financial discussion

Henkel-Ecolab
Prior to November 30, 2001, we operated cleaning and sanitizing businesses in Europe through a 50 percent economic interest in the Henkel-Ecolab joint venture. On November 30, 2001, we purchased from Henkel KGaA the remaining 50 percent interest of Henkel-Ecolab that we did not already own. Additional details related to this purchase are included in Note 5 of the notes to consolidated financial statements.

We consolidated Henkel-Ecolab's operations effective with the November 30, 2001 acquisition date and the end of Henkel-Ecolab's fiscal year for 2001. Because we consolidate our International operations on the basis of their November 30 fiscal year-ends, Henkel-Ecolab's balance sheet was consolidated with our balance sheet as of year-end 2001. The income statement for the European operations was consolidated with our operations beginning in 2002.

Corporate
Our corporate operating expenses totaled $4.8 million in 2003, compared with $46.0 million in 2002 and $4.9 million in 2001. Corporate operating expense in 2003 included a write-off of $1.7 million of goodwill related to an International business sold in 2003, $1.4 million of income for reductions in restructuring accruals and $4.5 million of expense for postretirement death benefits for retired executives. In 2002, the amount in corporate operating expense included restructuring and merger integration costs of $51.8 million, which were partially offset by a curtailment gain of $5.8 million related to benefit plan changes. Prior to 2002, corporate operating expense included overhead costs directly related to the European joint venture. In 2002 and 2003, these expenses were included in our International Cleaning & Sanitizing operating segment.

Interest and Income Taxes
Net interest expense for 2003 was $45 million, an increase of 3 percent over net interest expense of $44 million in 2002. The increase was primarily due to our euro-denominated debt and the strength of the euro against the U.S. dollar partially offset by lower debt levels.

Net interest expense for 2003 was $45 million, an increase of 3 percent over net interest expense of $44 million in 2002. The increase was primarily due to our euro-denominated debt and the strength of the euro against the U.S. dollar partially offset by lower debt levels. Net interest expense of $44 million for 2002 increased 54 percent over net interest expense of $28 million in 2001. This increase was primarily due to higher debt levels incurred at year-end 2001 to finance the acquisition of the remaining 50 percent interest of our European joint venture which we did not already own.

Our effective income tax rate was 38.1 percent for 2003, compared with effective income tax rates of 39.8 percent and 40.5 percent in 2002 and 2001, respectively. Excluding the effects of the gain on the sale of an equity investment and the effect of special charges, the effective income tax rate was 38.0 percent for 2003. Excluding the effects of special charges in 2002, the estimated annual effective income tax rate was 39.5 percent. The reduction in the 2003 effective income tax rate was primarily due to a lower overall international rate and favorable international mix, as well as the tax savings opportunities that were available after the company's acquisition of its European operations at the end of fiscal year 2001. The decrease in 2002 from prior years was principally due to the adoption of SFAS No. 142 at the beginning of 2002, which eliminated the amortization of goodwill and related income tax effects. Overall effective rates on International operations were higher in 2002 than in prior years, principally due to the addition of the European joint venture. This was partially offset by lower state income tax rates in 2002.