UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the transition period from               to               

Commission File No. 1-9328

ECOLAB INC.

(Exact name of registrant as specified in its charter)

370 Wabasha Street N., St. Paul, Minnesota  55102

(Address of principal executive offices)(Zip Code)

1-800-232-6522

(Registrant’s telephone number, including area code)

(Not Applicable)

(Former name, former address and former fiscal year,

if changed since last report)

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.

Yes  x    No  o

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

Large accelerated filer x  Accelerated filer o  Non-accelerated filer o

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

Yes  o    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of October 31, 2007.

246,017,852 shares of common stock, par value $1.00 per share.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

ECOLAB INC.

CONSOLIDATED STATEMENT OF INCOME

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

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ECOLAB INC.

CONSOLIDATED STATEMENT OF INCOME

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

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ECOLAB INC.

CONSOLIDATED BALANCE SHEET

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

(Continued)

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ECOLAB INC.

CONSOLIDATED BALANCE SHEET (Continued)

(a) Common stock, 400 million shares authorized, $1.00 par value per share; shares issued and outstanding: September 30, 2007 – 245.6 million; December 31, 2006 – 251.3 million

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

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ECOLAB INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

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

(Continued)

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ECOLAB INC.

CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)

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

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ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  Consolidated Financial Information

The unaudited consolidated financial information for the third quarter and nine months ended September 30, 2007 and 2006, reflect, in the opinion of management, all adjustments necessary for a fair statement of the financial position, results of operations and cash flows of Ecolab Inc. (“the company”) for the interim periods presented. The financial results for any interim period are not necessarily indicative of results for the full year. The consolidated balance sheet data as of December 31, 2006 was derived from the audited consolidated financial statements, but do not include all disclosures required by accounting principles generally accepted in the United States of America. The unaudited consolidated financial information should be read in conjunction with the consolidated financial statements and notes thereto incorporated in the company’s Annual Report on Form 10-K for the year ended December 31, 2006.

With respect to the unaudited financial information of the company for the third quarter and nine months ended September 30, 2007 and 2006 included in this Form 10-Q, PricewaterhouseCoopers LLP reported that they have applied limited procedures in accordance with professional standards, which do not require an audit, for a review of such information. Therefore, their separate report dated October 22, 2007 appearing herein, states that they did not audit and they do not express an opinion on that unaudited financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933, as amended (the “Act”) for their report on the unaudited financial information because that report is not a report or a part of a registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Act.

2.  Special Charges

Special charges for the third quarter and nine months ended September 30, 2007 includes 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. Special charges also includes one-time costs of $0.4 million related to establishing the company’s Pan-European headquarters in Zurich, Switzerland.

3.  Share-Based Compensation

Statement of Financial Accounting Standards (SFAS) No.123 (Revised 2004), Share-Based Payment, (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.

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ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.  Share-Based Compensation (continued)

Total compensation expense related to share-based compensation plans was $7.3 million ($4.7 million net of tax benefit) and $7.2 million ($4.6 million net of tax benefit) for the third quarters ended September 30, 2007 and 2006, respectively. Total compensation expense related to share-based compensation plans was $24.5 million ($15.6 million net of tax benefit) and $23.7 million ($15.1 million net of tax benefit) for the nine months ended September 30, 2007 and 2006, respectively.

Effective with the company’s adoption of SFAS 123R in the fourth quarter of 2005, 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 at least age 55 with at least 5 years of service. If the company had used the non-substantive vesting method during all prior periods, net income would have been increased by $0.4 million and $0.6 million for the third quarters ended September 30, 2007 and 2006, respectively, and $1.1 million and $2.0 million during the nine months ended September 30, 2007 and 2006, respectively. During the third quarter and nine months ended September 30, 2007, approximately 0.9 million and 2.7 million shares, respectively, were issued for stock option exercises.

4.  Selected Balance Sheet Information

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ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5.  Interest

6.  Financial Instruments

In December 2006, the company issued euro 300 million ($409 million as of September 30, 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. In February 2007, the company designated this debt as a hedge of existing foreign currency exposures related to net investments the company has in certain European subsidiaries. The company had previously designated its euro 300 million 5.375% euronotes, which were repaid in February 2007, as a net investment hedge of existing foreign currency exposures. Accordingly, the transaction gains and losses on all euronotes which are designated and are effective as hedges of the company’s net investments have been included as a component of the cumulative translation account. Total transaction losses related to the euronotes charged to shareholders’ equity were $3.3 million, net of tax, and $7.0 million, net of tax, in the third quarter and first nine months of 2007, respectively.

7.  Comprehensive Income

Comprehensive income was as follows:

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ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8.  Business Acquisitions and Investments

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

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

In March 2007, the company 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 the company’s International operations beginning in the second quarter of 2007.

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

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

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

Acquisitions in 2007 and 2006 are not material to the company’s consolidated financial statements, therefore pro forma financial information is not presented. The aggregate purchase price of acquisitions and investments in affiliates 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 and investments in affiliates made were as follows:

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ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8.  Business Acquisitions and Investments (continued)

In August 2007, the company announced it has entered into a definitive agreement and plan of merger with Microtek Medical Holdings, Inc., (Nasdaq:MTMD), an Alpharetta, Georgia-based 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. Under the agreement, the company will acquire all of the outstanding shares of Microtek for $6.30 per share in cash. Microtek had 43.5 million shares outstanding at June 30, 2007. The completion of the merger is subject to approval of Microtek’s shareholders at a special meeting to be held November 9, 2007 and other customary closing conditions. Microtek’s 2006 sales were $142 million and will become part of the company’s U.S. Cleaning & Sanitizing and International operations during the fourth quarter of 2007 upon completion of the merger.

In September 2007, subsequent to the company’s fiscal quarter end for International operations, the company completed the sale of Peter Cox Limited, 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 Limited in connection with Ecolab’s 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). The company expects to record a gain of approximately $5 million to $6 million, after tax, in the fourth quarter of 2007 from the transaction.

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ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8.  Business Acquisitions and Investments (continued)

The changes in the carrying amount of goodwill for each of the company’s reportable segments for the quarter and nine months ended September 30, 2007 were as follows:

Goodwill acquired in 2007 includes adjustments to prior year acquisitions, including earnout payments.

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ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9.  Net Income Per Common Share

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

Stock options to purchase approximately 2.8 million shares for the third quarter and nine months ended September 30, 2007, and 0.1 million shares and 3.4 million shares for the third quarter and nine months ended September 30, 2006, respectively, were non-dilutive and, therefore, were not included in the computation of diluted common shares outstanding.

Restricted stock awards of 49,341 shares and 39,341 shares for the third quarter and nine months ended September 30, 2007, respectively, and 13,340 shares and 16,383 shares for the third quarter and nine months ended September 30, 2006, respectively, were excluded from the computation of basic weighted-average shares outstanding because such shares were not yet vested at these dates.

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ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10.  Pension and Postretirement Plans

The components of net periodic pension and postretirement health care benefit costs for the third quarter are as follows:

The components of net periodic pension and postretirement health care benefit costs for the nine months ended September 30 are as follows:

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ECOLAB INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10.  Pension and Postretirement Plans (continued)

The company is not required to make any contributions to its U.S. pension plan and postretirement health care benefits plans for 2007. Certain international pension benefit plans are required to be funded in accordance with local government requirements. The company contributed approximately $5 million and $14 million to its international pension benefit plans during the third quarter and nine months ended September 30, 2007, respectively. The company currently estimates that it will contribute approximately $13 million to the international pension benefit plans during the fourth quarter of 2007.

11.  Operating Segments

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