| **UNITED                  STATES****SECURITIES                  AND EXCHANGE COMMISSION****WASHINGTON,                  D.C. 20549**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
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| **FORM                  10-K**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **                                                                                                                                                                                                                             **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| **ANNUAL                  REPORT****PURSUANT                  TO SECTION 13 OR 15(d) OF****THE                  SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| For                  the fiscal year ended December 31, 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Commission                  file number 1-496 |
| ______________________________________________                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
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| **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.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
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| Title                  of each class                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Common                  Stock ($25/48                  Stated Value)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 8%                  Convertible Subordinated Debentures due August 15, 2010                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
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|          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, 2005, was approximately $1.5                  billion.          As                  of February 24, 2006, registrant had 112,885,816 shares of Common                  Stock                  outstanding. **DOCUMENTS                  INCORPORATED BY REFERENCE**                                                                                                                                                                                                                Portions                  of the registrant's definitive Proxy Statement for its 2006 Annual                  Meeting                  of Shareholders (the "Proxy Statement"), when filed, will be incorporated                  by reference in Part III of this report. |

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**PART        I**

**Forward-Looking        Statements**

**ITEM        1.            BUSINESS**

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**Reportable        Segments**

**Performance        Products **

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| **Division**                                                                                                                                                                                                                                                        | **Principal                  Products**                                                                                                                                                                                                        | **Primary                  Markets**                                                                                                                                                                                                                                                                                                                                                                    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **                           **    ***Pulp                  and Paper  ***                          | *Functional                  performance chemicals:* Sizing                  (improving printability), strength, tissue creping and coatings                  additives.                                                                  | Large,                  multinational manufacturers of pulp, tissues, paper towels, packaging,                  beverage containers, newsprint, papers for magazines and books,                  printing                  and writing paper and other stationery items such as labels and                  envelopes.                                                                                  |
| *Process                  treatment chemicals:* Deposit,                  contaminant, microbiological and foam control, clarification, retention,                  drainage, felt conditioning, deinking, fiber recovery and water                  closure.  |
| *Water                  treatment chemicals:* Utility                  systems, cooling water and water clarification.                                                                                                                                         |
|                                ***Aqualon***                                                             | *Water-soluble                  polymers:* Hydroxyethylcellulose                  (HEC), Carboxymethylcellulose (CMC), Methylcellulose (MC) and derivatives,                  Hydroxypropylcellulose (HPC) and Guar and its derivatives.  | Manufacturers                  of interior and exterior architectural paints, oilfield service                  companies                  for oil and gas drilling and recovery, paper mills, construction                  material                  manufacturers and makers of oral hygiene products, personal care                  products,                  food products and pharmaceuticals.  |
| *Solvent-soluble                  polymers:* Pentaerythritol                  (PE) and Ethylcellulose (EC).                                                                                                                                                    | Producers                  of coating resins, printing inks and aviation fluids.                                                                                                                                                               |

**Engineered        Materials and Additives **

| **Division**                                                                         | **Principal                  Products**                                                                          | **Primary                  Markets**                                                                                                                                                                                                               |
|-------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  ***   FiberVisions***                                           | *Staple                  fibers:*For                  hygiene products, wipes, geotextiles and filtration.            | Makers                  of nonwoven and woven fabrics for applications including baby care,                  feminine care, adult incontinence, wipes, geotextile, construction                  and                  upholstery.                  |
| *Filament                  yarns:*For                  upholstery and automotive fabrics. |
|    ***Pinova***                                                            | *Rosin                  resins*:                  For                  food and beverage, construction and adhesives. | Makers                  of consumer and industrial products such as masking, packaging,                  arts and                  duct tape, construction materials, beverages, chewing gum, plastics                  and                  adhesives. |

**Raw        Materials and Energy Supply**

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**Competition**

**Patents        and Trademarks**

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**Research        and Development**

**Environmental        Matters**

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**Employees**

**International        Operations**

**Available        Information**

**ITEM        1A.         RISK        FACTORS**

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**ITEM        1B.        UNRESOLVED STAFF        COMMENTS**

**ITEM        2.            PROPERTIES**

|  **            ** |  **Pulp                  and Paper**                  -                  Beringen, Belgium; Burlington, Ontario, Canada; Busnago, Italy;                  Chicopee,                  Massachusetts, U.S.; Franklin, Virginia, U.S.; Hattiesburg, Mississippi,                  U.S.; Helsingborg, Sweden; Kim Cheon, Korea; Macon, Georgia, U.S.;                  Mexico                  City, Mexico; Milwaukee, Wisconsin, U.S.; Nantou, Taiwan; Paulinia,                  Brazil; Pendlebury, United Kingdom; Portland, Oregon, U.S.; Savannah,                  Georgia, U.S.; Shanghai, China (60% joint venture interest); Sobernheim,                  Germany; Tampere, Finland; Tarragona, Spain; Voreppe, France; and                  Zwijndrecht, The Netherlands. |
|------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  **            ** |  **Aqualon**                  -                  Alizay, France; Doel, Belgium; Hopewell, Virginia, U.S.; Jiangmen                  City,                  China; Kenedy, Texas, U.S.; Louisiana, Missouri, U.S.; Dalton,                  Georgia,                  U.S.; Parlin, New Jersey, U.S.; and Zwijndrecht, The                  Netherlands. |
|------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  **            ** |  **FiberVisions**                  -                  Athens, Georgia, U.S.; Covington, Georgia, U.S.; Suzhou, China;                  and Varde,                  Denmark. **Pinova**                  -                  Brunswick, Georgia, U.S. |
|------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**ITEM        3.            LEGAL        PROCEEDINGS**

**ITEM        4.            SUBMISSION        OF MATTERS TO A VOTE OF SECURITY HOLDERS**

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**PART        II**

**ITEM        5.            MARKET        FOR HERCULES' COMMON STOCK AND RELATED STOCKHOLDER**

**                         MATTERS**

| 2005                            |   | High   |   | Low    |   |
|---------------------------------|--------|--------|--------|--------|--------|
| First                  Quarter  |   | $      | 15.24  |   | $      | 13.86 |   |
| Second                  Quarter |   | $      | 14.82  |   | $      | 13.00 |   |
| Third                  Quarter  |   | $      | 14.69  |   | $      | 12.05 |   |
| Fourth                  Quarter |   | $      | 12.25  |   | $      | 10.20 |   |
|                            |   |   |   |   |   |   |   |
| 2004                            |   |   |   |   |   |   |   |
| First                  Quarter  |   | $      | 13.18  |   | $      | 10.81 |   |
| Second                  Quarter |   | $      | 12.19  |   | $      | 9.99 |   |
| Third                  Quarter  |   | $      | 14.25  |   | $      | 11.21 |   |
| Fourth                  Quarter |   | $      | 15.09  |   | $      | 13.97 |   |

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**ITEM        6**
**.            **
**SELECTED        FINANCIAL DATA**

|                                                                                                          |   | *(Dollars                  in millions, except per share data)* |    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------|---------|
| **Statements                  of Operations Information:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | 2005                                                            |    | 2004 |   | 2003 |   | 2002 |   | 2001 |   |
| Net                  sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | $                                                               | 2,068.8 |   | $ | 1,996.7 |   | $ | 1,846.0 |   | $ | 1,705.0 |   | $ | 1,776.0 |   |
| Profit                  from operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                                            | 130.4   |   |   | 228.9 |   |   | 255.5 |   |   | 217.3 |   |   | 186.0 |   |
| Net                  (loss) income from continuing operations before discontinued         operations                  and cumulative effect of changes in accounting principle                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                            | (38.6   | ) |   | 28.1 |   |   | 74.2 |   |   | (48.8 | ) |   | (107.7 | ) |
| Net                  income (loss) on discontinued operations, net of tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                                            | -       |   |   | - |   |   | 4.5 |   |   | (196.0 | ) |   | 56.0 |   |
| Net                  (loss) income before cumulative effect of changes in                  accounting         principle                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                                            | (38.6   | ) |   | 28.1 |   |   | 78.7 |   |   | (244.8 | ) |   | (51.7 | ) |
| Cumulative                  effect of changes in accounting principle, net of tax (see         Note                  21)                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                            | (2.5    | ) |   | - |   |   | (33.3 | ) |   | (368.0 | ) |   | - |   |
| Net                  (loss) income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | $                                                               | (41.1   | ) | $ | 28.1 |   | $ | 45.4 |   | $ | (612.8 | ) | $ | (51.7 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Per                  Common Share Data and Other Share Information:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Per                  share of common stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                  (loss) earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing                  operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | $                                                               | (0.36   | ) | $ | 0.26 |   | $ | 0.70 |   | $ | (0.46 | ) | $ | (1.03 | ) |
| Discontinued                  operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                                            | -       |   |   | - |   |   | 0.04 |   |   | (1.85 | ) |   | 0.54 |   |
| Cumulative                  effect of changes in accounting principle                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                            | (0.02   | ) |   | - |   |   | (0.31 | ) |   | (3.47 | ) |   | - |   |
| Net                  (loss) income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | $                                                               | (0.38   | ) | $ | 0.26 |   | $ | 0.43 |   | $ | (5.78 | ) | $ | (0.49 | ) |
| Diluted                  (loss) earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing                  operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | $                                                               | (0.36   | ) | $ | 0.26 |   | $ | 0.69 |   | $ | (0.46 | ) | $ | (1.03 | ) |
| Discontinued                  operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                                            | -       |   |   | - |   |   | 0.04 |   |   | (1.85 | ) |   | 0.54 |   |
| Cumulative                  effect of changes in accounting principle                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                            | (0.02   | ) |   | - |   |   | (0.31 | ) |   | (3.47 | ) |   | - |   |
| Net                  (loss) income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | $                                                               | (0.38   | ) | $ | 0.26 |   | $ | 0.42 |   | $ | (5.78 | ) | $ | (0.49 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Balance                  Sheet Data:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                  assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | $                                                               | 2,568.8 |   | $ | 2,720.3 |   | $ | 2,721.8 |   | $ | 2,772.0 |   | $ | 4,952.1 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                  debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | $                                                               | 1,109.0 |   | $ | 1,240.1 |   | $ | 1,347.7 |   | $ | 883.0 |   | $ | 2,210.0 |   |
| Company-obligated                  preferred securities of subsidiary trusts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                            | -       |   |   | - |   |   | - |   |   | 624.0 |   |   | 624.0 |   |
| Total                  debt and preferred securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | $                                                               | 1,109.0 |   | $ | 1,240.1 |   | $ | 1,347.7 |   | $ | 1,507.0 |   | $ | 2,834.0 |   |

----

**ITEM        7**
**.           **
**MANAGEMENT'S        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND**

**                        RESULTS        OF OPERATIONS**

**Business        Overview**

***Business        Profile - Market and Geographic Concentration***

|                                                                                                                                                 |   | 2005   |   | 2004 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|------|--------|
| Pulp                  and                  Paper                                                                                                                                                                                                                                                                                                                                                                                   |   |   | 48     | %    |   | 48 | % |
| Regulated                  (including food, pharmaceutical and personal care)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   | 21     | %    |   | 20 | % |
| Industrial                  Specialties (including oilfield, textiles and general                  industrial)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   | 12     | %    |   | 13 | % |
| Paints                  and Adhesives                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   | 10     | %    |   | 10 | % |
| Construction                  Materials                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   | 9      | %    |   | 9 | % |
|      Consolidated                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   | 100    | %    |   | 100 | % |

|                                                                                                                                                 |   | 2005   |   | 2004 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|------|--------|
| North                  America                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   | 48     | %    |   | 46 | % |
| Europe                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   | 36     | %    |   | 38 | % |
| Asia                  Pacific                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   | 11     | %    |   | 11 | % |
| Latin                  America                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   | 5      | %    |   | 5 | % |
|      Consolidated                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   | 100    | %    |   | 100 | % |

***Business        Segments***

|                                                                                                                                                 |   | 2005   |   | 2004 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|------|--------|
| Pulp                  and                  Paper                                                                                                                                                                                                                                                                                                                                                                                                  |   |   | 47     | %    |   | 47 | % |
| Aqualon                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   | 34     | %    |   | 34 | % |
| FiberVisions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   | 14     | %    |   | 14 | % |
| Pinova                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   | 5      | %    |   | 5 | % |
|      Consolidated                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   | 100    | %    |   | 100 | % |

***Key        Developments***

----

***Raw        Materials and Energy***

***Special        Charges and Restructurings***

----

----

|                                                                |   | Severance                  and Other Exit Costs |   | Asset                  Impairments |   | Accelerated                  Depreciation |   | InventoryWrite-Downs |   | Totals |   |
|---------------------------------------------------------------------|--------|-------------------------------------------------|--------|------------------------------------|--------|-------------------------------------------|--------|----------------------|--------|--------|--------|
| Research                  and development consolidation             |   | $                                               | 5.2    |                               | $      | -                                         |   | $                    | 2.4    |   | $      | - |   | $ | 7.6 |   |
| Global                  marketing and management realignment        |   |                                            | 14.5   |                               |   | -                                         |   |                 | -      |   |   | - |   |   | 14.5 |   |
| Performance                  Products manufacturing rationalization |   |                                            | 2.2    |                               |   | -                                         |   |                 | 1.1    |   |   | - |   |   | 3.3 |   |
| Pinova                  manufacturing rationalization               |   |                                            | 3.6    |                               |   | 5.7                                       |   |                 | -      |   |   | 0.5 |   |   | 9.8 |   |
| FiberVisions                  manufacturing rationalization         |   |                                            | 3.4    |                               |   | -                                         |   |                 | -      |   |   | 1.5 |   |   | 4.9 |   |
| Corporate                  support realignment                      |   |                                            | 5.3    |                               |   | -                                         |   |                 | -      |   |   | - |   |   | 5.3 |   |
|   Total                  charges by action                |   | $                                               | 34.2   |                               | $      | 5.7                                       |   | $                    | 3.5    |   | $      | 2.0 |   | $ | 45.4 |   |

*Strategic        Highlights*

***Strategic        Highlights***

----

**Critical        Accounting Estimates**

*Allowance        for Doubtful Accounts*

*Goodwill        and Other Intangible Assets*

*Other        Long-Lived Assets*

*Deferred        Tax Asset Valuation Allowance*

----

*Restructuring,        Severance and Other Exit Costs*

*Environmental        Matters and Asset Retirement Obligations*

*Asbestos-Related        Contingencies*

*Pension        and Other Postretirement Benefits*

For        the        year ended December 31, 2005 the Company increased its additional minimum        liability ("AML") to $417.6 million. The increase to the AML was primarily        a        result of changes to the mortality table and discount rate and was partially        offset by plan amendments effective January 1, 2005 which changed the basis        by        which U.S. and certain foreign plans provide benefits from the “final pay” to        the “career average pay”. At the present time, the U.S. defined benefit pension        plan is at a sufficient funding level as to not require ERISA mandated        contributions. The Company has determined, however, that it is in the best        interests of the Company and its pension plan participants to make voluntary        contributions to the plan. If the U.S. qualified pension plan performs in        accordance with actuarial assumptions, the Company presently anticipates        making        voluntary cash contributions averaging $40 million per year over the next        several years.

----

**Results        of Operations**
**        - Consolidated Review**

|                           |   | **2005** |        | 2004   |   | 2003    |   | 2005Change |    | 2004                  Change |   |
|--------------------------------|--------|----------|-------------|--------|--------|---------|--------|------------|---------|------------------------------|--------|
| **Net                  sales** |   | **$**    | **2,068.8** |   | $      | 1,996.7 |   | $          | 1,846.0 |                         | $      | 72.1 |   | $ | 150.7 |   |

|                                                 |   |     |    |     |   |        |   | **%                  Change****Excluding** |   |
|------------------------------------------------------|--------|----------|---------|----------|--------|-------------|--------|--------------------------------------------|--------|
| **Regions**                                          |   | **2005** |    | **2004** |   | **%Change** |   | **ROE**                                    |   |
| North                  America                       |   | $        | 981.0   |     | $      | 921.2       |   |                                       | 6      | % |   | 6 | % |
| Europe                                               |   |     | 747.9   |     |   | 762.2       |   |                                       | (2     | )% |   | (4 | )% |
| Asia                  Pacific                        |   |     | 233.9   |     |   | 214.5       |   |                                       | 9      | % |   | 7 | % |
| Latin                  America                       |   |     | 106.0   |     |   | 98.8        |   |                                       | 7      | % |   | (1 | )% |
|     All                  regions |   | $        | 2,068.8 |     | $      | 1,996.7     |   |                                       | 4      | % |   | 2 | % |

|                                                 |   |     |    |     |   |        |   | **%                  Change****Excluding** |   |
|------------------------------------------------------|--------|----------|---------|----------|--------|-------------|--------|--------------------------------------------|--------|
| **Regions**                                          |   | **2004** |    | **2003** |   | **%Change** |   | **ROE**                                    |   |
| North                  America                       |   | $        | 921.2   |     | $      | 884.8       |   |                                       | 4      | % |   | 4 | % |
| Europe                                               |   |     | 762.2   |     |   | 692.9       |   |                                       | 10     | % |   | 1 | % |
| Asia                  Pacific                        |   |     | 214.5   |     |   | 174.5       |   |                                       | 23     | % |   | 23 | % |
| Latin                  America                       |   |     | 98.8    |     |   | 93.8        |   |                                       | 5      | % |   | 2 | % |
|     All                  regions |   | $        | 1,996.7 |     | $      | 1,846.0     |   |                                       | 8      | % |   | 2 | % |

----

|                               |   | **2005** |        | 2004   |   | 2003    |   | 2005Change |    | 2004                  Change |   |
|------------------------------------|--------|----------|-------------|--------|--------|---------|--------|------------|---------|------------------------------|--------|
| **Cost                  of sales** |   | **$**    | **1,406.3** |   | $      | 1,307.6 |   | $          | 1,166.9 |                         | $      | 98.7 |   | $ | 140.7 |   |

|                                                              |   | **2005** |      | 2004   |   | 2003  |   | 2005Change |   | 2004                  Change |   |
|-------------------------------------------------------------------|--------|----------|-----------|--------|--------|-------|--------|------------|--------|------------------------------|--------|
| **Selling,                  general and administrative expenses** |   | **$**    | **382.8** |   | $      | 382.4 |   | $          | 359.9  |                         | $      | 0.4 |   | $ | 22.5 |   |

|                                          |   | **2005** |     | 2004   |   | 2003 |   | 2005Change |   | 2004                  Change |   |
|-----------------------------------------------|--------|----------|----------|--------|--------|------|--------|------------|--------|------------------------------|--------|
| **Research                  and development** |   | **$**    | **40.9** |   | $      | 42.8 |   | $          | 38.7   |                         | $      | (1.9 | ) | $ | 4.1 |   |

----

|                                               |   | **2005** |    | 2004   |   | 2003 |   | 2005Change |   | 2004                  Change |   |
|----------------------------------------------------|--------|----------|---------|--------|--------|------|--------|------------|--------|------------------------------|--------|
| **Intangible                  asset amortization** |   | **$**    | **8.0** |   | $      | 8.1  |   | $          | 8.0    |                         | $      | (0.1 | ) | $ | 0.1 |   |

|                                                     |   | **2005** |     | 2004   |   | 2003 |   | 2005Change |   | 2004                  Change |   |
|----------------------------------------------------------|--------|----------|----------|--------|--------|------|--------|------------|--------|------------------------------|--------|
| **Impairment                  of FiberVisions goodwill** |   | **$**    | **52.9** |   | $      | -    |   | $          | -      |                         | $      | 52.9 |   | $ | - |   |

|                                               |   | **2005** |     | 2004   |   | 2003 |   | 2005Change |   | 2004                  Change |   |
|----------------------------------------------------|--------|----------|----------|--------|--------|------|--------|------------|--------|------------------------------|--------|
| **Other                  operating expenses, net** |   | **$**    | **47.5** |   | $      | 26.9 |   | $          | 17.0   |                         | $      | 20.6 |   | $ | 9.9 |   |

|                                           |   | **2005** |     | 2004   |   | 2003  |   | 2005Change |   | 2004                  Change |   |
|------------------------------------------------|--------|----------|----------|--------|--------|-------|--------|------------|--------|------------------------------|--------|
| **Interest                  and debt expense** |   | **$**    | **89.4** |   | $      | 108.7 |   | $          | 130.8  |                         | $      | (19.3 | ) | $ | (22.1 | ) |

----

|                                              |   | **2005** |   | 2004   |   | 2003  |   | 2005Change |   | 2004                  Change |   |
|---------------------------------------------------|--------|----------|--------|--------|--------|-------|--------|------------|--------|------------------------------|--------|
| **Gain                  on sale of CP Kelco ApS** |   | **$**    | **-**  |   | $      | (27.0 | )      | $          | -      |                         | $      | 27.0 |   | $ | (27.0 | ) |

|                                     |   | **2005** |     | 2004   |   | 2003  |   | 2005Change |   | 2004                  Change |   |
|------------------------------------------|--------|----------|----------|--------|--------|-------|--------|------------|--------|------------------------------|--------|
| **Other                  expenses, net** |   | **$**    | **86.3** |   | $      | 116.7 |   | $          | 28.9   |                         | $      | (30.4 | ) | $ | 87.8 |   |

----

|                                                      |   | **2005** |     | 2004  |   | 2003 |   | 2005Change |   | 2004                  Change |   |
|-----------------------------------------------------------|--------|----------|----------|-------|--------|------|--------|------------|--------|------------------------------|--------|
| **(Benefit)                  provision for income taxes** |   | **$**    | **(7.2** | **)** | $      | 2.4  |   | $          | 21.3   |                         | $      | (9.6 | ) | $ | (18.9 | ) |

|                                                                      |   | **2005** |     | 2004  |   | 2003 |   | 2005Change |   | 2004                  Change |   |
|---------------------------------------------------------------------------|--------|----------|----------|-------|--------|------|--------|------------|--------|------------------------------|--------|
| **Equity                  loss of affiliated companies, net of tax** |   | **$**    | **(0.5** | **)** | $      | -    |   | $          | (0.3   | )                            | $      | (0.5 | ) | $ | 0.3 |   |

|                                                                     |   | **2005** |   | 2004   |   | 2003 |   | 2005Change |   | 2004                  Change |   |
|--------------------------------------------------------------------------|--------|----------|--------|--------|--------|------|--------|------------|--------|------------------------------|--------|
| **Net                  income from discontinued operations, net of tax** |   | **$**    | **-**  |   | $      | -    |   | $          | 4.5    |                         | $      | - |   | $ | (4.5 | ) |

|                                                                                                        |   | **2005** |     | 2004  |   | 2003 |   | 2005Change |   | 2004                  Change |   |
|-------------------------------------------------------------------------------------------------------------|--------|----------|----------|-------|--------|------|--------|------------|--------|------------------------------|--------|
| **Cumulative                  effect of changes in accounting principle, net of                  tax** |   | **$**    | **(2.5** | **)** | $      | -    |   | $          | (33.3  | )                            | $      | (2.5 | ) | $ | 33.3 |   |

----

**Results        of Operations - Segment Review**

|                                                            |   | **2005** |    | **2004** |   | **Change** |   | **%                  Change** |   |
|-----------------------------------------------------------------|--------|----------|---------|----------|--------|------------|--------|-------------------------------|--------|
| **Net                  sales:**                                 |   |     |    |     |   |       |   |                          |   |
|   Performance                  Products               |   |     |    |     |   |       |   |                          |   |
|     Pulp                  and Paper         |   | $        | 973.6   |     | $      | 932.1      |   | $                             | 41.5   |   |   | 4 | % |
|     Aqualon                                 |   |     | 712.4   |     |   | 684.4      |   |                          | 28.0   |   |   | 4 | % |
|                                                            |   |     | 1,686.0 |     |   | 1,616.5    |   |                          | 69.5   |   |   | 4 | % |
|   Engineered                  Materials and Additives |   |     |    |     |   |       |   |                          |   |   |   |   |   |
|     FiberVisions                            |   |     | 282.7   |     |   | 281.2      |   |                          | 1.5    |   |   | 1 | % |
|     Pinova                                  |   |     | 100.1   |     |   | 99.0       |   |                          | 1.1    |   |   | 1 | % |
|                                                            |   |     | 382.8   |     |   | 380.2      |   |                          | 2.6    |   |   | 1 | % |
|     Consolidated                            |   | $        | 2,068.8 |     | $      | 1,996.7    |   | $                             | 72.1   |   |   | 4 | % |
| **Profit                  from operations:**                    |   |     |    |     |   |       |   |                          |   |   |   |   |   |
|   Performance                  Products               |   |     |    |     |   |       |   |                          |   |   |   |   |   |
|     Pulp                  and Paper         |   | $        | 62.8    |     | $      | 82.3       |   | $                             | (19.5  | ) |   | (24 | )% |
|     Aqualon                                 |   |     | 157.2   |     |   | 166.3      |   |                          | (9.1   | ) |   | (5 | )% |
|                                                            |   |     | 220.0   |     |   | 248.6      |   |                          | (28.6  | ) |   | (12 | )% |
|   Engineered                  Materials and Additives |   |     |    |     |   |       |   |                          |   |   |   |   |   |
|     FiberVisions                            |   |     | (64.9   | )        |   | (4.1       | )      |                          | (60.8  | ) |   | NM |   |
|     Pinova                                  |   |     | (13.0   | )        |   | (10.3      | )      |                          | (2.7   | ) |   | (26 | )% |
|                                                            |   |     | (77.9   | )        |   | (14.4      | )      |                          | (63.5  | ) |   | NM |   |
|   Corporate                  Items                    |   |     | (11.7   | )        |   | (5.3       | )      |                          | (6.4   | ) |   | NM |   |
|      Consolidated                      |   | $        | 130.4   |     | $      | 228.9      |   | $                             | (98.5  | ) |   | (43 | )% |

|                                                            |   | **2004** |    | **2003** |   | **Change** |   | **%                  Change** |   |
|-----------------------------------------------------------------|--------|----------|---------|----------|--------|------------|--------|-------------------------------|--------|
| **Net                  sales:**                                 |   |     |    |     |   |       |   |                          |   |
|   Performance                  Products               |   |     |    |     |   |       |   |                          |   |
|     Pulp                  and Paper         |   | $        | 932.1   |     | $      | 880.2      |   | $                             | 51.9   |   |   | 6 | % |
|     Aqualon                                 |   |     | 684.4   |     |   | 603.3      |   |                          | 81.1   |   |   | 13 | % |
|                                                            |   |     | 1,616.5 |     |   | 1,483.5    |   |                          | 133.0  |   |   | 9 | % |
|   Engineered                  Materials and Additives |   |     |    |     |   |       |   |                          |   |   |   |   |   |
|     FiberVisions                            |   |     | 281.2   |     |   | 277.6      |   |                          | 3.6    |   |   | 1 | % |
|     Pinova                                  |   |     | 99.0    |     |   | 84.9       |   |                          | 14.1   |   |   | 17 | % |
|                                                            |   |     | 380.2   |     |   | 362.5      |   |                          | 17.7   |   |   | 5 | % |
|     Consolidated                            |   | $        | 1,996.7 |     | $      | 1,846.0    |   | $                             | 150.7  |   |   | 8 | % |
| **Profit                  from operations:**                    |   |     |    |     |   |       |   |                          |   |   |   |   |   |
|   Performance                  Products               |   |     |    |     |   |       |   |                          |   |   |   |   |   |
|     Pulp                  and Paper         |   | $        | 82.3    |     | $      | 103.4      |   | $                             | (21.1  | ) |   | (20 | )% |
|     Aqualon                                 |   |     | 166.3   |     |   | 158.5      |   |                          | 7.8    |   |   | 5 | % |
|                                                            |   |     | 248.6   |     |   | 261.9      |   |                          | (13.3  | ) |   | (5 | )% |
|   Engineered                  Materials and Additives |   |     |    |     |   |       |   |                          |   |   |   |   |   |
|     FiberVisions                            |   |     | (4.1    | )        |   | 12.6       |   |                          | (16.7  | ) |   | NM |   |
|     Pinova                                  |   |     | (10.3   | )        |   | (3.5       | )      |                          | (6.8   | ) |   | NM |   |
|                                                            |   |     | (14.4   | )        |   | 9.1        |   |                          | (23.5  | ) |   | NM |   |
|   Corporate                  Items                    |   |     | (5.3    | )        |   | (15.5      | )      |                          | 10.2   |   |   | 66 | % |
|     Consolidated                            |   | $        | 228.9   |     | $      | 255.5      |   | $                             | (26.6  | ) |   | (10 | )% |

----

| **2005**                                                              |   | **Net                  Sales Percentage Increase (Decrease) from 2004 Due                  To:** |   |
|-----------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------|--------|
|                                                                  |   | **Volume**                                                                                       |   | **Product                  Mix** |   | **Price** |   | **Rates                  of Exchange** |   | **Total** |   |
| Pulp                  and Paper                                       |   |                                                                                             | 1      | % |   | (1 | )% |   | 1 | % |   | 3 | % |   | 4 | % |
| Aqualon                                                               |   |                                                                                             | 3      | % |   | - |   |   | - |   |   | 1 | % |   | 4 | % |
|    Performance                  Products               |   |                                                                                             | 2      | % |   | (1 | )% |   | 1 | % |   | 2 | % |   | 4 | % |
| FiberVisions                                                          |   |                                                                                             | (13    | )% |   | - |   |   | 13 | % |   | 1 | % |   | 1 | % |
| Pinova                                                                |   |                                                                                             | (12    | )% |   | 6 | % |   | 7 | % |   | - |   |   | 1 | % |
|    Engineered                  Materials and Additives |   |                                                                                             | (13    | )% |   | 2 | % |   | 11 | % |   | 1 | % |   | 1 | % |
|       Consolidated                      |   |                                                                                             | (1     | )% |   | - |   |   | 3 | % |   | 2 | % |   | 4 | % |

| **2004**                                                              |   | **Net                  Sales Percentage Increase (Decrease) from 2003 Due                  To:** |   |
|-----------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------|--------|
|                                                                  |   | **Volume**                                                                                       |   | **Product                  Mix** |   | **Price** |   | **Rates                  of Exchange** |   | **Total** |   |
| Pulp                  and Paper                                       |   |                                                                                             | 5      | % |   | (2 | )% |   | (1 | )% |   | 4 | % |   | 6 | % |
| Aqualon                                                               |   |                                                                                             | 18     | % |   | (7 | )% |   | (1 | )% |   | 4 | % |   | 14 | % |
|    Performance                  Products               |   |                                                                                             | 11     | % |   | (5 | )% |   | (1 | )% |   | 4 | % |   | 9 | % |
| FiberVisions                                                          |   |                                                                                             | (6     | )% |   | (2 | )% |   | 5 | % |   | 4 | % |   | 1 | % |
| Pinova                                                                |   |                                                                                             | 28     | % |   | (7 | )% |   | (5 | )% |   | - |   |   | 16 | % |
|    Engineered                  Materials and Additives |   |                                                                                             | 2      | % |   | (3 | )% |   | 3 | % |   | 3 | % |   | 5 | % |
|       Consolidated                      |   |                                                                                             | 8      | % |   | (4 | )% |   | - |   |   | 4 | % |   | 8 | % |

**Performance        Products Segment**

***Pulp        and Paper***

----

***Aqualon***

----

**Engineered        Materials and Additives Segment**

***FiberVisions***

----

***Pinova***

**Corporate        Items**

----

|                                                     |   | 2005   |   | 2004   |   | 2003 |   |
|----------------------------------------------------------|--------|--------|--------|--------|--------|------|--------|
| Severance                  and other exit costs          |   | $      | 8.0    |   | $      | -    |   | $ | 4.6 |   |
| Legacy                  issue professional fees          |   |   | 0.8    |   |   | 1.0  |   |   | - |   |
| Reductions                  in insurance claims reserves |   |   | -      |   |   | (2.6 | )      |   | - |   |
| Nitrocellulose                  facility shutdown costs  |   |   | -      |   |   | 6.5  |   |   | - |   |
| Proxy                  solicitation costs                |   |   | -      |   |   | -    |   |   | 3.6 |   |
| Special                  executive pension adjustments   |   |   | -      |   |   | 1.5  |   |   | 7.3 |   |
| Other                  miscellaneous                     |   |   | 2.9    |   |   | (1.1 | )      |   | - |   |
|    Total                  Corporate items |   | $      | 11.7   |   | $      | 5.3  |   | $ | 15.5 |   |

**Liquidity        and Capital Resources**

----

**Financial        Condition**

----

**Commitments        and Contractual Obligations**

*Strategic        Highlights*

*Strategic        Highlights*

|                                                                                                                                                             |   |  *(Dollars                  in millions)*               |    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------|---------|
|                                                                                                                                                             |   | Payments                  Due by Period                  (1) |    |
|                                                                                                                                                             |   |                                                         |    | Less                  than |   | 1                  -                  3 |   | 4                  -                  5 |   | After                  5 |   |
|                                                                                                                                                             |   | Total                                                        |    | 1                  year |   | years |   | years |   | years |   |
| Debt                  obligations                                                                                                                                |   | $                                                            | 1,109.0 |   | $ | 16.7 |   | $ | 138.8 |   | $ | 384.6 |   | $ | 568.9 |   |
| Operating                  lease obligations                                                                                                                     |   |                                                         | 118.6   |   |   | 19.6 |   |   | 34.3 |   |   | 35.6 |   |   | 29.1 |   |
| Purchase                  obligations                  (2)                                                                                                       |   |                                                         | 23.7    |   |   | 23.7 |   |   | - |   |   | - |   |   | - |   |
| Other                  long-term liabilities reflected on the    registrant's                  balance sheet under GAAP                  (3) |   |                                                         | 504.7   |   |   | 86.5 |   |   | 74.4 |   |   | 56.5 |   |   | 287.3 |   |
|  Total                  contractual cash obligations                                                                                                        |   | $                                                            | 1,756.0 |   | $ | 146.5 |   | $ | 247.5 |   | $ | 476.7 |   | $ | 885.3 |   |

|   | (1) | Does                  not include the anticipated future interest payments to be made                  under the                  Company's current debt agreements; however, based upon current                  indebtedness and interest rates at December 31, 2005, such interest                  obligations are estimated to be approximately $84.5 million in                  2006, $84.2                  million in 2007, $69.4 million in 2008, $69.1 million in 2009,                  $68.5                  million in 2010 and $778.6 million thereafter. A one percent increase                  or                  decrease in the LIBOR rate would have an impact of approximately                  plus or                  minus $3.8 million on the Company’s interest payments in years 2006                  through 2010. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Obligation                  relates primarily to the FiberVisions division and as such will                  transfer                  to the joint venture upon the closing of the aforementioned transaction                  with SPG, which is anticipated to occur prior to the end of the                  first                  quarter of 2006. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Includes                  amounts pertaining to asbestos-related matters, asset retirement                  obligations, post-employment and post-retirement obligations and                  workers                  compensation claims. Due to the dynamic nature of asbestos litigation,                  it                  is impractical to determine the anticipated payments in any given                  year.                  Therefore, the non-current asbestos-related liability of $233.6                  million                  has been reflected in the after five years                  column. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Indemnifications**

**Off-Balance        Sheet Arrangements**

**Recent        Accounting Pronouncements**

**Item**
**        7A**
**.            **
**QUANTITATIVE        AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

----

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

**INDEX        TO CONSOLIDATED FINANCIAL STATEMENTS AND**

**REQUIRED        SUPPLEMENTARY DATA**

**HERCULES        INCORPORATED**

|  **CONSOLIDATED                  FINANCIAL                  STATEMENTS                                                                                                      ** |  Page |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|  Management's                  Report on Internal Control Over Financial Reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  34   |
|  Reports                  of Independent Registered Public Accounting Firms                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  35   |
|  Consolidated                  Statements of Operations and Comprehensive (Loss) Income for the                  Years                  Ended December 31, 2005,    2004 and                  2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  38   |
|  Consolidated                  Balance Sheets as of December 31, 2005 and 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  39   |
|  Consolidated                  Statements of Cash Flows for the Years Ended December 31, 2005, 2004                  and 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  40   |
|  Consolidated                  Statements of Stockholders' (Deficit) Equity for the Years Ended                  December 31, 2005, 2004 and 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  42   |
|  Summary                  of Significant Accounting Policies and Notes to Consolidated Financial                  Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  43   |
|   **SUPPLEMENTARY                  DATA**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |       |
|  Valuation                  and Qualifying Accounts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  98   |

----

**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**

** **

----

| *(Dollars                    in millions, except per share)**                                                                                                 * |   | Year                    Ended December 31, |    |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|---------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | 2005                                       |    | 2004 |   | 2003 |   |
| Net                    sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | $                                          | 2,068.8 |   | $ | 1,996.7 |   | $ | 1,846.0 |   |
| Cost                    of sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                       | 1,406.3 |   |   | 1,307.6 |   |   | 1,166.9 |   |
| Selling,                    general and administrative expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                       | 382.8   |   |   | 382.4 |   |   | 359.9 |   |
| Research                    and development                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                       | 40.9    |   |   | 42.8 |   |   | 38.7 |   |
| Intangible                    asset amortization (Note 4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                       | 8.0     |   |   | 8.1 |   |   | 8.0 |   |
| Impairment                    of FiberVisions goodwill (Note 3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                       | 52.9    |   |   | - |   |   | - |   |
| Other                    operating expense, net (Note 18)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                       | 47.5    |   |   | 26.9 |   |   | 17.0 |   |
| Profit                    from operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                       | 130.4   |   |   | 228.9 |   |   | 255.5 |   |
| Interest                    and debt expense (Note 19)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                       | 89.4    |   |   | 108.7 |   |   | 130.8 |   |
| Gain                    on sale of CP Kelco ApS (Note 25)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                       | -       |   |   | (27.0 | ) |   | - |   |
| Other                    expense, net (Note 20)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                       | 86.3    |   |   | 116.7 |   |   | 28.9 |   |
| (Loss)                    income before income taxes and equity (loss) income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                       | (45.3   | ) |   | 30.5 |   |   | 95.8 |   |
| (Benefit)                    provision for income taxes (Note 7)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                       | (7.2    | ) |   | 2.4 |   |   | 21.3 |   |
| (Loss)                    income before equity loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                       | (38.1   | ) |   | 28.1 |   |   | 74.5 |   |
| Equity                    loss of affiliated companies, net of tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                       | (0.5    | ) |   | - |   |   | (0.3 | ) |
| Net                    (loss) income from continuing operations before discontinued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                       |    |   |   |   |   |   |   |   |
|    operations                    and cumulative effect of changes in accounting principle                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                       | (38.6   | ) |   | 28.1 |   |   | 74.2 |   |
| Net                    income from discontinued operations, net of tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                       | -       |   |   | - |   |   | 4.5 |   |
| Net                    (loss) income before cumulative effect of changes in accounting                    principle                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                       | (38.6   | ) |   | 28.1 |   |   | 78.7 |   |
| Cumulative                    effect of changes in accounting principle, net of tax (Note                    21)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                       | (2.5    | ) |   | - |   |   | (33.3 | ) |
| Net                    (loss) income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | $                                          | (41.1   | ) | $ | 28.1 |   | $ | 45.4 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                       |    |   |   |   |   |   |   |   |
| (Loss)                    earnings per share (Note 22):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                       |    |   |   |   |   |   |   |   |
| Basic                    (loss) earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                       |    |   |   |   |   |   |   |   |
| Continuing                    operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | $                                          | (0.36   | ) | $ | 0.26 |   | $ | 0.70 |   |
| Discontinued                    operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                       | -       |   |   | - |   |   | 0.04 |   |
| Cumulative                    effect of changes in accounting principle                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                       | (0.02   | ) |   | - |   |   | (0.31 | ) |
| Net                    (loss) income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | $                                          | (0.38   | ) | $ | 0.26 |   | $ | 0.43 |   |
| Weighted                    average number of shares (millions)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                       | 108.7   |   |   | 107.3 |   |   | 106.2 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                       |    |   |   |   |   |   |   |   |
| Diluted                    (loss) earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                       |    |   |   |   |   |   |   |   |
| Continuing                    operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | $                                          | (0.36   | ) | $ | 0.26 |   | $ | 0.69 |   |
| Discontinued                    operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                       | -       |   |   | - |   |   | 0.04 |   |
| Cumulative                    effect of changes in accounting principle                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                       | (0.02   | ) |   | - |   |   | (0.31 | ) |
| Net                    (loss) income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | $                                          | (0.38   | ) | $ | 0.26 |   | $ | 0.42 |   |
| Weighted                    average number of shares (millions)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                       | 108.7   |   |   | 109.0 |   |   | 107.2 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                       |
| Net                    (loss) income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | $                                          | (41.1   | ) | $ | 28.1 |   | $ | 45.4 |   |
| Foreign                    currency translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                       | (72.1   | ) |   | 71.1 |   |   | 123.4 |   |
| (Increase)                    decrease in additional minimum pension liability, net of tax,                    due                    to                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                       |    |   |   |   |   |   |   |   |
|    Remeasurement                    adjustments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                       | (44.3   | ) |   | (28.2 | ) |   | 14.9 |   |
|    Foreign                    currency translations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                       | 5.5     |   |   | (1.4 | ) |   | (2.2 | ) |
| Other,                    net of tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                       | (0.3    | ) |   | - |   |   | - |   |
| Comprehensive                    (loss) income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | $                                          | (152.3  | ) | $ | 69.6 |   | $ | 181.5 |   |

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

----

**Hercules              Incorporated**

**Consolidated              Statements of Operations and Comprehensive (Loss)              Income**

| *(Dollars                  in millions)**                                                                                                                               * |   | December                  31, |     |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------|----------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | 2005                          |     | 2004 |   |
| **ASSETS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                          |     |   |   |
| Current                  assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                          |     |   |   |
|    Cash                  and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | $                             | 77.3     |   | $ | 126.5 |   |
|    Accounts                  receivable, net (Note 1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                          | 291.0    |   |   | 346.7 |   |
|    Inventories                  (Note 2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                          | 185.0    |   |   | 212.4 |   |
|    Deferred                  income taxes (Note 7 )                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                          | 39.3     |   |   | 36.7 |   |
|    Asbestos-related                  assets (Note 12)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                          | -        |   |   | 6.3 |   |
|    FiberVisions                  assets held for sale (Note 3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                          | 202.7    |   |   | - |   |
|    Other                  current assets (Note 16)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                          | 48.1     |   |   | 53.8 |   |
|    Total                  current assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                          | 843.4    |   |   | 782.4 |   |
| Property,                  plant and equipment, net (Note 16)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                          | 535.4    |   |   | 695.4 |   |
| Intangible                  assets, net (Note 4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                          | 142.8    |   |   | 162.3 |   |
| Goodwill                  (Note 4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                          | 441.0    |   |   | 550.3 |   |
| Deferred                  income taxes (Note 7)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                          | 240.4    |   |   | 121.9 |   |
| Asbestos-related                  assets (Note 12)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                          | 120.7    |   |   | 162.5 |   |
| Deferred                  charges and other assets (Note 16)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                          | 245.1    |   |   | 245.5 |   |
|    Total                  assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | $                             | 2,568.8  |   | $ | 2,720.3 |   |
| **LIABILITIES                  AND STOCKHOLDERS' (DEFICIT) EQUITY**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                          |     |   |   |   |   |
| Current                  liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                          |     |   |   |   |   |
|    Accounts                  payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | $                             | 173.4    |   | $ | 187.0 |   |
|    FiberVisions                  liabilities held for sale (Note 3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                          | 66.6     |   |   | - |   |
|    Asbestos-related                  liabilities (Note 12)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                          | 36.4     |   |   | 46.8 |   |
|    Current                  debt obligations (Note 5)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                          | 16.7     |   |   | 29.8 |   |
|    Accrued                  expenses (Note 16)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                          | 219.3    |   |   | 212.1 |   |
|    Total                  current liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                          | 512.4    |   |   | 475.7 |   |
| Long-term                  debt (Note 5)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                          | 1,092.3  |   |   | 1,210.3 |   |
| Deferred                  income taxes (Note 7)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                          | 75.8     |   |   | 77.2 |   |
| Pension                  liability (Note 8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                          | 323.4    |   |   | 241.4 |   |
| Other                  postretirement benefits (Note 8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                          | 65.5     |   |   | 80.5 |   |
| Deferred                  credits and other liabilities (Note 16)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                          | 290.5    |   |   | 309.9 |   |
| Asbestos-related                  liabilities (Note 12)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                          | 233.6    |   |   | 213.4 |   |
|    Total                  liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                          | 2,593.5  |   |   | 2,608.4 |   |
| Commitments                  and contingencies (Note 12)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                          |          |   |   |  |   |
| Stockholders'                  (deficit) equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                          |          |   |   |  |   |
|    Series                  preferred stock (Note 13)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                          | -        |   |   | - |   |
|    Common                  stock, $25/48 stated value (Note 14)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                          | 83.3     |   |   | 83.3 |   |
|       (shares                  issued: 2005 and 2004 - 159,984,444)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                          |     |   |   |   |   |
|    Additional                  paid-in capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                          | 548.9    |   |   | 569.2 |   |
|    Unearned                  compensation (Notes 9 and 10)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                          | (65.7    | ) |   | (77.9 | ) |
|    Accumulated                  other comprehensive loss (Note 15)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                          | (387.6   | ) |   | (276.4 | ) |
|    Retained                  earnings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                          | 1,495.4  |   |   | 1,536.5 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                          | 1,674.3  |   |   | 1,834.7 |   |
|    Treasury                  stock, at cost (shares: 2005 - 47,247,344 and 2004 -                  47,842,836)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                          | (1,699.0 | ) |   | (1,722.8 | ) |
| Total                  stockholders' (deficit) equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                          | (24.7    | ) |   | 111.9 |   |
| Total                  liabilities and stockholders' (deficit) equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | $                             | 2,568.8  |   | $ | 2,720.3 |   |

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

----

**Hercules              Incorporated**

**Consolidated              Balance Sheets**

| *(Dollars                  in millions)**                                                                                                                             * |   | Year                  Ended December 31, |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 2005                                     |   | 2004 |   | 2003 |   |
| **Cash                  Flow****From                  Operating Activities****:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                     |   |   |   |   |   |
| Net                  (loss) income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | $                                        | (41.1  | ) | $ | 28.1 |   | $ | 45.4 |   |
| Net                  income from discontinued operations, net of tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                     | -      |   |   | - |   |   | (4.5 | ) |
| Adjustments                  to reconcile net (loss) income to net cash provided by                  operations:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                     |        |   |   |  |   |   |  |   |
| Depreciation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                     | 80.5   |   |   | 74.9 |   |   | 73.2 |   |
| Amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                     | 25.4   |   |   | 26.3 |   |   | 27.4 |   |
| Deferred                  income tax provision                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                     | (54.9  | ) |   | (18.7 | ) |   | 8.3 |   |
| Gain                  on disposals                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                     | (11.8  | ) |   | (28.0 | ) |   | (3.7 | ) |
| Impairment                  charges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                     | 58.6   |   |   | 9.1 |   |   | 1.9 |   |
| Write-off                  of debt issuance costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                     | 1.8    |   |   | 18.0 |   |   | - |   |
| Other                  non-cash charges and credits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                     | 6.3    |   |   | 1.7 |   |   | 9.4 |   |
| Accruals                  and deferrals of cash receipts and payments (net of acquisitions                  and                  dispositions):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                     |   |   |   |   |   |   |   |   |
| Accounts                  receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                     | 2.9    |   |   | (7.6 | ) |   | 6.8 |   |
| Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                     | (3.3   | ) |   | 4.0 |   |   | (7.4 | ) |
| Asbestos-related                  assets and liabilities, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                     | 61.3   |   |   | 40.2 |   |   | (27.6 | ) |
| Other                  current assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                     | (10.7  | ) |   | 20.7 |   |   | 1.8 |   |
| Accounts                  payable and accrued expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                     | 28.2   |   |   | 5.0 |   |   | (36.7 | ) |
| Income                  taxes payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                     | 27.1   |   |   | (25.4 | ) |   | (88.1 | ) |
| Pension                  and postretirement benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                     | (18.3  | ) |   | (23.1 | ) |   | (34.3 | ) |
| Non-current                  assets and liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                     | (12.8  | ) |   | (4.7 | ) |   | 50.9 |   |
| Net                  cash provided by operating activities from continuing                  operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                     | 139.2  |   |   | 120.5 |   |   | 22.8 |   |
| **Cash                  Flow From Investing Activities:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                     |   |   |   |   |   |   |   |   |
| Capital                  expenditures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                     | (67.5  | ) |   | (77.4 | ) |   | (48.0 | ) |
| Proceeds                  of investment and fixed asset disposals                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                     | 16.6   |   |   | 1.4 |   |   | 10.4 |   |
| Proceeds                  from sale of minority interest in CP Kelco ApS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                     | -      |   |   | 27.0 |   |   | - |   |
| Decrease                  in restricted cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                     | -      |   |   | - |   |   | 125.0 |   |
| Acquisitions,                  net of cash acquired                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                     | -      |   |   | - |   |   | (8.9 | ) |
| Investment                  in CRESTS Units preferred securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                     | -      |   |   | - |   |   | (27.4 | ) |
| Other,                  net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                     | (6.8   | ) |   | (0.1 | ) |   | (1.4 | ) |
| Net                  cash (used in) provided by investing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                     | (57.7  | ) |   | (49.1 | ) |   | 49.7 |   |
| **Cash                  Flow From Financing Activities:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                     |   |   |   |   |   |   |   |   |
| Long-term                  debt proceeds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                     | -      |   |   | 650.0 |   |   | - |   |
| Long-term                  debt payments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                     | (131.2 | ) |   | (729.5 | ) |   | (165.2 | ) |
| Change                  in short-term debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                     | 1.9    |   |   | 1.6 |   |   | (0.7 | ) |
| Payment                  of debt issuance costs and underwriting fees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                     | -      |   |   | (7.8 | ) |   | - |   |
| Repurchase                  of CRESTS Units warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                     | -      |   |   | - |   |   | (7.0 | ) |
| Treasury                  stock issued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                     | 2.7    |   |   | 5.5 |   |   | 1.9 |   |
| Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                     | (0.4   | ) |   | 6.1 |   |   | - |   |
| Net                  cash used in financing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                     | (127.0 | ) |   | (74.1 | ) |   | (171.0 | ) |
| Effect                  of exchange rate changes on cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                     | (3.7   | ) |   | 2.9 |   |   | 15.8 |   |
| Net                  (decrease) increase in cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                     | (49.2  | ) |   | 0.2 |   |   | (82.7 | ) |
| Cash                  and cash equivalents at beginning of year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                     | 126.5  |   |   | 126.3 |   |   | 209.0 |   |
| Cash                  and cash equivalents at end of year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | $                                        | 77.3   |   | $ | 126.5 |   | $ | 126.3 |   |

*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, |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 2005                                     |   | 2004 |   | 2003 |   |
| **Supplemental                  Disclosures of Cash Flow Information:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                     |   |   |   |   |   |
| Cash                  paid during the period for:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                     |   |   |   |   |   |
| Interest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | $                                        | 86.4   |   | $ | 97.1 |   | $ | 121.8 |   |
| Income                  taxes, net of refunds received                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                     | 18.4   |   |   | 40.7 |   |   | 64.7 |   |
| Non-cash                  investing and financing activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                     |   |   |   |   |   |   |   |   |
| Acquisition                  of minority interest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | $                                        | -      |   | $ | - |   | $ | 2.0 |   |
| Incentive                  and other employee benefit stock plan issuances                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                     | 13.4   |   |   | 15.7 |   |   | 19.0 |   |
| 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 |   |   | - |   |

*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)*                                                                                                                                                                                 |   |   |   |    |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|---------|--------|
|                                                                                                                                                                                                                     |   |   |   |    |   |   |   | Accumulated |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                     |   |   |   |    |   | Unearned |   | Other |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                     |   | Common |   | Paid-in |   | Compen- |   | Comprehen- |   | Retained |   | Reacquired |   |   |   |
|                                                                                                                                                                                                                     |   | Stock  |   | Capital |   | sation |   | sive                  Loss |   | Earnings |   | Stock |   | Total |   |
| Balances                  at January 1, 2003, as previously reported                                                                                                                                                     |   | $      | 83.3   |    | $      | 665.0 |   | $ | (91.0 | ) | $ | (454.0 | ) | $ | 1,449.8 |   | $ | (1,824.3 | ) | $ | (171.2 | ) |
| *(Common                  shares: issued, 159,984,444; reacquired, 50,615,487)*                                                                                                                                          |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Adjustment                  for the cumulative effect on prior years of retrospectively applying                  the weighted-average method of accounting for valuing inventories                  (Note 21) |   |   | -      |    |   | - |   |   | - |   |   | - |   |   | 13.2 |   |   | - |   |   | 13.2 |   |
|                                                                                                                                                                                                                     |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balances                  at January 1, 2003 as adjusted                                                                                                                                                                 |   | $      | 83.3   |    | $      | 665.0 |   | $ | (91.0 | ) | $ | (454.0 | ) | $ | 1,463.0 |   | $ | (1,824.3 | ) | $ | (158.0 | ) |
| Net                  income                                                                                                                                                                                              |   |   | -      |    |   | - |   |   | - |   |   | - |   |   | 45.4 |   |   | - |   |   | 45.4 |   |
| Foreign                  currency translation adjustment                                                                                                                                                                 |   |   | -      |    |   | - |   |   | - |   |   | 121.2 |   |   | - |   |   | - |   |   | 121.2 |   |
| Release                  of shares held by ESOP trust                                                                                                                                                                    |   |   | -      |    |   | (4.8 | ) |   | 11.0 |   |   | - |   |   | - |   |   | - |   |   | 6.2 |   |
| Debt                  issuance costs on warrants issued with trust preferred                                                                                                                                             |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     securities                                                                                                                                                                                       |   |   | -      |    |   | (7.0 | ) |   | - |   |   | - |   |   | - |   |   | - |   |   | (7.0 | ) |
| Repurchase                  of warrants                                                                                                                                                                                  |   |   | -      |    |   | (7.0 | ) |   | - |   |   | - |   |   | - |   |   | - |   |   | (7.0 | ) |
| Decrease                  in additional minimum pension liability, net of tax                                                                                                                                            |   |   | -      |    |   | - |   |   | - |   |   | 14.9 |   |   | - |   |   | - |   |   | 14.9 |   |
| Issuances                  of treasury stock, net of forfeitures                                                                                                                                                         |   |   | -      |    |   | (42.8 | ) |   | (10.2 | ) |   | - |   |   | - |   |   | 58.7 |   |   | 5.7 |   |
| Amortization                  of unearned compensation                                                                                                                                                                   |   |   | -      |    |   | - |   |   | 4.0 |   |   | - |   |   | - |   |   | - |   |   | 4.0 |   |
|                                                                                                                                                                                                                     |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balances                  at December 31, 2003                                                                                                                                                                           |   | $      | 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)*                                                                                                                                           |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                     |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

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

----

**Hercules              Incorporated**

**Consolidated              Statements of Stockholders' (Deficit)              Equity**

**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**

----

**Hercules            Incorporated**

**Summary            of Significant Accounting Policies**

**Cash        and Cash Equivalents**

**Inventories**

**Assets        Held for Sale**

**Property,        Plant and Equipment and Depreciation**

**Goodwill        and Other Intangible Assets**

**Investments**

----

**Hercules            Incorporated**

**Summary            of Significant Accounting Policies**

**Long-lived        Assets**

**Computer        Software Development Costs**

**Deferred        Financing Costs**

**Income        Taxes**

**Asset        Retirement Obligations**

**Foreign        Currency Translation**

**Derivative        Instruments and Hedging**

----

**Hercules            Incorporated**

**Summary            of Significant Accounting Policies**

**Stock-based        Compensation**

|                                                                                                                                                                                                                             |   |                                     |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|
| *(Dollars                  in millions, except per share)*                                                                                                                                                                       |   | Year                  Ended December 31, |   |
|                                                                                                                                                                                                                             |   | 2005                                     |   | 2004 |   | 2003 |   |
| Net                  (loss) income, as reported                                                                                                                                                                                  |   | $                                        | (41.1  | ) | $ | 28.1 |   | $ | 45.4 |   |
| Add:                  Total stock-based compensation expense recognized in reported results,                  net of tax                                                                                                    |   |                                     | 4.5    |   |   | 1.4 |   |   | 2.9 |   |
| Deduct:                  Total stock-based compensation expense determined under the            fair                  value based method for all awards, net of tax* |   |                                     | 5.1    |   |   | 2.8 |   |   | 9.6 |   |
| Pro                  forma net (loss) income                                                                                                                                                                                     |   | $                                        | (41.7  | ) | $ | 26.7 |   | $ | 38.7 |   |
| (Loss)                  earnings per share:                                                                                                                                                                                      |   |                                     |   |   |   |   |   |   |   |   |
| Basic                  - as reported                                                                                                                                                                                             |   | $                                        | (0.38  | ) | $ | 0.26 |   | $ | 0.43 |   |
| Basic                  - pro forma                                                                                                                                                                                               |   | $                                        | (0.38  | ) | $ | 0.25 |   | $ | 0.36 |   |
| Diluted                  - as reported                                                                                                                                                                                           |   | $                                        | (0.38  | ) | $ | 0.26 |   | $ | 0.42 |   |
| Diluted                  - pro forma                                                                                                                                                                                             |   | $                                        | (0.38  | ) | $ | 0.24 |   | $ | 0.36 |   |

| *                  For information regarding the weighted-average assumptions used                  in                  estimating fair value for 2005, 2004 and 2003, see Note                  10. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Hercules            Incorporated**

**Summary            of Significant Accounting Policies**

**Recent        Accounting Pronouncements**

**Reclassifications**

----

**Hercules              Incorporated**

**Summary              of Significant Accounting Policies**

**1.           Accounts        Receivable**

|                                                             |   | *(Dollars                  in millions)* |   |
|------------------------------------------------------------------|--------|------------------------------------------|--------|
|                                                             |   | 2005                                     |   | 2004 |   | 2003 |   |
| Balance                  at beginning of year                    |   | $                                        | 4.7    |   | $ | 5.5 |   | $ | 11.9 |   |
|    Charged                  to costs and expenses |   |                                     | 2.3    |   |   | 5.4 |   |   | 4.2 |   |
|    Deductions                                     |   |                                     | (3.0   | ) |   | (6.2 | ) |   | (10.6 | ) |
| Balance                  at end of year                          |   | $                                        | 4.0    |   | $ | 4.7 |   | $ | 5.5 |   |

**2.           Inventories**

|                                               |   | *(Dollars                  in millions)* |   |
|----------------------------------------------------|--------|------------------------------------------|--------|
|                                               |   | 2005                                     |   | 2004 |   |
| Finished                  products                 |   | $                                        | 99.0   |   | $ | 103.5 |   |
| Raw                  materials and work-in-process |   |                                     | 64.8   |   |   | 79.6 |   |
| Supplies                                           |   |                                     | 21.2   |   |   | 29.3 |   |
|                                               |   | $                                        | 185.0  |   | $ | 212.4 |   |

** 3.         Sale        of Interest in FiberVisions Division**

| *(Dollars                  in millions)*                             |   |
|----------------------------------------------------------------------|--------|
| **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 |   |   | Deferred                  credits and other liabilities |   |   | 0.1 |   |
| Property,                  plant and equipment, net                  |   |   | 92.1 |   |   | Long-term                  debt |   |   | 0.3 |   |
| 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 |   |

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

**4.           Goodwill        and Other Intangible Assets**

|                                                                                 |   | *(Dollars                  in millions)* |   |
|--------------------------------------------------------------------------------------|--------|------------------------------------------|--------|
|                                                                                 |   |                                     |   | Engineered |   |   |   |
|                                                                                 |   | Performance                              |   | Materials                  & |   |   |   |
|                                                                                 |   | Products                                 |   | Additives |   | Total |   |
| Balance                  at December 31, 2003                                        |   | $                                        | 433.2  |   | $ | 84.9 |   | $ | 518.1 |   |
|    Additions                                                          |   |                                     | 1.6    |   |   | - |   |   | 1.6 |   |
|    Foreign                  currency translation                      |   |                                     | 30.6   |   |   | - |   |   | 30.6 |   |
| Balance                  at December 31, 2004                                        |   | $                                        | 465.4  |   | $ | 84.9 |   | $ | 550.3 |   |
|    FiberVisions                  impairment                           |   |                                     | -      |   |   | (52.9 | ) |   | (52.9 | ) |
|    Reclassified                  to FiberVisions assets held for sale |   |                                     | -      |   |   | (32.0 | ) |   | (32.0 | ) |
|    Foreign                  currency translation                      |   |                                     | (24.4  | ) |   | - |   |   | (24.4 | ) |
| Balance                  at December 31, 2005                                        |   | $                                        | 441.0  |   | $ | - |   | $ | 441.0 |   |

|                                        |   | Customer      |   | Trademarks                  & |   | Other       |   |   |   |
|---------------------------------------------|--------|---------------|--------|-----------------------------------|--------|-------------|--------|--------|--------|
|                                        |   | Relationships |   | Tradenames                        |   | Intangibles |   | Total  |   |
| Gross                  Carrying Amount      |   |          |   |                              |   |        |   |   |   |
| Balance,                  December 31, 2004 |   | $             | 90.0   |                              | $      | 73.9        |   | $      | 52.5   |   | $ | 216.4 |   |
| Balance,                  December 31, 2005 |   |          | 90.0   |                              |   | 73.9        |   |   | 24.8   |   |   | 188.7 |   |
|                                        |   |          |   |                              |   |        |   |   |   |   |   |   |   |
| Accumulated                  Amortization   |   |          |   |                              |   |        |   |   |   |   |   |   |   |
| Balance,                  December 31, 2004 |   | $             | 13.9   |                              | $      | 11.5        |   | $      | 28.7   |   | $ | 54.1 |   |
| Balance,                  December 31, 2005 |   |          | 16.4   |                              |   | 13.5        |   |   | 16.0   |   |   | 45.9 |   |

**5.           Debt**

|                                                                                                                                             |   | *(Dollars                    in millions)* |    |
|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|---------|
|                                                                                                                                             |   | 2005                                       |    |  2004 |   |
| Term                    B loan due 2010 (a)                                                                                                      |   | $                                          | 393.0   |   | $ | 397.0 |   |
| 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     |   |   | 27.8 |   |
| 11.125%                    senior notes due 2007 (d)                                                                                             |   |                                       | 130.0   |   |   | 226.0 |   |
| 6.75%                    senior subordinated notes due 2029 (e)                                                                                  |   |                                       | 250.0   |   |   | 250.0 |   |
| 8%                    convertible subordinated debentures due 2010 (f)                                                                           |   |                                       | 2.6     |   |   | 2.6 |   |
| 6.5%                    junior subordinated deferrable interest debentures due 2029                    (g)                                       |   |                                       | 217.0   |   |   | 229.0 |   |
| Other                                                                                                                                            |   |                                       | 9.6     |   |   | 7.7 |   |
|                                                                                                                                             |   |                                       | 1,109.0 |   |   | 1,240.1 |   |
| Less:                    Current debt obligations                                                                                                |   |                                       | 16.7    |   |   | 29.8 |   |
| Long                    term debt                                                                                                                |   | $                                          | 1,092.3 |   | $ | 1,210.3 |   |

|   | (a) | The                  term loan, a component of the Company’s Senior Credit Facility, matures on                  October 8, 2010 and bears interest at LIBOR + 1.75%, with the Company                  holding the option to reset interest rates for one, two, three                  or six                  month periods. The weighted average rate was 5.9% as of December                  31, 2005.                  The Senior Credit Facility is also comprised of a $150 million                  committed                  revolving credit facility (the “Revolving Facility”) and provides Hercules                  the ability, subject to lender approval, to borrow an additional                  $250                  million in the form of an incremental term note. The Senior Credit                  Facility is secured by liens on the |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

**6.           Consolidation        of Variable Interest Entities**

**7**
**      Income        Taxes**

|                                                               |   | *(Dollars                  in millions)* |   |
|--------------------------------------------------------------------|--------|------------------------------------------|--------|
|                                                               |   | 2005                                     |   |  2004 |   | 2003 |   |
| Domestic                                                           |   | $                                        | (56.8  | ) | $ | (158.8 | ) | $ | (68.4 | ) |
| Foreign                                                            |   |                                     | 11.5   |   |   | 189.3 |   |   | 164.2 |   |
| (Loss)                  income before income taxes and equity loss |   | $                                        | (45.3  | ) | $ | 30.5 |   | $ | 95.8 |   |

| Currently                  payable                    |   |   |   |    |   |   |   |
|-------------------------------------------------------|--------|--------|--------|--------------|--------|--------|--------|
| U.S.                  federal                         |   | $      | (2.1   | )            | $      | (30.4  | )      | $ | (28.1 | ) |
| Foreign                                               |   |   | 40.9   |         |   | 38.1   |   |   | 39.9 |   |
| State                                                 |   |   | 8.9    |         |   | 13.4   |   |   | 0.6 |   |
| Deferred                                              |   |   |   |         |   |   |   |   |   |   |
| Domestic                                              |   |   | (48.3  | )            |   | (21.5  | )      |   | 11.5 |   |
| Foreign                                               |   |   | (6.6   | )            |   | 2.8    |   |   | (2.6 | ) |
| (Benefit)                  provision for income taxes |   | $      | (7.2   | )            | $      | 2.4    |   | $ | 21.3 |   |

|                                                         |   | 2005   |   | 2004   |   |
|--------------------------------------------------------------|--------|--------|--------|--------|--------|
| Depreciation                                                 |   | $      | (81.4  | )      | $      | (105.9 | ) |
| Pension                                                      |   |   | (8.2   | )      |   | (1.1 | ) |
| Inventory                                                    |   |   | (4.1   | )      |   | (0.7 | ) |
| Investments                                                  |   |   | (174.3 | )      |   | (161.4 | ) |
| Goodwill                                                     |   |   | (48.4  | )      |   | (52.6 | ) |
| Accrued                  expenses                            |   |   | (3.1   | )      |   | (4.1 | ) |
| Other                                                        |   |   | (13.1  | )      |   | (29.8 | ) |
| Gross                  deferred tax liabilities              |   | $      | (332.6 | )      | $      | (355.6 | ) |
|                                                         |   |   |   |   |   |   |   |
| Postretirement                  benefits other than pensions |   | $      | 45.5   |   | $      | 52.5 |   |
| Pension                                                      |   |   | 113.4  |   |   | 84.7 |   |
| Goodwill                                                     |   |   | 7.1    |   |   | 7.8 |   |
| Accrued                  expenses                            |   |   | 216.1  |   |   | 192.1 |   |
| Loss                  carryforwards                          |   |   | 349.2  |   |   | 366.1 |   |
| Credit                  carryforwards                        |   |   | 126.9  |   |   | 97.1 |   |
| Assets                  held for sale                        |   |   | 21.5   |   |   | - |   |
| Other                                                        |   |   | 24.6   |   |   | 21.0 |   |
| Gross                  deferred tax assets                   |   |   | 904.3  |   |   | 821.3 |   |
| Valuation                  allowance                         |   |   | (380.7 | )      |   | (391.8 | ) |
| Net                  deferred tax assets                     |   | $      | 191.0  |   | $      | 73.9 |   |

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

|                                                                  |   | *(Dollars                  in millions)* |   |
|-----------------------------------------------------------------------|--------|------------------------------------------|--------|
|                                                                  |   | 2005                                     |   | 2004 |   | 2003 |   |
| Provision                  on income from discontinued operations     |   | $                                        | -      |   | $ | - |   | $ | 2.1 |   |
| Cumulative                  effect of changes in accounting principle |   |                                     | (1.4   | ) |   | - |   |   | (18.2 | ) |
|                                                                  |   | $                                        | (1.4   | ) | $ | - |   | $ | (16.1 | ) |

|                                                  |   | *(Dollars                  in millions)* |   |
|-------------------------------------------------------|--------|------------------------------------------|--------|
|                                                  |   | 2005                                     |   | 2004 |   | 2003 |   |
| Additional                  minimum pension liability |   | $                                        | 24.8   |   | $ | 14.5 |   | $ | (10.5 | ) |
| Other                                                 |   |                                     | 0.2    |   |   | - |   |   | - |   |
|    Total                               |   | $                                        | 25.0   |   | $ | 14.5 |   | $ | (10.5 | ) |

|                                                                      |   | 2005   |   | 2004   |   | 2003 |   |
|---------------------------------------------------------------------------|--------|--------|--------|--------|--------|------|--------|
| U.S.                  statutory income tax rate                           |   |   | 35     | %      |   | 35   | %      |   | 35 | % |
| Gain                  on sale of CP Kelco ApS                             |   |   | -      |   |   | (31  | )      |   | - |   |
| Valuation                  allowances                                     |   |   | (51    | )      |   | (75  | )      |   | (3 | ) |
| Tax                  rate differences on subsidiary earnings              |   |   | (6     | )      |   | (44  | )      |   | (9 | ) |
| U.S.                  tax on foreign dividends and undistributed earnings |   |   | 21     |   |   | 23   |   |   | 8 |   |
| State                  taxes                                              |   |   | (11    | )      |   | 34   |   |   | 1 |   |
| Reserves                                                                  |   |   | 16     |   |   | 70   |   |   | - |   |
| Exempt                  export income                                     |   |   | 4      |   |   | (7   | )      |   | (2 | ) |
| Intellectual                  property                                    |   |   | -      |   |   | -    |   |   | (9 | ) |
| Tax                  refunds                                              |   |   | 9      |   |   | -    |   |   | - |   |
| Other                                                                     |   |   | (1     | )      |   | 3    |   |   | 1 |   |
| Effective                  tax rate                                       |   |   | 16     | %      |   | 8    | %      |   | 22 | % |

**8.**
**        **
**Pension        and Other Postretirement Benefits**

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

|                                                      |   | *(Dollars                  in millions)* |    |
|-----------------------------------------------------------|--------|------------------------------------------|---------|
|                                                      |   | Pension                  Benefits        |    |   |   |
|                                                      |   | 2005                                     |    | 2004 |   | Other                  Postretirement Benefits |   |
| **Change                  in benefit obligation:**        |   | U.S.                                     |    | Int’l. |   | U.S. |   | Int’l. |   | 2005 |   | 2004 |   |
| Benefit                  obligation at January 1          |   | $                                        | 1,413.5 |   | $ | 325.7 |   | $ | 1,421.3 |   | $ | 282.2 |   | $ | 181.0 |   | $ | 206.1 |   |
| Service                  cost                             |   |                                     | 12.7    |   |   | 5.4 |   |   | 13.3 |   |   | 5.9 |   |   | 0.8 |   |   | 0.8 |   |
| Interest                  cost                            |   |                                     | 81.3    |   |   | 15.2 |   |   | 82.3 |   |   | 15.4 |   |   | 8.8 |   |   | 10.3 |   |
| Plan                  amendments                          |   |                                     | -       |   |   | (4.5 | ) |   | (43.1 | ) |   | (1.7 | ) |   | (32.4 | ) |   | - |   |
| Participant                  contributions                |   |                                     | -       |   |   | - |   |   | - |   |   | 0.3 |   |   | - |   |   | - |   |
| Foreign                  currency translation             |   |                                     | -       |   |   | (37.3 | ) |   | - |   |   | 27.3 |   |   | 0.1 |   |   | 0.2 |   |
| Actuarial                  loss (gain)                    |   |                                     | 136.1   |   |   | 49.2 |   |   | 42.7 |   |   | 10.2 |   |   | 19.8 |   |   | (12.9 | ) |
| Settlements/curtailments                                  |   |                                     | -       |   |   | - |   |   | - |   |   | (0.6 | ) |   | - |   |   | - |   |
| Special                  benefits                         |   |                                     | -       |   |   | - |   |   | 1.1 |   |   | - |   |   | - |   |   | - |   |
| Benefits                  paid from plan assets           |   |                                     | (101.9  | ) |   | (13.1 | ) |   | (98.8 | ) |   | (12.1 | ) |   | - |   |   | - |   |
| Benefits                  paid from Company assets        |   |                                     | (4.9    | ) |   | - |   |   | (5.3 | ) |   | (1.2 | ) |   | (23.6 | ) |   | (23.5 | ) |
| Benefit                  obligation at December 31        |   | $                                        | 1,536.8 |   | $ | 340.6 |   | $ | 1,413.5 |   | $ | 325.7 |   | $ | 154.5 |   | $ | 181,0 |   |
| **Change                  in plan assets:**               |   |                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fair                  value of plan assets at January 1   |   | $                                        | 1,176.2 |   | $ | 245.7 |   | $ | 1,115.1 |   | $ | 217.9 |   | $ | - |   | $ | - |   |
| Actual                  return on plan assets             |   |                                     | 105.0   |   |   | 20.9 |   |   | 119.9 |   |   | 15.6 |   |   | - |   |   | - |   |
| Actuarial                  gain                           |   |                                     | -       |   |   | 14.7 |   |   | - |   |   | 0.1 |   |   | - |   |   | - |   |
| Settlements/curtailments                                  |   |                                     | -       |   |   | - |   |   | - |   |   | (0.5 | ) |   | - |   |   | - |   |
| Company                  contributions                    |   |                                     | 40.0    |   |   | 13.7 |   |   | 40.0 |   |   | 3.2 |   |   | - |   |   | - |   |
| Participant                  contributions                |   |                                     | -       |   |   | 0.9 |   |   | - |   |   | 1.0 |   |   | - |   |   | - |   |
| Foreign                  currency translation             |   |                                     | -       |   |   | (27.7 | ) |   | - |   |   | 20.5 |   |   | - |   |   | - |   |
| Benefits                  paid from plan assets           |   |                                     | (101.9  | ) |   | (11.8 | ) |   | (98.8 | ) |   | (12.1 | ) |   | - |   |   | - |   |
| Fair                  value of plan assets at December 31 |   | $                                        | 1,219.3 |   | $ | 256.4 |   | $ | 1,176.2 |   | $ | 245.7 |   | $ | - |   | $ | - |   |

| Funded                  status of the plan                                                                                                                       |   | $                                       | (317.5                                | )        | $      | (84.2        | )      | $      | (237.3 | )      | $      | (80.0        | )      | $      | (154.5 | )      | $      | (181.0 | )      |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|---------------------------------------|----------|--------|--------------|--------|--------|--------|--------|--------|--------------|--------|--------|--------|--------|--------|--------|--------|
| Unrecognized                  actuarial loss                                                                                                                     |   |                                    | 671.2                                 |     |   | 104.5        |   |   | 584.4  |   |   | 89.9         |   |   | 120.1  |   |   | 106.6  |   |
| Unrecognized                  prior service (benefit) cost                                                                                                       |   |                                    | (22.0                                 | )        |   | (2.7         | )      |   | (23.0  | )      |   | 2.4          |   |   | (55.4  | )      |   | (30.5  | )      |
| Accrued                  Expenses                                                                                                                                |   |                                    | -                                     |     |   | (0.2         | )      |   | -      |   |   | (0.2         | )      |   | -      |   |   | -      |   |
| Unrecognized                  net transition obligation                                                                                                          |   |                                    | -                                     |     |   | 0.5          |   |   | -      |   |   | 0.8          |   |   | 0.8    |   |   | 0.9    |   |
| Net                  amount recognized                                                                                                                           |   | $                                       | 331.7                                 |     | $      | 17.9         |   | $      | 324.1  |   | $      | 12.9         |   | $      | (89.0  | )      | $      | (104.0 | )      |
| **Components                  of the above amounts:**                                                                                                            |
| Prepaid                  benefit cost                                                                                                                            |   | $                                       | 369.5                                 |     | $      | 53.3         |   | $      | 361.9  |   | $      | 51.6         |   | $      | -      |   | $      | -      |   |
| Accrued                  benefit liability                                                                                                                       |   |                                    | (37.8                                 | )        |   | (35.4        | )      |   | (37.8  | )      |   | (38.7        | )      |   | (89.0  | )      |   | (104.0 | )      |
| Additional                  minimum liability                                                                                                                    |   |                                    | (588.6                                | )        |   | (48.2        | )      |   | (506.2 | )      |   | (72.3        | )      |   | -      |   |   | -      |   |
| Intangible                  asset                                                                                                                                |   |                                    | -                                     |     |   | 0.4          |   |   | -      |   |   | 3.6          |   |   | -      |   |   | -      |   |
| Accumulated                  other comprehensive loss (pre-tax)                                                                                                  |   |                                    | 588.6                                 |     |   | 47.8         |   |   | 506.2  |   |   | 68.7         |   |   | -      |   |   | -      |   |
| Net                  amount recognized                                                                                                                           |   | $                                       | 331.7                                 |     | $      | 17.9         |   | $      | 324.1  |   | $      | 12.9         |   | $      | (89.0  | )      | $      | (104.0 | )      |
|                                                                                                                                                             |   |                                    |                                  |     |   |         |   |   |   |   |   |         |   |   |   |   |   |   |   |
| **Weighted-average                  assumptions used to determine the benefit obligation at December                  31, 2005                  and 2004 were:** |
|                                                                                                                                                             |   | Pension                  Benefits  | Other                  Postretirement |
|                                                                                                                                                             |   | 2005                                    | 2004                                  | Benefits |
|                                                                                                                                                             |   |                                    | U.S.                             |     |   | Int’l. |   |   | U.S.   |   |   | Int’l. |   |   | 2005   |   |   | 2004   |   |
| Weighted-average                  discount rate                                                                                                                  |   |                                    | 5.70                                  | %        |   | 4.35         | %      |   | 5.75   | %      |   | 5.04         | %      |   | 5.59   | %      |   | 5.51   | %      |
| Rate                  of compensation increase                                                                                                                   |   |                                    | 4.30                                  | %        |   | 2.87         | %      |   | 4.50   | %      |   | 2.79         | %      |   | 4.29   | %      |   | 4.49   | %      |

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

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

|                                                                |   | *(Dollars                  in millions)* |   |
|---------------------------------------------------------------------|--------|------------------------------------------|--------|
|                                                                |   | Pension                  Benefits        |   |   |   |
|                                                                |   | 2005                                     |   | 2004 |   | 2003 |   | Other                  Postretirement Benefits |   |
| **Net                  periodic benefit cost**:                     |   | U.S.                                     |   | Int’l. |   | U.S. |   | Int’l. |   | U.S. |   | Int’l. |   | 2005 |   | 2004 |   | 2003 |   |
| Service                  cost                                       |   | $                                        | 12.7   |   | $ | 5.4 |   | $ | 13.3 |   | $ | 5.9 |   | $ | 12.1 |   | $ | 5.9 |   | $ | 0.8 |   | $ | 0.8 |   | $ | 0.6 |   |
| Interest                  cost                                      |   |                                     | 81.3   |   |   | 15.2 |   |   | 82.3 |   |   | 15.4 |   |   | 86.3 |   |   | 13.1 |   |   | 8.8 |   |   | 10.3 |   |   | 13.4 |   |
| Expected                  return on plan assets                     |   |                                     | (95.4  | ) |   | (14.9 | ) |   | (96.5 | ) |   | (14.6 | ) |   | (101.6 | ) |   | (12.1 | ) |   | - |   |   | - |   |   | - |   |
| Amortization                  and deferrals                         |   |                                     | (1.9   | ) |   | 0.2 |   |   | 1.3 |   |   | 0.6 |   |   | 3.5 |   |   | 0.8 |   |   | (7.3 | ) |   | (8.5 | ) |   | (7.7 | ) |
| Participant                  contributions                          |   |                                     | -      |   |   | (0.5 | ) |   | - |   |   | (0.7 | ) |   | - |   |   | (0.6 | ) |   | - |   |   | - |   |   | - |   |
| Settlements/Curtailments                                            |   |                                     | -      |   |   | - |   |   | - |   |   | (0.1 | ) |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |
| Special                  benefits/terminations                      |   |                                     | -      |   |   | - |   |   | 1.1 |   |   | - |   |   | 4.7 |   |   | - |   |   | - |   |   | - |   |   | - |   |
| Amortization                  of transition (asset) obligation |   |                                     | -      |   |   | - |   |   | - |   |   | (0.1 | ) |   | - |   |   | (0.1 | ) |   | 6.5 |   |   | 0.1 |   |   | 0.1 |   |
| Actuarial                  losses recognized                        |   |                                     | 40.7   |   |   | 3.4 |   |   | 33.9 |   |   | 3.1 |   |   | 19.9 |   |   | 1.3 |   |   | - |   |   | 5.2 |   |   | 6.7 |   |
| Benefit                  cost                                       |   | $                                        | 37.4   |   | $ | 8.8 |   | $ | 35.4 |   | $ | 9.5 |   | $ | 24.9 |   | $ | 8.3 |   | $ | 8.8 |   | $ | 7.9 |   | $ | 13.1 |   |

|  **Weighted-average                  assumptions used to determine net periodic benefit                  cost:** |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                  |   | 2005 |   | 2004 |   | 2003 |   |   |   |   |   |   |   |
|                                                                                                                  |   | U.S. |   | Int’l. |   | U.S. |   | Int’l. |   | U.S. |   | Int’l. |   | 2005 |   | 2004 |   | 2003 |   |
| Weighted-average                  discount rate                                                                       |   |   | 5.75 | % |   | 5.04 | % |   | 6.10 | % |   | 5.35 | % |   | 6.75 | % |   | 5.35 | % |   | 5.51 | % |   | 6.08 | % |   | 6.74 | % |
| Expected                  return on plan assets                                                                       |   |   | 8.50 | % |   | 6.49 | % |   | 8.75 | % |   | 6.64 | % |   | 8.75 | % |   | 6.70 | % |   | N/A |   |   | N/A |   |   | N/A |   |
| Rate                  of compensation increase                                                                        |   |   | 4.50 | % |   | 2.79 | % |   | 4.50 | % |   | 2.86 | % |   | 4.50 | % |   | 2.93 | % |   | 4.49 | % |   | 4.49 | % |   | 4.50 | % |

**Defined        Benefit Pension Plans**

**$**

**Other        Postretirement Benefits**

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

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

|                                                                                          |   | TargetAllocation |   |  Percentage                  of Plan Assetsat                  December 31, |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|--------|----------------------------------------------------------------------------------|--------|
| **Asset                  category:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | 2006             |   |  2005                                                                       |   | 2004 |   |
| Equity                  securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |             | 62     | %                                                                                |   | 66 | % |   | 66 | % |
| Fixed                  income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |             | 28     | %                                                                                |   | 26 | % |   | 27 | % |
| Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |             | 10     | %                                                                                |   | 8 | % |   | 7 | % |
| Totals                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |             | 100    | %                                                                                |   | 100 | % |   | 100 | % |

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

|                                                      |   | *(Dollars                  in millions)* |   |
|-----------------------------------------------------------|--------|------------------------------------------|--------|
|                                                      |   | Pension                  Benefits        |   | Other                  Postretirement Benefits |   |
|                                                      |   | Qualified                  Plan          |   | Non-qualified                  Plan |   | Total |   |   |   |
| Expected                  employer contributions for 2006 |   | $                                        | 40     |   | $ | - |   | $ | 40 |   | $ | - |   |
| Expected                  benefit payments                |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| 2006                                                      |   |                                     | 86     |   |   | 5 |   |   | 91 |   |   | 13 |   |
| 2007                                                      |   |                                     | 85     |   |   | 5 |   |   | 90 |   |   | 13 |   |
| 2008                                                      |   |                                     | 85     |   |   | 5 |   |   | 90 |   |   | 13 |   |
| 2009                                                      |   |                                     | 86     |   |   | 5 |   |   | 91 |   |   | 12 |   |
| 2010                                                      |   |                                     | 87     |   |   | 5 |   |   | 92 |   |   | 12 |   |
| 2011-2015                                                 |   |                                     | 469    |   |   | 22 |   |   | 491 |   |   | 59 |   |

**International        Pension Plans**

|                                                                                          |   | TargetAllocation |   |  Percentage                  of Plan Assetsat                  December 31, |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|--------|----------------------------------------------------------------------------------|--------|
| **Asset                  category:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | 2006             |   |  2005                                                                       |   | 2004 |   |
| Equity                  securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |             | 58     | %                                                                                |   | 61 | % |   | 59 | % |
| Fixed                  income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |             | 42     | %                                                                                |   | 38 | % |   | 40 | % |
| Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |             | -      |                                                                             |   | 1 | % |   | 1 | % |
| Totals                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |             | 100    | %                                                                                |   | 100 | % |   | 100 | % |

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

|                                                      |   | *(Dollars                  in millions)* |   |
|-----------------------------------------------------------|--------|------------------------------------------|--------|
|                                                      |   | Pension                  Plan Benefits   |   |
| Expected                  employer contributions for 2006 |   | $                                        | 5      |   |
| Expected                  benefit payments:               |   |                                     |   |   |
| 2006                                                      |   |                                     | 13     |   |
| 2007                                                      |   |                                     | 13     |   |
| 2008                                                      |   |                                     | 14     |   |
| 2009                                                      |   |                                     | 15     |   |
| 2010                                                      |   |                                     | 15     |   |
| 2011-2015                                                 |   |                                     | 85     |   |

**9**
**.         **
**Savings        and Investment Plan**

|                                             |   | 2005   |      | 2004   |   |
|--------------------------------------------------|--------|--------|-----------|--------|--------|
| Allocated                                        |   |   | 1,458,065 |   |   | 1,464,530 |   |
| Unallocated                                      |   |   | 1,695,387 |   |   | 2,099,176 |   |
| Total                  shares held by ESOP Trust |   |   | 3,153,452 |   |   | 3,563,706 |   |

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

**10.         Long-term        Incentive Compensation Plans**

|                               |   | Regular                           |                         | Performance                  Accelerated |   |
|------------------------------------|--------|-----------------------------------|------------------------------|------------------------------------------|--------|
|                               |   | Number                  of Shares |                         | Weighted-average                  Price  |   | Number                  ofShares |   | Weighted-average                  Price |   |
| December                  31, 2002 |   |                              | 13,207,                  634 |                                     | $      | 25.21 |   |   | 5,188,925 |   | $ | 43.91 |   |
|   Granted                |   |                              | 21,000                       |                                     |   | 10.09 |   |   | - |   |   | - |   |
|   Exercised              |   |                              | -                            |                                     |   | - |   |   | - |   |   | - |   |
|   Forfeited              |   |                              | (922,075                     | )                                        |   | 32.34 |   |   | (409,225 | ) |   | 46.77 |   |
| December                  31, 2003 |   |                              | 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 |   |
| 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 |   |
| December                  31, 2005 |   |                              | 8,382,012                    |                                     | $      | 21.31 |   |   | 1,342,115 |   | $ | 43.49 |   |

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

|                                                   |   | Outstanding                  Options            |      | Exercisable                  Options                       |   |
|--------------------------------------------------------|--------|-------------------------------------------------|-----------|------------------------------------------------------------|--------|
|                                                   |   | NumberOutstanding                  at12/31/2005 |      | Weighted-averageRemainingContractual                  Life |   | Weighted-averageExercisePrice |   | NumberExercisable12/31/2005 |   | Weighted-averageExercise                  Price |   |
| Regular                  Stock Options                 |   |                                            |      |                                                       |   |   |   |   |   |   |   |
| $8.50                  - $11.75                        |   |                                            | 1,015,975 |                                                       |   | 5.85 |   | $ | 11.18 |   |   | 988,975 |   |   | 11.19 |   |
| $11.76                  - $15.00                       |   |                                            | 3,198,047 |                                                       |   | 6.14 |   | $ | 11.24 |   |   | 2,979,818 |   |   | 11.97 |   |
| $15.01                  - $22.50                       |   |                                            | 1,257,025 |                                                       |   | 4.16 |   | $ | 17.12 |   |   | 1,257,025 |   |   | 17.12 |   |
| $22.51                  - $33.75                       |   |                                            | 891,700   |                                                       |   | 2.70 |   | $ | 26.01 |   |   | 891,700 |   |   | 26.01 |   |
| $33.76                  - $40.00                       |   |                                            | 1,465,865 |                                                       |   | 2.40 |   | $ | 38.50 |   |   | 1,486,665 |   |   | 38.51 |   |
| $40.01                  - $60.00                       |   |                                            | 553,400   |                                                       |   | 1.77 |   | $ | 49.30 |   |   | 558,400 |   |   | 49.31 |   |
|                                                   |   |                                            | 8,382,012 |                                                       |   |   |   |   |   |   |   | 8,162,583 |   |   |   |   |
| Performance-Accelerated                  Stock Options |   |                                            |      |                                                       |   |   |   |   |   |   |   |   |
| $24.00                  - $36.00                       |   |                                            | 17,925    |                                                       |   | 3.46 |   | $ | 31.27 |   |   | - |   |   | - |   |
| $36.01                  - $45.00                       |   |                                            | 685,030   |                                                       |   | 2.66 |   | $ | 38.25 |   |   | - |   |   | - |   |
| $45.01                  - $50.00                       |   |                                            | 480,310   |                                                       |   | 1.70 |   | $ | 47.48 |   |   | - |   |   | - |   |
| $50.01                  - $61.00                       |   |                                            | 158,850   |                                                       |   | 0.12 |   | $ | 55.36 |   |   | - |   |   | - |   |
|                                                   |   |                                            | 1,342,115 |                                                       |   |   |   |   |   |   |   | - |   |   | - |   |

|                                          |   | **Dividend****Yield** |   | **Risk-free****Interest                  Rate** |   | **Expected****Life** |   | **Expected****Volatility** |                    |
|-----------------------------------------------|--------|-----------------------|--------|-------------------------------------------------|--------|----------------------|--------|----------------------------|-------------------------|
| 2005:                                         |   |                  |   |                                            |   |                 |   |                       |                    |
| Regular                  Plan                 |   |                  | 0.00   | %                                               |   | 4.08                 | %      |                       | 6                  yrs. |   |   | 28.65 | % |
| Employee                  Stock Purchase Plan |   |                  | NA     |                                            |   | NA                   |   |                       | NA                      |   |   | NA |   |
|                                          |   |                  |   |                                            |   |                 |   |                       |                    |   |   |   |   |
| 2004:                                         |   |                  |   |                                            |   |                 |   |                       |                    |   |   |   |   |
| Regular                  Plan                 |   |                  | 0.00   | %                                               |   | 3.73                 | %      |                       | 6                  yrs. |   |   | 31.22 | % |
| Employee                  Stock Purchase Plan |   |                  | 0.00   | %                                               |   | 1.00                 | %      |                       | 3                  mos. |   |   | 32.90 | % |
|                                          |   |                  |   |                                            |   |                 |   |                       |                    |   |   |   |   |
| 2003:                                         |   |                  |   |                                            |   |                 |   |                       |                    |   |   |   |   |
| Regular                  Plan                 |   |                  | 0.00   | %                                               |   | 3.54                 | %      |                       | 6                  yrs. |   |   | 42.79 | % |
| Employee                  Stock Purchase Plan |   |                  | 0.00   | %                                               |   | 1.00                 | %      |                       | 3                  mos. |   |   | 35.88 | % |
|                                          |   |                  |   |                                            |   |                 |   |                       |                    |   |   |   |   |

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

**11.         Asset        Retirement Obligations**

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

|                                              |   | ActiveSites |   | InactiveSites |   | Total  |   |
|---------------------------------------------------|--------|-------------|--------|---------------|--------|--------|--------|
| Balance                  at January 1, 2004       |   | $           | 7.5    |          | $      | 95.3   |   | $ | 102.8 |   |
| Liabilities                  incurred             |   |        | 0.3    |          |   | -      |   |   | 0.3 |   |
| Accretion                                         |   |        | 0.3    |          |   | 1.6    |   |   | 1.9 |   |
| Settlement                  payments              |   |        | (1.0   | )             |   | (12.5  | )      |   | (13.5 | ) |
| Changes                  in estimated obligations |   |        | (0.2   | )             |   | 4.2    |   |   | 4.0 |   |
| Foreign                  currency translation     |   |        | 0.2    |          |   | 0.6    |   |   | 0.8 |   |
| Balance                  at December 31, 2004     |   | $           | 7.1    |          | $      | 89.2   |   | $ | 96.3 |   |
|                                              |   |        |   |          |   |   |   |   |   |   |
| Impact                  of FIN 47 adoption        |   |        | 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 |   |

**12.         Commitments        and Contingencies**

**Guarantees**

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

**Leases**

**Environmental**

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

**Litigation**

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

|                                                                         |   | **Balance                  January 1, 2005** |   | **Interest                  Income/****Additional****Accruals** |   | **Insurance****Recovered/****Liabilities                  Settled** |   | **Accretion/****Reclassifi-****cation** |   | **Balance                  December 31, 2005** |   |
|------------------------------------------------------------------------------|--------|----------------------------------------------|--------|-----------------------------------------------------------------|--------|---------------------------------------------------------------------|--------|-----------------------------------------|--------|------------------------------------------------|--------|
| Asbestos-related                  assets:                                    |   |                                         |   |                                                            |   |                                                                |   |                                    |   |                                           |   |
|    Insurance                  receivable                      |   | $                                            | 6.3    |                                                            | $      | (0.3                                                                | )      | $                                       | (6.0   | )                                              | $      | - |   | $ | - |   |
| Asbestos-related                  assets, current                            |   |                                         | 6.3    |                                                            |   | (0.3                                                                | )      |                                    | (6.0   | )                                              |   | - |   |   | - |   |
|    Insurance                  receivable                      |   |                                         | 98.9   |                                                            |   | -                                                                   |   |                                    | (35.3  | )                                              |   | 1.6 |   |   | 65.2 |   |
|    Restricted                  cash in trust (1)              |   |                                         | 63.6   |                                                            |   | 1.8                                                                 |   |                                    | (9.9   | )                                              |   | - |   |   | 55.5 |   |
| Asbestos-related                  assets, non-current                        |   |                                         | 162.5  |                                                            |   | 1.8                                                                 |   |                                    | (45.2  | )                                              |   | 1.6 |   |   | 120.7 |   |
|    Total                  asbestos-related assets             |   | $                                            | 168.8  |                                                            | $      | 1.5                                                                 |   | $                                       | (51.2  | )                                              | $      | 1.6 |   | $ | 120.7 |   |
| Asbestos-related                  liabilities:                               |   |                                         |   |                                                            |   |                                                                |   |                                    |   |                                           |   |   |   |   |   |   |
|    Asbestos-related                  liabilities, current     |   | $                                            | 46.8   |                                                            | $      | -                                                                   |   | $                                       | (27.7  | )                                              | $      | 17.3 |   | $ | 36.4 |   |
|    Asbestos-related                  liabilities, non-current |   |                                         | 213.4  |                                                            |   | 37.5                                                                |   |                                    | -      |                                           |   | (17.3 | ) |   | 233.6 |   |
|    Total                  asbestos-related liabilities        |   | $                                            | 260.2  |                                                            | $      | 37.5                                                                |   | $                                       | (27.7  | )                                              | $      | - |   | $ | 270.0 |   |

| (1)   | Amount                is reflected as a non-current asset as its availability for reimbursement                to the Company is restricted to asbestos claims and related defense                costs                reimbursable to the Company as discussed above in connection with                the                First Settlement Agreement. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

**13.        Series        Preferred Stock**

**14.         Common        Stock**

**15.         Accumulated        Other Comprehensive Loss**

|                                                              |   | *(Dollars                  in millions)* |   |
|-------------------------------------------------------------------|--------|------------------------------------------|--------|
|                                                              |   | December                  31,            |   |
|                                                              |   | 2005                                     |   | 2004 |   | 2003 |   |
| Additional                  minimum pension liability, net of tax |   | $                                        | (417.6 | ) | $ | (373.3 | ) | $ | (345.1 | ) |
| Foreign                  currency translation adjustment          |   |                                     | 30.3   |   |   | 96.9 |   |   | 27.2 |   |
| Other,                  net of tax                                |   |                                     | (0.3   | ) |   | - |   |   | - |   |
|                                                              |   | $                                        | (387.6 | ) | $ | (276.4 | ) | $ | (317.9 | ) |

**          **

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

**16.         Additional        Balance Sheet Detail**

|                                                |   | *(Dollars                  in millions)* |     |
|-----------------------------------------------------|--------|------------------------------------------|----------|
|                                                |   | 2005                                     |     | 2004 |   |
| Property,                  plant and equipment:     |   |                                     |     |   |   |
| Land                                                |   | $                                        | 10.6     |   | $ | 19.6 |   |
| Buildings                  and equipment            |   |                                     | 1,613.6  |   |   | 1,998.9 |   |
| Construction                  in progress           |   |                                     | 38.0     |   |   | 70.8 |   |
| Total                                               |   |                                     | 1,662.2  |   |   | 2,089.3 |   |
| Accumulated                  depreciation           |   |                                     | (1,126.8 | ) |   | (1,393.9 | ) |
| Property,                  plant and equipment, net |   | $                                        | 535.4    |   | $ | 695.4 |   |

|                                                           |   | *(Dollars                  in millions)* |   |
|----------------------------------------------------------------|--------|------------------------------------------|--------|
|                                                           |   | 2005                                     |   |  2004 |   |
| Other                  current assets:                         |   |                                     |   |    |   |
|    Value-added                  tax receivable  |   | $                                        | 13.1   |   | $ | 4.4 |   |
|    Federal                  tax receivable      |   |                                     | 12.6   |   |   | 12.6 |   |
|    Supplier                  rebates receivable |   |                                     | 0.3    |   |   | 14.6 |   |
|    Assets                  held for sale        |   |                                     | 0.2    |   |   | 5.8 |   |
|    Other                                        |   |                                     | 21.9   |   |   | 16.4 |   |
|                                                           |   | $                                        | 48.1   |   | $ | 53.8 |   |

|                                                                               |   | *(Dollars                  in millions)* |   |
|------------------------------------------------------------------------------------|--------|------------------------------------------|--------|
|                                                                               |   | 2005                                     |   |  2004 |   |
| Deferred                  charges and other assets:                                |   |                                     |   |    |   |
|    Tax                  deposits                                    |   | $                                        | 66.1   |   | $ | 89.1 |   |
|    Capitalized                  software, net                       |   |                                     | 62.6   |   |   | 73.2 |   |
|    Prepaid                  pension assets                          |   |                                     | 42.4   |   |   | 7.0 |   |
|    Cash                  surrender value of life insurance policies |   |                                     | 21.4   |   |   | 19.4 |   |
|    Unamortized                  debt issuance costs                 |   |                                     | 10.3   |   |   | 14.2 |   |
|    Investments                                                      |   |                                     | 9.8    |   |   | 6.0 |   |
|    Unrecognized                  prior period service costs         |   |                                     | 0.4    |   |   | 3.6 |   |
|    Other                                                            |   |                                     | 32.1   |   |   | 33.0 |   |
|                                                                               |   | $                                        | 245.1  |   | $ | 245.5 |   |

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

|                                                                               |   | *(Dollars                  in millions)* |   |
|------------------------------------------------------------------------------------|--------|------------------------------------------|--------|
|                                                                               |   | 2005                                     |   |  2004 |   |
| Accrued                  expenses:                                                 |   |                                     |   |    |   |
|    Compensation                  and benefits                       |   | $                                        | 37.0   |   | $ | 45.0 |   |
|    Current                  portion of postretirement benefits      |   |                                     | 23.5   |   |   | 23.5 |   |
|    Current                  portion of asset retirement obligations |   |                                     | 21.6   |   |   | 19.3 |   |
|    Severance                  and other exit costs                  |   |                                     | 16.6   |   |   | 5.8 |   |
|    Income                  taxes payable                            |   |                                     | 14.5   |   |   | 4.7 |   |
|    Interest                  payable                                |   |                                     | 12.9   |   |   | 12.8 |   |
|    Current                  deferred income taxes                   |   |                                     | 12.9   |   |   | 7.5 |   |
|    Sales                  rebate accrual                            |   |                                     | 9.3    |   |   | 11.1 |   |
|    Current                  pension liability                       |   |                                     | 6.2    |   |   | 7.1 |   |
|    Litigation                  accrual                              |   |                                     | 3.5    |   |   | 18.0 |   |
|    Current                  portion of deferred rent                |   |                                     | 3.0    |   |   | 3.2 |   |
|    Other                  taxes payable                             |   |                                     | 2.3    |   |   | 1.7 |   |
|    Other                                                            |   |                                     | 56.0   |   |   | 52.4 |   |
|                                                                               |   | $                                        | 219.3  |   | $ | 212.1 |   |

| Deferred                  credits and other liabilities:                      |   |   |   |    |   |
|-------------------------------------------------------------------------------|--------|--------|--------|--------------|--------|
|    Non-current                  income tax liabilities         |   | $      | 95.7   |         | $      | 108.0 |   |
|    Asset                  retirement obligations - non-current |   |   | 68.7   |         |   | 77.0 |   |
|    Indemnifications                                            |   |   | 40.0   |         |   | 40.0 |   |
|    Deferred                  rent                              |   |   | 30.6   |         |   | 35.7 |   |
|    Environmental                  accrual                      |   |   | 17.6   |         |   | 2.8 |   |
|    Workers                  compensation                       |   |   | 14.6   |         |   | 21.9 |   |
|    Other                                                       |   |   | 23.3   |         |   | 24.5 |   |
|                                                                          |   | $      | 290.5  |         | $      | 309.9 |   |

**17.**
**Restructuring        Programs**

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

|                                                                                      |   | Charges                  by Type |    |                      |   |
|-------------------------------------------------------------------------------------------|--------|----------------------------------|---------|---------------------------|--------|
|                                                                                      |   | SFAS                  112        |    | SFAS                  146 |   | Total |   |
| Employee                  severance, relocation and related benefits accrued:             |   |                             |    |                      |   |   |   |
|    Research                  and development consolidation                 |   | $                                | 0.5     |                      | $      | 3.3 |   | $ | 3.8 |   |
|    Global                  marketing and management realignment            |   |                             | 14.5    |                      |   | - |   |   | 14.5 |   |
|    Performance                  products manufacturing rationalization     |   |                             | 1.7     |                      |   | 0.5 |   |   | 2.2 |   |
|    Pinova                  manufacturing rationalization                   |   |                             | 3.4     |                      |   | - |   |   | 3.4 |   |
|    FiberVisions                  manufacturing rationalization             |   |                             | 3.4     |                      |   | - |   |   | 3.4 |   |
|    Corporate                  support realignment                          |   |                             | 4.8     |                      |   | 0.5 |   |   | 5.3 |   |
|                                                                                      |   |                             | 28.3    |                      |   | 4.3 |   |   | 32.6 |   |
| Other                  exit costs charged as incurred:                                    |   |                             |    |                      |   |   |   |   |   |   |
|    Barneveld,                  The Netherlands exit and site closure costs |   |                             | -       |                      |   | 1.4 |   |   | 1.4 |   |
|    Pinova                  product distribution agreement termination      |   |                             | -       |                      |   | 0.2 |   |   | 0.2 |   |
|                                                                                 |   |                             | -  |                      |   | 1.6 |   |   | 1.6 |   |
| Total                  severance and other exit costs                                     |   | $                                | 28.3    |                      | $      | 5.9 |   | $ | 34.2 |   |

|                                                                                                    |   | AcceleratedDepreciation |    | AssetImpairment |   | InventoryWrite-Down |   |  Total |   |
|---------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|-----------------|--------|---------------------|--------|-------------|--------|
| Research                  & development consolidation                                               |   |                    |    |            |   |                |   |        |   |
|   Barneveld,                  The Netherlands                                                 |   | $                       | 1.8     |            | $      | -                   |   | $           | -      |   | $ | 1.8 |   |
|   Jacksonville,                  FL                                                           |   |                    | 0.1     |            |   | -                   |   |        | -      |   |   | 0.1 |   |
|   Wilmington,                  DE                                                             |   |                    | 0.5     |            |   | -                   |   |        | -      |   |   | 0.5 |   |
|                                                                                                    |   |                    | 2.4     |            |   | -                   |   |        | -      |   |   | 2.4 |   |
| Performance                  Products manufacturing rationalization                                |   |                    |    |            |   |                |   |        |   |   |   |   |   |
|   Pandaan,                  Indonesia                                                         |   |                    | 0.3     |            |   | -                   |   |        | -      |   |   | 0.3 |   |
|   Pendlebury,                  UK                                                             |   |                    | 0.8     |            |   | -                   |   |        | -      |   |   | 0.8 |   |
|                                                                                                    |   |                    | 1.1     |            |   | -                   |   |        | -      |   |   | 1.1 |   |
| Engineered                  Materials and Additives manufacturing                  rationalization |   |                    |    |            |   |                |   |        |   |   |   |   |   |
|   Brunswick,                  GA                                                              |   |                    | -       |            |   | 5.2                 |   |        | 0.5    |   |   | 5.7 |   |
|   Hattiesburg,                  MS                                                            |   |                    | -       |            |   | 0.5                 |   |        | -      |   |   | 0.5 |   |
|   Covington,                  VA                                                              |   |                    | -       |            |   | -                   |   |        | 1.5    |   |   | 1.5 |   |
|                                                                                               |   |                    | -  |            |   | 5.7                 |   |        | 2.0    |   |   | 7.7 |   |
| Total                  asset charges                                                                    |   | $                       | 3.5     |            | $      | 5.7                 |   | $           | 2.0    |   | $ | 11.2 |   |

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

|                                                                                              |   | *(Dollars                    in millions)* |   |
|---------------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|
|                                                                                              |   | 2005                                       |   |  2004 |   |
| Balance                    at beginning of the year                                               |   | $                                          | 5.8    |   | $ | 6.0 |   |
|    Additional                    severance and related costs recognized (SFAS 112) |   |                                       | 28.3   |   |   | 9.3 |   |
|    Charges                    for SFAS 146 terminations and relocations            |   |                                       | 4.3    |   |   | 0.3 |   |
|    Cash                    payments                                                |   |                                       | (21.4  | ) |   | (9.9 | ) |
|    Other,                    including foreign currency translation                |   |                                       | (0.4   | ) |   | 0.1 |   |
| Balance                    at end of the year                                                     |   | $                                          | 16.6   |   | $ | 5.8 |   |

**18**
**Other        Operating Expense, Net**

|                                                                                                                               |   | *(Dollars                  in millions)* |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | Year                  Ended December 31, |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | 2005                                     |   | 2004 |   | 2003 |   |
| Severance,                  restructuring and other exit costs, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | $                                        | 34.2   |   | $ | 9.5 |   | $ | 4.9 |   |
| Nitrocellulose                  facility shutdown costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                     | -      |   |   | 6.5 |   |   | - |   |
| Asset                  impairment charges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                     | 5.7    |   |   | 7.3 |   |   | 0.6 |   |
| Accelerated                  depreciation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                     | 3.5    |   |   | - |   |   | - |   |
| Special                  executive pension adjustment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                     | -      |   |   | 1.6 |   |   | 7.3 |   |
| Proxy                  costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                     | -      |   |   | - |   |   | 3.6 |   |
| Net                  environmental expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                     | -      |   |   | - |   |   | 0.8 |   |
| Other                  miscellaneous charges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                     | 4.1    |   |   | 2.0 |   |   | (0.2 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | $                                        | 47.5   |   | $ | 26.9 |   | $ | 17.0 |   |

**19.         Interest        and Debt Expense**

|                                                                                                                               |   | *(Dollars                  in millions)* |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | Year                  Ended December 31, |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | 2005                                     |   | 2004 |   | 2003 |   |
| Incurred                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | $                                        | 89.8   |   | $ | 109.8 |   | $ | 131.2 |   |
| Capitalized                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                     | (0.4   | ) |   | (1.1 | ) |   | (0.4 | ) |
| Net                  expensed                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | $                                        | 89.4   |   | $ | 108.7 |   | $ | 130.8 |   |

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

**20.         Other        Expense, Net**

|           Other                  expense, net, consists of the following:  |   | *(Dollars                  in millions)* |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|
|                                                                                                                              |   | Year                  Ended December 31, |   |
|                                                                                                                              |   | 2005                                     |   | 2004 |   | 2003 |   |
| Asbestos-related                  costs, net                                                                                      |   | $                                        | 44.6   |   | $ | 48.8 |   | $ | 12.0 |   |
| Loss                  (gain) on repurchase of debt                                                                                |   |                                     | 14.2   |   |   | 41.0 |   |   | (2.3 | ) |
| Environmental                  charges                                                                                            |   |                                     | 22.4   |   |   | 7.6 |   |   | 5.0 |   |
| Asset                  impairment charges                                                                                         |   |                                     | -      |   |   | 1.9 |   |   | 2.0 |   |
| Net                  gains on dispositions                                                                                        |   |                                     | (10.9  | ) |   | - |   |   | - |   |
| Other                  litigation settlements and accruals                                                                        |   |                                     | 18.9   |   |   | 19.2 |   |   | 7.8 |   |
| Other,                  net                                                                                                       |   |                                     | (2.9   | ) |   | (1.8 | ) |   | 4.4 |   |
|                                                                                                                              |   | $                                        | 86.3   |   | $ | 116.7 |   | $ | 28.9 |   |
|                                                                                                                              |

**21.         Changes        in Accounting Principle**

*FIN        47*

|                                                                                                                                  |   | *(Dollars                  in millions)* |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|
|                                                                                                                                  |   | Year                  Ended December 31, |   |
|                                                                                                                                  |   | 2005                                     |   | 2004 |   | 2003 |   |
| Net                  (loss) income before cumulative effect of changes in accounting                  principle:                      |   |                                     |   |   |   |   |   |   |   |   |
|     As                  reported                                                                                  |   | $                                        | (38.6  | ) | $ | 28.1 |   | $ | 78.7 |   |
|     Accretion                  and depreciation                                                                   |   |                                     | -      |   |   | (0.1 | ) |   | (0.1 | ) |
| Adjusted                  net (loss) income before cumulative effect of changes in accounting                  principle              |   | $                                        | (38.6  | ) | $ | 28.0 |   | $ | 78.6 |   |
|                                                                                                                                  |   |                                     |   |   |   |   |   |   |   |   |
| Basic                  (loss) earnings per share before cumulative effect of changes in                  accounting principle:   |   |                                     |   |   |   |   |   |   |   |   |
|     As                  reported                                                                                  |   | $                                        | (0.36  | ) | $ | 0.26 |   | $ | 0.74 |   |
|     Adjusted                                                                                                      |   | $                                        | (0.36  | ) | $ | 0.26 |   | $ | 0.74 |   |
|                                                                                                                                  |   |                                     |   |   |   |   |   |   |   |   |
| Diluted                  (loss) earnings per share before cumulative effect of changes in                  accounting principle: |   |                                     |   |   |   |   |   |   |   |   |
|     As                  reported                                                                                  |   | $                                        | (0.36  | ) | $ | 0.26 |   | $ | 0.73 |   |
|     Adjusted                                                                                                      |   | $                                        | (0.36  | ) | $ | 0.26 |   | $ | 0.73 |   |
|                                                                                                                                  |   |                                     |   |   |   |   |   |   |   |   |
| Net                  (loss) income:                                                                                                   |   |                                     |   |   |   |   |   |   |   |   |
|     As                  reported                                                                                  |   | $                                        | (41.1  | ) | $ | 28.1 |   | $ | 45.4 |   |
|     Accretion                  and depreciation                                                                   |   |                                     | -      |   |   | (0.1 | ) |   | (0.1 | ) |
| Adjusted                  net income (loss)                                                                                           |   | $                                        | (41.1  | ) | $ | 28.0 |   | $ | 45.3 |   |
|                                                                                                                                  |   |                                     |   |   |   |   |   |   |   |   |
| Basic                  (loss) earnings per share:                                                                                     |   |                                     |   |   |   |   |   |   |   |   |
|     As                  reported                                                                                  |   | $                                        | (0.38  | ) | $ | 0.26 |   | $ | 0.43 |   |
|     Adjusted                                                                                                      |   | $                                        | (0.38  | ) | $ | 0.26 |   | $ | 0.43 |   |
|                                                                                                                                  |   |                                     |   |   |   |   |   |   |   |   |
| Diluted                  (loss) earnings per share:                                                                                   |   |                                     |   |   |   |   |   |   |   |   |
|     As                  reported                                                                                  |   | $                                        | (0.38  | ) | $ | 0.26 |   | $ | 0.42 |   |
|     Adjusted                                                                                                      |   | $                                        | (0.38  | ) | $ | 0.26 |   | $ | 0.42 |   |

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

*Inventories*

|                                                       |   | *(Dollars                  in millions)*          |    |
|------------------------------------------------------------|--------|---------------------------------------------------|---------|
|                                                       |   | For                  the Years Ended December 31, |    |
|                                                       |   | 2004                                              |    | 2003 |   |
|                                                       |   | As                  OriginallyReported            |    | Effect                  ofChange |   | AsAdjusted |   | As                  OriginallyReported |   | Effect                  ofChange |   | AsAdjusted |   |
| Statement                  of Operations Line Items:       |   |                                              |    |   |   |   |   |   |   |   |   |   |   |
| Cost                  of sales                             |   | $                                                 | 1,309.6 |   | $ | (2.0 | ) | $ | 1,307.6 |   | $ | 1,167.6 |   | $ | (0.7 | ) | $ | 1,166.9 |   |
| Profit                  from operations                    |   |                                              | 226.9   |   |   | 2.0 |   |   | 228.9 |   |   | 254.8 |   |   | 0.7 |   |   | 255.5 |   |
| Provision                  for income taxes                |   |                                              | 1.7     |   |   | 0.7 |   |   | 2.4 |   |   | 21.1 |   |   | 0.2 |   |   | 21.3 |   |
| Net                  income from continuing operations     |   |                                              | 26.8    |   |   | 1.3 |   |   | 28.1 |   |   | 74.0 |   |   | 0.5 |   |   | 74.5 |   |
| Net                  income                                |   | $                                                 | 26.8    |   | $ | 1.3 |   | $ | 28.1 |   | $ | 44.9 |   | $ | 0.5 |   | $ | 45.4 |   |
|                                                       |   |                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                  earnings per share from:            |   |                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing                  operations                     |   | $                                                 | 0.25    |   | $ | 0.01 |   | $ | 0.26 |   | $ | 0.69 |   | $ | 0.01 |   | $ | 0.70 |   |
| Net                  income                                |   | $                                                 | 0.25    |   | $ | 0.01 |   | $ | 0.26 |   | $ | 0.42 |   | $ | 0.01 |   | $ | 0.43 |   |
|                                                       |   |                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted                  earnings per share from:          |   |                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing                  operations                     |   | $                                                 | 0.25    |   | $ | 0.01 |   | $ | 0.26 |   | $ | 0.69 |   | $ | - |   | $ | 0.69 |   |
| Net                  income                                |   | $                                                 | 0.25    |   | $ | 0.01 |   | $ | 0.26 |   | $ | 0.42 |   | $ | - |   | $ | 0.42 |   |
|                                                       |   |                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Statement                  of Cash Flows Line Items:       |   |                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  income                                |   | $                                                 | 26.8    |   | $ | 1.3 |   | $ | 28.1 |   | $ | 44.9 |   | $ | 0.5 |   | $ | 45.4 |   |
| Deferred                  income tax provision             |   |                                              | (19.4   | ) |   | 0.7 |   |   | (18.7 | ) |   | 7.5 |   |   | 0.2 |   |   | 7.7 |   |
| Inventories                                                |   |                                              | 6.0     |   |   | (2.0 | ) |   | 4.0 |   |   | (6.7 | ) |   | (0.7 | ) |   | (7.4 | ) |
| Net                  cash provided by operating activities |   | $                                                 | 120.5   |   | $ | - |   | $ | 120.5 |   | $ | 22.8 |   | $ | - |   | $ | 22.8 |   |
|                                                       |   |                                              |

|                                                                       |   | As                  of December 31, 2004 |    |
|-----------------------------------------------------------------------|--------|------------------------------------------|---------|
|                                                                  |   | As                  OriginallyReported   |    | Effect                  ofChange |   | AsAdjusted |   |
| Balance                  Sheet Line Items:                            |   |                                     |    |   |   |   |   |
| Inventories                                                           |   | $                                        | 189.4   |   | $ | 23.0 |   | $ | 212.4 |   |
| Deferred                  income taxes - current                      |   |                                     | 44.8    |   |   | (8.1 | ) |   | 36.7 |   |
| Total                  assets (1)                                     |   | $                                        | 2,710.2 |   | $ | 10.1 |   | $ | 2,720.3 |   |
| Retained                  earnings                                    |   |                                     | 1,521.5 |   |   | 15.0 |   |   | 1,536.5 |   |
| Total                  liabilities and stockholders’ equity (1) |   | $                                        | 2,710.2 |   | $ | 10.1 |   | $ | 2,720.3 |   |
|                                                                  |

*SFAS        143*

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

*FIN        46(R)*

*ESOP*

**22.         (Loss)        Earnings per Share**

| *                                                  * |   | *(Dollars                  in millions, except per share)* |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                           |   | For                  the years ended December 31,          |   |
|                                                                                                                                                                                                                                                                                                           |   | 2005                                                       |   | 2004 |   | 2003 |   |
|                                                                                                                                                                                                                                                                                                           |   |                                                       |   |   |   |   |   |   |   |   |   | Earnings |   |
|                                                                                                                                                                                                                                                                                                           |   |                                                       |   | Loss |   |   |   | Earnings |   | Income |   | (loss) |   |
|                                                                                                                                                                                                                                                                                                           |   | Loss                                                       |   | per                  share |   | Income |   | per                  share |   | (loss) |   | per                  share |   |
| **Basic:**                                                                                                                                                                                                                                                                                                     |   |                                                       |   |   |   |   |   |   |   |   |   |   |   |
| Continuing                  operations                                                                                                                                                                                                                                                                         |   | $                                                          | (38.6  | ) | $ | (0.36 | ) | $ | 28.1 |   | $ | 0.26 |   | $ | 74.2 |   | $ | 0.70 |   |
| Discontinued                  operations                                                                                                                                                                                                                                                                       |   |                                                       | -      |   |   | - |   |   | - |   |   | - |   |   | 4.5 |   |   | 0.04 |   |
| Cumulative                  effect of changes                                                                                                                                                                                                                                                                  |   |                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    in                  accounting principle                                                                                                                                                                                                                                                     |   |                                                       | (2.5   | ) |   | (0.02 | ) |   | - |   |   | - |   |   | (33.3 | ) |   | (0.31 | ) |
| Net                  (loss) income                                                                                                                                                                                                                                                                             |   | $                                                          | (41.1  | ) | $ | (0.38 | ) | $ | 28.1 |   | $ | 0.26 |   | $ | 45.4 |   | $ | 0.43 |   |
| Weighted                  average number                                                                                                                                                                                                                                                                       |   |                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    of                  basic shares (millions)                                                                                                                                                                                                                                                  |   |                                                       | 108.7  |   |   |   |   |   | 107.3 |   |   |   |   |   | 106.2 |   |   |   |   |
| **Diluted:**                                                                                                                                                                                                                                                                                                   |   |                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing                  operations                                                                                                                                                                                                                                                                         |   | $                                                          | (38.6  | ) | $ | (0.36 | ) | $ | 28.1 |   | $ | 0.26 |   | $ | 74.2 |   | $ | 0.69 |   |
| Discontinued                  operations                                                                                                                                                                                                                                                                       |   |                                                       | -      |   |   | - |   |   | - |   |   | - |   |   | 4.5 |   |   | 0.04 |   |
| Cumulative                  effect of changes                                                                                                                                                                                                                                                                  |   |                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    in                  accounting principle                                                                                                                                                                                                                                                     |   |                                                       | (2.5   | ) |   | (0.02 | ) |   | - |   |   | - |   |   | (33.3 | ) |   | (0.31 | ) |
| Net                  (loss) income                                                                                                                                                                                                                                                                             |   | $                                                          | (41.1  | ) | $ | (0.38 | ) | $ | 28.1 |   | $ | 0.26 |   | $ | 45.4 |   | $ | 0.42 |   |

| Weighted                    average number                        |   |   |   |   |   |   |   |   |   |   |   |   |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|    of                    diluted shares (millions) |   |   | 108.7  |   |   |        |   |   | 109.0  |   |   |        |   |   | 107.2 |   |   |  |   |

|                                                          |   | Year                  ended December 31, |   |
|---------------------------------------------------------------|--------|------------------------------------------|--------|
|                                                          |   | 2005                                     |   | 2004 |   | 2003 |   |
| Options                  to purchase common stock (millions)  |   |                                     | 5.8    |   |   | 10.6 |   |   | 12.4 |   |
| Warrants                  to purchase common stock (millions) |   |                                     | 6.7    |   |   | 7.1 |   |   | 7.1 |   |

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

**23.                 Operations by Industry        Segment and Geographic Area**

*Performance        Products (Pulp and Paper and Aqualon divisions): *

*Engineered        Materials and Additives *
*FiberVisions        and Pinova divisions):*

**Geographic        Reporting**

| **Geographic                  Areas**               |   | **United****States** |   |  **Europe** |   |  **Americas                  (a)** |   |  **Asia                  Pacific** |   |  **Total** |   |
|-----------------------------------------------------|--------|----------------------|--------|------------------|--------|-----------------------------------------|--------|-----------------------------------------|--------|-----------------|--------|
| **2005**                                            |   |                 |   |             |   |                                    |   |                                    |   |            |   |
| Net                  Sales                          |   | $                    | 981.0  |             | $      | 747.9                                   |   | $                                       | 106.0  |            | $      | 233.9 |   | $ | 2,068.8 |   |
| Property,                  plant and equipment, net |   |                 | 262.1  |             |   | 233.8                                   |   |                                    | 15.7   |            |   | 23.8 |   |   | 535.4 |   |
| **2004**                                            |   |                 |   |             |   |                                    |   |                                    |   |            |   |   |   |   |   |   |
| Net                  Sales                          |   | $                    | 921.2  |             | $      | 762.2                                   |   | $                                       | 98.8   |            | $      | 214.5 |   | $ | 1,996.7 |   |
| Property,                  plant and equipment, net |   |                 | 325.2  |             |   | 331.4                                   |   |                                    | 16.2   |            |   | 22.6 |   |   | 695.4 |   |
| **2003**                                            |   |                 |   |             |   |                                    |   |                                    |   |            |   |   |   |   |   |   |
| Net                  Sales                          |   | $                    | 884.8  |             | $      | 692.9                                   |   | $                                       | 93.8   |            | $      | 174.5 |   | $ | 1,846.0 |   |
| Property,                  plant and equipment, net |   |                 | 345.3  |             |   | 302.6                                   |   |                                    | 12.2   |            |   | 17.3 |   |   | 677.4 |   |
|                                                |   |                 |   |             |   |                                    |   |                                    |   |            |   |   |   |   |   |   |

----

**Hercules              Incorporated**

**Notes              to Consolidated Financial Statements**

| *(Dollars                  in millions)*                    |   |
|-------------------------------------------------------------|--------|
| **Industry                  Segments**                      |   |  **Performance****Products** |   | **Engineered****Materials                  and****Additives** |   | **Corporate** |   |   |   |  **Consolidated** |   |
| **2005**                                                    |   |    |   |   |   |   |   |   |   |    |   |
| Net                  sales                                  |   | $ | 1,686.0 |   | $ | 382.8 |   | $ | - |   |   |   |   | $ | 2,068.8 |   |
| Profit                  (loss) from operations              |   |   | 220.0 |   |   | (77.9 | ) |   | (11.7 | ) |   | (b) |   |   | 130.4 |   |
| Interest                  and debt expense                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 89.4 |   |
| Other                  expense, net                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 86.3 |   |
| (Loss)                  before income taxes and equity loss |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (45.3 | ) |
| Total                  assets                               |   |   | 1,474.9 |   |   | 234.0 |   |   | 859.9 |   |   | (c) |   |   | 2,568.8 |   |
| Capital                  expenditures                       |   |   | 53.5 |   |   | 6.5 |   |   | 7.5 |   |   |   |   |   | 67.5 |   |
| Depreciation                  and amortization              |   |   | 80.2 |   |   | 17.0 |   |   | 8.7 |   |   |   |   |   | 105.9 |   |
|                                                        |
| **2004**                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  sales                                  |   | $ | 1,616.5 |   | $ | 380.2 |   | $ | - |   |   |   |   | $ | 1,996.7 |   |
| Profit                  (loss) from operations              |   |   | 248.6 |   |   | (14.4 | ) |   | (5.3 | ) |   | (b) |   |   | 228.9 |   |
| Interest                  and debt expense                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 108.7 |   |
| Gain                  on sale of CP Kelco ApS               |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (27.0 | ) |
| Other                  expense, net                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 116.7 |   |
| Income                  before income taxes and equity loss |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 30.5 |   |
| Total                  assets                               |   |   | 1,622.0 |   |   | 369.4 |   |   | 728.9 |   |   | (c) |   |   | 2,720.3 |   |
| Capital                  expenditures                       |   |   | 63.7 |   |   | 8.2 |   |   | 5.5 |   |   |   |   |   | 77.4 |   |
| Depreciation                  and amortization              |   |   | 73.5 |   |   | 17.7 |   |   | 9.9 |   |   |   |   |   | 101.1 |   |
|                                                        |
| **2003**                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  sales                                  |   | $ | 1,483.5 |   | $ | 362.5 |   | $ | - |   |   |   |   | $ | 1,846.0 |   |
| Profit                  (loss) from operations              |   |   | 261.9 |   |   | 9.1 |   |   | (15.5 | ) |   | (b) |   |   | 255.5 |   |
| Interest                  and debt expense                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 130.8 |   |
| Other                  expense, net                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 28.9 |   |
| Income                  before income taxes and equity loss |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 95.8 |   |
| Total                  assets                               |   |   | 1,525.6 |   |   | 372.1 |   |   | 824.1 |   |   | (c) |   |   | 2,721.8 |   |
| Capital                  expenditures                       |   |   | 39.3 |   |   | 4.9 |   |   | 3.8 |   |   |   |   |   | 48.0 |   |
| Depreciation                  and amortization              |   |   | 74.1 |   |   | 20.8 |   |   | 5.7 |   |   |   |   |   | 100.6 |   |
|                                                        |

|   | (a) | Excluding                  operations in the United States of America. |
|--------|-----|------------------------------------------------------------------------|

| (b)   | Includes                $7.1 million of severance and other exit costs in 2005, $6.5 million                in                facility shutdown costs in 2004, and $4.6 million, $7.3 million and                $3.6                million of severance, special pension adjustment and proxy costs,                respectively, in 2003. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (c)   | Includes                assets not specifically allocated to business segments, primarily                intangible assets and other long-term                assets. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

|                                                        |   | *(Dollars                  in millions)* |     |
|-------------------------------------------------------------|--------|------------------------------------------|----------|
|                                                        |   | 2005                                     |     | 2004 |   |
|                                                        |   | Carrying                                 |     |  Fair |   | Carrying |   |  Fair |   |
|                                                        |   | Amount                                   |     |  Value |   | Amount |   |  Value |   |
| Investment                  securities (available for sale) |   | $                                        | 1.0      |   | $ | 1.0 |   | $ | 1.5 |   | $ | 1.5 |   |
| Total                  debt                                 |   |                                     | (1,109.0 | ) |   | (1,092.1 | ) |   | (1,240.1 | ) |   | (1,265.2 | ) |
| Foreign                  exchange contracts, net            |   |                                     | (0.2     | ) |   | (0.2 | ) |   | 0.6 |   |   | 0.6 |   |

| ·   | Investment                securities: Present value of expected future cash                flows. |
|--------------------|---------------------------------------------------------------------------------------------------|
| ·   | Long-term                debt: Present value of expected cash flows related to existing borrowings                discounted at rates currently available to the Company for long-term                borrowings with similar terms and remaining                maturities. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Foreign                exchange contracts: Year-end exchange                rates. |
|--------------------|------------------------------------------------------------------------------------|

**25.         Divestitures**

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

| Aqualon                  Company                                                                 | FiberVisions                  Products, Inc.         |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------|
| Athens                  Holding Inc.                                                                                                                                                                                                                                                                                                                                                                                             | Hercules                  Euro Holdings, LLC         |
| Covington                  Holdings, Inc.                                                                                                                                                                                                                                                                                                                                                                                        | Hercules                  Finance Company            |
| East                  Bay Realty Services, Inc.                                                                                                                                                                                                                                                                                                                                                                                  | Hercules                  Flavor, Inc.               |
| FiberVisions                  Incorporated                                                                                                                                                                                                                                                                                                                                                                                       | Hercules                  Hydrocarbon Holdings, Inc. |
| FiberVisions,                  L.L.C.                                                                                                                                                                                                                                                                                                                                                                                            | Hercules                  Paper Holdings, Inc.       |
| FiberVisions                  L.P.                                                                                                                                                                                                                                                                                                                                                                                               | WSP,                  Inc.                           |

----

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements**

----

**Hercules              Incorporated**

**Notes              to Consolidated Financial Statements**

| Condensed                  Consolidating Statement of Operations                                              |   |
|---------------------------------------------------------------------------------------------------------------|--------|
| Year                  Ended December 31, 2005                                                                 |   |   |   |
| *(Dollars                  in millions)*                                                                      |   | Unconsolidated |   |   |   |   |   |
|                                                                                                          |   |   |   |  Guarantor |   |  Non-Guarantor |   | Eliminations                  and |   |   |   |
|                                                                                                          |   | Parent |   | Subsidiaries |   | Subsidiaries |   | Adjustments |   | Consolidated |   |
| Net                  sales                                                                                    |   | $ | 562.7 |   | $ | 491.2 |   | $ | 1,175.2 |   | $ | (160.3 | ) | $ | 2,068.8 |   |
| Cost                  of sales                                                                                |   |   | 401.4 |   |   | 382.7 |   |   | 794.7 |   |   | (172.5 | ) |   | 1,406.3 |   |
| Selling,                  general, and administrative expenses                                                |   |   | 104.0 |   |   | 130.0 |   |   | 148.8 |   |   | - |   |   | 382.8 |   |
| Research                  and development                                                                     |   |   | 19.3 |   |   | 18.4 |   |   | 3.2 |   |   | - |   |   | 40.9 |   |
| Intangible                  asset amortization                                                                |   |   | 6.0 |   |   | 1.5 |   |   | 0.5 |   |   | - |   |   | 8.0 |   |
| Impairment                  of Fibervisions goodwill                                                          |   |   | - |   |   | 52.9 |   |   | - |   |   | - |   |   | 52.9 |   |
| Other                  operating expenses, net                                                                |   |   | 16.1 |   |   | 9.0 |   |   | 22.4 |   |   | - |   |   | 47.5 |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Profit                  (loss) from operations                                                                |   |   | 15.9 |   |   | (103.3 | ) |   | 205.6 |   |   | 12.2 |   |   | 130.4 |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                  and debt expense (income), net                                                      |   |   | 173.1 |   |   | (71.6 | ) |   | (12.1 | ) |   | - |   |   | 89.4 |   |
| Other                  expense (income), net                                                                  |   |   | 87.3 |   |   | 2.4 |   |   | (3.4 | ) |   | - |   |   | 86.3 |   |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (Loss)                  income before income taxes and   equity                  (loss) income |   |   | (244.5 | ) |   | (34.1 | ) |   | 221.1 |   |   | 12.2 |   |   | (45.3 | ) |
| (Benefit)                  provision for income taxes                                                         |   |   | (103.7 | ) |   | 20.0 |   |   | 72.2 |   |   | 4.3 |   |   | (7.2 | ) |
| Equity                  (loss) income of affiliated companies                                                 |   |   | - |   |   | (1.1 | ) |   | 0.5 |   |   | 0.1 |   |   | (0.5 | ) |
| Equity                  income (loss) from consolidated subsidiaries                                     |   |   | 102.2 |   |   | 10.0 |   |   | (3.2 | ) |   | (109.0 | ) |   | - |   |
| Net                  (loss) income from continuing operations                                                 |   |   | (38.6 | ) |   | (45.2 | ) |   | 146.2 |   |   | (101.0 | ) |   | (38.6 | ) |
| Cumulative                  effect of changes in accounting principles                                   |   |   | (2.5 | ) |   | - |   |   | - |   |   | - |   |   | (2.5 | ) |
| Net                  (loss) income                                                                            |   | $ | (41.1 | ) | $ | (45.2 | ) | $ | 146.2 |   | $ | (101.0 | ) | $ | (41.1 | ) |
|                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

**Hercules              Incorporated**

**Notes              to Consolidated Financial Statements**

| Condensed                    Consolidating Statement of Operations     |   |
|------------------------------------------------------------------------|--------|
| Year                    Ended December 31, 2004                        |   |   |   |
| *(Dollars                    in millions)*                             |   | Unconsolidated |   |   |   |   |   |
|                                                                   |   |   |   |  Guarantor |   |  Non-Guarantor |   | Eliminations                    and |   |   |   |
|                                                                   |   | Parent |   | Subsidiaries |   | Subsidiaries |   | Adjustments |   | Consolidated |   |
| Net                    sales                                           |   | $ | 540.8 |   | $ | 474.8 |   | $ | 1,131.9 |   | $ | (150.8 | ) | $ | 1,996.7 |   |
| Cost                    of sales                                       |   |   | 374.8 |   |   | 352.5 |   |   | 731.1 |   |   | (150.8 | ) |   | 1,307.6 |   |
| Selling,                    general, and administrative expenses       |   |   | 101.1 |   |   | 126.0 |   |   | 155.3 |   |   | - |   |   | 382.4 |   |
| Research                    and development                            |   |   | 19.8 |   |   | 17.4 |   |   | 5.6 |   |   | - |   |   | 42.8 |   |
| 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                       |   |   | 34.2 |   |   | (35.5 | ) |   | 230.2 |   |   | - |   |   | 228.9 |   |
| 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 and               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    equity                    income (loss)              |   |   | (400.0 | ) |   | 20.3 |   |   | 410.2 |   |   | - |   |   | 30.5 |   |
| Provision                    (benefit) for income taxes                |   |   | (88.2 | ) |   | 38.1 |   |   | 52.5 |   |   | - |   |   | 2.4 |   |
| Equity                    income (loss) of affiliated companies        |   |   | - |   |   | (0.7 | ) |   | 0.9 |   |   | (0.2 | ) |   | - |   |
| Equity                    income (loss) from consolidated subsidiaries |   |   | 339.9 |   |   | 6.0 |   |   | (1.6 | ) |   | (344.3 | ) |   | - |   |
| Net                    income (loss) from continuing operations        |   |   | 28.1 |   |   | (12.5 | ) |   | 357.0 |   |   | (344.5 | ) |   | 28.1 |   |
| Cumulative                    effect of changes in accounting          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    principle,                    net of tax             |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |
| Net                    income (loss)                                   |   | $ | 28.1 |   | $ | (12.5 | ) | $ | 357.0 |   | $ | (344.5 | ) | $ | 28.1 |   |

----

**Hercules              Incorporated**

**Notes              to Consolidated Financial Statements**

| Condensed                  Consolidating Statement of                  Operations     |   |
|-----------------------------------------------------------------------------------------------------------|--------|
| Year                  Ended December 31, 2003                                                             |   |   |   |
| *(Dollars                  in millions)*                                                                  |   | Unconsolidated |   |   |   |   |   |
|                                                                                                      |   |   |   |  Guarantor |   |  Non-Guarantor |   | Eliminationsand |   |   |   |
|                                                                                                      |   | Parent |   | Subsidiaries |   | Subsidiaries |   | Adjustments |   | Consolidated |   |
| Net                  sales                                                                                |   | $ | 509.2 |   | $ | 445.1 |   | $ | 1,023.5 |   | $ | (131.8 | ) | $ | 1,846.0 |   |
| Cost                  of sales                                                                            |   |   | 331.7 |   |   | 320.0 |   |   | 643.2 |   |   | (128.0 | ) |   | 1,166.9 |   |
| Selling,                  general, and administrative expenses                                            |   |   | 83.7 |   |   | 84.6 |   |   | 191.6 |   |   | - |   |   | 359.9 |   |
| Research                  and development                                                                 |   |   | 17.0 |   |   | 16.8 |   |   | 4.9 |   |   | - |   |   | 38.7 |   |
| Goodwill                  and intangible asset amortization                                               |   |   | 6.3 |   |   | 1.7 |   |   | - |   |   | - |   |   | 8.0 |   |
| Other                  operating expenses, net                                                            |   |   | 9.2 |   |   | 3.9 |   |   | 3.9 |   |   | - |   |   | 17.0 |   |
| Profit                  from operations                                                                   |   |   | 61.3 |   |   | 18.1 |   |   | 179.9 |   |   | (3.8 | ) |   | 255.5 |   |
| Interest                  and debt expense (income), net                                                  |   |   | 174.2 |   |   | (58.8 | ) |   | 15.4 |   |   | - |   |   | 130.8 |   |
| Other                  expense, net                                                                       |   |   | 23.1 |   |   | 4.8 |   |   | 1.0 |   |   | - |   |   | 28.9 |   |
| Income                  (loss) before income taxes and                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    equity                  (loss) income                                                   |   |   | (136.0 | ) |   | 72.1 |   |   | 163.5 |   |   | (3.8 | ) |   | 95.8 |   |
| Provision                  (benefit) for income taxes                                                     |   |   | (52.3 | ) |   | 29.2 |   |   | 45.7 |   |   | (1.3 | ) |   | 21.3 |   |
| Equity                  (loss) income of affiliated companies                                             |   |   | - |   |   | (0.7 | ) |   | 0.7 |   |   | (0.3 | ) |   | (0.3 | ) |
| Equity                  income from consolidated subsidiaries                                             |   |   | 157.9 |   |   | 15.0 |   |   | 1.6 |   |   | (174.5 | ) |   | - |   |
| Net                  income from continuing operations                                                    |   |   | 74.2 |   |   | 57.2 |   |   | 120.1 |   |   | (177.3 | ) |   | 74.2 |   |
| Net                  income on discontinued operations,                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    net                  of tax                                                             |   |   | 4.5 |   |   | - |   |   | - |   |   | - |   |   | 4.5 |   |
| Net                  income before cumulative effect                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    of                  changes in accounting principle                                     |   |   | 78.7 |   |   | 57.2 |   |   | 120.1 |   |   | (177.3 | ) |   | 78.7 |   |
| Cumulative                  effect of changes in accounting                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    principle,                  net of tax                                                  |   |   | (33.3 | ) |   | - |   |   | - |   |   | - |   |   | (33.3 | ) |
| Net                  income                                                                               |   | $ | 45.4 |   | $ | 57.2 |   | $ | 120.1 |   | $ | (177.3 | ) | $ | 45.4 |   |

----

**Hercules              Incorporated**

**Notes              to Consolidated Financial Statements**

| Condensed                  Consolidating Balance Sheet                           |   |
|---------------------------------------------------------------------------------------|--------|
| December                  31, 2005                                                    |   |   |   |
| *(Dollars                  in millions)*                                              |   | 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               |   |   | 63.4 |   |   | 35.8 |   |   | 191.6 |   |   | 0.2 |   |   | 291.0 |   |
|      Intercompany                  receivable                |   |   | 68.7 |   |   | 17.5 |   |   | 21.4 |   |   | (107.6 | ) |   | - |   |
|      Inventories                                             |   |   | 58.1 |   |   | 52.4 |   |   | 76.6 |   |   | (2.1 | ) |   | 185.0 |   |
|      Deferred                  income taxes                  |   |   | 24.0 |   |   | 2.9 |   |   | 12.4 |   |   | - |   |   | 39.3 |   |
|      FiberVisions                  assets held for sale      |   |   | - |   |   | 138.8 |   |   | 63.9 |   |   | - |   |   | 202.7 |   |
|      Other                  current assets                   |   |   | 25.4 |   |   | 1.8 |   |   | 20.7 |   |   | 0.2 |   |   | 48.1 |   |
|      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 | ) |   | - |   |
| Goodwill                  and other intangible assets, net                            |   |   | 196.4 |   |   | 27.8 |   |   | 359.6 |   |   | - |   |   | 583.8 |   |
| 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 |   |   | 13.8 |   |   | 59.7 |   |   | - |   |   | 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                       |   | $ | 52.0 |   | $ | 16.7 |   | $ | 104.5 |   | $ | 0.2 |   | $ | 173.4 |   |
|      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                       |   |   | 78.5 |   |   | 60.5 |   |   | 80.3 |   |   | - |   |   | 219.3 |   |
|      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                  liability                                                    |   |   | 251.7 |   |   | - |   |   | 71.7 |   |   | - |   |   | 323.4 |   |
| Other                  postretirement benefits                                        |   |   | 63.1 |   |   | 2.1 |   |   | 0.3 |   |   | - |   |   | 65.5 |   |
| Deferred                  credits and other liabilities                               |   |   | 254.2 |   |   | 18.8 |   |   | 17.5 |   |   | - |   |   | 290.5 |   |
| Asbestos-related                  liabilities                                         |   |   | 233.6 |   |   | - |   |   | - |   |   | - |   |   | 233.6 |   |
| Intercompany                  notes payable (receivable)                              |   |   | 1,667.2 |   |   | (1,208.7 | ) |   | (458.5 | ) |   | - |   |   | - |   |
| 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**

| Condensed                  Consolidating Balance Sheet                      |   |
|-----------------------------------------------------------------------------|--------|
| December                  31, 2004                                          |   |   |   |
| *(Dollars                  in millions)*                                    |   | Unconsolidated |   |   |   |   |   |
|                                                                        |   |   |   | Guarantor |   | Non-Guarantor |   | Eliminationsand |   |   |   |
| **Assets**                                                                  |   | Parent |   | Subsidiaries |   | Subsidiaries |   | Adjustments |   | Consolidated |   |
| Current                  assets                                             |   |   |   |   |   |   |   |   |   |   |   |
|      Cash                  and cash equivalents    |   | $ | 42.8 |   | $ | 0.9 |   | $ | 82.8 |   | $ | - |   | $ | 126.5 |   |
|      Accounts                  receivable, net     |   |   | 64.8 |   |   | 55.6 |   |   | 225.6 |   |   | 0.7 |   |   | 346.7 |   |
|      Intercompany                  receivable      |   |   | 74.4 |   |   | 25.2 |   |   | 29.9 |   |   | (129.5 | ) |   | - |   |
|      Inventories                                   |   |   | 59.0 |   |   | 63.2 |   |   | 105.0 |   |   | (14.8 | ) |   | 212.4 |   |
|      Deferred                  income taxes        |   |   | 18.3 |   |   | 16.3 |   |   | 2.1 |   |   | - |   |   | 36.7 |   |
|      Asbestos-related                  assets      |   |   | 6.3 |   |   | - |   |   | - |   |   | - |   |   | 6.3 |   |
|      Other                  current assets         |   |   | 23.4 |   |   | 10.1 |   |   | 20.3 |   |   | - |   |   | 53.8 |   |
|      Total                  current assets         |   |   | 289.0 |   |   | 171.3 |   |   | 465.7 |   |   | (143.6 | ) |   | 782.4 |   |
| Property,                  plant and equipment, net                         |   |   | 162.7 |   |   | 152.7 |   |   | 380.0 |   |   | - |   |   | 695.4 |   |
| Investments                  in subsidiaries and advances, net              |   |   | 2,279.4 |   |   | 88.0 |   |   | 48.8 |   |   | (2,416.2 | ) |   | - |   |
| Goodwill                  and other intangible assets, net                  |   |   | 195.9 |   |   | 88.2 |   |   | 428.5 |   |   | - |   |   | 712.6 |   |
| Deferred                  income taxes                                      |   |   | 266.3 |   |   | (159.1 | ) |   | 14.7 |   |   | - |   |   | 121.9 |   |
| Asbestos-related                  assets                                    |   |   | 162.5 |   |   | - |   |   | - |   |   | - |   |   | 162.5 |   |
| Deferred                  charges and other assets                          |   |   | 206.2 |   |   | 5.6 |   |   | 33.7 |   |   | - |   |   | 245.5 |   |
| Total                  assets                                               |   | $ | 3,562.0 |   | $ | 346.7 |   | $ | 1,371.4 |   | $ | (2,559.8 | ) | $ | 2,720.3 |   |
| **Liabilities                  and Stockholders' Equity**                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current                  liabilities                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Accounts                  payable             |   | $ | 43.1 |   | $ | 24.4 |   | $ | 120.2 |   | $ | (0.7 | ) | $ | 187.0 |   |
|      Asbestos-related                  liabilities |   |   | 46.8 |   |   | - |   |   | - |   |   | - |   |   | 46.8 |   |
|      Intercompany                  payable         |   |   | 7.7 |   |   | 76.4 |   |   | 45.4 |   |   | (129.5 | ) |   | - |   |
|      Current                  debt obligations     |   |   | 4.0 |   |   | - |   |   | 25.8 |   |   | - |   |   | 29.8 |   |
|      Accrued                  expenses             |   |   | 81.9 |   |   | 73.4 |   |   | 56.8 |   |   | - |   |   | 212.1 |   |
|      Total                  current liabilities    |   |   | 183.5 |   |   | 174.2 |   |   | 248.2 |   |   | (130.2 | ) |   | 475.7 |   |
| Long-term                  debt                                             |   |   | 1,200.6 |   |   | 0.2 |   |   | 9.5 |   |   | - |   |   | 1,210.3 |   |
| Deferred                  income taxes                                      |   |   | - |   |   | - |   |   | 77.2 |   |   | - |   |   | 77.2 |   |
| Pension                  liability                                          |   |   | 176.8 |   |   | 0.6 |   |   | 64.0 |   |   | - |   |   | 241.4 |   |
| Other                  postretirement benefits                              |   |   | 78.3 |   |   | 2.2 |   |   | - |   |   | - |   |   | 80.5 |   |
| Deferred                  credits and other liabilities                     |   |   | 247.2 |   |   | 40.4 |   |   | 22.3 |   |   | - |   |   | 309.9 |   |
| Asbestos-related                  liabilities                               |   |   | 213.4 |   |   | - |   |   | - |   |   | - |   |   | 213.4 |   |
| Intercompany                  notes payable (receivable)                    |   |   | 1,350.3 |   |   | (1,181.9 | ) |   | (168.4 | ) |   | - |   |   | - |   |
| Total                  stockholders' equity                                 |   |   | 111.9 |   |   | 1,311.0 |   |   | 1,118.6 |   |   | (2,429.6 | ) |   | 111.9 |   |
| Total                  liabilities and stockholders' equity                 |   | $ | 3,562.0 |   | $ | 346.7 |   | $ | 1,371.4 |   | $ | (2,559.8 | ) | $ | 2,720.3 |   |

----

**Hercules              Incorporated**

**Notes              to Consolidated Financial Statements**

| Condensed                  Consolidating Statement of Cash Flows                                                           |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|
| Year                  Ended December 31, 2005                                                                              |   |   |   |
| *(Dollars                  in millions)*                                                                                   |   | 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 | ) |
|    Proceeds                  of investment and fixed asset      disposals     |   |   | 13.3 |   |   | - |   |   | 3.3 |   |   | - |   |   | 16.6 |   |
|    Other,                  net                                                                              |   |   | - |   |   | - |   |   | (6.8 | ) |   | - |   |   | (6.8 | ) |
|    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                                                         |   |   | 84.8 |   |   | (2.3 | ) |   | 156.6 |   |   | (239.1 | ) |   | - |   |
|    Treasury                  stock issued                                                                   |   |   | 2.7 |   |   | - |   |   | - |   |   | - |   |   | 2.7 |   |
|    Dividends                  paid                                                                          |   |   | - |   |   | - |   |   | (43.2 | ) |   | 43.2 |   |   | - |   |
|    Other                                                                                                    |   |   | (0.4 | ) |   | - |   |   | - |   |   | - |   |   | (0.4 | ) |
|    Net                  cash used in financing activities                                                   |   |   | (25.7 | ) |   | (2.3 | ) |   | 96.9 |   |   | (195.9 | ) |   | (127.0 | ) |
| Effect                  of exchange rate changes on cash                                                                   |   |   | - |   |   | - |   |   | (3.7 | ) |   | - |   |   | (3.7 | ) |
|    Net                  (decrease) increase in cash and cash      equivalents |   |   | (33.7 | ) |   | 0.1 |   |   | (15.6 | ) |   | - |   |   | (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                                                |   | $ | 9.1 |   | $ | 1.0 |   | $ | 67.2 |   | $ | - |   | $ | 77.3 |   |

----

**Hercules              Incorporated**

**Notes              to Consolidated Financial Statements**

| Condensed                  Consolidating Statement of Cash Flows                         |   |
|------------------------------------------------------------------------------------------|--------|
| Year                  Ended December 31, 2004                                            |   |   |   |
| *(Dollars                  in millions)*                                                 |   | 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 investment and fixed asset          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|          disposals                          |   |   | 0.8 |   |   | - |   |   | 0.6 |   |   | - |   |   | 1.4 |   |
|     Proceeds                  from sale of minority interests 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 |   |
|     Payment                  of debt issuance costs and              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|          underwriting                  fees |   |   | (7.8 | ) |   | - |   |   | - |   |   | - |   |   | (7.8 | ) |
|     Change                  in intercompany advances                 |   |   | (68.4 | ) |   | (25.2 | ) |   | (262.2 | ) |   | 355.8 |   |   | - |   |
|     Treasury                  stock issued                           |   |   | 5.5 |   |   | - |   |   | - |   |   | - |   |   | 5.5 |   |
|     Dividends                  paid                                  |   |   | - |   |   | - |   |   | (210.2 | ) |   | 210.2 |   |   | - |   |
|     Other                                                            |   |   | 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**

| Condensed                  Consolidating Statement of Cash Flows                                                                                      |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Year                  Ended December 31, 2003                                                                                                         |   |   |   |
| *(Dollars                  in millions)*                                                                                                              |   | Unconsolidated |   |   |   |   |   |
|                                                                                                                                                  |   |   Parent |   |  GuarantorSubsidiaries |   | Non-GuarantorSubsidiaries |   | EliminationsandAdjustments |   |   Consolidated |   |
| **Net                  Cash Provided By Operating Activities**                                                                                        |   | $ | 11.8 |   | $ | 53.3 |   | $ | 130.3 |   | $ | (172.6 | ) | $ | 22.8 |   |
| **Cash                  Flow From Investing Activities:**                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Capital                  expenditures                                                                                   |   |   | (13.5 | ) |   | (12.9 | ) |   | (21.6 | ) |   | - |   |   | (48.0 | ) |
|      Proceeds                  of investment and fixed asset          disposals |   |   | 4.3 |   |   | 0.7 |   |   | 5.4 |   |   | - |   |   | 10.4 |   |
|      Decrease                  in restricted cash                                                                            |   |   | 125.0 |   |   | - |   |   | - |   |   | - |   |   | 125.0 |   |
|      Acquisitions,                  net of cash acquired                                                                     |   |   | - |   |   | - |   |   | (8.9 | ) |   | - |   |   | (8.9 | ) |
|      Investment                  in CRESTS Units preferred securities                                                        |   |   | (27.4 | ) |   | - |   |   | - |   |   | - |   |   | (27.4 | ) |
|      Other,                  net                                                                                             |   |   | (0.7 | ) |   | 0.9 |   |   | (1.6 | ) |   | - |   |   | (1.4 | ) |
|      Net                  cash provided by (used in) investing                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|          activities                                                                                      |   |   | 87.7 |   |   | (11.3 | ) |   | (26.7 | ) |   | - |   |   | 49.7 |   |
| **Cash                  Flow From Financing Activities:**                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Long-term                  debt repayments                                                                              |   |   | (151.2 | ) |   | - |   |   | (14.0 | ) |   | - |   |   | (165.2 | ) |
|      Change                  in short-term debt                                                                              |   |   | - |   |   | - |   |   | (0.7 | ) |   | - |   |   | (0.7 | ) |
|      Change                  in intercompany, non-current                                                                    |   |   | (65.1 | ) |   | (46.9 | ) |   | (105.4 | ) |   | 217.4 |   |   | - |   |
|      Repurchase                  of CRESTS Units warrants                                                                    |   |   | (7.0 | ) |   | - |   |   | - |   |   | - |   |   | (7.0 | ) |
|      Treasury                  stock issued                                                                                  |   |   | 1.9 |   |   | - |   |   | - |   |   | - |   |   | 1.9 |   |
|      Dividends                  paid                                                                                         |   |   | - |   |   | - |   |   | 44.8 |   |   | (44.8 | ) |   | - |   |
|      Net                  cash used in financing activities                                                                  |   |   | (221.4 | ) |   | (46.9 | ) |   | (75.3 | ) |   | 172.6 |   |   | (171.0 | ) |
| Effect                  of exchange rate changes on cash                                                                                              |   |   | - |   |   | - |   |   | 15.8 |   |   | - |   |   | 15.8 |   |
| Net                  (decrease) increase in cash and cash equivalents                                                                                 |   |   | (121.9 | ) |   | (4.9 | ) |   | 44.1 |   |   | - |   |   | (82.7 | ) |
| Cash                  and cash equivalents at beginning of year                                                                                       |   |   | 131.0 |   |   | 7.0 |   |   | 71.0 |   |   | - |   |   | 209.0 |   |
| Cash                  and cash equivalents at end of year                                                                                             |   | $ | 9.1 |   | $ | 2.1 |   | $ | 115.1 |   | $ | - |   | $ | 126.3 |   |
|                                                                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

**Hercules              Incorporated**

**Notes              to Consolidated Financial Statements**

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

|                                                                                                                                               |   | *(Dollars                  in millions except per share amounts)* |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|
|                                                                                                                                               |   | 1st                  Quarter                                      |   | 2nd                  Quarter |   | 3rd                  Quarter |   | 4th                  Quarter |   | Year |   |
|                                                                                                                                               |   | 2005                                                              |   | 2004 |   | 2005 |   | 2004 |   | 2005 |   | 2004 |   | 2005 |   | 2004 |   | 2005 |   | 2004 |   |
| Net                  sales                                                                                                                         |   | $                                                                 | 505.1  |   | $ | 474.9 |   | $ | 538.6 |   | $ | 510.5 |   | $ | 522.9 |   | $ | 500.5 |   | $ | 502.2 |   | $ | 510.8 |   | $ | 2,068.8 |   | $ | 1,996.7 |   |
| Cost                  of sales                                                                                                                     |   |                                                              | 341.5  |   |   | 305.1 |   |   | 355.3 |   |   | 325.5 |   |   | 357.5 |   |   | 327.0 |   |   | 352.0 |   |   | 350.0 |   |   | 1,406.3 |   |   | 1,307.6 |   |
| Selling,                  general and administrative expenses                                                                                      |   |                                                              | 99.8   |   |   | 97.9 |   |   | 99.9 |   |   | 97.9 |   |   | 92.8 |   |   | 94.7 |   |   | 90.3 |   |   | 91.9 |   |   | 382.8 |   |   | 382.4 |   |
| Research                  and development                                                                                                          |   |                                                              | 10.4   |   |   | 10.5 |   |   | 10.0 |   |   | 11.7 |   |   | 10.1 |   |   | 10.4 |   |   | 10.4 |   |   | 10.2 |   |   | 40.9 |   |   | 42.8 |   |
| Goodwill                  and intangible asset amortization                                                                                        |   |                                                              | 2.0    |   |   | 1.9 |   |   | 2.0 |   |   | 2.1 |   |   | 2.0 |   |   | 2.0 |   |   | 2.0 |   |   | 2.1 |   |   | 8.0 |   |   | 8.1 |   |
| Impairment                  if FiberVisions goodwill                                                                                               |   |                                                              | -      |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 52.9 |   |   | - |   |   | 52.9 |   |   | - |   |
| Other                  operating expense, net                                                                                                      |   |                                                              | 10.0   |   |   | 12.9 |   |   | 10.4 |   |   | 8.7 |   |   | 11.1 |   |   | 1.4 |   |   | 16.0 |   |   | 3.9 |   |   | 47.5 |   |   | 26.9 |   |
| Profit                  (loss) from operations                                                                                                     |   |                                                              | 41.4   |   |   | 46.6 |   |   | 61.0 |   |   | 64.6 |   |   | 49.4 |   |   | 65.0 |   |   | (21.4 | ) |   | 52.7 |   |   | 130.4 |   |   | 228.9 |   |
|                                                                                                                                               |   |                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |  |   |   |   |   |   |   |   |
| Interest                  and debt expense                                                                                                         |   |                                                              | 22.2   |   |   | 30.4 |   |   | 22.8 |   |   | 29.4 |   |   | 22.5 |   |   | 25.1 |   |   | 21.9 |   |   | 23.8 |   |   | 89.4 |   |   | 108.7 |   |
| Gain                  on sale of CP Kelco ApS                                                                                                      |   |                                                              | -      |   |   | (26.0 | ) |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (1.0 | ) |   | - |   |   | (27.0 | ) |
| Other                  expense, net                                                                                                                |   |                                                              | 21.1   |   |   | 17.4 |   |   | 25.8 |   |   | 26.4 |   |   | 0.2 |   |   | 49.8 |   |   | 39.2 |   |   | 23.1 |   |   | 86.3 |   |   | 116.7 |   |
| (Loss)                  income before income taxes                                                                                                 |   |                                                              | (1.9   | ) |   | 24.8 |   |   | 12.4 |   |   | 8.8 |   |   | 26.7 |   |   | (9.9 | ) |   | (82.5 | ) |   | 6.8 |   |   | (45.3 | ) |   | 30.5 |   |
|                                                                                                                                               |   |                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |  |   |   |   |   |   |   |   |
| (Benefit)                  provision for income taxes                                                                                              |   |                                                              | (6.9   | ) |   | (1.7 | ) |   | 3.0 |   |   | 4.8 |   |   | 2.6 |   |   | 41.2 |   |   | (5.9 | ) |   | (41.9 | ) |   | (7.2 | ) |   | 2.4 |   |
| (Loss)                  income before equity income (loss)                                                                                         |   |                                                              | 5.0    |   |   | 26.5 |   |   | 9.4 |   |   | 4.0 |   |   | 24.1 |   |   | (51.1 | ) |   | (76.6 | ) |   | 48.7 |   |   | (38.1 | ) |   | 28.1 |   |
|                                                                                                                                               |   |                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Equity                  (loss) of affiliated companies, net of tax                                                                                 |   |                                                              | (0.1   | ) |   | (0.2 | ) |   | (0.2 | ) |   | 0.1 |   |   | (0.1 | ) |   | (0.2 | ) |   | (0.1 | ) |   | 0.3 |   |   | (0.5 | ) |   | - |   |
| Net                  (loss) income before cumulative effect of changes in accounting                  principle                                    |   |                                                              | 4.9    |   |   | 26.3 |   |   | 9.2 |   |   | 4.1 |   |   | 24.0 |   |   | (51.3 | ) |   | (76.7 | ) |   | 49.0 |   |   | (38.6 | ) |   | 28.1 |   |
|                                                                                                                                               |   |                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cumulative                  effect of changes in accounting        principle                               |   |                                                              | -      |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (2.5 | ) |   | - |   |   | (2.5 | ) |   | - |   |
|                                                                                                                                               |   |                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  (loss) income                                                                                                                 |   | $                                                                 | 4.9    |   | $ | 26.3 |   | $ | 9.2 |   | $ | 4.1 |   | $ | 24.0 |   | $ | (51.3 | ) | $ | (79.2 | ) | $ | 49.0 |   | $ | (41.1 | ) | $ | 28.1 |   |
| (Loss)                  earnings per share                                                                                                    |   |                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                  (loss) earnings per share:                                                                                                  |   |                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Continuing                  operations                                                                               |   | $                                                                 | 0.05   |   | $ | 0.25 |   | $ | 0.08 |   | $ | 0.04 |   | $ | 0.22 |   | $ | (0.47 | ) | $ | (0.71 | ) | $ | 0.45 |   | $ | (0.36 | ) | $ | 0.26 |   |
|      Cumulative                  effect of changes in accounting        principle |   |                                                              | -      |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (0.02 | ) |   | - |   |   | (0.02 | ) |   | - |   |
|      Net                  (loss) income                                                                                   |   | $                                                                 | 0.05   |   | $ | 0.25 |   | $ | 0.08 |   | $ | 0.04 |   | $ | 0.22 |   | $ | (0.47 | ) | $ | (0.73 | ) | $ | 0.45 |   | $ | (0.38 | ) | $ | 0.26 |   |
| Diluted                  (loss) earnings per share:                                                                                                |   |                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Continuing                  operations                                                                               |   | $                                                                 | 0.04   |   | $ | 0.24 |   | $ | 0.08 |   | $ | 0.04 |   | $ | 0.22 |   | $ | (0.47 | ) | $ | (0.71 | ) | $ | 0.45 |   | $ | (0.36 | ) | $ | 0.26 |   |
|      Cumulative                  effect of changes in accounting        principle |   |                                                              | -      |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (0.02 | ) |   | - |   |   | (0.02 | ) |   | - |   |
|      Net                  (loss) income                                                                                   |   | $                                                                 | 0.04   |   | $ | 0.24 |   | $ | 0.08 |   | $ | 0.04 |   | $ | 0.22 |   | $ | (0.47 | ) | $ | (0.73 | ) | $ | 0.45 |   | $ | (0.38 | ) | $ | 0.26 |   |

----

**Hercules              Incorporated**

**Notes              to Consolidated Financial Statements**

**ITEM        9.            CHANGES        IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING**

**                           AND        FINANCIAL DISCLOSURE**

*Internal        Control - Integrated Framework*
*Internal        Control - Integrated Framework*

----

**ITEM        9A.         CONTROLS AND        PROCEDURES**

**ITEM        9B.         OTHER        INFORMATION**

----

**PART        III**

**ITEM        10.            DIRECTORS        AND EXECUTIVE OFFICERS OF THE REGISTRANT**

**BOARD        OF DIRECTORS**

Information        regarding directors and nominees for directors of Hercules will be included        in        the Company's Proxy Statement and is incorporated herein by        reference.

**EXECUTIVE        OFFICERS OF THE REGISTRANT**

| **Name  **                  | **  ** | **Age ** | **    ** | **Current                  Position    **                |
|---------------------------------------|------------------|---------------|------------------------------|------------------------------------------------------------------------------|
| Craig                  A. Rogerson    |             | 49            |                         | President,                  Chief Executive Officer and Director             |
| Fred                  G. Aanonsen     |             | 58            |                         | Vice                  President and Controller                               |
| Edward                  V. Carrington |             | 63            |                         | Vice                  President, Human Resources                             |
| Richard                  G. Dahlen    |             | 66            |                         | Chief                  Legal Officer                                         |
| Israel                  J. Floyd      |             | 59            |                         | Corporate                  Secretary and General Counsel                     |
| Vincenzo                  M. Romano   |             | 52            |                         | Vice                  President, Taxes                                       |
| Stuart                  C. Shears     |             | 55            |                         | Vice                  President and Treasurer                                |
| Allen                  A. Spizzo      |             | 48            |                         | Vice                  President and Chief Financial                  Officer |

*Craig        A. Rogerson*

*Fred        G. Aanonsen*

*Edward        V. Carrington*

*Richard        G. Dahlen*

*Israel        J. Floyd*

*Vincenzo        M. Romano *
* *

*Stuart        C. Shears*

*Allen        A. Spizzo*

----

**ITEM        11.            EXECUTIVE        COMPENSATION**

Information        regarding compensation of Hercules' directors and executive officers will        be        included in the Company's Proxy Statement and is incorporated herein by        reference.

**ITEM        12.            SECURITY        OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND     MANAGEMENT**

| Plan                  category                                                                                                                            |   | Number                  of securities tobe                  issued uponexercise                  of outstandingoptions,                  warrantsand                  rights |      |   |   | Weighted-average                  exercise                  price ofoutstanding                  options,warrants                  and rights |   | Number                  of securitiesremaining                  availablefor                  future issuanceunder                  equitycompensation                  plans(excluding                  securitiesreflected                  incolumn                  (a)) |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                      |   | (a)                                                                                                                                                                          |      |   |   | (b)                                                                                                                                           |   | (c)                                                                                                                                                                                                                                                                          |   |
| Equity                  compensation plans approved by security holders                                                                                   |   |                                                                                                                                                                         | 9,724,127 |   |   | (1)                  (2)                                                                                                                      |   | $                                                                                                                                                                                                                                                                            | 24.08  |   |   | 7,726,070 |   |
|                                                                                                                                                      |   |                                                                                                                                                                         |      |   |   |                                                                                                                                          |   |                                                                                                                                                                                                                                                                         |   |   |   |   |   |
| Equity                  compensation plans not approved by security holders (3)                                                                           |   |                                                                                                                                                                         | -         |   |   |                                                                                                                                          |   |                                                                                                                                                                                                                                                                         | -      |   |   | - |   |
| Total                                                                                                                                                     |   |                                                                                                                                                                         | 9,724,127 |   |   |                                                                                                                                          |   | $                                                                                                                                                                                                                                                                            | 24.08  |   |   | 7,726,070 |   |
|                                                                                                                                                      |
| (1)                  Includes 4,253,080 options with exercise prices in excess of the                  weighted                  average price of $24.08. |
| (2)                  Includes options to purchase 1,561,544 shares that were not vested                  at                  December 31, 2005.           |
| (3)                  There are no equity compensation plans that have not been approved                  by the                  Company's shareholders.  |

**ITEM        13.            CERTAIN        RELATIONSHIPS AND RELATED TRANSACTIONS**

**ITEM        14.            PRINCIPAL        ACCOUNTANT FEES AND SERVICES**

----

**PART        IV**

**ITEM        15**
**.            EXHIBITS        AND FINANCIAL STATEMENT SCHEDULES**

|                                                                                                                                                                  |  Page |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Management's                  Report on Internal Control over Financial Reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 34         |
| Report                  of Independent Registered Public Accounting Firm                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | 35         |
| Consolidated                  Statements of Operations and Comprehensive (Loss) Income for the                  Years                  Ended    December 31, 2005, 2004 and                  2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 38         |
| Consolidated                  Balance Sheets as of December 31, 2005 and 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  39   |
| Consolidated                  Statements of Cash Flows for the Years Ended December 31, 2005, 2004                  and 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  40   |
| Consolidated                  Statements of Stockholders' Equity (Deficit) for the Years Ended                  December 31,    2005, 2004 and 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  42   |
| Summary                  of Significant Accounting Policies and Notes to Consolidated Financial                  Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  43   |

**                Schedule        II - **
**Valuation        and Qualifying****Accounts**

| *                                                                        (Dollars                  in millions)* |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | Balance                  at |   | Charged                  to |   | Charged                  to |   |   |   | Balance                  at |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | beginning |   | costs                  and |   | other |   |   |   | end |   |
| Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | of                  period |   | expenses |   | accounts |   | Deductions |   | of                  period |   |
|  **Year                  2005**                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| Tax                  valuation allowance                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | $ | 391.8 |   | $ | 23.1 |   | $ | (34.2 | ) | $ | - |   | $ | 380.7 |   |
|  **Year                  2004**                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tax                  valuation allowance                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | $ | 399.8 |   | $ | (22.9 | ) | $ | 14.9 |   | $ | - |   | $ | 391.8 |   |
|  **Year                  2003**                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |  |   |
| Tax                  valuation allowance                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | $ | 373.0 |   | $ | (2.9 | ) | $ | 29.7 |   | $ | - |   | $ | 399.8 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

**Signatures**

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

| **Principal                  Executive Officer and Director:**                                                     |                                                        |
|--------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------|
|                     | President                  and Chief Executive Officer      | /s/                  Craig A. Rogerson |
|                                                                                                               |                                                        | Craig                  A. Rogerson |
| **Principal                  Financial Officer:**                                                                  |                                                        |
|                                                                                                               | Vice                  President and Chief Financial Officer | /s/                  Allen A. Spizzo |
|                                                                                                               |                                                        | Allen                  A. Spizzo |
| **Principal                  Accounting Officer:**                                                                 |                                                        |
|                                                                                                               | Vice                  President and Controller              | /s/                  Fred G. Aanonsen |
|                                                                                                               |                                                        | Fred                  G. Aanonsen |
|                                                                                                               |                                                        |
| **Directors:**                                                                                                     |                                                        |
| /s/                  John K. Wulff                                                                                 |                                                        | /s/                  Burton M. Joyce |
| John                  K. Wulff, Chairman of the Board                                                              |                                                        | Burton                  M. Joyce |
|                                                                                                               |                                                        |   |
| /s/                  Anna Cheng Catalano                                                                           |                                                        | /s/                  Robert D. Kennedy |
| Anna                  Cheng Catalano                                                                               |                                                        | Robert                  D. Kennedy |
|                                                                                                               |                                                        |   |
| /s/                  Patrick Duff                                                                                  |                                                        | /s/                  Jeffrey M. Lipton |
| Patrick                  Duff                                                                                      |                                                        | Jeffrey                  M. Lipton |
|                                                                                                               |                                                        |   |
| /s/                  Thomas P. Gerrity                                                                             |                                                        | /s/                  Joe B. Wyatt |
| Thomas                  P. Gerrity                                                                                 |                                                        | Joe                  B. Wyatt |
| /s/                  John C. Hunter, III                                                                           |                                                        |   |
| John                  C. Hunter, III                                                                               |                                                        |   |

----

**EXHIBIT        INDEX**

| **Number** | **Description**                                                                                                                                                                                                                                                                                                                                             |   | **Incorporated                  by Reference to**                                                                                                          |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1        | Agreement                  and Plan of Merger among Hercules, Water Acquisition Company and                  BetzDearborn Inc., dated July 30, 1998                                                                                                                                                                                                    |   | Exhibit                  2.1, BetzDearborn Inc. Current Report on Form 8-K, filed July 30,                  1998                                           |
| 3.1        | Restated                  Certificate of Incorporation of Hercules, as revised and amended                  July 6,                  1988                                                                                                                                                                                                                   |   | Exhibit                  3-A, Annual Report on Form 10-K filed March 26, 1993                                                                              |
| 3.2        | Certificate                  of Amendment dated October 24, 1995, to Hercules' Restated Certificate                  of                  Incorporation as revised and amended July 5, 1998                                                                                                                                                                  |   | Exhibit                  4.1a, Registration Statement on Form S-3, filed September 15, 1998                                                                |
| 3.3        | By-Laws                  of Hercules, as revised and amended as of July 15,                  2003                                                                                                                                                                                                                                                      |   | Exhibit                  3.1, Quarterly Report on Form 10-Q filed August 7, 2003                                                                           |
| 4.1        | Officers'                  Certificate, dated as of July 27, 1999,                  pursuant to the Junior Subordinated Debentures Indenture between                  Hercules                  and Chase, dated as of November 12, 1998                                                                                                               |   | Exhibit                  4.1, Current Report on Form 8-K, dated July 27, 1999                                                                              |
| 4.2        | Unit                  Agreement, dated July 27, 1999,                  among Hercules, Hercules Trust II and The Chase Manhattan Bank,                  as unit                  agent                                                                                                                                                                      |   | Exhibit                  4.3, Current Report on Form 8-K, dated July 27, 1999                                                                              |
| 4.3        | Warrant                  Agreement, dated July 27, 1999,                  between Hercules and The Chase Manhattan Bank, as warrant                  agent                                                                                                                                                                                                  |   | Exhibit                  4.4, Current Report on Form 8-K, dated July 27, 1999                                                                              |
| 4.4        | Form                  of Series A Junior Subordinated Deferrable Interest                  Debentures                                                                                                                                                                                                                                                       |   | Exhibit                  4.5, Current Report on Form 8-K, dated July 27, 1999                                                                              |
| 4.5        | Form                  of CRESTS Unit                                                                                                                                                                                                                                                                                                                        |   | Exhibit                  4.7, Current Report on Form 8-K, dated July 27, 1999                                                                              |
| 4.6        | Form                  of Warrant                                                                                                                                                                                                                                                                                                                            |   | Exhibit                  4.8, Current Report on Form 8-K, dated July 27, 1999                                                                              |
| 4.7        | Rights                  Agreement, dated as of August 24, 2000, between Hercules Incorporated                  and                  Chase Mellon Shareholder Services, L.L.C.                                                                                                                                                                               |   | Exhibit                  4.1 to Hercules Registration of Certain Classes of Securities on                  Form 8-A                  filed August 10, 2000 |
| 4.8        | Indenture,                  dated as of November 14, 2000, between Hercules Incorporated, as                  issuer                  and Wells Fargo Bank Minnesota, N.A., as trustee (including the                  form of                  11.125% senior notes due 2007 included as Exhibit A                  thereto).                              |   | Exhibit                  4-A, Quarterly Report on Form 10-Q, filed November 14,                  2000                                                      |
| 4.9        | Registration                  Rights Agreement, dated as of November 14, 2000, among Hercules                  Incorporated and all of its domestic subsidiaries and Donaldson,                  Lufkin                  & Jenrette Securities Corporation and Credit Suisse First Boston                  Corporation, as the initial purchasers. |   | Exhibit                  4-B Quarterly Report on Form 10-Q, filed November 14,                  2000                                                       |
| 4.10       | Amendment                  No. 1 to the Hercules Incorporated Rights Agreement, dated as of                  June 5,                  2003                                                                                                                                                                                                                  |   | Exhibit                  4.2, Registration Statement on Form 8-A, filed June 5,                  2003                                                      |
| 4.11       | Amendment                  No. 2 to the Hercules Incorporated Rights Agreement, dated as of                  August                  21, 2003                                                                                                                                                                                                               |   | Exhibit                  4.1, Current Report on Form 8-K, filed September 22,                  2003                                                        |
| 4.12       | Indenture,                  dated as of April 8, 2004, between Hercules Incorporated and each                  of the                  Guarantors party thereto and Wells Fargo Bank, National                  Association                                                                                                                                 |   | Exhibit                  4.1, Quarterly Report on Form 10-Q filed May 10,                  2004                                                            |

----

| 4.13  | Registration                  Rights Agreement, dated April 8, 2004, between Hercules Incorporated                  and                  the Guarantors listed on Schedule A thereto and Credit Suisse First                  Boston                  LLC, Wachovia Capital Markets, LLC, Scotia Capital (USA) Inc. and                  Deutsche                  Bank Securities Inc. |   | Exhibit                  4.2, Quarterly Report on Form 10-Q, filed May 10, 2004                           |
|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------|
| 10.1  | Hercules                  Executive Survivor Benefit Plan                                                                                                                                                                                                                                                                                                                               |   | Exhibit                  10-D, Annual Report on Form 10-K, filed March 27, 1981                           |
| 10.2  | Hercules                  1993 Non-Employee Director Stock Accumulation and Deferred Compensation                  Plan                                                                                                                                                                                                                                                                 |   | Exhibit                  4.1, Registration Statement on Form S-8, filed July 16,                  1993    |
| 10.3  | Hercules                  Employee Pension Restoration Plan                                                                                                                                                                                                                                                                                                                             |   | Exhibit                  10-L, Annual Report on Form 10-K, filed March 26, 1993                           |
| 10.4  | Hercules                  Amended and Restated Long Term Incentive Compensation Plan                                                                                                                                                                                                                                                                                                    |   | Exhibit                  10-K, Annual Report on Form 10-K, filed March 29, 2000                           |
| 10.5  | CRESTS                  Units Underwriting Agreement, dated July 21, 1999,                  among Hercules, Hercules Trust II and the Underwriters named                  therein                                                                                                                                                                                                       |   | Exhibit                  1.1, Current Report on Form 8-K, dated July 27, 1999                             |
| 10.6  | Common                  Stock Underwriting Agreement, dated July 21, 1999,                  among Hercules and the Underwriters named therein                                                                                                                                                                                                                                           |   | Exhibit                  1.2, Current Report on Form 8-K, dated July 27, 1999                             |
| 10.7  | Form                  of Change-of-Control Employment Agreements entered into as of August                  24,                  2000 by Hercules Incorporated and each of Robert C. Flexon and                  Craig A.                  Rogerson                                                                                                                                     |   | Exhibit                  10-19, Registration Statement S-4, filed August 9, 2001                          |
| 10.8  | Form                  of Change-of-Control Employment Agreements entered into as of June                  15,                  2001 by Hercules Incorporated and Richard G. Dahlen                                                                                                                                                                                                      |   | Exhibit                  10-25, Registration Statement S-4, filed August 9, 2001                          |
| 10.9  | Change-of-Control                  Employment Agreement, dated as of July 2, 2001, by and between                  Hercules                  Incorporated and Fred G. Aanonsen                                                                                                                                                                                                          |   | Exhibit                  10-28, Registration Statement on Form S-4, filed August 9,                  2001 |
| 10.10 | Stock                  and Asset Purchase Agreement, dated as of February 12, 2002, by                  and among                  Hercules Incorporated, General Electric Company and Falcon Acquisition                  Corp.                                                                                                                                                        |   | Exhibit                  10.1, Current Report on Form 8-K,dated                  February 12, 2002        |
| 10.11 | Amendment                  2002-1 to Amended and Restated Long Term Incentive Compensation                  Plan                                                                                                                                                                                                                                                                        |   | Exhibit                  I, Proxy Statement, dated May 15, 2002                                           |
| 10.12 | Amendment                  2002-1 to Non-Employee Director Stock Accumulation Plan                                                                                                                                                                                                                                                                                                      |   | Exhibit                  II, Proxy Statement, dated May 15, 2002                                          |
| 10.13 | Hercules                  Incorporated Compensation Benefits Grantor Trust Agreement for                  Management                  Employees                                                                                                                                                                                                                                         |   | Exhibit                  10-Ee, Annual Report on Form 10-K/A, filed May 1, 2003                           |
| 10.14 | Hercules                  Incorporated Compensation Benefits Grantor Trust Agreement for                  Non-Employee Directors                                                                                                                                                                                                                                                        |   | Exhibit                  10-Ff, Annual Report on Form 10-K/A, filed May 1, 2003                           |
| 10.15 | Amended                  and Restated Hercules Incorporated Management Incentive Compensation                  Plan,                  dated February 21, 2003                                                                                                                                                                                                                           |   | Exhibit                  10-Gg Annual Report on Form 10-K/A, filed May 1, 2003                            |
| 10.16 | Hercules                  Deferred Compensation Plan, restated December 1995                                                                                                                                                                                                                                                                                                            |   | Exhibit                  10-B, Quarterly Report on Form 10-Q, filed May 15,                  2003         |

----

| 10.17       | Employment                  Offer Letter - Fred G. Aanonsen, dated June 27, 2001                                                                                                                                                                                                                                                                                                                       |   | Exhibit                  10-C, Quarterly Report on Form 10-Q, filed May 15, 2003                             |
|-------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------|
| 10.18       | Hercules                  Executive Survivor Benefit Plan II dated January 1, 1987 - benefit                  structure is only applicable to one executive officer                                                                                                                                                                                                                                         |   | Exhibit                  10-E, Quarterly Report on Form 10-Q, filed May 15, 2003                             |
| 10.19       | First                  Amendment to Credit Agreement, dated December 17, 2003, among                  Hercules Incorporated, certain subsidiaries of Hercules several                  banks and                  other financial institutions identified in the agreement and Credit                  Suisse                  First Boston, as administrative agent                                   |   | Exhibit                  10-Mm, Annual Report on Form 10-K, filed March 15, 2004                             |
|  10.20 |  Omnibus                  Equity Compensation Plan for Non-Employee Directors                                                                                                                                                                                                                                                                                                                          |   |  Appendix                  II, Proxy Statement dated June 20, 2003                            |
|  10.21 |  Amended                  and Restated Credit Agreement, dated as of April 8, 2004, between                  Hercules                  Incorporated and the Guarantors listed on Schedule A thereto and                  Credit                  Suisse First Boston LLC, Wachovia Capital Markets, LLC, Scotia                  Capital                  (USA) Inc. and Deutsche Bank Securities Inc. |   |  Exhibit                  10.1, Quarterly Report on Form 10-Q, filed May 10, 2004                       |
|  10.22 |  First                  Amendment to Amended and Restated Credit Agreement dated as of                  August 12,                  2004, among Hercules Incorporated and the Guarantors listed on                  Schedule A                  thereto and Credit Suisse First Boston LLC and Wachovia Bank, National                  Association                                                    |   |  Exhibit                  10.1, Quarterly Report on Form 10-Q, filed November 15,                  2004 |
|  10.23 |  Employment                  Agreement between Hercules Incorporated and Israel J. Floyd, dated                  August                  24, 2000                                                                                                                                                                                                                                                      |   |  Exhibit                  10.27, Annual Report on Form 10-K, filed March 16, 2005                       |
|  10.24 |  First                  Amendment to the Employment Agreement between Hercules Incorporated                  and                  Israel J. Floyd, dated August 24, 2000                                                                                                                                                                                                                               |   |  Exhibit                  10.28, Annual Report on Form 10-K, filed March 16, 2005                       |
|  10.25 |  Employment                  Agreement between Hercules Incorporated and Allen A. Spizzo, dated                  August                  24, 2000                                                                                                                                                                                                                                                      |   |  Exhibit                  10.29, Annual Report on Form 10-K, filed March 16, 2005                       |
|  10.26 |  First                  Amendment to the Employment Agreement between Hercules Incorporated                  and                  Allen A. Spizzo, dated August 24, 2000                                                                                                                                                                                                                               |   |  Exhibit                  10.30, Annual Report on Form 10-K, filed March 16, 2005                       |
|  10.27 |  First                  Amendment to the Employment Agreement between Hercules Incorporated                  and                  Craig A. Rogerson, dated August 24, 2000                                                                                                                                                                                                                             |   |  Exhibit                  10.31, Annual Report on Form 10-K, filed March 16, 2005                       |
|  10.28 |  Pension                  Service Credit Agreement between Hercules Incorporated Compensation                  Committee of the Hercules Board of Directors and John Televantos,                  dated                  September 1, 2004                                                                                                                                                             |   |  Exhibit                  10.33, Annual Report on From 10-K, filed March 16, 2005                       |
|  10.29 |  Employment                  Offer Letter - Paul C. Raymond III, dated December 28,                  2004                                                                                                                                                                                                                                                                                              |   |  Exhibit                  10.34, Annual Report on Form 10-K, filed March 16, 2005                       |
|  10.30 |  Special                  Pension Agreement between Hercules Incorporated and William H.                  Joyce,                  approved August 21, 2003                                                                                                                                                                                                                                             |   |  Exhibit                  10.35, Annual Report on Form 10-K, filed March 16, 2005                       |
|  10.31 |  General                  Terms of Employment between Hercules Incorporated and Certain Executive                  Officers                                                                                                                                                                                                                                                                            |   |  Exhibit                  10.36, Annual Report on Form 10-K, filed March 16,                  2005      |

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|  10.32                      |  Employment                  Offer Letter - John E. Panichella, dated December 15, 2005                                                                                                                                |   |  Exhibit                  10.1, Current Report on Form 8-K/A, dated December 15,                  2005 |
|----------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------|
|  10.33                  *   |  Contribution                  Agreement between Hercules Incorporated, WSP, Inc., SPG/FV Investor                  LLC                  and Fibervisions Delaware Corporation dated January 31,                  2006 |   |                                                                                                        |
|  14                         |  Directors                  Code of Business Conduct and Ethics                                                                                                                                                        |   |  Appendix                  VII, Proxy Statement dated June 20, 2003                               |
| 18                               | Letter                  Regarding Change in Accounting Principle                                                                                                                                                            |   | Exhibit                  18, Annual Report on Form 10-K, filed March 15, 2004                               |
| 18.1*                            | Letter                  Regarding Change in Accounting Principle                                                                                                                                                            |   |                                                                                                        |
| 21.1*                            | Subsidiaries                  of Registrant                                                                                                                                                                                 |   |                                                                                                        |
| 23.1*                            | Consent                  of BDO Seidman, LLP                                                                                                                                                                                |   |                                                                                                        |
| 23.2*                            | Consent                  of PricewaterhouseCooper, LLP                                                                                                                                                                      |   |                                                                                                        |
| 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 |                                                                                                                                                                                                                        |   |

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