Table of Contents

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UNITEDSTATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC20549

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FORM10-Q

(Mark One)

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

For the quarterly period ended June30,2006

or

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

For the transition periodfrom                 to                .

Commission File No.001-32342

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NALCO HOLDINGCOMPANY

(Exact name of registrant as specifiedin itscharter)

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

1601 West Diehl RoadNaperville, IL60563-1198(630) 305-1000

(Address, IncludingZip Code, and Telephone Number, IncludingArea Code, ofRegistrant’s Principal ExecutiveOffices)

Notapplicable

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

Indicateby check mark whether the registrant: (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities ExchangeAct of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.    Yes    No 

Indicate by check mark whetherthe registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of ‘‘acceleratedfiler and large accelerated filer’’ in Rule 12b-2 of theExchange Act. (Check one):

Large accelerated filer        Accelerated filer        Non-accelerated filer

Indicate by check mark whether the registrant isa shell company (as defined in Rule 12-b-2 of the ExchangeAct).    Yes     No 

As ofJuly  31,  2006, the number of shares of theregistrant’s common stock, par value $0.01 per share,outstanding was 143,033,352shares.

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QUARTERLY REPORT ON FORM10-QNALCO HOLDING COMPANY Quarter Ended June30,  2006

TABLE OFCONTENTS

|                             |  |  |                                                                                                              |  |  |  |  |                   |  |
|-----------------------------|--|--|--------------------------------------------------------------------------------------------------------------|--|--|--|--|-------------------|--|
| PartI. FinancialInformation |
| Item1.                      |  |  | FinancialStatements                                                                                          |  |  |  |  |              |  |
|                        |  |  | CondensedConsolidated Balance Sheets −June 30,2006 and December 31,2005                                |  |  |  |  |   2 |  |
|                        |  |  | CondensedConsolidated Statements of Operations −Three monthsand six months ended June 30, 2006 and2005 |  |  |  |  |   3 |  |
|                        |  |  | CondensedConsolidated Statements of Cash Flows −Six monthsended June 30, 2006 and2005                  |  |  |  |  |   4 |  |
|                        |  |  | Notes toCondensed Consolidated Financial Statements −June 30,2006                                      |  |  |  |  |   5 |  |
| Item2.                      |  |  | Management’s Discussion and Analysis of FinancialCondition andResults of Operations                    |  |  |  |  | 13                |  |
| Item 3.                     |  |  | Quantitative andQualitative Disclosures About MarketRisk                                                     |  |  |  |  | 26                |  |
| Item 4.                     |  |  | ControlsandProcedures                                                                                        |  |  |  |  | 26                |  |
| PartII. OtherInformation    |
| Item1A.                     |  |  | Risk Factors                                                                                                 |  |  |  |  | 27                |  |
| Item4.                      |  |  | Submission of Matters to a Vote of SecurityHolders                                                           |  |  |  |  | 28                |  |
| Item6.                      |  |  | Exhibits                                                                                                     |  |  |  |  | 28                |  |
|                             |

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|-----------|--|--|--|--|----|--|
| Signature |  |  |  |  | 29 |  |
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PART I. FINANCIALINFORMATION

|               |                     |
|---------------|---------------------|
| Item 1.  | FinancialStatements |

Nalco Holding Company andSubsidiariesCondensed Consolidated Balance Sheets(dollarsinmillions)

|                                                                        |  |  |                         |   |         |                 |  |  |  |   |         |  |
|------------------------------------------------------------------------|--|--|-------------------------|---|---------|-----------------|--|--|--|---|---------|--|
|                                                                   |  |  | (Unaudited)June30, 2006 |   |         | December31,2005 |
| Assets                                                                 |  |  |                         |   |    |                 |  |  |  |   |    |  |
| Currentassets:                                                         |  |  |                         |   |    |                 |  |  |  |   |    |  |
| Cash and cashequivalents                                               |  |  |                         | $ | 31.6    |                 |  |  |  | $ | 30.8    |  |
| Accountsreceivable, less allowances of $19.5 in 2006 and $16.6 in 2005 |  |  |                         |   | 639.8   |                 |  |  |  |   | 622.3   |  |
| Inventories:                                                           |  |  |                         |   |    |                 |  |  |  |   |    |  |
| Finishedproducts                                                       |  |  |                         |   | 268.0   |                 |  |  |  |   | 242.6   |  |
| Materialsand work inprocess                                            |  |  |                         |   | 75.5    |                 |  |  |  |   | 70.6    |  |
|                                                                   |  |  |                         |   | 343.5   |                 |  |  |  |   | 313.2   |  |
| Prepaidexpenses, taxes and other currentassets                         |  |  |                         |   | 65.2    |                 |  |  |  |   | 83.1    |  |
| Totalcurrentassets                                                     |  |  |                         |   | 1,080.1 |                 |  |  |  |   | 1,049.4 |  |
| Property,plant, and equipment,net                                      |  |  |                         |   | 746.7   |                 |  |  |  |   | 755.3   |  |
| Intangibleassets:                                                      |  |  |                         |   |    |                 |  |  |  |   |    |  |
| Goodwill                                                               |  |  |                         |   | 2,257.8 |                 |  |  |  |   | 2,196.7 |  |
| Otherintangibles,net                                                   |  |  |                         |   | 1,200.8 |                 |  |  |  |   | 1,227.5 |  |
| Otherassets                                                            |  |  |                         |   | 321.1   |                 |  |  |  |   | 323.5   |  |
| Totalassets                                                            |  |  |                         | $ | 5,606.5 |                 |  |  |  | $ | 5,552.4 |  |
| Liabilitiesand shareholders’equity                               |  |  |                         |   |    |                 |  |  |  |   |    |  |
| Currentliabilities:                                                    |  |  |                         |   |    |                 |  |  |  |   |    |  |
| Accountspayable                                                        |  |  |                         | $ | 272.3   |                 |  |  |  | $ | 285.4   |  |
| Short-termdebt                                                         |  |  |                         |   | 135.1   |                 |  |  |  |   | 22.6    |  |
| Other currentliabilities                                               |  |  |                         |   | 219.6   |                 |  |  |  |   | 235.2   |  |
| Totalcurrentliabilities                                                |  |  |                         |   | 627.0   |                 |  |  |  |   | 543.2   |  |
| Otherliabilities:                                                      |  |  |                         |   |    |                 |  |  |  |   |    |  |
| Long-termdebt                                                          |  |  |                         |   | 3,175.8 |                 |  |  |  |   | 3,244.2 |  |
| Deferredincometaxes                                                    |  |  |                         |   | 337.4   |                 |  |  |  |   | 353.0   |  |
| Accruedpensionbenefits                                                 |  |  |                         |   | 385.1   |                 |  |  |  |   | 416.4   |  |
| Otherliabilities                                                       |  |  |                         |   | 283.4   |                 |  |  |  |   | 278.9   |  |
| Minorityinterest                                                       |  |  |                         |   | 14.0    |                 |  |  |  |   | 11.2    |  |
| Shareholders’equity                                              |  |  |                         |   | 783.8   |                 |  |  |  |   | 705.5   |  |
| Totalliabilities and shareholders’equity                         |  |  |                         | $ | 5,606.5 |                 |  |  |  | $ | 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)

|                                                          |  |  |                                |   |        |                                |  |  |                              |   |        |                              |  |  |  |   |         |   |  |  |  |   |         |   |
|----------------------------------------------------------|--|--|--------------------------------|---|--------|--------------------------------|--|--|------------------------------|---|--------|------------------------------|--|--|--|---|---------|---|--|--|--|---|---------|---|
|                                                     |  |  | ThreeMonthsended June 30, 2006 |   |        | Three MonthsendedJune 30, 2005 |  |  | Six Monthsended June 30,2006 |   |        | Six Monthsended June 30,2005 |
| Netsales                                                 |  |  |                                | $ | 891.0  |                                |  |  |                              | $ | 836.3  |                              |  |  |  | $ | 1,740.4 |   |  |  |  | $ | 1,613.9 |   |
| Operatingcosts andexpenses:                              |  |  |                                |   |   |                                |  |  |                              |   |   |                              |  |  |  |   |    |   |  |  |  |   |    |   |
| Costof productsold                                       |  |  |                                |   | 495.6  |                                |  |  |                              |   | 480.3  |                              |  |  |  |   | 966.7   |   |  |  |  |   | 893.1   |   |
| Selling,administrative, and researchexpenses             |  |  |                                |   | 270.7  |                                |  |  |                              |   | 262.9  |                              |  |  |  |   | 546.1   |   |  |  |  |   | 521.0   |   |
| Amortizationof intangibleassets                          |  |  |                                |   | 17.5   |                                |  |  |                              |   | 20.5   |                              |  |  |  |   | 34.8    |   |  |  |  |   | 41.1    |   |
| Businessoptimizationexpenses                             |  |  |                                |   | 1.8    |                                |  |  |                              |   | 17.0   |                              |  |  |  |   | 5.6     |   |  |  |  |   | 17.8    |   |
| Totaloperating costs andexpenses                         |  |  |                                |   | 785.6  |                                |  |  |                              |   | 780.7  |                              |  |  |  |   | 1,553.2 |   |  |  |  |   | 1,473.0 |   |
| Operatingearnings                                        |  |  |                                |   | 105.4  |                                |  |  |                              |   | 55.6   |                              |  |  |  |   | 187.2   |   |  |  |  |   | 140.9   |   |
| Otherincome (expense),net                                |  |  |                                |   | (1.9   | )                              |  |  |                              |   | (0.1   | )                            |  |  |  |   | (0.7    | ) |  |  |  |   | (3.5    | ) |
| Interestincome                                           |  |  |                                |   | 2.3    |                                |  |  |                              |   | 2.0    |                              |  |  |  |   | 4.0     |   |  |  |  |   | 4.1     |   |
| Interestexpense                                          |  |  |                                |   | (68.1  | )                              |  |  |                              |   | (64.8  | )                            |  |  |  |   | (134.4  | ) |  |  |  |   | (126.9  | ) |
| Earnings(loss) before income taxes and minorityinterests |  |  |                                |   | 37.7   |                                |  |  |                              |   | (7.3   | )                            |  |  |  |   | 56.1    |   |  |  |  |   | 14.6    |   |
| Incometax provision(benefit)                             |  |  |                                |   | 14.4   |                                |  |  |                              |   | (3.1   | )                            |  |  |  |   | 22.3    |   |  |  |  |   | 6.6     |   |
| Minorityinterests                                        |  |  |                                |   | (1.8   | )                              |  |  |                              |   | (1.6   | )                            |  |  |  |   | (3.5    | ) |  |  |  |   | (2.8    | ) |
| Netearnings(loss)                                        |  |  |                                | $ | 21.5   |                                |  |  |                              | $ | (5.8   | )                            |  |  |  | $ | 30.3    |   |  |  |  | $ | 5.2     |   |
| Netearnings (loss) pershare:                             |  |  |                                |   |   |                                |  |  |                              |   |   |                              |  |  |  |   |    |   |  |  |  |   |    |   |
| Basic                                                    |  |  |                                | $ | 0.15   |                                |  |  |                              | $ | (0.04  | )                            |  |  |  | $ | 0.21    |   |  |  |  | $ | 0.04    |   |
| Diluted                                                  |  |  |                                | $ | 0.15   |                                |  |  |                              | $ | (0.04  | )                            |  |  |  | $ | 0.21    |   |  |  |  | $ | 0.04    |   |
| Weighted-averageshares outstanding(millions):            |  |  |                                |   |   |                                |  |  |                              |   |   |                              |  |  |  |   |    |   |  |  |  |   |    |   |
| Basic                                                    |  |  |                                |   | 142.9  |                                |  |  |                              |   | 141.7  |                              |  |  |  |   | 142.9   |   |  |  |  |   | 141.7   |   |
| Diluted                                                  |  |  |                                |   | 146.6  |                                |  |  |                              |   | 141.7  |                              |  |  |  |   | 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)

|                                                                                   |  |  |                               |   |         |                              |  |  |  |   |         |   |
|-----------------------------------------------------------------------------------|--|--|-------------------------------|---|---------|------------------------------|--|--|--|---|---------|---|
|                                                                              |  |  | SixMonths ended June 30, 2006 |   |         | Six Months endedJune 30,2005 |
| Operatingactivities                                                               |  |  |                               |   |    |                              |  |  |  |   |    |   |
| Net earnings                                                                      |  |  |                               | $ | 30.3    |                              |  |  |  | $ | 5.2     |   |
| Adjustments toreconcile net earnings to net cash provided by operatingactivities: |  |  |                               |   |    |                              |  |  |  |   |    |   |
| Depreciation                                                                      |  |  |                               |   | 64.7    |                              |  |  |  |   | 66.7    |   |
| Amortization                                                                      |  |  |                               |   | 34.8    |                              |  |  |  |   | 41.1    |   |
| Amortizationof deferred financing costs and accretion of senior discountnotes     |  |  |                               |   | 21.1    |                              |  |  |  |   | 19.9    |   |
| Other                                                                             |  |  |                               |   | (35.5   | )                            |  |  |  |   | 2.7     |   |
| Changesin operating assets andliabilities                                         |  |  |                               |   | (53.8   | )                            |  |  |  |   | (105.9  | ) |
| Netcash provided by operatingactivities                                           |  |  |                               |   | 61.6    |                              |  |  |  |   | 29.7    |   |
| Investingactivities                                                               |  |  |                               |   |    |                              |  |  |  |   |    |   |
| Purchase priceadjustment on acquisition of Ondeo NalcoGroup                       |  |  |                               |   | — |                              |  |  |  |   | (3.2    | ) |
| Additions toproperty, plant, and equipment,net                                    |  |  |                               |   | (37.5   | )                            |  |  |  |   | (25.0   | ) |
| Other                                                                             |  |  |                               |   | (4.2    | )                            |  |  |  |   | — |   |
| Netcash used for investingactivities                                              |  |  |                               |   | (41.7   | )                            |  |  |  |   | (28.2   | ) |
| Financingactivities                                                               |  |  |                               |   |    |                              |  |  |  |   |    |   |
| Changes inshort-term debt,net                                                     |  |  |                               |   | 28.1    |                              |  |  |  |   | 4.4     |   |
| Proceeds from long-termdebt                                                       |  |  |                               |   | — |                              |  |  |  |   | 24.1    |   |
| Repayments oflong-termdebt                                                        |  |  |                               |   | (45.5   | )                            |  |  |  |   | (18.2   | ) |
| Other                                                                             |  |  |                               |   | (2.2    | )                            |  |  |  |   | (4.4    | ) |
| Netcash provided by (used for) financingactivities                                |  |  |                               |   | (19.6   | )                            |  |  |  |   | 5.9     |   |
| Effect ofexchange rate changes on cash and cashequivalents                        |  |  |                               |   | 0.5     |                              |  |  |  |   | (1.3    | ) |
| Increasein cash and cashequivalents                                               |  |  |                               |   | 0.8     |                              |  |  |  |   | 6.1     |   |
| Cash and cashequivalents at beginning ofperiod                                    |  |  |                               |   | 30.8    |                              |  |  |  |   | 33.3    |   |
| Cashand cash equivalents at end ofperiod                                          |  |  |                               | $ | 31.6    |                              |  |  |  | $ | 39.4    |   |
|                                                                                   |

Seeaccompanying notes to condensed consolidated financialstatements.

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Nalco HoldingCompany and SubsidiariesNotes to Condensed Consolidated FinancialStatements(Unaudited)

June  30,2006

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 six months ended June30,  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 any period.

3.    Goodwilland Other Intangible Assets

The changes in goodwill forthe period were asfollows:

|                                             |  |  |  |   |         |   |
|---------------------------------------------|--|--|--|---|---------|---|
| (dollarsin millions)                        |
| Balance as of December31,  2005             |  |  |  | $ | 2,196.7 |   |
| Adjustments todeferred income taxes         |  |  |  |   | (1.5    | ) |
| Excess accrualsfor costs to exit activities |  |  |  |   | (1.0    | ) |
| Effect offoreign currencytranslation        |  |  |  |   | 63.6    |   |
| Balanceas of June  30,2006                  |  |  |  | $ | 2,257.8 |   |
|                                             |

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 certain

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3.    Goodwilland Other Intangible Assets (continued)

activities. As of December  31,2005, the remaining balance of the accrual was $2.5  million.During the six months ended June  30,  2006, an additional$1.1  million of severance costs was charged against the accrual.The remaining $1.4  million represented an excess accrual thatwas written off to goodwill, net of the related deferred tax asset of$0.4  million.

The following table reflectsintangible assets and related amortizationinformation:

|                                              |  |  |                    |   |         |                         |  |  |             |   |         |                         |  |  |  |   |         |  |  |  |  |   |         |   |
|----------------------------------------------|--|--|--------------------|---|---------|-------------------------|--|--|-------------|---|---------|-------------------------|--|--|--|---|---------|--|--|--|--|---|---------|---|
|                                         |  |  | Asof June 30, 2006 |   |         | As of December 31,2005  |
| (dollarsinmillions)                          |  |  | GrossAmount        |   |         | AccumulatedAmortization |  |  | GrossAmount |   |         | AccumulatedAmortization |
| Intangibleassets subject toamortization:     |  |  |                    |   |    |                         |  |  |             |   |    |                         |  |  |  |   |    |  |  |  |  |   |    |   |
| Customerrelationships                        |  |  |                    | $ | 499.3   |                         |  |  |             | $ | (204.2  | )                       |  |  |  | $ | 486.4   |  |  |  |  | $ | (169.8  | ) |
| Patentsand developedtechnology               |  |  |                    |   | 100.5   |                         |  |  |             |   | (27.2   | )                       |  |  |  |   | 100.5   |  |  |  |  |   | (22.2   | ) |
| Other                                        |  |  |                    |   | 2.2     |                         |  |  |             |   | (0.3    | )                       |  |  |  |   | 2.4     |  |  |  |  |   | (0.3    | ) |
| Intangibleassets not subject toamortization: |  |  |                    |   |    |                         |  |  |             |   |    |                         |  |  |  |   |    |  |  |  |  |   |    |   |
| Trademarksand tradenames                     |  |  |                    |   | 830.0   |                         |  |  |             |   | — |                         |  |  |  |   | 830.0   |  |  |  |  |   | — |   |
| Pensionasset                                 |  |  |                    |   | 0.5     |                         |  |  |             |   | — |                         |  |  |  |   | 0.5     |  |  |  |  |   | — |   |
|                                         |  |  |                    | $ | 1,432.5 |                         |  |  |             | $ | (231.7  | )                       |  |  |  | $ | 1,419.8 |  |  |  |  | $ | (192.3  | ) |
|                                              |

4.    Debt

Debtconsists of thefollowing:

|                                              |  |  |             |   |         |                 |  |  |  |   |         |  |
|----------------------------------------------|--|--|-------------|---|---------|-----------------|--|--|--|---|---------|--|
| (dollarsin millions)                         |  |  | June30,2006 |   |         | December31,2005 |
| Short-term                                   |  |  |             |   |    |                 |  |  |  |   |    |  |
| Checksoutstanding and bankoverdrafts         |  |  |             | $ | 23.6    |                 |  |  |  | $ | 17.9    |  |
| Notes payableto banks                        |  |  |             |   | 1.9     |                 |  |  |  |   | 0.9     |  |
| Current maturitiesof long-termdebt           |  |  |             |   | 11.9    |                 |  |  |  |   | 3.8     |  |
| Securitized tradeaccounts receivablefacility |  |  |             |   | 72.7    |                 |  |  |  |   | — |  |
| Revolvingcreditfacility                      |  |  |             |   | 25.0    |                 |  |  |  |   | — |  |
|                                         |  |  |             | $ | 135.1   |                 |  |  |  | $ | 22.6    |  |
| Long-term                                    |  |  |             |   |    |                 |  |  |  |   |    |  |
| Securitizedtrade accounts receivablefacility |  |  |             | $ | — |                 |  |  |  | $ | 75.3    |  |
| Term loanA, due November2009                 |  |  |             |   | 78.5    |                 |  |  |  |   | 107.6   |  |
| Term loan B, dueNovember2010                 |  |  |             |   | 1,071.0 |                 |  |  |  |   | 1,081.0 |  |
| Senior notes,due November2011                |  |  |             |   | 920.1   |                 |  |  |  |   | 900.7   |  |
| Senior subordinatednotes, due November2013   |  |  |             |   | 720.1   |                 |  |  |  |   | 700.7   |  |
| Unsecured notes,due May  2008                |  |  |             |   | 27.8    |                 |  |  |  |   | 27.8    |  |
| Seniordiscount notes, due February2014       |  |  |             |   | 369.2   |                 |  |  |  |   | 353.5   |  |
| Other                                        |  |  |             |   | 1.0     |                 |  |  |  |   | 1.4     |  |
|                                         |  |  |             |   | 3,187.7 |                 |  |  |  |   | 3,248.0 |  |
| Less:Currentportion                          |  |  |             |   | 11.9    |                 |  |  |  |   | 3.8     |  |
|                                         |  |  |             | $ | 3,175.8 |                 |  |  |  | $ | 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% 

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4.    Debt (continued)

per annum. The accreted value of each notewill increase from the date of issuance until February  1,2009 at a rate of 9.0% per annum, reflecting the accrual ofnon-cash interest, such that the accreted value will equal theprincipal amount at maturity on February  1,  2009.

In December  2004, the Issuers redeemed a portion ofthe senior discount notes with an accreted value of $162.3million using proceeds from the initial public offering of common stockof Nalco Holding Company. After the partial redemption, the aggregateprincipal amount at maturity of the notes declined to $460.8million from $694.0  million. At June  30,  2006, thesenior discount notes had an accreted value of approximately $796.69per $1,000 principal amount at maturity of notes, resulting in a totalaccreted value of $367.1  million. The $2.1  milliondifference between the carrying value of the notes and the totalaccreted value represents a premium, which is being amortized over theterm of the notes.

The Company and the Issuers do notgenerate any revenue, and Nalco Finance Holdings Inc. was incorporatedsolely to accommodate the issuance of the senior discount notes byNalco Finance Holdings LLC. All of the Company’s consolidatedassets are owned, and all of the Company’s consolidated netsales are earned, by its direct and indirect subsidiaries. As ofJune  30,  2006, the Company’s subsidiaries had$1,121.6  million of restricted net assets.

Theterms of the senior credit facilities of Nalco Company, a wholly ownedsubsidiary of Nalco Holdings LLC, fully prohibit Nalco Holdings LLC andits subsidiaries from paying dividends or otherwise transferring theirassets to the Issuers or the Company. Further, the terms of theindentures governing the senior notes and senior subordinated notes ofNalco Company significantly restrict Nalco Company and theIssuers’ other subsidiaries from paying dividends or otherwisetransferring assets to the Issuers or the Company. The ability of NalcoCompany to make such payments is governed by a formula based on itsconsolidated net income, as well as meeting certain other conditions.Notwithstanding such restrictions, such indentures permit an aggregateof $50.0  million of such payments to be made whether or notthere is availability under the formula or the conditions to its useare met. The Issuers’ subsidiaries are permitted under the termsof the senior credit facilities and other indebtedness to incuradditional indebtedness that may severely restrict or prohibit themaking of distributions, the payment of dividends or the making ofloans by such subsidiaries to the Issuers or theCompany.

5.    Shareholders’Equity

Shareholders’ equity consists of thefollowing:

|                                                                                                                                                                                        |  |  |              |   |         |                   |  |  |  |   |         |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--------------|---|---------|-------------------|--|--|--|---|---------|---|
| (dollarsin millions, except per shareamounts)                                                                                                                                          |  |  | June 30,2006 |   |         | December 31, 2005 |
| Preferred stock,par value $0.01 per share; authorized 100,000,000 shares; noneissued                                                                                                   |  |  |              | $ | — |                   |  |  |  | $ | — |   |
| Commonstock, par value $0.0l per share; authorized 500,000,000 shares;143,007,074 and 142,737,451 shares issued and outstanding atJune  30,  2006 and December  31,  2005,respectively |  |  |              |   | 1.4     |                   |  |  |  |   | 1.4     |   |
| Additionalpaid-incapital                                                                                                                                                               |  |  |              |   | 739.5   |                   |  |  |  |   | 739.1   |   |
| Accumulateddeficit                                                                                                                                                                     |  |  |              |   | (84.8   | )                 |  |  |  |   | (115.1  | ) |
| Accumulatedother comprehensiveincome                                                                                                                                                   |  |  |              |   | 127.7   |                   |  |  |  |   | 80.1    |   |
| Totalshareholders’equity                                                                                                                                                         |  |  |              | $ | 783.8   |                   |  |  |  | $ | 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 269,623 shares of common stock during the six months endedJune  30,  2006. At June  30,  2006, up to4,848,149 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 months andsix months ended June  30,  2006 and 2005 were asfollows:

|                              |  |  |                                |   |      |                                |  |  |                               |   |         |                              |  |  |  |   |       |   |  |  |  |   |         |   |
|------------------------------|--|--|--------------------------------|---|------|--------------------------------|--|--|-------------------------------|---|---------|------------------------------|--|--|--|---|-------|---|--|--|--|---|---------|---|
|                         |  |  | PensionBenefits                |
| (dollarsin millions)         |  |  | Three MonthsendedJune 30, 2006 |   |      | Three Monthsended June 30,2005 |  |  | Six Monthsended June 30, 2006 |   |         | SixMonthsended June 30, 2005 |
| Servicecost                  |  |  |                                | $ | 6.9  |                                |  |  |                               | $ | 6.3     |                              |  |  |  | $ | 14.6  |   |  |  |  | $ | 13.4    |   |
| Interestcost                 |  |  |                                |   | 10.7 |                                |  |  |                               |   | 9.3     |                              |  |  |  |   | 21.1  |   |  |  |  |   | 19.5    |   |
| Expectedreturn on planassets |  |  |                                |   | (7.9 | )                              |  |  |                               |   | (5.7    | )                            |  |  |  |   | (14.7 | ) |  |  |  |   | (12.2   | ) |
| Recognizednet actuarialloss  |  |  |                                |   | 0.1  |                                |  |  |                               |   | — |                              |  |  |  |   | 0.2   |   |  |  |  |   | — |   |
| Settlementcharge             |  |  |                                |   | 0.1  |                                |  |  |                               |   | — |                              |  |  |  |   | 0.4   |   |  |  |  |   | — |   |
| Netperiodiccost              |  |  |                                | $ | 9.9  |                                |  |  |                               | $ | 9.9     |                              |  |  |  | $ | 21.6  |   |  |  |  | $ | 20.7    |   |
|                              |

|                                  |  |  |                                |   |      |                                |  |  |                               |   |         |                              |  |  |  |   |      |   |  |  |  |   |         |   |
|----------------------------------|--|--|--------------------------------|---|------|--------------------------------|--|--|-------------------------------|---|---------|------------------------------|--|--|--|---|------|---|--|--|--|---|---------|---|
|                             |  |  | OtherPostretirementBenefits    |
| (dollarsin millions)             |  |  | Three MonthsendedJune 30, 2006 |   |      | Three Monthsended June 30,2005 |  |  | Six Monthsended June 30, 2006 |   |         | SixMonthsended June 30, 2005 |
| Servicecost                      |  |  |                                | $ | 1.2  |                                |  |  |                               | $ | 1.4     |                              |  |  |  | $ | 2.8  |   |  |  |  | $ | 2.7     |   |
| Interestcost                     |  |  |                                |   | 1.7  |                                |  |  |                               |   | 2.2     |                              |  |  |  |   | 4.0  |   |  |  |  |   | 4.3     |   |
| Amortizationof prior servicecost |  |  |                                |   | (1.0 | )                              |  |  |                               |   | (1.1    | )                            |  |  |  |   | (2.0 | ) |  |  |  |   | (2.0    | ) |
| Recognizednet actuarialloss      |  |  |                                |   | (0.1 | )                              |  |  |                               |   | — |                              |  |  |  |   | (0.1 | ) |  |  |  |   | — |   |
| Netperiodiccost                  |  |  |                                | $ | 1.8  |                                |  |  |                               | $ | 2.5     |                              |  |  |  | $ | 4.7  |   |  |  |  | $ | 5.0     |   |
|                                  |

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 $5.6  million and $17.8million for the six months ended June  30,  2006 andJune  30,  2005, respectively.

8.    Summary ofOther Income (Expense)

The components of other income(expense), net for the three months and six months ended June30,  2006 and 2005, include thefollowing:

|                                                 |  |  |                                |   |      |                                |  |  |                               |   |         |                              |  |  |  |   |      |   |  |  |  |   |      |   |
|-------------------------------------------------|--|--|--------------------------------|---|------|--------------------------------|--|--|-------------------------------|---|---------|------------------------------|--|--|--|---|------|---|--|--|--|---|------|---|
| (dollarsin millions)                            |  |  | Three MonthsendedJune 30, 2006 |   |      | Three Monthsended June 30,2005 |  |  | Six Monthsended June 30, 2006 |   |         | SixMonthsended June 30, 2005 |
| Franchisetaxes                                  |  |  |                                | $ | (0.7 | )                              |  |  |                               | $ | (0.6    | )                            |  |  |  | $ | (1.5 | ) |  |  |  | $ | (1.3 | ) |
| Equityin earnings of unconsolidatedsubsidiaries |  |  |                                |   | 1.9  |                                |  |  |                               |   | — |                              |  |  |  |   | 2.6  |   |  |  |  |   | 0.8  |   |
| Foreigncurrency exchangeadjustments             |  |  |                                |   | (3.3 | )                              |  |  |                               |   | 2.1     |                              |  |  |  |   | (3.0 | ) |  |  |  |   | 1.4  |   |
| Other                                           |  |  |                                |   | 0.2  |                                |  |  |                               |   | (1.6    | )                            |  |  |  |   | 1.2  |   |  |  |  |   | (4.4 | ) |
|                                            |  |  |                                | $ | (1.9 | )                              |  |  |                               | $ | (0.1    | )                            |  |  |  | $ | (0.7 | ) |  |  |  | $ | (3.5 | ) |
|                                                 |

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9.    Income Taxes

TheCompany’s effective income tax rate was 39.8% for the sixmonths ended June  30,  2006. The rate varies from the U.S.federal statutory income tax rate of 35% primarily due to theincremental tax on dividends received from non-U.S. subsidiaries,foreign taxes provided at other than the 35% U.S. statutoryrate, U.S. state income taxes, nondeductible expenses, and otherpermanent differences.

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

The followingis a reconciliation of the tax derived by applying the U.S. statutorytax rate to the earnings (loss) before income taxes and minorityinterest and comparing that to the recorded income tax provision(benefit):

|                              |  |  |                                |   |      |                                |  |  |                               |   |      |                              |  |  |  |   |      |  |  |  |  |   |     |  |
|------------------------------|--|--|--------------------------------|---|------|--------------------------------|--|--|-------------------------------|---|------|------------------------------|--|--|--|---|------|--|--|--|--|---|-----|--|
| (dollarsin millions)         |  |  | Three MonthsendedJune 30, 2006 |   |      | Three Monthsended June 30,2005 |  |  | Six Monthsended June 30, 2006 |   |      | SixMonthsended June 30, 2005 |
| U.S. statutorytaxrate        |  |  |                                | $ | 13.2 |                                |  |  |                               | $ | (2.6 | )                            |  |  |  | $ | 19.6 |  |  |  |  | $ | 5.1 |  |
| Other                        |  |  |                                |   | 1.2  |                                |  |  |                               |   | (0.5 | )                            |  |  |  |   | 2.7  |  |  |  |  |   | 1.5 |  |
| Incometax provision(benefit) |  |  |                                | $ | 14.4 |                                |  |  |                               | $ | (3.1 | )                            |  |  |  | $ | 22.3 |  |  |  |  | $ | 6.6 |  |
|                              |

10.    ComprehensiveIncome (Loss)

Total comprehensive income (loss) and itscomponents, net of related tax, for the three months and six monthsended June  30,  2006 and 2005, are asfollows:

|                                                       |  |  |                                |   |        |                                |  |  |                               |   |        |                              |  |  |  |   |        |   |  |  |  |   |        |   |
|-------------------------------------------------------|--|--|--------------------------------|---|--------|--------------------------------|--|--|-------------------------------|---|--------|------------------------------|--|--|--|---|--------|---|--|--|--|---|--------|---|
| (dollarsin millions)                                  |  |  | Three MonthsendedJune 30, 2006 |   |        | Three Monthsended June 30,2005 |  |  | Six Monthsended June 30, 2006 |   |        | SixMonthsended June 30, 2005 |
| Net earnings(loss)                                    |  |  |                                | $ | 21.5   |                                |  |  |                               | $ | (5.8   | )                            |  |  |  | $ | 30.3   |   |  |  |  | $ | 5.2    |   |
| Othercomprehensive income (loss), net of incometaxes: |  |  |                                |   |   |                                |  |  |                               |   |   |                              |  |  |  |   |   |   |  |  |  |   |   |   |
| Derivatives                                           |  |  |                                |   | (0.3   | )                              |  |  |                               |   | 0.2    |                              |  |  |  |   | (0.6   | ) |  |  |  |   | 0.7    |   |
| Foreigncurrency translationadjustments                |  |  |                                |   | 27.7   |                                |  |  |                               |   | (24.9  | )                            |  |  |  |   | 48.2   |   |  |  |  |   | (46.0  | ) |
| Comprehensiveincome(loss)                             |  |  |                                | $ | 48.9   |                                |  |  |                               | $ | (30.5  | )                            |  |  |  | $ | 77.9   |   |  |  |  | $ | (40.1  | ) |
|                                                       |

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 globalwater treatment and process chemical needs of the industrial,institutional, and municipal markets.

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

PaperServices — This segment serves the processchemicals and water treatment needs of the global pulp and paperindustry.

Other — Thissegment 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.

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11.    SegmentInformation (continued)

The Company evaluates theperformance 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.

Net sales by reportable segment were asfollows:

|                                     |  |  |                                |   |       |                                |  |  |                               |   |       |                              |  |  |  |   |         |  |  |  |  |   |         |  |
|-------------------------------------|--|--|--------------------------------|---|-------|--------------------------------|--|--|-------------------------------|---|-------|------------------------------|--|--|--|---|---------|--|--|--|--|---|---------|--|
| (dollarsin millions)                |  |  | Three MonthsendedJune 30, 2006 |   |       | Three Monthsended June 30,2005 |  |  | Six Monthsended June 30, 2006 |   |       | SixMonthsended June 30, 2005 |
| Industrial andInstitutionalServices |  |  |                                | $ | 389.4 |                                |  |  |                               | $ | 377.5 |                              |  |  |  | $ | 767.8   |  |  |  |  | $ | 718.5   |  |
| EnergyServices                      |  |  |                                |   | 259.3 |                                |  |  |                               |   | 221.5 |                              |  |  |  |   | 505.6   |  |  |  |  |   | 432.1   |  |
| PaperServices                       |  |  |                                |   | 178.1 |                                |  |  |                               |   | 176.1 |                              |  |  |  |   | 353.9   |  |  |  |  |   | 346.2   |  |
| Other                               |  |  |                                |   | 64.2  |                                |  |  |                               |   | 61.2  |                              |  |  |  |   | 113.1   |  |  |  |  |   | 117.1   |  |
| Netsales                            |  |  |                                | $ | 891.0 |                                |  |  |                               | $ | 836.3 |                              |  |  |  | $ | 1,740.4 |  |  |  |  | $ | 1,613.9 |  |
|                                     |

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

|                                                          |  |  |                                |   |        |                                |  |  |                               |   |        |                             |  |  |  |   |        |   |  |  |  |   |        |   |
|----------------------------------------------------------|--|--|--------------------------------|---|--------|--------------------------------|--|--|-------------------------------|---|--------|-----------------------------|--|--|--|---|--------|---|--|--|--|---|--------|---|
| (dollarsin millions)                                     |  |  | Three MonthsendedJune 30, 2006 |   |        | Three Monthsended June 30,2005 |  |  | Six Monthsended June 30, 2006 |   |        | SixMonthsended June 30,2005 |
| Segment directcontribution:                              |  |  |                                |   |   |                                |
| Industrial andInstitutionalServices                      |  |  |                                | $ | 85.1   |                                |  |  |                               | $ | 82.9   |                             |  |  |  | $ | 164.9  |   |  |  |  | $ | 148.4  |   |
| EnergyServices                                           |  |  |                                |   | 54.9   |                                |  |  |                               |   | 39.7   |                             |  |  |  |   | 103.2  |   |  |  |  |   | 82.7   |   |
| PaperServices                                            |  |  |                                |   | 26.5   |                                |  |  |                               |   | 27.4   |                             |  |  |  |   | 52.6   |   |  |  |  |   | 57.5   |   |
| Other                                                    |  |  |                                |   | (14.9  | )                              |  |  |                               |   | (28.9  | )                           |  |  |  |   | (34.3  | ) |  |  |  |   | (34.1  | ) |
| Capitalchargeelimination                                 |  |  |                                |   | 18.9   |                                |  |  |                               |   | 19.6   |                             |  |  |  |   | 38.1   |   |  |  |  |   | 39.4   |   |
| Totalsegment directcontribution                          |  |  |                                |   | 170.5  |                                |  |  |                               |   | 140.7  |                             |  |  |  |   | 324.5  |   |  |  |  |   | 293.9  |   |
| Expensesnot allocated tosegments:                        |  |  |                                |   |   |                                |  |  |                               |   |   |                             |  |  |  |   |   |   |  |  |  |   |   |   |
| Administrativeexpenses                                   |  |  |                                |   | 45.8   |                                |  |  |                               |   | 47.6   |                             |  |  |  |   | 96.9   |   |  |  |  |   | 94.1   |   |
| Amortizationof intangibleassets                          |  |  |                                |   | 17.5   |                                |  |  |                               |   | 20.5   |                             |  |  |  |   | 34.8   |   |  |  |  |   | 41.1   |   |
| Businessoptimizationexpenses                             |  |  |                                |   | 1.8    |                                |  |  |                               |   | 17.0   |                             |  |  |  |   | 5.6    |   |  |  |  |   | 17.8   |   |
| Operatingearnings                                        |  |  |                                |   | 105.4  |                                |  |  |                               |   | 55.6   |                             |  |  |  |   | 187.2  |   |  |  |  |   | 140.9  |   |
| Otherincome (expense),net                                |  |  |                                |   | (1.9   | )                              |  |  |                               |   | (0.1   | )                           |  |  |  |   | (0.7   | ) |  |  |  |   | (3.5   | ) |
| Interestincome                                           |  |  |                                |   | 2.3    |                                |  |  |                               |   | 2.0    |                             |  |  |  |   | 4.0    |   |  |  |  |   | 4.1    |   |
| Interestexpense                                          |  |  |                                |   | (68.1  | )                              |  |  |                               |   | (64.8  | )                           |  |  |  |   | (134.4 | ) |  |  |  |   | (126.9 | ) |
| Earnings(loss) before income taxes and minorityinterests |  |  |                                | $ | 37.7   |                                |  |  |                               | $ | (7.3   | )                           |  |  |  | $ | 56.1   |   |  |  |  | $ | 14.6   |   |
|                                                          |

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.

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12.    Earnings PerShare

Basic earnings per share is computed by dividingnet 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.

Basic anddiluted earnings (loss) per share were calculated asfollows:

|                                                                                                  |  |  |                                |   |        |                                 |  |  |                              |   |         |                              |  |  |  |   |        |  |  |  |  |   |        |  |
|--------------------------------------------------------------------------------------------------|--|--|--------------------------------|---|--------|---------------------------------|--|--|------------------------------|---|---------|------------------------------|--|--|--|---|--------|--|--|--|--|---|--------|--|
| (inmillions)                                                                                     |  |  | Three Monthsended June30, 2006 |   |        | Three Monthsended June 30, 2005 |  |  | SixMonthsended June 30, 2006 |   |         | Six MonthsendedJune 30, 2005 |
| Numerator for basic and dilutedearnings (loss) per share: Net earnings(loss)                     |  |  |                                | $ | 21.5   |                                 |  |  |                              | $ | (5.8    | )                            |  |  |  | $ | 30.3   |  |  |  |  | $ | 5.2    |  |
| Denominatorfor basic earnings (loss) per share — weighted average commonshares outstanding |  |  |                                |   | 142.9  |                                 |  |  |                              |   | 141.7   |                              |  |  |  |   | 142.9  |  |  |  |  |   | 141.7  |  |
| Effectof dilutivesecurities:                                                                     |  |  |                                |   |   |                                 |  |  |                              |   |    |                              |  |  |  |   |   |  |  |  |  |   |   |  |
| Stockpurchasewarrant                                                                             |  |  |                                |   | 3.7    |                                 |  |  |                              |   | — |                              |  |  |  |   | 3.7    |  |  |  |  |   | 4.9    |  |
| Denominatorfor diluted earnings (loss) pershare                                                  |  |  |                                |   | 146.6  |                                 |  |  |                              |   | 141.7   |                              |  |  |  |   | 146.6  |  |  |  |  |   | 146.6  |  |
|                                                                                                  |

Thepotential dilutive effect of the stock purchase warrant held by NalcoLLC was not included in the computation of diluted loss per share forthe three months ended June  30,  2005 as it would havebeen anti-dilutive.

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

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13.    Contingenciesand Litigation (continued)

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

On November  2,  2005, the U.K. Healthand Safety Executive (‘‘HSE’’) sent noticethat it intends to initiate legal proceedings against theCompany’s U.K. subsidiary under the Health and Safety at WorkAct. The place of these proceedings is not indicated in the notice.This notice references a legionella outbreak from November  2003that is claimed to have originated at cooling towers owned by one ofthe subsidiary’s customers. The HSE indicates that theproceedings will relate to the cleaning of these cooling towers. TheCompany has not received any specific charges or claims for relief, butwill, in any event, defend and refute any contention that it hasviolated any law.

Beginning on May  16,  2003,the Company received subpoenas from the U.S. Department of Justice fordocuments and testimony relating to its storage of claimed hazardousmaterials, the claimed leakage of wastewater and other matters at itsplant in Garyville, Louisiana. No charges or indictments have beenfiled, but the outcome of this investigation is unknown to theCompany.

In the ordinary course of its business, theCompany is also a party to a number of lawsuits and is subject tovarious claims relating to trademarks, employee matters, contracts,transactions, chemicals and other matters, the outcome of which, in theopinion of management, should not have a material effect on theconsolidated financial position of the Company. However, we cannotpredict the outcome of any litigation or the potential for futurelitigation. Were an unfavorable ruling to occur, there exists thepossibility of a material adverse impact on the results of operationsfor the period in which the ruling occurs. The Company maintainsaccruals where the outcome of the matter is probable and can bereasonably estimated.

14.    Guarantees

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

TheCompany had $26.7  million of letters of credit outstanding atJune  30,  2006.

15.    Recent AccountingPronouncements

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

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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’’Statement Under Private Securities Litigation Reform Act of1995

This Quarterly Report for the fiscal quarter endedJune  30,  2006 (the ‘‘QuarterlyReport’’) includes ‘‘forward-lookingstatements’’ within the meaning of Section 27A of theSecurities Act of 1933 and Section 21E of the Securities Exchange Actof 1934. These forward-looking statements include statements concerningour plans, objectives, goals, strategies, future events, future revenueor performance, capital expenditures, financing needs, plans orintentions relating to acquisitions, business trends and otherinformation that is not historical information. When used in thisQuarterly Report, the words ‘‘estimates,’’‘‘expects,’’‘‘anticipates,’’‘‘projects,’’‘‘plans,’’‘‘intends,’’ ‘‘believes,’’ ‘‘forecasts,’’ 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, amongothers:

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

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

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

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

|  |              |                                                                                                                                                                                                      |
|--|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | changes to, or 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.

Useof Non-GAAP Financial Measures

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

EBITDA is defined as net earnings plusinterest, taxes, depreciation and amortization. Adjusted EBITDA isdefined as EBITDA further adjusted for certain cash and non-cashcharges, as permitted under our senior discount note, senior note andsenior subordinated note indentures and our senior credit facility.Free Cash Flow is defined as net cash provided by operating activities,less capital expenditures and minority interest charges.

We believe EBITDA is useful to the investors because it isfrequently used by securities analysts, investors and other interestedparties in the evaluation of companies in our industry. We consider theinclusion of supplementary adjustments to EBITDA applied in presentingAdjusted EBITDA appropriate to provide additional information toinvestors to demonstrate compliance with our financing covenants. Webelieve Free Cash Flow provides investors with a measure of our abilityto generate cash for the repayment of debt.

EBITDA,Adjusted EBITDA and Free Cash Flow are not recognized terms under U.S.GAAP and do not purport to be alternatives to net earnings (loss) as anindicator of operating performance or to cash flows from operatingactivities as a measure of liquidity. The most direct comparable GAAPfinancial measures of each non-GAAP financial measure, as well as thereconciliation between each non-GAAP financial measure and the GAAPfinancial measure, are presented in the discussions of the non-GAAPfinancial measures below. Because not all companies use identicalcalculations, our measures may not be comparable to other similarlytitled measures of other companies.

Executive LevelOverview

Significantly improved second quarter financialperformance was led by strong growth and margin expansion inNalco’s Energy Services business. Nalco sales grew 6.5%to $891.0  million, including 6.0% organic growth and0.5% in favorable foreign currency translation rate changes fromprior-year 

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

revenues of $836.3  million. Organicgrowth excludes the impacts of changes in foreign currency translationrates and acquisitions and divestitures. Price contributed about$32  million, or 3.8%, to organic growth in the quarter.Real sales growth — organic growth less price that simply passeson higher costs — was 2.2%.

Net earningsincreased to $21.5  million from the prior-year loss of$5.8  million. Earnings per share were 15 cents on a dilutedbasis versus the prior year loss of 4 cents per share. Earnings pershare include after-tax charges of $4.6  million for businessprocess optimization, reimbursed benefit plan contributions and unusualcharges. These same charges were $13.8  million in the prior-yearperiod.

Adjusted EBITDA, which is used to determinecompliance with the Company’s debt covenants, improved22.0% to $160.1  million from the prior year’s$131.2  million. Second quarter results were solid. Despite thisstrength, we caution against over-optimism as unusual items thatlowered comparable 2005 results — including inventory write-offs— played an important role in our quarter-on-quarter percentageincreases.

Purchased material and freight costs wereabout $23  million higher than the year-ago period. In the pasttwo years, cumulative purchased material and freight cost increases ofabout $252  million have totaled $22  million more than the$230  million Nalco has obtained in price increases. We willcontinue to close that gap and drive additional margin gains throughproductivity.

We are pleased with the real growth andprice achievement in the quarter shown by our Energy Services business,which ran ahead of our expectations. Much of our remaining business wasstable, but short of our real growth and price expectations. In short,our segment results are asfollows:

|  |              |                                                                                                                                                                                                                                                                                                                                            |
|--|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Energy Services led secondquarter growth efforts with 16.2% organic sales improvement,including strong real growth in each of our primary end markets— which include refineries, petrochemical processing, and oil& gas exploration and production. Price played an important role insignificant margin expansion in thesegment. |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                      |
|--|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Organic sales in the Industrialand Institutional Services segment were up modestly at 2.6%.Sales improvement was hampered by declines in our European watertreatment business, as well as reduced sales to synfuel producers dueto reduced tax benefits in this area. Profitability in the quarterremained stable as higher operating expenses largely offset modestsales and gross earnings growth. |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | PaperServices organic revenues were flat. European operations were the weakpoint as customer closures and business lost due to price initiativesdrove down results. Our business in North America appears to bestabilizing, but the strong growth levels we had been achieving inLatin America and Asia were not sustained in the quarter —providing no offset to weakness in Europe. The earnings decline in thebusiness appears modest, but year-ago results included $4.0million of inventory write-offs. |

|  |              |                                                                                                                                                                                                                                                                                                                                         |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Salesin the Other segment were up modestly in the quarter, largely driven bygood results in India. Profitability in the segment was substantiallyimproved from 2005, when we created significant volume variance chargeswhile cutting production to drive down inventory levels. Losses in thissegment returned to a more normal level. |

Net earnings wasaided by a lower tax rate, now projected to be about 40% in2006. The change added $0.01 to earnings per share in the most recentquarter.

Free Cash Flow was a negative $21.9million in the quarter. The combination of our accelerated pensioncontribution and our semi-annual cash interest payments in May led tonegative cash flow in the quarter. In April, Nalco added $45million in funding to its U.S. pension plan. About $30  millionof that funding would normally have been paid in the third and fourthquarters. Had we held to the

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

original funding calendar, our Free Cash Flowwould have been positive in the quarter. Net cash provided by operatingactivities is reconciled to Free Cash Flow asfollows:

|                                                |  |  |                                |   |       |                                |  |  |  |   |       |   |
|------------------------------------------------|--|--|--------------------------------|---|-------|--------------------------------|--|--|--|---|-------|---|
| (dollarsin millions)                           |  |  | Three MonthsendedJune 30, 2006 |   |       | Three Monthsended June 30,2005 |
| Net cash provided by operatingactivities       |  |  |                                | $ | 2.8   |                                |  |  |  | $ | 14.0  |   |
| Minorityinterests                              |  |  |                                |   | (1.8  | )                              |  |  |  |   | (1.6  | ) |
| Additions toproperty, plant, and equipment,net |  |  |                                |   | (22.9 | )                              |  |  |  |   | (12.7 | ) |
| Freecashflow                                   |  |  |                                | $ | (21.9 | )                              |  |  |  | $ | (0.3  | ) |
|                                                |

Inthe second quarter, we made improvements in receivables and inventories— from a days perspective — but those improvements wereoffset from a cash perspective by higher values of receivables andinventory and shrinkage in our payables. Capital expenditures of$22.9  million and $37.5  million for the quarter and yearto date, respectively, are in line with our expectations for just over$100  million in capital expenditures for the year. Nalco hashistorically been back-end-loaded in its capital expenditurespend.

Year-to-date Results

Nominal salesincreased 7.8% to $1,740.4  million from the year-earlier$1,613.9  million. Organically, sales grew 8.4%, including5% price attainment. Energy Services generated 17.1%organic revenue growth. Industrial and Institutional Services increasedorganic sales 7.5% and Paper Services organic sales increased2.3%. Modest organic sales improvement in the Other segment wasmore than offset by negative foreign currency impacts.

Regionally, our year-to-date sales growth is fairly welldistributed, with Latin America, North America and Asia Pacific all atnear 10% growth. Sales in Europe are increasing much moreslowly. Last year was exceptional for our business in Asia. Our currentfocus in that region is on properly servicing the business we haveobtained as we train the next group of sales and service engineers toinvigorate growth.

Net earnings increased 483% to$30.3  million from 2005 first half results of $5.2million. Earnings per share were 21 cents, up from 4 cents in theprior-year period. Adjusted EBITDA in the first six months improved10.3% to $304.0  million from $275.5  million in theyear-earlier period, and we expect this level of improvement to bebetter in the second half.

Free Cash Flow stands at$20.6  million compared to the prior year’s $1.9million. Net cash provided by operating activities is reconciled toFree Cash Flow asfollows:

|                                                |  |  |                              |   |       |                               |  |  |  |   |       |   |
|------------------------------------------------|--|--|------------------------------|---|-------|-------------------------------|--|--|--|---|-------|---|
| (dollarsin millions)                           |  |  | Six MonthsendedJune 30, 2006 |   |       | Six Months ended June 30,2005 |
| Net cash provided by operatingactivities       |  |  |                              | $ | 61.6  |                               |  |  |  | $ | 29.7  |   |
| Minorityinterests                              |  |  |                              |   | (3.5  | )                             |  |  |  |   | (2.8  | ) |
| Additions toproperty, plant, and equipment,net |  |  |                              |   | (37.5 | )                             |  |  |  |   | (25.0 | ) |
| Freecashflow                                   |  |  |                              | $ | 20.6  |                               |  |  |  | $ | 1.9   |   |
|                                                |

2006Outlook

Our sales growth projection for the year wasfor a 7% organic increase, of which more than half was expectedto come from price. That forecast still looks right. We believe thatEnergy Services will continue to be our primary growth driver in 2006,and expect to see better performance from Industrial and InstitutionalServices in the second half of the year and stability in PaperServices.

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

Earnings per share are expected tobe about 67 cents, up from prior guidance of 65 cents per share, withthe benefit of the lower tax rate. Both figures are beforeconsideration of business process optimization charges, which to datehave amounted to $3.5  million after-tax, or 2 cents pershare.

We remain committed to our Free Cash Flow target of$170 million. From where we stand today, we need to deliver $150million in Free Cash Flow in the remaining six months. The largestportion of this remaining Free Cash Flow generation is expected to comein the third quarter. Projected 2006 net cash provided by operatingactivities is reconciled to Free Cash Flow as follows:

|                                                |  |  |                                     |   |        |   |
|------------------------------------------------|--|--|-------------------------------------|---|--------|---|
| (dollarsin millions)                           |  |  | Projected YearendedDecember31, 2006 |
| Net cash provided by operatingactivities       |  |  |                                     | $ | 282.1  |   |
| Minorityinterests                              |  |  |                                     |   | (9.1   | ) |
| Additions to property,plant, and equipment,net |  |  |                                     |   | (103.0 | ) |
| Free cashflow                                  |  |  |                                     | $ | 170.0  |   |
|                                                |

We have ourtargets in sight, but there is clearly work to be done to hit them. Weneed to continue to increase price, control expenses and invigoratereal growth beyond Energy Services to consider this a very successfulyear.

Results of Operations —Consolidated

Quarter Ended June  30,  2006Compared to the Quarter Ended June  30,2005

Net sales for the three months endedJune  30,  2006 were $891.0  million, a 6.5%increase from the $836.3  million reported for the three monthsended June  30,  2005. On an organic basis, which excludesthe impacts of changes in foreign currency translation rates andacquisitions and divestitures, net sales were up 6.0%. Of thisimprovement, 3.8% was attributed to price increase, while theremaining 2.2% was driven by real growth.

Grossprofit, defined as the difference between net sales andcost of product sold, of $395.4  million for the three monthsended June  30,  2006 increased by $39.4  million, or11.1%, over the $356.0  million for the three months endedJune  30,  2005. On an organic basis, gross profitincreased by $37.4  million, or 10.5%. Contributing to theimprovement was the impact of higher selling prices and sales volumes,partly offset by the effect of increased costs of raw and otherpurchased materials. The improvement was also partly attributable tounfavorable manufacturing volume variances resulting from our plan toreduce inventory levels during the quarter ended June  30,2005 and an inventory write-off of $10.7  million during thatperiod. Gross profit margin for the three months ended June30,  2006 was 44.4% compared to 42.6% for theyear-ago period.

Selling, administrative, and researchexpenses for the three months ended June  30,  2006 of$270.7  million increased $7.8  million, or 3.0%,from $262.9  million for the three months ended June30,  2005. On an organic basis, selling, administrative, andresearch expenses increased $6.9  million. This was mostlyattributable to higher selling expenses, primarily baddebts.

Business optimization expenses,representing mostly employee severance and related costs associatedwith the continuing redesign and optimization of business and workprocesses, were $1.8  million for the three months endedJune  30,  2006, a $15.2  million decrease from the$17.0  million for the three months ended June  30,2005. The three months ended June  30,  2005 included a$14.0  million charge to support a plan to delayer our managementstructure and reduce costs in lower-performing businessunits.

Amortization of intangible assets was$17.5  million and $20.5  million for the three monthsended June  30,  2006 and 2005, respectively. The decreasewas attributable to lower amortization of customer relationships, whichare amortized using an accelerated method.

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

Other income (expense),net unfavorably changed by $1.8  million from the netexpense of $0.1  million for the three months ended June30,  2005. This was largely the result of an unfavorable changein foreign exchange gains and losses period over period due to theweakening of the U.S. dollar versus the euro during the three monthsended June  30,  2006. Improved earnings of our affiliatedentities partly offset this unfavorabledifference.

Net interest expense, defined as thecombination of interest income and interest expense, of $65.8million for the three months ended June  30,  2006increased by $3.0  million from the $62.8  million reportedfor the three months ended June  30,  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 June  30,  2006 was 38.2%. 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 June  30,2005.

Minority interest expense was $0.2million higher than the $1.6  million for the three months endedJune  30,  2005, which was mostly due to improved resultsfor the Company’s non-wholly owned subsidiaries in Saudi Arabiaand Japan.

Six Months Ended June  30,  2006Compared to the Six Months Ended June  30,2005

Net sales for the six months endedJune  30,  2006 were $1,740.4  million, a 7.8%increase from the $1,613.9  million reported for the six monthsended June  30,  2005. On an organic basis, which excludesthe impacts of changes in foreign currency translation rates andacquisitions and divestitures, net sales were up 8.4%. Of thisimprovement, 5.0% was attributed to price increase, while theremaining 3.4% was driven by real growth.

Grossprofit, defined as the difference between net sales andcost of product sold, of $773.7  million for the six months endedJune  30,  2006 increased by $52.9  million, or7.3%, over the $720.8  million for the six months endedJune  30,  2005. On an organic basis, gross profitincreased by $57.5  million, or 8.0%. Higher sales volumeand the impact of higher selling prices, partly offset by the effect ofincreased costs of raw and other purchased materials, contributed tothis change. The improvement was also partly attributable tounfavorable manufacturing volume variances resulting from our plan toreduce inventory levels during the six months ended June30,  2005 and an inventory write-off of $9.0  millionduring that period. Gross profit margin for the six months endedJune  30,  2006 was 44.5% compared to 44.7%for the year-ago period.

Selling, administrative, andresearch expenses for the six months ended June  30,2006 of $546.1  million increased $25.1  million, or4.8%, from $521.0  million for the six months endedJune  30,  2005. On an organic basis, selling,administrative, and research expenses increased $29.0  million.This was mainly attributable to selling expense, which was primarilydue to higher commission expenses ratably in line with increased sales,bad debts, and outside services. Administrative expense increased fromthe year-ago period due to higher outside services, most notablyconsulting.

Business optimization expenses,representing mostly employee severance and related costs associatedwith the continuing redesign and optimization of business and workprocesses, were $5.6  million for the six months endedJune  30,  2006, a $12.2  million decrease from the$17.8  million for the six months ended June  30,2005. The six months ended June  30,  2005 included a$14.0  million charge to support a plan to delayer our managementstructure and reduce costs in lower-performing businessunits.

Amortization of intangible assets was$34.8  million and $41.1  million for the six months endedJune  30,  2006 and 2005, respectively. The decrease wasattributable to lower amortization of customer relationships, which areamortized using an accelerated method.

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

Other income (expense),net favorably changed by $2.8  million from the net expenseof $3.5  million for the six months ended June  30,2005. A $2.4  million impairment loss on a business held for salerecorded during the six months ended June  30,  2005 and a$1.8  million increase in equity in earnings of unconsolidatedsubsidiaries contributed to the improvement.

Netinterest expense, defined as the combination of interest incomeand interest expense, of $130.4  million for the six months endedJune  30,  2006 increased by $7.6  million from the$122.8  million reported for the six months ended June30,  2005. The impact of higher interest rates on variable rateborrowings more than offset the impact of a lower average debt levelcompared to the year-ago period.

The effective taxrate for the six months ended June  30,  2006 was39.8%. The rate varies from the U.S. federal statutory incometax rate of 35% primarily due to the incremental tax ondividends received from non-U.S. subsidiaries, foreign taxes providedat other than the 35% U.S. statutory rate, U.S. state incometaxes, nondeductible expenses, and other permanentdifferences.

The aforementioned items also contributed tothe variation between the U.S. federal statutory income tax rate andthe Company’s effective income tax rate for the six months endedJune  30,  2005.

Minority interestexpense was $0.7  million higher than the $2.8million for the six months ended June  30,  2005,reflecting improved results for the Company’s non-wholly ownedsubsidiaries in Japan and Saudi Arabia.

Results of Operations— Segment Reporting

Quarter Ended June30,  2006 Compared to the Quarter Ended June  30,2005

Net sales by reportable segment forthe three months ended June  30,  2006 and June30,  2005 may be compared asfollows:

|                                       |  |  |                   |   |       |              |  |  |                                                |   |       |                     |  |  |                           |  |      |         |  |  |  |  |      |    |  |  |  |  |         |  |  |  |  |  |      |   |
|---------------------------------------|--|--|-------------------|---|-------|--------------|--|--|------------------------------------------------|---|-------|---------------------|--|--|---------------------------|--|------|---------|--|--|--|--|------|----|--|--|--|--|---------|--|--|--|--|--|------|---|
|                                  |  |  | ThreeMonths Ended |   |       |         |  |  | Attributable toChanges in the FollowingFactors |
| (dollarsin millions)                  |  |  | June30,2006       |   |       | June 30,2005 |  |  | %Change                                        |   |       | CurrencyTranslation |  |  | Acquisitions/Divestitures |  |      | Organic |
| Industrial& InstitutionalServices |  |  |                   | $ | 389.4 |              |  |  |                                                | $ | 377.5 |                     |  |  |                           |  | 3.2  | %       |  |  |  |  | 0.6  | %  |  |  |  |  | — |  |  |  |  |  | 2.6  | % |
| EnergyServices                        |  |  |                   |   | 259.3 |              |  |  |                                                |   | 221.5 |                     |  |  |                           |  | 17.1 | %       |  |  |  |  | 0.9  | %  |  |  |  |  | — |  |  |  |  |  | 16.2 | % |
| PaperServices                         |  |  |                   |   | 178.1 |              |  |  |                                                |   | 176.1 |                     |  |  |                           |  | 1.1  | %       |  |  |  |  | 1.0  | %  |  |  |  |  | — |  |  |  |  |  | 0.1  | % |
| Other                                 |  |  |                   |   | 64.2  |              |  |  |                                                |   | 61.2  |                     |  |  |                           |  | 4.9  | %       |  |  |  |  | (2.6 | )% |  |  |  |  | — |  |  |  |  |  | 7.5  | % |
| Netsales                              |  |  |                   | $ | 891.0 |              |  |  |                                                | $ | 836.3 |                     |  |  |                           |  | 6.5  | %       |  |  |  |  | 0.5  | %  |  |  |  |  | — |  |  |  |  |  | 6.0  | % |
|                                       |

TheIndustrial and Institutional Services division reported sales of$389.4  million for the three months ended June  30,2006, an $11.9  million increase, or 3.2%, over the$377.5  million for the year-ago-period. Price increasesaccounted for the 2.6% organic change.

The EnergyServices division reported sales of $259.3  million for the threemonths ended June  30,  2006, a 17.1% gain over the$221.5  million for the three months ended June  30,2005. Organically, sales improved by 16.2%, with two-thirds ofthis increase attributed to real growth. All businesses within EnergyServices — Downstream, Adomite, and Oil Field — grewdouble digits in the quarter.

The Paper Services divisionreported sales of $178.1  million for the three months endedJune  30,  2006, a 1.1% increase over the$176.1  million reported for the second quarter of 2005. TheNorth American region reported positive organic growth as a result ofprice increases; however, overall the division’s organic saleswere flat. The European region continues to struggle with customerclosures and lost business due to the price-increaseinitiatives.

19

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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. Direct contribution byreportable segment for the three months ended June  30,2006 and June 30, 2005 may be compared asfollows:

|                                       |  |  |                   |   |       |              |  |  |                                                |   |       |                     |  |  |                           |  |      |         |  |  |  |  |      |    |  |  |  |  |         |  |  |  |  |  |      |    |
|---------------------------------------|--|--|-------------------|---|-------|--------------|--|--|------------------------------------------------|---|-------|---------------------|--|--|---------------------------|--|------|---------|--|--|--|--|------|----|--|--|--|--|---------|--|--|--|--|--|------|----|
|                                  |  |  | ThreeMonths Ended |   |       |         |  |  | Attributable toChanges in the FollowingFactors |
| (dollarsin millions)                  |  |  | June30,2006       |   |       | June 30,2005 |  |  | %Change                                        |   |       | CurrencyTranslation |  |  | Acquisitions/Divestitures |  |      | Organic |
| Industrial& InstitutionalServices |  |  |                   | $ | 85.1  |              |  |  |                                                | $ | 82.9  |                     |  |  |                           |  | 2.6  | %       |  |  |  |  | 0.8  | %  |  |  |  |  | — |  |  |  |  |  | 1.8  | %  |
| EnergyServices                        |  |  |                   |   | 54.9  |              |  |  |                                                |   | 39.7  |                     |  |  |                           |  | 38.5 | %       |  |  |  |  | 1.3  | %  |  |  |  |  | — |  |  |  |  |  | 37.2 | %  |
| PaperServices                         |  |  |                   |   | 26.5  |              |  |  |                                                |   | 27.4  |                     |  |  |                           |  | (3.3 | )%      |  |  |  |  | 1.6  | %  |  |  |  |  | — |  |  |  |  |  | (4.9 | )% |
| Other                                 |  |  |                   |   | (14.9 | )            |  |  |                                                |   | (28.9 | )                   |  |  |                           |  | 48.6 | %       |  |  |  |  | (1.0 | )% |  |  |  |  | — |  |  |  |  |  | 49.6 | %  |
|                                       |

Directcontribution of the Industrial and Institutional Services division was$85.1  million for the three months ended June  30,2006, an increase of 2.6% over the $82.9  million reportedfor the three months ended June  30,  2005. Organically,direct contribution grew 1.8%. Higher operating expenses, mostlyin bad debts, offset gross earnings improvement.

TheEnergy Services division reported direct contribution of $54.9million for the three months ended June  30,  2006, a38.5% increase over the $39.7  million reported for theyear-ago period. On an organic basis, direct contribution increased37.2%. Higher sales volume accounted for most of the increase.Gross profit margins improved as planned price increases took effectand operating expenses were brought under control, with the onlynotable increase in commissions.

The Paper Servicesdivision reported direct contribution of $26.5  million for thethree months ended June  30,  2006, a 3.3% decreasefrom the direct contribution reported for the three months endedJune  30,  2005. Organically, direct contribution was down4.9%, as costs of raw and other purchased materials continued toexceed price increases. Despite tight controls on spending, operatingexpenses were nearly flat on a period-on-period basis due to asignificant increase in bad debts.

The directcontribution loss of $14.9  million reported in‘‘Other’’ for the three months endedJune  30,  2006, represented a decrease of $14.0million from the $28.9  million direct contribution loss reportedin the second quarter 2005. Significant contributors to theyear-over-year change include supply chain variances, including volumevariance charges that were incurred during the second quarter of 2005as a result of cutting production to reduce inventory levels.

Also contributing to the variations in direct contributionfor each of the segments above was the favorable change resulting frominventory write-offs during the three months ended June30,  2005. During that period, $4.0  million, $3.1million, $2.4  million, and $1.2  million was charged toPaper Services, Other, Energy Services, and Industrial andInstitutional Services, respectively.

Six MonthsEnded June  30, 2006 Compared to Six Months Ended June  30,2005

Net sales by reportable segment for the sixmonths ended June  30,  2006 and June  30,2005 may be compared asfollows:

|                                       |  |  |                 |   |         |              |  |  |                                                |   |         |                     |  |  |                           |  |      |         |  |  |  |  |      |    |  |  |  |  |         |  |  |  |  |  |      |   |
|---------------------------------------|--|--|-----------------|---|---------|--------------|--|--|------------------------------------------------|---|---------|---------------------|--|--|---------------------------|--|------|---------|--|--|--|--|------|----|--|--|--|--|---------|--|--|--|--|--|------|---|
|                                  |  |  | SixMonths Ended |   |         |         |  |  | Attributable toChanges in the FollowingFactors |
| (dollarsin millions)                  |  |  | June30,2006     |   |         | June 30,2005 |  |  | %Change                                        |   |         | CurrencyTranslation |  |  | Acquisitions/Divestitures |  |      | Organic |
| Industrial& InstitutionalServices |  |  |                 | $ | 767.8   |              |  |  |                                                | $ | 718.5   |                     |  |  |                           |  | 6.9  | %       |  |  |  |  | (0.6 | )% |  |  |  |  | — |  |  |  |  |  | 7.5  | % |
| EnergyServices                        |  |  |                 |   | 505.6   |              |  |  |                                                |   | 432.1   |                     |  |  |                           |  | 17.0 | %       |  |  |  |  | (0.1 | )% |  |  |  |  | — |  |  |  |  |  | 17.1 | % |
| PaperServices                         |  |  |                 |   | 353.9   |              |  |  |                                                |   | 346.2   |                     |  |  |                           |  | 2.2  | %       |  |  |  |  | (0.1 | )% |  |  |  |  | — |  |  |  |  |  | 2.3  | % |
| Other                                 |  |  |                 |   | 113.1   |              |  |  |                                                |   | 117.1   |                     |  |  |                           |  | (3.4 | )%      |  |  |  |  | (4.0 | )% |  |  |  |  | — |  |  |  |  |  | 0.6  | % |
| Netsales                              |  |  |                 | $ | 1,740.4 |              |  |  |                                                | $ | 1,613.9 |                     |  |  |                           |  | 7.8  | %       |  |  |  |  | (0.6 | )% |  |  |  |  | — |  |  |  |  |  | 8.4  | % |
|                                       |

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

The Industrial and InstitutionalServices division posted sales of $767.8  million for the sixmonths ended June  30,  2006, an increase of $49.3million, or 6.9%, over the $718.5  million for theyear-ago-period. Price increases accounted for slightly more thanthree-fourths of the 7.5% organic increase insales.

The Energy Services division reported sales of$505.6  million for the six months ended June  30,2006, a 17.0% gain over the $432.1  million for the sixmonths ended June  30,  2005. Sales improved by17.1% on an organic basis, with slightly more that two-thirds ofthis improvement attributed to real growth.

The PaperServices division posted sales of $353.9  million for the sixmonths ended June  30,  2006, a 2.2% increase overthe $346.2  million reported for the first half of 2005. On anorganic basis, sales were up 2.3%, as gains from price increaseswere partly offset by lower sales in Europe.

The0.6% organic increase in sales reported by the Other segment wasmostly attributable to our Integrated Channels business unit and oursubsidiary in India.

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. Direct contribution byreportable segment for the six months ended June  30,  2006and June  30,  2005 may be compared asfollows:

|                                       |  |  |                 |   |       |              |  |  |                                                |   |       |                     |  |  |                           |  |      |         |  |  |  |  |      |    |  |  |  |  |         |  |  |  |  |  |         |    |
|---------------------------------------|--|--|-----------------|---|-------|--------------|--|--|------------------------------------------------|---|-------|---------------------|--|--|---------------------------|--|------|---------|--|--|--|--|------|----|--|--|--|--|---------|--|--|--|--|--|---------|----|
|                                  |  |  | SixMonths Ended |   |       |         |  |  | Attributable toChanges in the FollowingFactors |
| (dollarsin millions)                  |  |  | June30,2006     |   |       | June 30,2005 |  |  | %Change                                        |   |       | CurrencyTranslation |  |  | Acquisitions/Divestitures |  |      | Organic |
| Industrial& InstitutionalServices |  |  |                 | $ | 164.9 |              |  |  |                                                | $ | 148.4 |                     |  |  |                           |  | 11.1 | %       |  |  |  |  | (0.7 | )% |  |  |  |  | — |  |  |  |  |  | 11.8    | %  |
| EnergyServices                        |  |  |                 |   | 103.2 |              |  |  |                                                |   | 82.7  |                     |  |  |                           |  | 24.9 | %       |  |  |  |  | (0.1 | )% |  |  |  |  | — |  |  |  |  |  | 25.0    | %  |
| PaperServices                         |  |  |                 |   | 52.6  |              |  |  |                                                |   | 57.5  |                     |  |  |                           |  | (8.5 | )%      |  |  |  |  | 0.4  | %  |  |  |  |  | — |  |  |  |  |  | (8.9    | )% |
| Other                                 |  |  |                 |   | (34.3 | )            |  |  |                                                |   | (34.1 | )                   |  |  |                           |  | (0.6 | )%      |  |  |  |  | (0.6 | )% |  |  |  |  | — |  |  |  |  |  | — |    |
|                                       |

Directcontribution of the Industrial and Institutional Services division was$164.9  million for the six months ended June  30,2006, an increase of 11.1% over the $148.4  millionreported for the six months ended June  30,  2005.Organically, direct contribution improved 11.8%. 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 $103.2  millionfor the six months ended June  30,  2006, a 24.9%increase over the $82.7  million reported for the prior yearperiod. On an organic basis, direct contribution increased25.0%. Higher sales volume accounted for most of the increase.Operating expenses were brought under control during the second quarter2006, with the only notable expense increases in commissions andoutside services.

The Paper Services division reporteddirect contribution of $52.6  million for the six months endedJune  30,  2006, an 8.5% decrease from the$57.5  million direct contribution reported for the six monthsended June  30,  2005. Organically, direct contribution wasdown 8.9%, as costs of raw and other purchased materialscontinued to exceed price increases. Despite tight controls onspending, operating expenses were flat on a year-over-year basis due toa significant increase in bad debts.

The directcontribution loss of $34.3  million reported in‘‘Other’’ for the six months endedJune  30,  2006, represented an increase of $0.2million from the $34.1  million direct contribution loss reportedin the six months ended June  30,  2005. Significantcontributors to the year-over-year change include supply chainvariances that benefited 2006 results, favorable adjustments in 2005for commissions and insurance/legal claims that did not recur in 2006,and the net impact of revenue deferrals for shipments made near the endof the period.

Liquidity and CapitalResources

Operatingactivities.    Historically, the Company’s main sourceof liquidity has been its solid cash flow generated by operatingactivities. For the six months ended June  30,  2006, cashprovided by operating 

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

activities was $61.6  million, a$31.9  million increase from the same period last year. Theimprovement was mainly the result of the increase in net earnings andnot making any payments in 2006 for 2005 variable incentive plans.Partly offsetting these improvements were higher contributions to theprincipal U.S. pension plan.

Investingactivities.     Cash used for investing activities was$41.7  million for the six months ended June  30,2006, which was mostly attributable to net property additions of$37.5  million.

Cash used for investing activitieswas $28.2  million for the six months ended June30,  2005. This was mostly the result of net property additionsof $25.0  million.

Financingactivities.    Net cash used for financing activitiestotaled $19.6  million during the six months ended June30,  2006, which was mostly attributable to a net decrease inborrowings.

Net cash provided by financing activitiestotaled $5.9  million during the six months ended June30,  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 June  30,  2006, the outstandingbalance of the term loan A and term loan B facilities was $78.5million 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. At June  30,  2006, ouroutstanding borrowing under the revolving credit facility was$25.0  million.

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

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

assets, incur additional indebtedness orissue preferred 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 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 June  30,2006.

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 due2013.

On January  21,  2004, our subsidiaries,Nalco Finance Holdings LLC and Nalco Finance Holdings Inc. (together,the Issuers), issued $694.0  million aggregate principal amountat maturity of 9.0% senior discount notes due 2014. Prior toFebruary  1,  2009, interest will accrue on the notes inthe form of an increase in the accreted value of such notes. 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. Cash interest payments on the noteswill be due and payable beginning in 2009. Our primary source ofliquidity for such payments will be cash flow generated from theoperations of subsidiaries, including Nalco Holdings LLC and NalcoCompany. However, the terms of Nalco Company’s senior creditagreement fully prohibit Nalco Holdings LLC and our other subsidiariesfrom paying dividends or otherwise transferring assets to the Issuers.In addition, the terms of certain of the indentures governing theexisting senior notes and senior subordinated notes of Nalco Companysignificantly restrict Nalco Company and our other subsidiaries frompaying dividends, making distributions and otherwise transferringassets to the issuers of the senior discount notes. In addition, as acondition to making such payments to the issuers based on such formula,Nalco Holdings LLC must have an Adjusted EBITDA to interest expenseratio of at least 2.0 to 1 after giving effect to any such payments.Notwithstanding such restrictions, such indentures permit an aggregateof $50.0  million of such payments to be made whether or notthere is availability under the formula or the conditions to its useare met.

In December  2004, the Issuers redeemed aportion of the senior discount notes with an accreted value of$162.3  million using proceeds from the November  2004initial public offering of common stock of Nalco Holding Company. Afterthe partial redemption, the aggregate principal amount at maturity ofthe notes declined to $460.8  million from $694.0million.

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

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

|  |              |                                                                                 |
|--|--------------|---------------------------------------------------------------------------------|
|  | •  | pay dividends on or makeother 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 |

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

|  |              |                                                           |
|--|--------------|-----------------------------------------------------------|
|  | •  | 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.

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 endedJune 30, 2006 |   |       | Three Months ended June 30,2005 |  |  | Six Months ended June 30, 2006 |   |       | SixMonthsended June 30, 2005 |
| Net earnings(loss)               |  |  |                                 | $ | 21.5  |                                 |  |  |                                | $ | (5.8  | )                            |  |  |  | $ | 30.3  |   |  |  |  | $ | 5.2   |   |
| Interest,net                     |  |  |                                 |   | 65.8  |                                 |  |  |                                |   | 62.8  |                              |  |  |  |   | 130.4 |   |  |  |  |   | 122.8 |   |
| Incometax provision(benefit)     |  |  |                                 |   | 14.4  |                                 |  |  |                                |   | (3.1  | )                            |  |  |  |   | 22.3  |   |  |  |  |   | 6.6   |   |
| Depreciation                     |  |  |                                 |   | 32.3  |                                 |  |  |                                |   | 33.5  |                              |  |  |  |   | 64.7  |   |  |  |  |   | 66.7  |   |
| Amortization                     |  |  |                                 |   | 17.5  |                                 |  |  |                                |   | 20.5  |                              |  |  |  |   | 34.8  |   |  |  |  |   | 41.1  |   |
| EBITDA                           |  |  |                                 | $ | 151.5 |                                 |  |  |                                | $ | 107.9 |                              |  |  |  | $ | 282.5 |   |  |  |  | $ | 242.4 |   |
| Non-cashcharges(1)               |  |  |                                 |   | 6.5   |                                 |  |  |                                |   | 5.7   |                              |  |  |  |   | 16.0  |   |  |  |  |   | 15.8  |   |
| Businessoptimization expenses(2) |  |  |                                 |   | 1.8   |                                 |  |  |                                |   | 17.0  |                              |  |  |  |   | 5.6   |   |  |  |  |   | 17.8  |   |
| Unusualitems(3)                  |  |  |                                 |   | 2.0   |                                 |  |  |                                |   | 1.8   |                              |  |  |  |   | 2.7   |   |  |  |  |   | 2.5   |   |
| Otheradjustments(4)              |  |  |                                 |   | (1.7  | )                               |  |  |                                |   | (1.2  | )                            |  |  |  |   | (2.8  | ) |  |  |  |   | (3.0  | ) |
| AdjustedEBITDA                   |  |  |                                 | $ | 160.1 |                                 |  |  |                                | $ | 131.2 |                              |  |  |  | $ | 304.0 |   |  |  |  | $ | 275.5 |   |
|                                  |

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

|                                                |  |  |                                 |   |      |                                 |  |  |                               |   |      |                              |  |  |  |   |      |  |  |  |  |   |      |  |
|------------------------------------------------|--|--|---------------------------------|---|------|---------------------------------|--|--|-------------------------------|---|------|------------------------------|--|--|--|---|------|--|--|--|--|---|------|--|
| (dollarsin millions)                           |  |  | Three Months endedJune 30, 2006 |   |      | Three Months ended June 30,2005 |  |  | Six Monthsended June 30, 2006 |   |      | SixMonthsended June 30, 2005 |
| Assetwrite-offs                                |  |  |                                 | $ | 0.2  |                                 |  |  |                               | $ | 2.5  |                              |  |  |  | $ | 1.1  |  |  |  |  | $ | 4.9  |  |
| Profitsharing expense and 401(k) funded bySuez |  |  |                                 |   | 6.4  |                                 |  |  |                               |   | 4.2  |                              |  |  |  |   | 11.8 |  |  |  |  |   | 9.8  |  |
| Other                                          |  |  |                                 |   | (0.1 | )                               |  |  |                               |   | (1.0 | )                            |  |  |  |   | 3.1  |  |  |  |  |   | 1.1  |  |
| Non-cashcharges                                |  |  |                                 | $ | 6.5  |                                 |  |  |                               | $ | 5.7  |                              |  |  |  | $ | 16.0 |  |  |  |  | $ | 15.8 |  |
|                                                |

ProfitSharing and 401(k) Expense Funded by Suez

Inconjunction with the Acquisition, we entered into an agreement withSuez whereby Suez will reimburse us for certain profit-sharing and401(k) matching contributions made by us to the Profit-SharingTrust.

24

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

Other

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

|           |                                                                                                                                                        |
|-----------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)  | Business optimization expenses include costsassociated with the redesign and optimization of work processes. Seenote 7 to Item 1 for more information. |

|           |                                                          |
|-----------|----------------------------------------------------------|
| (3)  | Unusualitems are further detailed on the followingtable: |

|                                     |  |  |                                 |   |     |                                 |  |  |                                |   |         |                              |  |  |  |   |     |  |  |  |  |   |         |  |
|-------------------------------------|--|--|---------------------------------|---|-----|---------------------------------|--|--|--------------------------------|---|---------|------------------------------|--|--|--|---|-----|--|--|--|--|---|---------|--|
| (dollarsin millions)                |  |  | Three Months endedJune 30, 2006 |   |     | Three Months ended June 30,2005 |  |  | Six Months ended June 30, 2006 |   |         | SixMonthsended June 30, 2005 |
| Pensionsettlement                   |  |  |                                 | $ | 0.1 |                                 |  |  |                                | $ | — |                              |  |  |  | $ | 0.4 |  |  |  |  | $ | — |  |
| Loss(gain) on sales, net ofexpenses |  |  |                                 |   | 0.5 |                                 |  |  |                                |   | 0.6     |                              |  |  |  |   | 0.6 |  |  |  |  |   | 1.1     |  |
| Otherunusual items                  |  |  |                                 |   | 1.4 |                                 |  |  |                                |   | 1.2     |                              |  |  |  |   | 1.7 |  |  |  |  |   | 1.4     |  |
|                                |  |  |                                 | $ | 2.0 |                                 |  |  |                                | $ | 1.8     |                              |  |  |  | $ | 2.7 |  |  |  |  | $ | 2.5     |  |
|                                     |

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

Our covenant levelsand ratios for the four quarters ended June  30,  2006 areasfollows:

|                                                                                                           |  |  |                               |  |        |        |  |  |  |  |        |  |
|-----------------------------------------------------------------------------------------------------------|--|--|-------------------------------|--|--------|--------|--|--|--|--|--------|--|
|                                                                                                      |  |  | CovenantLevel at June 30,2006 |  |        | Ratios |
| Senior creditfacility (1)                                                                                 |  |  |                               |  |   |        |  |  |  |  |   |  |
| MinimumAdjusted EBITDA to cash interestratio                                                              |  |  |                               |  | 1.75x  |        |  |  |  |  | 2.93x  |  |
| Maximumnet debt to Adjusted EBITDAratio                                                                   |  |  |                               |  | 6.00x  |        |  |  |  |  | 4.61x  |  |
| Indentures(2)                                                                                             |  |  |                               |  |   |        |  |  |  |  |   |  |
| Minimum Adjusted EBITDAto fixed charge ratio required to incur additional debt pursuant toratioprovisions |  |  |                               |  | 2.00x  |        |  |  |  |  | 2.56x  |  |
|                                                                                                           |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (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 ourindentures. |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Our ability to incur additionaldebt and make certain restricted payments under our indentures, subjectto specified exceptions, is tied to an Adjusted EBITDA to fixed chargeratio of at least 2.0 to 1, except that we may incur certain debt andmake certain restricted payments and certain permitted investmentswithout regard to the ratio, such as up to an aggregate principalamount of $1,950  million (including $1,149.5  million thatwas outstanding under our term loan facilities as of June30,  2006) and investments in similar business and otherinvestments equal to 6% of Nalco Holding Company consolidatedassets. |

Local lines of credit.    Certainof our non-U.S. subsidiaries have lines of credit to support localrequirements. As of June  30,  2006, the aggregateoutstanding balance under these local lines of credit was approximately$26.2  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.

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

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 June  30,  2006,approximately $179.0  million of our accounts receivable balancewas considered eligible for financing under the program, of whichapproximately $113.8  million would have been available forfunding. As of June  30,  2006, we had $72.7  millionof outstanding borrowings under this facility.

Thisfacility is treated as a general financing agreement resulting in thefunding and 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.

Recent Accounting Pronouncements

See Note15 to the condensed consolidated financial statements, included in PartI, Item 1, for information on recent accountingpronouncements.

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

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

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

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

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

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

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

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PARTII.    OTHER INFORMATION 

|               |              |
|---------------|--------------|
| Item1A.  | Risk Factors |

Changes haveoccurred to the following risk factors that were included in theCompany’s Annual Report on Form 10-K for the year endedDecember  31,  2005:

Our pension plans arecurrently underfunded and we may have to make significant cash paymentsto the plans, reducing the cash available for ourbusiness.

We sponsor various pension plans worldwidethat are underfunded and require significant cash payments. Forexample, in 2004 and 2005, we contributed $13.7  million and$30.0  million, respectively, to our pension plans. We arerequired 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 their inquiry.

On August 3, 2006, the U.S. Senate joined the House ofRepresentatives in passing pension reform legislation – thePension Protection Act of 2006 (PPA) (H.R. 4). The PPA will next besent to the President for his approval, and he is expected to sign thebill into law. The proposed legislation affects both defined benefitand defined contribution plans, the employers who sponsor such plans,and plan participants.

We are currently studying the PPAand its impact on our employees and us. However, the new legislationcould influence the amount and timing of our pension fundingrequirements, our decisions regarding pension funding, and the timingof payouts to those of our employees who are plan participants. Anychanges the legislation might have on the terms and conditions of ourpension programs might also impact our employees and influence theiremployment decisions.

Our Sponsors have significantinfluence on us and may have conflicts of interest with us or you inthe future.

As a result of the sale of shares by ourSponsors during the six months ended June  30,  2006, ourSponsors beneficially own approximately 26.7% of our commonstock.

Future sales of our shares could depress the marketprice of our common stock.

As of June30,  2006 we had 143,007,074 shares of common stock outstanding.Of those shares, 100,958,200 shares are freely tradable. The 42,048,874remaining 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 June30,  2006, will have the ability to cause us to register theresale of their shares.

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|                |                         |
|----------------|-------------------------|
| Item 1A.  | Risk Factors(continued) |

In addition, subject to certain conditions,certain members of our management who hold units of Nalco LLC will beable to sell back or ‘‘put’’ to Nalco LLC theirclass A units, along with those of their class B units, class C unitsand class D units that have vested, in exchange for our shares ofcommon stock owned by Nalco LLC. In November  2004, we provided awarrant to Nalco LLC that entitles it to acquire up to 6,191,854 sharesof our common stock for $0.01 per share, which will allow Nalco LLC todeliver our shares in satisfaction of such‘‘put’’ rights. In December  2005,1,074,082 shares were delivered to Nalco LLC pursuant to the warrant.During the six months ended June  30,  2006, 269,623 shareswere delivered to Nalco LLC pursuant to the warrant. As a result, as ofJune  30,  2006, an additional 4,848,149 shares of ourcommon stock may still be delivered pursuant to the warrant in thefuture.

|               |                                                    |
|---------------|----------------------------------------------------|
| Item 4.  | Submission of Matters to aVote of Security Holders |

The Annual Meeting ofShareholders was held on May  4,  2006. At the meeting,Messrs. Rodney F. Chase, Richard B. Marchese, and Paul H.O’Neill were each elected by the shareholders to a term toexpire in2009.

|                     |
|---------------------|
|                     |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Nominee             |  |  | For |  |  | Against |  |  | Withheld |
| RodneyF.Chase       |  |  |  |  | 128,994,073 |  |  |  |  |  | -0- |  |  |  |  |  | 401,221 |  |
| RichardB.Marchese   |  |  |  |  | 128,999,473 |  |  |  |  |  | -0- |  |  |  |  |  | 395,821 |  |
| PaulH.O’Neill |  |  |  |  | 128,999,138 |  |  |  |  |  | -0- |  |  |  |  |  | 396,156 |  |
|                     |

Dr.Joyce and Messrs. Chu, Harris, Mehra, Pertz and Sanders each have termsof office as directors that continued after the 2006 AnnualMeeting.

The shareholders also ratified the appointment ofErnst & Young LLP as the Independent Registered Public AccountingFirm for2006:

|        |
|--------|
|        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|   |  |  | For |  |  | Against |  |  | Abstain |
|   |  |  |  |  | 129,344,638 |  |  |  |  |  | 40,140 |  |  |  |  |  | 10,516 |  |
|        |

Theshareholders also approved the Amended and Restated ManagementIncentivePlan:

|        |
|--------|
|        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|   |  |  | For |  |  | Against |  |  | Abstain |
|   |  |  |  |  | 129,211,988 |  |  |  |  |  | 155,449 |  |  |  |  |  | 27,857 |  |
|        |

|              |          |
|--------------|----------|
| Item6.  | Exhibits |

|           |                                   |
|-----------|-----------------------------------|
| (a)  | The followingare included herein: |

|  |                   |                                                                                                   |
|--|-------------------|---------------------------------------------------------------------------------------------------|
|  | Exhibit31.1  | Certification of Chief Executive Officer,Pursuant to Section 302 of the Sarbanes-Oxley Act of2002 |

|  |                    |                                                                                                   |
|--|--------------------|---------------------------------------------------------------------------------------------------|
|  | Exhibit 31.2  | Certification ofChief Financial Officer, Pursuant to Section 302 of the Sarbanes-OxleyAct of 2002 |

|  |                   |                                                                                                                         |
|--|-------------------|-------------------------------------------------------------------------------------------------------------------------|
|  | Exhibit32.1  | Certifications Pursuant to 18 U.S.C. Section1350, as Adopted Pursuant to  Section  906 of theSarbanes-Oxley Act of 2002 |

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SIGNATURE

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

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

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

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

|        |
|--------|
|        |  |  |  |
| Name:  |  |  | BradleyJ. Bell |
| Title: |  |  | Executive Vice PresidentandChief Financial Officer |
|        |

Dated:August  9,  2006

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