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Cash Flow Drivers Report

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ECOLAB INC (ECL)

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Years ending December 31,31-Dec-200631-Dec-200531-Dec-200431-Dec-2003

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Core Operating Cash Flow

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Core operating cash flow1,066687832705

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Core operating cash flow growth rate55.12%-17.41%18.12%NM

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Cash Flow Drivers

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Operating cushion:

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Revenue from core operations4,8964,5354,1853,762

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Cost of revenue (excl. depreciation & amortization)2,1722,0151,8061,637

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Gross margin (excl. depreciation and amortization)2,7232,5192,3792,125

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Selling, general and administrative expense (excl. depreciation & amortization)1,7331,6131,5321,359

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Research and development expense73686153

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Operating cushion917838786713

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Operating working capital:

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Operating receivables868744738626

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Deferred revenue

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Inventory365326339310

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Operating payables331278270212

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Capitalized operating expenses

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Prepaids492523512469

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Accruals1,2321,0031,160987

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Operating working capital161311160206

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Operating cushion %:

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Gross margin (excl. depreciation and amortization) %55.63%55.56%56.85%56.49%

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SG&A (excl. depreciation and amortization) %35.41%35.56%36.60%36.13%

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R&D %1.50%1.51%1.47%1.41%

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Operating cushion %18.72%18.49%18.78%18.94%

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Operating working capital to revenue %

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Operating receivables to revenue %17.72%16.40%17.64%16.64%

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Deferred revenue to revenue %

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Inventory (incl. capitalized interest) to revenue %7.45%7.18%8.09%8.24%

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Operating payables to revenue %6.76%6.12%6.44%5.64%

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Capitalized operating expenses to revenue %

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Prepaids to revenue %10.04%11.52%12.24%12.48%

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Accruals to revenue %25.17%22.12%27.71%26.23%

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Operating working capital to revenue %3.29%6.86%3.82%5.49%

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Operating working capital measured in revenue days (Cash cycle):

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Operating receivables days64.6859.8464.3960.74

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Deferred revenue days

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Inventory days27.2026.2029.5330.07

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Operating payables days24.6722.3523.5120.60

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Capitalized operating expenses days

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Prepaids days36.6542.0744.6945.55

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Accruals days91.8580.74101.1695.74

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Cash cycle12.0125.0313.9520.03

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Cash-Flow Impacts

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Cash Impacts On Operating Cushion

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Cash impacts on gross margin (excl. depreciation and amortization):

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Growth201199239203

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Change in GM %3-5915-10

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Change in gross margin (excl. depreciation and amortization)204140254194

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Cash impacts on SG&A (excl. depreciation and amortization):

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Growth-128-128-153-128

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Change in SG&A %847-20-15

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Change in SG&A expense (excl. depreciation and amortization)-121-81-173-143

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Cash impacts on research and development:

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Growth-5-5-6-5

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Change in R&D %1-2-22

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Change in research and development expense-5-7-8-3

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Cash impacts on operating cushion:

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Growth67668070

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Change in operating cushion %11-13-7-23

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Change in operating cushion78537347

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Cash Impacts On Operating Working Capital

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Cash impacts on operating receivables:

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Growth-59-62-70-58

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Change in receivables days-6556-42-15

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Change in operating receivables on balance sheet-124-5-112-73

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Provision for doubtful receivables incl. in SG&A

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Change in operating receivables on cash flow analysis statement-124-5-112-73

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Cash impacts on deferred revenue:

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Growth39

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Change in deferred revenue days-412

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Change in deferred revenue-373

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Cash impacts on inventory:

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Growth-26-28-35-31

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Change in inventory days-1341612

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Change in inventory on balance sheet-3913-29-18

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Interest capitalized to inventory

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Provision for impairment of inventory incl. in cost of revenue

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Change in inventory on cash flow analysis statement-3913-29-18

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Cash impacts on operating payables:

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Growth22232422

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Change in payables days31-1433-15

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Change in operating payables538577

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Cash impacts on capitalized operating expenses:

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Growth

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Change in capitalized operating expenses days

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Change in capitalized operating expenses

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Cash impacts on prepaids:

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Growth-42-43-53-44

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Change in prepaids days733310-5

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Change in prepaids31-10-43-50

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Cash impacts on accruals:

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Growth809711151

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Change in accruals days149-25462447

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Change in accruals229-157173499

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Cash impacts on operating working capital:

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Growth-25-13-23-21

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Change in operating working capital days175-1387013

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Change in operating working capital150-15146-8

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Cash Flow Drivers

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Total Interest Paid

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Interest expense-51-50-48-49

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Interest capitalized to PP&E

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Interest capitalized to inventory

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Total interest incurred-51-50-48-49

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Change in interest payable

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Change in capitalized debt-issue costs

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Interest paid with common stock

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Total interest paid-51-50-48-49

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Interest expense as % of average borrowings5.66%6.88%7.05%7.18%

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Total interest paid as % of average borrowings5.66%6.88%7.05%7.18%

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Cash flow available for debt service to total interest paid16.8112.2912.7911.85

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Total interest paid-51-50-48-49

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Required principal payments on long-term debt and capital lease obligations-80-5-4-13

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Total debt service requirements-132-55-52-62

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Cash flow available for debt service to total debt service requirements6.5611.1411.839.36

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Interest-bearing borrowings:

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Commercial paper and financing-related notes payable1091475166

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Current portion, long-term debt4008054

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Noncurrent portion, long-term debt557519645604

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Current portion, capital lease obligations

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Noncurrent portion, capital lease obligation

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Noncurrent financing-related notes payable

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Other financing-related current liabilities

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Other financing-related noncurrent liabilities and other financial services liabilities

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Noncurrent subordinated and convertible debt

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Interest-bearing borrowings1,066746702675

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Average interest-bearing borrowings906724688687

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Cash Flow Available for Investment

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Sustainable operating cash flow811562572535

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Dividends - preferred

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Cash flow available for investment811562572535

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Cash flow available for investment growth rate44.31%-1.66%6.76%NM

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Sustainable Free Cash Flow

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Cash flow available for investment811562572535

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Capital expenditures-385-258-345-286

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Investment in notes receivable

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Investment in other net financial services assets

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Investment in operations-related intangibles-2126-25-15

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Investment in other operations-related assets

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Investment to support operations-405-232-371-301

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Sustainable free cash flow406331201234

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Sustainable free cash flow growth rate22.72%64.44%-14.10%NM

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Cash Flow Drivers

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Capital Expenditures

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Capital expenditures:

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Change in property, plant and equipment, net-116-1-98-57

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Depreciation and amortization incl. in cost of revenue-244-233-226-208

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Depreciation and amortization incl. in SG&A-25-24-22-21

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Amortization expense on acquisition-related intangibles

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Impairment charge - PP&E

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Gain (loss) on disposal of PP&E

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Interest capitalized to PP&E

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Proceeds from sale and operating leaseback transactions

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Capital expenditures-385-258-345-286

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As % of cash flow available for investment47.42%45.85%60.41%53.45%

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Capital expenditures to depreciation on property, plant and equipment1.431.001.401.25

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Capital expenditures equivalent of (additions) to operating leases-56-86-39-34

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Capital expenditures cash-flow profile:

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Capital expenditures to revenue %7.86%5.68%8.25%7.61%

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Cash impact on capital expenditures:

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Cash impact of growth on capex-21-29-32NM

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Cash impact of chgs in capex to revenue % on capex-106116-27NM

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Cash impact of growth and chgs in capex to revenue % on capex-12788-59NM

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Investment in Notes Receivable

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Investment in notes receivable:

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Current other notes receivable

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Noncurrent other notes receivable

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Notes receivable

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Investment in notes receivable

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As % of cash flow available for investment

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Investment in other net financial services assets

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Investment in other net financial services assets:

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Other financial services assets

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Other financial services liabilities

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Other net financial services assets

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Investment in other net financial services assets

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As % of cash flow available for investment

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Investment in Operations-Related Intangibles

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Investment in operations-related intangibles:

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Operations-related intangibles224203229204

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Investment in operations-related intangibles-2126-25-15

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As % of cash flow available for investment2.57%-4.65%4.42%2.84%

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Investment in operations-related intangibles cash-flow profile:

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Investment in operations-related intangibles to revenue %0.43%-0.58%0.60%0.40%

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Cash impact on investment in operations-related intangibles:

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Cash impact of growth on investment in ops-related intangibles2-2-2NM

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Cash impact of chgs in investment in ops-related intangibles to revenue %-4954-8NM

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Cash impact of growth and chgs in investment in ops-related intangibles to revenue %-4751-10NM

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Investment in Other Operations-Related Assets

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Investment in other operations-related assets:

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Other operations-related current assets

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Other operations-related noncurrent assets

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Other operations-related assets

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Investment in other operations-related assets

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As % of cash flow available for investment

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Investment in other ops-related assets cash-flow profile:

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Investment in other ops-related assets to revenue %

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Cash impact on investment in other ops-related assets:

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Cash impact of growth on investment in other ops-related assetsNM

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Cash impact of chgs in investment in other ops-related assets to revenueNM

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Cash impact of growth and chgs in investment in other ops-related assets to revenueNM

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Capital expenditures and investment to revenue %8.28%5.11%8.85%8.01%

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Impact of acquisitions and other transactions on cash flow:

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Reported cash paid for acquisitions130

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Calculated to reported change in receivables1.860.122.3813.13

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Calculated to reported change in inventory2.195.105.236.36

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Calculated to reported change in payables and accruals6.34-7.836.61-37.92

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Calculated to reported capital expenditures1.301.041.341.41

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