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| **UNITED                    STATES****SECURITIES                    AND EXCHANGE COMMISSION****WASHINGTON,                    D.C. 20549**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **FORM                    10-K/A**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **AMENDMENT                    NO. 1**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| **Mark                    One**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **x** **ANNUAL                    REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE                    ACT OF                    1934**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| **For                    the fiscal year ended December 31, 2006**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **o** **TRANSITION                    REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE                    ACT OF                    1934**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Commission                    file number 1-496                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| ______________________________________________                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **HERCULES                    INCORPORATED**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| **                                                                                                                                                                                                       **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **A                    DELAWARE CORPORATION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **I.R.S.                    EMPLOYER IDENTIFICATION NO. 51-0023450**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| **HERCULES                    PLAZA**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **1313                    NORTH MARKET STREET**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **WILMINGTON,                    DELAWARE 19894-0001**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| **TELEPHONE:                    302-594-5000**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **www.herc.com**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| **                                                                                                                                                                                                       **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Securities                    registered pursuant to Section 12(b) of the Act                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (Each                    class is registered on the New York Stock Exchange,                    Inc.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Title                    of each class                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Common                    Stock ($25/48                    Stated Value)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 8%                    Convertible Subordinated Debentures due August 15, 2010                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|          Indicate                    by check mark if the registrant is a well-known seasoned issuer,                    as                    defined in Rule 405 of the Securities Act. Yes  x No                     ¨.          Indicate                    by check mark if the registrant is not required to file reports                    pursuant                    to Section 13 or Section 15(d) of the Securities Exchange Act.                    Yes                     ¨                    No                    x.          Indicate                    by check mark whether the Registrant (1) has filed all reports                    required to                    be filed by Section 13 or 15(d) of the Securities Exchange Act                    of 1934                    during the preceding 12 months (or for such shorter period that                    the                    Registrant was required to file such reports), and (2) has been                    subject to                    such filing requirements for the past 90 days. Yes x                     No                     ¨.          Indicate                    by check mark if disclosure of delinquent filers pursuant to                    Item 405 of                    Regulation S-K is not contained herein, and will not be contained,                    to the                    best of Registrant's knowledge, in definitive proxy or information                    statements incorporated by reference in Part III of this Form                    10-K or any                    amendment to this Form 10-K x           Indicate                    by check mark whether the registrant is a large accelerated filer,                    an                    accelerated filer, or a non-accelerated filer. See definition                    of                    “accelerated filer and large accelerated filer” in Rule 12b-2 of the                    Exchange Act. Large accelerated filer  x                     Accelerated filer  ¨                    Non-accelerated filer  ¨.         Indicate                    by check mark whether the registrant is a shell company (as defined                    in                    Rule 12b-2 of the Exchange Act). Yes  ¨                     No                    x .          The                    aggregate market value of registrant's common stock, $25/48                    stated value ("Common Stock") held by non-affiliates based on                    the closing                    price on the last business day of the Company's most recently                    completed                    second fiscal quarter, or June 30, 2006, was approximately $1.7                    billion.          As                    of February 23, 2007, the registrant had 116,417,693 shares of                    Common                    Stock outstanding. **DOCUMENTS                    INCORPORATED BY REFERENCE**                                                                                                                                                                                                                Portions                    of the registrant's definitive Proxy Statement for its 2007 Annual                    Meeting                    of Shareholders (the "Proxy Statement"), when filed, will be                    incorporated                    by reference in Part III of this report. |

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**EXPLANATORY      NOTE**

**ITEM** **8****.            ****FINANCIAL      STATEMENTS AND SUPPLEMENTARY DATA**

**INDEX      TO CONSOLIDATED FINANCIAL STATEMENTS AND**

**REQUIRED      SUPPLEMENTARY DATA**

|  **CONSOLIDATED                FINANCIAL                STATEMENTS                                                                                                      ** |   |   | Page   |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| Management's                Report on Internal Control Over Financial                Reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   | 4      |   |
| Reports                of Independent Registered Public Accounting                Firms                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   | 5      |   |
| Consolidated                Statements of Operations and                Comprehensive Income (Loss) for the Years Ended December 31, 2006,                2005 and 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   | 8      |   |
| Consolidated                Balance Sheets as of December 31, 2006 and                2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   | 9      |   |
| Consolidated                Statements of Cash Flows for the Years Ended                December 31, 2006, 2005 and 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   | 10     |   |
| Consolidated                Statements of Stockholders' Equity (Deficit) for                the Years Ended December 31, 2006, 2005 and 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   | 11     |   |
| Summary                of Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   | 12     |   |
| Notes                to the Consolidated Financial Statements:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   |
| 1.                Realignment of Reporting Segments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   | 16     |   |
| 2.                Acquisitions and Investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   | 16     |   |
| 3.                Divestitures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   | 17     |   |
| 4.                Variable Interest Entities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   | 18     |   |
| 5.                Accounts Receivable, Net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   | 19     |   |
| 6.                Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   | 19     |   |
| 7.                Intangible Assets and Goodwill                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   | 19     |   |
| 8.                Debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   | 20     |   |
| 9.                Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   | 21     |   |
| 10.                Pension and Postretirement Benefit                Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   | 23     |   |
| 11.                Savings and Investment Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   | 27     |   |
| 12.                Asset Retirement Obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   | 27     |   |
| 13.                Commitments and Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   | 29     |   |
| 14.                Stock-Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   | 39     |   |
| 15.                Series Preferred Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   | 42     |   |
| 16.                Common Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   | 42     |   |
| 17.                Accumulated Other Comprehensive                Losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   | 42     |   |
| 18.                Additional Balance Sheet Detail                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   | 43     |   |
| 19.                Restructuring Programs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   | 44     |   |
| 20.                Other Operating Expense, Net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   | 48     |   |
| 21.                Interest and Debt Expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   | 48     |   |
| 22.                Other Expense, Net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   | 48     |   |
| 23.                Discontinued Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   | 49     |   |
| 24.                Changes in Accounting Principle                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   | 49     |   |
| 25.                Supplemental Disclosure of Statement of Operations and                Cash Flows Data                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   | 51     |   |
| 26.                Earnings (Loss) Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   | 51     |   |
| 27.                Reporting Segment and Geographic                Data                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   | 52     |   |
| 28.                Financial Instruments and Risk Management, Including                Derivatives                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   | 54     |   |
| 29.                Condensed Consolidating Financial Information of                Guarantor Subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   | 55     |   |
| 30.                Summary of Quarterly Results (Unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   | 64     |   |

----

**Management's      Report on Internal Control Over Financial      Reporting**

*Internal      Control-Integrated Framework*

----

**Report        of Independent Registered Public Accounting        Firm**

----

**Report      of Independent Registered Public Accounting Firm**

**on      Internal Control over Financial Reporting **

----

**Report      of Independent Registered Public Accounting Firm **

** **

----

| **Hercules                  Incorporated****Consolidated                  Statements of Operations and                  Comprehensive Income (Loss)***(Dollars                  in millions, except per share data)* |   |                                     |    |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|---------|
|                                                                                                                                                                                                                 |   | Year                  Ended December 31, |    |
|                                                                                                                                                                                                                 |   | 2006                                     |    | 2005 |   | 2004 |   |
| Net                  sales                                                                                                                                                                                           |   | $                                        | 2,035.3 |   | $ | 2,055.0 |   | $ | 1,984.3 |   |
| Cost                  of sales                                                                                                                                                                                       |   |                                     | 1,343.4 |   |   | 1,391.1 |   |   | 1,291.6 |   |
| Selling,                  general and administrative expenses                                                                                                                                                        |   |                                     | 372.2   |   |   | 382.5 |   |   | 382.1 |   |
| Research                  and development                                                                                                                                                                            |   |                                     | 38.8    |   |   | 40.8 |   |   | 42.7 |   |
| Intangible                  asset amortization (Note 7)                                                                                                                                                              |   |                                     | 7.2     |   |   | 8.0 |   |   | 8.1 |   |
| Impairment                  of FiberVisions goodwill (Note 3)                                                                                                                                                        |   |                                     | — |   |   | 52.9 |   |   | — |   |
| Other                  operating expense, net (Note 20)                                                                                                                                                              |   |                                     | 25.1    |   |   | 39.4 |   |   | 26.9 |   |
| Profit                  from operations                                                                                                                                                                              |   |                                     | 248.6   |   |   | 140.3 |   |   | 232.9 |   |
| Interest                  and debt expense (Note 21)                                                                                                                                                                 |   |                                     | 71.2    |   |   | 89.4 |   |   | 108.7 |   |
| Vertac                  litigation charges (Note 13)                                                                                                                                                                 |   |                                     | 108.5   |   |   | 15.0 |   |   | — |   |
| Gain                  on sale of CP Kelco ApS (Note 3)                                                                                                                                                               |   |                                     | — |   |   | — |   |   | (27.0 | ) |
| Other                  expense, net (Notes 3 and 22)                                                                                                                                                                 |   |                                     | 65.7    |   |   | 71.3 |   |   | 116.7 |   |
| Income                  (loss) before income taxes, minority interests and equity (loss)                  income                                                                                                     |   |                                     | 3.2     |   |   | (35.4 | ) |   | 34.5 |   |
| (Benefit)                  provision for income taxes (Note 9)                                                                                                                                                       |   |                                     | (192.2  | ) |   | (3.8 | ) |   | 3.8 |   |
| Income                  (loss) before minority interests and equity loss (income)                                                                                                                                    |   |                                     | 195.4   |   |   | (31.6 | ) |   | 30.7 |   |
| Minority                  interests in earnings of consolidated subsidiaries                                                                                                                                         |   |                                     | (1.4    | ) |   | (1.0 | ) |   | (0.9 | ) |
| Equity                  (loss) income of affiliated companies, net of tax                                                                                                                                            |   |                                     | (3.2    | ) |   | 0.5 |   |   | 0.9 |   |
| Net                  income (loss) from continuing operations before discontinued                                                                                                                                    |   |                                     |    |   |   |   |   |   |   |   |
|    operations                  and cumulative effect of changes in accounting principle                                                                                                               |   |                                     | 190.8   |   |   | (32.1 | ) |   | 30.7 |   |
| Net                  income (loss) from discontinued operations, net of tax (Note 23)                                                                                                                                |   |                                     | 47.0    |   |   | (6.5 | ) |   | (2.6 | ) |
| Net                  income (loss) before cumulative effect of changes in accounting                  principle                                                                                                      |   |                                     | 237.8   |   |   | (38.6 | ) |   | 28.1 |   |
| Cumulative                  effect of changes in accounting principle, net of tax (Note                  24)                                                                                                         |   |                                     | 0.9     |   |   | (2.5 | ) |   | — |   |
| Net                  income (loss)                                                                                                                                                                                   |   | $                                        | 238.7   |   | $ | (41.1 | ) | $ | 28.1 |   |
|                                                                                                                                                                                                                 |   |                                     |    |   |   |   |   |   |   |   |
| Earnings                  (loss) per share (Note 26):                                                                                                                                                                |   |                                     |    |   |   |   |   |   |   |   |
| Basic                  earnings (loss) per share                                                                                                                                                                     |   |                                     |    |   |   |   |   |   |   |   |
| Continuing                  operations                                                                                                                                                                               |   | $                                        | 1.72    |   | $ | (0.30 | ) | $ | 0.28 |   |
| Discontinued                  operations                                                                                                                                                                             |   |                                     | 0.42    |   |   | (0.06 | ) |   | (0.02 | ) |
| Cumulative                  effect of change in accounting principle                                                                                                                                                 |   |                                     | 0.01    |   |   | (0.02 | ) |   | — |   |
| Net                  income (loss)                                                                                                                                                                                   |   | $                                        | 2.15    |   | $ | (0.38 | ) | $ | 0.26 |   |
| Weighted                  average number of shares (millions)                                                                                                                                                        |   |                                     | 110.8   |   |   | 108.7 |   |   | 107.3 |   |
|                                                                                                                                                                                                                 |   |                                     |    |   |   |   |   |   |   |   |
| Diluted                  earnings (loss) per share                                                                                                                                                                   |   |                                     |    |   |   |   |   |   |   |   |
| Continuing                  operations                                                                                                                                                                               |   | $                                        | 1.71    |   | $ | (0.30 | ) | $ | 0.28 |   |
| Discontinued                  operations                                                                                                                                                                             |   |                                     | 0.42    |   |   | (0.06 | ) |   | (0.02 | ) |
| Cumulative                  effect of change in accounting principle                                                                                                                                                 |   |                                     | 0.01    |   |   | (0.02 | ) |   | — |   |
| Net                  income (loss)                                                                                                                                                                                   |   | $                                        | 2.14    |   | $ | (0.38 | ) | $ | 0.26 |   |
| Weighted                  average number of shares (millions)                                                                                                                                                        |   |                                     | 111.3   |   |   | 108.7 |   |   | 109.0 |   |
|                                                                                                                                                                                                                 |   |                                     |
| Net                  income (loss)                                                                                                                                                                                   |   | $                                        | 238.7   |   | $ | (41.1 | ) | $ | 28.1 |   |
| Foreign                  currency translation                                                                                                                                                                        |   |                                     | 58.7    |   |   | (72.1 | ) |   | 71.1 |   |
| Decrease                  (increase) in additional minimum pension liability, net of tax,                  due                  to                                                                                   |   |                                     |    |   |   |   |   |   |   |   |
|    Remeasurement                  adjustments                                                                                                                                                         |   |                                     | 85.0    |   |   | (44.3 | ) |   | (28.2 | ) |
|    Foreign                  currency translation                                                                                                                                                      |   |                                     | (4.1    | ) |   | 5.5 |   |   | (1.4 | ) |
| Revaluation                  of hedges, net of tax                                                                                                                                                                   |   |                                     | (34.6   | ) |   | — |   |   | — |   |
| Other,                  net of tax                                                                                                                                                                                   |   |                                     | (0.5    | ) |   | (0.3 | ) |   | — |   |
| Comprehensive                  income (loss)                                                                                                                                                                         |   | $                                        | 343.2   |   | $ | (152.3 | ) | $ | 69.6 |   |

*The            accompanying accounting policies and notes are an integral part of the            consolidated financial statements.*

----

| **Hercules                  Incorporated****Consolidated                  Balance Sheets**                                      |   |                          |     |
|---------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------|----------|
| *(Dollars                  in millions)*                                                                                        |   | December                  31, |     |
|                                                                                                                            |   | 2006                          |     | 2005 |   |
| **ASSETS**                                                                                                                      |   |                          |     |   |   |
| Current                  assets                                                                                                 |   |                          |     |   |   |
|    Cash                  and cash equivalents                                                                    |   | $                             | 171.8    |   | $ | 77.3 |   |
|    Accounts                  receivable, net (Note 5)                                                            |   |                          | 326.6    |   |   | 289.7 |   |
|    Inventories                  (Note 6)                                                                         |   |                          | 210.6    |   |   | 179.6 |   |
|    Deferred                  income taxes (Note 9 )                                                              |   |                          | 70.2     |   |   | 39.3 |   |
|    FiberVisions                  assets held for sale (Note 3)                                                   |   |                          | —  |   |   | 202.7 |   |
|    Current                  assets of discontinued operations (Note                  23)                         |   |                          | 0.4      |   |   | 6.7 |   |
|    Income                  taxes receivable (Note 9)                                                             |   |                          | 170.8    |   |   | 12.6 |   |
|    Other                  current assets                                                                         |   |                          | 34.1     |   |   | 35.5 |   |
|    Total                  current assets                                                                         |   |                          | 984.5    |   |   | 843.4 |   |
| Property,                  plant and equipment, net (Note 18)                                                                   |   |                          | 600.4    |   |   | 535.4 |   |
| Intangible                  assets, net (Note 7)                                                                                |   |                          | 143.1    |   |   | 142.8 |   |
| Goodwill                  (Note 7)                                                                                              |   |                          | 481.5    |   |   | 441.0 |   |
| Deferred                  income taxes (Note 9)                                                                                 |   |                          | 374.6    |   |   | 240.4 |   |
| Asbestos-related                  assets (Note 13)                                                                              |   |                          | 87.5     |   |   | 120.7 |   |
| Deferred                  charges and other assets (Note 18)                                                                    |   |                          | 136.9    |   |   | 245.1 |   |
|    Total                  assets                                                                                 |   | $                             | 2,808.5  |   | $ | 2,568.8 |   |
| **LIABILITIES                  AND STOCKHOLDERS' EQUITY (DEFICIT)**                                                             |   |                          |     |   |   |   |   |
| Current                  liabilities                                                                                            |   |                          |     |   |   |   |   |
|    Accounts                  payable                                                                             |   | $                             | 205.3    |   | $ | 172.9 |   |
|    FiberVisions                  liabilities held for sale (Note 3)                                              |   |                          | —  |   |   | 66.6 |   |
|    Asbestos-related                  liabilities (Note 13)                                                       |   |                          | 36.4     |   |   | 36.4 |   |
|    Current                  debt obligations (Note 8)                                                            |   |                          | 35.8     |   |   | 16.7 |   |
|    Vertac                  litigation liability (Note 13)                                                        |   |                          | 123.5    |   |   | — |   |
|    Accrued                  expenses (Note 18)                                                                   |   |                          | 228.6    |   |   | 217.0 |   |
|    Current                  liabilities of discontinued operations (Note                  23)                    |   |                          | —  |   |   | 2.8 |   |
|    Total                  current liabilities                                                                    |   |                          | 629.6    |   |   | 512.4 |   |
| Long-term                  debt (Note 8)                                                                                        |   |                          | 959.7    |   |   | 1,092.3 |   |
| Deferred                  income taxes (Note 9)                                                                                 |   |                          | 69.7     |   |   | 75.8 |   |
| Pension                  obligations (Note 10)                                                                                  |   |                          | 262.5    |   |   | 323.4 |   |
| Other                  postretirement benefit obligations (Note                  10)                                            |   |                          | 142.2    |   |   | 65.5 |   |
| Deferred                  credits and other liabilities (Note 18)                                                               |   |                          | 255.6    |   |   | 289.4 |   |
| Asbestos-related                  liabilities (Note 13)                                                                         |   |                          | 233.6    |   |   | 233.6 |   |
|    Total                  liabilities                                                                            |   |                          | 2,552.9  |   |   | 2,592.4 |   |
| Commitments                  and contingencies (Note 13)                                                                        |   |                          |     |   |   |   |   |
| Minority                  interests                                                                                             |   |                          | 12.7     |   |   | 1.1 |   |
| Stockholders'                  equity (deficit)                                                                                 |   |                          |     |   |   |   |   |
|    Series                  preferred stock (Note 15)                                                             |   |                          | —  |   |   | — |   |
|    Common                  stock, $25/48 stated value (Note 16)                                                  |   |                          |     |   |   |   |   |
|       (shares                  issued: 2006 - 159,997,929 and 2005 - 159,984,444)                 |   |                          | 83.3     |   |   | 83.3 |   |
|    Additional                  paid-in capital                                                                   |   |                          | 454.9    |   |   | 548.9 |   |
|    Unearned                  compensation (Notes 11)                                                             |   |                          | (42.1    | ) |   | (65.7 | ) |
|    Accumulated                  other comprehensive losses (Note 17)                                             |   |                          | (409.6   | ) |   | (387.6 | ) |
|    Retained                  earnings                                                                            |   |                          | 1,734.1  |   |   | 1,495.4 |   |
|                                                                                                                            |   |                          | 1,820.6  |   |   | 1,674.3 |   |
|    Reacquired                  stock, at cost (shares: 2006 - 43,969,769 and 2005 -                  47,247,344) |   |                          | (1,577.7 | ) |   | (1,699.0 | ) |
| Total                  stockholders' equity (deficit)                                                                           |   |                          | 242.9    |   |   | (24.7 | ) |
| Total                  liabilities and stockholders' equity (deficit)                                                           |   | $                             | 2,808.5  |   | $ | 2,568.8 |   |

*The            accompanying accounting policies and notes are an integral part of the            consolidated financial statements.*

----

| **Hercules                  Incorporated****Consolidated                  Statements of Cash Flows***(Dollars                  in millions)*          |   |                                     |    |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|---------|
|                                                                                                                                                  |   | Year                  Ended December 31, |    |
|                                                                                                                                                  |   | 2006                                     |    | 2005 |   | 2004 |   |
| **Cash                  Flow****From                  Operating Activities****:**                                                                     |   |                                     |    |   |   |   |   |
| Net                  income (loss)                                                                                                                    |   | $                                        | 238.7   |   | $ | (41.1 | ) | $ | 28.1 |   |
| Adjustments                  to reconcile net income (loss) to net cash provided by                  operations:                                      |   |                                     |    |   |   |   |   |   |   |   |
| Depreciation                                                                                                                                          |   |                                     | 70.7    |   |   | 80.5 |   |   | 74.9 |   |
| Amortization                                                                                                                                          |   |                                     | 24.6    |   |   | 25.4 |   |   | 26.3 |   |
| Deferred                  income tax provision                                                                                                        |   |                                     | (157.8  | ) |   | (54.9 | ) |   | (18.7 | ) |
| Gain                  on disposals                                                                                                                    |   |                                     | (9.0    | ) |   | (11.8 | ) |   | (28.0 | ) |
| Impairment                  charges                                                                                                                   |   |                                     | 3.2     |   |   | 58.6 |   |   | 9.1 |   |
| Write-off                  of debt issuance costs                                                                                                     |   |                                     | 1.5     |   |   | 1.8 |   |   | 18.0 |   |
| Loss                  on sale of 51% interest in FiberVisions                                                                                         |   |                                     | 13.3    |   |   | — |   |   | — |   |
| Minority                  interests in earnings of consolidated subsidiaries                                                                          |   |                                     | 1.4     |   |   | 1.0 |   |   | 0.9 |   |
| Other                  non-cash charges and credits                                                                                                   |   |                                     | 7.7     |   |   | 5.3 |   |   | 0.8 |   |
| Accruals                  and deferrals of cash receipts and payments (net of acquisitions                  and                   dispositions): |   |                                     |    |   |   |   |   |   |   |   |
| Accounts                  receivable, net                                                                                                             |   |                                     | (17.5   | ) |   | 2.9 |   |   | (7.6 | ) |
| Inventories                                                                                                                                           |   |                                     | (8.7    | ) |   | (3.3 | ) |   | 4.0 |   |
| Asbestos-related                  assets and liabilities, net                                                                                         |   |                                     | 37.1    |   |   | 61.3 |   |   | 40.2 |   |
| Other                  current assets                                                                                                                 |   |                                     | 5.0     |   |   | (10.7 | ) |   | 20.7 |   |
| Accounts                  payable and accrued expenses                                                                                                |   |                                     | 3.9     |   |   | 28.2 |   |   | 5.0 |   |
| Vertac                  litigation liability                                                                                                          |   |                                     | 123.5   |   |   | — |   |   | — |   |
| Income                  taxes payable                                                                                                                 |   |                                     | (125.1  | ) |   | 27.1 |   |   | (25.4 | ) |
| Pension                  and postretirement benefits                                                                                                  |   |                                     | (7.9    | ) |   | (18.3 | ) |   | (23.1 | ) |
| Non-current                  assets and liabilities                                                                                                   |   |                                     | (23.8   | ) |   | (12.8 | ) |   | (4.7 | ) |
| FiberVisions                  net assets held for sale                                                                                                |   |                                     | (7.9    | ) |   | — |   |   | — |   |
| Net                  cash provided by operating activities                                                                                            |   |                                     | 172.9   |   |   | 139.2 |   |   | 120.5 |   |
| **Cash                  Flow From Investing Activities:**                                                                                             |   |                                     |    |   |   |   |   |   |   |   |
| Capital                  expenditures                                                                                                                 |   |                                     | (93.6   | ) |   | (67.5 | ) |   | (77.4 | ) |
| Acquisitions                  and investments, net of cash recognized upon consolidation                                                              |   |                                     | (29.4   | ) |   | (4.4 | ) |   | — |   |
| Proceeds                  from sale of 51% interest in FiberVisions, net of transaction                  costs                                        |   |                                     | 17.8    |   |   | — |   |   | — |   |
| Proceeds                  of fixed asset disposals                                                                                                    |   |                                     | 11.3    |   |   | 16.6 |   |   | 1.4 |   |
| Proceeds                  from sale of minority interest in CP Kelco ApS                                                                              |   |                                     | — |   |   | — |   |   | 27.0 |   |
| Other,                  net                                                                                                                           |   |                                     | (0.2    | ) |   | (2.4 | ) |   | (0.1 | ) |
| Net                  cash used in investing activities                                                                                                |   |                                     | (94.1   | ) |   | (57.7 | ) |   | (49.1 | ) |
| **Cash                  Flow From Financing Activities:**                                                                                             |   |                                     |    |   |   |   |   |   |   |   |
| Long-term                  debt issued by FiberVisions, net of issuance costs                                                                         |   |                                     | 83.7    |   |   | — |   |   | — |   |
| Long-term                  debt proceeds                                                                                                              |   |                                     | 22.0    |   |   | — |   |   | 650.0 |   |
| Long-term                  debt payments                                                                                                              |   |                                     | (142.5  | ) |   | (131.2 | ) |   | (729.5 | ) |
| Change                  in short-term debt                                                                                                            |   |                                     | 5.8     |   |   | 1.9 |   |   | 1.6 |   |
| Proceeds                  from the exercise of stock options                                                                                          |   |                                     | 37.0    |   |   | 2.7 |   |   | 5.5 |   |
| Payment                  of debt issuance costs and underwriting fees                                                                                 |   |                                     | — |   |   | — |   |   | (7.8 | ) |
| Other,                  net                                                                                                                           |   |                                     | 5.6     |   |   | (0.4 | ) |   | 6.1 |   |
| Net                  cash provided by (used in) financing activities                                                                                  |   |                                     | 11.6    |   |   | (127.0 | ) |   | (74.1 | ) |
| Effect                  of exchange rate changes on cash                                                                                              |   |                                     | 4.1     |   |   | (3.7 | ) |   | 2.9 |   |
| Net                  increase (decrease) in cash and cash equivalents                                                                                 |   |                                     | 94.5    |   |   | (49.2 | ) |   | 0.2 |   |
| Cash                  and cash equivalents at beginning of year                                                                                       |   |                                     | 77.3    |   |   | 126.5 |   |   | 126.3 |   |
| Cash                  and cash equivalents at end of year                                                                                             |   | $                                        | 171.8   |   | $ | 77.3 |   | $ | 126.5 |   |

*The            accompanying accounting policies and notes are an integral part of the            consolidated financial statements.*

----

| **Hercules                  Incorporated****Consolidated                  Statements of Stockholders' Equity (Deficit)***(Dollars                  in millions)* |   |   |    |    |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|---------|--------|
|                                                                                                                                                             |   |   |    |    |   |   |   | Accumulated |   |   |   |   |   |   |   |
|                                                                                                                                                             |   |   |    |    |   | Unearned |   | Other |   |   |   |   |   |   |   |
|                                                                                                                                                             |   | Common |    | Paid-in |   | Compen- |   | Comprehen- |   | Retained |   | Reacquired |   |   |   |
|                                                                                                                                                             |   | Stock  |    | Capital |   | sation |   | sive                  Losses |   | Earnings |   | Stock |   | Total |   |
|                                                                                                                                                             |   |   |    |    |   |   |   |   |   |   |   |   |   |   |   |
| Balances                  at January 1, 2004                                                                                                                     |   | $      | 83.3    |    | $      | 603.4 |   | $ | (86.2 | ) | $ | (317.9 | ) | $ | 1,508.4 |   | $ | (1,765.6 | ) | $ | 25.4 |   |
| *(Common                  shares: issued, 159,984,444; reacquired, 48,992,628)*                                                                                  |   |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  income                                                                                                                                      |   |   | — |    |   | — |   |   | — |   |   | — |   |   | 28.1 |   |   | — |   |   | 28.1 |   |
| Foreign                  currency translation adjustment                                                                                                         |   |   | — |    |   | — |   |   | — |   |   | 69.7 |   |   | — |   |   | — |   |   | 69.7 |   |
| Release                  of shares held by ESOP trust                                                                                                            |   |   | — |    |   | (5.0 | ) |   | 13.3 |   |   | — |   |   | — |   |   | — |   |   | 8.3 |   |
| Increase                  in additional minimum pension liability, net of tax                                                                                    |   |   | — |    |   | — |   |   | — |   |   | (28.2 | ) |   | — |   |   | — |   |   | (28.2 | ) |
| Issuances                  of treasury stock, net of forfeitures                                                                                                 |   |   | — |    |   | (29.2 | ) |   | (8.0 | ) |   | — |   |   | — |   |   | 42.8 |   |   | 5.6 |   |
| Amortization                  of unearned compensation                                                                                                           |   |   | — |    |   | — |   |   | 3.0 |   |   | — |   |   | — |   |   | — |   |   | 3.0 |   |
|                                                                                                                                                             |   |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balances                  at December 31, 2004                                                                                                                   |   | $      | 83.3    |    | $      | 569.2 |   | $ | (77.9 | ) | $ | (276.4 | ) | $ | 1,536.5 |   | $ | (1,722.8 | ) | $ | 111.9 |   |
| *(Common                  shares: issued, 159,984,444; reacquired, 47,842,836)*                                                                                  |   |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  loss                                                                                                                                        |   |   | — |    |   | — |   |   | — |   |   | — |   |   | (41.1 | ) |   | — |   |   | (41.1 | ) |
| Foreign                  currency translation adjustment                                                                                                         |   |   | — |    |   | — |   |   | — |   |   | (66.6 | ) |   | — |   |   | — |   |   | (66.6 | ) |
| Release                  of shares held by ESOP trust                                                                                                            |   |   | — |    |   | (5.0 | ) |   | 12.8 |   |   | — |   |   | — |   |   | — |   |   | 7.8 |   |
| Repurchase                  of warrants                                                                                                                          |   |   | — |    |   | (2.0 | ) |   | — |   |   | — |   |   | — |   |   | — |   |   | (2.0 | ) |
| Increase                       in additional minimum pension liability, net of tax                                                                               |   |   | — |    |   | — |   |   | — |   |   | (44.3 | ) |   | — |   |   | — |   |   | (44.3 | ) |
| Issuances                  of treasury stock, net of forfeitures                                                                                                 |   |   | — |    |   | (13.3 | ) |   | (8.5 | ) |   | — |   |   | — |   |   | 23.8 |   |   | 2.0 |   |
| Amortization                  of unearned compensation                                                                                                           |   |   | — |    |   | — |   |   | 7.9 |   |   | — |   |   | — |   |   | — |   |   | 7.9 |   |
| Other,                  net of tax                                                                                                                               |   |   | — |    |   | — |   |   | — |   |   | (0.3 | ) |   | — |   |   | — |   |   | (0.3 | ) |
|                                                                                                                                                             |   |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balances                  at December 31, 2005                                                                                                                   |   | $      | 83.3    |    | $      | 548.9 |   | $ | (65.7 | ) | $ | (387.6 | ) | $ | 1,495.4 |   | $ | (1,699.0 | ) | $ | (24.7 | ) |
| *(Common                  shares: issued, 159,984,444; reacquired, 47,247,344)*                                                                                  |   |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  income                                                                                                                                      |   |   | — |    |   | — |   |   | — |   |   | — |   |   | 238.7 |   |   | — |   |   | 238.7 |   |
| Foreign                  currency translation adjustment                                                                                                         |   |   | — |    |   | — |   |   | — |   |   | 54.6 |   |   | — |   |   | — |   |   | 54.6 |   |
| Release                  of shares held by ESOP trust                                                                                                            |   |   | — |    |   | (6.4 | ) |   | 11.5 |   |   | — |   |   | — |   |   | — |   |   | 5.1 |   |
| Repurchase                  of warrants                                                                                                                          |   |   | — |    |   | (1.0 | ) |   | — |   |   | — |   |   | — |   |   | — |   |   | (1.0 | ) |
| Decrease                  in additional minimum pension liability, net of tax                                                                                    |   |   | — |    |   | — |   |   | — |   |   | 85.0 |   |   | — |   |   | — |   |   | 85.0 |   |
| Recognition                  of funded status of pension and postretirement     benefit                  plans, net of tax              |   |   | — |    |   | — |   |   | — |   |   | (126.5 | ) |   | — |   |   | — |   |   | (126.5 | ) |
| Issuances                  of treasury stock, net of forfeitures                                                                                                 |   |   | — |    |   | (74.7 | ) |   | — |   |   | — |   |   | — |   |   | 121.3 |   |   | 46.6 |   |
| Reclassification                  required by SFAS 123R                                                                                                          |   |   | — |    |   | (12.1 | ) |   | 12.1 |   |   | — |   |   | — |   |   | — |   |   | — |   |
| Conversion                  of debentures                                                                                                                        |   |   | — |    |   | 0.2 |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 0.2 |   |
| Revaluation                  of hedges, net of tax                                                                                                               |   |   | — |    |   | — |   |   | — |   |   | (34.6 | ) |   | — |   |   | — |   |   | (34.6 | ) |
| Other,                  net of tax                                                                                                                               |   |   | — |    |   | — |   |   | — |   |   | (0.5 | ) |   | — |   |   | — |   |   | (0.5 | ) |
|                                                                                                                                                             |   |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balances                  at December 31, 2006                                                                                                                   |   | $      | 83.3    |    | $      | 454.9 |   | $ | (42.1 | ) | $ | (409.6 | ) | $ | 1,734.1 |   | $ | (1,577.7 | ) | $ | 242.9 |   |
| *(Common                  shares: issued, 159,997,929; reacquired,43,969,769)*                                                                                   |   |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                             |   |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

*The            accompanying accounting policies and notes are an integral part of the            consolidated financial statements.*

----

**Hercules      Incorporated**

**Summary      of Significant Accounting Policies **

*(Dollars      in millions, except per share data)*

**Nature      of Business**

**Principles      of Consolidation**

**Use      of Estimates**

**Revenue      Recognition**

**Allowance      for Doubtful Accounts Receivable**

**Research      and Development Expenditures**

**Environmental      Expenditures**

**Changes      in Accounting Principle**

Note 24

----

**Hercules      Incorporated**

**Summary      of Significant Accounting Policies **

*(Dollars      in millions, except per share data)*

**Cash      and Cash Equivalents**

**Inventories**

**Assets      Held for Sale**

**Property,      Plant and Equipment and Depreciation**

**Intangible      Assets and Goodwill**

**Long-lived      Assets**

**Computer      Software Development Costs**

**Deferred      Financing Costs**

**Income      Taxes**

----

**Hercules      Incorporated**

**Summary      of Significant Accounting Policies **

*(Dollars      in millions, except per share data)*

**Asset      Retirement Obligations**

**Foreign      Currency Translation**

**Derivative      Instruments and Hedging**

**Stock-based      Compensation**

Note 14

----

**Hercules      Incorporated**

**Summary      of Significant Accounting Policies **

*(Dollars      in millions, except per share data)*

|                                                                                                                                                                                                                             |   |                                     |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|
|                                                                                                                                                                                                                             |   | Year                  Ended December 31, |   |
|                                                                                                                                                                                                                             |   | 2005                                     |   | 2004 |   |
| Net                  (loss) income, as reported                                                                                                                                                                                  |   | $                                        | (41.1  | ) | $ | 28.1 |   |
| Add:                  Total stock-based compensation expense recognized in reported results,                  net of tax                                                                                                    |   |                                     | 4.5    |   |   | 1.4 |   |
| Deduct:                  Total stock-based compensation expense determined under the            fair                  value based method for all awards, net of tax* |   |                                     | 5.1    |   |   | 2.8 |   |
| Pro                  forma net (loss) income                                                                                                                                                                                     |   | $                                        | (41.7  | ) | $ | 26.7 |   |
| (Loss)                  earnings per share:                                                                                                                                                                                      |   |                                     |   |   |   |   |   |
| Basic                  - as reported                                                                                                                                                                                             |   | $                                        | (0.38  | ) | $ | 0.26 |   |
| Basic                  - pro forma                                                                                                                                                                                               |   | $                                        | (0.38  | ) | $ | 0.25 |   |
| Diluted                  - as reported                                                                                                                                                                                           |   | $                                        | (0.38  | ) | $ | 0.26 |   |
| Diluted                  - pro forma                                                                                                                                                                                             |   | $                                        | (0.38  | ) | $ | 0.24 |   |

| *                For information regarding the weighted-average assumptions used in                estimating fair value for 2005 and 2004 see Note                14. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Recent      Accounting Pronouncements**

**Reclassifications**

Note 1

----

**Hercules      Incorporated**

**Notes      to Consolidated Financial Statements**

*(Dollars      in millions, except per share data)*

| **1.  ** | **Realignment                of Reporting                Segments** |
|--------------------|---------------------------------------------------------------------|

Note      23

Note 3

Note 27 

| **2.  ** | **Acquisitions                and Investments** |
|--------------------|-------------------------------------------------|

*Benchmark*

*Hercules      Tianpu*

Note 4

----

**Hercules      Incorporated**

**Notes      to Consolidated Financial Statements**

*(Dollars      in millions, except per share data)*

*Shanghai      Hercules*

| **Assets**                                        |   |   |   | **Liabilities                and Minority Interests** |   |                                                           |   |
|---------------------------------------------------|--------|--------|--------|-------------------------------------------------------|--------|----------------------------------------------------------------|--------|
| Cash                and cash equivalents          |   | $      | 2.6    |                                                  |   | Accounts                payable                                |   | $ | 10.3 |   |
| Accounts                receivable, net           |   |   | 3.9    |                                                  |   | Accrued                expenses                                |   |   | 5.5 |   |
| Inventories                                       |   |   | 10.1   |                                                  |   | Minority                interests                              |   |   | 9.6 |   |
| Other                current assets               |   |   | 0.1    |                                                  |   |                                                           |   |   |   |   |
| Property,                plant and equipment, net |   |   | 21.2   |                                                  |   |                                                           |   |   |   |   |
| Intangible                assets, net             |   |   | 7.2    |                                                  |   |                                                           |   |   |   |   |
| Goodwill                                          |   |   | 14.0   |                                                  |   |                                                           |   |   |   |   |
| Deferred                charges and other assets  |   |   | 2.7    |                                                  |   |                                                           |   |   |   |   |
|   Total                assets           |   | $      | 61.8   |                                                  |   |                  Total liabilities and minority interests |   | $ | 25.4 |   |

| **3.  ** | **Divestitures** |
|--------------------|------------------|

*FiberVisions*

----

**Hercules      Incorporated**

**Notes      to Consolidated Financial Statements**

*(Dollars      in millions, except per share data)*

| **Assets**                                                         |   |   |   | **Liabilities** |   |                                                               |   |
|--------------------------------------------------------------------|--------|--------|--------|-----------------|--------|--------------------------------------------------------------------|--------|
| Cash                and cash equivalents                           |   | $      | 2.6    |            |   | Accounts                payable                                    |   | $ | 29.9 |   |
| Accounts                receivable, net                            |   |   | 34.4   |            |   | Accrued                expenses                                    |   |   | 7.1 |   |
| Inventories                                                        |   |   | 20.7   |            |   | Deferred                income taxes                               |   |   | 29.2 |   |
| Other                current assets                                |   |   | 9.2    |            |   | Long-term                debt                                      |   |   | 0.3 |   |
| Property,                plant and equipment, net                  |   |   | 92.1   |            |   | Deferred                credits and other liabilities              |   |   | 0.1 |   |
| Intangible                assets, net                              |   |   | 11.1   |            |   |                                                               |   |   |   |   |
| Goodwill                                                           |   |   | 32.0   |            |   |                                                               |   |   |   |   |
| Deferred                charges and other assets                   |   |   | 0.6    |            |   |                                                               |   |   |   |   |
|   Total                FiberVisions assets held for sale |   | $      | 202.7  |            |   |                  Total FiberVisions liabilities held for sale |   | $ | 66.6 |   |

*CP      Kelco*

| **4.  ** | **Variable                Interest Entities** |
|--------------------|-----------------------------------------------|

----

**Hercules      Incorporated**

**Notes      to Consolidated Financial Statements**

*(Dollars      in millions, except per share data)*

**5.**
**Accounts      Receivable, Net **

|                                                           |   | 2006   |   | 2005   |   | 2004 |   |
|----------------------------------------------------------------|--------|--------|--------|--------|--------|------|--------|
| Balance                at beginning of year                    |   | $      | 4.0    |   | $      | 4.7  |   | $ | 5.5 |   |
|    Charged                to costs and expenses |   |   | 3.2    |   |   | 2.3  |   |   | 5.4 |   |
|    Deductions                                   |   |   | (1.6   | )      |   | (3.0 | )      |   | (6.2 | ) |
| Balance                at end of year                          |   | $      | 5.6    |   | $      | 4.0  |   | $ | 4.7 |   |

| **6.  ** | **Inventories** |
|--------------------|-----------------|

|                                             |   | 2006   |   | 2005   |   |
|--------------------------------------------------|--------|--------|--------|--------|--------|
| Finished                products                 |   | $      | 115.4  |   | $      | 98.4 |   |
| Raw                materials and work-in-process |   |   | 73.3   |   |   | 60.5 |   |
| Supplies                                         |   |   | 21.9   |   |   | 20.7 |   |
|                                             |   | $      | 210.6  |   | $      | 179.6 |   |

| **7.  ** | **Intangible                Assets and Goodwill** |
|--------------------|---------------------------------------------------|

|                                     |   | 2006   |   | 2005         |   |
|------------------------------------------|--------|--------|--------|--------------|--------|
|                                     |   |   |   | Accumulated  |   |   |   |   |   | Accumulated |   |   |   |
|                                     |   | Gross  |   | Amortization |   | Net |   | Gross |   | Amortization |   | Net |   |
| Customer                relationships    |   | $      | 90.0   |         | $      | 18.6 |   | $ | 71.4 |   | $ | 90.0 |   | $ | 16.4 |   | $ | 73.6 |   |
| Trademarks                and tradenames |   |   | 73.9   |         |   | 15.6 |   |   | 58.3 |   |   | 73.9 |   |   | 13.5 |   |   | 60.4 |   |
| Other                intangible assets   |   |   | 32.2   |         |   | 18.8 |   |   | 13.4 |   |   | 24.8 |   |   | 16.0 |   |   | 8.8 |   |
|                                     |   | $      | 196.1  |         | $      | 53.0 |   | $ | 143.1 |   | $ | 188.7 |   | $ | 45.9 |   | $ | 142.8 |   |

|                                                                               |   | Paper                       |    |    |   |         |   |   |    |
|------------------------------------------------------------------------------------|--------|-----------------------------|---------|---------|--------|--------------|--------|--------|---------|
|                                                                               |   | Technologies                |    | Aqualon |   |         |   |   |    |
|                                                                               |   | and                Ventures |    | Group   |   | FiberVisions |   | Total  |    |
| Balance                at December 31, 2004                                        |   | $                           | 425.7   |    | $      | 39.7         |   | $      | 84.9    |   | $ | 550.3 |   |
|    Impairment                                                       |   |                        | — |    |   | —      |   |   | (52.9   | ) |   | (52.9 | ) |
|    Reclassified                to FiberVisions assets held for sale |   |                        | — |    |   | —      |   |   | (32.0   | ) |   | (32.0 | ) |
|    Foreign                currency translation                      |   |                        | (23.1   | )       |   | (1.3         | )      |   | — |   |   | (24.4 | ) |
| Balance                at December 31, 2005                                        |   | $                           | 402.6   |    | $      | 38.4         |   | $      | — |   | $ | 441.0 |   |
|    Acquisitions                and investments                      |   |                        | 1.5     |    |   | 12.5         |   |   | — |   |   | 14.0 |   |
|    Foreign                currency translation                      |   |                        | 25.4    |    |   | 1.1          |   |   | — |   |   | 26.5 |   |
| Balance                at December 31, 2006                                        |   | $                           | 429.5   |    | $      | 52.0         |   | $      | — |   | $ | 481.5 |   |

----

**Hercules      Incorporated**

**Notes      to Consolidated Financial Statements**

*(Dollars      in millions, except per share data)*

**8.           Debt**

|                                                                                                                                 |   | 2006   |    |  2005 |   |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|------------|--------|
| Term                B loan due 2010 (a)                                                                                              |   | $      | 375.0   |       | $      | 393.0 |   |
| 6.60%                notes due 2027 (b)                                                                                              |   |   | 100.0   |       |   | 100.0 |   |
| Term                notes at various rates from 5.00% to 7.16% due in varying amounts                through                2006 (c) |   |   | — |       |   | 6.8 |   |
| 11.125%                senior notes due 2007 (d)                                                                                     |   |   | 16.1    |       |   | 130.0 |   |
| 6.75%                senior subordinated notes due 2029 (e)                                                                          |   |   | 250.0   |       |   | 250.0 |   |
| 8%                convertible subordinated debentures due 2010 (f)                                                                   |   |   | 2.4     |       |   | 2.6 |   |
| 6.5%                junior subordinated deferrable interest debentures due 2029                (g)                                   |   |   | 214.1   |       |   | 217.0 |   |
| Term                loans at rates ranging from 5.5575% to 5.814% due in varying amounts                through 2011(h)              |   |   | 28.1    |       |   | — |   |
| Other                                                                                                                                |   |   | 9.8     |       |   | 9.6 |   |
|                                                                                                                                 |   |   | 995.5   |       |   | 1,109.0 |   |
| Less:                Current debt obligations                                                                                        |   |   | 35.8    |       |   | 16.7 |   |
| Long                term debt                                                                                                        |   | $      | 959.7   |       | $      | 1,092.3 |   |

|   | (a) | The                term loan, a component of the Company’s Senior Credit Facility, matures on                October 8, 2010 and bears interest at LIBOR + 1.50%, with the Company                holding the option to reset interest rates for one, two, three or                six                month periods. The weighted average rate was 6.87% as of December                31,                2006. The Senior Credit Facility is also comprised of a $150 million                committed revolving credit facility (the “Revolving Facility”) which                matures on April 8, 2009 and provides Hercules the ability, subject                to                lender approval, to borrow until April 8, 2007 an additional $250                million                in the form of an incremental term note. The Senior Credit Facility                is                secured by liens on the Company's assets (including real, personal                and                intellectual properties) and is guaranteed by substantially all of                the                Company's current and future wholly-owned domestic subsidiaries (seeNote 29). |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | 30-year                debentures with a 10-year put option, exercisable August 1, 2007                by the                bondholder at a redemption price equal to the principal                amount. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | Debt                assumed in conjunction with the acquisition of FiberVisions L.L.C                in 1998                and retained by Hercules prior to the FiberVisions                Transaction. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (d) | The                senior notes accrue interest at 11.125% per annum, payable semi-annually.                The senior notes are guaranteed by each of Hercules' current and                future                wholly-owned domestic restricted subsidiaries and matures on November                15,                2007. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (e) | The                Company completed a private placement of $250 million aggregate principal                amount of 6.75% senior subordinated notes due 2029 during April 2004.                The                senior subordinated notes are guaranteed by each of Hercules’ current and                future wholly-owned domestic restricted subsidiaries. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (f) | The                convertible subordinated debentures are convertible into common stock                at                $14.90 per share and are redeemable at the option of the Company                at                varying rates. The annual sinking fund requirement of $5 million,                beginning in 1996, has been satisfied through conversions of                debentures. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (g) | The                6.5% junior subordinated deferrable interest debentures due 2029                (the                "6.5% debentures") had an initial issue price of $741.46 and have                a                redemption price of $1,000. The 6.5% debentures were initially issued                to                Hercules Trust II ("Trust II"), a subsidiary trust established in                1999.                Trust II had issued, in an underwritten public offering, 350,000                CRESTS                Units, each consisting of a 6.5% preferred security of Trust II and                a                warrant (exercisable through 2029) to purchase 23.4192 shares of                the                Company's common stock. The preferred securities and the warrants                were                separable and were initially valued at $741.46 and $258.54, respectively.                The Company and Trust II accreted the difference between the initial                valuation of the 6.5% debentures and the preferred securities and                the                redemption value of $1,000 over the term of the 6.5% debentures and                the                preferred securities. In connection with the Company’s dissolution and                liquidation of Trust II in December 2004, Trust II distributed the                6.5%                debentures to the holders of the preferred securities and the preferred                securities were cancelled. The CRESTS Units now consist of the 6.5%                debentures and the warrants. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (h) | Includes                loans issued by Hercules Tianpu secured by liens on Hercules Tinapu’s                fixed assets for which Hercules has provided a guarantee for 55%                of the                outstanding balances. The loans are denominated in renminbi and include                a                short-term loan payable due in 2007 for approximately $5.9 million                and a                long-term loan payable due in 2011 for approximately $22.2                million. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Hercules        Incorporated**

**Notes        to Consolidated Financial Statements**

*(Dollars        in millions, except per share data)*

**9**
**      Income      Taxes**

|                                                                                                         |   | 2006   |   | 2005   |   | 2004  |   |
|--------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|-------|--------|
| Domestic                                                                                                     |   | $      | (164.3 | )      | $      | (46.9 | )      | $ | (154.8 | ) |
| Foreign                                                                                                      |   |   | 167.5  |   |   | 11.5  |   |   | 189.3 |   |
| Income                (loss) before income taxes, minority interests and equity (loss)                income |   | $      | 3.2    |   | $      | (35.4 | )      | $ | 34.5 |   |

| Currently                payable                    |   | 2006   |    | 2005   |   | 2004   |   |
|-----------------------------------------------------|--------|--------|---------|--------|--------|--------|--------|
| U.S.                federal                         |   | $      | (64.0   | )      | $      | 1.4    |   | $ | (29.0 | ) |
| Foreign                                             |   |   | 29.6    |   |   | 40.9   |   |   | 38.1 |   |
| State                                               |   |   | — |   |   | 8.8    |   |   | 13.4 |   |
| Deferred                                            |   |   |    |   |   |   |   |   |   |   |
| Domestic                                            |   |   | (154.6  | )      |   | (48.3  | )      |   | (21.5 | ) |
| Foreign                                             |   |   | (3.2    | )      |   | (6.6   | )      |   | 2.8 |   |
| (Benefit)                provision for income taxes |   | $      | (192.2  | )      | $      | (3.8   | )      | $ | 3.8 |   |

|                                                                |   | 2006   |   | 2005   |   | 2004 |   |
|---------------------------------------------------------------------|--------|--------|--------|--------|--------|------|--------|
| Benefit                on loss from discontinued operations         |   | $      | (49.6  | )      | $      | (3.4 | )      | $ | (1.4 | ) |
| Cumulative                effect of changes in accounting principle |   |   | 0.5    |   |   | (1.4 | )      |   | — |   |
|                                                                |   | $      | (49.1  | )      | $      | (4.8 | )      | $ | (1.4 | ) |

Note      17

|                                                |   | 2006   |   | 2005   |   | 2004    |   |
|-----------------------------------------------------|--------|--------|--------|--------|--------|---------|--------|
| Additional                minimum pension liability |   | $      | (44.7  | )      | $      | 24.8    |   | $ | 14.5 |   |
| Impact                of the adoption of SFAS 158   |   |   | 62.2   |   |   | — |   |   | — |   |
| Hedging                activities                   |   |   | 18.6   |   |   | — |   |   | — |   |
| Other                                               |   |   | 0.3    |   |   | 0.2     |   |   | — |   |
|                                                |   | $      | 36.4   |   | $      | 25.0    |   | $ | 14.5 |   |

----

**Hercules      Incorporated**

**Notes      to Consolidated Financial Statements**

*(Dollars      in millions, except per share data)*

|                                                       |   | 2006   |   | 2005   |   |
|------------------------------------------------------------|--------|--------|--------|--------|--------|
| Depreciation                                               |   | $      | (82.8  | )      | $      | (81.4 | ) |
| Pension                                                    |   |   | (1.3   | )      |   | (8.2 | ) |
| Inventory                                                  |   |   | (3.1   | )      |   | (4.1 | ) |
| Investments                                                |   |   | (19.3  | )      |   | (174.3 | ) |
| Goodwill                                                   |   |   | (45.0  | )      |   | (48.4 | ) |
| Accrued                expenses                            |   |   | (2.9   | )      |   | (3.1 | ) |
| Other                                                      |   |   | (7.5   | )      |   | (13.1 | ) |
| Gross                deferred tax liabilities              |   | $      | (161.9 | )      | $      | (332.6 | ) |
|                                                       |   |   |   |   |   |   |   |
| Postretirement                benefits other than pensions |   | $      | 70.0   |   | $      | 45.5 |   |
| Pension                                                    |   |   | 87.3   |   |   | 113.4 |   |
| Goodwill                                                   |   |   | 8.4    |   |   | 7.1 |   |
| Accrued                expenses                            |   |   | 242.1  |   |   | 216.1 |   |
| Loss                carryforwards                          |   |   | 230.1  |   |   | 349.2 |   |
| Credit                carryforwards                        |   |   | 131.4  |   |   | 126.9 |   |
| Investments                                                |   |   | 77.5   |   |   | 21.5 |   |
| Other                                                      |   |   | 14.2   |   |   | 24.6 |   |
| Gross                deferred tax assets                   |   |   | 861.0  |   |   | 904.3 |   |
| Valuation                allowance                         |   |   | (335.8 | )      |   | (380.7 | ) |
| Net                deferred tax assets                     |   | $      | 363.3  |   | $      | 191.0 |   |

|                                                                    |   | 2006   |    | 2005   |   | 2004    |   |
|-------------------------------------------------------------------------|--------|--------|---------|--------|--------|---------|--------|
| U.S.                statutory income tax rate                           |   |   | 35      | %      |   | 35      | %      |   | 35 | % |
| Gain                on sale of CP Kelco ApS                             |   |   | — |   |   | — |   |   | (27 | ) |
| Valuation                allowances                                     |   |   | (3,137  | )      |   | (66     | )      |   | (66 | ) |
| Tax                rate differences on subsidiary earnings              |   |   | (325    | )      |   | (8      | )      |   | (39 | ) |
| U.S.                tax on foreign dividends and undistributed earnings |   |   | 232     |   |   | 27      |   |   | 21 |   |
| State                taxes                                              |   |   | (1      | )      |   | (15     | )      |   | 30 |   |
| Reserves                                                                |   |   | (1,378  | )      |   | 21      |   |   | 61 |   |
| Exempt                export income                                     |   |   | (36     | )      |   | 5       |   |   | (6 | ) |
| Tax                refunds                                              |   |   | (1,396  | )      |   | 12      |   |   | — |   |
| Other                                                                   |   |   | — |   |   | — |   |   | 2 |   |
| Effective                tax rate                                       |   |   | (6,006  | )%     |   | 11      | %      |   | 11 | % |

----

**Hercules        Incorporated**

**Notes        to Consolidated Financial Statements**

*(Dollars        in millions, except per share data)*

**10.**
**        **
**Pension      and Other Postretirement Benefits**

|                                                    |   | Pension                Benefits |    |         |   |
|---------------------------------------------------------|--------|---------------------------------|---------|--------------|--------|
|                                                    |   | 2006                            |    | 2005         |   | Other                Postretirement Benefits |   |
| **Change                in benefit obligation:**        |   | U.S.                            |    | Int’l. |   | U.S. |   | Int’l. |   | 2006 |   | 2005 |   |
| Benefit                obligation at January 1          |   | $                               | 1,536.8 |         | $      | 340.6 |   | $ | 1,413.5 |   | $ | 325.7 |   | $ | 154.5 |   | $ | 181.0 |   |
| Service                cost                             |   |                            | 11.4    |         |   | 6.0 |   |   | 12.7 |   |   | 5.4 |   |   | 0.5 |   |   | 0.8 |   |
| Interest                cost                            |   |                            | 86.5    |         |   | 15.5 |   |   | 81.3 |   |   | 15.2 |   |   | 8.8 |   |   | 8.8 |   |
| Plan                amendments                          |   |                            | — |         |   | 0.3 |   |   | — |   |   | (4.5 | ) |   | — |   |   | (32.4 | ) |
| Foreign                currency translation             |   |                            | — |         |   | 35.3 |   |   | — |   |   | (37.3 | ) |   | — |   |   | 0.1 |   |
| Actuarial                (gain) loss                    |   |                            | (17.8   | )            |   | (17.8 | ) |   | 136.1 |   |   | 49.2 |   |   | 14.7 |   |   | 19.8 |   |
| Settlements/curtailments                                |   |                            | (2.3    | )            |   | (0.6 | ) |   | — |   |   | — |   |   | — |   |   | — |   |
| Special                termination benefits             |   |                            | 1.6     |         |   | — |   |   | — |   |   | — |   |   | 1.3 |   |   | — |   |
| Benefits                paid from plan assets           |   |                            | (109.0  | )            |   | (15.2 | ) |   | (101.9 | ) |   | (13.1 | ) |   | — |   |   | — |   |
| Benefits                paid from Company assets        |   |                            | (5.1    | )            |   | — |   |   | (4.9 | ) |   | — |   |   | (21.4 | ) |   | (23.6 | ) |
| Benefit                obligation at December 31        |   | $                               | 1,502.1 |         | $      | 364.1 |   | $ | 1,536.8 |   | $ | 340.6 |   | $ | 158.4 |   | $ | 154.5 |   |
| **Change                in plan assets:**               |   |                            |    |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fair                value of plan assets at January 1   |   | $                               | 1,219.3 |         | $      | 256.4 |   | $ | 1,176.2 |   | $ | 245.7 |   | $ | — |   | $ | — |   |
| Actual                return on plan assets             |   |                            | 165.7   |         |   | 17.1 |   |   | 105.0 |   |   | 20.9 |   |   | — |   |   | — |   |
| Actuarial                (loss) gain                    |   |                            | — |         |   | (0.5 | ) |   | — |   |   | 14.7 |   |   | — |   |   | — |   |
| Company                contributions                    |   |                            | 30.0    |         |   | 7.5 |   |   | 40.0 |   |   | 13.7 |   |   | — |   |   | — |   |
| Participant                contributions                |   |                            | — |         |   | 0.8 |   |   | — |   |   | 0.9 |   |   | — |   |   | — |   |
| Foreign                currency translation             |   |                            | — |         |   | 27.5 |   |   | — |   |   | (27.7 | ) |   | — |   |   | — |   |
| Benefits                paid from plan assets           |   |                            | (109.0  | )            |   | (13.8 | ) |   | (101.9 | ) |   | (11.8 | ) |   | — |   |   | — |   |
| Fair                value of plan assets at December 31 |   | $                               | 1,306.0 |         | $      | 295.0 |   | $ | 1,219.3 |   | $ | 256.4 |   | $ | — |   | $ | — |   |

| Funded                status of the plan                                                          |   | $      | (196.1  | )      | $      | (69.1   | )      | $      | (317.5  | )      | $      | (84.2   | )      | $      | (158.4  | )      | $      | (154.5  | )      |
|---------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|
| Unrecognized                actuarial loss                                                        |   |   | — |   |   | — |   |   | 671.2   |   |   | 104.5   |   |   | — |   |   | 120.1   |   |
| Unrecognized                prior service benefit                                                 |   |   | — |   |   | — |   |   | (22.0   | )      |   | (2.7    | )      |   | — |   |   | (55.4   | )      |
| Accrued                expenses                                                                   |   |   | — |   |   | — |   |   | — |   |   | (0.2    | )      |   | — |   |   | — |   |
| Unrecognized                net transition obligation                                             |   |   | — |   |   | — |   |   | — |   |   | 0.5     |   |   | — |   |   | 0.8     |   |
| Net                amount recognized                                                              |   | $      | (196.1  | )      | $      | (69.1   | )      | $      | 331.7   |   | $      | 17.9    |   | $      | (158.4  | )      | $      | (89.0   | )      |
| **Components                of the above amounts:**                                               |
| Prepaid                benefit cost                                                               |   | $      | — |   | $      | 2.2     |   | $      | 369.5   |   | $      | 53.3    |   | $      | — |   | $      | — |   |
| Accrued                expenses                                                                   |   |   | (4.9    | )      |   | — |   |   | — |   |   | — |   |   | (16.2   | )      |   | (23.5   | )      |
| Accrued                benefit liability (noncurrent)                                             |   |   | (191.2  | )      |   | (71.3   | )      |   | (37.8   | )      |   | (35.4   | )      |   | (142.2  | )      |   | (65.5   | )      |
| Additional                minimum liability                                                       |   |   | — |   |   | — |   |   | (588.6  | )      |   | (48.2   | )      |   | — |   |   | — |   |
| Intangible                asset                                                                   |   |   | — |   |   | — |   |   | — |   |   | 0.4     |   |   | — |   |   | — |   |
| Accumulated                other comprehensive losses                                             |   |   | — |   |   | — |   |   | 588.6   |   |   | 47.8    |   |   | — |   |   | — |   |
| Net                amount recognized                                                              |   | $      | (196.1  | )      | $      | (69.1   | )      | $      | 331.7   |   | $      | 17.9    |   | $      | (158.4  | )      | $      | (89.0   | )      |
| **Amounts                included in Accumulated other comprehensive                losses:**     |
| Actuarial                (losses) gains                                                           |   | $      | (545.8  | )      | $      | (106.6  | )      |   | N/A     |   |   | N/A     |   | $      | (126.4  | )      |   | N/A     |   |
| Prior                service credits                                                              |   |   | 18.2    |   |   | 17.2    |   |   | N/A     |   |   | N/A     |   |   | 43.0    |   |   | N/A     |   |
| Transition                obligations                                                             |   |   | — |   |   | (0.4    | )      |   | N/A     |   |   | N/A     |   |   | (0.7    | )      |   | N/A     |   |
| Total                                                                                             |   | $      | (527.6  | )      | $      | (89.8   | )      |   | N/A     |   |   | N/A     |   | $      | (84.1   | )      |   | N/A     |   |
| **Amortization                expected to be recognized during next fiscal                year:** |
| Actuarial                losses                                                                   |   | $      | 39.1    |   | $      | 4.5     |   |   | N/A     |   |   | N/A     |   | $      | 8.9     |   |   | N/A     |   |
| Prior                service credits                                                              |   |   | (1.7    | )      |   | (0.9    | )      |   | N/A     |   |   | N/A     |   |   | (7.8    | )      |   | N/A     |   |
| Transition                obligations                                                             |   |   | — |   |   | 0.1     |   |   | N/A     |   |   | N/A     |   |   | 0.1     |   |   | N/A     |   |
| Total                                                                                             |   | $      | 37.4    |   | $      | 3.7     |   |   | N/A     |   |   | N/A     |   | $      | 1.2     |   |   | N/A     |   |

----

**Hercules        Incorporated**

**Notes        to Consolidated Financial Statements**

*(Dollars        in millions, except per share data)*

| **Weighted-average                assumptions used to determine the benefit obligation at December                31, 2006                and 2005 were:** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                       |   | Pension                Benefits |   |   |   |
|                                                                                                                                                       |   | 2006 |   | 2005 |   | Other                  Postretirement Benefits |   |
|                                                                                                                                                       |   | U.S. |   | Int’l. |   | U.S. |   | Int’l. |   | 2006 |   | 2005 |   |
| Weighted-average                discount rate                                                                                                              |   |   | 5.90 | % |   | 4.71 | % |   | 5.70 | % |   | 4.35 | % |   | 5.79 | % |   | 5.59 | % |
| Rate                of compensation increase                                                                                                               |   |   | 4.30 | % |   | 3.10 | % |   | 4.30 | % |   | 2.87 | % |   | 4.29 | % |   | 4.29 | % |

**Net      periodic benefit costs are summarized below:**

|                                                              |   | Pension                Benefits |    |         |   |
|-------------------------------------------------------------------|--------|---------------------------------|---------|--------------|--------|
|                                                              |   | 2006                            |    | 2005         |   | 2004 |   | Other                Postretirement Benefits |   |
| **Net                periodic benefit cost**:                     |   | U.S.                            |    | Int’l. |   | U.S. |   | Int’l. |   | U.S. |   | Int’l. |   | 2006 |   | 2005 |   | 2004 |   |
| Service                cost                                       |   | $                               | 11.4    |         | $      | 6.0 |   | $ | 12.7 |   | $ | 5.4 |   | $ | 13.3 |   | $ | 5.9 |   | $ | 0.5 |   | $ | 0.8 |   | $ | 0.8 |   |
| Interest                cost                                      |   |                            | 86.5    |         |   | 15.5 |   |   | 81.3 |   |   | 15.2 |   |   | 82.3 |   |   | 15.4 |   |   | 8.8 |   |   | 8.8 |   |   | 10.3 |   |
| Expected                return on plan assets                     |   |                            | (100.4  | )            |   | (17.3 | ) |   | (95.4 | ) |   | (14.9 | ) |   | (96.5 | ) |   | (14.6 | ) |   | — |   |   | — |   |   | — |   |
| Amortization                and deferrals                         |   |                            | (1.8    | )            |   | (0.4 | ) |   | (1.9 | ) |   | 0.2 |   |   | 1.3 |   |   | 0.6 |   |   | (8.0 | ) |   | (7.3 | ) |   | (8.5 | ) |
| Participant                contributions                          |   |                            | — |         |   | (0.5 | ) |   | — |   |   | (0.5 | ) |   | — |   |   | (0.7 | ) |   | — |   |   | — |   |   | — |   |
| Settlements/curtailments                (1)                       |   |                            | (2.0    | )            |   | — |   |   | — |   |   | — |   |   | — |   |   | (0.1 | ) |   | (4.4 | ) |   | — |   |   | — |   |
| Special                benefits/terminations (1)                  |   |                            | 1.6     |         |   | — |   |   | — |   |   | — |   |   | 1.1 |   |   | — |   |   | 1.2 |   |   | — |   |   | — |   |
| Amortization                of transition (asset) obligation |   |                            | — |         |   | — |   |   | — |   |   | — |   |   | — |   |   | (0.1 | ) |   | — |   |   | — |   |   | 0.1 |   |
| Actuarial                losses recognized                        |   |                            | 39.9    |         |   | 4.5 |   |   | 40.7 |   |   | 3.4 |   |   | 33.9 |   |   | 3.1 |   |   | 8.4 |   |   | 6.5 |   |   | 5.2 |   |
| Benefit                cost                                       |   | $                               | 35.2    |         | $      | 7.8 |   | $ | 37.4 |   | $ | 8.8 |   | $ | 35.4 |   | $ | 9.5 |   | $ | 6.5 |   | $ | 8.8 |   | $ | 7.9 |   |

|  **Weighted-average                assumptions used to determine net periodic benefit                cost:** |   |
|-------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                              |   | 2006 |   | 2005 |   | 2004 |   |   |   |   |   |   |   |
|                                                                                                              |   | U.S. |   | Int’l. |   | U.S. |   | Int’l. |   | U.S. |   | Int’l. |   | 2006 |   | 2005 |   | 2004 |   |
| Weighted-average                discount rate                                                                     |   |   | 6.00 | % |   | 4.53 | % |   | 5.75 | % |   | 5.04 | % |   | 6.10 | % |   | 5.35 | % |   | 5.81 | % |   | 5.51 | % |   | 6.08 | % |
| Expected                return on plan assets                                                                     |   |   | 8.50 | % |   | 6.36 | % |   | 8.50 | % |   | 6.49 | % |   | 8.75 | % |   | 6.64 | % |   | N/A |   |   | N/A |   |   | N/A |   |
| Rate                of compensation increase                                                                      |   |   | 4.30 | % |   | 2.99 | % |   | 4.50 | % |   | 2.79 | % |   | 4.50 | % |   | 2.86 | % |   | 4.29 | % |   | 4.49 | % |   | 4.49 | % |

**Defined      Benefit Pension Plans**

**$**

**Other      Postretirement Benefits**

----

**Hercules      Incorporated**

**Notes      to Consolidated Financial Statements**

*(Dollars      in millions, except per share data)*

**U.      S. Pension and Postretirement Benefit Plans**

|                               |   | TargetAllocation |   | Percentage                of Plan Assetsat                December 31, |   |
|------------------------------------|--------|------------------|--------|------------------------------------------------------------------------|--------|
| **Asset                category:** |   | 2007             |   | 2006                                                                   |   | 2005 |   |
| Equity                securities   |   |             | 61     | %                                                                      |   | 71 | % |   | 66 | % |
| Fixed                income        |   |             | 32     | %                                                                      |   | 22 | % |   | 26 | % |
| Other                              |   |             | 7      | %                                                                      |   | 7 | % |   | 8 | % |
| Totals                             |   |             | 100    | %                                                                      |   | 100 | % |   | 100 | % |

----

**Hercules      Incorporated**

**Notes      to Consolidated Financial Statements**

*(Dollars      in millions, except per share data)*

|                                                    |   | Pension                Benefits |   |                              |   |
|---------------------------------------------------------|--------|---------------------------------|--------|-----------------------------------|--------|
|                                                    |   | Qualified                Plan   |   | Non-qualified                Plan |   | Total |   |  Other                Postretirement Benefits |   |
| Expected                employer contributions for 2007 |   | $                               | 40     |                              | $      | — |   | $ | 40 |   | $ | — |   |
| Expected                benefit payments                |   |                            |   |                              |   |   |   |   |   |   |   |   |   |
| 2007                                                    |   |                            | 88     |                              |   | 5 |   |   | 93 |   |   | 16 |   |
| 2008                                                    |   |                            | 87     |                              |   | 5 |   |   | 92 |   |   | 16 |   |
| 2009                                                    |   |                            | 88     |                              |   | 5 |   |   | 93 |   |   | 15 |   |
| 2010                                                    |   |                            | 88     |                              |   | 5 |   |   | 93 |   |   | 14 |   |
| 2011                                                    |   |                            | 89     |                              |   | 5 |   |   | 94 |   |   | 13 |   |
| 2012-2016                                               |   |                            | 476    |                              |   | 25 |   |   | 501 |   |   | 55 |   |

**International      Pension Plans**

|                               |   | TargetAllocation |   | Percentage                of Plan Assetsat                December 31, |   |
|------------------------------------|--------|------------------|--------|------------------------------------------------------------------------|--------|
| **Asset                category:** |   | 2007             |   | 2006                                                                   |   | 2005 |   |
| Equity                securities   |   |             | 58     | %                                                                      |   | 58 | % |   | 61 | % |
| Fixed                income        |   |             | 41     | %                                                                      |   | 41 | % |   | 38 | % |
| Other                              |   |             | 1      | %                                                                      |   | 1 | % |   | 1 | % |
| Totals                             |   |             | 100    | %                                                                      |   | 100 | % |   | 100 | % |

----

**Hercules        Incorporated**

**Notes        to Consolidated Financial Statements**

*(Dollars        in millions, except per share data)*

|                                                    |   | Pension                Plan Benefits |   |
|---------------------------------------------------------|--------|--------------------------------------|--------|
| Expected                employer contributions for 2007 |   | $                                    | 21     |   |
| Expected                benefit payments:               |   |                                 |   |   |
| 2007                                                    |   |                                 | 15     |   |
| 2008                                                    |   |                                 | 15     |   |
| 2009                                                    |   |                                 | 16     |   |
| 2010                                                    |   |                                 | 16     |   |
| 2011                                                    |   |                                 | 18     |   |
| 2012-2016                                               |   |                                 | 97     |   |

**11**
**.         **
**Savings      and Investment Plans **

|                                           |   | 2006   |      | 2005   |   |
|------------------------------------------------|--------|--------|-----------|--------|--------|
| Allocated                                      |   |   | 1,200,346 |   |   | 1,458,065 |   |
| Unallocated                                    |   |   | 1,332,965 |   |   | 1,695,387 |   |
| Total                shares held by ESOP Trust |   |   | 2,533,311 |   |   | 3,153,452 |   |

**12.         Asset      Retirement Obligations **

----

**Hercules        Incorporated**

**Notes        to Consolidated Financial Statements**

*(Dollars        in millions, except per share data)*

|                                            |   | ActiveSites |    | InactiveSites |   | Total   |   |
|-------------------------------------------------|--------|-------------|---------|---------------|--------|---------|--------|
| Balance                at January 1, 2005       |   | $           | 7.1     |          | $      | 89.2    |   | $ | 96.3 |   |
| Impact                of the adoption of FIN 47 |   |        | 4.0     |          |   | — |   |   | 4.0 |   |
| Accretion                                       |   |        | 0.2     |          |   | 1.8     |   |   | 2.0 |   |
| Settlement                payments              |   |        | (1.2    | )             |   | (9.0    | )      |   | (10.2 | ) |
| Changes                in estimated obligations |   |        | 0.3     |          |   | 3.2     |   |   | 3.5 |   |
| Transfers                of obligations         |   |        | — |          |   | (4.4    | )      |   | (4.4 | ) |
| Foreign                currency translation     |   |        | (0.2    | )             |   | (0.7    | )      |   | (0.9 | ) |
| Balance                at December 31, 2005     |   | $           | 10.2    |          | $      | 80.1    |   | $ | 90.3 |   |
|                                            |   |        |    |          |   |    |   |   |   |   |
| Accretion                                       |   |        | 0.8     |          |   | 1.4     |   |   | 2.2 |   |
| Settlement                payments              |   |        | (4.3    | )             |   | (14.1   | )      |   | (18.4 | ) |
| Changes                in estimated obligations |   |        | 3.2     |          |   | (1.6    | )      |   | 1.6 |   |
| Foreign                currency translation     |   |        | 0.2     |          |   | 0.4     |   |   | 0.6 |   |
| Balance                at December 31, 2006     |   | $           | 10.1    |          | $      | 66.2    |   | $ | 76.3 |   |

----

**Hercules        Incorporated**

**Notes        to Consolidated Financial Statements**

*(Dollars        in millions, except per share data)*

**13.         Commitments      and Contingencies **

**Guarantees**

**Leases**

**Environmental**

----

**Hercules        Incorporated**

**Notes        to Consolidated Financial Statements**

*(Dollars        in millions, except per share data)*

*en      banc*

----

**Hercules        Incorporated**

**Notes        to Consolidated Financial Statements**

*(Dollars        in millions, except per share data)*

----

**Hercules        Incorporated**

**Notes        to Consolidated Financial Statements**

*(Dollars        in millions, except per share data)*

**Litigation**

----

**Hercules        Incorporated**

**Notes        to Consolidated Financial Statements**

*(Dollars        in millions, except per share data)*

----

**Hercules      Incorporated**

**Notes      to Consolidated Financial Statements**

*(Dollars      in millions, except per share data)*

----

**Hercules      Incorporated**

**Notes      to Consolidated Financial Statements**

*(Dollars      in millions, except per share data)*

|                                                                       |   | **Balance****January                1, 2006** |   | **Interest                Income/****Additional****Accruals** |   | **Insurance****Recovered/****Liabilities                Settled** |   | **Accretion/****Reclassifi-****cation** |    | **Balance****December                31, 2006** |   |
|----------------------------------------------------------------------------|--------|-----------------------------------------------|--------|---------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|-----------------------------------------|---------|-------------------------------------------------|--------|
| Asbestos-related                assets:                                    |   |                                          |   |                                                          |   |                                                              |   |                                    |    |                                            |   |
|    Insurance                receivable                      |   | $                                             | 65.2   |                                                          | $      | —                                                           |   | $                                       | (33.3   | )                                               | $      | 0.9 |   | $ | 32.8 |   |
|    Restricted                cash in trust                  |   |                                          | 55.5   |                                                          |   | 3.0                                                               |   |                                    | (3.8    | )                                               |   | — |   |   | 54.7 |   |
| Asbestos-related                assets                                     |   | $                                             | 120.7  |                                                          | $      | 3.0                                                               |   | $                                       | (37.1   | )                                               | $      | 0.9 |   | $ | 87.5 |   |
| Asbestos-related                liabilities:                               |   |                                          |   |                                                          |   |                                                              |   |                                    |    |                                            |   |   |   |   |   |   |
|    Asbestos-related                liabilities, current     |   | $                                             | 36.4   |                                                          | $      | —                                                           |   | $                                       | — |                                            | $      | — |   | $ | 36.4 |   |
|    Asbestos-related                liabilities, non-current |   |                                          | 233.6  |                                                          |   | 23.1                                                              |   |                                    | (23.1   | )                                               |   | — |   |   | 233.6 |   |
|    Total                asbestos-related liabilities        |   | $                                             | 270.0  |                                                          | $      | 23.1                                                              |   | $                                       | (23.1   | )                                               | $      | — |   | $ | 270.0 |   |

----

**Hercules        Incorporated**

**Notes        to Consolidated Financial Statements**

*(Dollars        in millions, except per share data)*

----

**Hercules        Incorporated**

**Notes        to Consolidated Financial Statements**

*(Dollars        in millions, except per share data)*

----

**Hercules        Incorporated**

**Notes        to Consolidated Financial Statements**

*(Dollars        in millions, except per share data)*

** **

----

**Hercules        Incorporated**

**Notes        to Consolidated Financial Statements**

*(Dollars        in millions, except per share data)*

| **14.  ** | **Stock-Based                Compensation** |
|---------------------|---------------------------------------------|

----

**Hercules      Incorporated**

**Notes      to Consolidated Financial Statements**

*(Dollars      in millions, except per share data)*

*Stock      Options*

|                                    |   | 2006   |   | 2005   |   | 2004  |   |
|-----------------------------------------|--------|--------|--------|--------|--------|-------|--------|
| Expected                volatility      |   |   | 30.10  | %      |   | 28.65 | %      |   | 31.22 | % |
| Expected                dividend yield  |   |   | 0.00   | %      |   | 0.00  | %      |   | 0.00 | % |
| Expected                life (in years) |   |   | 6.0    |   |   | 6.0   |   |   | 6.0 |   |
| Risk-free                interest rate  |   |   | 4.60   | %      |   | 4.08  | %      |   | 3.73 | % |

|                                            |   | Regular                        |       | Performance                Accelerated |   |
|-------------------------------------------------|--------|--------------------------------|------------|----------------------------------------|--------|
|                                            |   | Number                ofShares |       | Weighted-average                Price  |   | Number                ofShares |   | Weighted-average                Price |   |
| Outstanding                at January 1, 2004   |   |                           | 12,306,559 |                                   | $      | 24.47 |   |   | 4,779,700 |   | $ | 43.66 |   |
|   Granted                             |   |                           | 21,000     |                                   |   | 14.25 |   |   | — |   |   | — |   |
|   Exercised                           |   |                           | (402,855   | )                                      |   | 11.48 |   |   | — |   |   | — |   |
|   Forfeited                           |   |                           | (886,820   | )                                      |   | 33.19 |   |   | (963,725 | ) |   | 38.25 |   |
| Outstanding                at December 31, 2004 |   |                           | 11,037,884 |                                   | $      | 24.22 |   |   | 3,815,975 |   | $ | 45.03 |   |
|   Granted                             |   |                           | 224,229    |                                   |   | 14.01 |   |   | — |   |   | — |   |
|   Exercised                           |   |                           | (200,752   | )                                      |   | 11.53 |   |   | — |   |   | — |   |
|   Forfeited                           |   |                           | (2,679,349 | )                                      |   | 33.45 |   |   | (2,473,860 | ) |   | 45.87 |   |
| Outstanding                at December 31, 2005 |   |                           | 8,382,012  |                                   | $      | 21.31 |   |   | 1,342,115 |   | $ | 43.49 |   |
|   Granted                             |   |                           | 503,430    |                                   |   | 12.52 |   |   | — |   |   | — |   |
|   Exercised                           |   |                           | (2,966,552 | )                                      |   | 12.29 |   |   | — |   |   | — |   |
|   Forfeited                           |   |                           | (1,241,595 | )                                      |   | 32.12 |   |   | (621,125 | ) |   | 46.67 |   |
| Outstanding                at December 31, 2006 |   |                           | 4,677,295  |                                   | $      | 23.22 |   |   | 720,990 |   | $ | 40.75 |   |

----

**Hercules        Incorporated**

**Notes        to Consolidated Financial Statements**

*(Dollars        in millions, except per share data)*

|                                                 |   | Outstanding                Options |      | Exercisable                Options                       |   |
|------------------------------------------------------|--------|------------------------------------|-----------|----------------------------------------------------------|--------|
|                                                 |   | NumberOutstanding                  |      | Weighted-averageRemainingContractual                Life |   | Weighted-averageExercise                Price |   | NumberExercisable |   | Weighted-averageExercise                Price |   |
| Regular                Stock Options                 |   |                               |      |                                                     |   |   |   |   |   |   |   |
| $8.50                - $11.75                        |   |                               | 608,150   |                                                     |   | 5.00 |   | $ | 11.13 |   |   | 608,150 |   | $ | 11.13 |   |
| $11.76                - $15.00                       |   |                               | 1,359,464 |                                                     |   | 7.12 |   | $ | 12.46 |   |   | 772,746 |   | $ | 12.28 |   |
| $15.01                - $25.00                       |   |                               | 801,686   |                                                     |   | 3.37 |   | $ | 17.21 |   |   | 776,210 |   | $ | 17.20 |   |
| $25.00                - $33.75                       |   |                               | 404,200   |                                                     |   | 1.69 |   | $ | 25.70 |   |   | 404,200 |   | $ | 25.70 |   |
| $33.76                - $40.00                       |   |                               | 1,203,945 |                                                     |   | 1.46 |   | $ | 38.54 |   |   | 1,203,945 |   | $ | 38.54 |   |
| $40.01                - $55.00                       |   |                               | 299,850   |                                                     |   | 1.32 |   | $ | 47.79 |   |   | 299,850 |   | $ | 47.79 |   |
|                                                 |   |                               | 4,677,295 |                                                     |   |   |   |   |   |   |   | 4,065,101 |   |   |   |   |
| Performance-Accelerated                Stock Options |   |                               |      |                                                     |   |   |   |   |   |   |   |   |
| $25.00                - $37.00                       |   |                               | 11,075    |                                                     |   | 2.45 |   | $ | 31.16 |   |   | — |   |   | — |   |
| $37.01                - $45.00                       |   |                               | 511,405   |                                                     |   | 1.75 |   | $ | 38.19 |   |   | 150,850 |   | $ | 39.50 |   |
| $45.01                - $50.00                       |   |                               | 197,185   |                                                     |   | 1.33 |   | $ | 47.83 |   |   | 575 |   | $ | 47.25 |   |
| $50.01                - $61.00                       |   |                               | 1,325     |                                                     |   | 0.65 |   | $ | 52.21 |   |   | — |   |   | — |   |
|                                                 |   |                               | 720,990   |                                                     |   |   |   |   |   |   |   | 151,425 |   |   |   |   |

*Restricted      Stock Awards*

|                                            |   | Number                ofShares |      | Weighted-Average                Grant Date FairValue |   |
|-------------------------------------------------|--------|--------------------------------|-----------|------------------------------------------------------|--------|
| Outstanding                at January 1, 2006   |   |                           | 2,093,631 |                                                 | $      | 11.38 |   |
|   Granted                             |   |                           | 516,252   |                                                 |   | 12.47 |   |
|   Vested                              |   |                           | (430,482  | )                                                    |   | 9.17 |   |
|   Forfeited                           |   |                           | (121,993  | )                                                    |   | 12.36 |   |
| Outstanding                at December 31, 2006 |   |                           | 2,057,408 |                                                 | $      | 12.05 |   |

----

**Hercules        Incorporated**

**Notes        to Consolidated Financial Statements**

*(Dollars        in millions, except per share data)*

| **15.  ** | **Series                Preferred                Stock** |
|---------------------|----------------------------------------------------------|

**16.         Common      Stock **

**17.         Accumulated      Other Comprehensive Losses **

|                                                                                                        |   | December                31, |   |
|-------------------------------------------------------------------------------------------------------------|--------|-----------------------------|--------|
|                                                                                                        |   | 2006                        |   | 2005 |   | 2004 |   |
| Pension                and postretirement benefit plan adjustments, net of tax (1)                     |   | $                           | (461.3 | ) | $ | (415.7 | ) | $ | (376.9 | ) |
| Foreign                currency translation adjustments, net of hedging activities and                taxes |   |                        | 52.5   |   |   | 28.4 |   |   | 100.5 |   |
| Other,                net of tax                                                                            |   |                        | (0.8   | ) |   | (0.3 | ) |   | — |   |
|                                                                                                        |   | $                           | (409.6 | ) | $ | (387.6 | ) | $ | (276.4 | ) |

Note 9

----

**Hercules        Incorporated**

**Notes        to Consolidated Financial Statements**

*(Dollars        in millions, except per share data)*

**18.         Additional      Balance Sheet Detail **

|                                              |   | 2006   |     | 2005   |   |
|---------------------------------------------------|--------|--------|----------|--------|--------|
| Property,                plant and equipment:     |   |   |     |   |   |
| Land                                              |   | $      | 16.4     |   | $      | 10.6 |   |
| Buildings                and equipment            |   |   | 1,643.0  |   |   | 1,613.6 |   |
| Construction                in progress           |   |   | 85.0     |   |   | 38.0 |   |
| Total                                             |   |   | 1,744.4  |   |   | 1,662.2 |   |
| Accumulated                depreciation           |   |   | (1,144.0 | )      |   | (1,126.8 | ) |
| Property,                plant and equipment, net |   | $      | 600.4    |   | $      | 535.4 |   |

|                                                                             |   | 2006   |   | 2005   |   |
|----------------------------------------------------------------------------------|--------|--------|--------|--------|--------|
| Deferred                charges and other assets:                                |   |   |   |   |   |
|    Tax                deposits                                    |   | $      | 3.0    |   | $      | 66.1 |   |
|    Capitalized                software, net                       |   |   | 44.8   |   |   | 62.6 |   |
|    Prepaid                pension assets                          |   |   | 2.2    |   |   | 42.8 |   |
|    Cash                surrender value of life insurance policies |   |   | 22.3   |   |   | 21.4 |   |
|    Unamortized                debt issuance costs                 |   |   | 7.7    |   |   | 10.3 |   |
|    Investment                securities available for sale        |   |   | 2.6    |   |   | 1.0 |   |
|    Equity                method investments                       |   |   | 25.6   |   |   | 2.6 |   |
|    Other                                                          |   |   | 28.7   |   |   | 38.3 |   |
|                                                                             |   | $      | 136.9  |   | $      | 245.1 |   |

|                                                                             |   | 2006   |   | 2005   |   |
|----------------------------------------------------------------------------------|--------|--------|--------|--------|--------|
| Accrued                expenses:                                                 |   |   |   |   |   |
|    Compensation                and benefits                       |   | $      | 53.0   |   | $      | 37.0 |   |
|    Current                portion of postretirement benefits      |   |   | 16.2   |   |   | 23.5 |   |
|    Current                portion of asset retirement obligations |   |   | 21.0   |   |   | 21.6 |   |
|    Severance                and other exit costs                  |   |   | 10.5   |   |   | 16.6 |   |
|    Income                taxes payable                            |   |   | 24.5   |   |   | 14.5 |   |
|    Interest                payable                                |   |   | 14.6   |   |   | 12.9 |   |
|    Current                deferred income taxes                   |   |   | 11.8   |   |   | 12.9 |   |
|    Sales                rebate accrual                            |   |   | 10.9   |   |   | 9.3 |   |
|    Current                pension liability                       |   |   | 4.9    |   |   | 6.2 |   |
|    Litigation                accrual                              |   |   | 8.6    |   |   | 3.5 |   |
|    Current                portion of deferred rent                |   |   | 3.3    |   |   | 3.0 |   |
|    Other                taxes payable                             |   |   | 2.8    |   |   | 2.3 |   |
|    Other                                                          |   |   | 46.5   |   |   | 53.7 |   |
|                                                                             |   | $      | 228.6  |   | $      | 217.0 |   |

|                                                                              |   | 2006   |   | 2005   |   |
|-----------------------------------------------------------------------------------|--------|--------|--------|--------|--------|
| Deferred                credits and other liabilities:                            |   |   |   |   |   |
|    Non-current                income tax liabilities               |   | $      | 41.7   |   | $      | 95.7 |   |
|    Asset                retirement obligations - noncurrent        |   |   | 55.3   |   |   | 68.7 |   |
|    Indemnifications                                                |   |   | 40.0   |   |   | 40.0 |   |
|    Deferred                rent                                    |   |   | 26.3   |   |   | 30.6 |   |
|    Environmental                contingencies                      |   |   | 5.3    |   |   | 17.6 |   |
|    Fair                value of cross-currency interest rate swaps |   |   | 53.2   |   |   | — |   |
|    Workers                compensation                             |   |   | 13.9   |   |   | 14.6 |   |
|    Other                                                           |   |   | 19.9   |   |   | 22.2 |   |
|                                                                              |   | $      | 255.6  |   | $      | 289.4 |   |

----

**Hercules      Incorporated**

**Notes      to Consolidated Financial Statements**

*(Dollars      in millions, except per share data)*

**19.**
**Restructuring      Programs**

**2006**

|                                                            |   | Severance |   | Other                Exit Costs |   | Asset                Charges(1) |   |  Total |    |
|-----------------------------------------------------------------|--------|-----------|--------|---------------------------------|--------|---------------------------------|--------|-------------|---------|
| Research                and development consolidation           |   |      |   |                            |   |                            |   |        |    |
|   Jacksonville,                FL                     |   | $         | 1.7    |                            | $      | 0.3                             |   | $           | 0.4     |   | $ | 2.4 |   |
|   Wilmington,                DE                       |   |      | 0.9    |                            |   | 0.9                             |   |        | 0.8     |   |   | 2.6 |   |
|                                                            |   |      | 2.6    |                            |   | 1.2                             |   |        | 1.2     |   |   | 5.0 |   |
| Manufacturing                rationalization                    |   |      |   |                            |   |                            |   |        |    |   |   |   |   |
|   Pendlebury,                UK                       |   |      | 0.4    |                            |   | 0.8                             |   |        | 2.1     |   |   | 3.3 |   |
|   Alliance-related                rationalization (2) |   |      | 0.5    |                            |   | 0.2                             |   |        | 0.6     |   |   | 1.3 |   |
|                                                            |   |      | 0.9    |                            |   | 1.0                             |   |        | 2.7     |   |   | 4.6 |   |
| Business                segment realignment                     |   |      |   |                            |   |                            |   |        |    |   |   |   |   |
|   Paper                Technologies and Ventures      |   |      | 6.1    |                            |   | —                         |   |        | — |   |   | 6.1 |   |
|   Aqualon                Group                        |   |      | 3.7    |                            |   | 0.4                             |   |        | — |   |   | 4.1 |   |
|                                                            |   |      | 9.8    |                            |   | 0.4                             |   |        | — |   |   | 10.2 |   |
| Business                Infrastructure Projects                 |   |      | 2.9    |                            |   | 2.3                             |   |        | 4.4     |   |   | 9.6 |   |
| Total                restructuring and asset charges            |   | $         | 16.2   |                            | $      | 4.9                             |   | $           | 8.3     |   | $ | 29.4 |   |

| Paper                Technologies and Ventures |   | $      | 8.7  |   | $      | 1.8 |   | $      | 3.1     |   | $      | 13.6 |   |
|------------------------------------------------|--------|--------|------|--------|--------|-----|--------|--------|---------|--------|--------|------|--------|
| Aqualon                Group                   |   |   | 3.7  |   |   | 0.4 |   |   | — |   |   | 4.1  |   |
| Corporate                                      |   |   | 3.8  |   |   | 2.7 |   |   | 5.2     |   |   | 11.7 |   |
| Total                by reporting segment      |   | $      | 16.2 |   | $      | 4.9 |   | $      | 8.3     |   | $      | 29.4 |   |

*Research      and Development Consolidation*

*PTV      Manufacturing and Alliance-related Rationalization *

----

**Hercules        Incorporated**

**Notes        to Consolidated Financial Statements**

*(Dollars        in millions, except per share data)*

*Business      Segment Realignment*

*Business      Infrastructure Projects*

----

**Hercules      Incorporated**

**Notes        to Consolidated Financial Statements**

*(Dollars        in millions, except per share data)*

**2005**

|                                                       |   | Severance |   | Other                Exit Costs |   | Asset                Charges(1) |   |  Total |    |
|------------------------------------------------------------|--------|-----------|--------|---------------------------------|--------|---------------------------------|--------|-------------|---------|
| Research                and development consolidation      |   |      |   |                            |   |                            |   |        |    |
| Barneveld,                The Netherlands                  |   | $         | 2.9    |                            | $      | 1.4                             |   | $           | 1.8     |   | $ | 6.1 |   |
| Jacksonville,                FL                            |   |      | 0.4    |                            |   | —                         |   |        | 0.1     |   |   | 0.5 |   |
| Wilmington,                DE                              |   |      | 0.5    |                            |   | —                         |   |        | 0.5     |   |   | 1.0 |   |
|                                                       |   |      | 3.8    |                            |   | 1.4                             |   |        | 2.4     |   |   | 7.6 |   |
| Manufacturing                rationalization               |   |      |   |                            |   |                            |   |        |    |   |   |   |   |
| Paper                Technologies and Ventures             |   |      | 1.9    |                            |   | —                         |   |        | 1.1     |   |   | 3.0 |   |
| Aqualon                Group                               |   |      | 1.3    |                            |   | 0.2                             |   |        | 0.5     |   |   | 2.0 |   |
| FiberVisions                                               |   |      | 3.4    |                            |   | —                         |   |        | 1.5     |   |   | 4.9 |   |
|                                                       |   |      | 6.6    |                            |   | 0.2                             |   |        | 3.1     |   |   | 9.9 |   |
| Global                marketing and management realignment |   |      |   |                            |   |                            |   |        |    |   |   |   |   |
| Paper                Technologies and Ventures             |   |      | 12.7   |                            |   | —                         |   |        | — |   |   | 12.7 |   |
| Aqualon                Group                               |   |      | 1.8    |                            |   | —                         |   |        | — |   |   | 1.8 |   |
|                                                       |   |      | 14.5   |                            |   | —                         |   |        | — |   |   | 14.5 |   |
| Corporate                support realignment               |   |      | 4.8    |                            |   | 0.5                             |   |        | — |   |   | 5.3 |   |
| Sub-total                for continuing operations         |   |      | 29.7   |                            |   | 2.1                             |   |        | 5.5     |   |   | 37.3 |   |
| Terpenes                specialties exit                   |   |      | 2.4    |                            |   | —                         |   |        | 5.7     |   |   | 8.1 |   |
| Total                restructuring and asset charges       |   | $         | 32.1   |                            | $      | 2.1                             |   | $           | 11.2    |   | $ | 45.4 |   |

| Paper                Technologies and Ventures |   | $      | 17.5 |   | $      | 0.1     |   | $      | 3.0  |   | $      | 20.6 |   |
|------------------------------------------------|--------|--------|------|--------|--------|---------|--------|--------|------|--------|--------|------|--------|
| Aqualon                Group                   |   |   | 3.1  |   |   | 0.2     |   |   | 0.5  |   |   | 3.8  |   |
| FiberVisions                                   |   |   | 3.4  |   |   | — |   |   | 1.5  |   |   | 4.9  |   |
| Corporate                                      |   |   | 5.7  |   |   | 1.8     |   |   | 0.5  |   |   | 8.0  |   |
| Discontinued                operations         |   |   | 2.4  |   |   | — |   |   | 5.7  |   |   | 8.1  |   |
| Total                by reporting segment      |   | $      | 32.1 |   | $      | 2.1     |   | $      | 11.2 |   | $      | 45.4 |   |

*Research      and Development Consolidation*

*Manufacturing      Rationalization*

----

**Hercules        Incorporated**

**Notes        to Consolidated Financial Statements**

*(Dollars        in millions, except per share data)*

*Global      Marketing and Management Realignment*

*Corporate      Support Realignment*

*Terpenes      Specialties Exit*

**2004**

----

**Hercules        Incorporated**

**Notes        to Consolidated Financial Statements**

*(Dollars        in millions, except per share data)*

|                                                                                    |   | 2006   |   | 2005   |   | 2004  |   |
|-----------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|-------|--------|
| Balance                at beginning of the year                                         |   | $      | 16.6   |   | $      | 5.8   |   | $ | 6.0 |   |
|    Accrued                charges for severance and related benefits     |   |   | 16.2   |   |   | 32.1  |   |   | 9.6 |   |
|    Accrued                charges for other exit and restructuring costs |   |   | 3.8    |   |   | 0.5   |   |   | — |   |
|    Cash                payments                                          |   |   | (26.9  | )      |   | (21.4 | )      |   | (9.9 | ) |
|    Other,                including foreign currency translation          |   |   | 0.8    |   |   | (0.4  | )      |   | 0.1 |   |
| Balance                at end of the year                                               |   | $      | 10.5   |   | $      | 16.6  |   | $ | 5.8 |   |

**20**
**Other      Operating Expense, Net**

|                                                              |   | 2006   |    | 2005   |   | 2004    |   |
|-------------------------------------------------------------------|--------|--------|---------|--------|--------|---------|--------|
| Severance,                restructuring and other exit costs, net |   | $      | 21.1    |   | $      | 31.8    |   | $ | 9.6 |   |
| Accelerated                depreciation and amortization          |   |   | 5.1     |   |   | 3.5     |   |   | — |   |
| Asset                charges                                      |   |   | 3.2     |   |   | 2.0     |   |   | 7.3 |   |
| Legal                settlements                                  |   |   | (2.0    | )      |   | 0.7     |   |   | — |   |
| Environmental                charges                              |   |   | 0.8     |   |   | 0.2     |   |   | 0.4 |   |
| Special                executive pension adjustment               |   |   | — |   |   | — |   |   | 1.6 |   |
| (Gains)                losses on asset dispositions, net          |   |   | (6.2    | )      |   | 0.1     |   |   | 1.0 |   |
| Nitrocellulose                facility shutdown costs             |   |   | — |   |   | — |   |   | 6.5 |   |
| Dismantlement                costs                                |   |   | 1.6     |   |   | — |   |   | — |   |
| Other                miscellaneous charges                        |   |   | 1.5     |   |   | 1.1     |   |   | 0.5 |   |
|                                                              |   | $      | 25.1    |   | $      | 39.4    |   | $ | 26.9 |   |

**21.         Interest      and Debt Expense **

|                        |   | 2006   |   | 2005   |   | 2004 |   |
|-----------------------------|--------|--------|--------|--------|--------|------|--------|
| Incurred                    |   | $      | 71.5   |   | $      | 89.8 |   | $ | 109.8 |   |
| Capitalized                 |   |   | (0.3   | )      |   | (0.4 | )      |   | (1.1 | ) |
| Net                expensed |   | $      | 71.2   |   | $      | 89.4 |   | $ | 108.7 |   |

**22.         Other      Expense, Net**

|                                                                                    |   | 2006   |    | 2005   |   | 2004    |   |
|-----------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|---------|--------|
| Asbestos-related                costs, net                                              |   | $      | 29.0    |   | $      | 44.6    |   | $ | 48.8 |   |
| Loss                on sale of 51% interest in FiberVisions (see Note                3) |   |   | 13.3    |   |   | — |   |   | — |   |
| Loss                on repurchases of debt                                              |   |   | 11.4    |   |   | 14.2    |   |   | 41.0 |   |
| Environmental                charges                                                    |   |   | 6.5     |   |   | 7.3     |   |   | 6.7 |   |
| Litigation                settlements and accruals                                      |   |   | 9.2     |   |   | 19.0    |   |   | 19.2 |   |
| Gains                on dispositions of assets, net                                     |   |   | (1.4    | )      |   | (10.9   | )      |   | — |   |
| Asset                impairment charges                                                 |   |   | — |   |   | — |   |   | 1.9 |   |
| Other,                net                                                               |   |   | (2.3    | )      |   | (2.9    | )      |   | (0.9 | ) |
|                                                                                    |   | $      | 65.7    |   | $      | 71.3    |   | $ | 116.7 |   |
|                                                                                    |

----

**Hercules      Incorporated**

**Notes      to Consolidated Financial Statements**

*(Dollars      in millions, except per share data)*

**23.**
**Discontinued      Operations**

*Terpenes      Specialties*

|                                                             |   | 2006   |   | 2005   |   | 2004   |   |
|------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
| Net                sales                                         |   | $      | 2.5    |   | $      | 13.7   |   | $ | 12.4 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |
| Loss                from operations before income taxes          |   | $      | (2.6   | )      | $      | (9.9   | )      | $ | (4.0 | ) |
| Income                tax benefit on operations                  |   |   | 0.9    |   |   | 3.4    |   |   | 1.4 |   |
| Net                loss from discontinued operations, net of tax |   | $      | (1.7   | )      | $      | (6.5   | )      | $ | (2.6 | ) |
|                                                             |

|                                                         |   | 2006   |    | 2005   |   |
|--------------------------------------------------------------|--------|--------|---------|--------|--------|
| Accounts                receivable, net                      |   | $      | 0.2     |   | $      | 1.3 |   |
| Inventories                                                  |   |   | 0.2     |   |   | 5.4 |   |
| Current                assets of discontinued operations     |   | $      | 0.4     |   | $      | 6.7 |   |
|                                                         |   |   |    |   |   |   |   |
| Accounts                payable                              |   | $      | — |   | $      | 0.5 |   |
| Accrued                expenses                              |   |   | — |   |   | 2.3 |   |
| Current                liabilities of discontinued operation |   | $      | — |   | $      | 2.8 |   |

*BetzDearborn      Water Treatment Business*

Note 9

**24.**
**Changes      in Accounting Principle **

*SFAS      123R*

*SFAS      158*

----

**Hercules      Incorporated**

**Notes      to Consolidated Financial Statements**

*(Dollars      in millions, except per share data)*

|                                                    |   | Before                        |    |        |   | After                         |   |
|---------------------------------------------------------|--------|-------------------------------|---------|-------------|--------|-------------------------------|--------|
|                                                    |   | Application                of |    |        |   | Application                of |   |
|                                                    |   | SFAS                158       |    | Adjustments |   | SFAS                158       |   |
| Deferred                income taxes                    |   | $                             | 312.4   |        | $      | 62.2                          |   | $ | 374.6 |   |
| Deferred                charges and other assets        |   |                          | 185.8   |        |   | (48.9                         | )      |   | 136.9 |   |
| Total                assets                             |   |                          | 2,795.2 |        |   | 13.3                          |   |   | 2,808.5 |   |
| Pension                obligations                      |   |                          | 206.8   |        |   | 55.7                          |   |   | 262.5 |   |
| Other                postretirement benefit obligations |   |                          | 58.1    |        |   | 84.1                          |   |   | 142.2 |   |
| Total                liabilities                        |   |                          | 2,413.1 |        |   | 139.8                         |   |   | 2,552.9 |   |
| Accumulated                other comprehensive losses   |   |                          | (283.1  | )           |   | (126.5                        | )      |   | (409.6 | ) |
| Total                stockholders’ equity         |   |                          | 369.4   |        |   | (126.5                        | )      |   | 242.9 |   |

*FIN      47*

|                                                                                                                                                  |   | 2005   |    | 2004   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|
| Net                (loss) income before cumulative effect of changes in accounting                principle:                                          |   |   |    |   |   |
|     As                reported                                                                                                    |   | $      | (38.6   | )      | $      | 28.1 |   |
|     Accretion                and depreciation                                                                                     |   |   | — |   |   | (0.1 | ) |
| Adjusted                net (loss) income before cumulative effect of changes in accounting                principle                                  |   | $      | (38.6   | )      | $      | 28.0 |   |
|                                                                                                                                                  |   |   |    |   |   |   |   |
| Basic                and diluted (loss) earnings per share before cumulative effect of                changes                in accounting principle: |   |   |    |   |   |   |   |
|     As                reported                                                                                                    |   | $      | (0.36   | )      | $      | 0.26 |   |
|     Adjusted                                                                                                                      |   | $      | (0.36   | )      | $      | 0.26 |   |
|                                                                                                                                                  |   |   |    |   |   |   |   |
| Net                (loss) income:                                                                                                                     |   |   |    |   |   |   |   |
|     As                reported                                                                                                    |   | $      | (41.1   | )      | $      | 28.1 |   |
|     Accretion                and depreciation                                                                                     |   |   | — |   |   | (0.1 | ) |
| Adjusted                net income (loss)                                                                                                             |   | $      | (41.1   | )      | $      | 28.0 |   |
|                                                                                                                                                  |   |   |    |   |   |   |   |
| Basic                and diluted (loss) earnings per share:                                                                                           |   |   |    |   |   |   |   |
|     As                reported                                                                                                    |   | $      | (0.38   | )      | $      | 0.26 |   |
|     Adjusted                                                                                                                      |   | $      | (0.38   | )      | $      | 0.26 |   |
|                                                                                                                                                  |   |   |    |   |   |   |   |

----

**Hercules        Incorporated**

**Notes        to Consolidated Financial Statements**

*(Dollars        in millions, except per share data)*

| **25.  ** | **Supplemental                Disclosure of Statement of Operations and Cash                Flows Data** |
|---------------------|----------------------------------------------------------------------------------------------------------|

|                                                                                                             |   | 2006   |    | 2005   |   | 2004    |   |
|------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|---------|--------|
| Depreciation:                                                                                                    |   |   |    |   |   |    |   |
| Included                in Cost of sales and Selling, general and administrative                expenses         |   | $      | 66.8    |   | $      | 76.6    |   | $ | 74.5 |   |
| Accelerated                depreciation included in Other operating expense, net                                 |   |   | 3.9     |   |   | 3.5     |   |   | — |   |
| Included                in Net loss from discontinued operations                                                 |   |   | — |   |   | 0.4     |   |   | 0.4 |   |
|                                                                                                             |   | $      | 70.7    |   | $      | 80.5    |   | $ | 74.9 |   |
| Amortization:                                                                                                    |   |   |    |   |   |    |   |   |   |   |
| Intangible                assets                                                                                 |   | $      | 7.2     |   | $      | 8.0     |   | $ | 8.1 |   |
| Capitalized                software (normal basis)                                                               |   |   | 15.2    |   |   | 15.3    |   |   | 15.0 |   |
| Accelerated                amortization of capitalized software                                                  |   |   | 1.1     |   |   | — |   |   | — |   |
| Deferred                financing costs                                                                          |   |   | 1.1     |   |   | 2.1     |   |   | 3.2 |   |
|                                                                                                             |   | $      | 24.6    |   | $      | 25.4    |   | $ | 26.3 |   |
| Cash                paid during the period for:                                                                  |   |   |    |   |   |    |   |   |   |   |
| Interest                                                                                                         |   | $      | 70.9    |   | $      | 86.4    |   | $ | 97.1 |   |
| Income                taxes, net of refunds received                                                             |   |   | 37.6    |   |   | 18.4    |   |   | 40.7 |   |
| Non-cash                investing and financing activities:                                                      |   |   |    |   |   |    |   |   |   |   |
| Increase                in Property, plant and equipment, net related to the consolidation                       |   |   |    |   |   |    |   |   |   |   |
|   of                Hercules Tianpu                                                                    |   | $      | 19.0    |   | $      | — |   | $ | — |   |
| Increase                in Intangible assets, net related to the consolidation of Hercules                Tianpu |   |   | 3.5     |   |   | — |   |   | — |   |
| De-consolidation                of debt issued by FiberVisions                                                   |   |   | 90.0    |   |   | — |   |   | — |   |
| De-consolidation                of FiberVisions capitalized debt issuance costs                                  |   |   | (6.3    | )      |   | — |   |   | — |   |
| Incentive                and other share-based compensation plan issuances                                       |   |   | 13.9    |   |   | 13.4    |   |   | 15.7 |   |
| Elimination                of 6.5% junior subordinated deferrable interest debentures due                2029    |   |   | — |   |   | — |   |   | (34.6 | ) |
| Elimination                of investment in Hercules Trust II upon its dissolution                               |   |   | — |   |   | — |   |   | 27.4 |   |

| **26.  ** | **Earnings                (Loss) Per                Share** |
|---------------------|-------------------------------------------------------------|

|                                                                          |   | 2006   |   | 2005   |   | 2004   |   |
|-------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                          |   |   |   |   |   |   |   |
| Weighted-average                number of common shares outstanding - Basic   |   |   | 110.8  |   |   | 108.7  |   |   | 107.3 |   |
| Dilutive                effect of:                                            |   |   |   |   |   |   |   |   |   |   |
| Convertible                debentures                                         |   |   | 0.2    |   |   | 0.2    |   |   | 0.2 |   |
| Share-based                compensation plans                                 |   |   | 0.3    |   |   | 1.5    |   |   | 1.5 |   |
| Weighted-average                number of common shares outstanding - Diluted |   |   | 111.3  |   |   | 110.4  |   |   | 109.0 |   |

|                                             |   | 2006   |   | 2005   |   | 2004 |   |
|--------------------------------------------------|--------|--------|--------|--------|--------|------|--------|
| Options                to purchase common stock  |   |   | 3.4    |   |   | 5.8  |   |   | 10.6 |   |
| Warrants                to purchase common stock |   |   | 6.6    |   |   | 6.7  |   |   | 7.1 |   |

----

**Hercules        Incorporated**

**Notes        to Consolidated Financial Statements**

*(Dollars        in millions, except per share data)*

**27.**
**Reporting      Segment and Geographic Data**

1
3

*Paper      Technologies and Ventures Group: *

*Aqualon      Group:*

*FiberVisions:      *

----

**Hercules      Incorporated**

**Notes      to Consolidated Financial Statements**

*(Dollars      in millions, except per share data)*

|                                         |   | **Paper                Technologies and Ventures** |    | **Aqualon****Group** |   | **FiberVisions** |   | **Corporate** |    | **Consolidated** |   |    |   |
|----------------------------------------------|--------|----------------------------------------------------|---------|----------------------|--------|------------------|--------|---------------|---------|------------------|--------|---------|--------|
| **2006**                                     |   |                                               |    |                 |   |             |   |          |    |             |   |    |   |
| Net                sales                     |   | $                                                  | 1,075.3 |                 | $      | 890.8            |   | $             | 69.2    |             | $      | — |   | $ | 2,035.3 |   |   |   |   |
| Profit                (loss) from operations |   |                                               | 80.8    |                 |   | 187.4            |   |          | 0.5     |             |   | (20.1   | )      |   | 248.6 |   |   |   |   |
| Depreciation                                 |   |                                               | 29.3    |                 |   | 35.1             |   |          | — |             |   | 6.3     |   |   | 70.7 |   |   | (1 | ) |
| Amortization                                 |   |                                               | 14.2    |                 |   | 8.2              |   |          | — |             |   | 2.2     |   |   | 24.6 |   |   | (2 | ) |
| Research                and development      |   |                                               | 19.1    |                 |   | 18.6             |   |          | 0.4     |             |   | 0.7     |   |   | 38.8 |   |   |   |   |
| Total                assets                  |   |                                               | 976.1   |                 |   | 756.5            |   |          | — |             |   | 1,075.9 |   |   | 2,808.5 |   |   | (3 | ) |
| Capital                expenditures          |   |                                               | 25.1    |                 |   | 59.1             |   |          | — |             |   | 9.4     |   |   | 93.6 |   |   |   |   |
| **2005**                                     |   |                                               |    |                 |   |             |   |          |    |             |   |    |   |   |   |   |   |   |   |
| Net                sales                     |   | $                                                  | 1,017.3 |                 | $      | 755.0            |   | $             | 282.7   |             | $      | — |   | $ | 2,055.0 |   |   |   |   |
| Profit                (loss) from operations |   |                                               | 61.4    |                 |   | 155.5            |   |          | (64.9   | )                |   | (11.7   | )      |   | 140.3 |   |   |   |   |
| Depreciation                                 |   |                                               | 29.6    |                 |   | 33.0             |   |          | 10.9    |             |   | 7.0     |   |   | 80.5 |   |   | (1 | ) |
| Amortization                                 |   |                                               | 14.3    |                 |   | 7.5              |   |          | 1.5     |             |   | 2.1     |   |   | 25.4 |   |   | (2 | ) |
| Research                and development      |   |                                               | 18.6    |                 |   | 18.4             |   |          | 2.8     |             |   | 1.0     |   |   | 40.8 |   |   |   |   |
| Total                assets                  |   |                                               | 903.6   |                 |   | 638.1            |   |          | 202.7   |             |   | 824.4   |   |   | 2,568.8 |   |   | (3 | ) |
| Capital                expenditures          |   |                                               | 18.7    |                 |   | 37.1             |   |          | 4.2     |             |   | 7.5     |   |   | 67.5 |   |   |   |   |
| **2004**                                     |   |                                               |    |                 |   |             |   |          |    |             |   |    |   |   |   |   |   |   |   |
| Net                sales                     |   | $                                                  | 978.5   |                 | $      | 724.6            |   | $             | 281.2   |             | $      | — |   | $ | 1,984.3 |   |   |   |   |
| Profit                (loss) from operations |   |                                               | 84.5    |                 |   | 157.9            |   |          | (4.1    | )                |   | (5.4    | )      |   | 232.9 |   |   |   |   |
| Depreciation                                 |   |                                               | 25.4    |                 |   | 30.8             |   |          | 11.6    |             |   | 7.1     |   |   | 74.9 |   |   | (1 | ) |
| Amortization                                 |   |                                               | 13.8    |                 |   | 7.7              |   |          | 1.6     |             |   | 3.2     |   |   | 26.3 |   |   | (2 | ) |
| Research                and development      |   |                                               | 19.4    |                 |   | 18.0             |   |          | 2.9     |             |   | 2.4     |   |   | 42.7 |   |   |   |   |
| Total                assets                  |   |                                               | 1,029.2 |                 |   | 676.2            |   |          | 286.0   |             |   | 728.9   |   |   | 2,720.3 |   |   | (3 | ) |
| Capital                expenditures          |   |                                               | 26.6    |                 |   | 41.3             |   |          | 4.0     |             |   | 5.5     |   |   | 77.4 |   |   |   |   |

|   | (1) | Depreciation                for Corporate is allocated to the business segments in the determination                of Profit from operations. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Corporate                includes accelerated amortization of capitalized software and deferred                financing costs. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Corporate                assets include cash and cash equivalents, income taxes receivable,                deferred tax assets, asbestos-related assets, investments, assets                of                discontinued operations and certain other assets not directly attributable                to the business segments. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                         |   | 2006   |    | 2005   |   | 2004    |   |
|--------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|---------|--------|
| Profit                from operations from the reporting segments                                            |   | $      | 248.6   |   | $      | 140.3   |   | $ | 232.9 |   |
| Interest                and debt expense                                                                     |   |   | 71.2    |   |   | 89.4    |   |   | 108.7 |   |
| Vertac                litigation charges                                                                     |   |   | 108.5   |   |   | 15.0    |   |   | — |   |
| Gain                on sale of CP Kelco ApS                                                                  |   |   | — |   |   | — |   |   | (27.0 | ) |
| Other                expense, net                                                                            |   |   | 65.7    |   |   | 71.3    |   |   | 116.7 |   |
| Income                (loss) before income taxes, minority interests and equity (loss)                income |   | $      | 3.2     |   | $      | (35.4   | )      | $ | 34.5 |   |

----

**Hercules        Incorporated**

**Notes        to Consolidated Financial Statements**

*(Dollars        in millions, except per share data)*

**Geographic      Reporting**

| **Geographic                Areas**               |   | **United****States** |   |  **Europe** |   |  **Americas** |   |  **Asia                Pacific** |   |  **Total** |   |
|---------------------------------------------------|--------|----------------------|--------|------------------|--------|--------------------|--------|---------------------------------------|--------|-----------------|--------|
| **2006**                                          |   |                 |   |             |   |               |   |                                  |   |            |   |
| Net                Sales                          |   | $                    | 897.2  |             | $      | 696.0              |   | $                                     | 214.7  |            | $      | 227.4 |   | $ | 2,035.3 |   |
| Property,                plant and equipment, net |   |                 | 272.1  |             |   | 242.6              |   |                                  | 17.0   |            |   | 68.7 |   |   | 600.4 |   |
| **2005**                                          |   |                 |   |             |   |               |   |                                  |   |            |   |   |   |   |   |   |
| Net                Sales                          |   | $                    | 871.9  |             | $      | 747.7              |   | $                                     | 201.7  |            | $      | 233.7 |   | $ | 2,055.0 |   |
| Property,                plant and equipment, net |   |                 | 262.1  |             |   | 233.8              |   |                                  | 15.7   |            |   | 23.8 |   |   | 535.4 |   |
| **2004**                                          |   |                 |   |             |   |               |   |                                  |   |            |   |   |   |   |   |   |
| Net                Sales                          |   | $                    | 824.1  |             | $      | 761.8              |   | $                                     | 184.0  |            | $      | 214.4 |   | $ | 1,984.3 |   |
| Property,                plant and equipment, net |   |                 | 325.2  |             |   | 331.4              |   |                                  | 16.2   |            |   | 22.6 |   |   | 695.4 |   |
|                                              |   |                 |   |             |   |               |   |                                  |   |            |   |   |   |   |   |   |

**28.         Financial      Instruments and Risk Management, Including Derivatives**

----

**Hercules        Incorporated**

**Notes        to Consolidated Financial Statements**

*(Dollars        in millions, except per share data)*

|                                                    |   | 2006     |   | 2005   |   |
|---------------------------------------------------------|--------|----------|--------|--------|--------|
|                                                    |   | Carrying |   | Fair   |   | Carrying |   | Fair |   |
|                                                    |   | Value    |   | Value  |   | Value |   | Value |   |
| Deferred                charges and other assets        |   |     |   |   |   |   |   |   |   |
| Investment                securities available for sale |   | $        | 2.6    |   | $      | 2.6 |   | $ | 1.0 |   | $ | 1.0 |   |
| Foreign                exchange contracts, net          |   |     | (0.1   | )      |   | (0.1 | ) |   | (0.2 | ) |   | (0.2 | ) |
|                                                    |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Current                and long-term debt obligations   |   |     | 995.5  |   |   | 964.2 |   |   | 1,109.0 |   |   | 1,092.1 |   |
|                                                    |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Deferred                credits and other liabilities   |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Cross                currency interest rate swaps       |   |     | 53.2   |   |   | 53.2 |   |   | — |   |   | — |   |

**29.         Condensed      Consolidating Financial Information of Guarantor      Subsidiaries**

| Aqualon                Company                                                                 | Hercules                Flavor, Inc.               |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------|
| East                Bay Realty Services, Inc.                                                                                                                                                                                                                                                                                                                                                                                  | Hercules                Hydrocarbon Holdings, Inc. |
| Hercules                Euro Holdings, LLC                                                                                                                                                                                                                                                                                                                                                                                     | Hercules                Paper Holdings, Inc.       |
| Hercules                Finance Company                                                                                                                                                                                                                                                                                                                                                                                        | WSP,                Inc.                           |

----

**Hercules      Incorporated**

**Notes      to Consolidated Financial Statements**

*(Dollars      in millions, except per share data)*

| Condensed                Consolidating Statement of Operations                                                                                                            |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Year                Ended December 31, 2006                                                                                                                               |   |
|                                                                                                                                                                      |   | Unconsolidated |   |   |   |   |   |
|                                                                                                                                                                      |   | Parent |   | GuarantorSubsidiaries |   | Non-GuarantorSubsidiaries |   | EliminationsandAdjustments |   | Consolidated |   |
|                                                                                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |
| Net                sales                                                                                                                                                  |   | $ | 596.7 |   | $ | 478.2 |   | $ | 1,124.6 |   | $ | (164.2 | ) | $ | 2,035.3 |   |
| Cost                of sales                                                                                                                                              |   |   | 417.5 |   |   | 345.7 |   |   | 744.6 |   |   | (164.4 | ) |   | 1,343.4 |   |
| Selling,                general and administrative expenses                                                                                                               |   |   | 101.0 |   |   | 121.3 |   |   | 150.7 |   |   | (0.8 | ) |   | 372.2 |   |
| Research                and development                                                                                                                                   |   |   | 19.7 |   |   | 16.9 |   |   | 2.2 |   |   | — |   |   | 38.8 |   |
| Intangible                asset amortization                                                                                                                              |   |   | 5.9 |   |   | 0.7 |   |   | 0.6 |   |   | — |   |   | 7.2 |   |
| Other                operating expense, net                                                                                                                               |   |   | 15.5 |   |   | (1.8 | ) |   | 11.4 |   |   | — |   |   | 25.1 |   |
|                                                                                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Profit                (loss) from operations                                                                                                                              |   |   | 37.1 |   |   | (4.6 | ) |   | 215.1 |   |   | 1.0 |   |   | 248.6 |   |
| Interest                and debt expense (income), net                                                                                                                    |   |   | 173.2 |   |   | (103.7 | ) |   | 1.7 |   |   | — |   |   | 71.2 |   |
| Vertac                litigation charges                                                                                                                                  |   |   | 108.5 |   |   | — |   |   | — |   |   | — |   |   | 108.5 |   |
| Other                expense, net                                                                                                                                         |   |   | 58.7 |   |   | 6.5 |   |   | 0.5 |   |   | — |   |   | 65.7 |   |
| Income                (loss) before income taxes, minority interests and equity (loss)                income                                                              |   |   | (303.3 | ) |   | 92.6 |   |   | 212.9 |   |   | 1.0 |   |   | 3.2 |   |
| (Benefit)                provision for income taxes                                                                                                                       |   |   | (230.3 | ) |   | (4.6 | ) |   | 42.3 |   |   | 0.4 |   |   | (192.2 | ) |
| Income                (loss) before minority interests and equity (loss) income                                                                                           |   |   | (73.0 | ) |   | 97.2 |   |   | 170.6 |   |   | 0.6 |   |   | 195.4 |   |
| Minority                interests in earnings of consolidated subsidiaries                                                                                                |   |   | — |   |   | — |   |   | (1.4 | ) |   | — |   |   | (1.4 | ) |
| Equity                (loss) income of affiliated companies                                                                                                               |   |   | — |   |   | (3.5 | ) |   | 1.6 |   |   | (1.3 | ) |   | (3.2 | ) |
| Equity                income (loss) from consolidated subsidiaries                                                                                                        |   |   | 263.8 |   |   | 0.5 |   |   | (0.8 | ) |   | (263.5 | ) |   | — |   |
| Net                income from continuing operations before discontinued operations                and                cumulative effect of change in accounting principle |   |   | 190.8 |   |   | 94.2 |   |   | 170.0 |   |   | (264.2 | ) |   | 190.8 |   |
| Net                income from discontinued operations, net of tax                                                                                                        |   |   | 47.0 |   |   | — |   |   | — |   |   | — |   |   | 47.0 |   |
| Net                income before cumulative effect of change in accounting principle                                                                                      |   |   | 237.8 |   |   | 94.2 |   |   | 170.0 |   |   | (264.2 | ) |   | 237.8 |   |
| Cumulative                effect of change in accounting principle, net of tax                                                                                            |   |   | 0.9 |   |   | — |   |   | — |   |   | — |   |   | 0.9 |   |
| Net                income (loss)                                                                                                                                          |   | $ | 238.7 |   | $ | 94.2 |   | $ | 170.0 |   | $ | (264.2 | ) | $ | 238.7 |   |

----

**Hercules        Incorporated**

**Notes        to Consolidated Financial Statements**

*(Dollars        in millions, except per share data)*

| Condensed                Consolidating Statement of Operations                                                                                                                                                                                         |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Year                Ended December 31, 2005                                                                                                                                                                                                            |   |   |   |
|                                                                                                                                                                                                                                                   |   | Unconsolidated |   |   |   |   |   |
|                                                                                                                                                                                                                                                   |   |   |   |  Guarantor |   |  Non-Guarantor |   | Eliminations                and |   |   |   |
|                                                                                                                                                                                                                                                   |   | Parent |   | Subsidiaries |   | Subsidiaries |   | Adjustments |   | Consolidated |   |
| Net                sales                                                                                                                                                                                                                               |   | $ | 548.9 |   | $ | 491.2 |   | $ | 1,175.2 |   | $ | (160.3 | ) | $ | 2,055.0 |   |
| Cost                of sales                                                                                                                                                                                                                           |   |   | 386.2 |   |   | 382.7 |   |   | 794.7 |   |   | (172.5 | ) |   | 1,391.1 |   |
| Selling,                general, and administrative expenses                                                                                                                                                                                           |   |   | 103.7 |   |   | 130.0 |   |   | 148.8 |   |   | — |   |   | 382.5 |   |
| Research                and development                                                                                                                                                                                                                |   |   | 19.2 |   |   | 18.4 |   |   | 3.2 |   |   | — |   |   | 40.8 |   |
| Intangible                asset amortization                                                                                                                                                                                                           |   |   | 6.0 |   |   | 1.5 |   |   | 0.5 |   |   | — |   |   | 8.0 |   |
| Impairment                of FiberVisions’ goodwill                                                                                                                                                                                              |   |   | - |   |   | 52.9 |   |   | — |   |   | — |   |   | 52.9 |   |
| Other                operating expenses, net                                                                                                                                                                                                           |   |   | 8.0 |   |   | 9.0 |   |   | 22.4 |   |   | — |   |   | 39.4 |   |
|                                                                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Profit                (loss) from operations                                                                                                                                                                                                           |   |   | 25.8 |   |   | (103.3 | ) |   | 205.6 |   |   | 12.2 |   |   | 140.3 |   |
| Interest                and debt expense (income), net                                                                                                                                                                                                 |   |   | 173.1 |   |   | (71.6 | ) |   | (12.1 | ) |   | — |   |   | 89.4 |   |
| Vertac                litigation charges                                                                                                                                                                                                               |   |   | 15.0 |   |   | — |   |   | — |   |   | — |   |   | 15.0 |   |
| Other                expense (income), net                                                                                                                                                                                                             |   |   | 72.3 |   |   | 2.4 |   |   | (3.4 | ) |   | — |   |   | 71.3 |   |
| (Loss)                income before income taxes, minority interests and equity income                (loss)                                                                                                                                      |   |   | (234.6 | ) |   | (34.1 | ) |   | 221.1 |   |   | 12.2 |   |   | (35.4 | ) |
| (Benefit)                provision for income taxes                                                                                                                                                                                                    |   |   | (100.3 | ) |   | 20.0 |   |   | 72.2 |   |   | 4.3 |   |   | (3.8 | ) |
| Income                (loss) before minority interests and equity                                                                                                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|       income                (loss)                                                                                                                                                                                       |   |   | (134.3 | ) |   | (54.1 | ) |   | 148.9 |   |   | 7.9 |   |   | (31.6 | ) |
| Minority                interests in earnings of consolidated                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|       subsidiaries                                                                                                                                                                                                       |   |   | — |   |   | — |   |   | (1.0 | ) |   | — |   |   | (1.0 | ) |
| Equity                income (loss) of affiliated companies                                                                                                                                                                                            |   |   | — |   |   | (1.1 | ) |   | 1.5 |   |   | 0.1 |   |   | 0.5 |   |
| Equity                income (loss) from consolidated subsidiaries                                                                                                                                                                                |   |   | 102.2 |   |   | 10.0 |   |   | (3.2 | ) |   | (109.0 | ) |   | — |   |
| Net                (loss) income from continuing operations      before                discontinued operations and cumulative      effect                of change in accounting principle |   |   | (32.1 | ) |   | (45.2 | ) |   | 146.2 |   |   | (101.0 | ) |   | (32.1 | ) |
| Net                loss from discontinued operations, net of tax                                                                                                                                                                                       |   |   | (6.5 | ) |   | — |   |   | — |   |   | — |   |   | (6.5 | ) |
| Net                (loss) income before cumulative effect of       changes                in accounting principle, net of tax                                                                                            |   |   | (38.6 | ) |   | (45.2 | ) |   | 146.2 |   |   | (101.0 | ) |   | (38.6 | ) |
| Cumulative                effect of change in accounting principle,                net of tax                                                                                                                                                     |   |   | (2.5 | ) |   | — |   |   | — |   |   | — |   |   | (2.5 | ) |
| Net                (loss) income                                                                                                                                                                                                                       |   | $ | (41.1 | ) | $ | (45.2 | ) | $ | 146.2 |   | $ | (101.0 | ) | $ | (41.1 | ) |

----

**Hercules      Incorporated**

**Notes      to Consolidated Financial Statements**

*(Dollars      in millions, except per share data)*

| Condensed                Consolidating Statement of Operations                                                   |   |
|------------------------------------------------------------------------------------------------------------------|--------|
| Year                Ended December 31, 2004                                                                      |   |   |   |
|                                                                                                             |   | Unconsolidated |   |   |   |   |   |
|                                                                                                             |   |   |   |  Guarantor |   |  Non-Guarantor |   | Eliminations                and |   |   |   |
|                                                                                                             |   | Parent |   | Subsidiaries |   | Subsidiaries |   | Adjustments |   | Consolidated |   |
| Net                sales                                                                                         |   | $ | 528.4 |   | $ | 474.8 |   | $ | 1,131.9 |   | $ | (150.8 | ) | $ | 1,984.3 |   |
| Cost                of sales                                                                                     |   |   | 358.8 |   |   | 352.5 |   |   | 731.1 |   |   | (150.8 | ) |   | 1,291.6 |   |
| Selling,                general, and administrative expenses                                                     |   |   | 100.8 |   |   | 126.0 |   |   | 155.3 |   |   | — |   |   | 382.1 |   |
| Research                and development                                                                          |   |   | 19.7 |   |   | 17.4 |   |   | 5.6 |   |   | — |   |   | 42.7 |   |
| Goodwill                and intangible asset amortization                                                        |   |   | 6.1 |   |   | 1.5 |   |   | 0.5 |   |   | — |   |   | 8.1 |   |
| Other                operating expenses, net                                                                     |   |   | 4.8 |   |   | 12.9 |   |   | 9.2 |   |   | — |   |   | 26.9 |   |
| Profit                (loss) from operations                                                                     |   |   | 38.2 |   |   | (35.5 | ) |   | 230.2 |   |   | — |   |   | 232.9 |   |
| Interest                and debt expense (income), net                                                           |   |   | 177.6 |   |   | (59.7 | ) |   | (9.2 | ) |   | — |   |   | 108.7 |   |
| Gain                on sale of CP Kelco ApS                                                                      |   |   | — |   |   | — |   |   | (27.0 | ) |   | — |   |   | (27.0 | ) |
| Other                expense (income), net                                                                       |   |   | 256.6 |   |   | 3.9 |   |   | (143.8 | ) |   | — |   |   | 116.7 |   |
| Income                (loss) before income taxes, minority interest and equity income                (loss) |   |   | (396.0 | ) |   | 20.3 |   |   | 410.2 |   |   | — |   |   | 34.5 |   |
| Provision                (benefit) for income taxes                                                              |   |   | (86.8 | ) |   | 38.1 |   |   | 52.5 |   |   | — |   |   | 3.8 |   |
| Income                (loss) before minority interests and                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| equity                income ( loss)                                                                             |   |   | (309.2 | ) |   | (17.8 | ) |   | 357.7 |   |   | — |   |   | 30.7 |   |
| Minority                interests in earnings of consolidated                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    subsidiaries                                                                                   |   |   | — |   |   | — |   |   | (0.9 | ) |   | — |   |   | (0.9 | ) |
| Equity                income (loss) of affiliated companies                                                      |   |   | — |   |   | (0.7 | ) |   | 1.8 |   |   | (0.2 | ) |   | 0.9 |   |
| Equity                income (loss) from consolidated                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    subsidiaries                                                                                   |   |   | 339.9 |   |   | 6.0 |   |   | (1.6 | ) |   | (344.3 | ) |   | — |   |
| Net                income (loss) from continuing operations                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    before                discontinued operations                                                  |   |   | 30.7 |   |   | (12.5 | ) |   | 357.0 |   |   | (344.5 | ) |   | 30.7 |   |
| Net                loss from discontinued operations, net of tax                                                 |   |   | (2.6 | ) |   | — |   |   | — |   |   | — |   |   | (2.6 | ) |
| Net                income (loss)                                                                                 |   | $ | 28.1 |   | $ | (12.5 | ) | $ | 357.0 |   | $ | (344.5 | ) | $ | 28.1 |   |

----

**Hercules      Incorporated**

**Notes      to Consolidated Financial Statements**

*(Dollars      in millions, except per share data)*

| Condensed                Consolidating Balance Sheet                              |   |
|----------------------------------------------------------------------------------------|--------|
| Year                ended December 31, 2006                                            |   |   |   |
|                                                                                   |   | Unconsolidated |   |   |   |   |   |
|                                                                                   |   |   |   | Guarantor |   | Non-Guarantor |   | Eliminationsand |   |   |   |
| **Assets**                                                                             |   | Parent |   | Subsidiaries |   | Subsidiaries |   | Adjustments |   | Consolidated |   |
| Current                assets                                                          |   |   |   |   |   |   |   |   |   |   |   |
|      Cash                and cash equivalents                 |   | $ | 89.7 |   | $ | 0.5 |   | $ | 81.6 |   | $ | — |   | $ | 171.8 |   |
|      Accounts                receivable, net                  |   |   | 69.9 |   |   | 45.6 |   |   | 211.1 |   |   | — |   |   | 326.6 |   |
|      Intercompany                receivables                  |   |   | 68.0 |   |   | 9.8 |   |   | (6.4 | ) |   | (71.4 | ) |   | — |   |
|      Inventories                                              |   |   | 56.2 |   |   | 68.9 |   |   | 87.0 |   |   | (1.5 | ) |   | 210.6 |   |
|      Deferred                income taxes                     |   |   | 57.6 |   |   | 3.2 |   |   | 9.4 |   |   | — |   |   | 70.2 |   |
|      Current                assets of discontinued operations |   |   | 0.4 |   |   | — |   |   | — |   |   | — |   |   | 0.4 |   |
|      Income                taxes receivable                   |   |   | 170.8 |   |   | — |   |   | — |   |   | — |   |   | 170.8 |   |
|      Other                current assets                      |   |   | 12.3 |   |   | 2.4 |   |   | 19.4 |   |   | — |   |   | 34.1 |   |
|      Total                current assets                      |   |   | 524.9 |   |   | 130.4 |   |   | 402.1 |   |   | (72.9 | ) |   | 984.5 |   |
| Property,                plant and equipment, net                                      |   |   | 139.9 |   |   | 132.2 |   |   | 328.3 |   |   | — |   |   | 600.4 |   |
| Investments                in subsidiaries and advances, net                           |   |   | 2,569.7 |   |   | 85.2 |   |   | 44.9 |   |   | (2,699.8 | ) |   | — |   |
| Intangible                assets, net                                                  |   |   | 131.8 |   |   | 2.9 |   |   | 8.4 |   |   | — |   |   | 143.1 |   |
| Goodwill                                                                               |   |   | 58.7 |   |   | 37.6 |   |   | 385.2 |   |   | — |   |   | 481.5 |   |
| Deferred                income taxes                                                   |   |   | 357.1 |   |   | — |   |   | 19.5 |   |   | (2.0 | ) |   | 374.6 |   |
| Asbestos-related                assets                                                 |   |   | 87.5 |   |   | — |   |   | — |   |   | — |   |   | 87.5 |   |
| Deferred                charges and other assets                                       |   |   | 87.7 |   |   | 27.7 |   |   | 21.5 |   |   | — |   |   | 136.9 |   |
| Total                assets                                                            |   | $ | 3,957.3 |   | $ | 416.0 |   | $ | 1,209.9 |   | $ | (2,774.7 | ) | $ | 2,808.5 |   |
| **Liabilities                and Stockholders' Equity**                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current                liabilities                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Accounts                payable                          |   | $ | 63.2 |   | $ | 35.0 |   | $ | 107.1 |   | $ | — |   | $ | 205.3 |   |
|      Intercompany                payables                     |   |   | 2.0 |   |   | 43.4 |   |   | 26.1 |   |   | (71.5 | ) |   | — |   |
|      Asbestos-related                liabilities              |   |   | 36.4 |   |   | — |   |   | — |   |   | — |   |   | 36.4 |   |
|      Current                debt obligations                  |   |   | 20.0 |   |   | — |   |   | 15.8 |   |   | — |   |   | 35.8 |   |
|      Vertac                litigation liability               |   |   | 123.5 |   |   | — |   |   | — |   |   | — |   |   | 123.5 |   |
|      Accrued                expenses                          |   |   | 119.8 |   |   | 68.3 |   |   | 82.4 |   |   | (41.9 | ) |   | 228.6 |   |
|      Total                current liabilities                 |   |   | 364.9 |   |   | 146.7 |   |   | 231.4 |   |   | (113.4 | ) |   | 629.6 |   |
| Long-term                debt                                                          |   |   | 937.5 |   |   | — |   |   | 22.2 |   |   | — |   |   | 959.7 |   |
| Deferred                income taxes                                                   |   |   | — |   |   | 2.0 |   |   | 69.7 |   |   | (2.0 | ) |   | 69.7 |   |
| Pension                obligations                                                     |   |   | 191.2 |   |   | — |   |   | 71.3 |   |   | — |   |   | 262.5 |   |
| Other                postretirement benefit obligations                                |   |   | 139.9 |   |   | 2.1 |   |   | 0.2 |   |   | — |   |   | 142.2 |   |
| Deferred                credits and other liabilities                                  |   |   | 220.8 |   |   | 14.1 |   |   | 20.7 |   |   | — |   |   | 255.6 |   |
| Asbestos-related                liabilities                                            |   |   | 233.6 |   |   | — |   |   | — |   |   | — |   |   | 233.6 |   |
| Intercompany                notes payable (receivable)                                 |   |   | 1,626.5 |   |   | (1,413.5 | ) |   | (255.0 | ) |   | 42.0 |   |   | — |   |
| Minority                interests                                                      |   |   | — |   |   | — |   |   | 12.7 |   |   | — |   |   | 12.7 |   |
| Total                stockholders' equity                                              |   |   | 242.9 |   |   | 1,664.6 |   |   | 1,036.7 |   |   | (2,701.3 | ) |   | 242.9 |   |
| Total                liabilities and stockholders' equity                              |   | $ | 3,957.3 |   | $ | 416.0 |   | $ | 1,209.9 |   | $ | (2,774.7 | ) | $ | 2,808.5 |   |

----

**Hercules        Incorporated**

**Notes        to Consolidated Financial Statements**

*(Dollars        in millions, except per share data)*

| Condensed                Consolidating Balance Sheet                              |   |
|----------------------------------------------------------------------------------------|--------|
| December                31, 2005                                                       |   |   |   |
|                                                                                   |   | Unconsolidated |   |   |   |   |   |
|                                                                                   |   |   |   | Guarantor |   | Non-Guarantor |   | Eliminationsand |   |   |   |
| **Assets**                                                                             |   | Parent |   | Subsidiaries |   | Subsidiaries |   | Adjustments |   | Consolidated |   |
| Current                assets                                                          |   |   |   |   |   |   |   |   |   |   |   |
|      Cash                and cash equivalents                 |   | $ | 9.1 |   | $ | 1.0 |   | $ | 67.2 |   | $ | — |   | $ | 77.3 |   |
|      Accounts                receivable, net                  |   |   | 62.1 |   |   | 35.8 |   |   | 191.6 |   |   | 0.2 |   |   | 289.7 |   |
|      Intercompany                receivable                   |   |   | 68.7 |   |   | 17.5 |   |   | 21.4 |   |   | (107.6 | ) |   | — |   |
|      Inventories                                              |   |   | 52.7 |   |   | 52.4 |   |   | 76.6 |   |   | (2.1 | ) |   | 179.6 |   |
|      Deferred                income taxes                     |   |   | 24.0 |   |   | 2.9 |   |   | 12.4 |   |   | — |   |   | 39.3 |   |
|      FiberVisions                assets held for sale         |   |   | — |   |   | 138.8 |   |   | 63.9 |   |   | — |   |   | 202.7 |   |
|      Current                assets of discontinued operations |   |   | 6.7 |   |   | — |   |   | — |   |   | — |   |   | 6.7 |   |
|      Income                taxes receivable                   |   |   | 12.6 |   |   | — |   |   | — |   |   | — |   |   | 12.6 |   |
|      Other                current assets                      |   |   | 12.8 |   |   | 1.8 |   |   | 20.7 |   |   | 0.2 |   |   | 35.5 |   |
|      Total                current assets                      |   |   | 248.7 |   |   | 250.2 |   |   | 453.8 |   |   | (109.3 | ) |   | 843.4 |   |
| Property,                plant and equipment, net                                      |   |   | 145.6 |   |   | 107.2 |   |   | 282.6 |   |   | — |   |   | 535.4 |   |
| Investments                in subsidiaries and advances, net                           |   |   | 2,461.4 |   |   | 88.3 |   |   | 44.9 |   |   | (2,594.6 | ) |   | — |   |
| Intangible                assets, net                                                  |   |   | 137.7 |   |   | — |   |   | 5.1 |   |   | — |   |   | 142.8 |   |
| Goodwill                                                                               |   |   | 58.7 |   |   | 27.9 |   |   | 354.4 |   |   | — |   |   | 441.0 |   |
| Deferred                income taxes                                                   |   |   | 361.7 |   |   | — |   |   | 18.3 |   |   | (139.6 | ) |   | 240.4 |   |
| Asbestos-related                assets                                                 |   |   | 120.7 |   |   | — |   |   | — |   |   | — |   |   | 120.7 |   |
| Deferred                charges and other assets                                       |   |   | 171.6 |   |   | 13.7 |   |   | 59.8 |   |   | — |   |   | 245.1 |   |
| Total                assets                                                            |   | $ | 3,706.1 |   | $ | 487.3 |   | $ | 1,218.9 |   | $ | (2,843.5 | ) | $ | 2,568.8 |   |
| **Liabilities                and Stockholders' (Deficit) Equity**                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current                liabilities                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accounts                payable                                                        |   | $ | 51.5 |   | $ | 16.7 |   | $ | 104.5 |   | $ | 0.2 |   | $ | 172.9 |   |
| FiberVisions                liabilities held for sale                                  |   |   | — |   |   | 51.2 |   |   | 15.4 |   |   | — |   |   | 66.6 |   |
| Asbestos-related                liabilities                                            |   |   | 36.4 |   |   | — |   |   | — |   |   | — |   |   | 36.4 |   |
| Intercompany                payable                                                    |   |   | 1.5 |   |   | 60.7 |   |   | 42.0 |   |   | (104.2 | ) |   | — |   |
| Current                debt obligations                                                |   |   | 4.0 |   |   | — |   |   | 12.7 |   |   | — |   |   | 16.7 |   |
| Accrued                expenses                                                        |   |   | 76.2 |   |   | 60.5 |   |   | 80.3 |   |   | — |   |   | 217.0 |   |
| Current                liabilities of discontinued operations                          |   |   | 2.8 |   |   | — |   |   | — |   |   | — |   |   | 2.8 |   |
| Total                current liabilities                                               |   |   | 172.4 |   |   | 189.1 |   |   | 254.9 |   |   | (104.0 | ) |   | 512.4 |   |
| Long-term                debt                                                          |   |   | 1,088.6 |   |   | — |   |   | 3.7 |   |   | — |   |   | 1,092.3 |   |
| Deferred                income taxes                                                   |   |   | — |   |   | 142.6 |   |   | 72.2 |   |   | (139.0 | ) |   | 75.8 |   |
| Pension                obligations                                                     |   |   | 251.7 |   |   | — |   |   | 71.7 |   |   | — |   |   | 323.4 |   |
| Other                postretirement benefit obligation                                 |   |   | 63.1 |   |   | 2.1 |   |   | 0.3 |   |   | — |   |   | 65.5 |   |
| Deferred                credits and other liabilities                                  |   |   | 254.2 |   |   | 18.8 |   |   | 16.4 |   |   | — |   |   | 289.4 |   |
| Asbestos-related                liabilities                                            |   |   | 233.6 |   |   | — |   |   | — |   |   | — |   |   | 233.6 |   |
| Intercompany                notes payable (receivable)                                 |   |   | 1,667.2 |   |   | (1,208.7 | ) |   | (458.5 | ) |   | — |   |   | — |   |
| Minority                interests                                                      |   |   | — |   |   | — |   |   | 1.1 |   |   | — |   |   | 1.1 |   |
| Total                stockholders' (deficit) equity                                    |   |   | (24.7 | ) |   | 1,343.4 |   |   | 1,257.1 |   |   | (2,600.5 | ) |   | (24.7 | ) |
| Total                liabilities and stockholders' (deficit) equity               |   | $ | 3,706.1 |   | $ | 487.3 |   | $ | 1,218.9 |   | $ | (2,843.5 | ) | $ | 2,568.8 |   |

----

**Hercules      Incorporated**

**Notes      to Consolidated Financial Statements**

*(Dollars      in millions, except per share data)*

| Condensed                Consolidating Statement of Cash Flows                                                                |   |
|-------------------------------------------------------------------------------------------------------------------------------|--------|
| Year                Ended December 31, 2006                                                                                   |   |   |   |
|                                                                                                                          |   | Unconsolidated |   |   |   |   |   |
|                                                                                                                          |   |   Parent |   |  GuarantorSubsidiaries |   | Non-GuarantorSubsidiaries |   | EliminationsandAdjustments |   |   Consolidated |   |
| **Net                Cash Provided By (Used In) Operating Activities**                                                        |   | $ | 166.7 |   | $ | (1.2 | ) | $ | 482.1 |   | $ | (474.7 | ) | $ | 172.9 |   |
| **Cash                Flow From Investing Activities:**                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Capital                expenditures                                                                         |   |   | (21.3 | ) |   | (21.0 | ) |   | (51.3 | ) |   | — |   |   | (93.6 | ) |
|    Acquisitions                and investments, net of                cash, recognized upon consolidation |   |   | — |   |   | (22.7 | ) |   | (6.7 | ) |   | — |   |   | (29.4 | ) |
|    Proceeds                from sale of 51% interest                in FiberVisions, net                  |   |   | 17.8 |   |   | — |   |   | — |   |   | — |   |   | 17.8 |   |
|    Proceeds                of fixed asset disposals                                                            |   |   | 1.1 |   |   | 5.9 |   |   | 4.3 |   |   | — |   |   | 11.3 |   |
|    Other,                net                                                                                   |   |   | (0.2 | ) |   | — |   |   | — |   |   | — |   |   | (0.2 | ) |
|    Net                cash used in investing activities                                                        |   |   | (2.6 | ) |   | (37.8 | ) |   | (53.7 | ) |   | — |   |   | (94.1 | ) |
| **Cash                Flow From Financing Activities:**                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Long-term                debt issued by FiberVisions, net                of issuance costs             |   |   | 83.7 |   |   | — |   |   | — |   |   | — |   |   | 83.7 |   |
|    Long-term                debt proceeds                                                                      |   |   | — |   |   | — |   |   | 22.0 |   |   | — |   |   | 22.0 |   |
|    Long-term                debt payments                                                                      |   |   | (135.7 | ) |   | — |   |   | (6.8 | ) |   | — |   |   | (142.5 | ) |
|    Change                in short-term debt                                                                    |   |   | — |   |   | — |   |   | 5.8 |   |   | — |   |   | 5.8 |   |
|    Change                in intercompany advances                                                              |   |   | (71.5 | ) |   | 38.5 |   |   | (388.7 | ) |   | 421.7 |   |   | — |   |
|    Proceeds                from the exercise of stock options                                                  |   |   | 37.0 |   |   | — |   |   | — |   |   | — |   |   | 37.0 |   |
|    Dividends                paid                                                                               |   |   | — |   |   | — |   |   | (53.0 | ) |   | 53.0 |   |   | — |   |
|    Other,                net                                                                                   |   |   | 5.6 |   |   | — |   |   | — |   |   | — |   |   | 5.6 |   |
|    Net                cash provided by (used in) financing activities                                     |   |   | (80.9 | ) |   | 38.5 |   |   | (420.7 | ) |   | 474.7 |   |   | 11.6 |   |
| Effect                of exchange rate changes on cash                                                                        |   |   | — |   |   | — |   |   | 4.1 |   |   | — |   |   | 4.1 |   |
|    Net                increase (decrease) in cash and cash equivalents                                    |   |   | 83.2 |   |   | (0.5 | ) |   | 11.8 |   |   | — |   |   | 94.5 |   |
|    Cash                and cash equivalents at beginning of year                                               |   |   | 6.5 |   |   | 1.0 |   |   | 69.8 |   |   | — |   |   | 77.3 |   |
|    Cash                and cash equivalents at end of year                                                     |   | $ | 89.7 |   | $ | 0.5 |   | $ | 81.6 |   | $ | — |   | $ | 171.8 |   |

----

**Hercules        Incorporated**

**Notes        to Consolidated Financial Statements**

*(Dollars        in millions, except per share data)*

| Condensed                Consolidating Statement of Cash Flows                             |   |
|--------------------------------------------------------------------------------------------|--------|
| Year                Ended December 31, 2005                                                |   |   |   |
|                                                                                       |   | Unconsolidated |   |   |   |   |   |
|                                                                                       |   |   Parent |   |  GuarantorSubsidiaries |   | Non-GuarantorSubsidiaries |   | EliminationsandAdjustments |   |   Consolidated |   |
| **Net                Cash Provided By (Used In)                Operating Activities** |   | $ | (4.6 | ) | $ | 29.1 |   | $ | (81.2 | ) | $ | 195.9 |   | $ | 139.2 |   |
| **Cash                Flow From Investing Activities:**                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Capital                expenditures                                      |   |   | (16.7 | ) |   | (26.7 | ) |   | (24.1 | ) |   | — |   |   | (67.5 | ) |
|    Investments                                                              |   |   | — |   |   | — |   |   | (4.4 | ) |   | — |   |   | (4.4 | ) |
|    Proceeds                of fixed asset disposals                         |   |   | 13.3 |   |   | — |   |   | 3.3 |   |   | — |   |   | 16.6 |   |
|    Other,                net                                                |   |   | — |   |   | — |   |   | (2.4 | ) |   | — |   |   | (2.4 | ) |
|    Net                cash used in investing activities                     |   |   | (3.4 | ) |   | (26.7 | ) |   | (27.6 | ) |   | — |   |   | (57.7 | ) |
| **Cash                Flow From Financing Activities:**                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Long-term                debt payments                                   |   |   | (112.8 | ) |   | — |   |   | (18.4 | ) |   | — |   |   | (131.2 | ) |
|    Change                in short-term debt                                 |   |   | — |   |   | — |   |   | 1.9 |   |   | — |   |   | 1.9 |   |
|    Change                in intercompany advances                           |   |   | 82.2 |   |   | (2.3 | ) |   | 159.2 |   |   | (239.1 | ) |   | — |   |
|    Proceeds                from the exercise of stock options               |   |   | 2.7 |   |   | — |   |   | — |   |   | — |   |   | 2.7 |   |
|    Dividends                paid                                            |   |   | — |   |   | — |   |   | (43.2 | ) |   | 43.2 |   |   | — |   |
|    Other,                net                                                |   |   | (0.4 | ) |   | — |   |   | — |   |   | — |   |   | (0.4 | ) |
|    Net                cash (used in) provided by financing activities  |   |   | (28.3 | ) |   | (2.3 | ) |   | 99.5 |   |   | (195.9 | ) |   | (127.0 | ) |
| Effect                of exchange rate changes on cash                                     |   |   | — |   |   | — |   |   | (3.7 | ) |   | — |   |   | (3.7 | ) |
|    Net                (decrease) increase in cash and cash equivalents |   |   | (36.3 | ) |   | 0.1 |   |   | (13.0 | ) |   | — |   |   | (49.2 | ) |
|    Cash                and cash equivalents at beginning of year            |   |   | 42.8 |   |   | 0.9 |   |   | 82.8 |   |   | — |   |   | 126.5 |   |
|    Cash                and cash equivalents at end of year                  |   | $ | 6.5 |   | $ | 1.0 |   | $ | 69.8 |   | $ | — |   | $ | 77.3 |   |

----

**Hercules      Incorporated**

**Notes      to Consolidated Financial Statements**

*(Dollars      in millions, except per share data)*

| Condensed                Consolidating Statement of Cash Flows                                                  |   |
|-----------------------------------------------------------------------------------------------------------------|--------|
| Year                Ended December 31, 2004                                                                     |   |   |   |
|                                                                                                            |   | Unconsolidated |   |   |   |   |   |
|                                                                                                            |   |   Parent |   |  GuarantorSubsidiaries |   | Non-GuarantorSubsidiaries |   | EliminationsandAdjustments |   |   Consolidated |   |
| **Net                Cash Provided By Operating Activities**                                                    |   | $ | 155.4 |   | $ | 40.9 |   | $ | 490.0 |   | $ | (565.8 | ) | $ | 120.5 |   |
| **Cash                Flow From Investing Activities:**                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Capital                expenditures                                                     |   |   | (22.5 | ) |   | (15.4 | ) |   | (39.4 | ) |   | (0.1 | ) |   | (77.4 | ) |
|     Proceeds                of fixed asset disposals                                        |   |   | 0.8 |   |   | — |   |   | 0.6 |   |   | — |   |   | 1.4 |   |
|     Proceeds                from sale of minority interest in                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|          CP                Kelco ApS                               |   |   | 27.0 |   |   | — |   |   | — |   |   | — |   |   | 27.0 |   |
|     Other,                net                                                               |   |   | 0.8 |   |   | (1.5 | ) |   | 0.7 |   |   | (0.1 | ) |   | (0.1 | ) |
|     Net                cash (used in) provided by investing                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      activities                                                                        |   |   | 6.1 |   |   | (16.9 | ) |   | (38.1 | ) |   | (0.2 | ) |   | (49.1 | ) |
| **Cash                Flow From Financing Activities:**                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Long-term                debt proceeds                                                  |   |   | 650.0 |   |   | — |   |   | — |   |   | — |   |   | 650.0 |   |
|     Long-term                debt payments                                                  |   |   | (713.2 | ) |   | — |   |   | (16.3 | ) |   | — |   |   | (729.5 | ) |
|     Change                in short-term debt                                                |   |   | — |   |   | — |   |   | 1.6 |   |   | — |   |   | 1.6 |   |
|     Change                in intercompany advances                                          |   |   | (68.4 | ) |   | (25.2 | ) |   | (262.2 | ) |   | 355.8 |   |   | — |   |
|     Proceeds                from the exercise of stock options                              |   |   | 5.5 |   |   | — |   |   | — |   |   | — |   |   | 5.5 |   |
|     Payment                of debt issuance costs and underwriting                fees |   |   | (7.8 | ) |   | — |   |   | — |   |   | — |   |   | (7.8 | ) |
|     Dividends                paid                                                           |   |   | — |   |   | — |   |   | (210.2 | ) |   | 210.2 |   |   | — |   |
|     Other,                net                                                               |   |   | 6.1 |   |   | — |   |   | — |   |   | — |   |   | 6.1 |   |
|     Net                cash used in financing activities                                    |   |   | (127.8 | ) |   | (25.2 | ) |   | (487.1 | ) |   | 566.0 |   |   | (74.1 | ) |
| Effect                of exchange rate changes on cash                                                          |   |   | — |   |   | — |   |   | 2.9 |   |   | — |   |   | 2.9 |   |
| Net                increase (decrease) in cash and cash equivalents                                             |   |   | 33.7 |   |   | (1.2 | ) |   | (32.3 | ) |   | — |   |   | 0.2 |   |
| Cash                and cash equivalents at beginning of year                                                   |   |   | 9.1 |   |   | 2.1 |   |   | 115.1 |   |   | — |   |   | 126.3 |   |
| Cash                and cash equivalents at end of year                                                         |   | $ | 42.8 |   | $ | 0.9 |   | $ | 82.8 |   | $ | — |   | $ | 126.5 |   |

----

**Hercules      Incorporated**

**Notes      to Consolidated Financial Statements**

*(Dollars      in millions, except per share data)*

**30.         Summary        of Quarterly Results        (Unaudited)**

|                                                                                                                                                               |   | 1st                Quarter |    | 2nd                Quarter |   | 3rd                Quarter |   | 4th                Quarter |    | Year   |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|---------|----------------------------|--------|----------------------------|--------|----------------------------|---------|--------|--------|
|                                                                                                                                                               |   | 2006                       |    | 2005                       |   | 2006                       |   | 2005                       |    | 2006   |   | 2005 |   | 2006 |   | 2005 |   | 2006 |   | 2005 |   |
| Net                sales                                                                                                                                           |   | $                          | 527.3   |                       | $      | 501.9                      |   | $                          | 501.0   |   | $      | 534.7 |   | $ | 513.1 |   | $ | 519.6 |   | $ | 493.9 |   | $ | 498.8 |   | $ | 2,035.3 |   | $ | 2,055.0 |   |
| Cost                of sales                                                                                                                                       |   |                       | 360.7   |                       |   | 337.6                      |   |                       | 324.7   |   |   | 351.2 |   |   | 332.2 |   |   | 353.7 |   |   | 325.8 |   |   | 348.6 |   |   | 1,343.4 |   |   | 1,391.1 |   |
| Selling,                general and administrative expenses                                                                                                        |   |                       | 91.3    |                       |   | 99.7                       |   |                       | 90.7    |   |   | 99.9 |   |   | 92.8 |   |   | 92.7 |   |   | 97.4 |   |   | 90.2 |   |   | 372.2 |   |   | 382.5 |   |
| Research                and development                                                                                                                            |   |                       | 9.6     |                       |   | 10.3                       |   |                       | 9.4     |   |   | 10.0 |   |   | 9.3 |   |   | 10.1 |   |   | 10.5 |   |   | 10.4 |   |   | 38.8 |   |   | 40.8 |   |
| Intangible                asset amortization                                                                                                                       |   |                       | 1.6     |                       |   | 2.0                        |   |                       | 2.0     |   |   | 2.0 |   |   | 1.8 |   |   | 2.0 |   |   | 1.8 |   |   | 2.0 |   |   | 7.2 |   |   | 8.0 |   |
| Impairment                of FiberVisions goodwill                                                                                                                 |   |                       | — |                       |   | —                    |   |                       | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 52.9 |   |   | — |   |   | 52.9 |   |
| Other                operating expense, net                                                                                                                        |   |                       | 7.2     |                       |   | 9.7                        |   |                       | 8.6     |   |   | 10.4 |   |   | 4.6 |   |   | 11.1 |   |   | 4.7 |   |   | 8.2 |   |   | 25.1 |   |   | 39.4 |   |
| Profit                (loss) from operations                                                                                                                       |   |                       | 56.9    |                       |   | 42.6                       |   |                       | 65.6    |   |   | 61.2 |   |   | 72.4 |   |   | 50.0 |   |   | 53.7 |   |   | (13.5 | ) |   | 248.6 |   |   | 140.3 |   |
| Interest                and debt expense                                                                                                                           |   |                       | 20.7    |                       |   | 22.2                       |   |                       | 16.7    |   |   | 22.8 |   |   | 16.7 |   |   | 22.5 |   |   | 17.1 |   |   | 21.9 |   |   | 71.2 |   |   | 89.4 |   |
| Vertac                litigation charges                                                                                                                           |   |                       | — |                       |   | 14.8                       |   |                       | 106.0   |   |   | 0.1 |   |   | 1.0 |   |   | 0.1 |   |   | 1.5 |   |   | — |   |   | 108.5 |   |   | 15.0 |   |
| Other                expense, net                                                                                                                                  |   |                       | 10.6    |                       |   | 6.4                        |   |                       | 21.1    |   |   | 25.6 |   |   | 4.6 |   |   | 0.1 |   |   | 29.4 |   |   | 39.2 |   |   | 65.7 |   |   | 71.3 |   |
| Income                (loss) before income taxes, minority interests and equity                loss                                                                |   |                       | 25.6    |                       |   | (0.8                       | )      |                       | (78.2   | )      |   | 12.7 |   |   | 50.1 |   |   | 27.3 |   |   | 5.7 |   |   | (74.6 | ) |   | 3.2 |   |   | (35.4 | ) |
| (Benefit)                provision for income taxes                                                                                                                |   |                       | 10.7    |                       |   | (6.5                       | )      |                       | (27.5   | )      |   | 3.1 |   |   | 14.1 |   |   | 2.8 |   |   | (189.5 | ) |   | (3.2 | ) |   | (192.2 | ) |   | (3.8 | ) |
| Income                (loss) before minority interests and equity loss                                                                                             |   |                       | 14.9    |                       |   | 5.7                        |   |                       | (50.7   | )      |   | 9.6 |   |   | 36.0 |   |   | 24.5 |   |   | 195.2 |   |   | (71.4 | ) |   | 195.4 |   |   | (31.6 | ) |
| Minority                interests in earnings of consolidated subsidiaries                                                                                         |   |                       | (0.1    | )                          |   | (0.4                       | )      |                       | (0.3    | )      |   | (0.2 | ) |   | (0.4 | ) |   | (0.3 | ) |   | (0.6 | ) |   | (0.1 | ) |   | (1.4 | ) |   | (1.0 | ) |
| Equity                loss of affiliated companies, net of tax                                                                                                     |   |                       | (0.4    | )                          |   | 0.3                        |   |                       | (0.6    | )      |   | — |   |   | (1.1 | ) |   | 0.2 |   |   | (1.1 | ) |   | — |   |   | (3.2 | ) |   | 0.5 |   |
| Net                income (loss) from continuing operations before discontinued operations                and cumulative effect of changes in accounting principle |   |                       | 14.4    |                       |   | 5.6                        |   |                       | (51.6   | )      |   | 9.4 |   |   | 34.5 |   |   | 24.4 |   |   | 193.5 |   |   | (71.5 | ) |   | 190.8 |   |   | (32.1 | ) |
| Net                income (loss) from discontinued operations, net of tax                                                                                          |   |                       | (0.6    | )                          |   | (0.7                       | )      |                       | (0.7    | )      |   | (0.2 | ) |   | (0.3 | ) |   | (0.4 | ) |   | 48.6 |   |   | (5.2 | ) |   | 47.0 |   |   | (6.5 | ) |
| Net                income (loss) before cumulative effect of                                                                                                       |   |                       |    |                       |   |                       |   |                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| changes                in accounting principle                                                                                                                     |   |                       | 13.8    |                       |   | 4.9                        |   |                       | (52.3   | )      |   | 9.2 |   |   | 34.2 |   |   | 24.0 |   |   | 242.1 |   |   | (76.7 | ) |   | 237.8 |   |   | (38.6 | ) |
| Cumulative                effect of changes in accounting principle                                                                                                |   |                       | 0.9     |                       |   | —                    |   |                       | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | (2.5 | ) |   | 0.9 |   |   | (2.5 | ) |
| Net                income (loss)                                                                                                                                   |   | $                          | 14.7    |                       | $      | 4.9                        |   | $                          | (52.3   | )      | $      | 9.2 |   | $ | 34.2 |   | $ | 24.0 |   | $ | 242.1 |   | $ | (79.2 | ) | $ | 238.7 |   | $ | (41.1 | ) |
| Basic                earnings (loss) per share:                                                                                                                    |   |                       |    |                       |   |                       |   |                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing                operations                                                                                                                               |   | $                          | 0.13    |                       | $      | 0.06                       |   | $                          | (0.46   | )      | $      | 0.09 |   | $ | 0.31 |   | $ | 0.22 |   | $ | 1.72 |   | $ | (0.66 | ) | $ | 1.72 |   | $ | (0.30 | ) |
| Discontinued                operations                                                                                                                             |   |                       | (0.01   | )                          |   | (0.01                      | )      |                       | (0.01   | )      |   | (0.01 | ) |   | — |   |   | — |   |   | 0.43 |   |   | (0.05 | ) |   | 0.42 |   |   | (0.06 | ) |
| Cumulative                effect of changes in accounting      principle                                                             |   |                       | 0.01    |                       |   | —                    |   |                       | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | (0.02 | ) |   | 0.01 |   |   | (0.02 | ) |
| Net                income (loss)                                                                                                                                   |   | $                          | 0.13    |                       | $      | 0.05                       |   | $                          | (0.47   | )      | $      | 0.08 |   | $ | 0.31 |   | $ | 0.22 |   | $ | 2.15 |   | $ | (0.73 | ) | $ | 2.15 |   | $ | (0.38 | ) |
| Diluted                earnings (loss) per share:                                                                                                                  |   |                       |    |                       |   |                       |   |                       |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing                operations                                                                                                                               |   | $                          | 0.13    |                       | $      | 0.05                       |   | $                          | (0.46   | )      | $      | 0.08 |   | $ | 0.31 |   | $ | 0.22 |   | $ | 1.71 |   | $ | (0.66 | ) | $ | 1.71 |   | $ | (0.30 | ) |
| Discontinued                operations                                                                                                                             |   |                       | (0.01   | )                          |   | (0.01                      | )      |                       | (0.01   | )      |   | — |   |   | — |   |   | — |   |   | 0.43 |   |   | (0.05 | ) |   | 0.42 |   |   | (0.06 | ) |
| Cumulative                effect of changes in accounting                         principle                                |   |                       | 0.01    |                       |   | —                    |   |                       | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | (0.02 | ) |   | 0.01 |   |   | (0.02 | ) |
| Net                income (loss)                                                                                                                                   |   | $                          | 0.13    |                       | $      | 0.04                       |   | $                          | (0.47   | )      | $      | 0.08 |   | $ | 0.31 |   | $ | 0.22 |   | $ | 2.14 |   | $ | (0.73 | ) | $ | 2.14 |   | $ | (0.38 | ) |

----

**Signatures**

|   | HERCULES                INCORPORATED                 |
|--------|------------------------------------------------------|
| By:    | /s/                Craig A. Rogerson                 |
|   |                                                 |
|   | President                and Chief Executive Officer |

----

**EXHIBIT      INDEX**

| **Number**                       | **Description**                                                                                                                                                  |   |   |
|----------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| 31.1*                            | Certification                  of President and Chief Executive Officer Pursuant to Exchange Act                  Rule                  13a-14(a)/15d-14(a)      |   |   |
| 31.2*                            | Certification                  of Vice President and Chief Financial Officer Pursuant to Exchange                  Act                  Rule 13a-14(a)/15d-14(a) |   |   |
| 32.1*                            | Section                  1350 Certification of President and Chief Executive                  Officer                                                            |   |   |
| 32.2*                            | Section                  1350 Certification of Vice President and Chief Financial                  Officer                                                       |   |   |
| *Filed                  herewith |                                                                                                                                                             |   |

----