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UNITEDSTATESSECURITIES AND EXCHANGECOMMISSION

Washington, DC20549

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FORM10-Q

(MarkOne)

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|--------|---------------------------------------------------------------------------------------|
|   | QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 |

For the quarterly period ended September30,2006

or

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|--------|----------------------------------------------------------------------------------------|
|   | TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934 |

For the transition periodfrom                                to                            .

CommissionFile No. 001-32342

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NALCOHOLDING COMPANY

(Exact name ofregistrant as specified in itscharter)

|                                                             |  |  |                                      |
|-------------------------------------------------------------|--|--|--------------------------------------|
| Delaware                                                    |  |  | 16-1701300                           |
| (Stateor other jurisdiction ofIncorporation orOrganization) |  |  | (I.R.S.EmployerIdentificationNumber) |
|                                                             |

1601 West DiehlRoadNaperville, IL 60563-1198(630)305-1000

(Address, Including Zip Code, andTelephone Number, Including Area Code,of Registrant’sPrincipal Executive Offices)

Notapplicable

(Former name, formeraddress and former fiscal year, if changed since lastreport)

Indicate by check mark whether the registrant: (1)has filed all reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for thepast 90 days.    Yes     No 

Indicate bycheck mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of‘‘accelerated filer and large acceleratedfiler’’ in Rule 12b-2 of the Exchange Act. (Checkone):

|                        |  |  |                   |  |  |                       |
|------------------------|--|--|-------------------|--|--|-----------------------|
| Largeaccelerated filer |  |  | Accelerated filer |  |  | Non-accelerated filer |
|                        |

Indicate by check mark whether theregistrant is a shell company (as defined in Rule 12-b-2 of theExchange Act).    Yes     No 

As ofOctober  31,  2006, the number of shares of theregistrant’s common stock, par value $0.01 per share,outstanding was 143,040,860shares.

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QUARTERLYREPORT ON FORM 10-QNALCO HOLDING COMPANY Quarter EndedSeptember  30,  2006

TABLE OFCONTENTS

|                                                    |  |  |                                                                                                                                               |  |        |  |  |        |        |  |  |        |
|----------------------------------------------------|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------|--|--------|--|--|--------|--------|--|--|--------|
| PartI.    FinancialInformation |  |  |                                                                                                                                               |  |   |  |  |        |   |
| Item1.                                             |  |  | FinancialStatements (Unaudited)                                                                                                               |  |        |  |  |   |        |  |  |   |
|                                               |  |  | CondensedConsolidated Balance Sheets – September  30,  2006and     December  31,2005                                |  |        |  |  | 2      |        |  |  |   |
|                                               |  |  | CondensedConsolidated Statements of Operations – Three months andnine     months ended September  30,  2006 and2005 |  |        |  |  | 3      |        |  |  |   |
|                                               |  |  | CondensedConsolidated Statements of Cash Flows – Nine months ended    September  30,  2006 and2005                  |  |        |  |  | 4      |        |  |  |   |
|                                               |  |  | Notes to CondensedConsolidated Financial Statements – September  30,2006                                                                |  |        |  |  | 5      |        |  |  |   |
| Item2.                                             |  |  | Management’s Discussion and Analysis of FinancialCondition and Results of    Operations                             |  |        |  |  | 13     |        |  |  |   |
| Item3.                                             |  |  | Quantitative and Qualitative Disclosures About MarketRisk                                                                                     |  |        |  |  | 27     |        |  |  |   |
| Item 4.                                            |  |  | ControlsandProcedures                                                                                                                         |  |        |  |  | 27     |        |  |  |   |
| PartII.    OtherInformation    |  |  |                                                                                                                                               |  |   |  |  |        |   |
| Item1A.                                            |  |  | Risk Factors                                                                                                                                  |  |        |  |  | 28     |        |  |  |   |
| Item6.                                             |  |  | Exhibits                                                                                                                                      |  |        |  |  | 28     |        |  |  |   |
| Signature                                          |  |  |                                                                                                                                               |  | 29     |  |  |        |   |
|                                                    |

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Table of Contents

PARTI.    FINANCIAL INFORMATION

|              |                      |
|--------------|----------------------|
| Item1.  | Financial Statements |

Nalco HoldingCompany and SubsidiariesCondensed Consolidated BalanceSheets(dollars inmillions)

|                                                                       |  |  |                             |   |         |                 |  |  |  |   |         |  |
|-----------------------------------------------------------------------|--|--|-----------------------------|---|---------|-----------------|--|--|--|---|---------|--|
|                                                                  |  |  | (Unaudited)September30,2006 |   |         | December31,2005 |
| Assets                                                                |  |  |                             |   |    |                 |  |  |  |   |    |  |
| Currentassets:                                                        |  |  |                             |   |    |                 |  |  |  |   |    |  |
| Cash and cashequivalents                                              |  |  |                             | $ | 42.9    |                 |  |  |  | $ | 30.8    |  |
| Accountsreceivable, less allowances of $20.3 in 2006 and $16.6 in2005 |  |  |                             |   | 665.3   |                 |  |  |  |   | 622.3   |  |
| Inventories:                                                          |  |  |                             |   |    |                 |  |  |  |   |    |  |
| Finishedproducts                                                      |  |  |                             |   | 261.7   |                 |  |  |  |   | 242.6   |  |
| Materialsand work inprocess                                           |  |  |                             |   | 76.8    |                 |  |  |  |   | 70.6    |  |
|                                                                  |  |  |                             |   | 338.5   |                 |  |  |  |   | 313.2   |  |
| Prepaidexpenses, taxes and other currentassets                        |  |  |                             |   | 63.6    |                 |  |  |  |   | 83.1    |  |
| Totalcurrentassets                                                    |  |  |                             |   | 1,110.3 |                 |  |  |  |   | 1,049.4 |  |
| Property,plant, and equipment,net                                     |  |  |                             |   | 733.1   |                 |  |  |  |   | 755.3   |  |
| Intangibleassets:                                                     |  |  |                             |   |    |                 |  |  |  |   |    |  |
| Goodwill                                                              |  |  |                             |   | 2,257.3 |                 |  |  |  |   | 2,196.7 |  |
| Otherintangibles,net                                                  |  |  |                             |   | 1,183.2 |                 |  |  |  |   | 1,227.5 |  |
| Otherassets                                                           |  |  |                             |   | 309.1   |                 |  |  |  |   | 323.5   |  |
| Totalassets                                                           |  |  |                             | $ | 5,593.0 |                 |  |  |  | $ | 5,552.4 |  |
| Liabilitiesand shareholders’equity                              |  |  |                             |   |    |                 |  |  |  |   |    |  |
| Currentliabilities:                                                   |  |  |                             |   |    |                 |  |  |  |   |    |  |
| Accountspayable                                                       |  |  |                             | $ | 271.0   |                 |  |  |  | $ | 285.4   |  |
| Short-termdebt                                                        |  |  |                             |   | 141.7   |                 |  |  |  |   | 22.6    |  |
| Other currentliabilities                                              |  |  |                             |   | 280.2   |                 |  |  |  |   | 235.2   |  |
| Totalcurrentliabilities                                               |  |  |                             |   | 692.9   |                 |  |  |  |   | 543.2   |  |
| Otherliabilities:                                                     |  |  |                             |   |    |                 |  |  |  |   |    |  |
| Long-termdebt                                                         |  |  |                             |   | 3,060.0 |                 |  |  |  |   | 3,244.2 |  |
| Deferredincometaxes                                                   |  |  |                             |   | 334.7   |                 |  |  |  |   | 353.0   |  |
| Accruedpensionbenefits                                                |  |  |                             |   | 393.5   |                 |  |  |  |   | 416.4   |  |
| Otherliabilities                                                      |  |  |                             |   | 279.8   |                 |  |  |  |   | 278.9   |  |
| Minorityinterest                                                      |  |  |                             |   | 14.1    |                 |  |  |  |   | 11.2    |  |
| Shareholders’equity                                             |  |  |                             |   | 818.0   |                 |  |  |  |   | 705.5   |  |
| Totalliabilities and shareholders’equity                        |  |  |                             | $ | 5,593.0 |                 |  |  |  | $ | 5,552.4 |  |
|                                                                       |

Seeaccompanying notes to condensed consolidated financialstatements.

2

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Table of Contents

Nalco Holding Company andSubsidiariesCondensed Consolidated Statements of Operations(Unaudited)(dollars in millions, except per shareamounts)

|                                                   |  |  |                                     |   |        |                                    |  |  |                                   |   |        |                                   |  |  |  |   |         |   |  |  |  |   |         |   |
|---------------------------------------------------|--|--|-------------------------------------|---|--------|------------------------------------|--|--|-----------------------------------|---|--------|-----------------------------------|--|--|--|---|---------|---|--|--|--|---|---------|---|
|                                              |  |  | ThreeMonthsended September 30, 2006 |   |        | ThreeMonthsended September 30,2005 |  |  | NineMonthsended September 30,2006 |   |        | NineMonthsended September 30,2005 |
| Netsales                                          |  |  |                                     | $ | 915.4  |                                    |  |  |                                   | $ | 834.9  |                                   |  |  |  | $ | 2,655.8 |   |  |  |  | $ | 2,448.8 |   |
| Operatingcosts andexpenses:                       |  |  |                                     |   |   |                                    |  |  |                                   |   |   |                                   |  |  |  |   |    |   |  |  |  |   |    |   |
| Costof productsold                                |  |  |                                     |   | 502.3  |                                    |  |  |                                   |   | 457.9  |                                   |  |  |  |   | 1,469.0 |   |  |  |  |   | 1,351.0 |   |
| Selling,administrative, and researchexpenses      |  |  |                                     |   | 277.5  |                                    |  |  |                                   |   | 252.3  |                                   |  |  |  |   | 823.6   |   |  |  |  |   | 773.3   |   |
| Amortizationof intangibleassets                   |  |  |                                     |   | 17.6   |                                    |  |  |                                   |   | 20.3   |                                   |  |  |  |   | 52.4    |   |  |  |  |   | 61.4    |   |
| Businessoptimizationexpenses                      |  |  |                                     |   | 3.0    |                                    |  |  |                                   |   | 3.5    |                                   |  |  |  |   | 8.6     |   |  |  |  |   | 21.3    |   |
| Totaloperating costs andexpenses                  |  |  |                                     |   | 800.4  |                                    |  |  |                                   |   | 734.0  |                                   |  |  |  |   | 2,353.6 |   |  |  |  |   | 2,207.0 |   |
| Operatingearnings                                 |  |  |                                     |   | 115.0  |                                    |  |  |                                   |   | 100.9  |                                   |  |  |  |   | 302.2   |   |  |  |  |   | 241.8   |   |
| Otherincome (expense),net                         |  |  |                                     |   | 0.1    |                                    |  |  |                                   |   | (0.1   | )                                 |  |  |  |   | (0.6    | ) |  |  |  |   | (3.6    | ) |
| Interestincome                                    |  |  |                                     |   | 2.4    |                                    |  |  |                                   |   | 2.1    |                                   |  |  |  |   | 6.4     |   |  |  |  |   | 6.2     |   |
| Interestexpense                                   |  |  |                                     |   | (68.9  | )                                  |  |  |                                   |   | (65.8  | )                                 |  |  |  |   | (203.3  | ) |  |  |  |   | (192.7  | ) |
| Earningsbefore income taxes and minorityinterests |  |  |                                     |   | 48.6   |                                    |  |  |                                   |   | 37.1   |                                   |  |  |  |   | 104.7   |   |  |  |  |   | 51.7    |   |
| Incometax provision                               |  |  |                                     |   | 16.2   |                                    |  |  |                                   |   | 18.1   |                                   |  |  |  |   | 38.5    |   |  |  |  |   | 24.7    |   |
| Minorityinterests                                 |  |  |                                     |   | (1.7   | )                                  |  |  |                                   |   | (1.6   | )                                 |  |  |  |   | (5.2    | ) |  |  |  |   | (4.4    | ) |
| Netearnings                                       |  |  |                                     | $ | 30.7   |                                    |  |  |                                   | $ | 17.4   |                                   |  |  |  | $ | 61.0    |   |  |  |  | $ | 22.6    |   |
| Netearnings pershare:                             |  |  |                                     |   |   |                                    |  |  |                                   |   |   |                                   |  |  |  |   |    |   |  |  |  |   |    |   |
| Basic                                             |  |  |                                     | $ | 0.21   |                                    |  |  |                                   | $ | 0.12   |                                   |  |  |  | $ | 0.43    |   |  |  |  | $ | 0.16    |   |
| Diluted                                           |  |  |                                     | $ | 0.21   |                                    |  |  |                                   | $ | 0.12   |                                   |  |  |  | $ | 0.42    |   |  |  |  | $ | 0.15    |   |
| Weighted-averageshares outstanding(millions):     |  |  |                                     |   |   |                                    |  |  |                                   |   |   |                                   |  |  |  |   |    |   |  |  |  |   |    |   |
| Basic                                             |  |  |                                     |   | 143.0  |                                    |  |  |                                   |   | 141.7  |                                   |  |  |  |   | 142.9   |   |  |  |  |   | 141.7   |   |
| Diluted                                           |  |  |                                     |   | 146.6  |                                    |  |  |                                   |   | 146.6  |                                   |  |  |  |   | 146.6   |   |  |  |  |   | 146.6   |   |
|                                                   |

Seeaccompanying notes to condensed consolidated financialstatements.

3

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Table of Contents

Nalco Holding Company andSubsidiariesCondensed Consolidated Statements of Cash Flows(Unaudited)(dollars inmillions)

|                                                                                   |  |  |                                   |   |         |                                  |  |  |  |   |        |   |
|-----------------------------------------------------------------------------------|--|--|-----------------------------------|---|---------|----------------------------------|--|--|--|---|--------|---|
|                                                                              |  |  | NineMonths endedSeptember 30,2006 |   |         | Nine MonthsendedSeptember30,2005 |
| Operatingactivities                                                               |  |  |                                   |   |    |                                  |  |  |  |   |   |   |
| Net earnings                                                                      |  |  |                                   | $ | 61.0    |                                  |  |  |  | $ | 22.6   |   |
| Adjustmentsto reconcile net earnings to net cash provided by operatingactivities: |  |  |                                   |   |    |                                  |  |  |  |   |   |   |
| Depreciation                                                                      |  |  |                                   |   | 97.5    |                                  |  |  |  |   | 100.0  |   |
| Amortization                                                                      |  |  |                                   |   | 52.4    |                                  |  |  |  |   | 61.4   |   |
| Amortizationof deferred financing costs and accretion of senior discountnotes     |  |  |                                   |   | 32.5    |                                  |  |  |  |   | 30.1   |   |
| Other,net                                                                         |  |  |                                   |   | (20.7   | )                                |  |  |  |   | 13.1   |   |
| Changes inoperating assets andliabilities                                         |  |  |                                   |   | (19.8   | )                                |  |  |  |   | (55.1  | ) |
| Netcash provided by operatingactivities                                           |  |  |                                   |   | 202.9   |                                  |  |  |  |   | 172.1  |   |
| Investingactivities                                                               |  |  |                                   |   |    |                                  |  |  |  |   |   |   |
| Purchase priceadjustment on acquisition of Ondeo NalcoGroup                       |  |  |                                   |   | — |                                  |  |  |  |   | (3.2   | ) |
| Additions toproperty, plant, and equipment,net                                    |  |  |                                   |   | (59.6   | )                                |  |  |  |   | (45.3  | ) |
| Other, net                                                                        |  |  |                                   |   | 2.0     |                                  |  |  |  |   | 0.9    |   |
| Netcash used for investingactivities                                              |  |  |                                   |   | (57.6   | )                                |  |  |  |   | (47.6  | ) |
| Financingactivities                                                               |  |  |                                   |   |    |                                  |  |  |  |   |   |   |
| Changes inshort-term debt,net                                                     |  |  |                                   |   | 29.3    |                                  |  |  |  |   | 1.7    |   |
| Proceeds from long-termdebt                                                       |  |  |                                   |   | — |                                  |  |  |  |   | 24.1   |   |
| Repayments oflong-termdebt                                                        |  |  |                                   |   | (159.5  | )                                |  |  |  |   | (130.8 | ) |
| Other,net                                                                         |  |  |                                   |   | (3.4    | )                                |  |  |  |   | (5.6   | ) |
| Netcash used for financingactivities                                              |  |  |                                   |   | (133.6  | )                                |  |  |  |   | (110.6 | ) |
| Effect ofexchange rate changes on cash and cashequivalents                        |  |  |                                   |   | 0.4     |                                  |  |  |  |   | (0.5   | ) |
| Increasein cash and cashequivalents                                               |  |  |                                   |   | 12.1    |                                  |  |  |  |   | 13.4   |   |
| Cash and cashequivalents at beginning ofperiod                                    |  |  |                                   |   | 30.8    |                                  |  |  |  |   | 33.3   |   |
| Cashand cash equivalents at end ofperiod                                          |  |  |                                   | $ | 42.9    |                                  |  |  |  | $ | 46.7   |   |
|                                                                                   |

Seeaccompanying notes to condensed consolidated financialstatements.

4

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Nalco HoldingCompany and SubsidiariesNotes to Condensed Consolidated FinancialStatements(Unaudited)

September  30,2006

|          |                                                |
|----------|------------------------------------------------|
| 1.  | Description of Business and Change inOwnership |

Description of Business

Nalco Holding Companyand subsidiaries (the Company) is engaged in the worldwide manufactureand sale of highly specialized service chemical programs. This includesproduction and service related to the sale and application of chemicalsand technology used in water treatment, pollution control, energyconservation, oil production and refining, steelmaking, papermaking,mining, and other industrial processes.

Change inOwnership

On November  4,  2003, our indirectsubsidiary, Nalco Holdings LLC (the Buyer), a newly-formed entitycontrolled by affiliates of The Blackstone Group, L.P., ApolloManagement, L.P., and The Goldman Sachs Group, Inc. (collectively, theSponsors), pursuant to a Stock Purchase Agreement, as amended, withSuez S.A. (Suez or Seller) and certain of its affiliates, acquired thenet assets of Ondeo Nalco Group for $4,127.1  million, includingdirect costs of the acquisition of $125.6  million, excludingassumed debt of $30.2  million, and subject to certain closingand post-closing adjustments (the Acquisition).

|          |                      |
|----------|----------------------|
| 2.  | Basisof Presentation |

These consolidated financial statements shouldbe read in conjunction with the consolidated and combined financialstatements and notes thereto included in the Annual Report for NalcoHolding Company and subsidiaries for the fiscal year endedDecember  31,  2005.

The accompanying unauditedconsolidated financial statements have been prepared in accordance withgenerally accepted accounting principles for interim financialinformation. Accordingly, they do not include all of the informationand footnotes required by accounting principles generally accepted inthe United States for complete financial statements. Managementbelieves these financial statements include all normal recurringadjustments considered necessary for a fair presentation of thefinancial position and results of operations of the Company. Operatingresults for the nine months ended September  30,  2006 arenot necessarily indicative of results that may be expected for the yearended December  31,  2006.

Certain reclassificationshave been made to the prior year data to conform to the current yearpresentation which had no effect on net earnings reported for anyperiod.

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|          |      |
|----------|------|
| 3.  | Debt |

Debt consists of thefollowing:

|                                              |  |  |                  |   |         |                 |  |  |  |   |         |  |
|----------------------------------------------|--|--|------------------|---|---------|-----------------|--|--|--|---|---------|--|
| (dollarsin millions)                         |  |  | September30,2006 |   |         | December31,2005 |
| Short-term                                   |  |  |                  |   |    |                 |  |  |  |   |    |  |
| Checksoutstanding and bankoverdrafts         |  |  |                  | $ | 26.2    |                 |  |  |  | $ | 17.9    |  |
| Notes payableto banks                        |  |  |                  |   | 0.9     |                 |  |  |  |   | 0.9     |  |
| Current maturitiesof long-termdebt           |  |  |                  |   | 17.4    |                 |  |  |  |   | 3.8     |  |
| Securitized tradeaccounts receivablefacility |  |  |                  |   | 97.2    |                 |  |  |  |   | — |  |
|                                         |  |  |                  | $ | 141.7   |                 |  |  |  | $ | 22.6    |  |
| Long-term                                    |  |  |                  |   |    |                 |  |  |  |   |    |  |
| Securitizedtrade accounts receivablefacility |  |  |                  | $ | — |                 |  |  |  | $ | 75.3    |  |
| Term loanA, due November2009                 |  |  |                  |   | 78.0    |                 |  |  |  |   | 107.6   |  |
| Term loan B, dueNovember2010                 |  |  |                  |   | 957.0   |                 |  |  |  |   | 1,081.0 |  |
| Senior notes, dueNovember2011                |  |  |                  |   | 918.2   |                 |  |  |  |   | 900.7   |  |
| Senior subordinatednotes, due November2013   |  |  |                  |   | 718.2   |                 |  |  |  |   | 700.7   |  |
| Unsecured notes,due May  2008                |  |  |                  |   | 27.8    |                 |  |  |  |   | 27.8    |  |
| Seniordiscount notes, due February2014       |  |  |                  |   | 377.3   |                 |  |  |  |   | 353.5   |  |
| Other                                        |  |  |                  |   | 0.9     |                 |  |  |  |   | 1.4     |  |
|                                         |  |  |                  |   | 3,077.4 |                 |  |  |  |   | 3,248.0 |  |
| Less:Currentportion                          |  |  |                  |   | 17.4    |                 |  |  |  |   | 3.8     |  |
|                                         |  |  |                  | $ | 3,060.0 |                 |  |  |  | $ | 3,244.2 |  |
|                                              |

|          |                           |
|----------|---------------------------|
| 4.  | Shareholders’Equity |

Shareholders’ equity consists of thefollowing:

|                                                                                                                                                                                             |  |  |                   |   |         |                   |  |  |  |   |         |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|-------------------|---|---------|-------------------|--|--|--|---|---------|---|
| (dollarsin millions, except per shareamounts)                                                                                                                                               |  |  | September 30,2006 |   |         | December 31, 2005 |
| Preferred stock,par value $0.01 per share; authorized 100,000,000 shares; noneissued                                                                                                        |  |  |                   | $ | — |                   |  |  |  | $ | — |   |
| Commonstock, par value $0.0l per share; authorized 500,000,000 shares;143,040,860 and 142,737,451 shares issued and outstanding atSeptember  30,  2006 and December  31,  2005,respectively |  |  |                   |   | 1.4     |                   |  |  |  |   | 1.4     |   |
| Additionalpaid-incapital                                                                                                                                                                    |  |  |                   |   | 740.5   |                   |  |  |  |   | 739.1   |   |
| Accumulateddeficit                                                                                                                                                                          |  |  |                   |   | (54.1   | )                 |  |  |  |   | (115.1  | ) |
| Accumulatedother comprehensiveincome                                                                                                                                                        |  |  |                   |   | 130.2   |                   |  |  |  |   | 80.1    |   |
| Totalshareholders’equity                                                                                                                                                              |  |  |                   | $ | 818.0   |                   |  |  |  | $ | 705.5   |   |
|                                                                                                                                                                                             |

InNovember  2004, a warrant to purchase, for $0.01 per share, up to6,191,854 shares of Nalco Holding Company common stock was issued aspart of a dividend to Nalco LLC, the Company’s sole stockholderon the record date of the dividend. Nalco LLC exercised warrants toacquire 303,409 shares of common stock during the nine months endedSeptember  30,  2006. At September  30,  2006,up to 4,814,363 shares of common stock could be purchased by Nalco LLCunder the warrant, subject to certain vestingconditions.

6

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|          |                                               |
|----------|-----------------------------------------------|
| 5.  | Pension and Other PostretirementBenefit Plans |

The components of net periodic pension cost andthe cost of other postretirement benefits for the three months and ninemonths ended September  30,  2006 and 2005 were asfollows:

|                                  |  |  |                                     |   |         |                                     |  |  |                                    |   |         |                                    |  |  |  |   |       |   |  |  |  |   |         |   |
|----------------------------------|--|--|-------------------------------------|---|---------|-------------------------------------|--|--|------------------------------------|---|---------|------------------------------------|--|--|--|---|-------|---|--|--|--|---|---------|---|
|                             |  |  | PensionBenefits                     |
| (dollarsin millions)             |  |  | Three MonthsendedSeptember 30, 2006 |   |         | Three Monthsended September30, 2005 |  |  | Nine Monthsended September 30,2006 |   |         | Nine Monthsended September 30,2005 |
| Servicecost                      |  |  |                                     | $ | 7.7     |                                     |  |  |                                    | $ | 7.9     |                                    |  |  |  | $ | 22.3  |   |  |  |  | $ | 21.3    |   |
| Interestcost                     |  |  |                                     |   | 10.8    |                                     |  |  |                                    |   | 10.8    |                                    |  |  |  |   | 31.9  |   |  |  |  |   | 30.3    |   |
| Expectedreturn on planassets     |  |  |                                     |   | (7.5    | )                                   |  |  |                                    |   | (6.9    | )                                  |  |  |  |   | (22.2 | ) |  |  |  |   | (19.1   | ) |
| Amortizationof prior servicecost |  |  |                                     |   | 0.1     |                                     |  |  |                                    |   | — |                                    |  |  |  |   | 0.1   |   |  |  |  |   | — |   |
| Recognizednet actuarial loss     |  |  |                                     |   | 0.1     |                                     |  |  |                                    |   | — |                                    |  |  |  |   | 0.3   |   |  |  |  |   | — |   |
| Settlementcharge                 |  |  |                                     |   | — |                                     |  |  |                                    |   | — |                                    |  |  |  |   | 0.4   |   |  |  |  |   | — |   |
| Netperiodiccost                  |  |  |                                     | $ | 11.2    |                                     |  |  |                                    | $ | 11.8    |                                    |  |  |  | $ | 32.8  |   |  |  |  | $ | 32.5    |   |
|                                  |

|                                  |  |  |                                     |   |      |                                     |  |  |                                    |   |         |                                    |  |  |  |   |      |   |  |  |  |   |         |   |
|----------------------------------|--|--|-------------------------------------|---|------|-------------------------------------|--|--|------------------------------------|---|---------|------------------------------------|--|--|--|---|------|---|--|--|--|---|---------|---|
|                             |  |  | OtherPostretirementBenefits         |
| (dollarsin millions)             |  |  | Three MonthsendedSeptember 30, 2006 |   |      | Three Monthsended September30, 2005 |  |  | Nine Monthsended September 30,2006 |   |         | Nine Monthsended September 30,2005 |
| Servicecost                      |  |  |                                     | $ | 1.3  |                                     |  |  |                                    | $ | 1.4     |                                    |  |  |  | $ | 4.1  |   |  |  |  | $ | 4.1     |   |
| Interestcost                     |  |  |                                     |   | 2.1  |                                     |  |  |                                    |   | 2.2     |                                    |  |  |  |   | 6.1  |   |  |  |  |   | 6.5     |   |
| Amortizationof prior servicecost |  |  |                                     |   | (1.0 | )                                   |  |  |                                    |   | (1.0    | )                                  |  |  |  |   | (3.0 | ) |  |  |  |   | (3.0    | ) |
| Recognizednet actuarialloss      |  |  |                                     |   | (0.1 | )                                   |  |  |                                    |   | — |                                    |  |  |  |   | (0.2 | ) |  |  |  |   | — |   |
| Netperiodiccost                  |  |  |                                     | $ | 2.3  |                                     |  |  |                                    | $ | 2.6     |                                    |  |  |  | $ | 7.0  |   |  |  |  | $ | 7.6     |   |
|                                  |

|    |                               |
|----|-------------------------------|
| 6. | BusinessOptimization Expenses |

The Company has undertaken severalinitiatives to redesign and optimize its business and work processes.Business process optimization expenses, consisting mostly of employeeseverance and related costs, were $8.6  million and $21.3million for the nine months ended September  30,  2006 andSeptember  30,  2005,respectively.

|          |                                  |
|----------|----------------------------------|
| 7.  | Summary of Other Income(Expense) |

The components of other income (expense), net for thethree months and nine months ended September  30,  2006 and2005, include thefollowing:

|                                                 |  |  |                                    |   |      |                                    |  |  |                                   |   |      |                                   |  |  |  |   |      |   |  |  |  |   |      |   |
|-------------------------------------------------|--|--|------------------------------------|---|------|------------------------------------|--|--|-----------------------------------|---|------|-----------------------------------|--|--|--|---|------|---|--|--|--|---|------|---|
| (dollarsin millions)                            |  |  | Three MonthsendedSeptember 30,2006 |   |      | Three Monthsended September30,2005 |  |  | Nine Monthsended September30,2006 |   |      | Nine Monthsended September30,2005 |
| Franchisetaxes                                  |  |  |                                    | $ | (0.9 | )                                  |  |  |                                   | $ | (0.6 | )                                 |  |  |  | $ | (2.4 | ) |  |  |  | $ | (1.9 | ) |
| Equityin earnings of unconsolidatedsubsidiaries |  |  |                                    |   | 0.5  |                                    |  |  |                                   |   | 0.3  |                                   |  |  |  |   | 3.1  |   |  |  |  |   | 1.1  |   |
| Foreigncurrency exchangeadjustments             |  |  |                                    |   | 0.3  |                                    |  |  |                                   |   | 1.9  |                                   |  |  |  |   | (2.7 | ) |  |  |  |   | 3.3  |   |
| Other                                           |  |  |                                    |   | 0.2  |                                    |  |  |                                   |   | (1.7 | )                                 |  |  |  |   | 1.4  |   |  |  |  |   | (6.1 | ) |
|                                            |  |  |                                    | $ | 0.1  |                                    |  |  |                                   | $ | (0.1 | )                                 |  |  |  | $ | (0.6 | ) |  |  |  | $ | (3.6 | ) |
|                                                 |

7

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|          |              |
|----------|--------------|
| 8.  | Income Taxes |

TheCompany’s effective income tax rate was 36.8% for thenine months ended September  30,  2006. The rate variesfrom the U.S. federal statutory income tax rate of 35% primarilydue to the incremental tax on dividends received from non-U.S.subsidiaries, foreign taxes provided at other than the 35% U.S.statutory rate, U.S. state income taxes, nondeductible expenses, andother permanent differences.

The aforementioned items alsocontributed to the variation between the U.S. federal statutory incometax rate and the Company’s effective income tax rate for thenine months ended September  30,  2005.

Thefollowing is a reconciliation of the tax derived by applying the U.S.statutory tax rate to the earnings before income taxes and minorityinterest and comparing that to the recorded income taxprovision:

|                        |  |  |                                    |   |      |                                     |  |  |                                   |   |      |                                   |  |  |  |   |      |  |  |  |  |   |      |  |
|------------------------|--|--|------------------------------------|---|------|-------------------------------------|--|--|-----------------------------------|---|------|-----------------------------------|--|--|--|---|------|--|--|--|--|---|------|--|
| (dollarsin millions)   |  |  | Three MonthsendedSeptember 30,2006 |   |      | Three Monthsended September30, 2005 |  |  | Nine Months endedSeptember30,2006 |   |      | Nine Monthsended September30,2005 |
| U.S. statutory taxrate |  |  |                                    | $ | 17.0 |                                     |  |  |                                   | $ | 13.0 |                                   |  |  |  | $ | 36.6 |  |  |  |  | $ | 18.1 |  |
| Other                  |  |  |                                    |   | (0.8 | )                                   |  |  |                                   |   | 5.1  |                                   |  |  |  |   | 1.9  |  |  |  |  |   | 6.6  |  |
| Incometax provision    |  |  |                                    | $ | 16.2 |                                     |  |  |                                   | $ | 18.1 |                                   |  |  |  | $ | 38.5 |  |  |  |  | $ | 24.7 |  |
|                        |

TheInternal Revenue Service (the Service) is in the process of completingits examination of the consolidated federal income tax returns of theCompany's subsidiary, Nalco Company, and Nalco Company'ssubsidiaries for the years 2003 and 2004. Recently, the Serviceinformally advised the Company that it is considering the disallowanceof federal tax deductions for a series of expenses, totaling $152million. These expenses relate to fees paid to the Sponsors andfinancial institutions for debt issuance and consulting services. TheCompany believes that the deductions as reflected in its auditedfinancial statements are proper and will be sustained; accordingly, noreserve has been taken for these amounts. Nonetheless, should theService prevail on the disallowance of any of these expenses, anyincremental tax would offset existing net operating loss carryforwards,rather than require immediate cash payments, and a substantial portionof the disallowed tax benefits would be charged to goodwill, and not tothe tax provision.

|          |                            |
|----------|----------------------------|
| 9.  | Comprehensive Income(Loss) |

Total comprehensive income (loss) and its components, netof related tax, for the three months and nine months endedSeptember  30,  2006 and 2005, are asfollows:

|                                                       |  |  |                                    |   |        |                                    |  |  |                                   |   |        |                                   |  |  |  |   |        |   |  |  |  |   |        |   |
|-------------------------------------------------------|--|--|------------------------------------|---|--------|------------------------------------|--|--|-----------------------------------|---|--------|-----------------------------------|--|--|--|---|--------|---|--|--|--|---|--------|---|
| (dollarsin millions)                                  |  |  | Three MonthsendedSeptember 30,2006 |   |        | Three Monthsended September30,2005 |  |  | Nine Monthsended September30,2006 |   |        | Nine Monthsended September30,2005 |
| Net earnings                                          |  |  |                                    | $ | 30.7   |                                    |  |  |                                   | $ | 17.4   |                                   |  |  |  | $ | 61.0   |   |  |  |  | $ | 22.6   |   |
| Othercomprehensive income (loss), net of incometaxes: |  |  |                                    |   |   |                                    |  |  |                                   |   |   |                                   |  |  |  |   |   |   |  |  |  |   |   |   |
| Derivatives                                           |  |  |                                    |   | (0.6   | )                                  |  |  |                                   |   | (0.4   | )                                 |  |  |  |   | (1.2   | ) |  |  |  |   | 0.3    |   |
| Foreigncurrency translationadjustments                |  |  |                                    |   | 3.1    |                                    |  |  |                                   |   | 3.9    |                                   |  |  |  |   | 51.3   |   |  |  |  |   | (42.1  | ) |
| Comprehensiveincome(loss)                             |  |  |                                    | $ | 33.2   |                                    |  |  |                                   | $ | 20.9   |                                   |  |  |  | $ | 111.1  |   |  |  |  | $ | (19.2  | ) |
|                                                       |

|           |                    |
|-----------|--------------------|
| 10.  | SegmentInformation |

The Company provides integrated water treatment andprocess improvement services for industrial and institutionalapplications, using technologically advanced solutions, combiningchemical products and equipment, and consistent, reliable on-siteservice and expertise. These solutions and services enable theCompany’s customers to improve production yields, lowermanufacturing costs, extend asset lives and maintain environmentalstandards at costs that represent a small share of their overallproduction expense.

8

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|           |                                     |
|-----------|-------------------------------------|
| 10.  | SegmentInformation (continued) |

The Company is organized based on the endmarkets it serves. The organization is comprised of the followingreportable segments:

Industrial and InstitutionalServices   —   This segment serves the globalwater treatment and process chemical needs of the industrial,institutional, and municipal markets.

EnergyServices   —   This segment serves the processchemicals and water treatment needs of the global petroleum andpetrochemical industries in both upstream and downstreamapplications.

Paper Services   —   Thissegment serves the process chemicals and water treatment needs of theglobal pulp and paperindustry.

Other   —   This segmentserves the alternative channels to market, supply chain activities, andcertain other operating expenses not allocated to a segment. It alsoincludes the Company’s subsidiary in India and the KatayamaNalco joint venture.

The Company evaluates the performance of itssegments based on ‘‘direct contribution’’,which is defined as net sales, less cost of products sold (excludingvariances to standard costs), selling and service expenses, marketingexpenses, research expenses and ‘‘capitalcharges’’ directly attributable to each segment. Eachsegment is assessed an internal non-GAAP ‘‘capitalcharge’’ based on trade accounts receivable, inventoriesand equipment specifically identifiable to the segment. The capitalcharges included in each segment’s direct contribution areeliminated to arrive at the consolidated direct contribution for theCompany. There are no intersegment revenues. The Company’ssegment reporting was changed in the first quarter of 2006 to reflectthe aforementioned capital charge in the reported direct contributionof each segment. Prior year data have been reclassified betweensegments to conform to the current year presentation.

Net salesby reportable segment were asfollows:

|                                      |  |  |                                    |   |       |                                    |  |  |                                   |   |       |                                   |  |  |  |   |         |  |  |  |  |   |         |  |
|--------------------------------------|--|--|------------------------------------|---|-------|------------------------------------|--|--|-----------------------------------|---|-------|-----------------------------------|--|--|--|---|---------|--|--|--|--|---|---------|--|
| (dollarsin millions)                 |  |  | Three MonthsendedSeptember 30,2006 |   |       | Three Monthsended September30,2005 |  |  | Nine Monthsended September30,2006 |   |       | Nine Monthsended September30,2005 |
| Industrial and InstitutionalServices |  |  |                                    | $ | 406.3 |                                    |  |  |                                   | $ | 379.5 |                                   |  |  |  | $ | 1,174.1 |  |  |  |  | $ | 1,098.0 |  |
| EnergyServices                       |  |  |                                    |   | 267.1 |                                    |  |  |                                   |   | 223.4 |                                   |  |  |  |   | 772.7   |  |  |  |  |   | 655.5   |  |
| PaperServices                        |  |  |                                    |   | 181.1 |                                    |  |  |                                   |   | 173.9 |                                   |  |  |  |   | 535.0   |  |  |  |  |   | 520.1   |  |
| Other                                |  |  |                                    |   | 60.9  |                                    |  |  |                                   |   | 58.1  |                                   |  |  |  |   | 174.0   |  |  |  |  |   | 175.2   |  |
| Netsales                             |  |  |                                    | $ | 915.4 |                                    |  |  |                                   | $ | 834.9 |                                   |  |  |  | $ | 2,655.8 |  |  |  |  | $ | 2,448.8 |  |
|                                      |

Thefollowing table presents direct contribution by reportable segment andreconciles the total segment direct contribution to earnings beforeincome taxes and minority interests:

9

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|           |                                     |
|-----------|-------------------------------------|
| 10.  | SegmentInformation (continued) |

|                                                   |  |  |                                    |   |        |                                    |  |  |                                   |   |        |                                   |  |  |  |   |        |   |  |  |  |   |        |   |
|---------------------------------------------------|--|--|------------------------------------|---|--------|------------------------------------|--|--|-----------------------------------|---|--------|-----------------------------------|--|--|--|---|--------|---|--|--|--|---|--------|---|
| (dollarsin millions)                              |  |  | Three MonthsendedSeptember 30,2006 |   |        | Three Monthsended September30,2005 |  |  | Nine Monthsended September30,2006 |   |        | Nine Monthsended September30,2005 |
| Segment directcontribution:                       |  |  |                                    |   |   |                                    |  |  |                                   |   |   |                                   |  |  |  |   |   |   |  |  |  |   |   |   |
| Industrialand InstitutionalServices               |  |  |                                    | $ | 98.7   |                                    |  |  |                                   | $ | 87.5   |                                   |  |  |  | $ | 263.6  |   |  |  |  | $ | 235.9  |   |
| EnergyServices                                    |  |  |                                    |   | 58.0   |                                    |  |  |                                   |   | 42.8   |                                   |  |  |  |   | 161.2  |   |  |  |  |   | 125.5  |   |
| PaperServices                                     |  |  |                                    |   | 28.6   |                                    |  |  |                                   |   | 30.8   |                                   |  |  |  |   | 81.2   |   |  |  |  |   | 88.3   |   |
| Other                                             |  |  |                                    |   | (15.2  | )                                  |  |  |                                   |   | (14.2  | )                                 |  |  |  |   | (49.5  | ) |  |  |  |   | (48.3  | ) |
| Capitalchargeelimination                          |  |  |                                    |   | 19.4   |                                    |  |  |                                   |   | 19.8   |                                   |  |  |  |   | 57.5   |   |  |  |  |   | 59.2   |   |
| Totalsegment directcontribution                   |  |  |                                    |   | 189.5  |                                    |  |  |                                   |   | 166.7  |                                   |  |  |  |   | 514.0  |   |  |  |  |   | 460.6  |   |
| Expensesnot allocated tosegments:                 |  |  |                                    |   |   |                                    |  |  |                                   |   |   |                                   |  |  |  |   |   |   |  |  |  |   |   |   |
| Administrativeexpenses                            |  |  |                                    |   | 53.9   |                                    |  |  |                                   |   | 42.0   |                                   |  |  |  |   | 150.8  |   |  |  |  |   | 136.1  |   |
| Amortizationof intangibleassets                   |  |  |                                    |   | 17.6   |                                    |  |  |                                   |   | 20.3   |                                   |  |  |  |   | 52.4   |   |  |  |  |   | 61.4   |   |
| Businessoptimizationexpenses                      |  |  |                                    |   | 3.0    |                                    |  |  |                                   |   | 3.5    |                                   |  |  |  |   | 8.6    |   |  |  |  |   | 21.3   |   |
| Operatingearnings                                 |  |  |                                    |   | 115.0  |                                    |  |  |                                   |   | 100.9  |                                   |  |  |  |   | 302.2  |   |  |  |  |   | 241.8  |   |
| Otherincome (expense),net                         |  |  |                                    |   | 0.1    |                                    |  |  |                                   |   | (0.1   | )                                 |  |  |  |   | (0.6   | ) |  |  |  |   | (3.6   | ) |
| Interestincome                                    |  |  |                                    |   | 2.4    |                                    |  |  |                                   |   | 2.1    |                                   |  |  |  |   | 6.4    |   |  |  |  |   | 6.2    |   |
| Interestexpense                                   |  |  |                                    |   | (68.9  | )                                  |  |  |                                   |   | (65.8  | )                                 |  |  |  |   | (203.3 | ) |  |  |  |   | (192.7 | ) |
| Earningsbefore income taxes and minorityinterests |  |  |                                    | $ | 48.6   |                                    |  |  |                                   | $ | 37.1   |                                   |  |  |  | $ | 104.7  |   |  |  |  | $ | 51.7   |   |
|                                                   |

Administrativeexpenses primarily represent the cost of support functions, includinginformation technology, finance, human resources and legal, as well asexpenses for support facilities, executive management and managementincentive plans.

|           |                   |
|-----------|-------------------|
| 11.  | Earnings PerShare |

Basic earnings per share is computed by dividing netearnings by the weighted average number of common shares outstandingduring the period. Diluted earnings per share reflects the potentialdilution that could occur if securities or other contracts to issuecommon stock were exercised or converted into common stock or resultedin the issuance of common stock.

Basic and diluted earnings pershare were calculated asfollows:

|                                                                                           |  |  |                                     |   |        |                                    |  |  |                                   |   |        |                                  |  |  |  |   |        |  |  |  |  |   |        |  |
|-------------------------------------------------------------------------------------------|--|--|-------------------------------------|---|--------|------------------------------------|--|--|-----------------------------------|---|--------|----------------------------------|--|--|--|---|--------|--|--|--|--|---|--------|--|
| (inmillions)                                                                              |  |  | Three MonthsendedSeptember 30, 2006 |   |        | Three Monthsended September30,2005 |  |  | Nine Monthsended September30,2006 |   |        | Nine MonthsendedSeptember30,2005 |
| Numerator for basic and dilutedearnings per share: Net earnings                           |  |  |                                     | $ | 30.7   |                                    |  |  |                                   | $ | 17.4   |                                  |  |  |  | $ | 61.0   |  |  |  |  | $ | 22.6   |  |
| Denominatorfor basic earnings per share – weighted average commonshares outstanding |  |  |                                     |   | 143.0  |                                    |  |  |                                   |   | 141.7  |                                  |  |  |  |   | 142.9  |  |  |  |  |   | 141.7  |  |
| Effectof dilutivesecurities:                                                              |  |  |                                     |   |   |                                    |  |  |                                   |   |   |                                  |  |  |  |   |   |  |  |  |  |   |   |  |
| Stockpurchasewarrant                                                                      |  |  |                                     |   | 3.6    |                                    |  |  |                                   |   | 4.9    |                                  |  |  |  |   | 3.7    |  |  |  |  |   | 4.9    |  |
| Denominatorfor diluted earnings pershare                                                  |  |  |                                     |   | 146.6  |                                    |  |  |                                   |   | 146.6  |                                  |  |  |  |   | 146.6  |  |  |  |  |   | 146.6  |  |
|                                                                                           |

|           |                             |
|-----------|-----------------------------|
| 12.  | Contingenciesand Litigation |

Various claims, lawsuits and administrativeproceedings are pending or threatened against the Company and itssubsidiaries, arising from the ordinary course of business with respectto commercial, 

10

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|           |                                              |
|-----------|----------------------------------------------|
| 12.  | Contingenciesand Litigation (continued) |

contract, intellectual property, productliability, employee, environmental and other matters. Historically,these matters have not had a material impact on the consolidatedfinancial position of the Company. However, the Company cannot predictthe outcome of any litigation or the potential for futurelitigation.

The Company has been named as a potentiallyresponsible party (PRP) by the Environmental Protection Agency or stateenforcement agencies at three pending waste sites where some financialcontribution is or may be required. These agencies have also identifiedmany other parties who may be responsible for clean up costs at thesewaste disposal sites. The Company is also remediating a small groundcontamination it discovered at its plant in Colombia and cleaned a rawmaterial spill at its plant near Botany, Australia. TheCompany’s financial contribution to remediate these sites is notexpected to be material. There has been no significant financial impacton the Company up to the present, nor is it anticipated that there willbe in the future, as a result of these matters. The Company has madeand will continue to make provisions for these costs if theCompany’s liability becomes probable and when costs can bereasonably estimated.

The Company’s undiscounted reservesfor known environmental clean up costs were $2.0  million atSeptember  30,  2006. These environmental reservesrepresent management’s current estimate of its proportionalclean-up costs (and the cost to remediate the Colombia site) and arebased upon negotiation and agreement with enforcement agencies, itsprevious experience with respect to clean-up activities, a detailedreview by the Company of known conditions, and information about otherPRPs. They are not reduced by any possible recoveries from insurancecompanies or other PRPs not specifically identified. Althoughmanagement cannot determine whether or not a material effect on futureoperations is reasonably likely to occur, given the evolving nature ofenvironmental regulations, it believes that the recorded reserve levelsare appropriate estimates of the potential liability. Althoughsettlement will require future cash outlays, it is not expected thatsuch outlays will materially impact the Company’s liquidityposition. Expenditures for the nine months ended September30,  2006, relating to environmental compliance and clean upactivities, were not significant.

The Company has been named as adefendant in lawsuits based on claimed involvement in the supply ofallegedly defective or hazardous materials and the claimed presence ofhazardous substances at its plants. The plaintiffs in these cases seekdamages for alleged personal injury or potential injury resulting fromexposure to our products or other chemicals. These matters have had ade minimis impact on the Company’s business historically and theCompany does not anticipate these matters to present any material riskto the Company’s business in the future. Notwithstanding, theCompany cannot predict the outcome of any such lawsuits or theinvolvement the Company might have in these matters in thefuture.

On November  2,  2005, the U.K. Health andSafety Executive (‘‘HSE’’) sent notice thatit intends to initiate legal proceedings against the Company’sU.K. subsidiary under the Health and Safety at Work Act. The place ofthese proceedings is not indicated in the notice. This noticereferences a legionella outbreak from November  2003 that isclaimed to have originated at cooling towers owned by one of thesubsidiary’s customers. The HSE indicates that the proceedingswill relate to the cleaning of these cooling towers. The HSE has notinitiated the legal proceedings mentioned in the notice, and theCompany has not received any specific charges or claims for relief. TheCompany will defend and refute any contention that it has violated anylaw.

Beginning on May  16,  2003, the Companyreceived subpoenas from the U.S. Department of Justice for documentsand testimony relating to its storage of claimed hazardous materials,the claimed leakage of wastewater and other matters at its plant inGaryville, Louisiana. No charges or indictments have been filed, butthe outcome of this investigation is unknown to the Company.

Inthe ordinary course of its business, the Company is also a party to anumber of lawsuits and is subject to various claims relating totrademarks, employee matters, contracts, transactions, chemicals andother matters, the outcome of which, in the opinion of management,should not have a material 

11

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|           |                                              |
|-----------|----------------------------------------------|
| 12.  | Contingenciesand Litigation (continued) |

effect on the consolidated financial positionof the Company. However, we cannot predict the outcome of anylitigation or the potential for future litigation. Were an unfavorableruling to occur, there exists the possibility of a material adverseimpact on the results of operations for the period in which the rulingoccurs. The Company maintains accruals where the outcome of the matteris probable and can be reasonablyestimated.

|           |            |
|-----------|------------|
| 13.  | Guarantees |

Nosignificant guarantees were outstanding at September  30,2006, other than subsidiary-related performance guarantees.

TheCompany had $42.5  million of letters of credit outstanding atSeptember  30,2006.

|           |                                 |
|-----------|---------------------------------|
| 14.  | RecentAccounting Pronouncements |

In June  2006, the FinancialAccounting Standards Board (FASB) issued Interpretation No. 48 (FIN48), Accounting for Uncertainty in Income Taxes, aninterpretation of FASB Statement No. 109, Accounting for IncomeTaxes. The interpretation clarifies the accounting for uncertaintyin income taxes recognized in an enterprise’s financialstatements by prescribing a recognition threshold and measurementattribute for the financial statement recognition and measurement of atax position taken or expected to be taken in a tax return. FIN 48 alsoprovides guidance on derecognition, classification, interest andpenalties, accounting in interim periods, disclosure, and transition.The effective date of FIN 48 is no later than fiscal years beginningafter December  15,  2006. The Company is in the process ofdetermining the effects, if any, that adoption of FIN 48 will have onits financial statements.

In September  2006, the FASBissued Statement of Financial Accounting Standards (SFAS) No. 157,Fair Value Measurements, which defines fair value, establishes aframework for measuring fair value, and expands disclosures about fairvalue measurements. The provisions of SFAS No. 157 are effective forthe Company as of the beginning of its fiscal year endedDecember  31,  2008. The Company is in the process ofdetermining the effects, if any, that adoption of SFAS No. 157 willhave on its financial statements.

In September  2006, theFASB issued SFAS No. 158, Employers' Accounting for DefinedBenefit Pension and Other Postretirement Plans – an amendment ofFASB Statements No. 87, 88, 106 and 132(R). SFAS No. 158 requiresan employer to recognize in its statement of financial position anasset for a plan's overfunded status or a liability for aplan's underfunded status, measure a plan's assets and itsobligations that determine its funded status as of the end of theemployer's fiscal year, and recognize changes in the fundedstatus of a defined benefit postretirement plan in the year in whichthe changes occur. Those changes will be reported in comprehensiveincome and as a separate component of shareholders’ equity. SFASNo. 158 does not change the amount of net periodic benefit costincluded in net earnings. The requirement to recognize the fundedstatus of defined benefit postretirement plans is effective for theCompany as of December  31,  2006. The requirement tomeasure plan assets and benefit obligations as of the end of the fiscalyear is effective for the Company no later than December31,  2008. Retrospective application of both the recognition andmeasurement date provisions of SFAS No. 158 is not permitted. Had theCompany applied the recognition provisions of SFAS No. 158 as ofDecember  31,  2005, accumulated other comprehensive incomewould have been reduced by an additional $2.1  million. However,this impact could change materially as of December  31,2006, due to changes in the discount rates used to measure planobligations, the actual returns on plan assets, and otherfactors.

In September  2006, the Securities and ExchangeCommission (SEC) issued Staff Accounting Bulletin No. 108 (SAB108), Considering the Effects of Prior Year Misstatements whenQuantifying Misstatements in Current Year Financial Statements, toaddress diversity in practice in quantifying financial statementmisstatements. SAB 108 provides interpretive guidance on theconsideration of the 

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|           |                                                  |
|-----------|--------------------------------------------------|
| 14.  | RecentAccounting Pronouncements (continued) |

effects of prior year misstatements inquantifying current year misstatements for the purpose of a materialityassessment. SAB 108 is effective for the Company in its year endedDecember  31,  2006, and allows a one-time transitionalcumulative effect adjustment to retained earnings as ofJanuary 1, 2006 for errors that were not previously deemedmaterial, but are material under the guidance in SAB 108. The Companyis in the process of determining the effects, if any, that SAB 108 willhave on its financialstatements.

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|--------------|--------------------------------------------------------------------------------------------|
| Item2.  | Management’s Discussion and Analysis ofFinancial Condition and Results of Operations |

OnNovember  4,  2003, Nalco Holdings LLC, our subsidiaryand a company formed by The Blackstone Group, Apollo Management, L.P.and GS Capital Partners (the ‘‘Sponsors’’),purchased all of the outstanding shares of capital stock of Ondeo NalcoCompany (which is now known as Nalco Company) and the NalcoInternational SAS Subsidiaries, which had been operated as a singlebusiness unit, from subsidiaries of Suez S.A. (Suez). In the followingdiscussion and analysis, we refer to this acquisition as the‘‘Acquisition,’’ and the term‘‘Transactions’’ means, collectively, theAcquisition and the related financings to fund theAcquisition.

The statements in the discussion and analysisregarding industry outlook, our expectations regarding the performanceof our business and the other non-historical statements in thediscussion and analysis are forward-looking statements. Theseforward-looking statements are subject to numerous risks anduncertainties. Our actual results may differ materially from thosecontained in or implied by any forward-looking statements. You shouldread the following discussion together with the consolidated financialstatements of Nalco Holding Company included elsewhere in thisreport.

‘‘Safe Harbor’’Statement Under Private Securities Litigation Reform Act of1995

This Quarterly Report for the fiscal quarter endedSeptember  30,  2006 (the ‘‘QuarterlyReport’’) includes ‘‘forward-lookingstatements’’ within the meaning of Section 27A of theSecurities Act of 1933 and Section 21E of the Securities Exchange Actof 1934. These forward-looking statements include statements concerningour plans, objectives, goals, strategies, future events, future revenueor performance, capital expenditures, financing needs, plans orintentions relating to acquisitions, business trends and otherinformation that is not historical information. When used in thisQuarterly Report, the words ‘‘estimates,’’‘‘expects,’’‘‘anticipates,’’‘‘projects,’’‘‘plans,’’‘‘intends,’’‘‘believes,’’‘‘forecasts,’’ or future or conditionalverbs, such as ‘‘will,’’‘‘should,’’‘‘could’’ or‘‘may,’’ and variations of such words orsimilar expressions are intended to identify forward-lookingstatements. All forward-looking statements, including, withoutlimitation, management’s examination of historical operatingtrends and data are based upon our current expectations and variousassumptions. Our expectations, beliefs and projections are expressed ingood faith and we believe there is a reasonable basis for them.However, there can be no assurance that management’sexpectations, beliefs and projections will be achieved.

Thereare a number of risks and uncertainties that could cause our actualresults to differ materially from the forward-looking statementscontained in this Quarterly Report. Additionally, important factorscould cause our actual results to differ materially from theforward-looking statements we make in this Quarterly Report. As statedelsewhere in this Quarterly Report, such risks, uncertainties and otherimportant factors include, amongothers:

|  |              |                          |
|--|--------------|--------------------------|
|  | •  | our substantialleverage; |

|  |              |                                                                                      |
|--|--------------|--------------------------------------------------------------------------------------|
|  | •  | limitations on flexibility inoperating our business contained in our debtagreements; |

|  |              |                                                                          |
|--|--------------|--------------------------------------------------------------------------|
|  | •  | increases in interest ratesas a result of our variable rateindebtedness; |

|  |              |                                     |
|--|--------------|-------------------------------------|
|  | •  | pricing pressure from ourcustomers; |

|  |              |                                                                                                                                                                                                      |
|--|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | changes to, or elimination of,legal or regulatory requirements imposed upon our customers which couldadversely affect portions of our business, such as that which servesthe synthetic-fuelindustry; |

|  |              |                                     |
|--|--------------|-------------------------------------|
|  | •  | technological change andinnovation; |

|  |              |                                               |
|--|--------------|-----------------------------------------------|
|  | •  | risks associated with ournon-U.S. operations; |

|  |              |                                         |
|--|--------------|-----------------------------------------|
|  | •  | fluctuations incurrency exchange rates; |

|  |              |                                                    |
|--|--------------|----------------------------------------------------|
|  | •  | high competitionin the markets in which weoperate; |

|  |              |                                                                |
|--|--------------|----------------------------------------------------------------|
|  | •  | adverse changes toenvironmental, health and safetyregulations; |

|  |              |                                                |
|--|--------------|------------------------------------------------|
|  | •  | operating hazards in ourproduction facilities; |

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|--------------|-------------------------------------------------------------------------------------------------------------|
| Item2.  | Management’s Discussion and Analysis ofFinancial Condition and Results of Operations (continued) |

|  |              |                                           |
|--|--------------|-------------------------------------------|
|  | •  | inability toachieve expected costsavings; |

|  |              |                                                   |
|--|--------------|---------------------------------------------------|
|  | •  | difficulties in securing the rawmaterials we use; |

|  |              |                                                                                              |
|--|--------------|----------------------------------------------------------------------------------------------|
|  | •  | our significant pensionbenefit obligations and the current underfunding in our pensionplans; |

|  |              |                                                                |
|--|--------------|----------------------------------------------------------------|
|  | •  | our ability to realize the fullvalue of our intangible assets; |

|  |              |                                                                                                                                  |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------|
|  | •  | ourability to attract and retain skilled employees, particularly researchscientists, technical sales professionals andengineers; |

|  |              |                                                             |
|--|--------------|-------------------------------------------------------------|
|  | •  | our ability to protect ourintellectual property rights; and |

|  |              |                                                                                  |
|--|--------------|----------------------------------------------------------------------------------|
|  | •  | thepossibility that our owners’ interests will conflict with oursor yours. |

There may be other factors that may cause our actualresults to differ materially from the forward-looking statements. Forfurther information regarding risk factors, please refer to Part I,Item 1A in the Company’s Annual Report on Form 10-K for the yearended December  31,  2005, Part II, Item 1A of theQuarterly Report on Form 10-Q for the quarter ended June30,  2006, and Part II, Item 1A of this QuarterlyReport.

All forward-looking statements attributable to us orpersons acting on our behalf apply only as of the date of thisQuarterly Report and are expressly qualified in their entirety by thecautionary statements included in this Quarterly Report. We undertakeno obligation to update or revise forward-looking statements which maybe made to reflect events or circumstances that arise after the datemade or to reflect the occurrence of unanticipated events.

Useof Non-GAAP Financial Measures

EBITDA, Adjusted EBITDA and FreeCash Flow are measures used by management to measure operatingperformance. Adjusted EBITDA is also used to determine our compliancewith financial covenants and our ability to engage in certainactivities such as incurring additional debt and making certainpayments.

EBITDA is defined as net earnings plus interest,taxes, depreciation and amortization. Adjusted EBITDA is defined asEBITDA further adjusted for certain cash and non-cash charges, aspermitted under our senior discount note, senior note and seniorsubordinated note indentures and our senior credit facility. Free CashFlow is defined as net cash provided by operating activities, lesscapital expenditures and minority interest charges.

We believeEBITDA is useful to the investors because it is frequently used bysecurities analysts, investors and other interested parties in theevaluation of companies in our industry. We consider the inclusion ofsupplementary adjustments to EBITDA applied in presenting AdjustedEBITDA appropriate to provide additional information to investors todemonstrate compliance with our financing covenants. We believe FreeCash Flow provides investors with a measure of our ability to generatecash for the repayment of debt.

EBITDA, Adjusted EBITDA and FreeCash Flow are not recognized terms under U.S. GAAP and do not purportto be alternatives to net earnings (loss) as an indicator of operatingperformance or to cash flows from operating activities as a measure ofliquidity. The most direct comparable GAAP financial measures of eachnon-GAAP financial measure, as well as the reconciliation between eachnon-GAAP financial measure and the GAAP financial measure, arepresented in the discussions of the non-GAAP financial measures below.Because not all companies use identical calculations, our measures maynot be comparable to other similarly titled measures of othercompanies.

Executive Level Overview

Third quarter salesincreased 9.7% to $915.4  million, including 7.8%organic growth and 1.9% in favorable foreign currencytranslation rate changes, from prior-year revenues of $834.9 milion.Organic 

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|--------------|-------------------------------------------------------------------------------------------------------------|
| Item2.  | Management’s Discussion and Analysis ofFinancial Condition and Results of Operations (continued) |

growth excludes the impacts of changes inforeign currency translation rates and acquisitions and divestitures.In addition to obtaining 3.8% price improvement, real salesgrowth — organic growth less price that simply passes on highercosts — was 4.0% which moves Nalco closer to our generalexpectations for 5% real growth in base business sales.

Energy Services again led Nalco’s growth efforts, deliveringits third straight quarter of 15% or better organic revenuegrowth, with 17.4% improvement in the quarter endedSeptember  30. Strong product portfolios and substantialinvestments we made training new sales engineers and servicetechnicians ahead of growth are key contributors to expansion in theEnergy Services segment.

Our Downstream refinery andpetrochemical business continues to grow at the nearly15% organic rate delivered year-to-date. The Adomitewell-service business was up just over 20% in the third quarter.While price was an important contributor to the organic sales increase,real growth was also ahead of the 11.3% average growth pace forrig counts in the quarter. Our Oil Field services business grew at a20% organic pace in the quarter ended September  30, anacceleration from the 15% organic growth paceachieved through the first six months of 2006. This accelerationlargely results from not repeating the closures of deepwater Gulf ofMexico platforms prior to and following hurricanes Katrina and Ritalast year.

Price improvement played a role in the 250 basispoints direct contribution margin expansion in Energy Services versusthe prior year. In addition, segment results include an initial$1.5  million business interruption insurance recovery from lastyear’s hurricanes. We continue to work toward additionalinsurance recoveries. At its current pace, Energy Services should passthe $1  billion mark in sales before year-end.

Industrialand Institutional Services (I&IS) sales grew 5.1%organically. Among the higher-growth regions and/or industries were:Asia/Pacific mining, global marine, North American chemical and foodand beverage, Latin America, Eastern Europe, Africa and the MiddleEast. The chemical business in the United States benefited from GulfCoast chemical plants being fully operational this year.

Highoil prices in the early part of the third quarter contributed to asignificant decline in synfuel sales. Those sales began to return inSeptember as oil prices dropped under the $70 per barrel mark. TheI&IS business expanded its direct contribution margins in thequarter by 120 basis points compared to the prior year.

PaperServices sales increased 2.1% organically — on pace withyear-to-date growth of 2.2%. All of the increase comes fromprice. Latin America grew nicely, Asia/Pacific improved and NorthAmerica is nearly stable, but European paper declined both organicallyand in real terms. Paper Services direct contribution margin improvedfrom first half results, but remains well below year-ago levels andeven further behind what we consider normal performancelevels.

Our price achievement in the Paper market is well belownecessary levels given the pace of purchased material and freight costincreases since mid-2004. We recently announced additional priceincreases for the Paper Services segment.

Third quarter netearnings increased more than 75% to $30.7  million from2005 third quarter earnings of $17.4  million. Diluted earningsper share were 21 cents compared to 12 cents in the prior-yearperiod.

Adjusted EBITDA, which is used to determine compliancewith the Company’s debt covenants, increased 11.3% to$183.1  million from $164.5  million in the third quarterof 2005. During the third quarter, price contributed about $31million to improvement from the prior year, while purchased materialand freight costs increased $18  million over that same period.This is the first time that we have succeeded in reducing the lagbetween our price increases and cost increases to less than one quartersince mid-2004. The price-cost differential accounts for nearly all ofour Adjusted EBITDA improvement.

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| Item2.  | Management’s Discussion and Analysis ofFinancial Condition and Results of Operations (continued) |

We have made strong progress this year indeveloping the right structures for our business – minimizing theimpact of double-taxation to which some of our earnings stream had beenexposed in our immediate, post-LBO structure. We now estimate oureffective income tax rate for the year to be 37.4%. Our thirdquarter rate of 33.3% includes some one-time impacts, so ouryear-to-date effective tax rate stands at 36.8%. The thirdquarter rate change from our estimated effective tax rate at the end ofJune 2006 added 2 cents to third quarter earnings per share. Theeffective tax rate improvements are expected to reduce cash taxobligations as well as income tax expense.

Free Cash Flow, whichwe define as cash flow from operations less net capital expendituresand minority interest charges, was $117.5  million in the thirdquarter. With our Free Cash Flow in the quarter, we repaid$114.0  million of Term Loan B debt in the quarter endedSeptember  30. In addition, we more fully utilized ourreceivables securitization facility to pay off the $25  millionthat had been outstanding on our revolver at the end of the secondquarter. Net cash provided by operating activities is reconciled toFree Cash Flow as follows:

|                                                |  |  |                                    |   |       |                                    |  |  |  |   |       |   |
|------------------------------------------------|--|--|------------------------------------|---|-------|------------------------------------|--|--|--|---|-------|---|
| (dollarsin millions)                           |  |  | Three MonthsendedSeptember 30,2006 |   |       | Three MonthsendedSeptember30, 2005 |
| Net cash provided byoperatingactivities        |  |  |                                    | $ | 141.3 |                                    |  |  |  | $ | 142.4 |   |
| Minorityinterests                              |  |  |                                    |   | (1.7  | )                                  |  |  |  |   | (1.6  | ) |
| Additions toproperty, plant, and equipment,net |  |  |                                    |   | (22.1 | )                                  |  |  |  |   | (20.3 | ) |
| Freecashflow                                   |  |  |                                    | $ | 117.5 |                                    |  |  |  | $ | 120.5 |   |
|                                                |

Operatingworking capital continues to require a use of cash. While inventoriesand payables remained stable in the third quarter, we used additionalworking capital for receivables. We expect to end the year with workingcapital requiring a use of cash of somewhat more than the $40million previously estimated. However, we will drive improvement– primarily in payables and receivables – beforeyear-end.

Year-to-date Results and Outlook

Throughnine months, Nalco sales of $2.66  billion are up 8.5%from $2.45  billion in the first three quarters of 2005,including real growth of 3.7% and 4.5% price improvement.We expect to end the year above our 7% organic growthtarget.

Geographically, Latin America continues to be ourfastest growth region in nominal terms, followed by Asia/Pacific, NorthAmerica and then Europe, Africa and the Middle East. Year-to-date,currency translations boosted Latin American sales, but were drags inEurope and several Asian markets.

Our focus in the fourthquarter is on delivering a strong finish to 2006, making furtherprogress toward targeted 5% real growth in our base businesswhile continuing to obtain price. This outlook assumes that costincreases will moderate, and that our most concentrated efforts toobtain additional price will be in the Paper industry. Our oil fieldand chemical businesses in and around the Gulf of Mexico should improvein the fourth quarter, as a substantial number of Gulf platforms andnearby chemical plants did not reopen post-hurricanes until late in thefourth quarter 2005 and some well into 2006.

At $61.0million, September year-to-date net earnings are more than doubleSeptember  2005 year-to-date net earnings of $22.6million. Diluted earnings per share stand at 42 cents compared to15 cents for the first nine months of 2005.

Year-to-date adjusted EBITDA is up 10.7% to $487.1million from $440.0  million, and remains on track to reach our12% growth target for the year. We expect fourth quarter resultsto be modestly 

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|              |                                                                                                             |
|--------------|-------------------------------------------------------------------------------------------------------------|
| Item2.  | Management’s Discussion and Analysis ofFinancial Condition and Results of Operations (continued) |

ahead of the third quarter, providing the 3percent sequential improvement needed to deliver on our targeted12% growth in Adjusted EBITDA this year. This would put thefourth quarter 15% ahead of the same quarter of 2005. Inaddition to not repeating raw material cost spikes and sales lossesfrom last year’s hurricanes, we expect real growth, price andcost improvement programs to allow us to reach our Adjusted EBITDAtarget. Included in the forecast is an accrual for variablecompensation programs in the fourth quarter, an increase of $8million compared to the same period of 2005. In the quarter endedSeptember  30, our variable compensation accrual was anadditional $9  million above the same period of 2005.

Since costs began escalating in the third quarter of 2004, purchasedmaterial and freight increases have totaled about $270  millionacross the Company. Price actions since that time have recovered about$261  million. As a Company, we expect cumulative price captureto catch up to purchased material and freight cost increases byyear-end.

While generally pleased with the performance of thebusiness, we have fallen behind in achieving planned cost savings.Year-to-date cost savings stand at $36  million compared to ourfull-year target of $75  million. We are late generating savingsfrom two major projects – a new order entry process and a newcustomer service center in Europe. While late, both of these projectsare expected to hit their planned savings targets. It is very unlikelynow that we will hit our $75  million cost savings target, afterdelivering $88 and $89  million in the past two years,respectively.

Contributing to the cost impact is a series ofinvestments we made in sales engineers and R&D to support highgrowth in Energy Services and developing countries that have alreadyexceeded the $17  million investment target we established at thebeginning of the year.

Even with the underperformance on costsavings efforts, earnings per share are expected to end consistent withprior guidance as anticipated business process optimization charges ofmore than $10  million for the year – much of which hasalready been incurred – are expected to offset the benefits oflower taxes compared to initial 2006 expectations. On balance, theseimpacts are likely to result in diluted earnings per share of about 65cents. Included in this total, we expect a 1-cent per share benefit inthe fourth quarter from a tax rate lower than the 40 percent previouslyexpected. At year-end, we expect our annual effective tax rate to be at37.4% . Going forward, we believe that our effective tax ratefor 2006 of 37.4% should represent the upper limit of our rate.We continue to work on programs to make furtherimprovements.

Year-to-date Free Cash Flow stands at $138.1million, and we have left our target unchanged for the year at$170  million. While we expect some cash tax benefits from ourreduced tax rate, these gains may be partly offset by expectations forhigher-than-planned business process optimization expenses in thefourth quarter. Net cash provided by operating activities is reconciledto Free Cash Flow asfollows:

|                                                |  |  |                                   |   |       |                                   |  |  |  |   |       |   |
|------------------------------------------------|--|--|-----------------------------------|---|-------|-----------------------------------|--|--|--|---|-------|---|
| (dollarsin millions)                           |  |  | Nine MonthsendedSeptember 30,2006 |   |       | Nine MonthsendedSeptember30, 2005 |
| Net cash provided byoperatingactivities        |  |  |                                   | $ | 202.9 |                                   |  |  |  | $ | 172.1 |   |
| Minorityinterests                              |  |  |                                   |   | (5.2  | )                                 |  |  |  |   | (4.4  | ) |
| Additions toproperty, plant, and equipment,net |  |  |                                   |   | (59.6 | )                                 |  |  |  |   | (45.3 | ) |
| Freecashflow                                   |  |  |                                   | $ | 138.1 |                                   |  |  |  | $ | 122.4 |   |
|                                                |

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| Item2.  | Management’s Discussion and Analysis ofFinancial Condition and Results of Operations (continued) |

Our capital expenditure program, about$60  million through three quarters, would appear to be wellbelow the $105  million spend we projected this year. Last year,however, we spent roughly 40% of our capital in the fourthquarter. Heavy fourth quarter capital spending is typical of Nalco. Asimilar spend rate this year would put us at about $100  millionin capital expenditures, or very near to our expected spend level thisyear.

Results of Operations —Consolidated

Quarter Ended September30,  2006 Compared to the Quarter Ended September30,  2005

Net sales for the three months endedSeptember  30,  2006 were $915.4  million, a9.7% increase from the $834.9  million reported for thethree months ended September  30,  2005. On an organicbasis, which excludes the impacts of changes in foreign currencytranslation rates and acquisitions and divestitures, net sales were up7.8%. Of this improvement, 3.8% was attributed to priceincrease, while the remaining 4.0% was driven by realgrowth.

Gross profit, defined as the differencebetween net sales and cost of product sold, of $413.1  millionfor the three months ended September  30,  2006 increasedby $36.1  million, or 9.6%, over the $377.0  millionfor the three months ended September  30,  2005. On anorganic basis, gross profit increased by 7.7%. Contributing tothe improvement was the impact of higher selling prices and salesvolumes, partly offset by the effect of increased costs of raw andother purchased materials. An initial business interruption recovery of$1.5  million related to last year’s hurricanes wasrecognized during the three months ended September  30,2006, which also contributed to the increase in gross profit. Grossprofit margin for the three months ended September  30,2006 was 45.1% compared to 45.2% for the year-agoperiod.

Selling, administrative, and research expensesfor the three months ended September  30,  2006 of$277.5  million increased $25.2  million, or 10.0%,from $252.3  million for the three months ended September30,  2005. On an organic basis, selling, administrative, andresearch expenses increased 8.2%. This was mostly attributableto higher salaries, employee incentive plan expenses, employeebenefits, travel, and outside consulting related to our work processredesign initiatives and the rationalization of our legal entitystructure.

Amortization of intangible assets was$17.6  million and $20.3  million for the three monthsended September  30,  2006 and 2005, respectively. Thedecrease was attributable to lower amortization of customerrelationships, which are amortized using an acceleratedmethod.

Business optimization expenses, representingmostly employee severance and related costs associated with thecontinuing redesign and optimization of business and work processes,were $3.0  million for the three months ended September30,  2006, a $0.5  million decrease from the $3.5million for the three months ended September  30,2005.

Other income (expense), net favorably changed by$0.2  million from the net expense of $0.1  million for thethree months ended September  30,  2005. This was largelythe result of higher earnings of our affiliated entities.

Netinterest expense, defined as the combination of interest incomeand interest expense, of $66.5  million for the three monthsended September  30,  2006 increased by $2.8  millionfrom the $63.7  million reported for the three months endedSeptember  30,  2005. The impact of higher interest rateson variable rate borrowings more than offset the impact of a loweraverage debt level compared to the year-ago period.

Theeffective tax rate for the three months ended September30,  2006 was 33.3%. The rate varies from the U.S. federalstatutory income tax rate of 35% primarily due to theincremental tax on dividends received from non-U.S. subsidiaries,foreign taxes provided at other than the 35% U.S. statutoryrate, U.S. state income taxes, nondeductible expenses, and otherpermanent differences.

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|              |                                                                                                             |
|--------------|-------------------------------------------------------------------------------------------------------------|
| Item2.  | Management’s Discussion and Analysis ofFinancial Condition and Results of Operations (continued) |

The aforementioned items also contributedto the variation between the U.S. federal statutory income tax rate andthe Company’s effective income tax rate for the three monthsended September  30,  2005.

During the three monthsended September  30,  2006, the income tax provision wasfavorably affected by a reduction in the estimate of the annualeffective tax rate. The tax provision was also reduced by therecognition of certain discrete items in the quarter, which lowered theeffective tax rate for the third quarter 2006 by 2.7percentage-points.

Minority interest expense was$0.1  million higher than the $1.6  million for the threemonths ended September  30,  2005, which was due to mixedresults for the Company’s non-wholly ownedsubsidiaries.

Nine Months Ended September30,  2006 Compared to the Nine Months Ended September30,  2005

Net sales for the nine months endedSeptember  30,  2006 were $2,655.8  million, an8.5% increase from the $2,448.8  million reported for thenine months ended September  30,  2005. On an organicbasis, which excludes the impacts of changes in foreign currencytranslation rates and acquisitions and divestitures, net sales were up8.2%. Of this improvement, 4.5% was attributed to priceincrease, while the remaining 3.7% was driven by realgrowth.

Gross profit, defined as the differencebetween net sales and cost of product sold, of $1,186.8  millionfor the nine months ended September  30,  2006 increased by$89.0  million, or 8.1%, over the $1,097.8  millionfor the nine months ended September  30,  2005. On anorganic basis, gross profit increased by 7.9%. Higher salesvolume and the impact of higher selling prices, partly offset by theeffect of increased costs of raw and other purchased materials,contributed to this change. The improvement was also partlyattributable to an inventory write-off of $9.0  million duringthe nine months ended September  30,  2005. Alsocontributing to the improvement was an initial business interruptionrecovery of $1.5  million related to last year’shurricanes that was recognized in 2006. Gross profit margin for thenine months ended September  30,  2006 was 44.7%compared to 44.8% for the year-ago period.

Selling,administrative, and research expenses for the nine months endedSeptember  30,  2006 of $823.6  million increased$50.3  million, or 6.5%, from $773.3  million forthe nine months ended September  30,  2005. On an organicbasis, selling, administrative, and research expenses increased6.4%. This was mainly attributable to selling expense, which wasprimarily due to higher salaries, commission expenses, employeebenefits, bad debts, and outside services. Administrative expenseincreased from the year-ago period due to higher employee incentiveplan expenses, employee benefits, and outside consulting related to ourwork process redesign initiatives and the rationalization of our legalentity structure.

Amortization of intangible assets was$52.4  million and $61.4  million for the nine months endedSeptember  30,  2006 and 2005, respectively. The decreasewas attributable to lower amortization of customer relationships, whichare amortized using an accelerated method.

Businessoptimization expenses, representing mostly employee severance andrelated costs associated with the continuing redesign and optimizationof business and work processes, were $8.6  million for the ninemonths ended September  30,  2006, a $12.7  milliondecrease from the $21.3  million for the nine months endedSeptember  30,  2005. The nine months endedSeptember  30,  2005 included a $14.2  million chargeto support a plan to delayer our management structure and reduce costsin lower-performing business units.

Other income (expense),net favorably changed by $3.0  million from the net expenseof $3.6  million for the nine months ended September30,  2005. A $2.4  million impairment loss on a businessheld for sale recognized in 2005 and a $2.0  million increase inequity in earnings of unconsolidated subsidiaries contributed to theimprovement. Partly offsetting these favorable year-over-year changeswas an unfavorable change in foreign exchange gains and losses due tothe weakening of the U.S. dollar versus the euro during2006.

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|--------------|-------------------------------------------------------------------------------------------------------------|
| Item2.  | Management’s Discussion and Analysis ofFinancial Condition and Results of Operations (continued) |

Net interest expense, defined asthe combination of interest income and interest expense, of$196.9  million for the nine months ended September30,  2006 increased by $10.4  million from the$186.5  million reported for the nine months endedSeptember  30,  2005.

The impact of higher interestrates on variable rate borrowings more than offset the impact of alower average debt level compared to the year-ago period.

The effective tax rate for the nine months endedSeptember  30,  2006 was 36.8%. The rate varies fromthe U.S. federal statutory income tax rate of 35% primarily dueto the incremental tax on dividends received from non-U.S.subsidiaries, foreign taxes provided at other than the 35% U.S.statutory rate, U.S. state income taxes, nondeductible expenses, andother permanent differences.

The aforementioned items alsocontributed to the variation between the U.S. federal statutory incometax rate and the Company’s effective income tax rate for thenine months ended September  30,  2005.

During thenine months ended September  30,  2006, the income taxprovision was favorably affected by a reduction in the estimate of theannual effective tax rate. The tax provision was also reduced by therecognition of certain discrete items in the period, which lowered theeffective tax rate for the nine months ended September30,  2006 by 1.6 percentage-points.

Minority interestexpense was $0.8  million higher than the $4.4million for the nine months ended September  30,  2005,reflecting improved results for the Company’s non-wholly ownedsubsidiaries in Spain, Saudi Arabia, and Japan.

Results ofOperations — Segment Reporting

QuarterEnded September  30,  2006 Compared to the Quarter EndedSeptember  30,  2005

Net sales byreportable segment for the three months ended September30,  2006 and September  30,  2005 may be compared asfollows:

|                                       |  |  |                   |   |       |                    |  |  |                                                 |   |       |                     |  |  |                           |  |      |         |  |  |  |  |      |    |  |  |  |  |         |  |  |  |  |  |      |   |
|---------------------------------------|--|--|-------------------|---|-------|--------------------|--|--|-------------------------------------------------|---|-------|---------------------|--|--|---------------------------|--|------|---------|--|--|--|--|------|----|--|--|--|--|---------|--|--|--|--|--|------|---|
|                                  |  |  | ThreeMonths Ended |   |       |               |  |  | Attributable to Changesin the Following Factors |
| (dollars inmillions)                  |  |  | September30,2006  |   |       | September 30, 2005 |  |  | %Change                                         |   |       | CurrencyTranslation |  |  | Acquisitions/Divestitures |  |      | Organic |
| Industrial& InstitutionalServices |  |  |                   | $ | 406.3 |                    |  |  |                                                 | $ | 379.5 |                     |  |  |                           |  | 7.1  | %       |  |  |  |  | 2.0  | %  |  |  |  |  | — |  |  |  |  |  | 5.1  | % |
| EnergyServices                        |  |  |                   |   | 267.1 |                    |  |  |                                                 |   | 223.4 |                     |  |  |                           |  | 19.6 | %       |  |  |  |  | 2.2  | %  |  |  |  |  | — |  |  |  |  |  | 17.4 | % |
| PaperServices                         |  |  |                   |   | 181.1 |                    |  |  |                                                 |   | 173.9 |                     |  |  |                           |  | 4.2  | %       |  |  |  |  | 2.1  | %  |  |  |  |  | — |  |  |  |  |  | 2.1  | % |
| Other                                 |  |  |                   |   | 60.9  |                    |  |  |                                                 |   | 58.1  |                     |  |  |                           |  | 4.8  | %       |  |  |  |  | (0.9 | )% |  |  |  |  | — |  |  |  |  |  | 5.7  | % |
| Netsales                              |  |  |                   | $ | 915.4 |                    |  |  |                                                 | $ | 834.9 |                     |  |  |                           |  | 9.7  | %       |  |  |  |  | 1.9  | %  |  |  |  |  | — |  |  |  |  |  | 7.8  | % |
|                                       |

TheIndustrial and Institutional Services division reported sales of$406.3  million for the three months ended September30,  2006, a 7.1% increase over the $379.5  millionfor the year-ago-period. Price increases accounted for approximatelytwo-thirds of the 5.1% organic change. Double-digit real growthwas reported by our Asian mining and global marine businesses, as wellas in the emerging markets in Eastern Europe, the Middle East andAfrica.

The Energy Services division reported sales of$267.1  million for the three months ended September30,  2006, a 19.6% gain over the $223.4  million forthe three months ended September  30,  2005. Organically,sales improved by 17.4%, with about three-fourths of thisincrease attributed to real growth. All businesses within EnergyServices grew double digits in the quarter, with our Upstream oil fieldproduction and Downstream refinery and petrochemical businessesexpanding at faster-than-market growth rates.

The Paper Servicesdivision reported sales of $181.1  million for the three monthsended September  30,  2006, a 4.2% increase over the$173.9  million reported for the third quarter of 2005.

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|--------------|-------------------------------------------------------------------------------------------------------------|
| Item2.  | Management’s Discussion and Analysis ofFinancial Condition and Results of Operations (continued) |

The North American region reported positiveorganic growth as a result of price increases, while solid organicimprovements in Latin America and Asia were mostly the result of realgrowth. The European region continues to struggle with customerclosures and lost business due to the price-increaseinitiatives.

Direct contribution is defined as thedifference between net sales and operating costs, including cost ofproduct sold, selling and service expenses, marketing expenses,research expenses and capital charges. Direct contribution byreportable segment for the three months ended September30,  2006 and September  30,  2005 may be compared asfollows:

|                                       |  |  |                   |   |       |                   |  |  |                                                |   |       |                     |  |  |                           |  |      |         |  |  |  |  |      |    |  |  |  |  |         |  |  |  |  |  |      |    |
|---------------------------------------|--|--|-------------------|---|-------|-------------------|--|--|------------------------------------------------|---|-------|---------------------|--|--|---------------------------|--|------|---------|--|--|--|--|------|----|--|--|--|--|---------|--|--|--|--|--|------|----|
|                                  |  |  | ThreeMonths Ended |   |       |              |  |  | Attributable toChanges in the FollowingFactors |
| (dollarsin millions)                  |  |  | September30,2006  |   |       | September 30,2005 |  |  | %Change                                        |   |       | CurrencyTranslation |  |  | Acquisitions/Divestitures |  |      | Organic |
| Industrial& InstitutionalServices |  |  |                   | $ | 98.7  |                   |  |  |                                                | $ | 87.5  |                     |  |  |                           |  | 12.8 | %       |  |  |  |  | 2.1  | %  |  |  |  |  | — |  |  |  |  |  | 10.7 | %  |
| EnergyServices                        |  |  |                   |   | 58.0  |                   |  |  |                                                |   | 42.8  |                     |  |  |                           |  | 35.5 | %       |  |  |  |  | 2.7  | %  |  |  |  |  | — |  |  |  |  |  | 32.8 | %  |
| PaperServices                         |  |  |                   |   | 28.6  |                   |  |  |                                                |   | 30.8  |                     |  |  |                           |  | (6.9 | )%      |  |  |  |  | 1.9  | %  |  |  |  |  | — |  |  |  |  |  | (8.8 | )% |
| Other                                 |  |  |                   |   | (15.2 | )                 |  |  |                                                |   | (14.2 | )                   |  |  |                           |  | (6.9 | )%      |  |  |  |  | (4.6 | )% |  |  |  |  | — |  |  |  |  |  | (2.3 | )% |
|                                       |

Directcontribution of the Industrial and Institutional Services division was$98.7  million for the three months ended September30,  2006, an increase of 12.8% over the $87.5million reported for the three months ended September  30,2005. Sales growth accounted for the 10.7% organic improvementin direct contribution.

The Energy Services division reporteddirect contribution of $58.0  million for the three months endedSeptember  30,  2006, a 35.5% increase over the$42.8  million reported for the year-ago period. On an organicbasis, direct contribution increased 32.8%. Higher sales volumeaccounted for most of the increase. Gross profit margins improved asplanned price increases took effect. An initial business interruptioninsurance recovery of $1.5  million related to last year’shurricanes was recognized during the three months endedSeptember  30,  2006, which also contributed to theincrease over the year-ago period.

The Paper Services divisionreported direct contribution of $28.6  million for the threemonths ended September  30,  2006, a 6.9% decreasefrom the direct contribution reported for the three months endedSeptember  30,  2005. Organically, direct contribution wasdown 8.8%, as costs of raw and other purchased materialscontinued to exceed price increases.

The direct contributionloss of $15.2  million reported in‘‘Other’’ for the three months endedSeptember  30,  2006, represented an increase of$1.0  million from the $14.2  million direct contributionloss reported in the third quarter 2005.

NineMonths Ended September  30,  2006 Compared to Nine MonthsEnded September  30,  2005

Net sales byreportable segment for the nine months ended September30,  2006 and September  30,  2005 may be compared asfollows:

|                                       |  |  |                  |   |         |                   |  |  |                                                |   |         |                     |  |  |                           |  |      |         |  |  |  |  |      |    |  |  |  |  |         |  |  |  |  |  |      |   |
|---------------------------------------|--|--|------------------|---|---------|-------------------|--|--|------------------------------------------------|---|---------|---------------------|--|--|---------------------------|--|------|---------|--|--|--|--|------|----|--|--|--|--|---------|--|--|--|--|--|------|---|
|                                  |  |  | NineMonths Ended |   |         |              |  |  | Attributable toChanges in the FollowingFactors |
| (dollarsin millions)                  |  |  | September30,2006 |   |         | September 30,2005 |  |  | %Change                                        |   |         | CurrencyTranslation |  |  | Acquisitions/Divestitures |  |      | Organic |
| Industrial& InstitutionalServices |  |  |                  | $ | 1,174.1 |                   |  |  |                                                | $ | 1,098.0 |                     |  |  |                           |  | 6.9  | %       |  |  |  |  | 0.3  | %  |  |  |  |  | — |  |  |  |  |  | 6.6  | % |
| EnergyServices                        |  |  |                  |   | 772.7   |                   |  |  |                                                |   | 655.5   |                     |  |  |                           |  | 17.9 | %       |  |  |  |  | 0.7  | %  |  |  |  |  | — |  |  |  |  |  | 17.2 | % |
| PaperServices                         |  |  |                  |   | 535.0   |                   |  |  |                                                |   | 520.1   |                     |  |  |                           |  | 2.8  | %       |  |  |  |  | 0.6  | %  |  |  |  |  | — |  |  |  |  |  | 2.2  | % |
| Other                                 |  |  |                  |   | 174.0   |                   |  |  |                                                |   | 175.2   |                     |  |  |                           |  | (0.7 | )%      |  |  |  |  | (3.0 | )% |  |  |  |  | — |  |  |  |  |  | 2.3  | % |
| Netsales                              |  |  |                  | $ | 2,655.8 |                   |  |  |                                                | $ | 2,448.8 |                     |  |  |                           |  | 8.5  | %       |  |  |  |  | 0.3  | %  |  |  |  |  | — |  |  |  |  |  | 8.2  | % |
|                                       |

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|--------------|-------------------------------------------------------------------------------------------------------------|
| Item2.  | Management’s Discussion and Analysis ofFinancial Condition and Results of Operations (continued) |

The Industrial and Institutional Servicesdivision posted sales of $1,174.1  million for the nine monthsended September  30,  2006, an increase of 6.9% overthe $1,098.0  million for the year-ago-period. Price increasesaccounted for about three-fourths of the 6.6% organic increasein sales.

The Energy Services division reported sales of$772.7  million for the nine months ended September30,  2006, a 17.9% gain over the $655.5  million forthe nine months ended September  30,  2005. Sales improvedby 17.2% on an organic basis, with slightly more that two-thirdsof this improvement attributed to real growth.

The PaperServices division posted sales of $535.0  million for the ninemonths ended September  30,  2006, a 2.8% increaseover the $520.1  million reported for the year-ago period. TheNorth American region reported positive organic growth as a result ofprice increases, while organic improvements in Latin America and Asiawere primarily the result of real growth. These organic growth gainswere partly offset by a decline in the European region.

The2.3% organic growth in sales reported by the Other segment wasattributable to price increases by our Integrated Channels business andreal growth by our subsidiary in India.

Directcontribution by reportable segment for the nine months endedSeptember  30,  2006 and September  30,  2005may be compared asfollows:

|                                       |  |  |                  |   |       |                   |  |  |                                                |   |       |                     |  |  |                           |  |      |         |  |  |  |  |      |    |  |  |  |  |         |  |  |  |  |  |      |    |
|---------------------------------------|--|--|------------------|---|-------|-------------------|--|--|------------------------------------------------|---|-------|---------------------|--|--|---------------------------|--|------|---------|--|--|--|--|------|----|--|--|--|--|---------|--|--|--|--|--|------|----|
|                                  |  |  | NineMonths Ended |   |       |              |  |  | Attributable toChanges in the FollowingFactors |
| (dollarsin millions)                  |  |  | September30,2006 |   |       | September 30,2005 |  |  | %Change                                        |   |       | CurrencyTranslation |  |  | Acquisitions/Divestitures |  |      | Organic |
| Industrial& InstitutionalServices |  |  |                  | $ | 263.6 |                   |  |  |                                                | $ | 235.9 |                     |  |  |                           |  | 11.7 | %       |  |  |  |  | 0.3  | %  |  |  |  |  | — |  |  |  |  |  | 11.4 | %  |
| EnergyServices                        |  |  |                  |   | 161.2 |                   |  |  |                                                |   | 125.5 |                     |  |  |                           |  | 28.5 | %       |  |  |  |  | 0.9  | %  |  |  |  |  | — |  |  |  |  |  | 27.6 | %  |
| PaperServices                         |  |  |                  |   | 81.2  |                   |  |  |                                                |   | 88.3  |                     |  |  |                           |  | (8.0 | )%      |  |  |  |  | 0.9  | %  |  |  |  |  | — |  |  |  |  |  | (8.9 | )% |
| Other                                 |  |  |                  |   | (49.5 | )                 |  |  |                                                |   | (48.3 | )                   |  |  |                           |  | (2.5 | )%      |  |  |  |  | (1.7 | )% |  |  |  |  | — |  |  |  |  |  | (0.8 | )% |
|                                       |

Directcontribution of the Industrial and Institutional Services division was$263.6  million for the nine months ended September30,  2006, an increase of 11.7% over the $235.9million reported for the nine months ended September  30,2005. Organically, direct contribution improved 11.4%. TheIndustrial and Institutional Services division’s success inimplementing price increases and controlling operating expensescontributed to the period-on-period performance improvement.

TheEnergy Services division reported direct contribution of $161.2million for the nine months ended September  30,  2006, a28.5% increase over the $125.5  million reported for theprior year period. On an organic basis, direct contribution increased27.6%. Higher sales volume and the impact of price increasesaccounted for most of the improvement. An initial business interruptioninsurance recovery of $1.5  million related to last year’shurricanes recognized in 2006 also contributed to the increase.

The Paper Services division reported direct contribution of$81.2  million for the nine months ended September30,  2006, an 8.0% decrease from the $88.3  millionreported for the year-ago period. Organically, direct contribution wasdown 8.9%, as costs of raw and other purchased materialscontinued to exceed price increases. Due to tight controls on spending,operating expenses were flat on a year-over-year basis despite asignificant increase in bad debts.

The direct contribution lossof $49.5  million reported in‘‘Other’’ for the nine months endedSeptember  30,  2006, represented an increase of$1.2  million from the $48.3  million direct contributionloss reported for the nine months ended September  30,2005. Significant contributors to the year-over-year change includesupply chain variances that benefited 2006 results and favorableadjustments in 2005 for commissions and insurance/legal claims that didnot recur in 2006.

Liquidity and CapitalResources

Operating activities.    Historically,the Company’s main source of liquidity has been its solid cashflow generated by operating activities. For the nine months endedSeptember  30,  2006, cash provided 

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|--------------|-------------------------------------------------------------------------------------------------------------|
| Item2.  | Management’s Discussion and Analysis ofFinancial Condition and Results of Operations (continued) |

by operating activities was $202.9million, an increase of $30.8  million from the same period lastyear. The improvement was mainly the result of the increase in netearnings and not making any payments in 2006 for 2005 variableincentive plans. Partly offsetting these improvements were highercontributions to the principal U.S. pension plan and higher cashrequirements for inventories and accounts payable.

Investingactivities.    Cash used for investing activities was$57.6  million for the nine months ended September30,  2006, which was mostly attributable to net propertyadditions of $59.6  million.

Cash used for investingactivities was $47.6  million for the nine months endedSeptember  30,  2005. This was mostly the result of netproperty additions of $45.3  million.

Financingactivities.    Net cash used for financing activities totaled$133.6  million and $110.6  million during the nine monthsended September  30,  2006 and 2005, respectively, whichwas mostly attributable to a net decrease in borrowings.

Sincethe Transactions, we have been highly leveraged. Our liquidityrequirements are significant, primarily due to debt servicerequirements as well as research and development and capitalinvestment. Our primary source of liquidity will continue to be cashflow generated from operations, but we also have availability under a$250  million revolving credit facility and a $100  millionreceivables facility, in each case subject to certain conditions. Webelieve that our financial position and financing structure willprovide flexibility in worldwide financing activities and permit us torespond to changing conditions in credit markets.

Seniorcredit facilities.    On November  4,  2003, weentered into senior credit facilities which provided for a revolvingcredit facility, a $300  million six-year term loan A facility(which includes an €88.0  million tranche) whichmatures in November  2009 and a $1,300  million seven-yearterm loan B facility which matures in November  2010. Borrowingsunder the senior credit facilities bear interest at a floating baserate plus an applicable margin. The applicable margin for borrowingsunder the revolving credit facility and the term loan A facility is1.50% with respect to base rate borrowings and 2.50% withrespect to LIBOR or Eurocurrency borrowings and may be reduced subjectto our attaining certain leverage ratios. The applicable margin forborrowings under the term loan B facility is 0.75% with respectto base rate borrowings and 1.75% with respect to LIBOR orEurocurrency borrowings. The applicable margin for borrowings under theterm loan B facility is not subject to adjustment.

In addition topaying interest on outstanding principal under the senior creditfacilities, we are required to pay a commitment fee to the lendersunder the revolving credit facility in respect of the unutilizedcommitments at a rate equal to 0.50%. We also pay customaryletter of credit fees.

The term loan A facility will amortizeeach year in quarterly amounts at a rate of 5% per annum in yearone, 10% per annum in year two, 15% per annum in yearthree, 20% per annum in year four and 25% per annum ineach of years five and six.

The term loan B facility willamortize each year in an amount equal to 1% per annum in equalquarterly installments for the first six years and nine months, withthe remaining amount payable on November  4,  2010.

At September  30,  2006, the outstanding balance of theterm loan A and term loan B facilities was $78.0  million and$957.0  million, respectively.

Principal amountsoutstanding under the revolving credit facility will be due and payablein full at maturity on November  4,  2009. AtSeptember  30,  2006, no borrowings were outstanding underthe revolving credit facility.

The senior credit facilitiescontain a number of covenants that, among other things, restrict,subject to certain exceptions, our ability and the ability of oursubsidiaries (including Nalco Company) 

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|              |                                                                                                             |
|--------------|-------------------------------------------------------------------------------------------------------------|
| Item2.  | Management’s Discussion and Analysis ofFinancial Condition and Results of Operations (continued) |

to sell assets, incur additionalindebtedness or issue preferred stock, repay other indebtedness, paydividends and distributions or repurchase certain capital stock, createliens on assets, make investments, loans or advances, make certainacquisitions, engage in mergers or consolidations, enter into sale andleaseback transactions, engage in certain transactions with affiliates,amend certain material agreements governing our indebtedness, changethe business conducted by us and our subsidiaries (including NalcoCompany) and enter into hedging agreements. In addition, the seniorcredit facilities require Nalco Company to maintain the followingsignificant financial covenants: a maximum total leverage ratio, aminimum interest coverage ratio and a maximum capital expenditureslimitation. We were in compliance with all covenants atSeptember  30,  2006.

Senior notes, seniorsubordinated notes and senior discount notes.    As part of theTransactions in November  2003, Nalco Company issued $665million aggregate principal amount of 73⁄4%U.S. dollar-denominated senior notes due 2011, €200million aggregate principal amount of 73⁄4%euro-denominated senior notes due 2011, $465  million aggregateprincipal amount of 8 7/8% U.S.dollar-denominated senior subordinated notes due 2013 and€200  million aggregate principal amount of9% euro-denominated senior subordinated notes due 2013.

OnJanuary  21,  2004, our subsidiaries, Nalco FinanceHoldings LLC and Nalco Finance Holdings Inc., issued $694.0million aggregate principal amount at maturity of 9.0% seniordiscount notes due 2014. Prior to February  1,  2009,interest will accrue on the notes in the form of an increase in theaccreted value of such notes. The accreted value of each note willincrease from the date of issuance until February  1,  2009at a rate of 9.0% per annum, reflecting the accrual of non-cashinterest, such that the accreted value will equal the principal amountat maturity on February  1,  2009. Cash interest paymentson the notes will be due and payable beginning in 2009. Our primarysource of liquidity for such payments will be cash flow generated fromthe operations of subsidiaries, including Nalco Holdings LLC and NalcoCompany. However, the terms of Nalco Company’s senior creditagreement fully prohibit Nalco Holdings LLC and our other subsidiariesfrom paying dividends or otherwise transferring assets to the issuers.In addition, the terms of certain of the indentures governing theexisting senior notes and senior subordinated notes of Nalco Companysignificantly restrict Nalco Company and our other subsidiaries frompaying dividends, making distributions and otherwise transferringassets to the issuers of the senior discount notes. For example, theability of Nalco Company to make such payments is governed by a formulabased on 50% of its consolidated net income (which, as definedin such indentures, excludes impairment charges, amortization chargesfrom purchase accounting and any after-tax extraordinary, unusual ornonrecurring gains and losses).

In addition, as a condition tomaking such payments to the issuers based on such formula, NalcoHoldings LLC must have an Adjusted EBITDA to interest expense ratio ofat least 2.0 to 1 after giving effect to any such payments.Notwithstanding such restrictions, such indentures permit an aggregateof $50.0  million of such payments to be made whether or notthere is availability under the formula or the conditions to its useare met.

In December  2004, Nalco Finance Holdings LLC andNalco Finance Holdings Inc. redeemed a portion of the senior discountnotes with an accreted value of $162.3  million using proceedsfrom the November  2004 initial public offering of common stockof Nalco Holding Company. After the partial redemption, the aggregateprincipal amount at maturity of the notes declined to $460.8million from $694.0  million.

The indentures governing thesenior notes, the senior subordinated notes and senior discount noteslimit our ability and the ability of our restricted subsidiariesto:

|  |              |                               |
|--|--------------|-------------------------------|
|  | •  | incur additionalindebtedness; |

|  |              |                                                                                 |
|--|--------------|---------------------------------------------------------------------------------|
|  | •  | pay dividends on or makeother distributions or repurchase certain capitalstock; |

|  |              |                          |
|--|--------------|--------------------------|
|  | •  | make certaininvestments; |

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|--------------|-------------------------------------------------------------------------------------------------------------|
| Item2.  | Management’s Discussion and Analysis ofFinancial Condition and Results of Operations (continued) |

|  |              |                                                         |
|--|--------------|---------------------------------------------------------|
|  | •  | enter intocertain types of transactions withaffiliates; |

|  |              |                                                                 |
|--|--------------|-----------------------------------------------------------------|
|  | •  | limit dividends or otherpayments by our restrictedsubsidiaries; |

|  |              |                                                  |
|--|--------------|--------------------------------------------------|
|  | •  | use assets as security inother transactions; and |

|  |              |                                                           |
|--|--------------|-----------------------------------------------------------|
|  | •  | sell certainassets or merge with or into other companies. |

Subject to certainexceptions, the indentures governing the senior notes, the seniorsubordinated notes, and the senior discount notes permit the Companyand our restricted subsidiaries to incur additional indebtedness,including secured indebtedness.

Covenantcompliance.    The breach of covenants in our senior creditagreement that are tied to ratios based on Adjusted EBITDA could resultin a default under that agreement and the lenders could elect todeclare all amounts borrowed due and payable. Any such accelerationwould also result in a default under our indentures. Additionally,under our debt agreements, our ability to engage in activities such asincurring additional indebtedness, making investments and payingdividends is also tied to ratios based on AdjustedEBITDA.

Adjusted EBITDA is used to determine our compliance withmany of the covenants contained in the indentures governing the notesand in our senior credit agreement. Adjusted EBITDA is defined asEBITDA further adjusted to exclude unusual items and other adjustmentspermitted in calculating covenant compliance under the indentures andour senior credit facility. We believe that the inclusion ofsupplementary adjustments to EBITDA applied in presenting AdjustedEBITDA are appropriate to provide additional information to investorsto demonstrate compliance with our financing covenants.

AdjustedEBITDA is calculated asfollows:

|                                 |  |  |                                     |   |       |                                     |  |  |                                   |   |       |                                   |  |  |  |   |       |   |  |  |  |   |       |   |
|---------------------------------|--|--|-------------------------------------|---|-------|-------------------------------------|--|--|-----------------------------------|---|-------|-----------------------------------|--|--|--|---|-------|---|--|--|--|---|-------|---|
| (dollarsin millions)            |  |  | Three Months endedSeptember 30,2006 |   |       | Three Months ended September30,2005 |  |  | Nine Monthsended September30,2006 |   |       | Nine Monthsended September30,2005 |
| Net earnings                    |  |  |                                     | $ | 30.7  |                                     |  |  |                                   | $ | 17.4  |                                   |  |  |  | $ | 61.0  |   |  |  |  | $ | 22.6  |   |
| Interest,net                    |  |  |                                     |   | 66.5  |                                     |  |  |                                   |   | 63.7  |                                   |  |  |  |   | 196.9 |   |  |  |  |   | 186.5 |   |
| Incometax provision             |  |  |                                     |   | 16.2  |                                     |  |  |                                   |   | 18.1  |                                   |  |  |  |   | 38.5  |   |  |  |  |   | 24.7  |   |
| Depreciation                    |  |  |                                     |   | 32.8  |                                     |  |  |                                   |   | 33.3  |                                   |  |  |  |   | 97.5  |   |  |  |  |   | 100.0 |   |
| Amortization                    |  |  |                                     |   | 17.6  |                                     |  |  |                                   |   | 20.3  |                                   |  |  |  |   | 52.4  |   |  |  |  |   | 61.4  |   |
| EBITDA                          |  |  |                                     | $ | 163.8 |                                     |  |  |                                   | $ | 152.8 |                                   |  |  |  | $ | 446.3 |   |  |  |  | $ | 395.2 |   |
| Non-cashcharges(1)              |  |  |                                     |   | 10.7  |                                     |  |  |                                   |   | 5.0   |                                   |  |  |  |   | 26.7  |   |  |  |  |   | 20.8  |   |
| Businessoptimizationexpenses(2) |  |  |                                     |   | 3.0   |                                     |  |  |                                   |   | 3.5   |                                   |  |  |  |   | 8.6   |   |  |  |  |   | 21.3  |   |
| Unusualitems(3)                 |  |  |                                     |   | 6.8   |                                     |  |  |                                   |   | 4.3   |                                   |  |  |  |   | 9.5   |   |  |  |  |   | 6.8   |   |
| Otheradjustments(4)             |  |  |                                     |   | (1.2  | )                                   |  |  |                                   |   | (1.1  | )                                 |  |  |  |   | (4.0  | ) |  |  |  |   | (4.1  | ) |
| AdjustedEBITDA                  |  |  |                                     | $ | 183.1 |                                     |  |  |                                   | $ | 164.5 |                                   |  |  |  | $ | 487.1 |   |  |  |  | $ | 440.0 |   |
|                                 |

|  |
|--|
|  |  |
|  |

|     |                                                             |
|-----|-------------------------------------------------------------|
| (1) | Non-cashcharges are further detailed on the followingtable: |

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|              |                                                                                                             |
|--------------|-------------------------------------------------------------------------------------------------------------|
| Item2.  | Management’s Discussion and Analysis ofFinancial Condition and Results of Operations (continued) |

|                                                |
|------------------------------------------------|
|                                                |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| (dollarsin millions)                           |  |  | Three Months endedSeptember 30,2006 |  |  | Three Months ended September30,2005 |  |  | Nine Monthsended September30,2006 |  |  | Nine Monthsended September30,2005 |
| Assetwrite-offs                                |  |  |  | $ | 0.3 |  |  |  |  | $ | — |  |  |  |  | $ | 1.4 |  |  |  |  | $ | 4.9 |  |
| Profitsharing expense and 401(k) funded bySuez |  |  |  |  | 7.0 |  |  |  |  |  | 1.1 |  |  |  |  |  | 18.8 |  |  |  |  |  | 10.9 |  |
| Other                                          |  |  |  |  | 3.4 |  |  |  |  |  | 3.9 |  |  |  |  |  | 6.5 |  |  |  |  |  | 5.0 |  |
| Non-cashcharges                                |  |  |  | $ | 10.7 |  |  |  |  | $ | 5.0 |  |  |  |  | $ | 26.7 |  |  |  |  | $ | 20.8 |  |
|                                                |

ProfitSharing and 401(k) Expense Funded bySuez

In conjunction with the Acquisition,we entered into an agreement with Suez whereby Suez will reimburse usfor certain profit-sharing and 401(k) matching contributions made by usto the Profit-SharingTrust.

Other

Other non-cashcharges include the non-cash impact on earnings of our equityinvestments and minority interests. Non-cash charges also includes thenon-cash portion of rent expense under the sublease that we enteredinto with Suez in conjunction with the Acquisition.

|     |                                                                                                                                                       |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Business optimization expenses include costsassociated with the redesign and optimization of work processes. Seenote 6 to Item 1 for moreinformation. |

|     |                                                          |
|-----|----------------------------------------------------------|
| (3) | Unusual items are furtherdetailed on the followingtable: |

|                                     |
|-------------------------------------|
|                                     |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| (dollarsin millions)                |  |  | Three Months endedSeptember 30,2006 |  |  | Three Months ended September30,2005 |  |  | Nine Monthsended September30,2006 |  |  | Nine Monthsended September30,2005 |
| Pensionsettlement                   |  |  |  | $ | — |  |  |  |  | $ | — |  |  |  |  | $ | 0.4 |  |  |  |  | $ | — |  |
| Loss(gain) on sales, net ofexpenses |  |  |  |  | 1.7 |  |  |  |  |  | 2.6 |  |  |  |  |  | 2.3 |  |  |  |  |  | 3.7 |  |
| Otherunusual items                  |  |  |  |  | 5.1 |  |  |  |  |  | 1.7 |  |  |  |  |  | 6.8 |  |  |  |  |  | 3.1 |  |
|                                |  |  |  | $ | 6.8 |  |  |  |  | $ | 4.3 |  |  |  |  | $ | 9.5 |  |  |  |  | $ | 6.8 |  |
|                                     |

|     |                                                                                                    |
|-----|----------------------------------------------------------------------------------------------------|
| (4) | Weare required to make adjustments to EBITDA for franchise taxes and401(k) matching contributions. |

Our covenant levels andratios for the four quarters ended September  30,  2006 areasfollows:

|                                                                                                           |
|-----------------------------------------------------------------------------------------------------------|
|                                                                                                           |  |  |  |  |  |  |
|                                                                                                      |  |  | CovenantLevel at September 30,2006 |  |  | Ratios |
| Seniorcreditfacility(1)                                                                                   |  |  |   |  |  |   |
| MinimumAdjusted EBITDA to cash interestratio                                                              |  |  | 1.75x |  |  | 2.99x |
| Maximumnet debt to Adjusted EBITDAratio                                                                   |  |  | 6.00x |  |  | 4.28x |
| Indentures(2)                                                                                             |  |  |   |  |  |   |
| MinimumAdjusted EBITDA to fixed charge ratio required to incur additional debtpursuant to ratioprovisions |  |  | 2.00x |  |  | 2.61x |
|                                                                                                           |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                      |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | During2006, our senior credit facility requires us to maintain an AdjustedEBITDA to cash interest ratio at a minimum of 1.75x and a net debt toAdjusted EBITDA ratio at a maximum of |

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|              |                                                                                                             |
|--------------|-------------------------------------------------------------------------------------------------------------|
| Item2.  | Management’s Discussion and Analysis ofFinancial Condition and Results of Operations (continued) |

|  |                                                                                                                                                                                                                                                                                                                                                                 |
|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 6.00x, in each case for the most recent fourquarter period. Failure to satisfy these ratio requirements wouldconstitute a default under the senior credit agreement. If our lendersfailed to waive any such default, our repayment obligations under thesenior credit agreement could be accelerated, which would alsoconstitute a default under ourindentures. |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Our ability to incur additionaldebt and make certain restricted payments under our indentures, subjectto specified exceptions, is tied to an Adjusted EBITDA to fixed chargeratio of at least 2.0 to 1, except that we may incur certain debt andmake certain restricted payments and certain permitted investmentswithout regard to the ratio, such as up to an aggregate principalamount of $1,950  million (including $1,035.0  million thatwas outstanding under our term loan facilities as of September30,  2006) and investments in similar business and otherinvestments equal to 6% of Nalco Holding Company consolidatedassets. |

Local lines of credit.    Certain of ournon-U.S. subsidiaries have lines of credit to support localrequirements. As of September  30,  2006, the aggregateoutstanding balance under these local lines of credit was approximately$25.9  million. Certain of these lines of credit are equally andratably secured with obligations under our senior creditfacilities.

Receivables facility.    Nalco Companyentered into a receivables facility on June  25,  2004 thatprovides up to $100  million in funding from a commercial paperconduit sponsored by JPMorgan Chase Bank, one of the lenders underNalco Company’s senior credit facilities, based on availabilityof eligible receivables and satisfaction of other customaryconditions.

Availability of funding under the receivablesfacility depends primarily upon the outstanding trade accountsreceivable balance from time to time. Aggregate availability isdetermined by using a formula that reduces the gross receivablesbalance by factors that take into account historical default anddilution rates, excessive concentrations and average days outstandingand the costs of the facility. Based on the terms of this facility andon the criteria described above, as of September  30,2006, approximately $183.2  million of our accounts receivablebalance was considered eligible for financing under the program, ofwhich approximately $120.4  million would have been available forfunding. As of September  30,  2006, we had $97.2million of outstanding borrowings under this facility.

Thisfacility is treated as a general financing agreement resulting in theborrowings and related receivables being shown as liabilities andassets, respectively, on our consolidated balance sheet and the costsassociated with the receivables facility being recorded as interestexpense. The facility expires in June 2007.

Recent AccountingPronouncements

See Note 14 to the condensed consolidatedfinancial statements, included in Part I, Item 1, for information onrecent accounting pronouncements.

|              |                                                           |
|--------------|-----------------------------------------------------------|
| Item3.  | Quantitative and Qualitative Disclosures AboutMarket Risk |

There have been no material changes to theCompany’s exposures to market risk since December31,  2005.

|               |                        |
|---------------|------------------------|
| Item 4.  | Controls andProcedures |

|  |           |                                                  |
|--|-----------|--------------------------------------------------|
|  | (a)  | Evaluation of disclosure controlsand procedures. |

The Company’s chief executiveofficer and chief financial officer, after evaluating the effectivenessof the Company’s ‘‘disclosure controls andprocedures’’ (as defined in the Securities Exchange Actof 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period,have concluded that the Company’s disclosure controls andprocedures were effective as of September  30,2006.

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|  |           |                                                       |
|--|-----------|-------------------------------------------------------|
|  | (b)  | Changes in internalcontrols over financial reporting. |

There were no changesin the Company’s internal controls over financial reporting thatoccurred during the third quarter of 2006 that have materiallyaffected, or are reasonably likely to materially affect, theCompany’s internal controls over financialreporting.

Part II.    Other Information

Item 1A. RiskFactors

Changes have occurred to the following risk factor thatwas included in the Company’s Annual Report on Form 10-K for theyear ended December  31,  2005:

Our pensionplans are currently underfunded and we may have to make significantcash payments to the plans, reducing the cash available for ourbusiness.

We sponsor various pension plans worldwide thatare underfunded and require significant cash payments. For example, in2004 and 2005, we contributed $13.7  million and $30.0million, respectively, to our pension plans. We are required tocontribute at least $58.5  million to the U.S. pension plan in2006. In early April  2006, we added $45.0  million infunding to our first quarter 2006 U.S. pension plan contribution of$13.5  million, completing our 2006 U.S. pension fundingrequirements ahead of schedule. We may also opt to make additionalvoluntary contributions to various pension plans worldwide in 2006.

As of December  31,  2005, our worldwide pension planswere underfunded by $434.2  million (based on the actuarialassumptions used for purposes of Statement of Financial AccountingStandards (SFAS) No. 87, Employers’ Accounting forPensions). Our U.S. pension plans are subject to the EmployeeRetirement Income Security Act of 1974, or ERISA. Under ERISA, thePension Benefit Guaranty Corporation, or PBGC, has the authority toterminate an underfunded pension plan under certain circumstances. Inthe event our U.S. pension plans are terminated for any reason whilethe plans are underfunded, we will incur a liability to the PBGC thatmay be equal to the entire amount of the underfunding. Prior to theclosing of the Acquisition, the PBGC requested and received informationfrom us regarding our business, the Transactions and our pension plans.The PBGC took no further action with respect to their inquiry.

OnAugust  17,  2006, the President signed into law newpension reform legislation — the Pension Protection Act of 2006(PPA). The PPA affects defined benefit and defined contribution plans,the employers who sponsor such plans, and plan participants. The PPAwill influence the amount and timing of our pension fundingrequirements, our decisions regarding pension funding, and the timingof payouts to those of our employees who are plan participants. Thechanges resulting from the PPA might impact our employees and influencetheir employment decisions.

Item 6. Exhibits

|  |           |                                   |
|--|-----------|-----------------------------------|
|  | (a)  | The following are includedherein: |

|  |                    |                                                                                                   |
|--|--------------------|---------------------------------------------------------------------------------------------------|
|  | Exhibit 31.1  | Certification ofChief Executive Officer, Pursuant to Section 302 of the Sarbanes-OxleyAct of 2002 |

|  |                   |                                                                                                   |
|--|-------------------|---------------------------------------------------------------------------------------------------|
|  | Exhibit31.2  | Certification of Chief Financial Officer,Pursuant to Section 302 of the Sarbanes-Oxley Act of2002 |

|  |                    |                                                                                                                       |
|--|--------------------|-----------------------------------------------------------------------------------------------------------------------|
|  | Exhibit 32.1  | CertificationsPursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906of the Sarbanes-Oxley Act of 2002 |

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SIGNATURE

The Company has dulycaused this report to be signed on its behalf by the undersignedthereunto duly authorized.

|  | NALCO HOLDINGCOMPANY |
|--|----------------------|

|  | /s/ BRADLEY J.BELL                           |
|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  |             |                |
|--|-------------|----------------|
|  | Name:  | BradleyJ. Bell |

|  |              |                                                     |
|--|--------------|-----------------------------------------------------|
|  | Title:  | ExecutiveVice President and Chief Financial Officer |

Dated:November  2,  2006

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