notes to consolidated financial statements

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 participants enrolled prior to January 1, 2003, plan benefits are based on years of service and highest average compensation for five consecutive years of employment. For participants enrolled after December 31, 2002, plan benefits are based on contribution credits equal to a fixed percentage of their current salary and interest credits. The measurement date used for determining the U.S. Pension Plan assets and obligations was December 31. Various international subsidiaries also have defined benefit pension plans. Prior to the acquisition of Henkel-Ecolab at the end of fiscal 2001, the international plans were not significant. Beginning in 2002, the information below includes all of the company's significant 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 was December 31. Certain employees outside the U.S. were covered under government-sponsored programs, which are not required to be fully funded. The expense and obligation for providing International postretirement healthcare benefits was not significant.

A reconciliation of changes in the benefit obligations and fair value of assets of the company's plans is as follows:

	U.S. Pension Benefits			International Pension Benefits		U.S. Postretirement Health Care Benefits
(thousands)	2003	2002	2001	2003	2002	2003	2002	2001
Benefit obligation,   beginning of year	$485,155	$396,827	$347,430	$245,876	$172,328	$131,206	$134,116	$110,002
Service cost	26,442	21,635	18,925	11,997	9,412	7,447	2,814	7,342
Interest cost	32,208	29,237	26,461	14,633	10,973	8,597	7,651	8,826
Company contributions	---	---	---	---	137	---	---	---
Participant contributions	---	---	---	1,515	68	1,856	1,214	1,045
Acquisitions	---	---	---	1,086	43,135	---	---	---
Plan amendments and   curtailments	--	--	726	(948)	1,522	(1,930)	(40,760)	---
Changes in assumptions	33,397	53,467	14,723	---	---	8,675	24,588	5,001
Actuarial loss (gain)	(5,232)	(1,889)	1,064	13,007	(2,554)	7,828	8,659	7,531
Benefits paid	(15,894)	(14,122)	(12,502)	(11,892)	(8,913)	(8,649)	(7,076)	(5,631)
Foreign currency   translation	---	---	---	46,632	19,768	---	---	---
Benefit obligation, end   of year	$556,076	$485,155	$396,827	$321,906	$245,876	$155,030	$131,206	$134,116
Fair value of plan assets,   beginning of year	$378,504	$311,164	$317,027	$134,089	$108,485	$  18,911	$  23,811	$  27,128
Actual gains (losses) on plan   assets	107,192	(43,112)	(19,244)	9,400	(9,438)	5,054	(2,866)	(1,627)
Acquisitions	---	---	---	263	23,331	---	---	---
Company contributions	75,000	124,574	25,883	12,743	7,794	4,807	3,828	2,896
Participant contributions	---	---	---	1,407	1,052	1,856	1,214	1,045
Settlements	---	---	---	(547)	---	---	---	---
Benefits paid	(15,894)	(14,122)	(12,502);	(11,892)	(7,800)	(8,649)	(7,076)	(5,631)
Foreign currency   translation	---	---	---	25,512	10,665	---	---	---
Fair value of plan assets,   end of year	$544,802	$378,504	$311,164	$170,975	$134,089	$  21,979	$  18,911	$  23,811

A reconciliation of the funded status for the pension and postretirement plans is as follows:

	U.S. Pension Benefits			International Pension Benefits		U.S. Postretirement Health Care Benefits
(thousands)	2003	2002	2001	2003	2002	2003	2002	2001
Funded status	$ (11,274)	$(106,651)	$ (85,663)	$(150,931)	$(111,787)	$(133,051)	$(112,295)	$(110,305)
Unrecognized   actuarial loss	160,939	201,006	73,641	44,123	25,881	63,559	56,823	20,644
Unrecognized prior   service cost   (benefit)	7,400	9,329	11,258	2,265	(55)	(34,059)	(37,431)	(6,893)
Unrecognized net   transition (asset)   obligation	(2,105)	(3,508)	(4,911)	627	833	---	---	---
Net amount recognized	$ 154,960	$ 100,176	$   (5,675)	$(103,916)	$  (85,128)	$(103,551)	$  (92,903)	$  (96,554)

The net amount recognized in the balance sheet and the accumulated benefit obligation is as follows:

	U.S. Pension Benefits			International Pension Benefits		U.S. Postretirement Health Care Benefits
(thousands)	2003	2002	2001	2003	2002	2003	2002	2001
Prepaid benefit cost	$154,960	$100,176	$        ---	$     26,533	$  13,175	$           ---	$          ---	$          ---
Accrued benefit cost	---	---	(5,675)	(146,180)	(99,355)	(103,551)	(92,903)	(96,554)
Accumulated other   comprehensive loss	---	---	---	15,731	1,052	---	---	---
Net amount recognized	$154,960	$100,176	$ (5,675)	$ (103,916)	$ (85,128)	$(103,551)	$ (92,903)	$ (96,554)
Accumulated benefit obligation	$441,488	$ 375,406	$305,780			$ 155,030	$ 131,206	$ 134,116

For certain international pension plans, the accumulated benefit obligation exceeded the fair value of plan assets. Therefore, the company recognized a minimum pension liability in other comprehensive income of $14.5 million pre-tax ($9.5 million net of deferred tax asset) during 2003 and $1.1 million during 2002.

The aggregate projected benefit obligation, accumulated benefit obligation and fair value of plan assets for those plans with accumulated benefit obligations in excess of plan assets were $261,138,000, $238,819,000 and $95,655,000, respectively, at December 31, 2003, and $103,063,000, $90,428,000 and $14,163,000, respectively, at December 31, 2002. These plans relate to various international subsidiaries and are funded consistent with local practices and requirements. As of December 31, 2003 there were approximately $4.5 million of future post retirement benefits covered by insurance contracts.

Plan Assets
The company's plan asset allocations for its U.S. defined benefit pension and postretirement health care benefits plans at December 31, 2003, 2002 and 2001, and target allocation for 2004 are as follows:

Asset Category	2004 Target Asset Allocation Percentage	Percentage of Plan Assets
		2003	2002	2001
Large Cap Equity	43%	46%	43%	39%
Small Cap Equity	12	13	12	10
International Equity	15	15	15	20
Fixed Income	25	22	25	24
Real Estate	5	4	5	7
Total	100%	100%	100%	100%

As of year-end 2003, the fixed income securities mature in periods up to 30 years, with a weighted average maturity of 5.6 years. 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 growing the assets of the plan and keeping risk at a reasonable level. Current income is not a key goal of the plan. The pension and health care plans' demographic characteristics generally reflect a younger workforce 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 a better funded status, better long-term returns and lower pension costs in the long run.

Since diversification is widely recognized as necessary to reduce risk, the pension fund is diversified across several asset classes and securities. Selected individual portfolios may be undiversified while maintaining the diversified nature of total plan assets.

The plan prohibits investing in letter stock, warrants and options, and engaging in short sales, margin transactions, or other specialized investment activities. The use of derivatives is also prohibited for the purpose of speculation or introducing leverage in the portfolio, circumventing the investment guidelines or taking risks that are inconsistent with the fund's guidelines. Selected derivatives may only be used for hedging and transactional efficiency.

Cash Flows
The company's funding policy for the U.S. pension plan is to achieve a return on assets that meets the long-term funding requirements identified by the projections of the pension plan's actuaries while simultaneously satisfying the fiduciary responsibilities prescribed by ERISA. The company is not required to make any contributions to the U.S. pension plan and postretirement health care benefit plans in 2004.

Net Periodic Benefit Costs
Pension and postretirement health care benefits expense for the company's operations was:

	U.S. Pension Benefits			International Pension Benefits		U.S. Postretirement Health Care Benefits
(thousands)	2003	2002	2001	2003	2002	2003	2002	2001
Service cost – employee benefits    earned during the year	$ 26,442	$ 21,635	$ 18,925	$ 11,997	$   9,412	$   2,945	$ 2,814	$   7,342
Interest cost on benefit    obligation	32,208	29,237	26,461	14,633	10,973	8,597	7,651	8,826
Adjustments for death benefits    for retired executives	---	---	---	---	---	4,502	---	---
Expected return on plan assets	(42,411)	(32,675)	(28,862)	(9,908)	(8,556)	(1,580)	(2,071)	(2,363)
Recognition of net actuarial    loss (gain)	3,451	---	---	932	394	6,293	2,005	---
Amortization of prior service    cost (benefit)	1,929	1,929	1,881	41	204	(5,302)	(4,431)	(551)
Amortization of net transition    (asset) obligation	(1,403)	(1,403)	(1,403)	493	272	---	---	---
Curtailment (gain) loss	---	---	---	---	1,522	---	(5,791)	---
Total expense	$ 20,216	$ 18,723	$ 17,002	$ 18,188	$ 14,221	$ 15,455	$    177	$ 13,254

Total international pension expense, excluding the 50 percent owned Henkel-Ecolab operations, was $1,641,000 in 2001.

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 recorded obligation for these plans was approximately $19 million at December 31, 2003. The annual expense for these plans was approximately $4 million in 2003, $3 million in 2002 and $3 million in 2001.

Plan Assumptions

	U.S. Pension Benefits			International Pension Benefits		U.S. Postretirement Health Care Benefits
	2003	2002	2001	2003	2002	2003	2002	2001
Weighted-average actuarial    assumptions used to determine    benefit obligations as of    December 31:       Discount rate	6.25%	6.75%	7.50%	5.39%	5.42%	6.25%	6.75%	7.50%
Projected salary increase	4.30	4.80	4.80	3.31	3.40
Weighted-average actuarial    assumptions used to determine    net cost:       Discount rate	6.75	7.50	7.75	5.11	5.37	6.75	7.50	7.75
Expected return on plan          assets	9.00	9.00	9.00	5.97	5.26	9.00%	9.00%	9.00%
Projected salary increase	4.80%	4.80%	4.80%	3.25%	3.36%

The expected long-term rate of return is generally based on the pension plan's asset mix, assumptions of equity returns 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, 9.0 percent (for pre-age 65 retirees) and 11.0 percent (for post-age 65 retirees) annual rates of increase in the per capita cost of covered health care were assumed for 2003. The rates were assumed to decrease by 1 percent each year until they reach 5 percent in 2008 for pre-age 65 retirees and 5 percent in 2010 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 4 percent 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
(thousands)	Increase	Decrease
Effect on total of service and    interest cost components	$      593	$      (575)
Effect on postretirement    benefit obligation	10,115	(9,834)

Effective March 2002, the company changed its postretirement health care benefits plan to discontinue the employer subsidy for postretirement health care benefits for most active employees. These subsidized benefits will continue to be provided to certain defined active employees and all existing retirees. As a result of these actions, the company recorded a curtailment gain of approximately $6 million in the first quarter of 2002.

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans. The company's U.S. Postretirement Health Care Benefits plan offers prescription drug benefits. In accordance with FASB Staff Position No. FAS 106-1 Accounting and Disclosure Requirements Related to the Medicare Prescription Drug Benefits, Improvement and Modernization Act of 2003, the company has elected to defer recognition of the effects of the Act and any measures of benefit cost or benefit obligation in the financial statements or accompanying notes. Specific authoritative guidance on the accounting for the federal subsidy is pending and that guidance, when issued, could require the company to change previously reported information. The company does not anticipate that its plan will need to be amended in order to benefit from the new legislation and expects a favorable impact on future benefit expenses and the future financial status of the plan.

Savings Plan and ESOP
The company provides a 401(k) savings plan for substantially all U.S. employees. Prior to March 2002, employee contributions of up to 6 percent of eligible compensation were matched 50 percent by the company. In March 2002, the company changed its 401(k) savings plan and added an employee stock ownership plan (ESOP) feature to the existing plan. Employee before-tax contributions of up to 3 percent of eligible compensation are matched 100 percent by the company and employee before-tax contributions between 3 percent and 5 percent of eligible compensation are matched 50 percent by the company. The match is 100 percent vested immediately. Effective January 2003, the plan was amended to provide that all employee contributions which are invested in Ecolab stock will be part of the employee's ESOP account while so invested. The company's contributions are invested in Ecolab common stock and amounted to $14,854,000 in 2003, $12,905,000 in 2002 and $9,491,000 in 2001.