SecProbe.io

CORRESP
1
filename1.htm

  STEVE FRITZE

  Executive
  Vice President

  & Chief
  Financial Officer

  T 651.293-2401

  F 651.225.3022

December 10, 2007

Mr. Terence
O’Brien

Accounting
Branch Chief

United
States Securities and Exchange Commission

100
F Street, N.E.

Washington,
D.C. 20549-7010

  RE:

  Ecolab Inc.

  Form 10-K for Fiscal Year Ended December 31, 2006

  Filed February 28, 2007

  Form 10-Q for the Quarterly Period ended
  September 30, 2007

  Filed November 2, 2007

  File No. 001-09328

Dear
Mr. O’Brien:

This
letter is written in response to the staff’s comment letter dated November 26,
2007 on the Company’s Form 10-K for the year ended December 31, 2006
and the Company’s Form 10-Q for the quarter ended September 30,
2007.  For ease of reference, we have
included the staff’s comment along with our response to assist in the review
process.

Form 10-Q for the Quarterly Period ended September 30,
2007

SEC Comment:

2. Special Charges, page 8

  1.

  We note your $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
  during the third quarter of fiscal year 2007, which is 16% and 6% of
  operating income for the three months and nine months ended September 30,
  2007, respectively. We further note the following related to your loss
  contingency disclosures for this item and in general:

  ·

  You did not provide specific, forewarning disclosures for
  these matters in any prior filing, including your Form 10-K for the
  fiscal year ended December 31, 2006, until your Form 8-K filed on
  October 22, 2007.

1

  ·

  You did not provide any loss contingency disclosures,
  either specific or general, in your Forms 10-Q for the fiscal quarters ended
  March 31, 2007, and June 30, 2007.

  ·

  In Part II, Item 1 of your Form 10-Q for the
  fiscal quarter ended June 30, 2007, on page 28, you included a
  general discussion of legal proceedings that arise in the ordinary course of
  business for which you listed wage hour lawsuits which may assert individual
  or class claims as an example. As such, it would appear that these two class
  action lawsuits were in existence and known by management as of June 30,
  2007, at a minimum. However, you did not provide any specific SFAS 5
  disclosures for these two class action lawsuits in this filing.

  ·

  Your specific disclosure in note 2 of your
  September 30, 2007, interim financial statements does not appear to
  provide investors with sufficient information to fully understand the nature,
  timing, status of your challenge to the arbitrator’s decision and the merits
  of your challenging such decision of these two class action lawsuits. In
  addition, you do not disclose the other wage hour lawsuit that has been
  certified as a class action lawsuit or any of the disclosures required by
  SFAS 5.

Based on the materiality of the arbitration
settlement without consideration of any post-award interest you are also
required to pay, it is unclear how you determined your disclosures in your
annual and quarterly filings comply with the requirements in paragraphs 9 and 10
of SFAS 5 for your annual and interim financial statements and Rule 10-01(a)(5) of
Regulation S-X for your interim financial statements.

Response

The
Company carefully considered its compliance with Statement of Financial
Accounting Standards 5 “Accounting for Contingencies” (SFAS 5) as well as Item
103 of Regulation S-K and Rule 10-01(a)(5) of Regulation S-X in
setting appropriate accruals and making appropriate disclosures in its public
filings for the two California class actions prior to the $27.4 million (before
tax) arbitration settlement (the “Subject Cases”) in the third quarter of the
Company’s fiscal year 2007.  The first of
the related Subject Cases was filed in June 2005 and the second was filed
in June 2006.  A class was not
certified in the first case until May 8, 2006 and a class has yet to be
certified in the second case, but because they are related factually and the
plaintiffs in both cases are represented by the same law firm, the Company has
treated them as one action.  The
requirements of SFAS 5 were considered at least once each quarter for the
Subject Cases beginning when the first claim was filed.

Prior
to March 2007, the Company planned to vigorously defend the Subject
Cases.  Based on the Company’s planned
legal defense and prior experience in similar cases, the Company concluded a
loss was not probable and that there was not risk of material loss.  Therefore, no accrual for loss was recorded,
nor were specific SFAS 5 disclosures made.
In March 2007, notwithstanding our strong legal arguments (for example,
the judge in the first lawsuit, in denying the plaintiff’s motion for summary
judgment,  indicated that the jobs in
question came within an exemption from overtime pay), the Company decided to

2

pursue
a mediated settlement of the Subject Cases in order (1) to mitigate
against incurring continuing legal fees in the defense of the Subject Cases,
and (2) to resolve any potential future jury risk in the Subject
Cases.  In March 2007 the Company
recorded a $500,000 loss accrual for the Subject Cases, representing the point
in an estimated range of $0 - $5 million (before tax) at which the Company
believed the Subject Cases were most likely to settle.  At that time we concluded that our range of
estimated loss was not material to our $368.6 million reported net income for
fiscal year 2006 or our $89.5 million reported net income for the first quarter
of 2007 and, accordingly, our March 31, 2007 financial statements did not
include any specific SFAS 5 disclosures for the Subject Cases.  During the second quarter of 2007, an initial
mediation was conducted which resulted in an agreement as to a framework for
reaching a settlement amount utilizing arbitration as a means to quantify a
portion of the settlement.  Based on this
development, in June 2007 we increased our loss accrual from $500,000 to
$2 million, again based on a SFAS 5 analysis.  The $2 million accrual represented the best
estimate of loss within an estimated range of $0 to $5 million (before tax).  Consistent with our prior materiality
conclusions, we determined that the accrual and the upper end of our range was
not material to our financial statements and therefore we did not include any
specific SFAS 5 disclosures in our June 30, 2007 financial
statements.  Although the loss exposure
related to the Subject Cases did not meet the materiality threshold for
disclosure pursuant to S-K 103, we did include wage hour lawsuits in our
general discussion of legal proceedings in Part II of our June 30, 2007
Form 10-Q  because the Company
believed, due to litigation trends affecting employers generally, that the
frequency of these types of claims may be increasing.

Arbitration
was conducted during the third quarter of 2007 and our accrual and estimated range
of loss remained unchanged until an arbitration award was issued on September 24,
2007.  It is fair to say that the Company
was stunned by the amount of the award.
A press release disclosing the amount of the potential payment resulting
from the arbitration award, if its stands, was issued within 24 hours of the
Company learning of the arbitrator’s decision.

To
provide perspective on the Company’s estimate of amount of loss, the Company
had previously successfully resolved past class actions consistent with its
analysis.  A class action alleging
service liability was successfully resolved in 2005 for less than the estimated
cost of defense.  A securities class
action lawsuit related to a public company acquisition was also successfully
resolved in 2005 after minor changes in the proxy statement and payment of
$201,000 in plaintiffs’ attorneys’ fees.
Also in 2005, the Company resolved a wage hour action asserting class
status for a $20,000 payment.  Related to
that case was a Department of Labor (DOL) audit of the Company’s pay practices,
with the DOL agreeing with the Company’s analysis that the position was exempt
from overtime pay.  The Company also
received a favorable summary judgment award in mid-2006 on a different
California wage hour action than the Subject Cases on which class status was
sought but not granted.  Given this past
experience with class actions and wage hour issues, the Company had reason to
believe that its SFAS 5 analysis of the Subject Cases was accurate and that its
disclosure was appropriate based on the facts and its materiality assessment.

3

As
Item 103 of Regulation S-K provides, only material litigation, in part defined
in Instruction 2 to Item 103 as one involving a claim for damages in an amount
greater or equal to 10% of the Company’s current assets, need be
disclosed.  The Company’s total current
assets as of September 30, 2007 and December 31, 2006 were $1.60
billion and $1.85 billion, respectively, as disclosed in the Company’s filed Form 10-Q
for the fiscal quarter ended September 30, 2007.  The Subject Cases sought unspecified damages
and the estimated range of loss prior to the arbitration award, as described
above, was clearly below the materiality threshold of the regulation.

At
the time the Company filed its Form 10-Q for the period ended September 30,
2007, the Company had indicated to the applicable court in a filing made October 16,
2007 and in oral argument made October 29, 2007 that it intended to file a
motion seeking to vacate the arbitration award for various reasons, including (1) the
award was procured by plaintiffs’ fraudulent representation that neither party
would bear the burden of proof when plaintiffs intended to argue at the
arbitration hearing that Ecolab bore the burden of proof and (2) the
arbitrator exceeded the scope of his authority by using alleged discovery
abuses as part of the basis for his ruling.
The Company has until January 2008 to file this motion and,
therefore, any additional disclosure as to the grounds for the motion before
that time would be premature because the Company is in the process of
continuing to formulate its legal strategy.

The
Company has made appropriate disclosure of the other wage hour lawsuit that has
been certified because at this time the Company believes that there is not a
reasonably possible risk of material loss.

SEC
Comment:

In future filings, please include disclosures within the
footnotes to your consolidated financial statements that addresses the following,
at a minimum, with regards to your loss contingencies:

·                  For
each of the wage hour class action claims, disclose (i) the nature of the
lawsuits, (ii) when you became aware of these lawsuits, (iii) the
amount of damages sought, (iv) the amount of your accrual for these
lawsuits for each period presented, and (v) the amount or range of
reasonably possible loss in excess of accrual for the class action lawsuit that
remains unsettled.

·                  Provide
the disclosures required by SFAS 5 and/or SAB Topic 5.Y for any other lawsuit,
legal claim, environmental matter or other loss contingency that is either
probable or reasonably possible of having a material impact to your financial
position, results of operations and/or liquidity within the footnotes to your consolidated
financial statements in all of your annual and quarterly filings.

4

Response

In
future filings, the Company will continue to conduct a SFAS 5 analysis,
establish and maintain the accruals resulting from such analysis and make
appropriate disclosures as required by SFAS 5, Item 103 of Regulation S-K and Rule 10-01(a)(5) of
Regulation S-X, as applicable, in all our annual and quarterly filings.

We
acknowledge that we are responsible for the adequacy and accuracy of the
disclosure in the filings, that staff comments or changes to disclosure in
response to staff comments do not foreclose the Commission from taking any
action with respect to the filing, and that we may not assert staff comments as
a defense in any proceeding initiated by the Commission or any person under the
federal securities laws of the United States.

On
behalf of Ecolab Inc., I thank you for your consideration of our response.  Should the staff have further questions or
comments or need any further information or clarification, please do not
hesitate to contact me.

Sincerely,

  /s/Steven
  L. Fritze

  Steven
  L. Fritze

  Executive
  Vice President

  and
  Chief Financial Officer

5