reported amounts of assets, liabilities, revenues and expenses as well as disclosures of contingent assets and liabilities. Estimates are based on experience and other information available prior to the issuance of the financial statements. Materially different results can occur as circumstances change and additional information becomes known, even from estimates not deemed critical. Our critical accounting estimates include the following:

REVENUE RECOGNITION

We recognize revenue on product sales at the time title to the product and risk of loss transfers to the customer. We recognize revenue on services as they are performed. Our sales policies do not provide for general rights of return and do not contain customer acceptance clauses. We record estimated reductions to revenue for customer programs and incentive offerings including pricing arrangements, promotions and other volume-based incentives at the time the sale is recorded. Depending on market conditions, we may increase customer incentive offerings, which could reduce gross profit margins at the time the incentive is offered.

VALUATION ALLOWANCES AND ACCRUED LIABILITIES

We estimate sales returns and allowances by analyzing historical returns and credits, and apply these trend rates to the most recent 12 months’ sales data to calculate estimated reserves for future credits. We estimate the allowance for doubtful accounts by analyzing accounts receivable balances by age and applying historical write-off trend rates. In addition, our estimates also include separately providing for 100% of specific customer balances when it is deemed probable that the balance is uncollectible. Actual results could differ from these estimates under different assumptions.

Estimates used to record liabilities related to pending litigation and environmental claims are based on our best estimate of probable future costs. We record the amounts that represent the points in the range of estimates that we believe are most probable or the minimum amounts when no amount within the range is a better estimate than any other amount. Potential insurance reimbursements are not anticipated in our accruals for environmental liabilities or other insured losses. Expected insurance proceeds are recorded as receivables when recovery is probable. While the final resolution of litigation and environmental contingencies could result in amounts different than current accruals, and therefore have an impact on our consolidated financial results in a future reporting period, we believe the ultimate outcome will not have a significant effect on our financial position.

ACTUARIALLY DETERMINED LIABILITIES

The measurement of our pension and postretirement benefit obligations are dependent on a variety of assumptions determined by management and used by our actuaries. These assumptions affect the amount and timing of future contributions and expenses.

The assumptions used in developing the required estimates include, among others, discount rate, projected salary and health care cost increases and expected return or earnings on assets. The discount rate assumption for the U.S. Plans is calculated using a bond yield curve constructed from a large population of high-quality, non-callable, corporate bond issues with maturity dates of six months to thirty years. Bond issues in the population are rated no less than Aa by Moody’s Investor Services or AA by Standard & Poors. The discount rate is calculated by matching of the plan liability cash flows to the yield curve.  Projected salary and health care cost increases are based on our long-term actual experience, the near-term outlook and assumed inflation. The expected return on plan assets reflects asset allocations, investment strategies and the views of investment advisors. The effects of actual results differing from our assumptions, as well as changes in assumptions, are reflected in the unrecognized actuarial loss and amortized over future periods and, therefore, generally affect our recognized expense in future periods. The unrecognized actuarial loss on our U.S. qualified and nonqualified pension plans decreased to $183 million (before tax) as of December 31, 2007, due primarily to an increase in the discount rate at the end of 2007 and amortization of existing unrecognized actuarial losses, partially offset by lower than expected return on plan assets. Significant differences in actual experience or significant changes in assumptions may materially affect pension and other post-retirement obligations. In determining our U.S. pension and postretirement obligations for 2007, our discount rate increased to 5.99% from 5.79% at year-end 2006. Our projected salary increase was unchanged at 4.32% and our expected return on plan assets used for determining 2007 expense was unchanged at 8.75%.

The effect on 2008 expense of a decrease in the discount rate or expected return on assets assumption as of December 31, 2007 is shown below assuming no changes in benefit levels and no amortization of gains or losses for our major plans:

MILLIONS	EFFECT ON U.S. PENSION PLAN
		INCREASE IN	HIGHER
	ASSUMPTION	RECORDED	2008
ASSUMPTION	CHANGE	OBLIGATION	EXPENSE
Discount rate	-0.25 pts	$32.1	$4.3
Expected return on assets	-0.25 pts	N/A	$2.0

	EFFECT ON U.S. POSTRETIREMENT
MILLIONS	HEALTH CARE BENEFITS PLAN
		INCREASE IN	HIGHER
	ASSUMPTION	RECORDED	2008
ASSUMPTION	CHANGE	OBLIGATION	EXPENSE
Discount rate	-0.25 pts	$4.5	$0.7
Expected return on assets	-0.25 pts	N/A	$0.1

We use similar assumptions to measure our international pension obligations. However, the assumptions used vary by country based on specific local country requirements. See Note 15 for further

20

discussion concerning our accounting policies, estimates, funded status, planned contributions and overall financial positions of our pension and post-retirement plan obligations.

We are self-insured in North America for most workers compensation, general liability and automotive liability losses, subject to per occurrence and aggregate annual liability limitations. We are insured for losses in excess of these limitations. We have recorded both a liability and an offsetting receivable for amounts in excess of these limitations. We are also self-insured for health care claims for eligible participating employees, subject to certain deductibles and limitations. We determine our liabilities for claims incurred but not reported on an actuarial basis. A change in these assumptions would cause reported results to differ. Outside of North America, we are fully insured for losses, subject to annual deductibles.

SHARE-BASED COMPENSATION

As required by Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment (“SFAS 123R”), we measure compensation expense for share-based awards at fair value at the date of grant and recognize compensation expense over the service period for awards expected to vest. Determining the fair value of share-based awards at the grant date requires judgment, including estimating expected volatility, exercise and post-vesting termination behavior, expected dividends and risk-free rates of return. Additionally, the expense that is recorded is dependent on the amount of share-based awards expected to be forfeited. If actual forfeiture results differ significantly from these estimates, share-based compensation expense and our results of operations could be impacted. For additional information on our stock incentive and option plans, including significant assumptions used in determining fair value, see Note 10.

INCOME TAXES

Judgment is required to determine the annual effective income tax rate, deferred tax assets and liabilities and any valuation allowances recorded against net deferred tax assets. Our effective income tax rate is based on annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which we operate.Effective January 1, 2007 we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statements No. 109 (“FIN 48”).  FIN 48 requires us to recognize the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with a taxing authority. Our annual effective income tax rate includes the impact of reserve provisions. We adjust these reserves in light of changing facts and circumstances. During interim periods, this annual rate is then applied to our year-to-date operating results.  In the event that there is a significant one-time item recognized in our interim operating results, the tax attributable to that item would be separately calculated and recorded in the same period as the one-time item.

Tax regulations require items to be included in our tax returns at different times than the items are reflected in our financial statements. As a result, the effective income tax rate reflected in our financial statements differs from that reported in our tax returns. Some of these differences are permanent, such as expenses that are not deductible on our tax return, and some are temporary differences, such as depreciation expense. Temporary differences create deferred tax assets and liabilities. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax return in future years for which we have already recorded the tax benefit in our income statement. We establish valuation allowances for our deferred tax assets when the amount of expected future taxable income is not likely to support the utilization of the deduction or credit. Deferred tax liabilities generally represent items for which we have already taken a deduction in our tax return, but have not yet recognized that tax benefit in our financial statements. Undistributed earnings of foreign subsidiaries are considered to have been reinvested indefinitely or available for distribution with foreign tax credits available to offset the amount of applicable income tax and foreign withholding taxes that might be payable on earnings.  It is impractical to determine the amount of incremental taxes that might arise if all undistributed earnings were distributed.

A number of years may elapse before a particular tax matter, for which we have established a reserve, is audited and finally resolved. The number of tax years with open tax audits varies depending on the tax jurisdiction. During 2004, the Internal Revenue Service (IRS) completed its field examination of our U.S. income tax returns for 1999 through 2001.  During 2007, the IRS completed its field examination of our U.S. income tax returns for 2002 through 2004. It is reasonably possible for specific open positions related to these examinations as of year end to be settled in the next twelve months.  Unfavorable settlement of any particular issue could result in offsets to other balance sheet accounts, cash payments and/or additional tax expense. Favorable resolution could result in reduced income tax expense reported in the financial statements in the future. The majority of our tax reserves are presented in the balance sheet within other non-current liabilities.

LONG-LIVED AND INTANGIBLE ASSETS

We periodically review our long-lived and intangible assets for impairment and assess whether significant events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable. This could occur when the carrying amount of an asset exceeds the anticipated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded, if any, is calculated as the excess of the asset’s carrying value over its estimated fair value. We also periodically reassess the estimated remaining useful lives of our long-lived assets. Changes to estimated useful lives would impact the amount of depreciation and amortization expense recorded in earnings. We have experienced no significant changes in the carrying value or estimated remaining useful lives of our long-lived assets.

We review our goodwill for impairment on an annual basis for all reporting units. If circumstances change significantly within a reporting unit, we would test for impairment during interim periods prior to the annual test. Goodwill and certain intangible assets are assessed for impairment using fair value measurement techniques. Specifically, goodwill impairment is determined using a two-step process. Both the first step of determining the fair value of a reporting unit and the second step of determining the fair value of individual assets and liabilities of a reporting unit (including unrecognized intangible assets) are judgmental in nature and often involve the use of significant estimates and assumptions. Estimates of fair value are primarily determined using discounted cash flows, market comparisons and recent transactions. These valuation methodologies use significant estimates and assumptions, which include projected future cash flows (including timing), discount rate reflecting the risk inherent in future cash flows, perpetual growth rate, and determination of appropriate market comparables. No impairments were recorded in 2007, 2006 or 2005 as a result of the tests performed. Of the total goodwill included in our consolidated balance sheet, 25% is recorded in our U.S. Cleaning & Sanitizing reportable segment, 4% in our U.S. Other Services segment and 71% in our International segment.

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FUNCTIONAL CURRENCIES

In preparing the consolidated financial statements, we are required to translate the financial statements of our foreign subsidiaries from the currency in which they keep their accounting records, the local currency, into United States dollars. Assets and liabilities of these operations are translated at the exchange rates in effect at each fiscal year end. The translation adjustments related to assets and liabilities that arise from the use of differing exchange rates from period to period are included in accumulated other comprehensive income in shareholders’ equity. Income statement accounts are translated at average rates of exchange prevailing during the year. We evaluate our International operations based on fixed rates of exchange; however, the different exchange rates from period to period impact the amount of reported income from our consolidated operations.

RESULTS OF OPERATIONS

CONSOLIDATED

						PRIOR YEAR
MILLIONS,						PERCENT CHANGE
EXCEPT PER SHARE	2007	2006		2005		2007		2006
Net sales	$5,470	$4,896		$4,535		12	%	8	%
Operating income	667	612		542		9		13
Net income	427	369		319		16		15
Diluted net income per common share	$  1.70	$	1.43	$	1.23	19	%	16	%

Our consolidated net sales increased 12% in 2007. The components include 5% volume growth, 2% favorable effect from price changes, 1% due to acquisitions and divestitures and 4% due to favorable changes in currency translation.

	2007	2006	2005
Gross profit as a percent of net sales	50.8%	50.7%	50.4%
Selling, general & administrativeexpenses as a percent of net sales	38.2%	38.2%	38.4%

Our consolidated gross profit margin (defined as gross profit divided by net sales) increased in 2007, primarily driven by pricing and cost savings initiatives, more than offsetting higher delivered product costs, acquisition dilution and business mix in our international operations.

Selling, general and administrative expenses as a percentage of sales remained at 38.2% for 2007. Leverage from our sales growth was fully offset by investments we are making in business systems, new product solutions and business efficiency initiatives.

Special gains and charges were $19.7 million in 2007 and include a $27.4 million charge for an arbitration settlement related to two California class action lawsuits involving wage/hour claims affecting former and current Pest Elimination employees recorded in the third quarter of 2007. Special gains and charges also include one-time costs related to establishing the company’s European headquarters in Zurich, Switzerland and other non-recurring charges. These charges were partially offset by a $6.3 million gain on the sale of a minority investment located in the U.S. and a $4.7 million gain on the sale of Peter Cox Ltd. in the U.K. which were recorded in the fourth quarter of 2007. For segment reporting purposes, these items have been included in our corporate segment, which is consistent with our internal management reporting.

	2007	2006	2005
Operating income as a percentof net sales	12.2%	12.5%	12.0%

Operating income increased 9% in 2007 over 2006. The increase in operating income in 2007 is due to sales volume, pricing and cost savings initiatives, partially offset by special gains and charges, higher delivered product costs and investments in the business. Operating income as a percent of sales decreased from 2006 due to special gains and charges of $19.7 million. Excluding special gains and charges, our 2007 operating income margin increased to 12.6%.

Net income increased 16% in 2007 to $427 million compared to $369 million in 2006. Net income in both years included items of a non-recurring nature that are not necessarily indicative of future operating results. Net income in 2007 includes $9.5 million, net of tax benefit, of special gains and charges and $19.3 million of discrete tax benefits.  Net income in 2006 included a discrete tax benefit of $1.8 million which was offset by a $1.8 million charge, net of tax benefit, in selling, general and administrative expense to recognize minimum royalties under a licensing agreement with no future benefit. These items increased net income growth in 2007 by 3%. Our 2007 net income was positively impacted by favorable currency translation of approximately $15 million and also benefited when compared to 2006 due to a lower overall effective income tax rate.

2006 COMPARED WITH 2005

Our consolidated net sales for 2006 increased 8% over 2005. The components include 6% volume growth and 2% favorable effect from price changes.  Acquisitions and divestitures and changes in currency translation did not have a significant impact on the consolidated sales growth rate for 2006.

Our consolidated gross profit margin for 2006 increased from 2005, primarily driven by pricing and cost savings initiatives which more than offset higher delivered product costs during the year.

Selling, general and administrative expenses as a percentage of sales improved in 2006 compared to 2005. The improvement in the 2006 expense ratio was primarily due to increased sales leverage and cost saving programs which more than offset investments in the business.

Operating income increased 13% in 2006 over 2005. As a percent of sales, operating income also increased from 2005. The increase in operating income was due to pricing, sales volume and cost reduction initiatives partially offset by higher delivered product costs as well as investments in the business.

Our net income increased 15% in 2006 compared to 2005. Net income in both years included items of a non-recurring nature that are not necessarily indicative of future operating results. Net income in 2006 included a discrete tax benefit of $1.8 million which was offset by a $1.8 million charge, net of tax benefit, in selling, general and administrative expense to recognize minimum royalties under a licensing agreement with no future benefit. Net income in 2005 included a tax charge of $3.1 million related to the repatriation of foreign earnings under the American Jobs Creation Act (AJCA).  These items increased net income growth by 1% for 2006. The increase in net income reflects improved sales, gross margin and operating income growth. Currency translation positively impacted net income in 2006 by approximately $2 million. Our 2006 net income also benefited when compared to 2005 due to a lower overall effective income tax rate.

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SEGMENT PERFORMANCE

Our operating segments have been aggregated into three reportable segments: U.S. Cleaning & Sanitizing, U.S. Other Services and International. We evaluate the performance of our International operations based on fixed management rates of currency exchange. Therefore, International sales and operating income totals, as well as the International financial information included in this financial discussion, are based on translation into U.S. dollars at the fixed currency exchange rates used by management for 2007. The difference between actual currency exchange rates and the fixed currency exchange rates used by management is included in “Effect of foreign currency translation” within our operating segment results. All other accounting policies of the reportable segments are consistent with U.S. GAAP and the accounting policies of the company described in Note 2 of the notes to consolidated financial statements. Additional information about our reportable segments is included in Note 16 of the notes to consolidated financial statements.

SALES BY REPORTABLE SEGMENT

						PRIOR YEAR
						PERCENT CHANGE
MILLIONS	2007	2006		2005		2007		2006
Net sales
United States
Cleaning & Sanitizing	$2,351	$2,152		$1,952		9	%	10	%
Other Services	450	411		375		10		9
Total United States	2,801	2,563		2,327		9		10
International	2,522	2,372		2,245		6		6
Total	5,323	4,935		4,572		8		8
Effect of foreigncurrency translation	147	(39	)	(37	)
Consolidated	$5,470	$4,896		$4,535		12	%	8	%

U.S. Cleaning & Sanitizing sales increased 9% in 2007, led by Institutional, Food & Beverage, and Kay gains.  Acquisitions added 1% to the year over year sales growth.  Institutional sales increased 8% in 2007 resulting from new account gains and good sales growth into its various end-market segments including travel, restaurant and healthcare.  Food & Beverage sales increased 9% for 2007. An acquisition in 2006 added 2% and the remaining increase was due to sales growth in the meat & poultry, food and beverage markets. Kay sales grew 9% in 2007 led by solid ongoing food retail and quickservice restaurant demand from major existing customers, strong new account gains and success with new products and programs.

U.S. Other Services sales increased 10% in 2007. Pest Elimination continued to show strong growth as its sales increased 10%, driven by strong contract sales with significant new corporate account gains, supplemented by strong non-contract sales. GCS Service sales increased a strong 8% in 2007 showing improved sales momentum driven by corporate account gains.

Management rate sales of our International operations grew 6% in 2007. Acquisitions and divestitures did not have a significant impact on the year over year sales growth in 2007. Sales in Europe/ Middle East/Africa (EMEA) increased 5% in 2007 as good sales gains in the United Kingdom, South Africa and Turkey were partially offset by weak results in Germany and France. EMEA also achieved geographic growth in 2007 through further expansion in eastern Europe.  Asia Pacific sales grew 9% primarily driven by significant growth in China and Hong Kong as well as good growth in Japan and Australia. Asia Pacific sales benefited from new corporate accounts and good results in the beverage and brewery market. Latin America sales continued to be strong, rising 14% in 2007. The growth over last year was led by double-digit growth in Brazil, Mexico and the Caribbean. Sales benefited from new account gains, growth of existing accounts and success with new programs. Sales in Canada increased 7% in 2007, led by institutional growth due to corporate account gains, new products and excellent account retention.

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OPERATING INCOME BY REPORTABLE SEGMENT

MILLIONS	2007				2006			2005
Operating income
United States
Cleaning & Sanitizing	$		394		$	329		$	280
Other Services	41				39			36
Total United States	435				368			316
International	253				247			231
Total	688				615			547
Corporate	(40			)	–			–
Effect of foreigncurrency translation	19				(3		)	(5		)
Consolidated	$	667			$	612		$	542
Operating income as a percent of net sales
United States
Cleaning & Sanitizing	16.8			%	15.3		%	14.3		%
Other Services	9.0				9.5			9.6
Total United States	15.5				14.4			13.6
International	10.0				10.3			10.3
Consolidated	12.2			%	12.5		%	12.0		%

U.S. Cleaning & Sanitizing operating income increased 20% in 2007. As a percentage of net sales, operating income increased to 16.8% in 2007 from 15.3% in 2006. Operating income increased due to pricing, higher sales volume and cost efficiencies which more than offset rising delivered product costs and investments in the business. Acquisitions and divestitures had minimal effect on the overall percentage increase in operating income.

U.S. Other Services operating income increased 4% in 2007. Operating income increased due to pricing and higher sales volume which were partially offset by investments in the business and costs associated with the implementation of a new business platform for GCS. As a percentage of net sales, operating income decreased to 9.0% in 2007 from 9.5% in 2006. The decrease in the ratio was primarily due to legal charges at Pest Elimination as well as system implementation costs at GCS.

International management-rate based operating income rose 2% in 2007. The International operating income margin was 10.0% in 2007 compared to 10.3% in 2006. Operating income increased due to higher sales volume and pricing. However, operating income margin decreased due to higher delivered product costs and significant investment in our international business in 2007. When measured at public currency rates, operating income increased 12% in 2007. Acquisitions and divestitures did not have a significant impact on operating income growth.

Operating income margins of our International operations are generally less than those realized for our U.S. operations. The lower International margins are due to (i) the additional costs caused by the difference in scale of International operations where many operating locations are smaller in size, (ii) the additional cost of operating in numerous and diverse foreign jurisdictions and (iii) higher costs of importing raw materials and finished goods. Proportionately larger investments in sales, technical support and administrative personnel are also necessary in order to facilitate the growth of our International operations.

CORPORATE

Consistent with our internal management reporting, the corporate segment includes $19.7 million of special gains and charges reported on the Consolidated Statement of Income. It also includes investments we are making in business systems and to optimize our business structure as part of our ongoing efforts to improve our efficiency and returns. We did not report any items in our corporate segment in 2006 or 2005.

2006 COMPARED WITH 2005

Sales of our U.S. Cleaning & Sanitizing operations increased 10% in 2006 from 2005. Sales were driven by double-digit sales growth from Institutional and Kay, along with good growth from Food & Beverage. Institutional sales increased 11%, benefiting from significant new account gains during the year. Institutional results reflect sales growth into all end market segments, including double-digit growth in travel, casual dining and health care markets. Food & Beverage sales increased 8% for 2006. An acquisition added 1% and the remaining increase was due to double-digit gains in the meat & poultry market as well as good gains in the dairy, food and soft drink markets. Kay recorded an 11% sales increase in 2006 led by gains in its core quickservice and food retail markets. Kay benefited from good ongoing demand from existing customers as well as new account gains.

Sales of our U.S. Other Services operations increased 9% in 2006. Pest Elimination continued its double-digit sales growth as sales rose 13%. Sales were driven by growth in both core pest elimination contract and non-contract services. Sales also benefited from new accounts and strong customer retention. GCS Service sales grew modestly as service and installed parts sales increased over last year. GCS Service continued to focus on infrastructure and process development in 2006 that helped improve competitive advantage and business scalability in the future.

Management rate sales of our International operations increased 6% in 2006 over 2005. Acquisitions and divestitures added 1% to the year over year sales growth. Sales in Europe increased 4% from 2005. Good sales growth in the United Kingdom was partially offset by slower sales growth in Germany, France and Italy. Europe also achieved geographic growth in 2006 through further expansion in eastern Europe. Asia Pacific sales grew 6% primarily driven by growth in China, Australia, Thailand and Hong Kong partially offset by weakness in Japan. Asia Pacific sales benefited from new corporate accounts and good results in the beverage and brewery market. Latin America recorded strong 14% sales growth in 2006. The growth was driven by results in Mexico, the Caribbean and Venezuela. Results were due to new account gains, growth of existing accounts and success with new programs. Sales in Canada increased 8% in 2006, reflecting good results from all divisions. Sales benefited from pricing, account retention and new business.

Operating income of our U.S. Cleaning & Sanitizing operations increased 18% in 2006. As a percentage of net sales, operating income increased to 15.3% in 2006 from 14.3% in 2005. Acquisitions and divestitures had no effect on the overall percentage increase in operating income. Operating income increased due to pricing, higher sales volume and improved cost efficiencies, which more than offset higher delivered product costs and investments in the business.

Operating income of our U.S. Other Services operations increased 8% in 2006. As a percentage of net sales, operating income decreased slightly to 9.5% in 2006 from 9.6% in 2005. Double-digit operating income growth at Pest Elimination was offset by slow

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sales growth as well as investments in the GCS business. Operating income growth and operating income margin comparisons were also impacted by a $0.5 million regulatory expense in the second quarter of 2006 and a $0.5 million patent settlement benefit in the first quarter of 2005.

Management-rate based operating income of International operations rose 7% in 2006. The International operating income margin was 10.3% in both 2006 and 2005. Acquisitions and divestitures occurring in 2006 and 2005 increased operating income growth by 1% over 2005. Operating income growth benefited from pricing, sales volume growth and cost efficiencies which more than offset higher delivered product costs and investments in the business.

INTEREST

Net interest expense totaled $51 million in 2007 compared to $44 million in 2006. The increase in our net interest expense in 2007 is due to higher debt, primarily to fund acquisitions and share repurchases. Net interest expense was $44 million for both 2006 and 2005.

INCOME TAXES

The following table provides a summary of our reported tax rate:

	2007	2006	2005
Reported tax rate	30.7%	35.0%	35.9%
Impact of discrete items –increase (decrease)	(3.7)%	(0.4)%	0.3%

Reductions in our effective income tax rates over the last three years have primarily been due to U.S. tax legislation, international rate reductions and tax planning efforts. The 2007 reported tax rate was impacted by $29.5 million of discrete items including $10.2 million of net tax benefits on special gains and charges as well as $19.3 million of discrete tax benefits. Discrete tax benefits in 2007 included $8.4 million of tax benefit due to legislated corporate tax rate reductions in the U.K. and Germany which reduced our net deferred tax liability and $10.9 million for various audit settlements as well as other discrete items during 2007.  2006 included the benefit of a $1.8 million tax settlement and a $0.5 million benefit related to prior years. 2005 included a $3.1 million tax charge related to the repatriation of foreign earnings under the AJCA and other one-time benefits.

FINANCIAL POSITION & LIQUIDITY

FINANCIAL POSITION

Our debt continued to be rated within the “A” categories by the major rating agencies during 2007. Significant changes in our financial position during 2007 included the following:

Total assets increased to $4.7 billion as of December 31, 2007 from $4.4 billion at year-end 2006. The increase is primarily due to acquisitions which added $0.4 billion and foreign currency translation which added approximately $0.2 billion to the value of non-U.S. assets on the balance sheet as the U.S. dollar weakened against foreign currencies, primarily the euro. These increases were partially offset by a decrease in cash and cash equivalents used for the scheduled repayment of our 5.375% euronotes in February 2007.

Total liabilities increased to $2.8 billion at December 31, 2007 from $2.7 billion at December 31, 2006 primarily due to an increase in short-term borrowings and the effects of currency translation, offset by the scheduled repayment of our 5.375% euronotes.

Total debt was $1.0 billion at December 31, 2007 and decreased from total debt of $1.1 billion at December 31, 2006. The decrease in total debt was primarily due to the scheduled repayment of our 5.375% euronotes in February 2007, offset partially by an increase in short-term borrowings primarily to fund acquisitions and share repurchases. The ratio of total debt to capitalization (total debt divided by the sum of shareholder's equity plus total debt) was 34% at year-end 2007 and 39% at year-end 2006. The debt to capitalization ratio was higher in 2006, due to the new senior notes issued in December 2006, the proceeds of which were used to repay our 5.375% euronotes in February 2007. Excluding the 5.375% euronotes, the total debt to capitalization would have been 29% for 2006 compared to 34% for 2007. 2007 increased due to additional short-term borrowing discussed above. We view our debt to capitalization ratio as an important indicator of our creditworthiness.

CASH FLOWS Cash provided by operating activities increased $170 million in 2007. The increase in operating cash flow for 2007 over 2006 is due to increased earnings, reduction of pension contributions and lower income tax payments due in 2007 compared to 2006. The increase in operating cash flow for 2006 over 2005 reflects our higher earnings offset partially by an increase in income tax payments and accountsreceivable in 2006. Historically, we have had strong operating cash flows and we anticipate this will continue. We expect to continue to use this cash flow to acquire new businesses, repurchase our common stock, pay down debt and meet our ongoing obligations and commitments. Cash used for investing activities increased in 2007 primarily due to increased acquisition activity, higher capital and software investments, and timing of short-term investment sales in 2006.  We continue to acquire strategic businesses which compliment our growth strategy. We also continue to invest in merchandising equipment consisting primarily of systems used by our customers to dispense our cleaning and sanitizing products.  Capital software expenditures increased due to investments in new business systems. We expect to continue to make significant capital investments and acquisitions to support our long-term growth. Our cash flows from financing activities reflect issuances and repayment of debt, common stock repurchases, dividend payments and proceeds from common stock issuances related to our equity incentive programs. Cash used for financing activities increased in 2007 due to long-term debt repayment and a significant increase in share repurchases, offset partially by short-term borrowings.

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Share repurchases were funded with operating cash flows, short-term borrowing and cash from the exercise of employee stock options.  In October 2006, we announced an authorization to repurchase up to 10 million shares of Ecolab common stock. As of December 31, 2007, approximately 4.7 million shares remained to be purchased under this authorization. Shares are repurchased for the purpose of offsetting the dilutive effect of stock options and incentives and for general corporate purposes. During 2008, we expect to repurchase at least enough shares to offset the dilutive effect of stock options. Cash proceeds from the exercises as well as the tax benefits will provide a portion of the funding for this repurchase activity.

In 2007, we increased our indicated annual dividend rate for the 16th consecutive year. We have paid dividends on our common stock for 71 consecutive years. Cash dividends declared per share of common stock, by quarter, for each of the last three years were as follows:

	FIRST	SECOND	THIRD	FOURTH
	QUARTER	QUARTER	QUARTER	QUARTER	YEAR
2007	$0.1150	$0.1150	$0.1150	$0.1300	$0.4750
2006	0.1000	0.1000	0.1000	0.1150	0.4150
2005	0.0875	0.0875	0.0875	0.1000	0.3625

LIQUIDITY AND CAPITAL RESOURCES

We currently expect to fund all of the requirements which are reasonably foreseeable for 2008, including scheduled debt repayments, new investments in the business, share repurchases, dividend payments, possible business acquisitions and pension contributions from operating cash flow, cash reserves and short-term and/or long-term borrowings. In the event of a significant acquisition or other significant funding need, funding may occur through additional short and/or long-term borrowings or through the issuance of the company’s common stock.

In December 2006, we issued and sold in a private placement euro 300 million ($439 million as of December 31, 2007) aggregate principal amount of senior notes in two series: 4.355% Series A Senior Notes due 2013 in the aggregate principal amount of euro 125 million and 4.585% Series B Senior Notes due 2016 in the aggregate principal amount of euro 175 million (the “Notes),” pursuant to a Note Purchase Agreement dated July 26, 2006, between the company and the purchasers. The Notes are not subject to prepayment except where, in certain specified instances, we consolidate or merge all or substantially all of our assets with any other Person (as defined in the Note Purchase Agreement) and there is also a resulting ratings downgrade to below investment grade. Upon such consolidation or merger, we will offer to prepay all of the Notes at 100% of the principal amount outstanding plus accrued interest. In the event of a default by the company under the Note Purchase Agreement, the Notes may become immediately due and payable for the unpaid principal amount, accrued interest and a make-whole amount determined as of the time of the default. The proceeds were used to repay our euro 300 million 5.375% euronotes which became due in February 2007.

While cash flows could be negatively affected by a decrease in revenues, we do not believe that our revenues are highly susceptible, in the short term, to rapid changes in technology within our industry. We have a $600 million U.S. commercial paper program and a $200 million European commercial paper program. Both programs are rated A-1 by Standard & Poor’s and P-1 by Moody’s. To support our commercial paper programs and other general business funding needs, we maintain a $600 million multi-year committed credit agreement which expires in June 2012. We can draw directly on the credit facility on a revolving credit basis.

As of December 31, 2007, $345 million of this credit facility was committed to support outstanding U.S. commercial paper, leaving $255 million available for other uses. In addition, we have other committed and uncommitted credit lines of approximately $241 million with major international banks and financial institutions to support our general global funding needs. Additional details on our credit facilities are included in Note 6 of the notes to consolidated financial statements.

A schedule of our obligations under various notes payable, long-term debt agreements, operating leases with noncancelable terms in excess of one year, interest obligations and benefit payments are summarized in the following table:

MILLIONS			PAYMENTS DUE BY PERIOD
			LESS						MORE
Contractual			THAN		1–3		3–5		THAN
obligations	TOTAL		1 YEAR		YEARS		YEARS		5 YEARS
Notes payable	$	400	$	400	$	–	$	–	$	–
Long-term debt	603		3		5		152		443
Operating leases	176		53		70		31		22
Interest*	198		35		64		44		55
Benefit payments**	848		64		134		156		494
Total contractual cash obligations	$	2,225	$	555	$	273	$	383	$	1,014

*	Interest on variable rate debt was calculated using the interest rate at year-end 2007.
**	Benefit payments are paid out of the company’s pension and postretirement health care benefit plans.

As of December 31, 2007, our gross liability for uncertain tax positions under FIN 48 was $99 million. We are not able to reasonably estimate the amount by which the liability will increase or decrease over time. Therefore, these amounts have been excluded from the schedule of contractual obligations.

We are not required to make any contributions to our U.S. pension and postretirement health care benefit plans in 2008, based on plan asset values as of December 31, 2007 and have not yet determined if we will do so. Certain international pension benefit plans are required to be funded in accordance with local government requirements. We estimate contributions to be made to our international plans will approximate $20 million to $30 million in 2008. These amounts have been excluded from the schedule of contractual obligations.

We lease sales and administrative office facilities, distribution center facilities and other equipment under longer-term operating leases. Vehicle leases are generally shorter in duration. Vehicle leases have guaranteed residual value requirements that have historically been satisfied by the proceeds on the sale of the vehicles. No amounts have been recorded for these guarantees in the table preceding as we believe that the potential recovery of value from the vehicles when sold will be greater than the residual value guarantee.

Except for approximately $56 million of letters of credit supporting domestic and international commercial relationships and transactions, primarily our North America self-insurance program, we do not have significant unconditional purchase obligations, or significant other commercial commitments, such as commitments under lines of credit, standby letters of credit, guarantees, standby repurchase obligations or other commercial commitments.

As of year-end 2007, we are in compliance with all covenants and other requirements of our credit agreements and indentures. Our $600 million multicurrency credit agreement, as amended and restated, no longer includes a covenant regarding the ratio of total debt to capitalization. Our euro 300 million senior notes include

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covenants regarding the amount of indebtedness secured by liens and subsidiary indebtedness allowed.

A downgrade in our credit rating could limit or preclude our ability to issue commercial paper under our current programs. A credit rating downgrade could also adversely affect our ability to renew existing, or negotiate new credit facilities in the future and could increase the cost of these facilities. Should this occur, we could seek additional sources of funding, including issuing term notes or bonds. In addition, we have the ability at our option to draw upon our $600 million committed credit facilities prior to their termination.

OFF-BALANCE SHEET ARRANGEMENTS

Other than operating leases, we do not have any off-balance sheet financing arrangements. See Note 12 for information on our operating leases. We do not have relationships with unconsolidated entities or financial partnerships, such as entities often referred to as “structured finance” or “special purposes entities”, which are sometimes established for the purpose of facilitating off-balance sheet financial arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

NEW ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2007 we adopted the provisions of FIN 48 with the cumulative effect of initially applying FIN 48 recorded as an increase to opening retained earnings of $5.1 million.

See Note 2 of the notes to consolidated financial statements for additional information on this adoption and other new accounting pronouncements.

MARKET RISK

We enter into contractual arrangements (derivatives) in the ordinary course of business to manage foreign currency exposure and interest rate risks. We do not enter into derivatives for trading purposes. Our use of derivatives is subject to internal policies that provide guidelines for control, counterparty risk and ongoing monitoring and reporting and is designed to reduce the volatility associated with movements in foreign exchange and interest rates on our income statement and cash flows.

We enter into forward contracts, swaps and foreign currency options to hedge certain intercompany financial arrangements, and to hedge against the effect of exchange rate fluctuations on transactions related to cash flows and net investments denominated in currencies other than U.S. dollars. At December 31, 2007, we had approximately $366 million notional amount of foreign currency forward exchange contracts with face amounts denominated primarily in euros.

We manage interest expense using a mix of fixed and floating rate debt. To help manage borrowing costs, we may enter into interest rate swap agreements. Under these arrangements, we agree to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount.

Based on a sensitivity analysis (assuming a 10% adverse change in market rates) of our foreign exchange and interest rate derivatives and other financial instruments, changes in exchange rates or interest rates would not materially affect our financial position and liquidity. The effect on our results of operations would be substantially offset by the impact of the hedged items.

SUBSEQUENT EVENTS

In February 2008, we acquired Ecovation, Inc., a Rochester, N.Y. area-based provider of renewable energy solutions and effluent management systems primarily for the food and beverage manufacturing industry in the U.S., including dairy, beverage, and meat and poultry producers. Ecovation is growing rapidly: 2007 sales were approximately $50 million, having grown tenfold since 2005; 2008 sales are expected to exceed $100 million. We paid $210 million for Ecovation but intend to sell approximately $40 million of acquired long-term lease receivables. Ecovation will become part of our U.S. Cleaning & Sanitizing operations during the first quarter of 2008.

Also in February 2008, we issued and sold $250 million aggregate principal amount of senior unsecured notes that mature in 2015 at a rate of 4.875%. The proceeds were used to refinance outstanding commercial paper and for general corporate purposes. The notes are not subject to prepayment except where there is a Change of Control as defined in the Supplemental Indenture dated February 8, 2008 and there is a resulting ratings downgrade to below investment grade. Upon consolidation or merger, we will offer to prepay all of the notes at 101% for the principal outstanding plus accrued interest. In the event of a default by the company under the Supplemental Indenture, the notes may immediately become due and payable for the unpaid principal amount and accrued interest. The notes are subject to covenants regarding the amount of indebtedness secured by liens and certain sale and leaseback transactions.

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

This financial discussion and other portions of this Annual Report to Shareholders contain various “Forward-Looking Statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include expectations concerning:

business progress and expansion

business acquisitions

currency translation

cash flows

debt repayments

share repurchases

global economic conditions

pension expenses and potential contributions

income taxes

and liquidity requirements.

Without limiting the foregoing, words or phrases such as “will likely result,” “are expected to,” “will continue,” “is anticipated,” “we believe,” “we expect,” “estimate,” “project” (including the negative or variations thereof) or similar terminology, generally identify forward-looking statements. Forward-looking statements may also represent challenging goals for us. We caution that undue reliance should not be placed on such forward-looking statements, which speak only as of the date made. Some of the factors which could cause results to differ from those expressed in any forward-looking statements are set forth under Item 1A of our Form 10-K for the year ended December 31, 2007, entitled Risk Factors.

In addition, we note that our stock price can be affected by fluctuations in quarterly earnings. There can be no assurances that our earnings levels will meet investors’ expectations.  Except as may be required under applicable law, we undertake no duty to update our Forward-Looking Statements.

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CONSOLIDATED STATEMENT OF INCOME

YEAR ENDED DECEMBER 31 (MILLIONS, EXCEPT PER SHARE)	2007		2006		2005
Net sales	$	5,469.6	$	4,895.8	$	4,534.8
Operating expenses
Cost of sales	2,691.7		2,416.1		2,248.8
Selling, general and administrative expenses	2,090.9		1,868.1		1,743.6
Special gains and charges	19.7
Operating income	667.3		611.6		542.4
Interest expense, net	51.0		44.4		44.2
Income before income taxes	616.3		567.2		498.2
Provision for income taxes	189.1		198.6		178.7
Net income	$	427.2	$	368.6	$	319.5
Net income per common share
Basic	$	1.73	$	1.46	$	1.25
Diluted	$	1.70	$	1.43	$	1.23
Dividends declared per common share	$	0.4750	$	0.4150	$	0.3625
Weighted-average common shares outstanding
Basic	246.8		252.1		255.7
Diluted	251.8		257.1		260.1

The accompanying notes are an integral part of the consolidated financial statements.

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CONSOLIDATED BALANCE SHEET

DECEMBER 31 (MILLIONS)	2007	2006
ASSETS
Current assets
Cash and cash equivalents	$  137.4	$  484.0
Accounts receivable, net	974.0	867.6
Inventories	450.8	364.9
Deferred income taxes	89.4	86.9
Other current assets	65.7	50.2
Total current assets	1,717.3	1,853.6
Property, plant and equipment, net	1,083.4	951.6
Goodwill	1,279.2	1,035.9
Other intangible assets, net	328.9	223.8
Other assets	314.0	354.5
Total assets	$4,722.8	$4,419.4
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Short-term debt	$  403.5	$   509.0
Accounts payable	343.7	330.9
Compensation and benefits	280.2	252.7
Income taxes	27.7	17.7
Other current liabilities	463.2	392.5
Total current liabilities	1,518.3	1,502.8
Long-term debt	599.9	557.1
Postretirement health care and pension benefits	418.5	420.2
Other liabilities	250.4	259.1
Shareholders’ equity (a)
Common stock	326.5	322.6
Additional paid-in capital	1,015.2	868.2
Retained earnings	2,298.4	1,983.2
Accumulated other comprehensive income (loss)	63.1	(96.5)
Treasury stock	(1,767.5)	(1,397.3)
Total shareholders’ equity	1,935.7	1,680.2
Total liabilities and shareholders’ equity	$4,722.8	$4,419.4

(a)  Common stock, 400.0 million shares authorized, $1.00 par value, 246.8 million shares outstanding at December 31, 2007, 251.3 million shares outstanding at December 31, 2006.

The accompanying notes are an integral part of the consolidated financial statements.

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CONSOLIDATED STATEMENT OF CASH FLOwS

YEAR ENDED DECEMBER 31 (MILLIONS)	2007			2006		2005
OPERATINg ACTIVITIES
Net income		$427.2		$368.6		$319.5
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization		291.9		268.6		256.9
Deferred income taxes		2.5		(18.8	)	(13.0	)
Share-based compensation expense		37.9		36.3		39.1
Excess tax benefits from share-based payment arrangements		(20.6	)	(19.8	)	(11.7	)
Disposal losses (gains), net		(11.0	)	0.4
Other, net		6.9		1.3		(0.9	)
Changes in operating assets and liabilities:
Accounts receivable		(34.4	)	(66.8	)	(44.8	)
Inventories		(19.3	)	(18.0	)	2.6
Other assets		20.7		(27.1	)	(21.9	)
Accounts payable		(10.0	)	44.5		19.0
Other liabilities		105.8		58.4		45.3
Cash provided by operating activities		797.6		627.6		590.1
INVESTING ACTIVITIES
Capital expenditures		(306.5	)	(287.9	)	(268.8	)
Property disposals		7.4		25.6		21.2
Capitalized software expenditures		(55.0	)	(33.1	)	(10.9	)
Businesses acquired and investments in affiliates, net of cash acquired		(329.4	)	(65.5	)	(26.9	)
Sale of businesses and assets		19.8		1.8		1.4
Proceeds from sales and maturities of short-term investments				125.1		60.6
Purchases of short-term investments						(185.7	)
Cash used for investing activities		(663.7	)	(234.0	)	(409.1	)
FINANCING ACTIVITIES
Net borrowings (repayments) of notes payable		279.9		(47.7	)	96.7
Long-term debt borrowings				396.2		4.7
Long-term debt repayments		(394.2	)	(86.3	)	(5.7	)
Reacquired shares		(371.4	)	(282.8	)	(213.3	)
Cash dividends on common stock		(114.0	)	(101.2	)	(89.8	)
Exercise of employee stock options		96.7		87.9		49.7
Excess tax benefits from share-based payment arrangements		20.6		19.8		11.7
Other, net				(2.3	)
Cash used for financing activities		(482.4	)	(16.4	)	(146.0	)
Effect of exchange rate changes on cash		1.9		2.4		(1.8	)
	-
Increase (decrease) in cash and cash equivalents		(346.6	)	379.6		33.2
Cash and cash equivalents, beginning of year		484.0		104.4		71.2
Cash and cash equivalents, end of year		$137.4		$484.0		$104.4

The accompanying notes are an integral part of the consolidated financial statements.

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND SHAREHOLDER’S EQUITY

				ACCUMULATED
		ADDITIONAL		OTHER
	COMMON	PAID-IN	RETAINED	COMPREHENSIVE	TREASURY
MILLIONS	STOCK	CAPITAL	EARNINGS	INCOME (LOSS)	STOCK	TOTAL
Balance December 31, 2004	$315.7	$  630.5	$1,492.4	$   72.2	$  (912.7)	$1,598.1
Net income			319.5			319.5
Cumulative translation adjustment				(50.5)		(50.5)
Derivative instruments				4.4		4.4
Minimum pension liability				(16.3)		(16.3)
Total comprehensive income						257.1
Cash dividends declared			(92.7)			(92.7)
Stock options and awards	2.9	96.9			0.2	100.0
Reacquired shares					(213.3)	(213.3)
Balance December 31, 2005	318.6	727.4	1,719.2	9.8	(1,125.8)	1,649.2
Net income			368.6			368.6
Cumulative translation adjustment				65.8		65.8
Derivative instruments				(3.4)		(3.4)
Minimum pension liability				(0.6)		(0.6)
Total comprehensive income						430.4
Cumulative effect adjustment for adoption of SFAS 158				(168.1)		(168.1)
Cash dividends declared			(104.6)			(104.6)
Stock options and awards	4.0	140.8			1.0	145.8
Reacquired shares					(272.5)	(272.5)
Balance December 31, 2006	322.6	868.2	1,983.2	(96.5)	(1,397.3)	1,680.2
Net income			427.2			427.2
Cumulative translation adjustment				128.8		128.8
Derivative instruments				(2.3)		(2.3)
Pension and postretirement benefits				33.1		33.1
Total comprehensive income						586.8
Cumulative effect adjustment for adoption of FIN 48			5.1			5.1
Cash dividends declared			(117.1)			(117.1)
Stock options and awards	3.9	147.0			0.5	151.4
Reacquired shares					(370.7)	(370.7)
Balance December 31, 2007	$326.5	$1,015.2	$2,298.4	$   63.1	$(1,767.5)	$1,935.7

COMMON STOCK ACTIVITY

	2007			2006			2005
YEAR ENDED DECEMBER 31	COMMON	TREASURY		COMMON	TREASURY		COMMON	TREASURY
(SHARES)	STOCK	STOCK		STOCK	STOCK		STOCK	STOCK
Shares, beginning of year	322,578,427	(71,241,560	)	318,602,705	(64,459,800	)	315,742,759	(58,200,908	)
Stock options	3,952,429	49,197		3,975,722	172,665		2,859,946	18,666
Stock awards, net issuances		50,702			49,519			34,689
Reacquired shares		(8,564,099	)		(7,003,944	)		(6,312,247	)
Shares, end of year	326,530,856	(79,705,760	)	322,578,427	(71,241,560	)	318,602,705	(64,459,800	)

The accompanying notes are an integral part of the consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS

Ecolab Inc. (the “company”) develops and markets premium products and services for the hospitality, foodservice, healthcare and light industrial markets.  The company provides cleaning and sanitizing products and programs, as well as pest elimination, maintenance and repair services primarily to hotels and restaurants, healthcare and educational facilities, quickservice (fast-food and convenience stores) units, grocery stores, commercial and institutional laundries, light industry, dairy plants and farms, food and beverage processors and the vehicle wash industry.

2. SUMMARY OF SIgNIFICANT ACCOUNTINg POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the company and all majority-owned subsidiaries. International subsidiaries are included in the financial statements on the basis of their November 30 fiscal year-ends to facilitate the timely inclusion of such entities in the company’s consolidated financial reporting. All intercompany transactions and profits are eliminated in consolidation.

USE OF ESTIMATES

The preparation of the company’s financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates.

FOREIgN CURRENCY TRANSLATION

Financial position and results of operations of the company’s international subsidiaries are measured using local currencies as the functional currency. Assets and liabilities of these operations are translated at the exchange rates in effect at each fiscal year end. The translation adjustments related to assets and liabilities that arise from the use of differing exchange rates from period to period are included in accumulated other comprehensive income (loss) in shareholders’ equity. The cumulative translation gain as of year-end 2007 and 2006 was $171.0 million and $57.0 million, respectively. Income statement accounts are translated at the average rates of exchange prevailing during the year. The different exchange rates from period to period impact the amount of reported income from the company’s international operations. Foreign currency translation positively impacted net income by approximately $15 million, $2 million and $5 million for the years ended December 31, 2007, 2006 and 2005, respectively.

CASH AND CASH EQUIVALENTS

Cash equivalents include highly-liquid investments with a maturity of three months or less when purchased.

ALLOwANCE FOR DOUBTFUL ACCOUNTS

The company estimates the balance of allowance for doubtful accounts by analyzing accounts receivable balances by age and applying historical write-off trend rates. The company’s estimates include separately providing for specific customer balances when it is deemed probable that the balance is uncollectible. Account balances are charged off against the allowance when it is probable the receivable will not be recovered.

The company’s allowance for doubtful accounts balance includes an allowance for the expected return of products shipped and credits related to pricing or quantities shipped of approximately $9 million, $7 million and $5 million as of December 31, 2007, 2006 and 2005, respectively. This returns and credit activity is recorded directly  to sales.

The following table summarizes the activity in the allowance for doubtful accounts:

MILLIONS	2007	2006	2005
Beginning balance	$38	$39	$44
Bad debt expense	15	13	12
Write-offs	(16)	(17)	(15)
Other*	6	3	(2)
Ending balance	$43	$38	$39

* Other amounts are primarily the effects of changes in currency and acquisitions.

INVENTORY VALUATIONS

Inventories are valued at the lower of cost or market. Domestic chemical inventory costs are determined on a last-in, first-out (LIFO) basis. LIFO inventories represented 23% and 28% of consolidated inventories at year-end 2007 and 2006, respectively. All other inventory costs are determined on a first-in, first-out (FIFO) basis.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Merchandising equipment consists principally of various systems that dispense the company’s machines. The dispensing systems are accounted for on a mass asset basis, whereby equipment is capitalized and depreciated as a group and written off when fully depreciated. The company capitalizes both internal and external costs of development or purchase of computer software for internal use. Costs incurred for data conversion, training and maintenance associated with capitalized software are expensed as incurred.

Depreciation is charged to operations using the straight-line method over the assets’ estimated useful lives ranging from 5 to 40 years for buildings and leaseholds, 3 to 11 years for machinery and equipment and 3 to 7 years for merchandising equipment and capital software. Total depreciation expense was $260.9 million, $235.8 million and $222.7 million for 2007, 2006 and 2005, respectively.  Expenditures for repairs and maintenance are charged to expense as incurred. Expenditures for major renewals and betterments, which significantly extend the useful lives of existing plant and equipment, are capitalized and depreciated.

Upon retirement or disposition of plant and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in income.

gOODwILL AND OTHER INTANgIBLE ASSETS

Goodwill and other intangible assets arise principally from business acquisitions. Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired. Other intangible assets primarily include customer relationships, trademarks, patents and other technology.The fair value of identifiable intangible assets is estimated based upon discounted future cash flow projections and other acceptable valuation methods. Other intangible assets are amortized on a straight-line basis over their estimated economic lives. The weighted-average useful life of other intangible assets was 14 years as of December 31, 2007 and 2006.

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The weighted-average useful life by type of asset at December 31, 2007 is as follows:

NUMBER OF YEARS

Customer relationships	12
Intellectual property	14
Trademarks	19
Other	10

The straight-line method of amortization reflects an appropriate allocation of the cost of the intangible assets to earnings in proportion to the amount of economic benefits obtained by the company in each reporting period. Total amortization expense related to other intangible assets during the years ended December 31, 2007, 2006 and 2005 was $30.2 million, $25.0 million and $23.5 million, respectively. Future amortization expense is expected to increase significantly primarily due to the Microtek acquisition. As of December 31, 2007, future estimated amortization expense related to amortizable other identifiable intangible assets will be:

MILLIONS
2008	$40
2009	37
2010	36
2011	35
2012	34

The company tests goodwill for impairment on an annual basis for all reporting units. An impairment charge is recognized for the amount, if any, by which the carrying amount of goodwill exceeds its implied fair value. Fair values of reporting units are established using a discounted cash flow method. Where available and as appropriate, comparative market multiples are used to corroborate the results of the discounted cash flow method. Based on the testing, there has been no impairment of goodwill during the three years ended December 31, 2007. The company performs its annual goodwill impairment test during the second quarter. If circumstances change significantly within a reporting unit, the company would also test a reporting unit for impairment prior to the annual test.

LONg-LIVED ASSETS

The company periodically reviews its long-lived assets for impairment and assesses whether significant events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable. An impairment loss may be recognized when the carrying amount of an asset exceeds the anticipated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded, if any, is calculated by the excess of the asset’s carrying value over its fair value.

REVENUE RECOgNITION

The company recognizes revenue as services are performed or on product sales at the time title to the product and risk of loss transfers to the customer. The provide for general rights of return and do not contain customer acceptance clauses. Trade accounts receivable are recorded at the invoiced amount and generally do not bear interest. The company records estimated reductions to revenue for customer programs and incentive offerings, including pricing arrangements, promotions and other volume-based incentives at the time the sale is recorded. The company also records estimated reserves for anticipated uncollectible accounts and for product returns and credits at the time of sale.

INCOME PER COMMON SHARE

The computations of the basic and diluted net income per share amounts were as follows:

MILLIONS
EXCEPT PER SHARE	2007			2006		2005
Net income	$	427.2		$	368.6	$	319.5
Weighted-average common
shares outstanding
Basic	246.8			252.1		255.7
Effect of dilutive stock
options and awards	5.0			5.0		4.4
Diluted	251.8			257.1		260.1
Net income per common share
Basic	$		1.73	$	1.46	$	1.25
Diluted	$		1.70	$	1.43	$	1.23

Restricted stock awards of 68,180 shares for 2007, 24,670 shares for 2006 and 22,175 shares for 2005 were excluded from the computation of basic weighted-average shares outstanding because such shares were not yet vested at those dates.

Stock options to purchase 5.3 million shares for 2007, 2.6 million shares for 2006 and 7.1 million shares for 2005 were not dilutive and, therefore, were not included in the computations of diluted common shares outstanding.

SHARE-BASED COMPENSATION

Effective October 1, 2005, the company adopted Statement of Financial Accounting Standard No. 123 (Revised 2004), Share-Based Payment (“SFAS 123R”) under the modified retrospective application method. SFAS 123R requires the company to measure compensation expense for share-based awards at fair value at the date of grant and recognize compensation expense over the service period for awards expected to vest. As part of the transition to the new standard, all prior period financial statements were restated to recognize share-based compensation expense historically reported in the notes to the consolidated financial statements.

Effective with the company’s adoption of SFAS 123R, new stock option grants to retirement eligible recipients are attributed to expense using the non-substantive vesting method and are fully expensed by the time recipients attain age 55 with at least 5 years of service. If the company had used the non-substantive vesting method during all periods, net income for 2007, 2006 and 2005 would have increased by $1.4 million, $2.7 million and $2.5 million, respectively. In addition, the company previously accounted for forfeitures when they occurred. Commencing at the date of adoption, the company includes a forfeiture estimate in the amount of compensation expense being recognized. This change from the company’s historical practice of recognizing forfeitures as they occur did not result in the recognition of any cumulative adjustments to income. The company has used the actual tax effects of stock options and the transition guidance prescribed within SFAS 123R for establishing the pool of excess tax  benefits (APIC Pool).

COMPREHENSIVE INCOME

Comprehensive income includes net income, foreign currency translation adjustments, unrecognized actuarial gains and losses on pension and postretirement liabilities, gains and losses on derivative instruments designated and effective as cash flow hedges and nonderivative instruments designated and effective as foreign currency net investment hedges that are charged or credited to the accumulated other comprehensive income (loss) account in shareholders’ equity.

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DERIVATIVE INSTRUMENTS AND  HEDgINg ACTIVITIES

The company uses foreign currency forward contracts, interest rate swaps and foreign currency debt to manage risks generally associated with foreign exchange rates, interest rates and net investments in foreign operations. The company does not hold derivative financial instruments of a speculative nature. On the date that the company enters into a derivative contract, it designates the derivative as (1) a hedge of (a) the fair value of a recognized asset or liability or (b) an unrecognized firm commitment (a “fair value” hedge), (2) a hedge of (a) a forecasted transaction or (b) the variability of cash flows that are to be received or paid in connection with a recognized asset or liability (a “cash flow” hedge) or (3) a foreign-currency fair-value or cash flow hedge (a “foreign currency” hedge). The company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. The company also formally assesses (both at the hedge’s inception and on an ongoing basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the fair value or cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. When it is determined that a derivative is not (or has ceased to be) highly effective as a hedge, the company will discontinue hedge accounting prospectively. The company believes that on an ongoing basis its portfolio of derivative instruments will generally be highly effective as hedges.

All of the company’s derivatives are recognized on the balance sheet at their fair value. The earnings impact resulting from the change in fair value of the derivative instruments is recorded in the same line item in the consolidated statement of income as the underlying exposure being hedged.

NEw ACCOUNTINg PRONOUNCEMENTS

In July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 clarifies the accounting for uncertain tax positions in accordance with FASB Statement No. 109, Accounting for Income Taxes. For each tax position the company will be required to recognize, in its financial statements, the largest tax benefit that is “more-likely-than-not” to be sustained on audit based solely on the technical merits of the position as of the reporting date. FIN 48 also provides guidance on new disclosure requirements, reporting and accrual of interest and penalties, accounting in interim periods, and transition. The company adopted FIN 48 effective January 1, 2007 with the cumulative effect of initially applying FIN 48 recorded as an increase to opening retained earnings of $5.1 million. See Note 11 for additional information on this adoption.

In September 2006, the FASB issued SFAS 157, Fair Value Measurements (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value and expanded disclosures about fair value measurement. Additionally, in February 2008, the FASB announced it will defer for one year the effective date of SFAS 157 for nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The FASB also decided to amend SFAS 157 to add a scope exception for leasing transactions subject to SFAS 13 Accounting for Leases from its application. The company adopted SFAS 157 effective January 1, 2008 and does not expect it will have a material impact on its consolidated financial statements.

In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities - including an amendment of FASB Statement No. 115 (“SFAS 159”).  SFAS 159 provides companies with an option to report selected financial assets and financial liabilities at fair value, which can be elected on an instrument-by-instrument basis. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. The company adopted SFAS 159 effective January 1, 2008 and does not expect it will have a material impact on its consolidated financial statements.

In December 2007, the FASB issued SFAS 141 (revised 2007), Business Combinations (“SFAS 141R”). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141R is effective for fiscal years beginning after December 15, 2008, and will be adopted by the company in the first quarter of 2009. The company is currently evaluating the potential impact of the adoption of  SFAS 141R on its consolidated results of operations and  financial condition.

In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial Statements–an amendment of Accounting Research Bulletin No. 51 (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years beginning after December 15, 2008, and will be adopted by the company in the first quarter of 2009.  The company is currently evaluating the potential impact of the adoption of SFAS 160 on its consolidated results of operations and financial condition.

No other new accounting pronouncement issued or effective has had or is expected to have a material impact on the company’s consolidated financial statements.

3. SPECIAL gAINS AND CHARgES

Special gains and charges were $19.7 million in 2007 and include a $27.4 million charge for an arbitration settlement related to two California class action lawsuits involving wage/hour claims affecting former and current Pest Elimination employees recorded in the third quarter of 2007. Special gains and charges also include one-time costs related to establishing the company’s European headquarters in Zurich, Switzerland and other non-recurring charges.  These charges were partially offset by a $6.3 million gain on the sale of a minority investment located in the U.S. and a $4.7 million gain on the sale of Peter Cox Ltd. in the U.K. which were recorded in the fourth quarter of 2007.  For segment reporting purposes, these items have been included in the company’s corporate segment, which is consistent with the company’s internal management reporting.

4. RELATED PARTY TRANSACTIONS

Henkel KGaA (“Henkel”) beneficially owned 72.7 million shares, or approximately 29.4%, of the company’s outstanding common stock on December 31, 2007. Under a stockholders’ agreement between the company and Henkel, Henkel is permitted ownership in the company of up to 35% of the company’s outstanding common stock. Henkel is also entitled to proportionate representation on the company’s board of directors.

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In 2007, 2006 and 2005, the company and its affiliates sold products and services in the aggregate amounts of $4.6 million, $5.7 million and $3.6 million, respectively, to Henkel or its affiliates, and purchased products and services in the amounts of $64.6 million, $66.0 million and $65.3 million, respectively, from Henkel or its affiliates. The transactions with Henkel and its affiliates were made in the ordinary course of business and were negotiated at arm’s length.

5. BUSINESS ACQUISITIONS AND DISPOSITIONS

BUSINESS ACQUISITIONS

Business acquisitions made by the company during 2007, 2006 and 2005 were as follows: 

			ESTIMATED
			ANNUAL SALES
BUSINESS	DATE OF		PRE-ACQUISITION
ACQUIRED	ACQUISITION	SEGMENT	(MILLIONS)
			(UNAUDITED)
2007
Microtek	November	U.S. C&S	$  150
Medical Holdings, Inc.		International
		(Healthcare)
Eagle Environmental	June	International	4
Systems		(Asia Pacific)
Fuma Pest	May	International	2
		(Asia Pacific)
Green Harbour	March	International	4
		(Asia Pacific)
Apprise	February	U.S. C&S	1
Technologies, Inc.		(Institutional)
Wotek	January	International	3
		(EMEA)
2006
DuChem Industries, Inc.	September	U.S. C&S	10
		(Food &
		Beverage)
Powles Hunt & Sons	September	International	5
International Ltd.		(EMEA)
Shield	June	International	19
Medicare Ltd.		(EMEA)
2005
Kilco Chemicals Ltd.	April	International	5
		(EMEA)
YSC Chemical Company	February	International	3
		(Asia Pacific)
Associated	January	U.S. C&S	16
Chemicals &		(Water Care)
Services, Inc.
(Aka Midland
Research)

In November 2007, the company acquired Microtek Medical Holdings, Inc., a manufacturer and marketer of infection control products for healthcare and acute care facilities. Microtek’s specialized product lines include infection barrier equipment drapes, patient drapes, fluid control products and operating room cleanup systems. The total purchase price was approximately $277 million, net of cash acquired.

In September 2007, the company made a minority investment in Site Controls, LLC, a leading provider of energy management and business intelligence solutions.

The business acquisitions have been accounted for as purchases and, accordingly, the results of their operations have been included in the financial statements of the company from the dates of acquisition. Net sales and operating income of these businesses were not significant to the company’s consolidated financial statements; therefore pro forma financial information is not presented.

The total cash consideration paid by the company for acquisitions and investments has been reduced for any cash or cash equivalents acquired with the acquisitions. Based upon purchase price allocations, the components of the aggregate purchase prices of the acquisitions made were as follows:

MILLIONS	2007	2006		2005
Net tangible assets acquired (liabilities assumed)	$   61	$  (6	)	$    –
Identifiable intangible assets	118	28		8
Goodwill	150	44		19
Purchase price	$ 329	$ 66		$  27

The allocation of purchase price includes preliminary allocations and adjustments to prior period allocations, if any.

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The changes in the carrying amount of goodwill for each of the company’s reportable segments for the years ended December 31, 2007 and 2006 are as follows:

	U.S.	U.S.
	CLEANING &	OTHER	TOTAL
MILLIONS	SANITIZING	SERVICES	U.S.	INTERNATIONAL	CONSOLIDATED
Balance
December 31,
2005	$  189.7	$  49.5	$  239.2	$  697.8	$  937.0
Goodwill
acquired
during year*	7.3	1.0	8.3	35.7	44.0
Goodwill
allocated
to business
dispositions				(0.4)	(0.4)
Foreign
currency
translation				55.3	55.3
Balance
December 31,
2006	197.0	50.5	247.5	788.4	1,035.9
Goodwill
acquired
during year*	121.7		121.7	28.2	149.9
Goodwill
allocated
to business
dispositions				(2.9)	(2.9)
Foreign
currency
translation				96.3	96.3
Balance
December 31,
2007	$  318.7	$  50.5	$  369.2	$  910.0	$  1,279.2

*  For 2007 and 2006, goodwill related to businesses acquired of $18.6 million and $7.7 million, respectively, is expected to be tax deductible. Goodwill acquired in 2007 and 2006 also includes adjustments to prior year acquisitions including earnout payments.

In February 2008, the company acquired Ecovation, Inc., a Rochester, N.Y. area-based provider of renewable energy solutions and effluent management systems primarily for the food and beverage manufacturing industry in the U.S., including dairy, beverage, and meat and poultry producers. Ecovation is growing rapidly: 2007 sales were approximately $50 million, having grown tenfold since 2005. The company paid $210 million for Ecovation but intend to sell approximately $40 million of acquired long-term lease receivables. Ecovation will become part of the company’s U.S. Cleaning & Sanitzing operations during the first quarter of 2008.

BUSINESS DISPOSITIONS

In the fourth quarter of 2007, the company completed the sale of Peter Cox Ltd., a leading United Kingdom provider of damp proofing, water proofing, timber preservation and wall stabilization for residential, commercial and public properties. The company acquired Peter Cox Ltd. in connection with the company’s 2002 purchase of the Terminix Pest Control business in the United Kingdom.  Sales of the Peter Cox business were approximately $32 million in 2006 and were included in the company’s International reportable segment. The company recognized a tax-free gain on the sale of $4.7 million in the fourth quarter of 2007.

In December 2007, the company sold a minority investment located in the U.S. and realized a gain of $6.3 million ($4.8 million after tax).

The company had no significant business dispositions in 2006 or 2005.

6. BALANCE SHEET INFORMATION

DECEMBER 31 (MILLIONS)	2007		2006
Accounts Receivable, Net
Accounts receivable	$  1,016.7		$  905.2
Allowance for doubtful accounts	(42.7	)	(37.6	)
Total	$     974.0		$  867.6
Inventories
Finished goods	$     241.9		$  199.5
Raw materials and parts	224.9		180.6
Excess of fifo cost over lifo cost	(16.0	)	(15.2	)
Total	$     450.8		$  364.9
Property, Plant and Equipment, Net
Land	$      30.7		$   30.9
Buildings and leaseholds	331.9		306.8
Machinery and equipment	683.7		630.8
Merchandising equipment	1,330.1		1,204.7
Capitalized software	129.0		72.9
Construction in progress	113.0		72.1
	2,618.4		2,318.2
Accumulated depreciation	(1,535.0	)	(1,366.6	)
Total	$  1,083.4		$  951.6
Other Intangible Assets, Net
Cost
Customer relationships	$    291.6		$  217.4
Intellectual property	52.2		45.6
Trademarks	102.5		73.2
Other intangibles	45.8		11.6
	492.1		347.8
Accumulated amortization
Customer relationships	(108.5	)	(80.2	)
Intellectual property	(20.0	)	(17.2	)
Trademarks	(29.1	)	(23.5	)
Other intangibles	(5.6	)	(3.1	)
Total	$    328.9		$  223.8
Other Assets
Deferred income taxes	$     137.6		$  176.2
Pension	23.2		37.6
Sole supply fees	56.3		67.4
Other	96.9		73.3
Total	$    314.0		$  354.5
Short-Term Debt
Notes payable	$    400.3		$  109.1
Long-term debt, current maturities	3.2		399.9
Total	$    403.5		$  509.0
Other Current Liabilities
Discounts and rebates	$    223.7		$  190.4
Dividends payable	32.1		28.9
Other	207.4		173.2
Total	$    463.2		$  392.5
Long-Term Debt
4.355% series A senior notes, due 2013	$    182.9		$  165.1
4.585% series B senior notes, due 2016	256.1		231.1
6.875% notes, due 2011	149.6		149.4
5.375% euronotes, due 2007	—		397.4
Other	14.5		14.0
	603.1		957.0
Long-term debt, current maturities	(3.2	)	(399.9	)
Total	$    599.9		$  557.1
Other Liabilities
Deferred income taxes	$     86.1		$   92.5
Income taxes payable - noncurrent	57.3		66.2
Other	107.0		100.4
Total	$   250.4		$  259.1
Accumulated Other Comprehensive Income
Unrealized loss on derivative financial instruments	$      (5.4	)	$    (3.1	)
Pension and postretirement benefits	(162.7	)	(195.8	)
Cumulative translation	231.2		102.4
Total	$      63.1		$  (96.5	)

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The company has a $600 million multicurrency credit agreement with a consortium of banks that has a term through June 1, 2012. This agreement was increased from $450 million to $600 million and the term was extended from June 1, 2011 to June 1, 2012 during 2007. The company may borrow varying amounts in different currencies from time to time on a revolving credit basis. The company has the option of borrowing based on various short-term interest rates. No amounts were outstanding under this agreement at year-end 2007 and 2006.

The multicurrency credit agreement supports the $600 million U.S. commercial paper program and its $200 million European commercial paper program. The U.S. commercial paper program was increased during 2007 from $450 million to $600 million.  The company had $344.8 million in outstanding U.S. commercial paper at December 31, 2007, with an average annual interest rate of 4.5%. The company had $30.3 million in outstanding U.S. commercial paper at December 31, 2006, with an average annual interest rate of 5.3%. The company had no commercial paper outstanding under its European commercial paper program at December 31, 2007 or 2006. Both programs were rated A-1 by Standard & Poor’s and P-1 by Moody’s as of December 31, 2007.

In December 2006, the company issued and sold in a private placement euro 300 million ($439 million as of December 31, 2007) aggregate principal amount of the company’s senior notes in two series: 4.355% Series A Senior Notes due 2013 in the aggregate principal amount of euro 125 million and 4.585% Series B Senior Notes due 2016 in the aggregate principal amount of euro 175 million, pursuant to a Note Purchase Agreement dated July 26, 2006, between the company and the purchasers. The company used the proceeds to repay its euro 300 million 5.375% euronotes which became due in February 2007.

As of December 31, the weighted-average interest rate on notes payable was 4.1% in 2007, 6.0% in 2006.

As of December 31, 2007, the aggregate annual maturities of long-term debt for the next five years were:

MILLIONS
2008	$   3
2009	3
2010	2
2011	151
2012	1

In February 2008, the company issued and sold $250 million aggregate principal amount of senior unsecured notes that mature in 2015 at a rate of 4.875%. The proceeds were used to refinance outstanding commercial paper and for general corporate purposes. The notes are not subject to prepayment except where there is a Change of Control as defined in the Supplemental Indenture dated February 8, 2008 and there is a resulting ratings downgrade to below investment grade. Upon consolidation or merger, the company will offer to prepay all of the notes at 101% for the principal outstanding plus accrued interest. In the event of a  default by the company under the Supplemental Indenture, the notes may immediately become due and payable for the unpaid principal amount and accrued interest. The notes are subject to covenants regarding the amount of indebtedness secured by liens and certain sale and leaseback transactions.

7. INTEREST

MILLIONS	2007	2006	2005
Interest expense	$    58.9	$   51.3	$   49.8
Interest income	(7.9)	(6.9)	(5.6)
Total interest expense, net	$    51.0	$   44.4	$   44.2

Total cash paid for interest was $75.5 million in 2007, $50.6 million in 2006 and $49.4 million in 2005.

8. FINANCIAL INSTRUMENTS

FOREIgN CURRENCY FORwARD CONTRACTS

The company has entered into foreign currency forward contracts to hedge transactions related to intercompany debt, subsidiary royalties, product purchases, firm commitments and other intercompany transactions. The company uses these contracts to hedge against the effect of foreign currency exchange rate fluctuations on forecasted cash flows. These contracts generally relate to the company’s primarily in euros. The company had foreign currency forward exchange contracts with notional values that totaled approximately $366 million at December 31, 2007 and $375 million at December 31, 2006. These contracts generally expire within one year. The gains and losses related to these contracts are included as a component of other comprehensive income until the hedgedsenior notes two item is reflected in earnings. As of December 31, 2007, other comprehensive income includes a cumulative loss of $5.4 million related to these contracts.

INTEREST RATE SwAP AgREEMENTS

The company enters into interest rate swap agreements to manage interest rate exposures and to achieve a desired proportion of variable and fixed rate debt.

In May 2006, the company entered into two forward starting interest rate swap agreements in connection with the senior note private placement offering that converted euro 250 million (euro 125 million due December 2013 and euro 125 million due December 2016) of the private placement funding from a variable interest rate to a fixed interest rate. The interest rate swap agreements were designated as, and effective as a cash flow hedge of the private placement offering. In June 2006 the company closed the swap agreements. The decline in fair value of $2.1 million, net of tax, was recorded in other comprehensive income and is recognized in earnings as part of interest expense as the forecasted  transactions occur.

NET INVESTMENT HEDgES

The company designates all euro 300 million senior notes as a hedge of existing foreign currency exposures related to net investments the company has in certain European subsidiaries. Prior to repayment in 2007, the company had also previously designated its euro 300 million euronotes as a hedge of existing foreign currency exposures related to net investments the company has in certain European subsidiaries. Accordingly, the transaction gains and losses that are designated and effective as hedges of the company’s net investments have been included as a component of the cumulative translation account within accumulated other comprehensive income (loss). Total transaction gains and losses charged to this shareholders’ million and $44.8 million in 2007 and 2006, respectively, and a gain of $45.7 million in 2005.

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CREDIT RISk

The company is exposed to credit loss in the event of nonperformance of counterparties for foreign currency forward exchange contracts and interest rate swap agreements. The company monitors its exposure to credit risk by using credit approvals and credit limits and selecting major international banks and financial institutions as counterparties. The company does not anticipate nonperformance by any of these counterparties.

FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS

The carrying amount and the estimated fair value of other financial instruments held by the company were:

DECEMBER 31 (MILLIONS)	2007	2006
Carrying amount
Cash and cash equivalents	$  137.4	$  484.0
Accounts receivable, net	974.0	867.6
Notes payable	55.5	78.9
Commercial paper	344.8	30.2
Long-term debt
(including current maturities)	603.1	957.0
Fair value
Long-term debt
(including current maturities)	$  572.7	$  967.0

The carrying amounts of cash equivalents, accounts receivable, notes payable and commercial paper approximate fair value because of their short maturities.

The fair value of long-term debt is based on quoted market prices for the same or similar debt instruments.

9. SHAREHOLDERS’ EQUITY

Authorized common stock, par value $1.00 per share, was 400 million shares in 2007, 2006 and 2005. Treasury stock is stated at cost. Dividends declared per share of common stock were $0.4750 for 2007, $0.4150 for 2006 and $0.3625 for 2005.

The company has 15 million shares, without par value, of authorized but unissued preferred stock. Of these 15 million shares, 0.4 million shares were designated as Series A Junior Participating Preferred Stock and 14.6 million shares were undesignated.

In February 2006, the company’s Board of Directors authorized the renewal of the company’s shareholder rights plan. Under the company’s renewed shareholder rights plan, one perferred stock purchase right is issued for each outstanding share of the company’s common stock. A right entitles the holder, upon occurrence of certain events, to buy one one-thousandth of a share of Series A Junior Participating Preferred Stock at a purchase price of $135, subject to adjustment. The rights, however, do not become exercisable unless and until, among other things, any person or group acquires 15% or more of the outstanding common stock of the company, or the company’s board of directors declares a holder of 10% or more of the outstanding common stock to be an “adverse person” as defined in the rights plan. Upon the occurrence of either of these events, the rights will become exercisable for common stock of the company (or in certain cases common stock of an acquiring company) having a market value of twice the exercise price of a right. The rights provide that the holdings by Henkel KGaA or its affiliates at the time of the renewal of the rights plan, subject to compliance by Henkel with certain conditions, will not cause the rights to become exercisable nor cause Henkel to be an “adverse person.” The rights are redeemable under certain circumstances at one cent per right and, unless redeemed earlier, will expire on March 10, 2016.

The company reacquired 8,214,400 shares, 6,875,400 shares, and 5,974,300 shares of its common stock in 2007, 2006 and 2005, respectively, through open and private market purchases. The company also reacquired 349,699 shares, 128,544 shares, and 337,947 shares of its common stock in 2007, 2006 and 2005, respectively, related to the exercise of stock options and the vesting of stock awards. In October 2006, the company’s Board of Directors authorized the repurchase of up to 10 million shares of common stock, including shares to be repurchased under Rule 10b5-1. Shares are repurchased to offset the dilutive effect of stock options and incentives and for general corporate purposes. As of December 31, 2007, 4,711,600 shares remained to be purchased under the company’s to repurchase all shares under this authorization, for which no expiration date has been established, in open market or privately negotiated transactions, subject to market conditions. The company expects to repurchase at least enough shares during 2008 to offset the dilutive effect of stock options, based on estimates of stock option exercises for 2008. Cash proceeds from the exercises as  well as the tax benefits will provide a portion of the funding for  this repurchase activity.

10. STOCk INCENTIVE AND OPTION PLANS

The company’s stock incentive and option plans provide for grants of stock options, stock awards and other incentives. Common shares available for grant as of December 31 were 9,110,757 for 2007, 11,689,435 for 2006 and 12,748,989 for 2005. Common shares available for grant reflect 12 million shares approved by shareholders in 2005 for issuance under the plans.

Almost all of the awards granted are non-qualified stock options granted to employees that vest annually in equal amounts over a three year service period. Options are granted to purchase shares of the company’s stock at the average daily share price on the date of grant. These options generally expire within ten years from the grant date. The company recognizes compensation expense for these awards on a straight-line basis over the three year vesting period, in accordance with SFAS 123R. Upon adoption of SFAS 123R, new stock option grants to retirement eligible recipients are attributed to expense using the non-substantive vesting method.

A summary of stock option activity and average exercise prices  is as follows:

SHARES	2007		2006		2005
Granted	3,083,536		2,669,223		3,862,966
Exercised	(4,084,837	)	(4,215,387	)	(2,878,612	)
Canceled	(163,033	)	(368,984	)	(148,568	)
December 31:
Outstanding	20,488,809		21,653,143		23,568,291
Exercisable	15,106,637		15,804,403		16,461,958
AVERAGE PRICE
PER SHARE	2007		2006		2005
Granted	$ 48.82		$ 44.93		$ 33.93
Exercised	24.60		21.57		17.27
Canceled	37.37		33.36		29.03
December 31:
Outstanding	33.57		29.74		26.61
Exercisable	29.47		26.36		23.87

The total intrinsic value of options (the amount by which the stock price exceeded the exercise price of the option on the date of exercise) that were exercised during 2007, 2006 and 2005 was $85.6 million, $80.2 million and $45.3 million, respectively.

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Information related to stock options outstanding and stock options exercisable as of December 31, 2007, is as follows:

 OPTIONS OUTSTANDING

				WEIGHTED-	WEIGHTED-
RANGE OF				AVERAGE	AVERAGE
EXERCISE		OPTIONS		REMAINING	EXERCISE
PRICES		OUTSTANDING		CONTRACTUAL LIFE	PRICE
$	14.78-19.92	2,454,635		3.1 years	$19.00
20.00-24.90		2,713,268		4.8 years	24.07
25.21-29.82		3,047,176		6.0 years	27.48
30.58-34.26		3,707,961		7.8 years	33.85
34.50-37.91		2,965,979		7.0 years	34.61
42.08-45.24		2,824,898		9.0 years	44.99
45.52-51.52			2,774,892	9.9 years	49.47
		20,488,809

 OPTIONS EXERCISABLE

			WEIGHTED-	WEIGHTED-
RANGE OF			AVERAGE	AVERAGE
EXERCISE	OPTIONS		REMAINING	EXERCISE
PRICES	EXERCISABLE		CONTRACTUAL LIFE	PRICE
$  14.78-19.92	2,454,635		3.1 years	$19.00
20.00-24.90	2,713,268		4.8 years	24.07
25.21-29.82	3,047,176		6.0 years	27.48
30.58-34.26	2,682,326		7.8 years	33.78
34.50-37.91	2,942,441		7.0 years	34.59
42.08-45.24	1,142,199		9.0 years	44.80
45.52-51.52		124,592	9.8 years	50.47
	15,106,637

The total aggregate intrinsic value of options outstanding and options exercisable as of December 31, 2007 was $368.9 million and $334.0 million, respectively.

The lattice (binomial) option-pricing model was used to estimate the fair value of options at grant date beginning upon adoption of SFAS 123R in the fourth quarter of 2005. The company’s primary employee option grant occurs during the fourth quarter. The weighted-average grant-date fair value of options granted in 2007, 2006 and 2005, and the significant assumptions used in determining the underlying fair value of each option grant, on the date of grant were as follows:

	2007	2006	2005
Weighted-average grant-date fair value of options granted at market prices	$12.63	$12.92	$ 9.35
Assumptions
Risk-free rate of return	3.6%	4.5%	4.4%
Expected life	6 years	6 years	6 years
Expected volatility	24.2%	24.4%	24.3%
Expected dividend yield	1.0%	1.0%	1.2%

The risk-free rate of return is determined based on a yield curve of U.S. treasury rates from one month to ten years and a period commensurate with the expected life of the options granted. Expected volatility is established based on historical volatility of the company’s stock price.  The expected dividend yield is determined based on the company’s annual dividend amount as a percentage of the average stock price at the time of the grant.

The expense associated with shares of restricted stock issued under the company’s stock incentive plans is based on the market price of the company’s stock at the date of grant and is amortized on a straight-line basis over the periods during which the restrictions lapse. The company currently has restricted stock outstanding that vests over periods between 12 and 36 months. Stock awards are not performance based and vest with continued employment. Stock awards are subject to forfeiture in the event of termination of employment. The company granted 46,510 shares in 2007, 14,845 shares in 2006 and 11,479 shares in 2005 under its restricted  stock award program.

A summary of non-vested stock option and stock award activity  is as follows:

 NON-VESTED STOCK OPTIONS AND STOCK AWARDS

			WEIGHTED-			WEIGHTED-
			AVERAGE			AVERAGE
			FAIR VALUE			FAIR VALUE
	STOCK		AT GRANT	STOCK		AT GRANT
	OPTIONS		DATE	AWARDS		DATE
December 31, 2006	5,848,740		$   11.13	24,670		$   39.25
Granted	3,083,536		12.63	46,510		45.65
Vested/Earned	(3,387,189	)	10.50	(3,000	)	42.25
Cancelled	(162,915	)	10.61	-		-
December 31, 2007	5,382,172		$   12.40	68,180		$   43.95

Total compensation expense related to share-based compensation plans was $37.9 million, ($24.2 million net of tax benefit), $36.3 million, ($23.1 million net of tax benefit) and $39.1 million, ($24.7 million net of tax benefit) for 2007, 2006 and 2005, respectively.

As of December 31, 2007, there was $55.4 million of total measured but unrecognized compensation expense related to non-vested share-based compensation arrangements granted under our plans. That cost is expected to be recognized over a weighted-average period of 2.0 years. Total cash received from the exercise of share-based instruments in 2007 was $96.7 million.

The company generally issues authorized but previously unissued shares to satisfy stock option exercises. The company has a policy of repurchasing shares on the open market to offset the dilutive effect of stock options, as discussed in Note 9.

11. INCOME TAXES

Effective January 1, 2007, the company adopted the provisions of FIN 48. As a result of the implementation of FIN 48, the company recognized a $5.1 million decrease in the liability for unrecognized tax benefits, which was accounted for as an increase to the  January 1, 2007 balance of retained earnings.

The company files income tax returns in the U.S. federal jurisdiction and various U.S. state and international jurisdictions. With few exceptions, the company is no longer subject to state and foreign income tax examinations by tax authorities for years before 2001. During 2004, the Internal Revenue Service (IRS) completed its field examination of the company’s U.S. income tax returns for 1999 through 2001. During the second quarter of 2007, the IRS completed its field examination of the company’s U.S. income tax returns for 2002 through 2004. It is reasonably possible for specific open positions within these examinations to be settled in the next 12 months. The IRS is currently examining the 2005 and 2006 tax years and is expected to complete its field examination in 2009. The company believes these events could result in a decrease in the company’s gross liability for unrecognized tax benefits of up to $43 million during the next 12 months. Decreases in the company’s gross liability could result in offsets to other balance sheet accounts, cash payments, and/or adjustments to the annual effective tax rate. The occurrence of these events and/or other events not included above within the next 12 months could change depending on a variety of factors and result in amounts different from above.

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During the second quarter of 2007, specific tax positions relating to the company’s U.S. income tax returns for 2002 through 2004 were settled and a partial settlement payment was made to the IRS in the third quarter of 2007. In the fourth quarter of 2007 the company received final audit settlement for tax years 1999 through 2002 in Germany.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

MILLIONS
Balance at January 1, 2007	$ 98.3
Additions based on tax positions related
to the current year	14.9
Additions for tax positions of prior years	7.5
Reductions for tax positions of prior years	(11.9)
Reductions for tax positions due to statute of limitations	(1.2)
Settlements	(11.4)
Exchange	2.4
Balance at December 31, 2007	$ 98.6

Included in the balance at January 1, 2007 and December 31, 2007 are $45 million of tax positions that would not affect the annual effective tax rate.

The company recognizes both penalties and interest accrued related to unrecognized tax benefits in the company’s provision for income taxes which is consistent with past practice. During the year ended December 31, 2007 the company accrued approximately  $4 million in interest. The company had approximately $7 million for the payment of interest and penalties accrued at  December 31, 2007 and 2006, respectively.

Income before income taxes consisted of:

MILLIONS	2007	2006	2005
Domestic	$  344.2	$ 321.1	$ 278.8
Foreign	272.1	246.1	219.4
Total	$  616.3	$ 567.2	$ 498.2

The provision for income taxes consisted of:

MILLIONS	2007		2006		2005
Federal and state	$   129.3		$  143.6		$  121.4
Foreign	57.3		73.8		70.3
Total currently payable	186.6		217.4		191.7
Federal and state	(2.6	)	(15.8	)	(8.9	)
Foreign	5.1		(3.0	)	(4.1	)
Total deferred	2.5		(18.8	)	(13.0	)
Provision for income taxes	$   189.1		$  198.6		$  178.7

As of December 31, 2007, the company has federal net operating loss carryforwards, acquired with the Microtek acquisition, of approximately $60 million, which will be available to offset future taxable income.  If not used, these carryforwards will expire between 2012 and 2027.  The company also has various state net operating loss carryforwards, acquired with the Microtek acquisition, that expire from 2008 to 2027. The company has recorded a valuation allowance on the state net operating loss carryforwards because it is more likely than not that they  will not be utilized.

The company’s overall net deferred tax assets and deferred tax liabilities were comprised of the following:

DECEMBER 31 (MILLIONS)	2007	2006
Deferred tax assets
Other accrued liabilities	$  70.3	$  57.0
Loss carryforwards	33.9	6.3
Share-based compensation	49.5	47.2
Postretirement healthcare
and pension benefits	3.9
Other comprehensive income	127.5	163.1
Other, net	26.9	36.5
Valuation allowance	(4.1)	(0.4	)
Total	307.9	309.7
Deferred tax liabilities
Postretirement health care
and pension benefits		7.8
Property, plant and
equipment basis differences	39.6	37.8
Intangible assets	128.0	95.5
Other, net	6.0	3.5
Total	173.6	144.6
Net deferred tax assets	$ 134.3	$ 165.1

A reconciliation of the statutory U.S. federal income tax rate to the company’s effective income tax rate is as follows:

	2007		2006		2005
Statutory U.S. rate	35.0	%	35.0	%	35.0	%
State income taxes, net
of federal benefit	2.1		2.3		2.3
Foreign operations	(3.2	)	(1.8	)	(2.0	)
Germany and United Kingdom
tax rate changes	(1.4	)
Audit settlements/refunds	(1.6	)
Reinvested earnings in
U.S. under the American
Jobs Creation Act					0.6
Other, net	(0.2	)	(0.5	)
Effective income tax rate	30.7	%	35.0	%	35.9	%

Cash paid for income taxes was approximately $161 million in 2007, $182 million in 2006 and $165 million in 2005.

As of December 31, 2007, the company had undistributed earnings of international affiliates of approximately $696 million. These earnings are considered to be reinvested indefinitely or available for distribution with foreign tax credits available to offset the amount of applicable income tax and foreign withholding taxes that might be payable on earnings. It is impractical to determine the amount of incremental taxes that might arise if all undistributed earnings were distributed.

On October 22, 2004, the President signed the American Jobs Creation Act of 2004 (the “Act”). The Act provides a deduction for income from qualified domestic production activities, which will be phased in from 2005 through 2010. In return, the Act also provides for a two-year phase-out of the existing extra-territorial income exclusion (ETI) for foreign sales that was viewed to be inconsistent with international trade protocols by the European Union. Under the guidance in FASB Staff Position No. 109-1, Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004, the deduction will be treated

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as a “special deduction” as described in SFAS 109. As such, the special deduction has no effect on deferred tax assets and liabilities existing at the enactment date. Rather, the impact of this deduction is reported in the period in which the deduction is claimed on the company’s tax return. The company recorded a modest benefit in both 2006 and 2005 from this deduction. The Act also creates a temporary incentive for U.S. corporations to repatriate accumulated income earned abroad by providing an 85% dividends received deduction for certain dividends from controlled foreign corporations. In the fourth quarter of 2005 the company approved a plan for the reinvestment of foreign earnings in the U.S. pursuant to the provisions of the Act. The company repatriated $223 million of foreign earnings into the U.S. As a result of completing the repatriation, the company recorded tax expense of approximately $3.1 million, net of available foreign tax credits, in the fourth quarter of 2005.

12. RENTALS AND LEASES

The company leases sales and administrative office facilities, distribution center facilities, automobiles and other equipment under operating leases. Rental expense under all operating leases was approximately $120 million in 2007, $104 million in 2006 and $97 million in 2005. As of December 31, 2007, future minimum payments under operating leases with noncancelable terms in excess of one year were:

 MILLIONS

2008	$  53
2009	41
2010	29
2011	18
2012	13
Thereafter	22
Total	$ 176

The company enters into operating leases for vehicles whose noncancelable terms are one year or less in duration with month-to-month renewal options. These leases have been excluded from the table above. The company estimates payments under such leases will approximate $54 million in 2008. These automobile leases have guaranteed residual values that have historically been satisfied primarily by the proceeds on the sale of the vehicles. No estimated losses have been recorded for these guarantees as the company believes, based upon the results of previous leasing arrangements, that the potential recovery of value from the vehicles when sold will be greater than the residual value guarantee.

13. RESEARCH EXPENDITURES

Research expenditures that related to the development of new products and processes, including significant improvements and refinements to existing products are expensed as incurred. Such costs were $82.6 million in 2007, $73.3 million in 2006 and $68.4 million in 2005.

14. COMMITMENTS AND CONTINGENCIES

The company is self-insured in North America for most workers compensation, general liability and automotive liability losses subject to per occurrence and aggregate annual liability limitations. The company is insured for losses in excess of these limitations. The company has recorded both a liability and an offsetting receivable for amounts in excess of these limitations. The company is self-insured for health care claims for eligible participating employees subject to certain deductibles and limitations. The company determines its liability for healthcare claims incurred but not reported on an actuarial basis. Outside of North America, the company is fully insured for losses, subject to annual deductibles.

The company and certain subsidiaries are party to various lawsuits, claims and environmental actions that have arisen in the ordinary course of business. These include antitrust, patent infringement, wage hour lawsuits and possible obligations to investigate and mitigate the effects on the environment of the disposal or release of certain chemical substances at various sites, such as Superfund sites and other operating or closed facilities.

In accordance with SFAS 5, Accounting for Contingencies (“SFAS 5”) and related guidance, the company records liabilities where a contingent loss is probable and can be reasonably estimated.  If the reasonable estimate of a probable loss is a range, the company records the most probable estimate of the loss or the minimum amount when no amount within the range is a better estimate than any other amount. The company discloses a contingent liability even if the liability is not probable or the amount is not estimable, or both, if there is a reasonable possibility that a material loss may have been incurred.

As previously disclosed, an arbitration decision in conjunction with a settlement was rendered on September 24, 2007 concerning two California class action lawsuits involving wage hour claims affecting former and current employees of the Division. If upheld, the company will pay approximately $27.4 million plus post-award interest in settlement of the cases. The company continues to evaluate potential challenges to the decision and the settlement. The company has fully accrued for this award as of December 31, 2007.

One other wage hour lawsuit has been certified for class action status. The company has completed an analysis and established an accrual for this claim in accordance with SFAS 5. The company believes that there is not a reasonably possible risk of material loss related to this lawsuit.

The company is also currently participating in environmental assessments and remediation at a number of locations and environmental liabilities have been accrued reflecting management’s best estimate of future costs. The company’s reserve for environmental remediation costs was $4.0 million and $4.9 million at December 31, 2007 and 2006, respectively.  Potential insurance reimbursements are not anticipated in the company’s accruals for environmental liabilities.

While the final resolution of these contingencies could result in expenses different than current accruals, and therefore have an impact on the company’s consolidated financial results in a future reporting period, management believes the ultimate outcome will not have a significant effect on the company’s financial position. However, legal matters are subject to inherent uncertainties and there exists the possibility that the ultimate resolution of these matters could have a material adverse impact on the company’s financial position, results of operations and cash flows in the period in which any such effect is recorded.

15. RETIREMENT PLANS

PENSION AND POSTRETIREMENT HEALTH CARE
BENEFITS PLANS

The company has a noncontributory defined benefit pension plan covering most of its U.S. employees. Effective January 1, 2003, the U.S. pension plan was amended to provide a cash balance type pension benefit to employees hired on or after the effective date. For employees hired prior to January 1, 2003, plan benefits are based on years of service and highest average compensation for

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five consecutive years of employment. For employees hired after December 31, 2002, plan benefits are based on contribution credits equal to a fixed percentage of their current salary and interest credits. The company also has U.S. noncontributory non-qualified defined benefit plans, which provide for benefits to employees in excess of limits permitted under its U.S. pension plan. The measurement date used for determining the U.S. pension plan assets and obligations is December 31. Various international subsidiaries also have defined benefit  pension plans. The measurement date used for determining the international pension plan assets and obligations is November 30, the fiscal year-end of the company’s international affiliates. The information following includes all of the company’s U.S. and international defined benefit pension plans.

The company provides postretirement health care benefits to certain U.S. employees. The plan is contributory based on years of service and family status, with retiree contributions adjusted annually. The measurement date used to determine the U.S. postretirement healthcare plan assets and obligations is December 31. Certain employees outside the U.S. are covered under government-sponsored programs, which are not required to be fully funded. The expense and obligation for providing international postretirement healthcare benefits is not significant.

Effective December 31, 2006, the company prospectively adopted SFAS 158, Employers’ Accounting for Defined  Benefit Pension and Other Postretirement Plans - An Amendment of FASB Statements No. 87, 88, 106 and 132(R) (“SFAS 158”). As a result of the adoption of SFAS 158, the company recorded a cumulative effect adjustment as a component of other comprehensive income within company’s disclosures reflect the revised accounting and disclosure requirements of SFAS 158.

The following table sets forth information related to the company’s plans:

	U.S.		INTERNATIONAL		U.S. POSTRETIREMENT
	PENSION (a)		PENSION		HEALTH CARE
MILLIONS	2007	2006	2007	2006	2007	2006
Change in Benefit Obligation
Projected benefit obligation, beginning of year	$ 833.8	$ 785.7	$ 477.9	$ 402.3	$ 169.4	$ 165.4
Service cost	43.2	40.6	20.3	18.9	2.6	3.1
Interest	47.5	43.6	22.4	19.0	9.6	9.0
Participant contributions			2.5	2.3	3.0	2.7
Medicare subsidies received					0.4
Curtailments and settlements			(2.3)
Plan amendments	0.2	1.2	0.1	(2.2)		0.1
Actuarial loss (gain)	(17.7)	(15.1)	(36.1)	8.4	(7.6)	1.2
Benefits paid	(24.3)	(22.2)	(19.6)	(19.6)	(12.5)	(12.2)
Foreign currency translation			40.8	48.8
Projected benefit obligation, end of year	$ 882.7	$ 833.8	$ 506.0	$ 477.9	$ 164.9	$ 169.3
Change in Plan Assets
Fair value of plan assets, beginning of year	$ 793.4	$ 679.2	$ 269.6	$ 220.1	$   30.2	$   25.2
Actual gains on plan assets	40.6	90.0	6.9	22.2	1.6	3.6
Company contributions	2.1	46.4	29.6	18.9	9.0	12.2
Participant contributions			2.5	2.3	1.3	1.4
Settlements			(0.1)	(0.3)
Benefits paid	(24.3)	(22.2)	(19.6)	(19.6)	(12.5)	(12.2)
Foreign currency translation			22.4	26.0
Fair value of plan assets, end of year	$ 811.8	$ 793.4	$ 311.3	$ 269.6	$   29.6	$    30.2
Funded status, end of year	$ (70.9)	$  (40.4)	$ (194.7)	$ (208.3)	$ (135.3)	$ (139.1)
The company’s balance sheet consists of:
Other assets		$   13.6	$   23.2	$   24.0
Other current liabilities	$   (5.7)	(3.4)	(7.6)	(6.5)	$    (1.2)	$    (1.1)
Post retirement healthcare and pension benefits	(65.2)	(50.6)	(210.3)	(225.8)	(134.1)	(138.0)
Accumulated other comprehensive loss (pre-tax)	187.8	195.1	60.0	87.0	23.3	31.0
Total amount reflected on the balance sheet	$ 116.9	$ 154.7	$ (134.7)	$ (121.3)	$ (112.0)	$ (108.1)
Accumulated other comprehensive loss as of year-end consists of:
Unrecognized net actuarial loss	$ 183.4	$ 188.9	$   60.5	$   87.3	$   36.3	$   50.4
Unrecognized net prior service costs (benefits)	4.4	6.2	(0.5)	(0.3)	(13.0)	(19.4)
Tax benefit	(72.8)	(75.6)	(21.3)	(29.7)	(14.3)	(12.0)
Accumulated other comprehensive loss, net of tax	$ 115.0	$ 119.5	$   38.7	$   57.3	$     9.0	$   19.0
Change in accumulated other comprehensive loss:
Amortization of net actuarial loss	$ (13.0)		$    (5.7)		$   (7.4)
Amortization of prior service benefits (costs)	(2.0)		(0.3)		6.4
Current period net actuarial loss (gain)	7.5		(26.8)		(6.7)
Current period prior service cost	0.2		0.1
Tax expense (benefit)	2.8		11.7		(2.3)
Foreign currency translation			2.4
Other comprehensive loss (income)	$   (4.5)		$  (18.6)		$  (10.0)
Accumulated Benefit Obligation, end of year	$ 718.2	$ 687.7	$ 465.1	$ 432.4	$ 164.9	$ 169.4

(a) Includes qualified and non-qualified plans

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Estimated amounts in accumulated other comprehensive income expected to be reclassified to net period cost during 2008 are as follows:

	U.S.			INTERNATIONAL			U.S. POSTRETIREMENT
MILLIONS	PENSION (a)			PENSION			HEALTH CARE
Net actuarial losses		$	9.0		$	1.1		$	4.7
Net prior service costs/(benefits)			1.2			0.2			(6.4	)
Total		$	10.2		$	1.3		$	(1.7	)

(a) Includes qualified and non-qualified plans.

The aggregate projected benefit obligation, accumulated benefit obligation and fair value of plan assets for those U.S. nonqualified plans and international plans with accumulated benefit obligations in excess of plan assets were as follows:

DECEMBER 31 (MILLIONS)	2007	2006
Aggregate projected benefit obligation	$356.9	$414.7
Accumulated benefit obligation	322.8	364.0
Fair value of plan assets	95.7	138.5

These plans relate to various international subsidiaries and the U.S. nonqualified plans and are funded consistent with local practices and requirements. As of December 31, 2007, there were approximately $24 million of future postretirement benefits covered by insurance contracts.

PLAN ASSETS

UNITED STATES

The company’s plan asset allocations for its U.S. defined benefit pension and postretirement health care benefits plans at December 31, 2007 and 2006 and target allocation for 2008 are as follows:

	2008
	TARGET		PERCENTAGE
	ASSET		OF PLAN ASSETS
ASSET	ALLOCATION
CATEGORY	PERCENTAGE		2007			2006
Large cap equity	43	%		42	%	43	%
Small cap equity	12			11		12
International equity	15			15		16
Fixed income	25			26		24
Real estate	5			6		5
Total	100	%		100	%	100	%

The company’s U.S. investment strategy and policies are designed to maximize the possibility of having sufficient funds to meet the long-term liabilities of the pension fund, while achieving a balance between the goals of asset growth of the plan and keeping risk at a reasonable level. Current income is not a key goal of the plan. The pension plan demographic characteristics generally reflect a younger plan population relative to an average pension plan. Therefore, the asset allocation position reflects the ability and willingness to accept relatively more short-term variability in the performance of the pension plan portfolio in exchange for the expectation of better long-term returns, lower pension costs and better funded status in the long run.

Since diversification is widely recognized as important to reduce unnecessary risk, the pension fund is diversified across a number of asset classes and securities. Selected individual portfolios within the asset classes may be undiversified while maintaining the diversified nature of total plan assets. The company’s U.S. investment policies prohibit investing in letter stock, warrants and options, and engaging in short sales, margin transactions, private placements, or other specialized investment activities. The use of derivatives is also prohibited for the purpose of speculation, circumventing the investment guidelines or taking risks that are inconsistent with the fund’s guidelines.

INTERNATIONAL

The company’s plan asset allocations for its international defined benefit pension plans at December 31, 2007 and 2006 are as follows:

	PERCENTAGE
	OF PLAN ASSETS
ASSET
CATEGORY	2007		2006
Equity securities	42	%	40	%
Fixed income	40		46
Real estate	3		5
Other	15		9
Total	100	%	100	%

Assets of funded retirement plans outside the U.S. are managed in each local jurisdiction and asset allocation strategy is set in accordance with local rules, regulations and practice. Therefore, no target asset allocation for 2008 is presented. The funds are invested in a variety of stocks, fixed income and real estate investments and in some cases, the assets are managed by insurance companies which may offer a guaranteed rate of return.

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NET PERIODIC BENEFIT COSTS

Pension and postretirement health care benefits expense for the company’s operations was:

	U.S.									INTERNATIONAL									U.S. POSTRETIREMENT
	PENSION(a)									PENSION									HEALTH CARE
MILLIONS	2007			2006			2005			2007			2006			2005			2007			2006			2005
Service cost – employee benefits earned during the year	$	43.2		$	40.6		$	40.6		$	20.3		$	18.9		$	15.0		$	2.6		$	3.1		$	3.1
Interest cost on benefit obligation	47.5			43.6			40.2			22.4			19.0			18.3			9.6			9.0			8.9
Expected return on plan assets	(65.8		)	(62.1		)	(53.1		)	(16.1		)	(13.1		)	(11.8		)	(2.5		)	(2.5		)	(1.8		)
Recognition of net actuarial loss	13.0			16.6			11.2			3.2			3.1			1.6			7.3			8.3			5.7
Amortization of prior service cost (benefit)	2.0			2.0			1.9			0.2						0.2			(6.4		)	(6.4		)	(5.7		)
Amortization of net transition obligation (asset)							(0.7		)							0.3
Curtailment loss (gain)										0.4			(0.2		)
Total expense	$	39.9		$	40.7		$	40.1		$	30.4		$	27.7		$	23.6		$	10.6		$	11.5		$	10.2

(a) Includes qualified and non-qualified plans

PLAN ASSUMPTIONS

	U.S.						INTERNATIONAL							U.S. POSTRETIREMENT
	PENSION(a)						PENSION							HEALTH CARE
	2007		2006		2005		2007		2006		2005			2007		2006		2005
Weighted-average actuarial assumptions used to determine benefit obligations as of December 31:
Discount rate	5.99	%	5.79	%	5.57	%	5.34	%	4.65	%	4.54	%	5.99		%	5.79	%	5.57	%
Projected salary increase	4.32		4.32		4.30		3.25		3.27		3.15
Weighted-average actuarial assumptions used to determine net cost:
Discount rate	5.79		5.57		5.75		4.64		4.56		5.18		5.79			5.57		5.75
Expected return on plan assets	8.75		8.75		8.75		5.87		5.80		5.68		8.75		%	8.75	%	8.75	%
Projected salary increase	4.32	%	4.30	%	4.30	%	3.32	%	3.21	%	3.12	%

(a) Includes qualified and non-qualified plans

The expected long-term rate of return is generally based on the pension plan’s asset mix.  Assumptions of returns are based on historical long-term returns on asset categories, expectations  for inflation, and estimates of the impact of active management of the assets.

For postretirement benefit measurement purposes as of December 31, 2007, 9% (for pre-age 65 retirees) and 10% (for post-age 65 retirees) annual rates of increase in the per capita cost of covered health care were assumed. The rates were assumed to decrease by 1% each year until they reach 5% in 2012 for pre-age 65 retirees and 5% in 2013 for post-age 65 retirees and remain at those levels thereafter. Health care costs which are eligible for subsidy by the company are limited to a maximum 4% annual increase beginning in 1996 for certain employees.

Assumed health care cost trend rates have a significant effect on the amounts reported for the company’s U.S. postretirement health care benefits plan. A one-percentage point change in the assumed health care cost trend rates would have the following effects:

	1–PERCENTAGE POINT
MILLIONS	INCREASE	DECREASE
Effect on total of service and interest cost components	$ 0.5	$ (0.5)
Effect on postretirement benefit obligation	8.2	(7.4)

AMENDMENTS

During 2004, the American Jobs Creation Act of 2004 (the “Act”) added a new Section 409A to the Internal Revenue Code (the “Code”) which significantly changed the federal tax law applicable to amounts deferred after December 31, 2004 under nonqualified deferred compensation plans. In response to this, the company amended the “Non-Employee Director Stock Option and Deferred Compensation Plan (“Director Plan”) and the Mirror Savings Plan in December 2004. The amendments (1) allow compensation that

44

was “deferred” (as defined by the Act) prior to January 1, 2005 to qualify for “grandfathered” status and to continue to be governed by the law applicable to nonqualified deferred compensation prior to the addition of Internal Revenue Code Section 409A by the Act, and (2) cause deferred compensation that is deferred after December 31, 2004 to be in compliance with the requirements of Code Section 409A. For amounts deferred after December 31, 2004, the amendments generally (1) require that such amounts be distributed as a single lump sum payment as soon as practicable after the participant has had a separation of service, with the exception of payments to “key employees” (as defined by the Act) which lump sum payments are required to be held for 6 months after their separation from service, and (2) prohibit the acceleration of distribution of such amounts except for an unforeseeable emergency (as defined by the Act).

Additionally, in December 2004 the company amended the Supplemental Executive Retirement Plan (“SERP”) and the Mirror Pension Plan to (1) allow amounts deferred prior to January 1, 2005 to qualify for “grandfathered” status and to continue to be governed by the law applicable to nonqualified deferred compensation prior to the Act, and (2) temporarily freeze benefits as of December 31, 2004 due to the uncertainty regarding the effect of the Act on such benefits. The Secretary of Treasury and the Internal Revenue Service issued final regulations with respect to the provisions of the Act in April 2007 and final amendments to comply with the Act are required by the end of 2008. The company currently intends to rescind the freeze, based on the issued regulations to ensure compliance for post-2004 benefit accruals.

CASH FLOWS

As of year-end 2007, the company’s estimate of benefits expected to be paid in each of the next five fiscal years, and in the aggregate for the five fiscal years thereafter for the company’s pension and postretirement health care benefit plans are as follows:

		MEDICARE
		SUBSIDY
MILLIONS	ALL PLANS	RECEIPTS
2008	$   64	$    1
2009	66	1
2010	68	1
2011	73	1
2012	83	2
2013-2017	494	11

The company’s funding policy for the U.S. pension plan is to achieve and maintain a return on assets that meets the long-term funding requirements identified by the projections of the pensionplan’s actuaries while simultaneously satisfying the fiduciary responsibilities prescribed in ERISA. The company also takes into consideration the tax deductibility of contributions to the benefit plans. The company is not required to make any contributions to the U.S. pension and postretirement health care benefit plans in 2008 and has not yet determined if it will do so. The company estimates contributions to be made to the international plans will approximate $20 million to $30 million in 2008.

The company is not aware of any expected refunds of plan assets within the next 12 months from any of its existing U.S. or international pension or postretirement benefit plans.

SAVINGS PLAN AND ESOP

The company provides a 401(k) savings plan for substantially all U.S. employees. Employee before-tax contributions of up to 3% of eligible compensation are matched 100% by the company and employee before-tax contributions between 3% and 5% of eligible compensation are matched 50% by the company. The company’s matching contributions are invested in Ecolab common stock and are 100% vested immediately. Effective January 1, 2006, the plan was amended to allow employees to immediately re-allocate company matching contributions in Ecolab common stock to other investment funds within the plan. The company’s contributions amounted to $20.3 million in 2007, $18.9 million in 2006 and  $17.4 million in 2005.

16. OPERATING SEGMENTS

The company’s thirteen operating segments have been aggregated into three reportable segments.

The “U.S. Cleaning & Sanitizing” reportable segment provides cleaning and sanitizing products to U.S. markets through its Institutional, Food & Beverage, Kay, Textile Care, Healthcare, Vehicle Care and Water Care Services operating segments.  These operating segments exhibit similar products, manufacturing processes, customers, distribution methods and economic characteristics.

The “U.S. Other Services” reportable segment includes all other U.S. operations of the company. This segment provides pest elimination and kitchen equipment repair and maintenance through its Pest Elimination and GCS Service operating segments. These two operating segments are primarily fee for service businesses. Since the primary focus of these segments is service, they have not been combined with the company’s “U.S. Cleaning & Sanitizing” reportable segment. These operating segments are combined and disclosed as an “all other” category in accordance with SFAS 131. Total service revenue for this segment was $371 million, $334 million and $300 million for 2007, 2006 and 2005, respectively.

The company’s “International” reportable segment includes four operating segments; Europe/Middle East/Africa (EMEA), Asia Pacific, Latin America and Canada. These segments provide cleaning and sanitizing products as well as pest elimination service. International operations are managed by geographic region and exhibit similar products, manufacturing processes, customers, distribution methods and economic characteristics. Total service revenue, at public rates, for international pest elimination was  $193 million, $175 million and $168 million for 2007, 2006 and 2005, respectively.

Information on the types of products and services of each of the company’s operating segments is included in item 1(c) Narrative Description of Business of our Form 10-K for the year ended December 31, 2007.

The company evaluates the performance of its International operations based on fixed management currency exchange rates. The difference between the fixed management currency exchange rates and the actual currency exchange rates is reported as “foreign currency translation” in operating segment reporting. All other accounting policies of the reportable segments are consistent with accounting principles generally accepted in the United States of America and the accounting policies of the company described in Note 2 of these notes to consolidated financial statements. The profitability of the company’s management based on operating income.

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Financial information for each of the company^’s reportable segments is as follows^:

	U.S.	U.S.			FOREIGN
	CLEANING &	OTHER	TOTAL		CURRENCY
MILLIONS	SANITIZING	SERVICES	U.S.	INTERNATIONAL	TRANSLATION	CORPORATE	CONSOLIDATED
NET SALES
2007	$ 2,351.4	$ 449.9	$ 2,801.3	$ 2,521.8	$ 146.5		$ 5,469.6
2006	2,152.3	410.5	2,562.8	2,372.3	(39.3)		4,895.8
2005	1,952.2	375.2	2,327.4	2,244.6	(37.2)		4,534.8
OPERATING INCOME (LOSS)
2007	394.0	40.7	434.7	253.0	20.0	$ (40.4)	667.3
2006	329.2	38.9	368.1	247.0	(3.5)		611.6
2005	280.0	36.0	316.0	230.5	(4.1)		542.4
DEPRECIATION & AMORTIZATION
2007	153.4	6.1	159.5	123.0	9.4		291.9
2006	139.7	6.4	146.1	121.6	0.9		268.6
2005	130.3	5.5	135.8	117.1	4.0		256.9
TOTAL ASSETS
2007	1,652.4	197.6	1,850.0	2,416.6	279.2	177.0	4,722.8
2006	1,301.9	175.0	1,476.9	2,341.4	67.6	533.5	4,419.4
CAPITAL EXPENDITURES (INCLUDING CAPITALIZED SOFTWARE)
2007	216.5	11.8	228.3	127.8	5.4		361.5
2006	188.4	14.7	203.1	120.1	(2.2)		321.0
2005	159.2	7.2	166.4	115.0	(1.7)		279.7

Consistent with the company’s internal management reporting, corporate operating income (loss) for 2007 includes $19.7 million of special gains and charges included on the Consolidated Statement of Income as well as investments the company is making in business systems and the company’s business structure. Corporate assets are principally cash and cash equivalents and deferred taxes.

The company has two classes of products within its U.S. Cleaning & Sanitizing and International operations which comprise 10% or more of consolidated net sales. Sales of warewashing products were approximately 22%, 21% and 21% of consolidated net sales in 2007, 2006 and 2005, respectively. Sales of laundry products were approximately 10%, 10% and 11% of consolidated net sales in 2007, 2006 and 2005, respectively.

Property, plant and equipment, net, of the company’s U.S. and International operations were as follows:

DECEMBER 31 (MILLIONS)	2007	2006
United States	$    685.6	$ 599.2
International	358.6	344.7
Effect of foreign currency translation	39.2	7.7
Consolidated	$  1,083.4	$ 951.6

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17. QUARTERLY FINANCIAL DATA (UNAUDITED)

	FIRST			SECOND			THIRD			FOURTH
MILLIONS, EXCEPT PER SHARE	QUARTER			QUARTER			QUARTER			QUARTER			YEAR
2007
Net sales
United States Cleaning & Sanitizing	$	568.2		$	589.3		$	604.5		$	589.4		$	2,351.4
United States Other Services	102.1			113.7			119.3			114.8			449.9
International	573.3			633.2			650.5			664.8			2,521.8
Effect of foreign currency translation	10.6			26.2			38.9			70.8			146.5
Total	1,254.2			1,362.4			1,413.2			1,439.8			5,469.6
Cost of sales	615.7			669.5			690.1			716.4			2,691.7
Selling, general and administrative expenses	490.1			519.9			523.7			557.2			2,090.9
Special charges	-			-			27.8			(8.1		)	19.7
Operating income
United States Cleaning & Sanitizing	99.2			99.8			111.5			83.5			394.0
United States Other Services	9.3			11.0			12.9			7.5			40.7
International	41.6			63.3			75.6			72.5			253.0
Corporate	(2.2		)	(4.3		)	(34.2		)	0.3			(40.4		)
Effect of foreign currency translation	0.5			3.2			5.8			10.5			20.0
Total	148.4			173.0			171.6			174.3			667.3
Interest expense, net	11.7			13.4			12.8			13.1			51.0
Income before income taxes	136.7			159.6			158.8			161.2			616.3
Provision for income taxes	47.2			49.3			44.8			47.8			189.1
Net income	$	89.5		$	110.3		$	114.0		$	113.4		$	427.2
Net income per common share
Basic	$	0.36		$	0.45		$	0.46		$	0.46		$	1.73
Diluted	$	0.35		$	0.44		$	0.46		$	0.45		$	1.70
Weighted-average common shares outstanding
Basic	249.7			246.0			245.2			246.3			246.8
Diluted	254.5			250.7			249.7			251.3			251.8
2006
Net sales
United States Cleaning & Sanitizing	$	513.5		$	544.4		$	561.7		$	532.7		$	2,152.3
United States Other Services	93.2			105.0			108.3			104.0			410.5
International	535.3			589.3			612.6			635.1			2,372.3
Effect of foreign currency translation	(21.9		)	(12.8		)	(3.8		)	(0.8		)	(39.3		)
Total	1,120.1			1,225.9			1,278.8			1,271.0			4,895.8
Cost of sales	552.5			608.0			625.5			630.1			2,416.1
Selling, general and administrative expenses	436.2			464.7			471.9			495.3			1,868.1
Operating income
United States Cleaning & Sanitizing	79.5			86.1			99.0			64.6			329.2
United States Other Services	8.0			10.6			12.5			7.8			38.9
International	45.3			58.6			69.6			73.5			247.0
Effect of foreign currency translation	(1.4		)	(2.1		)	0.3			(0.3		)	(3.5		)
Total	131.4			153.2			181.4			145.6			611.6
Interest expense, net	10.3			11.0			11.3			11.8			44.4
Income before income taxes	121.1			142.2			170.1			133.8			567.2
Provision for income taxes	43.2			49.0			59.8			46.6			198.6
Net income	$	77.9		$	93.2		$	110.3		$	87.2		$	368.6
Net income per common share
Basic	$	0.31		$	0.37		$	0.44		$	0.35		$	1.46
Diluted	$	0.30		$	0.36		$	0.43		$	0.34		$	1.43
Weighted-average common shares outstanding
Basic	253.5			252.2			251.6			251.3			252.1
Diluted	258.1			256.7			256.7			256.6			257.1

Per share amounts do not necessarily sum due to changes in the calculation of shares outstanding for each discrete period and rounding.

47

REPORTS OF MANAGEMENT

To our Shareholders:

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS

Management is responsible for the integrity and objectivity of the consolidated financial statements. The statements have been prepared in accordance with accounting principles generally accepted in the United States of America and, accordingly, include certain amounts based on management’s best estimates and judgments.

The Board of Directors, acting through its Audit Committee composed solely of independent directors, is responsible for determining that management fulfills its responsibilities in the preparation of financial statements and maintains financial control of operations. The Audit Committee recommends to the Board of Directors the appointment of the company’s independent registered public accounting firm, subject to ratification by the shareholders. It meets regularly with management, the internal auditors and the independent registered public accounting firm.

The independent registered public accounting firm has audited the consolidated financial statements included in this annual report and have expressed their opinion regarding whether these consolidated financial statements present fairly in all material respects our financial position and results of operation and cash flows as stated in their report presented separately herein.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, an evaluation of the design and operating effectiveness of internal control over financial reporting was conducted based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the evaluation under the framework in Internal Control - Integrated Framework, management concluded that internal control over financial reporting was effective as of December 31, 2007.

The company’s independent public accounting firm, PricewaterhouseCoopers LLP, has audited the effectiveness of the company’s internal control over financial reporting as of December 31, 2007 as stated in their report which is included herein.

Douglas M. Baker, Jr.

Chairman of the Board, President and Chief Executive Officer

Steven L. Fritze

Chief Financial Officer

48

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Directors of Ecolab Inc.:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income and shareholders’ equity and of cash flows present fairly, in all material respects, the financial position of Ecolab Inc. and its subsidiaries at December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 15 and Note 2 to the consolidated financial statements, Ecolab Inc. changed the manner in which it accounts for defined benefit pension and other postretirement plans effective December 31, 2006 and changed its method of accounting for uncertain income tax positions effective January 1, 2007.

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 (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) 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 (iii) 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.

PricewaterhouseCoopers LLP
Minneapolis, Minnesota
February 22, 2008

49

SUMMARY OPERATING AND FINANCIAL DATA

DECEMBER 31 (MILLIONS, EXCEPT PER SHARE AND EMPLOYEES)	2007			2006			2005			2004
OPERATIONS
Net sales
United States	$	2,801.3		$	2,562.8		$	2,327.4		$	2,135.7
International (at average rates of currency exchange during the year)	2,668.3			2,333.0			2,207.4			2,049.3
Total	5,469.6			4,895.8			4,534.8			4,185.0
Cost of sales (including special charges (income) of $(0.1) in 2004, $(0.1) in 2003, $9.0 in 2002, $(0.6) in 2001 and $1.9 in 2000)	2,691.7			2,416.1			2,248.8			2,033.5
Selling, general and administrative expenses	2,090.9			1,868.1			1,743.6			1,657.1
Special gains and charges	19.7									4.5
Operating income	667.3			611.6			542.4			489.9
Gain on sale of equity investment
Interest expense, net	51.0			44.4			44.2			45.3
Income from continuing operations before income taxes, equity earnings and changes in accounting principle	616.3			567.2			498.2			444.6
Provision for income taxes	189.1			198.6			178.7			161.9
Equity in earnings of Henkel-Ecolab
Income from continuing operations	427.2			368.6			319.5			282.7
Gain from discontinued operations
Changes in accounting principle
Net income, as reported	427.2			368.6			319.5			282.7
Adjustments
Adjusted net income	$	427.2		$	368.6		$	319.5		$	282.7
Income per common share, as reported
Basic - continuing operations	$	1.73		$	1.46		$	1.25		$	1.10
Basic - net income	1.73			1.46			1.25			1.10
Diluted - continuing operations	1.70			1.43			1.23			1.09
Diluted - net income	1.70			1.43			1.23			1.09
Adjusted income per common share
Basic - continuing operations	1.73			1.46			1.25			1.10
Basic - net income	1.73			1.46			1.25			1.10
Diluted - continuing operations	1.70			1.43			1.23			1.09
Diluted - net income	$	1.70		$	1.43		$	1.23		$	1.09
Weighted-average common shares outstanding - basic	246.8			252.1			255.7			257.6
Weighted-average common shares outstanding - diluted	251.8			257.1			260.1			260.4
SELECTED INCOME STATEMENT RATIOS
Gross profit	50.8		%	50.7		%	50.4		%	51.4		%
Selling, general and administrative expenses	38.2			38.2			38.4			39.6
Operating income	12.2			12.5			12.0			11.7
Income from continuing operations before income taxes	11.3			11.6			11.0			10.6
Income from continuing operations	7.8			7.5			7.0			6.8
Effective income tax rate	30.7		%	35.0		%	35.9		%	36.4		%
FINANCIAL POSITION
Current assets	$	1,717.3		$	1,853.6		$	1,421.7		$	1,279.1
Property, plant and equipment, net	1,083.4			951.6			868.0			867.0
Investment in Henkel-Ecolab
Goodwill, intangible and other assets	1,922.1			1,614.2			1,506.9			1,570.1
Total assets	$	4,722.8		$	4,419.4		$	3,796.6		$	3,716.2
Current liabilities	$	1,518.3		$	1,502.8		$	1,119.4		$	939.6
Long-term debt	599.9			557.1			519.4			645.5
Postretirement health care and pension benefits	418.5			420.2			302.0			270.9
Other liabilities	250.4			259.1			206.6			262.1
Shareholders’ equity	1,935.7			1,680.2			1,649.2			1,598.1
Total liabilities and shareholders’ equity	$	4,722.8		$	4,419.4		$	3,796.6		$	3,716.2
SELECTED CASH FLOW INFORMATION
Cash provided by operating activities	$	797.6		$	627.6		$	590.1		$	570.9
Depreciation and amortization	291.9			268.6			256.9			247.0
Capital expenditures	306.5			287.9			268.8			275.9
Cash dividends declared per common share	$	0.4750		$	0.4150		$	0.3625		$	0.3275
SELECTED FINANCIAL MEASURES/OTHER
Total debt	$	1,003.4		$	1,066.1		$	746.3		$	701.6
Total debt to capitalization	34.1		%	38.8		%	31.2		%	30.5		%
Book value per common share	$	7.84		$	6.69		$	6.49		$	6.21
Return on beginning equity	25.4		%	22.4		%	20.0		%	21.4		%
Dividends per share/diluted net income per common share	27.9		%	29.0		%	29.5		%	30.0		%
Net interest coverage	13.1			13.8			12.3			10.8
Year end market capitalization	$	12,639.9		$	11,360.4		$	9,217.8		$	9,047.5
Annual common stock price range	$	52.78-37.01		$	46.40-33.64		$	37.15-30.68		$	35.59-26.12
Number of employees	26,052			23,130			22,404			21,338

Property, plant and equipment amounts for the years 2005 through 1997 have been restated to include capital software which was previously classified in other assets. Results for 2004 through 1997 have been restated to reflect the effect of retroactive application of SFAS 123R, “Share-Based Payment”. The former Henkel-Ecolab joint venture is included as a consolidated subsidiary effective November 30, 2001. Adjusted results for 1997 through 2001 reflect the pro forma effect of the discontinuance of the amortization of goodwill as if SFAS 142 had been in effect since January 1, 1997. All per share, shares outstanding and market price data reflect the two-for-one stock splits declared in 2003 and 1997. Return on beginning equity is net income divided by beginning shareholders’ equity.

50

2003			2002			2001			2000			1999			1998			1997
$	2,014.8		$	1,923.5		$	1,821.9		$	1,746.7		$	1,605.4		$	1,429.7		$	1,251.5
1,747.0			1,480.1			498.8			484.0			444.4			431.4			364.5
3,761.8			3,403.6			2,320.7			2,230.7			2,049.8			1,861.1			1,616.0
1,846.6			1,688.7			1,121.1			1,056.9			963.9			875.1			745.4
1,459.8			1,304.3			898.2			864.1			804.4			730.2			655.7
0.4			37.0			0.8			(20.7		)
455.0			373.6			300.6			330.4			281.5			255.8			214.9
11.1
45.3			43.9			28.4			24.6			22.7			21.7			12.7
420.8			329.7			272.2			305.8			258.8			234.1			202.2
160.2			131.3			110.5			124.4			106.4			99.3			83.9
						15.8			19.5			18.3			16.0			13.5
260.6			198.4			177.5			200.9			170.7			150.8			131.8
			1.9												38.0
			(4.0		)				(2.5		)
260.6			196.3			177.5			198.4			170.7			188.8			131.8
						18.5			17.8			16.6			14.9			11.2
$	260.6		$	196.3		$	196.0		$	216.2		$	187.3		$	203.7		$	143.0
$	1.00		$	0.77		$	0.70		$	0.79		$	0.66		$	0.58		$	0.51
1.00			0.76			0.70			0.78			0.66			0.73			0.51
0.99			0.76			0.68			0.76			0.63			0.56			0.49
0.99			0.75			0.68			0.75			0.63			0.70			0.49
1.00			0.77			0.77			0.86			0.72			0.64			0.55
1.00			0.76			0.77			0.85			0.72			0.79			0.55
0.99			0.76			0.75			0.83			0.70			0.62			0.53
$	0.99		$	0.75		$	0.75		$	0.82		$	0.70		$	0.76		$	0.53
259.5			258.2			254.8			255.5			259.1			258.3			258.9
262.7			261.6			259.9			263.9			268.8			268.1			267.6
50.9		%	50.4		%	51.7		%	52.6		%	53.0		%	53.0		%	53.9		%
38.8			38.3			38.7			38.7			39.2			39.2			40.6
12.1			11.0			13.0			14.8			13.7			13.7			13.3
11.2			9.7			11.7			13.7			12.6			12.6			12.5
6.9			5.8			7.7			9.0			8.3			8.1			8.2
38.1		%	39.8		%	40.6		%	40.7		%	41.1		%	42.4		%	41.5		%
$	1,150.3		$	1,015.9		$	929.6		$	600.6		$	577.3		$	503.5		$	509.5
769.1			716.1			668.4			512.6			454.4			423.9			400.5
									199.6			219.0			253.7			239.9
1,309.5			1,133.9			943.4			411.9			342.0			293.5			267.8
$	3,228.9		$	2,865.9		$	2,541.4		$	1,724.7		$	1,592.7		$	1,474.6		$	1,417.7
$	851.9		$	853.8		$	828.0		$	532.0		$	470.7		$	399.8		$	404.5
604.4			539.7			512.3			234.4			169.0			227.0			259.4
249.9			207.6			183.3			117.8			97.5			85.8			76.1
201.6			145.0			121.1			72.8			86.7			67.8			124.6
1,321.1			1,119.8			896.7			767.7			768.8			694.2			553.1
$	3,228.9		$	2,865.9		$	2,541.4		$	1,724.7		$	1,592.7		$	1,474.6		$	1,417.7
$	523.9		$	412.7		$	358.5		$	309.8		$	290.1		$	233.7		$	234.1
228.1			220.6			158.8			143.2			129.2			117.6			97.5
212.0			212.8			157.9			150.0			145.6			147.7			121.7
$	0.2975		$	0.2750		$	0.2625		$	0.2450		$	0.2175		$	0.1950		$	0.1675
$	674.6		$	699.8		$	745.7		$	371.0		$	281.1		$	295.0		$	308.3
33.8		%	38.5		%	45.4		%	32.6		%	26.8		%	29.8		%	35.8		%
$	5.13		$	4.31		$	3.51		$	3.02		$	2.97		$	2.68		$	2.14
23.3		%	21.9		%	23.1		%	25.8		%	24.6		%	34.1		%	25.3		%
30.1		%	36.7		%	38.6		%	32.7		%	34.5		%	27.9		%	34.2		%
10.0			8.5			10.6			13.4			12.4			11.8			17.0
$	7,045.5		$	6,432.0		$	5,148.0		$	5,492.1		$	5,063.4		$	4,685.5		$	3,579.2
$	27.92-23.08		$	25.20-18.27		$	22.10-14.25		$	22.85-14.00		$	22.22-15.85		$	19.00-13.07		$	14.00-9.07
20,826			20,417			19,326			14,250			12,870			12,007			10,210

51

EX-21

EXHIBIT (21)

Registrant

ECOLAB INC.

Name of Affiliate	State or OtherJurisdiction ofIncorporation	Percentage  of  Ownership
Ecolab (Antigua) Ltd.	Antigua	100
Ecolab S.A.	Argentina	100
Ecolab Australia Pty Ltd.	Australia	100
Eagle Environmental Systems Pty Limited	Australia	100
Ecolab Pty Ltd.	Australia	100
Ecolab Water Care Services Pty Limited	Australia	100
Gibson Chemical Industries Pty Ltd.	Australia	100
Gibson Chemicals Fiji Pty Limited	Australia	100
Gibson Chemicals Pty Limited	Australia	100
Robust Chemicals Pty Limited	Australia	100
Vessey Chemicals (Holdings) Pty Limited	Australia	95
Vessey Chemicals Pty Limited	Australia	95
Vessey Chemicals (Vic.) Pty Limited	Australia	95
Vessey Chemicals (WA) Pty Limited	Australia	95
Ecolab AT 2 GmbH	Austria	100
Ecolab GmbH	Austria	100
Ecolab Holding Europe GmbH (in liqu.)	Austria	100
Ecolab Limited	Bahamas	100
Ecolab (Barbados) Limited	Barbados	100
Ecolab B.V.B.A./S.P.R.L.	Belgium	100
Kay N.V.	Belgium	100
Ecolab BM 1 Limited	Bermuda	100
Ecolab BM 2 Limited	Bermuda	100

Name of Affiliate	State or OtherJurisdiction ofIncorporation	Percentage  of  Ownership
Ecolab Emprecendimentos E Participacoes Ltda.	Brazil	100
Ecolab Quimica Ltda.	Brazil	100
Ecolab EOOD	Bulgaria	100
Ecolab Co.	Canada	100
Arlington International Limited	Cayman Islands	100
Mystique Management Limited	Cayman Islands	100
Ecolab S.A.	Chile	100
Ecolab Colombia S.A.	Colombia	100
Ecolab, Sociedad Anonima	Costa Rica	100
Ecolab d.o.o.	Croatia	100
Ecolab Holding (Cyprus) Limited	Cyprus	100
Ecolab Hygiene s.r.o.	Czech Republic	100
Ecolab ApS	Denmark	100
Ecolab Holding Denmark ApS	Denmark	100
Microtek Dominicana S.A.	Dominican Republic	100
Ecolabecuador CIA. LTDA.	Ecuador	100
Ecolab, S.A. de C.V.	El Salvador	100
Oy Ecolab AB	Finland	100
Ecolab Pest IDF SAS	France	100
Artois Chimie SAS	France	100
Alpha Holding SAS	France	100
Amboile Services SAS	France	100
Amperia SARL	France	100
Biophyte SARL	France	100

Name of Affiliate	State or OtherJurisdiction ofIncorporation	Percentage  of  Ownership
Centre Régional de Désinfectisation et de Dératisation SAS	France	100
Ecolab Holding SAS	France	100
Ecolab SNC	France	100
Ecolab Pest IDF SAS	France	100
Eurobiopsy SAS	France	100
Europlak SAS	France	100
Hygiene Champenoise SAS	France	100
Hygiene de L’Est SAS	France	100
Lorillou Hygiene SAS	France	100
Multiser SA	France	100
Nigiko SAS	France	100
Omniser SARL	France	100
SCI Aphomia	France	100
SCI Dugard	France	100
SCI Dumoulin	France	100
SCI Eliomys	France	100
SCI Erebia	France	100
SCI Louvette	France	100
SCI Marco	France	100
SCI Orly	France	100
Shield Medicare sarl	France	100
Ecolab Beteiligungs GmbH	Germany	100
Ecolab Deutschland GmbH	Germany	100
Ecolab Engineering GmbH	Germany	100

Name of Affiliate	State or OtherJurisdiction ofIncorporation	Percentage  of  Ownership
Ecolab Export GmbH	Germany		100
Ecolab Holding GmbH	Germany		100
Ecolab GmbH & Co. OHG	Germany		100
Ecolab NFK R&D Verwaltungs GmbH	Germany		100
Lang Engineering GmbH	Germany		100
Ecolab Hygiene Systems GmbH	Germany		100
Microtek Medical GmbH	Germany		100
Ecolab A.E.B.E.	Greece		100
Ecolab (Guam) LLC	Guam		100
Ecolab, Sociedad Anonima	Guatemala		100
Peter Cox Insurance Co. Limited	Guernsey		100
Quimicas Ecolab, S.A.	Honduras		100
Ecolab Limited	Hong Kong		100
Green Harbour Mainland Holdings Ltd	Hong Kong		100
Ecolab Holding Hungary LLC	Hungary		100
Ecolab Hygiene Kft.	Hungary		100
P.T. Ecolab Indonesia	Indonesia		100
Ecolab Food Safety and Hygiene Solutions Private Limited	India		100
Eclab Export Limited	Ireland		100
Ecolab Co.	Ireland		100
Ecolab Finance Company Limited	Ireland		100
Ecolab (Holdings) Limited	Ireland		100
Ecolab Limited	Ireland		100
Ecolab JVZ Limited	Israel		100
Ecolab-Zohar Dalia L.P.	Israel		51
Ecolab-Zohar Dalia Management Company Ltd.	Israel		51

Name of Affiliate	State or OtherJurisdiction ofIncorporation	Percentage  of  Ownership
Ecolab Holding Italy Srl	Italy	100
Ecolab Srl	Italy	100
Elton Srl	Italy	100
Findesadue Srl	Italy	100
Ecolab Limited	Jamaica	100
Ecolab K.K.	Japan	100
Ecolab East Africa (Kenya) Limited	Kenya	100
Ecolab Korea Ltd.	Korea	100
Ecolab SIA	Latvia	100
Ecolab LUX 1 Sarl	Luxembourg	100
Ecolab LUX 2 Sarl	Luxembourg	100
Ecolab-Importacao E Exportacao Limitada	Macau	100
Ecolab Sdn Bhd	Malaysia	100
Microtek Medical Malta Limited	Malta	100
Microtek Medical Malta Holding Limited	Malta	100
Ecolab, S. de R.L. de C.V.	Mexico	100
Ecolab Holdings Mexico, S.A. de C.V.	Mexico	100
Ecolab Maroc S. A.	Morocco	100
Ecolab Finance N.V.	Netherlands Antilles (Curacao)	100
Ecolabone B.V.	Netherlands	100
Ecolabtwo B.V.	Netherlands	100
Ecolab Holdings B.V.	Netherlands	100
Ecolab B.V.	Netherlands	100
Ecolab NL 3 BV	Netherlands	100
Ecolab NL 4 BV	Netherlands	100

Name of Affiliate	State or OtherJurisdiction ofIncorporation	Percentage  of  Ownership
Ecolab NL 5 BV	Netherlands	100
Microtek Medical Holding BV	Netherlands	100
Microtek Medical BV	Netherlands	100
Ecolab Limited	New Zealand	100
Ecolab Nicaragua, S.A.	Nicaragua	100
Ecolab A/S	Norway	100
Ecolab S.A.	Panama	100
Ecolab Chemicals Ltd.	People’s Republic of China	100
Ecolab China Ltd.	People’s Republic of China	100
Ecolab (GZ) Chemicals Limited	People’s Republic of China	100
Guangzhou Green Harbour Environmental Operations	People’s Republic of China	100
Guangzhou Green Harbour Termite	People’s Republic of China	100
Ecolab Perú Holdings S.R.L.	Peru	100
Ecolab Philippines Inc.	Philippines	100
Ecolab Sp.z o.o.	Poland	100
Ecolab S.R.L.	Romania	100
ZAO Ecolab	Russia	100
Ecolab Hygiene d.o.o.	Serbia	100
Ecolab Pte. Ltd.	Singapore	100
Ecolab s.r.o.	Slovakia	100
Ecolab d.o.o.	Slovenia	100
Ecolab (Proprietary) Ltd.	South Africa	100
Ecolab Hispano-Portuguesa, S.A.	Spain	100
Ecolab (St. Lucia) Limited	St. Lucia	100

Name of Affiliate	State or OtherJurisdiction ofIncorporation	Percentage  of  Ownership
Ecolab AB	Sweden	100
Ecolab CH 1 GmbH	Switzerland	100
Ecolab CH 2 GmbH	Switzerland	100
Ecolab Europe GmbH	Switzerland	100
Ecolab GmbH	Switzerland	100
Ecolab Ltd.	Taiwan	100
Ecolab East Africa (Tanzania) Limited	Tanzania	100
Ecolab Ltd.	Thailand	100
Ecolab (Trinidad & Tobago) Limited	Trinidad & Tobago	100
Ecolab Temizleme Sistemleri Limited Sirketi	Turkey	100
Ecolab East Africa (Uganda) Limited	Uganda	100
Ecolab LLC	Ukraine	100
Ecolab Emirates General Trading LLC	UAE	49
Ecolab Gulf FZE	UAE	100
Ecolab Limited	United Kingdom	100
Ecolab (U.K.) Holdings Limited	United Kingdom	100
Freshname No. 373 Limited	United Kingdom	100
Microtek Medical Europe, Ltd.	United Kingdom	100
Shield Holdings Limited	United Kingdom	100
Shield Medicare Limited	United Kingdom	100
Shield Salvage Associates Limited	United Kingdom	100
Ecolab S. A.	Uruguay	100
Ecolab Foreign Sales Corp.	U.S. Virgin Islands	100
Ecolab S.A.	Venezuela	74

Name of Affiliate	State or OtherJurisdiction ofIncorporation	Percentage  of  Ownership
United States
Ecolabeight Inc.	Delaware	100
Ecolab AP Holdings LLC	Delaware	100
Ecolab Finance Inc.	Delaware	100
Ecolab Holdings Inc.	Delaware	100
Ecolab Holdings (Europe) Inc.	Delaware	100
Ecolab Investment LLC	Delaware	100
Ecolab Israel Holdings LLC	Delaware	100
Ecolab Manufacturing Inc.	Delaware	100
Ecolab Marketing LLC	Delaware	100
Ecovation, Inc.	Delaware	100
GCS Service, Inc.	Delaware	100
Krofta Technologies, LLC	Delaware	100
Microtek Medical Inc.	Delaware	100
Total Enterprise Control LLC	Delaware	60
Wabasha Leasing LLC	Delaware	100
Microtek Medical Holdings Inc.	Georgia	100
Kay Chemical Company	North Carolina	100
Kay Chemical International, Inc.	North Carolina	100
Daydots Inc.	Texas	100

Certain additional subsidiaries, which are not significant in the aggregate, are not shown.

EX-24

Exhibit (24)

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, That the undersigned, a director of Ecolab Inc., a Delaware corporation, does hereby make, nominate and appoint LAWRENCE T. BELL and SARAH Z. ERICKSON, and each of them, to be my attorney-in-fact, with full power and authority to sign his or her name to the Annual Report on Form 10-K of Ecolab Inc. for the fiscal year ended December 31, 2007, and all amendments thereto, provided that the Annual Report and any amendments thereto, in final form, be approved by said attorney-in-fact; and his or her name, when thus signed, shall have the same force and effect as though I had manually signed said document.

IN WITNESS WHEREOF, I have hereunto affixed my signature this 22nd day of February, 2008.

/s/Les S. Biller

Les S. Biller

/s/Richard U. De Schutter

Richard U. De Schutter

/s/Jerry A. Grundhofer

Jerry A. Grundhofer

/s/Stefan Hamelmann

Stefan Hamelmann

/s/Joel W. Johnson

Joel W. Johnson

/s/Jerry W. Levin

Jerry W. Levin

/s/Robert L. Lumpkins

Robert L. Lumpkins

/s/Beth M. Pritchard

Beth M. Pritchard

/s/Kasper Rorsted

Kasper Rorsted

/s/Hans Van Bylen

Hans Van Bylen

/s/John J. Zillmer

John J. Zillmer

EX-31

EXHIBIT (31)

CERTIFICATIONS

I, Douglas M. Baker, Jr., certify that:

1.I have reviewed this annual report on Form 10-K of Ecolab Inc.;

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 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 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 fiscal 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 the 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 adversely 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 control over financial reporting.

Date: February 25, 2008

 /s/Douglas M. Baker, Jr.

Douglas M. Baker, Jr.

Chairman of the Board, President and
Chief Executive Officer

I, Steven L. Fritze, certify that:

1.I have reviewed this annual report on Form 10-K of Ecolab Inc.;

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 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 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 fiscal 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 the 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 adversely 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 control over financial reporting.

Date: February 25, 2008

 /s/Steven L. Fritze

Steven L. Fritze

Chief Financial Officer

EX-32

EXHIBIT (32)

SECTION 1350 CERTIFICATIONS

Pursuant to 18 U.S.C. Section 1350, each of the undersigned officers of Ecolab Inc. does hereby certify that:

(a)the Annual Report on Form 10-K of Ecolab Inc. for the year ended December 31, 2007 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(b)information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Ecolab Inc.

Dated: February 25, 2008	/s/Douglas M. Baker, Jr.
	Douglas M. Baker, Jr.
	Chairman of the Board, President and Chief Executive Officer
Dated: February 25, 2008	/s/Steven L. Fritze
	Steven L. Fritze
	Chief Financial Officer

CORRESP

February 25, 2008

Securities and Exchange Commission

100 F Street, N.E.

Washington, DC 20549-7010

RE:	Ecolab Inc.
	Form 10-K
	Commission File No. 1-9328

Ladies and Gentlemen:

Transmitted herewith via the EDGAR system is the Ecolab Inc. Annual Report on Form 10-K for the year ended December 31, 2007.

The 2007 financial statements reflect the prospective adoption, effective January 1, 2007, of the provisions of Financial Accounting Standards Board Interpretation No. 48 Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48). As a result of the adoption of FIN 48, the company recorded a cumulative effect adjustment. Reported amounts for fiscal years 2006 and 2005 were not affected.  For more information about the impact of FIN 48, see Notes 2 and 11 of the Consolidated Financial Statements located as Exhibit (13) to the Form 10-K.

Sincerely,

/s/Sarah Z. Erickson

Sarah Z. Erickson

Associate General Counsel - Corporate

And Assistant Secretary