Table of Contents

UNITEDSTATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC20549

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FORM10-Q

(Mark One)

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|   | QUARTERLY REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |

For the quarterly period endedMarch  31,2006

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 of registrant as specified initscharter)

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

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

(Address,Including Zip Code, and Telephone Number, Including Area Code, ofRegistrant’s Principal ExecutiveOffices)

Notapplicable

(Former name, former address and formerfiscal year, if changed since last report)

Indicate by check markwhether the registrant: (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.    Yes  No

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

Large accelerated 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 ofApril  28,  2006, the number of shares of theregistrant’s common stock, par value $0.01 per share,outstanding was 142,896,612 shares.

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QUARTERLY REPORT ON FORM10-QNALCO HOLDING COMPANY Quarter Ended March31,  2006

TABLE OFCONTENTS

|                                                    |  |                                                                                                                        |  |        |  |  |  |  |  |  |
|----------------------------------------------------|--|------------------------------------------------------------------------------------------------------------------------|--|--------|--|--|--|--|--|--|
| PartI.    FinancialInformation |  |                                                                                                                   |
|                                               |  |                                                                                                                   |  |   |
| Item1.                                             |  | Financial Statements(Unaudited)                                                                                        |  |   |
|                                               |  | CondensedConsolidated Balance Sheets –    March 31, 2006 andDecember 31,2005                 |  | 2      |
|                                               |  | CondensedConsolidated Statements of Operations –    Three monthsended March 31, 2006 and2005 |  | 3      |
|                                               |  | CondensedConsolidated Statements of Cash Flows –    Three monthsended March 31, 2006 and2005 |  | 4      |
|                                               |  | Notes to CondensedConsolidated Financial Statements –    March 31,2006                       |  | 5      |
| Item2.                                             |  | Management’s Discussion and Analysis of FinancialCondition and     Results ofOperations      |  | 13     |
| Item3.                                             |  | Quantitative and Qualitative Disclosures About MarketRisk                                                              |  | 24     |
| Item 4.                                            |  | ControlsandProcedures                                                                                                  |  | 24     |
|                                               |  |                                                                                                                   |  |   |
| PartII.    OtherInformation    |  |                                                                                                                   |
|                                               |  |                                                                                                                   |  |   |
| Item1A.                                            |  | Risk Factors                                                                                                           |  | 25     |
| Item6.                                             |  | Exhibits                                                                                                               |  | 26     |
|                                               |  |                                                                                                                   |  |   |
| Signature                                          |  | 27                                                                                                                     |
|                                                    |

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PART I.    FINANCIALINFORMATION

Item 1.    Financial Statements(Unaudited)

Nalco Holding Company andSubsidiariesCondensed Consolidated Balance Sheets(dollarsinmillions)

|                                                                        |  |                         |         |                 |  |        |         |        |  |  |
|------------------------------------------------------------------------|--|-------------------------|---------|-----------------|--|--------|---------|--------|--|--|
|                                                                   |  | (Unaudited)March31,2006 |         | December31,2005 |
| Assets                                                                 |  |                    |    |            |  |   |    |   |
| Currentassets:                                                         |  |                    |    |            |  |   |    |   |
| Cash and cashequivalents                                               |  | $                       | 42.8    |            |  | $      | 30.8    |   |
| Accountsreceivable, less allowances of $19.6 in 2006 and $16.6 in 2005 |  |                    | 621.9   |            |  |   | 622.3   |   |
| Inventories:                                                           |  |                    |    |            |  |   |    |   |
| Finishedproducts                                                       |  |                    | 272.4   |            |  |   | 242.6   |   |
| Materialsand work inprocess                                            |  |                    | 76.5    |            |  |   | 70.6    |   |
|                                                                   |  |                    | 348.9   |            |  |   | 313.2   |   |
| Prepaidexpenses, taxes and other currentassets                         |  |                    | 54.6    |            |  |   | 83.1    |   |
| Totalcurrentassets                                                     |  |                    | 1,068.2 |            |  |   | 1,049.4 |   |
| Property,plant, and equipment,net                                      |  |                    | 742.7   |            |  |   | 755.3   |   |
| Intangibleassets:                                                      |  |                    |    |            |  |   |    |   |
| Goodwill                                                               |  |                    | 2,213.3 |            |  |   | 2,196.7 |   |
| Otherintangibles,net                                                   |  |                    | 1,212.6 |            |  |   | 1,227.5 |   |
| Otherassets                                                            |  |                    | 323.5   |            |  |   | 323.5   |   |
| Totalassets                                                            |  | $                       | 5,560.3 |            |  | $      | 5,552.4 |   |
| Liabilitiesand shareholders’equity                               |  |                    |    |            |  |   |    |   |
| Currentliabilities:                                                    |  |                    |    |            |  |   |    |   |
| Accountspayable                                                        |  | $                       | 280.1   |            |  | $      | 285.4   |   |
| Shortterm debt                                                         |  |                    | 35.6    |            |  |   | 22.6    |   |
| Othercurrentliabilities                                                |  |                    | 244.4   |            |  |   | 235.2   |   |
| Totalcurrentliabilities                                                |  |                    | 560.1   |            |  |   | 543.2   |   |
| Otherliabilities:                                                      |  |                    |    |            |  |   |    |   |
| Long-termdebt                                                          |  |                    | 3,222.3 |            |  |   | 3,244.2 |   |
| Deferredincometaxes                                                    |  |                    | 333.1   |            |  |   | 353.0   |   |
| Accruedpensionbenefits                                                 |  |                    | 413.5   |            |  |   | 416.4   |   |
| Otherliabilities                                                       |  |                    | 284.4   |            |  |   | 278.9   |   |
| Minorityinterest                                                       |  |                    | 12.2    |            |  |   | 11.2    |   |
| Shareholders’equity                                              |  |                    | 734.7   |            |  |   | 705.5   |   |
| Totalliabilities and shareholders’equity                         |  | $                       | 5,560.3 |            |  | $      | 5,552.4 |   |
|                                                                        |

Seeaccompanying notes to condensed consolidated financialstatements.

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

|                                                   |  |                                  |        |                                  |  |        |        |         |  |  |
|---------------------------------------------------|--|----------------------------------|--------|----------------------------------|--|--------|--------|---------|--|--|
|                                              |  | ThreeMonths ended March 31, 2006 |        | Three Monthsended March 31, 2005 |
| Netsales                                          |  | $                                | 849.4  |                             |  | $      | 777.6  |    |
| Operatingcosts and expenses:                      |  |                             |   |                             |  |   |   |    |
| Cost ofproductsold                                |  |                             | 471.1  |                             |  |   | 412.8  |    |
| Selling,administrative, and researchexpenses      |  |                             | 275.4  |                             |  |   | 258.1  |    |
| Amortizationof intangibleassets                   |  |                             | 17.3   |                             |  |   | 20.6   |    |
| Businessoptimizationexpenses                      |  |                             | 3.8    |                             |  |   | 0.8    |    |
| Totaloperating costs andexpenses                  |  |                             | 767.6  |                             |  |   | 692.3  |    |
| Operatingearnings                                 |  |                             | 81.8   |                             |  |   | 85.3   |    |
| Other income(expense), net                        |  |                             | 1.2    |                             |  |   | (3.4   | )  |
| Interestincome                                    |  |                             | 1.7    |                             |  |   | 2.1    |    |
| Interestexpense                                   |  |                             | (66.3  | )                           |  |   | (62.1  | )  |
| Earningsbefore income taxes and minorityinterests |  |                             | 18.4   |                             |  |   | 21.9   |    |
| Income taxprovision                               |  |                             | 7.9    |                             |  |   | 9.7    |    |
| Minorityinterests                                 |  |                             | (1.7   | )                           |  |   | (1.2   | )  |
| Netearnings                                       |  | $                                | 8.8    |                             |  | $      | 11.0   |    |
| Netearnings pershare:                             |  |                             |   |                             |  |   |   |    |
| Basic                                             |  | $                                | 0.06   |                             |  | $      | 0.08   |    |
| Diluted                                           |  | $                                | 0.06   |                             |  | $      | 0.08   |    |
| Weighted-averageshares outstanding(millions):     |  |                             |   |                             |  |   |   |    |
| Basic                                             |  |                             | 142.8  |                             |  |   | 141.7  |    |
| Diluted                                           |  |                             | 146.6  |                             |  |   | 146.6  |    |
|                                                   |

Seeaccompanying notes to condensed consolidated financialstatements.

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

|                                                                                   |  |                                 |         |                                 |  |        |        |         |  |  |
|-----------------------------------------------------------------------------------|--|---------------------------------|---------|---------------------------------|--|--------|--------|---------|--|--|
|                                                                              |  | ThreeMonths endedMarch 31, 2006 |         | Three MonthsendedMarch 31, 2005 |
| Operatingactivities                                                               |  |                            |    |                            |  |   |   |    |
| Net earnings                                                                      |  | $                               | 8.8     |                            |  | $      | 11.0   |    |
| Adjustments toreconcile net earnings to net cash provided by operatingactivities: |  |                            |    |                            |  |   |   |    |
| Depreciation                                                                      |  |                            | 32.4    |                            |  |   | 33.2   |    |
| Amortization                                                                      |  |                            | 17.3    |                            |  |   | 20.6   |    |
| Amortizationof deferred financing costs and accretion of senior discountnotes     |  |                            | 9.6     |                            |  |   | 9.9    |    |
| Other                                                                             |  |                            | (5.5    | )                          |  |   | 10.8   |    |
| Changesin operating assets andliabilities                                         |  |                            | (3.8    | )                          |  |   | (69.8  | )  |
| Netcash provided by operatingactivities                                           |  |                            | 58.8    |                            |  |   | 15.7   |    |
| Investingactivities                                                               |  |                            |    |                            |  |   |   |    |
| Purchase priceadjustment on acquisition of Ondeo NalcoGroup                       |  |                            | — |                            |  |   | (3.2   | )  |
| Additions toproperty, plant, and equipment,net                                    |  |                            | (14.6   | )                          |  |   | (12.3  | )  |
| Other                                                                             |  |                            | (0.3    | )                          |  |   | (0.4   | )  |
| Netcash used for investingactivities                                              |  |                            | (14.9   | )                          |  |   | (15.9  | )  |
| Financingactivities                                                               |  |                            |    |                            |  |   |   |    |
| Changes inshort-term debt,net                                                     |  |                            | 10.3    |                            |  |   | 7.9    |    |
| Proceeds from long-termdebt                                                       |  |                            | 3.3     |                            |  |   | 0.1    |    |
| Repayments of long-termdebt                                                       |  |                            | (45.1   | )                          |  |   | (2.1   | )  |
| Other                                                                             |  |                            | (0.8    | )                          |  |   | (4.0   | )  |
| Netcash provided by (used for) financingactivities                                |  |                            | (32.3   | )                          |  |   | 1.9    |    |
| Effect ofexchange rate changes on cash and cashequivalents                        |  |                            | 0.4     |                            |  |   | (0.5   | )  |
| Increasein cash and cashequivalents                                               |  |                            | 12.0    |                            |  |   | 1.2    |    |
| Cash and cashequivalents at beginning ofperiod                                    |  |                            | 30.8    |                            |  |   | 33.3   |    |
| Cashand cash equivalents at end ofperiod                                          |  | $                               | 42.8    |                            |  | $      | 34.5   |    |
|                                                                                   |

Seeaccompanying notes to condensed consolidated financialstatements.

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Nalco HoldingCompany and SubsidiariesNotes to Condensed Consolidated FinancialStatements(Unaudited)

March  31,2006

1.    Description of Business and Change inOwnership

Description of Business

NalcoHolding Company and subsidiaries (the Company) is engaged in theworldwide manufacture and sale of highly specialized service chemicalprograms. This includes production and service related to the sale andapplication of chemicals and technology used in water treatment,pollution control, energy conservation, oil production and refining,steelmaking, papermaking, mining, and other industrialprocesses.

Change in Ownership

OnNovember  4,  2003, our indirect subsidiary, Nalco HoldingsLLC (the Buyer), a newly-formed entity controlled by affiliates of TheBlackstone Group, L.P., Apollo Management, L.P., and The Goldman SachsGroup, Inc. (collectively, the Sponsors), pursuant to a Stock PurchaseAgreement, as amended, with Suez S.A. (Suez or Seller) and certain ofits affiliates, acquired the net assets of Ondeo Nalco Group for$4,127.1  million, including direct costs of the acquisition of$125.6  million, excluding assumed debt of $30.2  million,and subject to certain closing and post-closing adjustments (theAcquisition).

2.    Basis of Presentation

These condensed consolidated financial statements should beread 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 accompanyingunaudited condensed consolidated financial statements have beenprepared in accordance with generally accepted accounting principlesfor interim financial information. Accordingly, they do not include allof the information and footnotes required by accounting principlesgenerally accepted in the United States for complete financialstatements. Management believes these financial statements include allnormal recurring adjustments considered necessary for a fairpresentation of the financial position and results of operations of theCompany. Operating results for the three months ended March31,  2006 are not necessarily indicative of results that may beexpected for the year ended December  31,  2006.

Certain reclassifications have been made to the prior yeardata to conform to the current year presentation which had no effect onnet earnings reported for anyperiod.

3.    Goodwilland Other Intangible Assets

The changes in goodwill forthe period were asfollows:

|                                             |  |        |         |         |  |  |
|---------------------------------------------|--|--------|---------|---------|--|--|
| (dollarsin millions)                        |  |   |
| Balance as of December31,  2005             |  | $      | 2,196.7 |    |
| Excess accruals forcosts to exit activities |  |   | (1.0    | )  |
| Effect offoreign currencytranslation        |  |   | 17.6    |    |
| Balanceas of March  31,2006                 |  | $      | 2,213.3 |    |
|                                             |

Inconjunction with the Acquisition, the Company recorded liabilities of$35.5  million, primarily for employee severance and relatedcosts, in connection with a plan to exit or restructure certainactivities. As of December  31,  2005, the remainingbalance of the accrual was $2.5  million. During the

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3.    Goodwilland Other Intangible Assets (continued)

three months ended March  31,2006, an additional $1.1  million of severance costs was chargedagainst the accrual. The remaining $1.4  million represented anexcess accrual that was written off to goodwill, net of the relateddeferred tax asset of $0.4  million.

The followingtable reflects intangible assets and related amortizationinformation:

|                                              |  |                     |         |                         |  |             |         |                         |  |        |         |        |  |        |         |         |  |  |
|----------------------------------------------|--|---------------------|---------|-------------------------|--|-------------|---------|-------------------------|--|--------|---------|--------|--|--------|---------|---------|--|--|
|                                         |  | Asof March 31, 2006 |         | As of December 31,2005  |
| (dollarsinmillions)                          |  | GrossAmount         |         | AccumulatedAmortization |  | GrossAmount |         | AccumulatedAmortization |
| Intangibleassets subject toamortization:     |  |                |    |                    |  |        |    |                    |  |   |    |   |  |   |    |    |
| Customerrelationships                        |  | $                   | 489.9   |                    |  | $           | (185.7  | )                  |  | $      | 486.4   |   |  | $      | (169.8  | )  |
| Patentsand developedtechnology               |  |                | 100.5   |                    |  |        | (24.7   | )                  |  |   | 100.5   |   |  |   | (22.2   | )  |
| Other                                        |  |                | 2.4     |                    |  |        | (0.3    | )                  |  |   | 2.4     |   |  |   | (0.3    | )  |
| Intangibleassets not subject toamortization: |  |                |    |                    |  |        |    |                    |  |   |    |   |  |   |    |    |
| Trademarksand tradenames                     |  |                | 830.0   |                    |  |        | — |                    |  |   | 830.0   |   |  |   | — |    |
| Pensionasset                                 |  |                | 0.5     |                    |  |        | — |                    |  |   | 0.5     |   |  |   | — |    |
|                                         |  | $                   | 1,423.3 |                    |  | $           | (210.7  | )                  |  | $      | 1,419.8 |   |  | $      | (192.3  | )  |
|                                              |

4.    Debt

Debtconsists of thefollowing:

|                                              |  |              |         |                 |  |        |         |        |  |  |
|----------------------------------------------|--|--------------|---------|-----------------|--|--------|---------|--------|--|--|
| (dollarsin millions)                         |  | March31,2006 |         | December31,2005 |
| Short-term                                   |  |         |    |            |  |   |    |   |
| Checksoutstanding and bankoverdrafts         |  | $            | 27.5    |            |  | $      | 17.9    |   |
| Notes payableto banks                        |  |         | 2.1     |            |  |   | 0.9     |   |
| Current maturitiesof long-termdebt           |  |         | 6.0     |            |  |   | 3.8     |   |
|                                         |  | $            | 35.6    |            |  | $      | 22.6    |   |
| Long-term                                    |  |         |    |            |  |   |    |   |
| Securitizedtrade accounts receivablefacility |  | $            | 78.6    |            |  | $      | 75.3    |   |
| Term loan A,due November2009                 |  |         | 74.4    |            |  |   | 107.6   |   |
| Term loan B, dueNovember2010                 |  |         | 1,071.0 |            |  |   | 1,081.0 |   |
| Senior notes,due November2011                |  |         | 906.9   |            |  |   | 900.7   |   |
| Senior subordinatednotes, due November2013   |  |         | 706.9   |            |  |   | 700.7   |   |
| Unsecured notes,due May  2008                |  |         | 27.8    |            |  |   | 27.8    |   |
| Seniordiscount notes, due February2014       |  |         | 361.3   |            |  |   | 353.5   |   |
| Other                                        |  |         | 1.4     |            |  |   | 1.4     |   |
|                                         |  |         | 3,228.3 |            |  |   | 3,248.0 |   |
| Less:Currentportion                          |  |         | 6.0     |            |  |   | 3.8     |   |
|                                         |  | $            | 3,222.3 |            |  | $      | 3,244.2 |   |
|                                              |

OnJanuary  21,  2004, the Company, through its 100%owned subsidiaries, Nalco Finance Holdings LLC and Nalco FinanceHoldings Inc. (together, the Issuers), issued $694.0  millionaggregate principal amount at maturity of 9.0% senior discountnotes due 2014. Prior to February  1,  2009, interest willaccrue on the senior discount notes in the form of an increase in theaccreted value of such notes. Thereafter, cash interest on the seniordiscount notes will accrue and be payable semiannually in arrears onFebruary  1 and August  1 of each year, commencing onAugust  1,  2009, at a rate of 9.0% per annum. Theaccreted value of each note will increase from the date of issuanceuntil February  1,  2009 at a rate of 9.0% perannum, reflecting the accrual of non-cash interest, such that theaccreted value will equal the principal amount at maturity onFebruary  1,  2009.

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4.    Debt (continued)

In December  2004, the Issuersredeemed a portion of the senior discount notes with an accreted valueof $162.3  million using proceeds from the initial publicoffering of common stock of Nalco Holding Company. After the partialredemption, the aggregate principal amount at maturity of the notesdeclined to $460.8  million from $694.0  million. AtMarch  31,  2006, the senior discount notes had an accretedvalue of approximately $779.42 per $1,000 principal amount at maturityof notes, resulting in a total accreted value of $359.2  million.The $2.1  million difference between the carrying value of thenotes and the total accreted value represents a premium, which is beingamortized over the term of the notes.

The Company and theIssuers do not generate any revenue, and Nalco Finance Holdings Inc.was incorporated solely to accommodate the issuance of the seniordiscount notes by Nalco Finance Holdings LLC. All of theCompany’s consolidated assets are owned, and all of theCompany’s consolidated net sales are earned, by its direct andindirect subsidiaries. As of March  31,  2006, theCompany’s subsidiaries had $1,067.2  million of restrictednet assets.

The terms of Nalco Company’s seniorcredit agreement fully prohibit Nalco Holdings LLC and its subsidiariesfrom paying dividends or otherwise transferring their assets to theIssuers or the Company. Further, the terms of the indentures governingthe senior notes and senior subordinated notes of Nalco Companysignificantly restrict Nalco Company and the Issuers’ othersubsidiaries from paying dividends or otherwise transferring assets tothe Issuers or the Company. The ability of Nalco Company to make suchpayments is governed by a formula based on its consolidated net income,as well as meeting certain other conditions. Notwithstanding suchrestrictions, such indentures permit an aggregate of $50.0million of such payments to be made whether or not there isavailability under the formula or the conditions to its use are met.The Issuers’ subsidiaries are permitted under the terms of thesenior credit facilities and other indebtedness to incur additionalindebtedness that may severely restrict or prohibit the making ofdistributions, the payment of dividends or the making of loans by suchsubsidiaries to the Issuers or theCompany.

5.    Shareholders’Equity

Shareholders’ equity consists of thefollowing:

|                                                                                                                                                                                        |  |              |         |                  |  |        |         |         |  |  |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--------------|---------|------------------|--|--------|---------|---------|--|--|
| (dollarsin millions, except per shareamounts)                                                                                                                                          |  | March31,2006 |         | December 31,2005 |
| Preferredstock, par value $0.01 per share; authorized 100,000,000 shares; noneissued                                                                                                   |  | $            | — |             |  | $      | — |    |
| Commonstock, par value $0.0l per share; authorized 500,000,000 shares;142,817,403 and 142,737,451 shares issued and outstanding atMarch  31, 2006 and December  31,  2005,respectively |  |         | 1.4     |             |  |   | 1.4     |    |
| Additionalpaid-incapital                                                                                                                                                               |  |         | 739.3   |             |  |   | 739.1   |    |
| Accumulateddeficit                                                                                                                                                                     |  |         | (106.3  | )           |  |   | (115.1  | )  |
| Accumulatedother comprehensiveincome                                                                                                                                                   |  |         | 100.3   |             |  |   | 80.1    |    |
| Totalshareholders’equity                                                                                                                                                         |  | $            | 734.7   |             |  | $      | 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 79,952 shares of common stock during the three months endedMarch  31,  2006. At March  31,  2006, up to5,037,820 shares of common stock could be purchased by Nalco LLC underthe warrant, subject to certain vesting conditions.

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6.    Pension and Other PostretirementBenefit Plans

The components of net periodic pension costand the cost of other postretirement benefits for the three monthsended March  31,  2006 and 2005 were asfollows:

|                                  |  |                                |         |                                |  |                                |         |                                |  |        |         |         |  |        |         |         |  |  |
|----------------------------------|--|--------------------------------|---------|--------------------------------|--|--------------------------------|---------|--------------------------------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                             |  | PensionBenefits                |         | Other PostretirementBenefits   |
| (dollarsin millions)             |  | ThreeMonthsendedMarch 31, 2006 |         | ThreeMonthsendedMarch 31, 2005 |  | ThreeMonthsendedMarch 31, 2006 |         | ThreeMonthsendedMarch 31, 2005 |
| Servicecost                      |  | $                              | 7.7     |                           |  | $                              | 7.1     |                           |  | $      | 1.6     |    |  | $      | 1.4     |    |
| Interestcost                     |  |                           | 10.4    |                           |  |                           | 10.2    |                           |  |   | 2.3     |    |  |   | 2.1     |    |
| Expectedreturn on planassets     |  |                           | (6.8    | )                         |  |                           | (6.5    | )                         |  |   | — |    |  |   | — |    |
| Amortizationof prior servicecost |  |                           | — |                           |  |                           | — |                           |  |   | (1.0    | )  |  |   | (0.9    | )  |
| Recognizednet actuarialloss      |  |                           | 0.1     |                           |  |                           | — |                           |  |   | — |    |  |   | — |    |
| Settlementcharge                 |  |                           | 0.3     |                           |  |                           | — |                           |  |   | — |    |  |   | — |    |
| Netperiodiccost                  |  | $                              | 11.7    |                           |  | $                              | 10.8    |                           |  | $      | 2.9     |    |  | $      | 2.6     |    |
|                                  |

7.    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 $3.8  million and $0.8million for the three months ended March  31,  2006 andMarch  31,  2005, respectively.

8.    Summary ofOther Income (Expense)

The components of other income(expense), net for the three months ended March  31,  2006and 2005, include thefollowing:

|                                                 |  |                                |      |                                |  |        |      |         |  |  |
|-------------------------------------------------|--|--------------------------------|------|--------------------------------|--|--------|------|---------|--|--|
| (dollarsin millions)                            |  | ThreeMonthsendedMarch 31, 2006 |      | ThreeMonthsendedMarch 31, 2005 |
| Franchisetaxes                                  |  | $                              | (0.8 | )                         |  | $      | (0.7 | )  |
| Equity inearnings of unconsolidatedsubsidiaries |  |                           | 0.7  |                           |  |   | 0.8  |    |
| Foreigncurrency exchangeadjustments             |  |                           | 0.3  |                           |  |   | (0.7 | )  |
| Other                                           |  |                           | 1.0  |                           |  |   | (2.8 | )  |
|                                            |  | $                              | 1.2  |                           |  | $      | (3.4 | )  |
|                                                 |

9.    IncomeTaxes

The Company’s effective income tax rate was42.9% for the three months ended March  31,  2006.The rate varies from the U.S. federal statutory income tax rate of35% primarily due to the incremental tax on dividends receivedfrom non-U.S. subsidiaries, foreign taxes provided at other than the35% U.S. statutory rate, U.S. state income taxes, nondeductibleexpenses, and other permanent differences.

Theaforementioned items also contributed to the variation between the U.S.federal statutory income tax rate and the Company’s effectiveincome tax rate for the three months ended March  31,2005.

The effective rate of the provision for incometaxes differs from the U.S. statutory tax rate due to the followingitems:

|                               |  |                                |     |                                |  |        |     |        |  |  |
|-------------------------------|--|--------------------------------|-----|--------------------------------|--|--------|-----|--------|--|--|
| (dollarsin millions)          |  | ThreeMonthsendedMarch 31, 2006 |     | ThreeMonthsendedMarch 31, 2005 |
| U.S. federalstatutory taxrate |  | $                              | 6.4 |                           |  | $      | 7.7 |   |
| Other                         |  |                           | 1.5 |                           |  |   | 2.0 |   |
| Incometaxprovision            |  | $                              | 7.9 |                           |  | $      | 9.7 |   |
|                               |

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10.    Comprehensive Income(Loss)

Total comprehensive income (loss) and itscomponents, net of related tax, for the three months ended March31,  2006 and 2005, are asfollows:

|                                                       |  |                                |        |                                |  |        |        |         |  |  |
|-------------------------------------------------------|--|--------------------------------|--------|--------------------------------|--|--------|--------|---------|--|--|
| (dollarsin millions)                                  |  | ThreeMonthsendedMarch 31, 2006 |        | ThreeMonthsendedMarch 31, 2005 |
| Netearnings                                           |  | $                              | 8.8    |                           |  | $      | 11.0   |    |
| Othercomprehensive income (loss), net of incometaxes: |  |                           |   |                           |  |   |   |    |
| Derivatives                                           |  |                           | (0.3   | )                         |  |   | 0.5    |    |
| Foreigncurrency translationadjustments                |  |                           | 20.5   |                           |  |   | (21.1  | )  |
| Comprehensiveincome(loss)                             |  | $                              | 29.0   |                           |  | $      | (9.6   | )  |
|                                                       |

11.    SegmentInformation

The Company provides integrated watertreatment and process improvement services for industrial andinstitutional applications, using technologically advanced solutions,combining chemical products and equipment, and consistent, reliableon-site service 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.

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

Industrial and InstitutionalServices – This segment serves the global water treatmentand process chemical needs of the industrial, institutional, andmunicipal markets.

Energy Services – Thissegment serves the process chemicals and water treatment needs of theglobal petroleum and petrochemical industries in both upstream anddownstream applications.

Paper Services –This segment serves the process chemicals and water treatment needs ofthe global pulp and paper industry.

Other –This segment serves the alternative channels to market, supply chainactivities, and certain other operating expenses not allocated to asegment. It also includes the Company’s subsidiary in India andthe Katayama Nalco joint venture.

The Company evaluatesthe performance of its segments based on ‘‘directcontribution’’, which is defined as net sales, less costof products sold (excluding variances to standard costs), selling andservice expenses, marketing expenses, research expenses and‘‘capital charges’’ directly attributableto each segment. Each segment is assessed an internal non-GAAP‘‘capital charge’’ based on trade accountsreceivable, inventories and equipment specifically identifiable to thesegment. The capital charges included in each segment’s directcontribution are eliminated to arrive at the consolidated directcontribution for the Company. There are no intersegment revenues. TheCompany’s segment reporting was changed in the first quarter of2006 to reflect the aforementioned capital charge in the reporteddirect contribution of each segment. Prior year data have beenreclassified between segments to conform to the current yearpresentation.

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11.    SegmentInformation (continued)

Net sales by reportable segmentwere asfollows:

|                                      |  |                                 |       |                                 |  |        |       |        |  |  |
|--------------------------------------|--|---------------------------------|-------|---------------------------------|--|--------|-------|--------|--|--|
| (dollarsin millions)                 |  | Three MonthsendedMarch 31, 2006 |       | Three Months endedMarch 31,2005 |
| Industrial and InstitutionalServices |  | $                               | 378.4 |                            |  | $      | 341.0 |   |
| EnergyServices                       |  |                            | 246.3 |                            |  |   | 210.6 |   |
| PaperServices                        |  |                            | 175.8 |                            |  |   | 170.1 |   |
| Other                                |  |                            | 48.9  |                            |  |   | 55.9  |   |
| Netsales                             |  | $                               | 849.4 |                            |  | $      | 777.6 |   |
|                                      |

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

|                                                   |  |                                 |        |                                 |  |        |        |         |  |  |
|---------------------------------------------------|--|---------------------------------|--------|---------------------------------|--|--------|--------|---------|--|--|
| (dollarsin millions)                              |  | Three MonthsendedMarch 31, 2006 |        | Three Months endedMarch 31,2005 |
| Industrial and InstitutionalServices              |  | $                               | 79.8   |                            |  | $      | 65.5   |    |
| EnergyServices                                    |  |                            | 48.3   |                            |  |   | 43.0   |    |
| PaperServices                                     |  |                            | 26.1   |                            |  |   | 30.1   |    |
| Other                                             |  |                            | (19.4  | )                          |  |   | (5.2   | )  |
| Capitalchargeelimination                          |  |                            | 19.2   |                            |  |   | 19.8   |    |
| Totalsegment directcontribution                   |  |                            | 154.0  |                            |  |   | 153.2  |    |
| Expensesnot allocated tosegments:                 |  |                            |   |                            |  |   |   |    |
| Administrativeexpenses                            |  |                            | 51.1   |                            |  |   | 46.5   |    |
| Amortizationof intangibleassets                   |  |                            | 17.3   |                            |  |   | 20.6   |    |
| Businessoptimizationexpenses                      |  |                            | 3.8    |                            |  |   | 0.8    |    |
| Operatingearnings                                 |  |                            | 81.8   |                            |  |   | 85.3   |    |
| Other income(expense), net                        |  |                            | 1.2    |                            |  |   | (3.4   | )  |
| Interestincome                                    |  |                            | 1.7    |                            |  |   | 2.1    |    |
| Interestexpense                                   |  |                            | (66.3  | )                          |  |   | (62.1  | )  |
| Earningsbefore income taxes and minorityinterests |  | $                               | 18.4   |                            |  | $      | 21.9   |    |
|                                                   |

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.

12.    EarningsPer Share

Basic earnings per share is computed bydividing net earnings by the weighted average number of common sharesoutstanding during the period. Diluted earnings per share reflects thepotential dilution that could occur if securities or other contracts toissue common stock were exercised or converted into common stock orresulted in the issuance of common stock.

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12.    EarningsPer Share (continued)

Basic and diluted earnings pershare were calculated asfollows:

|                                                                                           |  |                                |        |                                |  |        |        |        |  |  |
|-------------------------------------------------------------------------------------------|--|--------------------------------|--------|--------------------------------|--|--------|--------|--------|--|--|
| (inmillions)                                                                              |  | Three MonthsendedMarch31, 2006 |        | Three MonthsendedMarch 31,2005 |
| Numerator for basic and diluted earnings pershare: Net earnings                           |  | $                              | 8.8    |                           |  | $      | 11.0   |   |
| Denominatorfor basic earnings per share – weighted average common sharesoutstanding |  |                           | 142.8  |                           |  |   | 141.7  |   |
| Effect ofdilutive securities:                                                             |  |                           |   |                           |  |   |   |   |
| Stockpurchasewarrant                                                                      |  |                           | 3.8    |                           |  |   | 4.9    |   |
| Denominatorfor diluted earnings pershare                                                  |  |                           | 146.6  |                           |  |   | 146.6  |   |
|                                                                                           |

13.    Contingenciesand Litigation

Various claims, lawsuits andadministrative proceedings are pending or threatened against theCompany and its subsidiaries, arising from the ordinary course ofbusiness with respect to commercial, contract, intellectual property,product liability, employee, environmental and other matters.Historically, these matters have not had a material impact on theconsolidated financial position of the Company. However, the Companycannot predict the outcome of any litigation or the potential forfuture litigation.

The Company has been named as apotentially responsible party (PRP) by the Environmental ProtectionAgency or state enforcement agencies at three pending waste sites wheresome financial contribution is or may be required. These agencies havealso identified many other parties who may be responsible for clean upcosts at these waste disposal sites. The Company is also remediating asmall ground contamination it discovered at its plant in Colombia. 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 undiscountedreserves for known environmental clean up costs were $2.1million at March  31,  2006.

Theseenvironmental reserves represent management’s current estimateof its proportional clean-up costs (and the cost to remediate theColombia site) and are based upon negotiation and agreement withenforcement agencies, its previous experience with respect to clean-upactivities, a detailed review by the Company of known conditions, andinformation about other PRPs. They are not reduced by any possiblerecoveries from insurance companies or other PRPs not specificallyidentified. Although management cannot determine whether or not amaterial effect on future operations is reasonably likely to occur,given the evolving nature of environmental regulations, it believesthat the recorded reserve levels are appropriate estimates of thepotential liability. Although settlement will require future cashoutlays, it is not expected that such outlays will materially impactthe Company’s liquidity position. Expenditures for the threemonths ended March  31,  2006, relating to environmentalcompliance and clean up activities, were notsignificant.

The Company has been named as a defendant inlawsuits based on claimed involvement in the supply of allegedlydefective or hazardous materials and the claimed presence of hazardoussubstances at its plants. The plaintiffs in these cases seek damagesfor alleged personal injury or potential injury resulting from exposureto our products or other chemicals. These matters have had a de minimisimpact on the Company’s business historically and the Companydoes not anticipate these matters to present any material risk to theCompany’s business in the future. Notwithstanding, the Companycannot predict the outcome of any such lawsuits or the involvement theCompany might have in these matters in the future.

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13.    Contingenciesand Litigation (continued)

The U.K. Health and SafetyExecutive (‘‘HSE’’) has sent notice that itintends to initiate legal proceedings against the Company’s U.K.subsidiary under the Health and Safety at Work Act. The place of theseproceedings is not indicated in the notice. This notice references alegionella outbreak that is claimed to have originated at coolingtowers owned by one of the subsidiary’s customers. The HSEindicates that the proceedings will relate to the cleaning of thesecooling towers. The Company has not received any specific charges orclaims for relief, but will, in any event, defend and refute anycontention that it has violated any law.

The Company hasreceived 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.

In the ordinary course of its business, the Company is also aparty to a number of lawsuits and is subject to various claims relatingto trademarks, employee matters, contracts, transactions, chemicals andother matters, the outcome of which, in the opinion of management,should not have a material effect on the consolidated financialposition of 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.

14.    Guarantees

Nosignificant guarantees were outstanding at March  31,2006, other than subsidiary-related performanceguarantees.

The Company had $27.2  million ofletters of credit outstanding at March  31,2006.

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

OnNovember  4,  2003, Nalco Holdings LLC, our subsidiary anda company formed by The Blackstone Group, Apollo Management, L.P. andGS 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 andanalysis regarding industry outlook, our expectations regarding theperformance of our business and the other non-historical statements inthe discussion 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’’ StatementUnder Private Securities Litigation Reform Act of1995

This Quarterly Report for the fiscal quarter endedMarch  31,  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,’’ orfuture or conditional verbs, 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.

There are a number of risks and uncertainties that couldcause our actual results to differ materially from the forward-lookingstatements contained in this Quarterly Report. Additionally, importantfactors could 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, among others:

|  |              |                          |
|--|--------------|--------------------------|
|  | •  | 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 eliminationof, legal or regulatory requirements imposed upon our customers whichcould adversely affect portions of our business, such as that whichserves the synthetic-fuelindustry; |

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

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

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

|  |              |                                                    |
|--|--------------|----------------------------------------------------|
|  | •  | highcompetition in 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 theraw materials we use; |

|  |              |                                                                                              |
|--|--------------|----------------------------------------------------------------------------------------------|
|  | •  | our significantpension benefit 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 ouractual results to differ materially from the forward-lookingstatements.

All forward-looking statements attributableto us or persons 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.

Executive Level Overview

Nalco delivered rapid salesgrowth and good cash generation to repay debt in the first quarter, butthose results did not immediately translate into improved quarterly netincome or Adjusted EBITDA.

First quarter sales grew9.2% to $849.4  million, including 11.0% organicgrowth partly offset by negative foreign currency impacts of1.8%. Organic growth excludes the impacts of changes in foreigncurrency translation rates and acquisitions and divestitures. Realsales growth — organic growth less price that simply passes onhigher costs — exceeded what we expect for the remainder of theyear, benefiting from a year-ago quarter weakened by moving sales aheadof a January  2005 systems conversion. For the year, we expectreal sales growth to be nearly half of our 7% organic growthtarget in 2006. This is lower real sales growth than our long-termexpectations, as our sales engineers’ time continues to berequired to sell price increases.

At the sales level, webenefited from favorable external conditions during the quarter that weexpect to carry forward at least in the nearterm:

|  |              |                                                                          |
|--|--------------|--------------------------------------------------------------------------|
|  | •  | Economic improvement in WesternEurope and continued stability elsewhere, |

|  |              |                                                                          |
|--|--------------|--------------------------------------------------------------------------|
|  | •  | Continued strength in petroleumexploration, production and refining, and |

|  |              |                                                                                                                                   |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Production improvement among North Americanpaper producers that we hope will translate into an improvedenvironment for suppliers. |

More than 55% of oursales came from business units growing at better than 10%organically. Only one business — our European Paper business— suffered a modest organic sales decline. Price continued to bean important part of our organic improvement, delivering 6.1% ofthe 11.0% improvement. Real growth of 4.9% is on trackwith our long-term expectations for our base business, and ahead ofplanned results. Price increases outpaced $34  million in costincreases during the quarter. However, since mid-2004, cumulativepurchased material and freight cost increases have totaled $229million versus about $197  million in increasedprice.

While we are now running price ahead of cost on ayear-on-year basis, we obviously need additional price increases to getus even with the total costs we have absorbed since purchased materialand freight cost increases began. This is particularly true in ourEnergy and Paper segments. It is far too 

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

early to declare victory over raw materialcosts with the recent run-up in crude oil prices, so we need tomaintain a strong focus on capturing price.

Our priceachievement is clearly strongest in the Industrial and InstitutionalServices business. The Industrial and Institutional business was veryhealthy in the quarter, with strong comparisons against a weak firstquarter in 2005. Real growth was near the corporate average, and we hadsubstantial success in price that allowed for solid expansion of ourdirect contribution margin. This growth came despite warm weatherconditions in North America that led to lower sales for boilertreatment products during the quarter. Despite the warm weather,NexGuard® boiler automation technology salescontinued to expand in the region. Mix impacts contributed negativelyto Industrial and Institutional Services results, but were more thanoffset by volume and price gains.

We are pleased thatcustomers and prospects are interested in technology innovations thatprovide performance advantages, particularly as we work to develop moreadvanced boiler automation technology for introduction in the nearfuture. We are also pleased with the current momentum in our coolingwater applications, driven by strong market acceptance of our 3DTRASAR® cooling water stress management technology.Also, within Industrial and Institutional Services, we continue to seevery strong financial performance from two of our smaller offerings.Sales of our colloidal particle products into the electronics, catalystand investment casting markets are robust, as are sales of additivesinto the personal care products industry. The improvements in ourcooling water and process additives business within Industrial andInstitutional Services were strong enough that we could absorbunfavorable weather in our largest region and still deliver substantialperformance improvement.

From a sales perspective, EnergyServices is doing extremely well. At $246.3  million in firstquarter sales, the business is well positioned to hit a $1billion year-end sales mark. Our Downstream, Oil Field and Adomitebusiness units all grew at better than 15% in the first quarter.Clearly, our customers in this business are enjoying the healthiesteconomic environment they have seen in many, many years. Growth in ourbusiness comes despite some lingering sales and earnings impactsrelated to the 2005 hurricanes, with the most noticeable of theseimpacts being that a number of customer operations in the Gulf ofMexico have not yet restarted.

Unfortunately, we did notgain the type of operating leverage we would expect from sales growthat the exceptional levels delivered by Energy Services. While operatingprofits are higher than in the prior year in Energy Services, weexperienced a modest decline in Energy Services direct contribution asa percent of sales. This was the result of a continued lag in priceincreases catching up with rising product costs, along with severalunplanned cost items that were booked in the quarter. We are confidentthis is not a trend that will continue, and that ongoing very strongsales can be matched with earnings improvement more in line with thatgrowth as the year progresses.

Our Paper Services segmentcontinued to struggle in every region except Asia. While sales in NorthAmerica and Latin America grew modestly, those regions joined Europe inunder-performing 2005 results at an earnings level. External datasuggests that market conditions for many customers in North America arestarting to improve. As we look at our raw material costs, the businesslikely to face the largest continued cost increase is our PaperServices business. Price clearly remains the issue in Paper.

Taken as a total, our three primary segments delivered11.3% improvement in direct contribution dollars compared to thefirst quarter of 2005. Given this performance improvement in ourprimary businesses, our flat overall earnings resulted in part fromimpacts in the Other segment. The business units in the Other segmentperformed reasonably, including Katayama Nalco, India and ourIntegrated Channels Group. However, there were supply chain variancesand favorable adjustments in the first quarter of 2005 for commissionsand insurance/legal claims that did not recur in 2006. In addition, asa 

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

result of a significant increase in volumesshipped in the last few days of March  2006 vs. 2005, we deferreda higher amount of revenue to the subsequent period when the shipmentswere received by our customers and title transferred.

Beginning with the period ended March  31,  2006,our segment reporting is being changed to allocate capital charges toeach of the segments. These charges for receivables, customer-consignedinventory and equipment are intended to ensure that business managersrecognize the full costs of each business decision and better manageour balance sheet. The charge will result in reduced directcontribution and direct contribution margin levels for the segments. Anelimination adjustment is now shown to offset the capital chargesplaced on the segments.

In addition to expenses in theOther segment, our business units also incurred some unusual levels ofexpense in the first quarter that we do not expect to recur during theyear — items that included outside services,higher-than-expected bad debt write-offs and timing of other operatingexpenses.

Higher interest and business processoptimization expenses also contributed to decreasing net earnings to$8.8  million from $11.0  million in the first quarter of2005. Earnings per share were 6 cents versus 8  cents in theyear-ago period. Net earnings includes after-tax charges of $4.9million for business process optimization, reimbursed benefit plancontributions and unusual charges such as costs related to a secondaryshare offering in March.

Adjusted EBITDA of $143.9million was comparable to year-earlier results of $144.3million. Solid Free Cash Flow of $42.5  million enabled theCompany to make debt reduction payments of $45  million, evenwith a sizable use of cash to expand inventory in preparation for thesummer cooling water season. Free Cash Flow improvement compared to theprior-year period was aided by making no payments this year under ourvariable incentive plans for 2005. Free Cash Flow is defined as netcash provided by operating activities, less capital expenditures andminority interestcharges.

|                                                |  |                                 |       |                                  |  |        |       |         |  |  |
|------------------------------------------------|--|---------------------------------|-------|----------------------------------|--|--------|-------|---------|--|--|
| (inmillions)                                   |  | Three MonthsendedMarch 31, 2006 |       | Three Months ended March 31,2005 |
| Net cash provided by operatingactivities       |  | $                               | 58.8  |                             |  | $      | 15.7  |    |
| Minorityinterests                              |  |                            | (1.7  | )                           |  |   | (1.2  | )  |
| Additions toproperty, plant, and equipment,net |  |                            | (14.6 | )                           |  |   | (12.3 | )  |
| Freecashflow                                   |  | $                               | 42.5  |                             |  | $      | 2.2   |    |
|                                                |

TheFree Cash Flow improvement came despite a use of cash of $34million to increase our inventories heading into the summer coolingwater season. In addition to taking on the higher working capital usethat results from higher cost and sales prices, we increased ourinventory and receivables levels from a days held or days outstandingperspective during the quarter. Payables remained on par with year-endresults. We expect to see improvement on inventories and receivablesfrom a days perspective during the course of the year, but we do notplan on the type of aggressive inventory reduction we delivered in thesecond quarter of 2005.

During the quarter, we made debtpayments of $45  million that included retiring the remaining$31.9  million on the dollar-denominated portion of Term Loan A.We also made our only required 2006 principal payment — of$3.1  million on the Euro-denominated portion of Term Loan A— and paid down $10  million of our Term Loan Bobligations that come due in 2010.

During the firstquarter, lenders agreed to reduce the interest rate on our Term Loan Bobligations by 25 basis points to 175 basis points over LIBOR. Thisreduction will save us approximately $2.5  million this year ininterest expense compared to prior terms. Despite our debt reductionover the past year, interest expense is expected to be higher in 2006than in 2005 because of the higher interest rateenvironment.

In early April, we added $45  millionto a first quarter U.S. pension plan contribution of $13.5million. The $58.5  million in contributions completes our 2006pension funding requirements for our U.S. 

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

plans. The April contribution was paidthrough drawing on the Company’s revolver, a transaction thatresults in net income and EBITDA benefits compared to making equallyphased payments through the year. We make large semi-annual interestpayments in May and November each year. Because of the combination ofinterest and pension payments, we do not plan on Free Cash Flowgeneration in the second quarter.

Finally,hurricane-related lost sales and pre-tax losses are estimated to havebeen $5  million and $3  million in the quarterrespectively, out of a total projected 2006 impact of $13million in lost sales and less than $9  million in pre-taxlosses. Energy Services is incurring the largest portion of theseimpacts due to Gulf of Mexico customer rig curtailments. Raw materialsupplier problems also contribute to higher costs.

Nalcois on track, however, to meet its full-year expectations as thefundamental business is strong and several issues that dampened firstquarter results are not expected to be with us in the balance of theyear.

Results of Operations —Consolidated

Net sales for the three monthsended March  31,  2006 were $849.4  million; a9.2% increase from the $777.6  million reported for thethree months ended March  31,  2005. On an organic basis,which excludes the impacts of changes in foreign currency translationrates and acquisitions and divestitures, net sales were up11.0%. Of this improvement, 6.1% was attributed to priceincrease, while the remaining 4.9% was driven by favorable salesgrowth broadly spread across our customer base. Although this growthwas partly attributable to lower first quarter 2005 sales due tocustomers making advanced purchases to avoid risking potentialcomplications from a January  2005 systems conversion, newcustomer growth in 2006 also factored into the year-over-yearimprovements.

Gross profit, defined as thedifference between net sales and cost of product sold, of $378.3million for the three months ended March  31,  2006increased by $13.5  million, or 3.7%, over the$364.8  million for the three months ended March31,  2005. On an organic basis, gross profit increased by$20.1  million, or 5.5%. Higher sales volume accounted formost of the increase. Also contributing to the improvement was theimpact of higher selling prices, but that was largely offset by theeffect of increased costs of raw and other purchased materials,freight, and changes in product mix. Gross profit margin for the threemonths ended March  31,  2006 was 44.5% compared to46.9% for the year-ago period.

Selling,administrative, and research expenses for the three months endedMarch  31,  2006 of $275.4  million increased$17.3  million, or 6.7%, from $258.1  million forthe three months ended March  31,  2005. On an organicbasis, selling, administrative, and research expenses increased$22.0  million. Of this difference, $15.7  million wasattributable to selling expense, which was primarily due to highercommission expenses ratably in line with increased sales, bad debts,and outside services. Administrative expense increased from theyear-ago period due to higher outside services, most notablyconsulting, and insurance.

Business optimizationexpenses, representing mostly employee severance and related costsassociated with the continuing redesign and optimization of businessand work processes, were $3.8  million for the three months endedMarch  31,  2006, a $3.0  million increase over the$0.8  million for the three months ended March  31,2005.

Amortization of intangible assets was$17.3  million and $20.6  million for the three monthsended March  31,  2006 and 2005, respectively. The decreasewas attributable to lower amortization of customer relationships, whichare amortized using an accelerated method.

Otherincome (expense), net favorably changed by $4.6  millionfrom the net expense of $3.4  million for the three months endedMarch  31,  2005. A $2.4  million impairment loss ona business held for sale 

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

recorded during the three months endedMarch  31,  2005, and a $1.0  million favorablechange in foreign exchange gains and losses accounted for most of thedifference.

Net interest expense, defined as thecombination of interest income and interest expense, of $64.6million for the three months ended March  31,  2006increased by $4.6  million from the $60.0  million reportedfor the three months ended March  31,  2005. The impact ofhigher interest rates on variable rate borrowings more than offset theimpact of a lower average debt level compared to the year-agoperiod.

The effective tax rate for the threemonths ended March  31,  2006 was 42.9%. The ratevaries from the U.S. federal statutory income tax rate of 35%primarily due to the incremental tax on dividends received fromnon-U.S. subsidiaries, foreign taxes provided at other than the35% U.S. statutory rate, U.S. state income taxes, nondeductibleexpenses, and other permanent differences.

Theaforementioned items also contributed to the variation between the U.S.federal statutory income tax rate and the Company’s effectiveincome tax rate for the three months ended March  31,2005.

Minority interest expense was $0.5million higher than the $1.2  million for the three months endedMarch  31,  2005, reflecting improved results for most ofthe Company’s non-wholly owned subsidiaries.

Results ofOperations — Segment Reporting

Net salesby reportable segment for the three months ended March31,  2006 and March  31,  2005 may be compared asfollows:

|                                       |  |                   |       |              |  |                                                 |       |                     |  |                           |       |          |  |        |      |          |  |        |         |        |  |        |      |          |  |  |
|---------------------------------------|--|-------------------|-------|--------------|--|-------------------------------------------------|-------|---------------------|--|---------------------------|-------|----------|--|--------|------|----------|--|--------|---------|--------|--|--------|------|----------|--|--|
|                                  |  | ThreeMonths Ended |       |         |  | Attributable toChanges in the Following Factors |
| (dollars inmillions)                  |  | March 31,2006     |       | March31,2005 |  | %Change                                         |       | CurrencyTranslation |  | Acquisitions/Divestitures |       | Organic  |
| Industrial& InstitutionalServices |  | $                 | 378.4 |         |  | $                                               | 341.0 |                |  |                      | 11.0  | %   |  |   | (1.9 | )%  |  |   | — |   |  |   | 12.9 | %   |
| EnergyServices                        |  |              | 246.3 |         |  |                                            | 210.6 |                |  |                      | 17.0  | %   |  |   | (1.0 | )%  |  |   | — |   |  |   | 18.0 | %   |
| PaperServices                         |  |              | 175.8 |         |  |                                            | 170.1 |                |  |                      | 3.4   | %   |  |   | (1.3 | )%  |  |   | — |   |  |   | 4.7  | %   |
| Other                                 |  |              | 48.9  |         |  |                                            | 55.9  |                |  |                      | (12.4 | )%  |  |   | (5.6 | )%  |  |   | — |   |  |   | (6.8 | )%  |
| Netsales                              |  | $                 | 849.4 |         |  | $                                               | 777.6 |                |  |                      | 9.2   | %   |  |   | (1.8 | )%  |  |   | — |   |  |   | 11.0 | %   |
|                                       |

TheIndustrial and Institutional Services division reported sales of$378.4  million for the three months ended March31,  2006, a $37.4  million increase, or 11.0%, overthe $341.0  million for the year-ago period. Price increasescontributed to most of the 12.9% organic change, with realgrowth near the corporate average. Positive organic improvement wasreported by all business units within the division.

TheEnergy Services division reported sales of $246.3  million forthe three months ended March  31,  2006, a 17.0%gain over the $210.6  million for the three months endedMarch  31,  2005. Organic sales improved strongly by18.0%, the majority of which was attributed to real growth. Allbusinesses within Energy Services — Downstream, Adomite, and OilField — grew double digits in the quarter.

ThePaper Services division reported sales of $175.8  million for thethree months ended March  31,  2006, a 3.4% increaseover the $170.1  million reported in the first quarter of 2005.The Asia Pacific region reported impressive double-digit organicgrowth; however, the division, as a whole, continues to struggle. Salesin North America and Latin America grew organically, but nearly all ofthis growth was attributable to price increases.

Theoperating business units in the Other segment, including the KatayamaNalco joint venture, India, and Integrated Channels, reported favorableorganic improvements over last year, but these gains were more thanoffset by the effect of changes in revenue recognitionaccruals.

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

Direct contribution isdefined as the difference between net sales and operating costs,including cost of product sold, selling and service expenses, marketingexpenses, research expenses and capital charges.

Directcontribution by reportable segment for the three months endedMarch  31,  2006 and March  31,  2005 may becompared asfollows:

|                                       |  |                   |       |              |  |                                                |       |                     |  |                           |        |          |  |        |      |          |  |        |         |        |  |        |        |          |  |  |
|---------------------------------------|--|-------------------|-------|--------------|--|------------------------------------------------|-------|---------------------|--|---------------------------|--------|----------|--|--------|------|----------|--|--------|---------|--------|--|--------|--------|----------|--|--|
|                                  |  | Three MonthsEnded |       |         |  | Attributable to Changes inthe FollowingFactors |
| (dollars inmillions)                  |  | March 31,2006     |       | March31,2005 |  | %Change                                        |       | CurrencyTranslation |  | Acquisitions/Divestitures |        | Organic  |
| Industrial& InstitutionalServices |  | $                 | 79.8  |         |  | $                                              | 65.5  |                |  |                      | 21.8   | %   |  |   | (2.6 | )%  |  |   | — |   |  |   | 24.4   | %   |
| EnergyServices                        |  |              | 48.3  |         |  |                                           | 43.0  |                |  |                      | 12.3   | %   |  |   | (1.4 | )%  |  |   | — |   |  |   | 13.7   | %   |
| PaperServices                         |  |              | 26.1  |         |  |                                           | 30.1  |                |  |                      | (13.3  | )%  |  |   | (0.7 | )%  |  |   | — |   |  |   | (12.6  | )%  |
| Other                                 |  |              | (19.4 | )       |  |                                           | (5.2  | )              |  |                      | (273.1 | )%  |  |   | 1.9  | %   |  |   | — |   |  |   | (275.0 | )%  |
| Capitalchargeelimination              |  |              | 19.2  |         |  |                                           | 19.8  |                |  |                      | (3.0   | )%  |  |   | (2.5 | )%  |  |   | — |   |  |   | (0.5   | )%  |
| Directcontribution                    |  | $                 | 154.0 |         |  | $                                              | 153.2 |                |  |                      | 0.5    | %   |  |   | (1.9 | )%  |  |   | — |   |  |   | 2.4    | %   |
|                                       |

Directcontribution of the Industrial and Institutional Services division was$79.8  million for the three months ended March  31,2006, an increase of 21.8% over the $65.5  millionreported for the three months ended March  31,  2005.Organically, direct contribution improved 24.4%. The Industrialand Institutional Services division’s success in implementingprice increases and controlling operating expenses contributed to theperiod-on-period performance improvement.

The EnergyServices division reported direct contribution of $48.3  millionfor the three months ended March  31,  2006, a 12.3%increase over the $43.0  million reported for the prior yearperiod. On an organic basis, direct contribution increased13.7%. Higher sales volume accounted for most of the increase.Lower gross profit margins due to lower than planned price increaseefforts and higher operating expenses, mostly in commissions, outsideservices and legal accruals, partly offset these increasedrevenues.

The Paper Services division reported directcontribution of $26.1  million for the three months endedMarch  31,  2006, a 13.3% decrease from the directcontribution reported for the three months ended March31,  2005. Organically, direct contribution was down12.6%, as costs of raw and other purchased materials continuedto exceed price increases, while operating expenses were nearly flat ona period-on-period basis.

The direct contribution loss of$19.4  million reported in ‘‘Other’’for the three months ended March  31,  2006, represented anincrease of $14.2  million from the $5.2 direct contribution lossreported in the first quarter 2005. Significant contributors to theyear-over-year change include supply chain variances that benefited2005 first quarter results, an increase in revenue deferrals due tohigher volumes shipped in late March  2006 versus March2005, and favorable adjustments in 2005 for commissions andinsurance/legal claims that did not recur in2006.

Beginning with the period ended March31,  2006, the Company initiated a capital charge allocation toeach of the reporting segments. These charges for receivables,customer-consigned inventory, and equipment are intended to ensure thatbusiness managers recognize the full costs of each business decisionand better manage the balance sheet. The capital charge eliminationrepresents the elimination adjustment to offset the capital chargeallocated to the segments.

Liquidity and CapitalResources

Operatingactivities.    Historically, the Company’s main sourceof liquidity has been its solid cash flow generated by operatingactivities. For the three months ended March  31,  2006,cash provided by operating activities was $58.8  million, a$43.1  million increase from the same period last year. Theimprovement was mainly the result of having made no payments in 2006under variable incentive plans for 2005.

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

Investingactivities.    Cash used for investing activities was$14.9  million for the three months ended March  31,2006, which was mostly attributable to net property additions of$14.6  million.

Cash used for investing activitieswas $15.9  million for the three months ended March31,  2005. This was mostly the result of net property additionsof $12.3  million.

Financingactivities.    Net cash used for financing activities totaled$32.3  million during the three months ended March31,  2006, which was mostly attributable to a net decrease inborrowings.

Net cash provided by financing activitiestotaled $1.9  million during the three months ended March31,  2005. This was primarily comprised of a net increase inborrowings.

Since the Transactions, we have been highlyleveraged. Our liquidity requirements are significant, primarily due todebt service requirements as well as research and development andcapital investment. Our primary source of liquidity will continue to becash flow generated from operations, but we also have availabilityunder a $250  million revolving credit facility and a $100million receivables facility, in each case subject to certainconditions. We believe that our financial position and financingstructure will provide flexibility in worldwide financing activitiesand permit us to respond to changing conditions in creditmarkets.

Senior credit facilities.    OnNovember  4,  2003, we entered into senior creditfacilities which provided for a revolving credit facility, a$300  million six-year term loan A facility (which includes an€88.0  million tranche) which matures inNovember  2009 and a $1,300  million seven-year term loan Bfacility which matures in November  2010. Borrowings under thesenior credit facilities bear interest at a floating base rate plus anapplicable margin. The applicable margin for borrowings under therevolving credit facility and the term loan A facility is 1.50%with respect to base rate borrowings and 2.50% with respect toLIBOR or Eurocurrency borrowings and may be reduced subject to ourattaining certain leverage ratios. The applicable margin for borrowingsunder the term loan B facility is 0.75% with respect to baserate borrowings and 1.75% with respect to LIBOR or Eurocurrencyborrowings. The applicable margin for borrowings under the term loan Bfacility 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 willamortize each year in quarterly amounts at a rate of 5% perannum in year one, 10% per annum in year two, 15% perannum in year three, 20% per annum in year four and 25%per annum in each of years five and six.

The term loan Bfacility will amortize each year in an amount equal to 1% perannum in equal quarterly installments for the first six years and ninemonths, with the remaining amount payable on November  4,2010.

At March  31,  2006, the outstandingbalance of the term loan A and term loan B facilities was $74.4million and $1,071.0  million,respectively.

Principal amounts outstanding under therevolving credit facility will be due and payable in full at maturityon November  4,  2009. There were no outstanding borrowingsunder the revolving credit facility as of March  31,2006.

The senior credit facilities contain a number ofcovenants that, among other things, restrict, subject to certainexceptions, our ability and the ability of our subsidiaries (includingNalco Company) to sell assets, incur additional indebtedness or issuepreferred stock, repay other indebtedness, pay dividends anddistributions or repurchase certain capital stock, create liens onassets, make investments, loans or advances, make certain acquisitions,engage in mergers or consolidations, enter into sale and leasebacktransactions, engage in certain transactions with affiliates, amendcertain material agreements 

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

governing our indebtedness, change thebusiness conducted by us and our subsidiaries (including Nalco Company)and enter into hedging agreements. In addition, the senior creditfacilities require Nalco Company to maintain the following significantfinancial covenants: a maximum total leverage ratio, a minimum interestcoverage ratio and a maximum capital expenditures limitation. We werein compliance with all covenants at March  31,2006.

Senior notes, senior subordinated notes andsenior discount notes.    As part of the Transactions inNovember  2003, Nalco Company issued $665  millionaggregate 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.

On January  21,  2004, our subsidiaries, NalcoFinance Holdings LLC and Nalco Finance Holdings Inc., issued$694.0  million aggregate principal amount at maturity of9.0% senior discount notes due 2014. Prior to February1,  2009, interest will accrue on the notes in the form of anincrease in the accreted value of such notes. The accreted value ofeach note will increase from the date of issuance until February1,  2009 at a rate of 9.0% per annum, reflecting theaccrual of non-cash interest, such that the accreted value will equalthe principal amount at maturity on February  1,  2009.Cash interest payments on the notes will be due and payable beginningin 2009. Our primary source of liquidity for such payments will be cashflow generated from the operations of subsidiaries, including NalcoHoldings LLC and Nalco Company. However, the terms of NalcoCompany’s senior credit agreement fully prohibit Nalco HoldingsLLC and our other subsidiaries from paying dividends or otherwisetransferring assets to the issuers. In addition, the terms of certainof the indentures governing the existing senior notes and seniorsubordinated notes of Nalco Company significantly restrict NalcoCompany and our other subsidiaries from paying dividends, makingdistributions and otherwise transferring assets to the issuers of thesenior discount notes. In addition, as a condition to making suchpayments to the issuers based on such formula, Nalco Holdings LLC musthave an Adjusted EBITDA to interest expense ratio of at least 2.0 to 1after giving effect to any such payments. Notwithstanding suchrestrictions, such indentures permit an aggregate of $50.0million of such payments to be made whether or not there isavailability under the formula or the conditions to its use aremet.

In December  2004, Nalco Finance Holdings LLCand Nalco Finance Holdings Inc. redeemed a portion of the seniordiscount notes with an accreted value of $162.3  million usingproceeds from the November  2004 initial public offering ofcommon stock of Nalco Holding Company. After the partial redemption,the aggregate principal amount at maturity of the notes declined to$460.8  million from $694.0  million.

Theindentures governing the senior notes, the senior subordinated notesand senior discount notes limit our ability and the ability of ourrestricted subsidiaries to:

|  |              |                               |
|--|--------------|-------------------------------|
|  | •  | incuradditional indebtedness; |

|  |              |                                                                                 |
|--|--------------|---------------------------------------------------------------------------------|
|  | •  | pay dividends onor make other distributions or repurchase certain capitalstock; |

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

|  |              |                                                          |
|--|--------------|----------------------------------------------------------|
|  | •  | enter into certain types oftransactions with affiliates; |

|  |              |                                                                 |
|--|--------------|-----------------------------------------------------------------|
|  | •  | limitdividends or other payments by our restrictedsubsidiaries; |

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

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

Subject tocertain exceptions, the indentures governing the senior notes, thesenior subordinated notes, and the senior discount notes permit theCompany and our restricted subsidiaries to incur additionalindebtedness, including secured indebtedness.

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

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 ourcompliance with many of the covenants contained in the indenturesgoverning the notes and in our senior credit agreement. Adjusted EBITDAis defined as EBITDA further adjusted to exclude unusual items andother adjustments permitted in calculating covenant compliance underthe indentures and our senior credit facility. We believe that theinclusion of supplementary adjustments to EBITDA applied in presentingAdjusted EBITDA are appropriate to provide additional information toinvestors to demonstrate compliance with our financingcovenants.

Adjusted EBITDA is calculated asfollows:

|                                  |  |                                  |       |                                  |  |        |       |         |  |  |
|----------------------------------|--|----------------------------------|-------|----------------------------------|--|--------|-------|---------|--|--|
| (dollarsin millions)             |  | Three Months endedMarch 31, 2006 |       | Three Months ended March 31,2005 |
| Netearnings                      |  | $                                | 8.8   |                             |  | $      | 11.0  |    |
| Interest,net                     |  |                             | 64.6  |                             |  |   | 60.0  |    |
| Income taxprovision              |  |                             | 7.9   |                             |  |   | 9.7   |    |
| Depreciation                     |  |                             | 32.4  |                             |  |   | 33.2  |    |
| Amortization                     |  |                             | 17.3  |                             |  |   | 20.6  |    |
| EBITDA                           |  | $                                | 131.0 |                             |  | $      | 134.5 |    |
| Non-cashcharges (1)              |  |                             | 9.5   |                             |  |   | 10.1  |    |
| Businessoptimization expenses(2) |  |                             | 3.8   |                             |  |   | 0.8   |    |
| Unusual items(3)                 |  |                             | 0.7   |                             |  |   | 0.7   |    |
| Other adjustments(4)             |  |                             | (1.1  | )                           |  |   | (1.8  | )  |
| AdjustedEBITDA                   |  | $                                | 143.9 |                             |  | $      | 144.3 |    |
|                                  |

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

|                                                 |
|-------------------------------------------------|
|                                                 |  |  |  |  |  |  |  |  |  |  |
| (dollarsin millions)                            |  | Three Monthsended March 31, 2006 |  | Three Monthsended March 31, 2005 |
| Assetwrite-offs                                 |  | $ | 0.9 |   |  | $ | 2.4 |   |
| Profit sharing expense and 401(k) funded bySuez |  |   | 5.4 |   |  |   | 5.6 |   |
| Other                                           |  |   | 3.2 |   |  |   | 2.1 |   |
| Non-cashcharges                                 |  | $ | 9.5 |   |  | $ | 10.1 |   |
|                                                 |

ProfitSharing and 401(k) Expense Funded by Suez

In conjunctionwith the Acquisition, we entered into an agreement with Suez wherebySuez will reimburse us for certain profit-sharing and 401(k) matchingcontributions made by us to the Profit-SharingTrust.

Other

Other non-cash charges includethe non-cash impact on earnings of our equity investments and minorityinterests. Non-cash charges also includes the non-cash portion of rentexpense under the sublease that we entered into with Suez inconjunction with the Acquisition.

|           |                                                                                                                                                       |
|-----------|-------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)  | Businessoptimization expenses include costs associated with the redesign andoptimization of work processes. See note 7 to Item 1 for moreinformation. |

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

|           |                                                          |
|-----------|----------------------------------------------------------|
| (3)  | Unusual items arefurther detailed on the followingtable: |

|                                     |
|-------------------------------------|
|                                     |  |  |  |  |  |  |  |  |  |  |
| (dollarsin millions)                |  | ThreeMonthsended March 31, 2006 |  | ThreeMonthsended March 31, 2005 |
| Pensionsettlement                   |  | $ | 0.3 |   |  | $ | — |   |
| Loss(gain) on sales, net ofexpenses |  |   | 0.1 |   |  |   | 0.5 |   |
| Other unusual items                 |  |   | 0.3 |   |  |   | 0.2 |   |
|                                |  | $ | 0.7 |   |  | $ | 0.7 |   |
|                                     |

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

Our covenant levelsand ratios for the four quarters ended March  31,  2006 areasfollows:

|                                                                                                           |  |                                |        |        |  |        |        |        |  |  |
|-----------------------------------------------------------------------------------------------------------|--|--------------------------------|--------|--------|--|--------|--------|--------|--|--|
|                                                                                                      |  | CovenantLevel at March 31,2006 |        | Ratios |
| Senior creditfacility (1)                                                                                 |  |                           |   |   |  |   |   |   |
| MinimumAdjusted EBITDA to cash interestratio                                                              |  |                           | 1.75x  |   |  |   | 2.82x  |   |
| Maximum netdebt to Adjusted EBITDAratio                                                                   |  |                           | 6.00x  |   |  |   | 4.74x  |   |
| Indentures(2)                                                                                             |  |                           |   |   |  |   |   |   |
| Minimum Adjusted EBITDAto fixed charge ratio required to incur additional debt pursuant toratioprovisions |  |                           | 2.00x  |   |  |   | 2.47x  |   |
|                                                                                                           |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (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 6.00x, in each case for the mostrecent four quarter period. Failure to satisfy these ratio requirementswould constitute a default under the senior credit agreement. If ourlenders failed to waive any such default, our repayment obligationsunder the senior credit agreement could be accelerated, which wouldalso constitute a default under our indentures. |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Our ability to incur additional debt and makecertain restricted payments under our indentures, subject to specifiedexceptions, is tied to an Adjusted EBITDA to fixed charge ratio of atleast 2.0 to 1, except that we may incur certain debt and make certainrestricted payments and certain permitted investments without regard tothe ratio, such as up to an aggregate principal amount of $1,950million (including $1,145.4  million that was outstanding underour term loan facilities as of March  31,  2006) andinvestments in similar business and other investments equal to6% of Nalco Holding Company consolidatedassets. |

Local lines of credit.    Certainof our non-U.S. subsidiaries have lines of credit to support localrequirements. As of March  31,  2006, the aggregateoutstanding balance under these local lines of credit was approximately$29.1  million. Certain of these lines of credit are equally andratably secured with obligations under our senior creditfacilities.

Receivables facility.    NalcoCompany entered into a receivables facility on June  25,2004 that provides up to $100  million in funding from acommercial paper conduit sponsored by JPMorgan Chase Bank, one of thelenders under Nalco Company’s senior credit facilities, based onavailability of eligible receivables and satisfaction of othercustomary conditions.

Availability of funding under thereceivables facility depends primarily upon the outstanding tradeaccounts receivable balance from time to time. Aggregate availabilityis determined 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 March  31,  2006,approximately $169.9  million of our accounts receivable balancewas considered eligible for financing 

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

under the program, of which approximately$82.9  million would have been available for funding. As ofMarch  31,  2006, we had $78.6  million ofoutstanding borrowings under this facility.

This facilityis treated as a general financing agreement resulting in the fundingand related receivables being shown as liabilities and assets,respectively, on our consolidated balance sheet and the costsassociated with the receivables facility being recorded as interestexpense.

|               |                                                           |
|---------------|-----------------------------------------------------------|
| Item 3.  | Quantitative andQualitative Disclosures About Market Risk |

There have beenno material changes to the Company’s exposures to market risksince December  31,  2005.

|              |                        |
|--------------|------------------------|
| Item4.  | 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 March  31,2006.

|           |                                                       |
|-----------|-------------------------------------------------------|
| (b)  | Changes in internal controls overfinancial reporting. |

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

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PART II.    OTHERINFORMATION

Item 1A.    RiskFactors

Changes have occurred to the following riskfactors that were included in the Company’s Annual Report onForm 10-K for the year ended December  31,  2005:

Our pension plans are currently underfunded and we may haveto make significant cash payments to the plans, reducing the cashavailable for our business.

We sponsor various pensionplans worldwide that are underfunded and require significant cashpayments. For example, in 2004 and 2005, we contributed $13.7million and $30.0  million, respectively, to our pension plans.We are required to contribute at least $58.5  million to the U.S.pension plan in 2006. We may also opt to make additional voluntarycontributions to various pension plans worldwide in 2006.

As of December  31,  2005, our worldwide pensionplans were 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 theirinquiry.

Congress is currently considering changes topension legislation that could also impact the amount and timing of ourpension funding requirements and our decisions regarding pensionfunding. Such pending legislation might also address the timing ofpayouts to pension plan participants, and our employees who areparticipants in our pension plans could be impacted by suchlegislation.

Our Sponsors have significant influence onus and may have conflicts of interest with us or you in thefuture.

As a result of the sale of shares by our Sponsorsduring the three months ended March  31,  2006, ourSponsors beneficially own approximately 26.7% of our commonstock.

Future sales of our shares could depress themarket price of our common stock.

As of March31,  2006 we had 142,817,403 shares of common stock outstanding.Of those shares, 100,958,200 shares are freely tradable. The 41,859,203remaining shares may be sold subject to the volume, manner of sale andother conditions of Rule 144. The Sponsors and their affiliates, whichcollectively beneficially owned 38,158,752 shares as of March31,  2006, will have the ability to cause us to register theresale of their shares.

In addition, subject to certainconditions, certain members of our management who hold units of NalcoLLC will be able to sell back or ‘‘put’’ toNalco LLC their class A units, along with those of their class B units,class C units and class D units that have vested, in exchange for ourshares of common stock owned by Nalco LLC. In November  2004, weprovided a warrant to Nalco LLC that entitles it to acquire up to6,191,854 shares of our common stock for $0.01 per share, which willallow Nalco LLC to deliver our shares in satisfaction of such‘‘put’’ rights. In December2005,  1,074,082 shares were delivered to Nalco LLC pursuant tothe warrant. In the first quarter 2006, 79,952 shares were delivered toNalco LLC pursuant to the warrant. As a result, as of March31,  2006, an additional 5,037,820 shares of our common stock maystill be delivered pursuant to the warrant in thefuture.

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|               |          |
|---------------|----------|
| 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 |

|  |                   |                                                                                       |
|--|-------------------|---------------------------------------------------------------------------------------|
|  | Exhibit99.1  | Segment Information — 2005 ResultsReclassified to Conform with 2006Presentation |

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SIGNATURE

TheCompany has duly caused this report to be signed on its behalf by theundersigned thereunto dulyauthorized.

|        |  |                                                                                                                                                                                                                 |  |  |  |  |
|--------|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
|   |  | NALCOHOLDINGCOMPANY                                                                                                                                                                                             |
|   |  | /s/BRADLEY J. BELL                Name:   Bradley J.BellTitle:Executive Vice President andChiefFinancial Officer |
|        |

Dated: May10,  2006

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