CASH FLOWS

Cash provided by operating activities reached a record high of $582 million for 2004, an increase from $529 million in 2003 and $423 million in 2002. The increase in operating cash flow for 2004 over 2003 is due to increasing net income and a smaller contribution to the U.S. pension plan compared to 2003. The increase was partially offset by an increase in U.S. income tax payments in 2004 over 2003. The operating cash flow for 2003 increased over 2002 also due to higher net income in 2003 and a lower contribution to the pension plan compared to 2002. Operating cash flows for 2003 were also higher than 2002 due to reduced payments on restructuring liabilities and lower estimated tax payments due to tax benefits on options exercised during 2003. 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, invest in merchandising equipment and other capital assets and pay down debt.

Cash flows used for investing activities included capital expenditures of $276 million in 2004, $212 million in 2003 and $213 million in 2002. Worldwide additions of merchandising equipment, primarily cleaning and sanitizing product dispensers, accounted for approximately 58 percent, 69 percent and 63 percent of each year's capital expenditures in 2004, 2003 and 2002, respectively. Merchandising equipment is depreciated over 3 to 7 year lives. Cash used for businesses acquired included Nigiko, Daydots International, Elimco and certain business lines for VIC International in 2004, Adams Healthcare in 2003 and Terminix Ltd., Kleencare Hygiene and Audits International in 2002.

Financing cash flow activity included cash used to reacquire shares of our common stock and pay dividends as well as cash provided and used through our debt arrangements. Share repurchases totaled $165 million in 2004, $227 million in 2003 and $9 million in 2002. These repurchases were funded with operating cash flows and cash from the exercise of employee stock options. In October 2003 and December 2004, we announced authorizations to repurchase up to an aggregate of 20 million additional shares of Ecolab common stock for the purpose of offsetting the dilutive effect of shares issued for stock option exercises and incentives and for general corporate purposes.

In 2004, we increased our annual dividend rate for the thirteenth consecutive year. We have paid dividends on our common stock for 68 consecutive years. Cash dividends declared per share of common stock, by quarter, for each of the last three years were as follows:

	First Quarter	Second Quarter	Third Quarter	Fourth Quarter	Year
2004	$ 0.0800	$ 0.0800	$ 0.0800	$ 0.0875	$ 0.3275
2003	0.0725	0.0725	0.0725	0.0800	0.2975
2002	0.0675	0.0675	0.0675	0.0725	0.2750