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

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Table          of Contents

**HERCULES      INCORPORATED**

**FORM      10-K**

**TABLE      OF CONTENTS**

|                                                                                                                                                                         |   |  Page |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|--------|
|  PART                I                                                                                                                                                  |   |       |   |   |
|                     Forward-Looking Statements                                                                                                           |   |       | 3      |   |
|      ITEM                1. Business                                                                                                                |   |       | 3      |   |
|      ITEM                1A. Risk Factors                                                                                                           |   |       | 7      |   |
|                     ITEM 1B. Unresolved Staff                Comments                                                                                    |   |       | 9      |   |
|                     ITEM 2. Properties                                                                                                                   |   |       | 9      |   |
|                     ITEM 3. Legal Proceedings                                                                                                            |   |       | 9      |   |
|                     ITEM 4. Submission of Matters to                a Vote                of Security Holders                                            |   |       | 10     |   |
| PART                II                                                                                                                                                       |   |       |   |   |
|                     ITEM 5. Market for Hercules’ Common Stock,                Related Stockholder Matters and Issuer Purchase of Equity Securities |   |       | 10     |   |
|                     ITEM 6. Selected Financial                Data                                                                                       |   |       | 11     |   |
|                     ITEM 7. Management’s Discussion and Analysis of Financial                Condition and Results of Operations                   |   |       | 12     |   |
|                          Business Overview                                                                                      |   |       | 12     |   |
|                          Critical Accounting                Estimates                                                           |   |       | 15     |   |
|                          Results of Operations - Consolidated                Review                                             |   |       | 17     |   |
|                          Results of Operations - Segment                Review                                                  |   |       | 23     |   |
|                          Liquidity and Capital Resources                                                                        |   |       | 29     |   |
|                          Financial Condition                                                                                    |   |       | 31     |   |
|                          Commitments and Contractual                Obligations                                                 |   |       | 31     |   |
|                          Indemnifications                                                                                       |   |       | 33     |   |
|                          Off-Balance Sheet                Arrangements                                                          |   |       | 33     |   |
|          Recent                Accounting                Pronouncements                                                         |   |       | 33     |   |
|     ITEM                7A. Quantitative and Qualitative Disclosures                About Market Risk                                                    |   |       | 33     |   |
|                     ITEM 8. Financial Statements and Supplementary                Data                                                                   |   |       | 35     |   |
|                     ITEM 9. Changes in and Disagreements with                Accountants on Accounting and Financial Disclosure                          |   |       | 97     |   |
|                     ITEM 9A. Controls and                Procedures                                                                                      |   |       | 97     |   |
|                     ITEM 9B. Other Information                                                                                                           |   |       | 97     |   |
| PART                III                                                                                                                                                      |   |       |   |   |
|                     ITEM 10. Directors and Executive                Officers                of Hercules                                                  |   |       | 98     |   |
|                     ITEM 11. Executive                Compensation                                                                                       |   |       | 98     |   |
|                     ITEM 12. Security Ownership of Certain                Beneficial Owners and Management                                               |   |       | 99     |   |
|                     ITEM 13. Certain Relationships and                Related                Transactions                                                |   |       | 99     |   |
|                     ITEM 14. Principal Accountant Fees and                Services                                                                       |   |       | 99     |   |
| PART                IV                                                                                                                                                       |   |       |   |   |
|                     ITEM 15. Exhibits and Financial Statement                Schedules                                                                   |   |       | 100    |   |
| SIGNATURES                                                                                                                                                                   |   |       | 101    |   |
| EXHIBIT                INDEX                                                                                                                                                 |   |       | 102    |   |

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Table          of Contents

**PART      I**

**Forward-Looking      Statements**

Risk Factors 

**ITEM      1.            BUSINESS**

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Table          of Contents

**Reportable      Segments**

Note 27 

***Paper      Technologies and Ventures***

|  Principal                Products                                                                                                                                                                                                                           |  Primary                Markets                                                                                                                                                                                                                                                            |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *Paper                Technologies:Functional performance chemicals* Sizing                (internal and surface), strength, tissue creping and coatings                additives.                                                                      | Large,                multi-national manufacturers of tissue, paper towels, packaging,                beverage                containers, newsprint, corrugated medium, printing and writing paper                and                other stationery items such as labels and envelopes.  |
| *Paper                Technologies: Process treatment chemicals* Contaminant,                microbiological and foam control, clarification, retention, drainage,                felt                conditioning, fiber recovery, and water closure.  |
| *Ventures:                Pulping chemicals* Deposit                and scale control, foam control, deinking, and clarification.                                                                                                                       | Large,                multi-national manufacturers of pulp to ultimately produce paper.                Locations are either stand alone or integrated with paper                making.                                                                                                         |
| *Ventures:                Water treatment chemicals* Utility                systems, cooling water and water clarification.                                                                                                                             | Large,                multi-national manufacturers of pulp and/or paper with water utility                operations including boilers, cooling water and influent/effluent                water                treatment.                                                                      |
| *Ventures:                Lubricants* Ester-based                synthetic lubricants and pentaerythritol (PE).                                                                                                                                         | Producers                of aviation and refrigeration compressor fluids, automotive, and                general                industry.                                                                                                                                                       |
| *Ventures:                Building and Converted Products* Adhesives,                resin modifiers, coatings, hydrophobic and release chemistries,                crosslinkers and binders, and foam control.                                         | Producers                of building products, textiles, electronics, paints and inks, and                paper                industry converting operations.                                                                                                                                  |

***Aqualon      Group***

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Table            of Contents

| **Principal                Products**                                                                                                                                                                                                                                                                                       | **Primary                Markets**                                                                                                                                                                                                                                                                                                                                         |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *Water-soluble                polymers, ethylcellulose and rosin resins:* Hydroxyethylcellulose                (HEC), Carboxymethylcellulose (CMC), Methylcellulose (MC) and derivatives,                Hydroxypropylcellulose (HPC), Guar and its derivatives, ethylcellulose                (EC) and rosin resins.  | 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.  |

***FiberVisions***

**Raw      Materials and Energy Supply**

**Competition**

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**Patents      and Trademarks**

**Research      and Development**

**Environmental      Matters**

12
13

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**Employees**

**International      Operations**

Note      27 

**Available      Information**

**ITEM      1A.         RISK      FACTORS**

**The      Company is subject to litigation.**

Note 13 

**The      Company is subject to environmental liabilities.**

12
13

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**The      Company has significant leverage.**

Note 8 

**The      Company has unfunded liabilities with respect to certain pension and      postretirement benefit plans.**

Note 10 

**The      Company is subject to extensive competition.**

**The      Company is subject to technological change and innovation.**

**The      Company is subject to supply constraints and price volatility with respect      to      raw material and energy.**

**Some      of the Company’s customers are in cyclical industries.**

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**The      Company’s international operations are affected by global and regional      conditions.**

**Foreign      exchange rate fluctuations impact the Company’s financial      performance.**

**The      Company’s production facilities are subject to operating      hazards.**

**ITEM      1B.        UNRESOLVED STAFF      COMMENTS**

**ITEM      2.            PROPERTIES**

Note 8

**Paper      Technologies and Ventures**

|  **             ** |  Beringen,                Belgium; Burlington, Ontario, Canada; Busnago, Italy; Chicopee,                Massachusetts, U.S.; Franklin, Virginia, U.S.; Hattiesburg, Mississippi,                U.S.; Helsingborg, Sweden; Kim Cheon, Korea; Louisiana, Missouri,                U.S.;                Macon, Georgia, U.S.; Mexico City, Mexico; Milwaukee, Wisconsin,                U.S.;                Nantou, Taiwan; Paulinia, Brazil; Portland, Oregon, U.S.; Savannah,                Georgia, U.S.; Shanghai, China; Sobernheim, Germany; Tampere, Finland;                Tarragona, Spain; Voreppe, France; and Zwijndrecht, The                Netherlands. |
|------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Aqualon      Grou**
**p**

|  **           ** |  Alizay,                France; Doel, Belgium; Dalton, Georgia, U.S.; Hopewell, Virginia,                U.S.;                Jiangmen City, China; Kenedy, Texas, U.S.; Luzhou, China (40% joint                venture interest); Nanjing, China (land acquired in 2006 for facility                construction in 2007); Parlin, New Jersey, U.S.; Suzhou, China (40%                joint                venture interest); Zwijndrecht, The Netherlands; and Brunswick, Georgia,                U.S. |
|------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**ITEM      3.            LEGAL      PROCEEDINGS**

Note 13 

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

**PART      II**

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

**                         MATTERS      AND ISSUER PURCHASES OF EQUITY SECURITIES**

| 2006                          |   | High   |   | Low    |   |
|-------------------------------|--------|--------|--------|--------|--------|
| First                Quarter  |   | $      | 13.93  |   | $      | 11.03 |   |
| Second                Quarter |   | $      | 16.02  |   | $      | 13.63 |   |
| Third                Quarter  |   | $      | 15.99  |   | $      | 13.68 |   |
| Fourth                Quarter |   | $      | 19.52  |   | $      | 15.73 |   |
|                          |   |   |   |   |   |   |   |
| 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 |   |

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Table          of Contents

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

|                                                                                                          |   | *(Dollars                and shares in millions, except per share data)* |    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|---------|
| **Statements                of Operations Information:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | 2006                                                                     |    | 2005 |   | 2004 |   | 2003 |   | 2002 |   |
| Net                sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | $                                                                        | 2,035.3 |   | $ | 2,055.0 |   | $ | 1,984.3 |   | $ | 1,836.0 |   | $ | 1,693.7 |   |
| Cost                of sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                     | 1,343.4 |   |   | 1,391.1 |   |   | 1,291.6 |   |   | 1,155.6 |   |   | 1,029.1 |   |
| Gross                profit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | $                                                                        | 691.9   |   | $ | 663.9 |   | $ | 692.7 |   | $ | 680.4 |   | $ | 664.6 |   |
| Research                and development                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | $                                                                        | 38.8    |   | $ | 40.8 |   | $ | 42.7 |   | $ | 38.7 |   | $ | 42.0 |   |
| Profit                from operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | $                                                                        | 248.6   |   | $ | 140.3 |   | $ | 232.9 |   | $ | 257.1 |   | $ | 219.9 |   |
| Net                income (loss) from continuing operations before discontinued         operations                and cumulative effect of changes in accounting principle                                                                                                                                                                                                                                                                                                                                                                                                                          |   | $                                                                        | 190.8   |   | $ | (32.1 | ) | $ | 30.7 |   | $ | 75.2 |   | $ | (47.1 | ) |
| Net                income (loss) on discontinued operations, net of tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                                                     | 47.0    |   |   | (6.5 | ) |   | (2.6 | ) |   | 3.5 |   |   | (197.7 | ) |
| Net                income (loss) before cumulative effect of changes in                accounting         principle                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                                                     | 237.8   |   |   | (38.6 | ) |   | 28.1 |   |   | 78.7 |   |   | (244.8 | ) |
| Cumulative                effect of changes in accounting principle, net of tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                                                     | 0.9     |   |   | (2.5 | ) |   | — |   |   | (33.3 | ) |   | (368.0 | ) |
| Net                income (loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | $                                                                        | 238.7   |   | $ | (41.1 | ) | $ | 28.1 |   | $ | 45.4 |   | $ | (612.8 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Per                Share Data and Other Share Information:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                earnings (loss) per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing                operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | $                                                                        | 1.72    |   | $ | (0.30 | ) | $ | 0.28 |   | $ | 0.71 |   | $ | (0.44 | ) |
| Discontinued                operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                                     | 0.42    |   |   | (0.06 | ) |   | (0.02 | ) |   | 0.03 |   |   | (1.87 | ) |
| Cumulative                effect of changes in accounting principle                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                     | 0.01    |   |   | (0.02 | ) |   | — |   |   | (0.31 | ) |   | (3.47 | ) |
| Net                income (loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | $                                                                        | 2.15    |   | $ | (0.38 | ) | $ | 0.26 |   | $ | 0.43 |   | $ | (5.78 | ) |
| Diluted                earnings (loss) per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing                operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | $                                                                        | 1.71    |   | $ | (0.30 | ) | $ | 0.28 |   | $ | 0.70 |   | $ | (0.44 | ) |
| Discontinued                operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                                     | 0.42    |   |   | (0.06 | ) |   | (0.02 | ) |   | 0.03 |   |   | (1.87 | ) |
| Cumulative                effect of changes in accounting principle                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                     | 0.01    |   |   | (0.02 | ) |   | — |   |   | (0.31 | ) |   | (3.47 | ) |
| Net                income (loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | $                                                                        | 2.14    |   | $ | (0.38 | ) | $ | 0.26 |   | $ | 0.42 |   | $ | (5.78 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Average                number of common shares outstanding                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                     | 110.8   |   |   | 108.7 |   |   | 107.3 |   |   | 106.2 |   |   | 106.0 |   |
| Diluted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                                                     | 111.3   |   |   | 110.4 |   |   | 109.0 |   |   | 107.2 |   |   | 106.2 |   |
| Actual                number of common shares outstanding                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                                                     | 116.0   |   |   | 112.7 |   |   | 112.1 |   |   | 111.0 |   |   | 109.4 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Balance                Sheet Data:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accounts                receivable, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | $                                                                        | 326.6   |   | $ | 289.7 |   | $ | 344.9 |   | $ | 319.7 |   | $ | 393.9 |   |
| Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                                     | 210.6   |   |   | 179.6 |   |   | 205.7 |   |   | 199.6 |   |   | 181.7 |   |
| Less:                Accounts payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                     | (205.3  | ) |   | (172.9 | ) |   | (186.6 | ) |   | (161.6 | ) |   | (167.8 | ) |
| Operating                working capital, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | $                                                                        | 331.9   |   | $ | 296.4 |   | $ | 364.0 |   | $ | 357.7 |   | $ | 407.8 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | $                                                                        | 2,808.5 |   | $ | 2,568.8 |   | $ | 2,720.3 |   | $ | 2,721.8 |   | $ | 2,772.0 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | $                                                                        | 995.5   |   | $ | 1,109.0 |   | $ | 1,240.1 |   | $ | 1,347.8 |   | $ | 883.0 |   |
| Company-obligated                preferred securities of subsidiary trusts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                                                     | — |   |   | — |   |   | — |   |   | — |   |   | 624.0 |   |
| Total                debt and preferred securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | $                                                                        | 995.5   |   | $ | 1,109.0 |   | $ | 1,240.1 |   | $ | 1,347.8 |   | $ | 1,507.0 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Other                Data:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                cash provided by (used in) operating activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | $                                                                        | 172.9   |   | $ | 139.2 |   | $ | 120.5 |   | $ | 22.8 |   | $ | (215.2 | ) |
| Capital                expenditures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | $                                                                        | 93.6    |   | $ | 67.5 |   | $ | 77.4 |   | $ | 48.0 |   | $ | 43.4 |   |
| Depreciation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | $                                                                        | 70.7    |   | $ | 80.5 |   | $ | 74.9 |   | $ | 73.2 |   | $ | 70.7 |   |
| Amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | $                                                                        | 24.6    |   | $ | 25.4 |   | $ | 26.3 |   | $ | 27.4 |   | $ | 29.0 |   |
| Employees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                                                     | 4,430   |   |   | 4,650 |   |   | 4,950 |   |   | 5,116 |   |   | 5,095 |   |

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

**                        RESULTS      OF OPERATIONS**

**Business      Overview**

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

|                                       |   | 2006   |   | 2005 |   |
|--------------------------------------------|--------|--------|--------|------|--------|
| North                America               |   |   | 49     | %    |   | 47 | % |
| Europe                                     |   |   | 34     | %    |   | 37 | % |
| Asia                Pacific                |   |   | 11     | %    |   | 11 | % |
| Latin                America               |   |   | 6      | %    |   | 5 | % |
|      Consolidated |   |   | 100    | %    |   | 100 | % |

***Business      Segments***

|                                           |   | 2006   |   | 2005 |   |
|------------------------------------------------|--------|--------|--------|------|--------|
| Paper                Technologies and Ventures |   |   | 53     | %    |   | 50 | % |
| Aqualon                Group                   |   |   | 44     | %    |   | 36 | % |
| FiberVisions                                   |   |   | 3      | %    |   | 14 | % |
|      Consolidated     |   |   | 100    | %    |   | 100 | % |

***Key      Developments***

*Business      Segment Realignment*

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Note 3

*Acquisitions,      Investments and Alliances*

Note 2

*Sale      of Interest in FiberVisions*

Note 3

*Restructuring      Actions*

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Table          of Contents

| ·   | Research                and development consolidation -The Company completed the consolidation                of                its research and development activities from its Jacksonville, Florida                facility to its Wilmington, Delaware research center (“WRC”). Costs                incurred during 2006 that were attributable to this program included                $2.6                million in severance and termination benefits, other exit costs of                $1.2                million and accelerated depreciation of $1.2 million. In 2005, the                Company                consolidated its Barneveld research activities into WRC and a European                regional center. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | PTV                manufacturing rationalization and alliance - The Company closed its                Pendlebury manufacturing facility in the United Kingdom. As a result,                charges incurred during 2006 with respect to this program included                $2.1                million of accelerated depreciation, $0.4 million in severance and                termination benefits and $0.8 million in other exit costs. PTV entered                into an alliance agreement whereby the manufacture of the underlying                products is being phased to MeadWestvaco. As a result certain production                lines at the Company’s manufacturing facilities in Savannah, Georgia,                Hattiesburg, Mississippi and Portland, Oregon will be closed. During                2006,                the Company incurred $0.5 million in severance and termination benefits,                $0.2 million of other exit costs and $0.6 million of accelerated                depreciation in connection with this program. Additional charges                are                expected to continue into 2007 during the manufacturing phase-out                period. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Business                segment realignment - In connection with the realignment of its business                segments, the Company incurred $9.8 million of severance and termination                benefits and $0.4 million of other exit costs, primarily to further                de-layer management and streamline organizational                structures. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Business                Infrastructure Projects - These projects were developed primarily                as a                result of efforts to reduce stranded corporate costs resulting from                the                FiberVisions transaction discussed above. The goal of the projects                is to                realign the Company’s support organization through both reorganization and                selected outsourcing and offshoring service arrangements such that                a                substantial proportion of the underlying costs become more variable                in                nature, providing the Company with greater flexibility to scale the                level                of support services required in response to changing business demands,                as                well as to access larger service organizations that can provide a                greater                depth and breadth of services. The Company realized approximately                $10                million in annual savings due to the reorganization in 2006 and                anticipates approximately $7 million in annual cost reductions to                be                achieved by the end of 2007 as a result of the outsourcing and offshoring                projects. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Note 19 

*Resolution      of Income Tax Matters*

*Retirement      of High-Cost Debt*

*Vertac      Litigation*

*en      banc*
Note 13 

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*Adoption      of SFAS 158*

Notes 10 
24

*Adoption      of SFAS 123R*

Notes 14 
24

**Critical      Accounting Estimates**

*Goodwill      and Other Intangible Assets*

*Other      Long-Lived Assets*

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*Deferred      Tax Asset Valuation Allowance*

*Environmental      Matters and Asset Retirement Obligations*

*Asbestos-Related      Contingencies*

*Pension      and Other Postretirement Benefits *

*Stock-Based      Compensation*

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Table          of Contents

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

|                         |   | **2006** |        | 2005   |   | 2004        |   | 2006Change |        | 2005                Change |   |
|------------------------------|--------|----------|-------------|--------|--------|-------------|--------|------------|-------------|----------------------------|--------|
| **Net                sales** |   | **$**    | **2,035.3** |   | **$**  | **2,055.0** |   | **$**      | **1,984.3** |                       | **$**  | **(19.7** | **)** | **$** | **70.7** |   |

|                                               |   |     |    |     |   |                        |   | **%                Change****Excluding** |   |
|----------------------------------------------------|--------|----------|---------|----------|--------|-----------------------------|--------|------------------------------------------|--------|
| **Regions**                                        |   | **2006** |    | **2005** |   | **%                Change** |   | **ROE**                                  |   |
| North                America                       |   | $        | 1,003.2 |     | $      | 967.9                       |   |                                     | 4      | % |   | 3 | % |
| Europe                                             |   |     | 696.0   |     |   | 747.7                       |   |                                     | (7     | )% |   | (6 | )% |
| Asia                Pacific                        |   |     | 227.4   |     |   | 233.7                       |   |                                     | (3     | )% |   | (3 | )% |
| Latin                America                       |   |     | 108.7   |     |   | 105.7                       |   |                                     | 3      | % |   | (1 | )% |
|     All                regions |   | $        | 2,035.3 |     | $      | 2,055.0                     |   |                                     | (1     | )% |   | (1 | )% |

|                                               |   |     |    |     |   |                        |   | **%                Change****Excluding** |   |
|----------------------------------------------------|--------|----------|---------|----------|--------|-----------------------------|--------|------------------------------------------|--------|
| **Regions**                                        |   | **2005** |    | **2004** |   | **%                Change** |   | **ROE**                                  |   |
| North                America                       |   | $        | 967.9   |     | $      | 909.6                       |   |                                     | 6      | % |   | 6 | % |
| Europe                                             |   |     | 747.7   |     |   | 761.8                       |   |                                     | (2     | )% |   | (4 | )% |
| Asia                Pacific                        |   |     | 233.7   |     |   | 214.4                       |   |                                     | 9      | % |   | 7 | % |
| Latin                America                       |   |     | 105.7   |     |   | 98.5                        |   |                                     | 7      | % |   | (1 | )% |
|     All                regions |   | $        | 2,055.0 |     | $      | 1,984.3                     |   |                                     | 4      | % |   | 2 | % |

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|                             |   | **2006** |        | 2005   |   | 2004    |   | 2006Change |    | 2005                  Change |   |
|----------------------------------|--------|----------|-------------|--------|--------|---------|--------|------------|---------|------------------------------|--------|
| **Cost                of sales** |   | **$**    | **1,343.4** |   | $      | 1,391.1 |   | $          | 1,291.6 |                         | $      | (47.7 | ) | $ | 99.5 |   |

|                                                                 |   | **2006** |      | 2005   |   | 2004  |   | 2006Change |   | 2005                Change |   |
|----------------------------------------------------------------------|--------|----------|-----------|--------|--------|-------|--------|------------|--------|----------------------------|--------|
| **Selling,                general and administrative expenses** |   | **$**    | **372.2** |   | $      | 382.5 |   | $          | 382.1  |                       | $      | (10.3 | ) | $ | 0.4 |   |

|                                        |   | **2006** |     | 2005   |   | 2004 |   | 2006Change |   | 2005                Change |   |
|---------------------------------------------|--------|----------|----------|--------|--------|------|--------|------------|--------|----------------------------|--------|
| **Research                and development** |   | **$**    | **38.8** |   | $      | 40.8 |   | $          | 42.7   |                       | $      | (2.0 | ) | $ | (1.9 | ) |

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|                                             |   | **2006** |    | 2005   |   | 2004 |   | 2006Change |   | 2005                Change |   |
|--------------------------------------------------|--------|----------|---------|--------|--------|------|--------|------------|--------|----------------------------|--------|
| **Intangible                asset amortization** |   | **$**    | **7.2** |   | $      | 8.0  |   | $          | 8.1    |                       | $      | (0.8 | ) | $ | (0.1 | ) |

|                                                   |   | **2006** |    | 2005   |   | 2004 |   | 2006Change |    | 2005                Change |   |
|--------------------------------------------------------|--------|----------|---------|--------|--------|------|--------|------------|---------|----------------------------|--------|
| **Impairment                of FiberVisions goodwill** |   | **$**    | — |   | $      | 52.9 |   | $          | — |                       | $      | (52.9 | ) | $ | 52.9 |   |

|                                            |   | **2006** |     | 2005   |   | 2004 |   | 2006Change |   | 2005                Change |   |
|-------------------------------------------------|--------|----------|----------|--------|--------|------|--------|------------|--------|----------------------------|--------|
| **Other                operating expense, net** |   | **$**    | **25.1** |   | $      | 39.4 |   | $          | 26.9   |                       | $      | (14.3 | ) | $ | 12.5 |   |

Note 19 

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Table          of Contents

|                                         |   | **2006** |     | 2005   |   | 2004 |   | 2006Change |   | 2005                Change |   |
|----------------------------------------------|--------|----------|----------|--------|--------|------|--------|------------|--------|----------------------------|--------|
| **Interest                and debt expense** |   | **$**    | **71.2** |   | $      | 89.4 |   | $          | 108.7  |                       | $      | (18.2 | ) | $ | (19.3 | ) |

|                                         |   | **2006** |      | 2005   |   | 2004 |   | 2006Change |    | 2005                Change |   |
|----------------------------------------------|--------|----------|-----------|--------|--------|------|--------|------------|---------|----------------------------|--------|
| **Vertac                litigation charges** |   | **$**    | **108.5** |   | $      | 15.0 |   | $          | — |                       | $      | 93.5 |   | $ | 15.0 |   |

Note 13 

|                                              |   | **2006** |    | 2005   |   | 2004    |   | 2006Change |   | 2005                  Change |   |
|---------------------------------------------------|--------|----------|---------|--------|--------|---------|--------|------------|--------|------------------------------|--------|
| **Gain                  on sale of CP Kelco ApS** |   | **$**    | — |   | $      | — |   | $          | (27.0  | )                            | $      | — |   | $ | 27.0 |   |

|                                  |   | **2006** |     | 2005   |   | 2004 |   | 2006Change |   | 2005                Change |   |
|---------------------------------------|--------|----------|----------|--------|--------|------|--------|------------|--------|----------------------------|--------|
| **Other                expense, net** |   | **$**    | **65.7** |   | $      | 71.3 |   | $          | 116.7  |                       | $      | (5.6 | ) | $ | (45.4 | ) |

Note 13
Note 3

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Table          of Contents

|                                                    |   | **2006** |       | 2005  |   | 2004 |   | 2006Change |   | 2005                Change |   |
|---------------------------------------------------------|--------|----------|------------|-------|--------|------|--------|------------|--------|----------------------------|--------|
| **(Benefit)                provision for income taxes** |   | **$**    | **(192.2** | **)** | $      | (3.8 | )      | $          | 3.8    |                       | $      | (188.4 | ) | $ | (7.6 | ) |

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Table          of Contents

|                                                                                          |   | **2006** |     | 2005  |   | 2004 |   | 2006Change |   | 2005                Change |   |
|-----------------------------------------------------------------------------------------------|--------|----------|----------|-------|--------|------|--------|------------|--------|----------------------------|--------|
| **Minority                interests in earnings of consolidated                subsidiaries** |   | **$**    | **(1.4** | **)** | $      | (1.0 | )      | $          | (0.9   | )                          | $      | (0.4 | ) | $ | (0.1 | ) |

|                                                                    |   | **2006** |     | 2005  |   | 2004 |   | 2006Change |   | 2005                Change |   |
|-------------------------------------------------------------------------|--------|----------|----------|-------|--------|------|--------|------------|--------|----------------------------|--------|
| **Equity                loss of affiliated companies, net of tax** |   | **$**    | **(3.2** | **)** | $      | 0.5  |   | $          | 0.9    |                       | $      | (3.7 | ) | $ | (0.4 | ) |

|                                                                                         |   | **2006** |     | 2005   |   | 2004 |   | 2006Change |   | 2005                Change |   |
|----------------------------------------------------------------------------------------------|--------|----------|----------|--------|--------|------|--------|------------|--------|----------------------------|--------|
| **Net                income (loss) from discontinued operations, net of                tax** |   | **$**    | **47.0** |   | $      | (6.5 | )      | $          | (2.6   | )                          | $      | 53.5 |   | $ | (3.9 | ) |

|                                                                                                    |   | **2006** |    | 2005   |   | 2004 |   | 2006Change |    | 2005                Change |   |
|---------------------------------------------------------------------------------------------------------|--------|----------|---------|--------|--------|------|--------|------------|---------|----------------------------|--------|
| **Cumulative                effect of changes in accounting principle, net of                tax** |   | **$**    | **0.9** |   | $      | (2.5 | )      | $          | — |                       | $      | 3.4 |   | $ | (2.5 | ) |

14
24

12
24

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Table          of Contents

**Results      of Operations - Segment Review **

|                                                                   |   | **2006** |    | **2005** |   | **Change** |   | **%                Change** |   |
|------------------------------------------------------------------------|--------|----------|---------|----------|--------|------------|--------|-----------------------------|--------|
| **Net                sales:**                                          |   |     |    |     |   |       |   |                        |   |
|     Paper                Technologies and Ventures |   | $        | 1,075.3 |     | $      | 1,017.3    |   | $                           | 58.0   |   |   | 6 | % |
|     Aqualon                Group                   |   |     | 890.8   |     |   | 755.0      |   |                        | 135.8  |   |   | 18 | % |
|     FiberVisions                                   |   |     | 69.2    |     |   | 282.7      |   |                        | (213.5 | ) |   | (76 | )% |
|                                                                   |   |     |    |     |   |       |   |                        |   |   |   |   |   |
|     Consolidated                                   |   | $        | 2,035.3 |     | $      | 2,055.0    |   | $                           | (19.7  | ) |   | (1 | )% |
| **Profit                from operations:**                             |   |     |    |     |   |       |   |                        |   |   |   |   |   |
|     Paper                Technologies and Ventures |   | $        | 80.8    |     | $      | 61.4       |   | $                           | 19.4   |   |   | 32 | % |
|     Aqualon                Group                   |   |     | 187.4   |     |   | 155.5      |   |                        | 31.9   |   |   | 21 | % |
|     FiberVisions                                   |   |     | 0.5     |     |   | (64.9      | )      |                        | 65.4   |   |   | NM |   |
|     Corporate                Items                 |   |     | (20.1   | )        |   | (11.7      | )      |                        | (8.4   | ) |   | (72 | )% |
|                                                                   |   |     |    |     |   |       |   |                        |   |   |   |   |   |
|      Consolidated                             |   | $        | 248.6   |     | $      | 140.3      |   | $                           | 108.3  |   |   | 77 | % |

|                                                                   |   | **2005** |    | **2004** |   | **Change** |   | **%                Change** |   |
|------------------------------------------------------------------------|--------|----------|---------|----------|--------|------------|--------|-----------------------------|--------|
| **Net                sales:**                                          |   |     |    |     |   |       |   |                        |   |
|     Paper                Technologies and Ventures |   | $        | 1,017.3 |     | $      | 978.5      |   | $                           | 38.8   |   |   | 4 | % |
|     Aqualon                Group                   |   |     | 755.0   |     |   | 724.6      |   |                        | 30.4   |   |   | 4 | % |
|     FiberVisions                                   |   |     | 282.7   |     |   | 281.2      |   |                        | 1.5    |   |   | 1 | % |
|                                                                   |   |     |    |     |   |       |   |                        |   |   |   |   |   |
|     Consolidated                                   |   | $        | 2,055.0 |     | $      | 1,984.3    |   | $                           | 70.7   |   |   | 4 | % |
| **Profit                from operations:**                             |   |     |    |     |   |       |   |                        |   |   |   |   |   |
|     Paper                Technologies and Ventures |   | $        | 61.4    |     | $      | 84.5       |   | $                           | (23.1  | ) |   | (27 | )% |
|     Aqualon                Group                   |   |     | 155.5   |     |   | 157.9      |   |                        | (2.4   | ) |   | (2 | )% |
|     FiberVisions                                   |   |     | (64.9   | )        |   | (4.1       | )      |                        | (60.8  | ) |   | NM |   |
|     Corporate                Items                 |   |     | (11.7   | )        |   | (5.4       | )      |                        | (6.3   | ) |   | NM |   |
|                                                                   |   |     |    |     |   |       |   |                        |   |   |   |   |   |
|      Consolidated                             |   | $        | 140.3   |     | $      | 232.9      |   | $                           | (92.6  | ) |   | (40 | )% |

| **2006**                                         |   | **Net                Sales Percentage Increase (Decrease) from 2005 Due                To:** |    |
|--------------------------------------------------|--------|----------------------------------------------------------------------------------------------|---------|
|                                             |   | **Volume**                                                                                   |    | **Product                Mix** |   | **Price** |   | **Rates                of Exchange** |   | **Total** |   |
| Paper                Technologies and Ventures   |   |                                                                                         | — |   |   | 1 | % |   | 4 | % |   | 1 | % |   | 6 | % |
| Aqualon                Group                     |   |                                                                                         | 24      | % |   | (7 | )% |   | 1 | % |   | — |   |   | 18 | % |
| FiberVisions                                     |   |                                                                                         | (76     | )% |   | — |   |   | — |   |   | — |   |   | (76 | )% |
|                                             |   |                                                                                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|       Consolidated |   |                                                                                         | (2      | )% |   | (2 | )% |   | 3 | % |   | — |   |   | (1 | )% |

| **2005**                                         |   | **Net                Sales Percentage Increase (Decrease) from 2004 Due                To:** |   |
|--------------------------------------------------|--------|----------------------------------------------------------------------------------------------|--------|
|                                             |   | **Volume**                                                                                   |   | **Product                Mix** |   | **Price** |   | **Rates                of Exchange** |   | **Total** |   |
| Paper                Technologies and Ventures   |   |                                                                                         | 1      | % |   | (1 | )% |   | 1 | % |   | 3 | % |   | 4 | % |
| Aqualon                Group                     |   |                                                                                         | 3      | % |   | — |   |   | — |   |   | 1 | % |   | 4 | % |
| FiberVisions                                     |   |                                                                                         | (13    | )% |   | — |   |   | 13 | % |   | 1 | % |   | 1 | % |
|                                             |   |                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|       Consolidated |   |                                                                                         | (1     | )% |   | — |   |   | 3 | % |   | 2 | % |   | 4 | % |

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Table          of Contents

**Paper      Technologies and Ventures **

|                              |   | 2006   |    | 2005   |   | 2004    |   |
|-----------------------------------|--------|--------|---------|--------|--------|---------|--------|
| Paper                Technologies |   | $      | 851.0   |   | $      | 810.7   |   | $ | 779.0 |   |
| Ventures                          |   |   | 224.3   |   |   | 206.6   |   |   | 199.5 |   |
|                              |   | $      | 1,075.3 |   | $      | 1,017.3 |   | $ | 978.5 |   |

*2006      compared to 2005*

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Table          of Contents

*2005      compared to 2004*

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Table          of Contents

**Aqualon      Group **

|                                     |   | 2006   |   | 2005   |   | 2004  |   |
|------------------------------------------|--------|--------|--------|--------|--------|-------|--------|
| Coatings                and Construction |   | $      | 398.3  |   | $      | 356.4 |   | $ | 346.8 |   |
| Regulated                                |   |   | 188.2  |   |   | 174.1 |   |   | 157.7 |   |
| Energy                and Specialties    |   |   | 304.3  |   |   | 224.5 |   |   | 220.1 |   |
|                                     |   | $      | 890.8  |   | $      | 755.0 |   | $ | 724.6 |   |

*2006      compared to 2005*

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Table          of Contents

*2005      compared to 2004*

**FiberVisions      **

*2006      compared to 2005*

*2005      compared to 2004*

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Table          of Contents

**Corporate      Items **

|                                                                    |   | 2006   |    | 2005   |   | 2004    |   |
|-------------------------------------------------------------------------|--------|--------|---------|--------|--------|---------|--------|
| Severance,                restructuring and other exit costs            |   | $      | 6.5     |   | $      | 7.5     |   | $ | — |   |
| Asset                charges (impairments and accelerated depreciation) |   |   | 5.2     |   |   | 0.5     |   |   | — |   |
| Legal                settlements                                        |   |   | (3.1    | )      |   | 0.1     |   |   | — |   |
| Special                executive pension adjustment                     |   |   | — |   |   | — |   |   | 1.6 |   |
| Gains                on asset dispositions                              |   |   | — |   |   | (0.3    | )      |   | — |   |
| Nitrocellulose                facility shutdown costs                   |   |   | — |   |   | — |   |   | 6.5 |   |
| Dismantlement                costs                                      |   |   | 1.5     |   |   | — |   |   | — |   |
| Stranded                corporate costs                                 |   |   | 7.9     |   |   | — |   |   | — |   |
| Other                miscellaneous charges, net                         |   |   | 2.1     |   |   | 3.9     |   |   | (2.7 | ) |
|    Total                Corporate items                  |   | $      | 20.1    |   | $      | 11.7    |   | $ | 5.4 |   |

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Table          of Contents

**Liquidity      and Capital Resources**

*Analysis      of Cash Flows*

| Operating                Activities                                                                                                   |   | 2006   |   | 2005   |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|
| Net                income (loss), depreciation, amortization and all other non-cash                charges                and credits |   | $      | 194.3  |   | $      | 64.8 |   |
| Changes                in working capital, net                                                                                        |   |   | (13.4  | )      |   | 27.2 |   |
| All                other sources and uses of cash                                                                                     |   |   | (8.0   | )      |   | 47.2 |   |
|    Net                cash provided by operating activities                                                            |   | $      | 172.9  |   | $      | 139.2 |   |

| Investing                Activities                                                                      |   | 2006   |   | 2005   |   |
|----------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|
| Capital                expenditures                                                                      |   | $      | 93.6   |   | $      | 67.5 |   |
| Acquisitions                and investments, net                                                         |   |   | 29.4   |   |   | 4.4 |   |
| Proceeds                from asset and investment dispositions and all other sources,                net |   |   | (28.9  | )      |   | (14.2 | ) |
|    Net                cash used in investing activities                                   |   | $      | 94.1   |   | $      | 57.7 |   |

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Table          of Contents

| Financing                Activities                                                                  |   | 2006   |   | 2005   |   |
|------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|
| Long-term                debt payments                                                               |   | $      | (142.5 | )      | $      | (131.2 | ) |
| Long-term                debt proceeds and changes in short-term debt                                |   |   | 27.8   |   |   | 1.9 |   |
| Long-term                debt issued by FiberVisions, net of issuance costs                          |   |   | 83.7   |   |   | — |   |
| Proceeds                from the exercise of stock options and all other sources,                net |   |   | 42.6   |   |   | 2.3 |   |
|    Net                cash provided by (used in) financing activities                 |   | $      | 11.6   |   | $      | (127.0 | ) |

*Sources      of Liquidity*

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Table          of Contents

**Financial      Condition**

**Commitments      and Contractual      Obligations**

*Capital      Expenditures and Other Investing Commitments*

*Pension      Plan Funding*

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Table          of Contents

*Funding      for Litigation, Environmental and Asset Retirement Obligations*

*Debt      Retirement *

*Contractual      Obligations*

|                                                                                                                                             |   | Payments                Due by Period                (1) |    |
|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------|---------|
|                                                                                                                                             |   |                                                     |    | Less                than |   | 1                -                3 |   | 3                -                5 |   | After                5 |   |
|                                                                                                                                             |   | Total                                                    |    | 1                year |   | years |   | years |   | years |   |
| Debt                obligations                                                                                                                  |   | $                                                        | 995.5   |   | $ | 35.8 |   | $ | 21.5 |   | $ | 374.1 |   | $ | 564.1 |   |
| Operating                lease obligations                                                                                                       |   |                                                     | 101.0   |   |   | 18.9 |   |   | 44.6 |   |   | 22.8 |   |   | 14.7 |   |
| Purchase                obligations                (2)                                                                                           |   |                                                     | 3,794.2 |   |   | 683.6 |   |   | 1,475.6 |   |   | 1,624.0 |   |   | 11.0 |   |
| Other                liabilities reflected on the    registrant's                balance sheet under GAAP                (3) |   |                                                     | 667.4   |   |   | 224.2 |   |   | 72.9 |   |   | 53.8 |   |   | 316.5 |   |
|  Total                contractual cash obligations                                                                                          |   | $                                                        | 5,558.1 |   | $ | 962.5 |   | $ | 1,614.6 |   | $ | 2,074.7 |   | $ | 906.3 |   |

|   | (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, 2006, such interest                obligations are estimated to be approximately $72.2 million in 2007,                $70.2                million in 2008, $69.9 million in 2009, $69.7 million in 2010, $41.8                million in 2011 and $730.1 million thereafter. A one percent increase                or                decrease in the LIBOR rate would have an impact of approximately                plus or                minus $3.7 million on the Company’s interest payments in years 2007                through 2011. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Obligations                relates primarily to raw material requirements and service                contracts. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------|

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

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Table          of Contents

**Indemnifications**

Note 13 

**Off-Balance      Sheet Arrangements**

**Recent      Accounting Pronouncements**

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

Note 28 

*Foreign      Exchange Rate Risk*

*Interest      Rate Risk *

Note 28

*Commodity      Price Risk*

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Table          of Contents

*Derivative      Financial Instruments*

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Table          of Contents

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

**INDEX      TO CONSOLIDATED FINANCIAL STATEMENTS AND**

**REQUIRED      SUPPLEMENTARY DATA**

|  **CONSOLIDATED                FINANCIAL                STATEMENTS                                                                                                      ** |   |   | Page   |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| Management's                Report on Internal Control Over Financial                Reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   | 36     |   |
| Reports                of Independent Registered Public Accounting                Firms                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   | 37     |   |
| Consolidated                Statements of Operations and                Comprehensive Income (Loss) for the Years Ended December 31, 2006,                2005 and 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   | 40     |   |
| Consolidated                Balance Sheets as of December 31, 2006 and                2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   | 41     |   |
| Consolidated                Statements of Cash Flows for the Years Ended                December 31, 2006, 2005 and 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   | 42     |   |
| Consolidated                Statements of Stockholders' Equity (Deficit) for                the Years Ended December 31, 2006, 2005 and 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   | 43     |   |
| Summary                of Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   | 44     |   |
| Notes                to the Consolidated Financial Statements:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   |
| 1.                Realignment of Reporting Segments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   | 48     |   |
| 2.                Acquisitions and Investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   | 48     |   |
| 3.                Divestitures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   | 49     |   |
| 4.                Variable Interest Entities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   | 50     |   |
| 5.                Accounts Receivable, Net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   | 51     |   |
| 6.                Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   | 51     |   |
| 7.                Intangible Assets and Goodwill                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   | 51     |   |
| 8.                Debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   | 52     |   |
| 9.                Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   | 53     |   |
| 10.                Pension and Postretirement Benefit                Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   | 55     |   |
| 11.                Savings and Investment Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   | 59     |   |
| 12.                Asset Retirement Obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   | 59     |   |
| 13.                Commitments and Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   | 61     |   |
| 14.                Stock-Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   | 71     |   |
| 15.                Series Preferred Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   | 74     |   |
| 16.                Common Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   | 74     |   |
| 17.                Accumulated Other Comprehensive                Losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   | 74     |   |
| 18.                Additional Balance Sheet Detail                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   | 75     |   |
| 19.                Restructuring Programs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   | 76     |   |
| 20.                Other Operating Expense, Net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   | 80     |   |
| 21.                Interest and Debt Expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   | 80     |   |
| 22.                Other Expense, Net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   | 80     |   |
| 23.                Discontinued Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   | 81     |   |
| 24.                Changes in Accounting Principle                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   | 81     |   |
| 25.                Supplemental Disclosure of Statement of Operations and                Cash Flows Data                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   | 83     |   |
| 26.                Earnings (Loss) Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   | 83     |   |
| 27.                Reporting Segment and Geographic                Data                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   | 84     |   |
| 28.                Financial Instruments and Risk Management, Including                Derivatives                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   | 86     |   |
| 29.                Condensed Consolidating Financial Information of                Guarantor Subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   | 87     |   |
| 30.                Summary of Quarterly Results (Unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   | 96     |   |
|  **SUPPLEMENTARY                DATA**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |
| Valuation                and Qualifying Accounts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   | 100    |   |

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Table          of Contents

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

*Internal      Control-Integrated Framework*

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Table          of Contents

**Report        of Independent Registered Public Accounting        Firm**

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Table          of Contents

**Report      of Independent Registered Public Accounting Firm**

**on      Internal Control over Financial Reporting **

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Table          of Contents

**Report      of Independent Registered Public Accounting Firm **

** **

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Table          of Contents

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

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

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Table          of Contents

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

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

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Table          of Contents

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

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

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Table          of Contents

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

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

----

Table          of Contents

**Hercules      Incorporated**

**Summary      of Significant Accounting Policies **

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

**Nature      of Business**

**Principles      of Consolidation**

**Use      of Estimates**

**Revenue      Recognition**

**Allowance      for Doubtful Accounts Receivable**

**Research      and Development Expenditures**

**Environmental      Expenditures**

**Changes      in Accounting Principle**

Note 24

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Table          of Contents

**Hercules          Incorporated**

**Summary          of Significant Accounting Policies **

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

**Cash      and Cash Equivalents**

**Inventories**

**Assets      Held for Sale**

**Property,      Plant and Equipment and Depreciation**

**Intangible      Assets and Goodwill**

**Long-lived      Assets**

**Computer      Software Development Costs**

**Deferred      Financing Costs**

**Income      Taxes**

----

Table          of Contents

**Hercules          Incorporated**

**Summary          of Significant Accounting Policies **

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

**Asset      Retirement Obligations**

**Foreign      Currency Translation**

**Derivative      Instruments and Hedging**

**Stock-based      Compensation**

Note 14

----

Table          of Contents

**Hercules          Incorporated**

**Summary          of Significant Accounting Policies **

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

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

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

**Recent      Accounting Pronouncements**

**Reclassifications**

Note 1

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Table          of Contents

**Hercules              Incorporated**

**Notes              to Consolidated Financial Statements **

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

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

Note      23

Note 3

Note 27 

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

*Benchmark*

*Hercules      Tianpu*

Note 4

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Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

*Shanghai      Hercules*

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

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

*FiberVisions*

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Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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

*CP      Kelco*

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

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Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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

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

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

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

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

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

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

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Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

**8.           Debt**

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

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

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

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

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

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

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

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

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

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Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

**9**
**      Income      Taxes**

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

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

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

Note      17

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

----

Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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

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

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Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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

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

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

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Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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

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

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

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

**Defined      Benefit Pension Plans**

**$**

**Other      Postretirement Benefits**

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**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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

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

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Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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

**International      Pension Plans**

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

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**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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

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

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

**12.         Asset      Retirement Obligations **

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Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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

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Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

**13.         Commitments      and Contingencies **

**Guarantees**

**Leases**

**Environmental**

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**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

*en      banc*

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**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

**Litigation**

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**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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

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**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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**Notes          to Consolidated Financial Statements **

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

** **

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**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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

----

Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

*Stock      Options*

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

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

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Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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

*Restricted      Stock Awards*

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

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Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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

**16.         Common      Stock **

**17.         Accumulated      Other Comprehensive Losses **

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

Note 9

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Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

**18.         Additional      Balance Sheet Detail **

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

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

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

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

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Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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

**2006**

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

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

*Research      and Development Consolidation*

*PTV      Manufacturing and Alliance-related Rationalization *

----

Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

*Business      Segment Realignment*

*Business      Infrastructure Projects*

----

Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

**2005**

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

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

*Research      and Development Consolidation*

*Manufacturing      Rationalization*

----

Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

*Global      Marketing and Management Realignment*

*Corporate      Support Realignment*

*Terpenes      Specialties Exit*

**2004**

----

Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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

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

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

**21.         Interest      and Debt Expense **

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

**22.         Other      Expense, Net**

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

----

Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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

*Terpenes      Specialties*

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

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

*BetzDearborn      Water Treatment Business*

Note 9

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

*SFAS      123R*

*SFAS      158*

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Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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

*FIN      47*

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

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Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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

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

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

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

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

----

Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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

1
3

*Paper      Technologies and Ventures Group: *

*Aqualon      Group:*

*FiberVisions:      *

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Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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

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

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

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

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

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Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

**Geographic      Reporting**

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

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

----

Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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

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

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

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Table          of Contents

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements **

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

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

----

Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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

----

Table          of Contents

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements **

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

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

----

Table          of Contents

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements **

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

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

----

Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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

----

Table          of Contents

**Hercules            Incorporated**

**Notes            to Consolidated Financial Statements **

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

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

----

Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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

----

Table          of Contents

**Hercules          Incorporated**

**Notes          to Consolidated Financial Statements **

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

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

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Table          of Contents

**Hercules              Incorporated**

**Notes              to Consolidated Financial Statements**

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

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

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

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Table          of Contents

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

**                           AND      FINANCIAL DISCLOSURE**

**ITEM      9A.        CONTROLS AND PROCEDURES**

**ITEM      9B.        OTHER      INFORMATION**

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Table          of Contents

**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    |             | 50            |                         | President,                Chief Executive Officer and Director           |
| Fred                G. Aanonsen     |             | 59            |                         | Vice                President and Controller                             |
| Edward                V. Carrington |             | 64            |                         | Vice                President, Human Resources                           |
| Richard                G. Dahlen    |             | 67            |                         | Chief                Legal Officer                                       |
| Israel                J. Floyd      |             | 60            |                         | Corporate                Secretary and General Counsel                   |
| Vincenzo                M. Romano   |             | 53            |                         | Vice                President, Taxes                                     |
| Stuart                C. Shears     |             | 56            |                         | Vice                President and Treasurer                              |
| Allen                A. Spizzo      |             | 49            |                         | 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.

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Table          of Contents

**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                                                                                          |   |                                                                                                                                                               | 5,398,285 |   |   | (1)                (2                                                                                                                 | )      | $                                                                                                                                                                                                                                                            | 25.56   |   |   | 8,546,964 |   |
|                                                                                                                                                           |   |                                                                                                                                                               |      |   |   |                                                                                                                                  |   |                                                                                                                                                                                                                                                         |    |   |   |   |   |
| Equity                compensation plans not approved by security holders                                                                                      |   |                                                                                                                                                               | —   |   |   |                                                                                                                                  |   |                                                                                                                                                                                                                                                         | — |   |   | — |   |
| Total                                                                                                                                                          |   |                                                                                                                                                               | 5,398,285 |   |   |                                                                                                                                  |   | $                                                                                                                                                                                                                                                            | 25.56   |   |   | 8,546,964 |   |
|                                                                                                                                                           |
| (1)  Includes                2,234,710 options with exercise prices in excess of the weighted                average                price of $25.56. |
| (2)  Includes                options to purchase 1,181,759 shares that were not vested at December                31,                2006.           |

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

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

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Table          of Contents

**PART      IV**

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

|                                                                                                                                                                  |  Page |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Management's                Report on Internal Control over Financial Reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  36   |
| Reports                of Independent Registered Public Accounting Firm                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  37   |
| Consolidated                Statements of Operations and Comprehensive Income (Loss) for the                Years                Ended December 31, 2006, 2005 and 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  40   |
| Consolidated                Balance Sheets as of December 31, 2006 and 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  41   |
|  Consolidated                Statements of Cash Flows for the Years Ended December 31, 2006, 2005                and 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  42   |
|  Consolidated                Statements of Stockholders' Equity (Deficit) for the Years Ended                December 31, 2006, 2005 and 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  43   |
|  Summary                of Significant Accounting Policies and Notes to Consolidated Financial                Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  44   |

**                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                2006**     |   |                      |   |                      |   |                      |   |       |   |                      |   |
| Tax                valuation allowance |   | $                         | 380.7  |                      | $      | (100.4                    | )      | $          | 55.5   |                      | $      | — |   | $ | 335.8 |   |
|  **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 |   |
|                                   |   |                      |   |                      |   |                      |   |       |   |                      |   |   |   |   |   |   |

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Table          of Contents

**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/                Thomas P. Gerrity                                                                               |                                                      | /s/                Jeffrey M. Lipton |
| Thomas                P. Gerrity                                                                                   |                                                      | Jeffrey                M. Lipton |
|                                                                                                               |                                                      |   |
| /s/                John C. Hunter, III                                                                             |                                                      | /s/                Joe B. Wyatt |
| John                C. Hunter, III                                                                                 |                                                      | Joe                B. Wyatt |
|                                                                                                               |                                                      |   |

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Table          of Contents

**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                                                          |

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| 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         |

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| 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  |  Omnibus                Equity Compensation Plan for Non-Employee Directors                                                                                                                                                                                                                                                                                               |   |  Appendix                II, Proxy Statement dated June 20, 2003                          |
|  10.20  |  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                     |
|  10.21  |  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 |
|  10.22  |  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                     |
|  10.23  |  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                     |
|  10.24  |  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                     |
|  10.25  |  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                     |
|  10.26  |  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                     |
|  10.27  |  Employment                Offer Letter - Paul C. Raymond III, dated December 28,                2004                                                                                                                                                                                                                                                                     |   |  Exhibit                10.34, Annual Report on Form 10-K, filed March 16, 2005                     |
|  10.28  |  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                     |
|  10.29  |  General                Terms of Employment between Hercules Incorporated and Certain Executive                Officers                                                                                                                                                                                                                                                   |   |  Exhibit                10.36, Annual Report on Form 10-K, filed March 16, 2005                     |
|  10.30  |  Employment                Offer Letter - John E. Panichella, dated December 15, 2005                                                                                                                                                                                                                                                                                     |   |  Exhibit                10.1, Current Report on Form 8-K/A, dated December 15,                2005  |
|  10.31  |  Contribution                Agreement between Hercules Incorporated, WSP, Inc., SPG/FV Investor                LLC                and Fibervisions Delaware Corporation dated January 31,                2006                                                                                                                                                            |   |  Exhibit                10.33, Annual Report on Form 10-K, filed March 3, 2006                      |
|  10.32* |  Agreement                between Hercules Incorporated and Genpact International dated January                16,                2007                                                                                                                                                                                                                                    |   |                                                                                                     |

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|  10.33*                   |  Agreement                between Hercules Incorporated and HCL America Inc. and HCL Technologies                Limited dated January 16, 2007       |   |                                                                         |
|--------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------|
|  14                       |  Directors                Code of Business Conduct and Ethics                                                                                         |   |  Appendix                VII, Proxy Statement dated June 20, 2003  |
| 18.1                           | Letter                Regarding Change in Accounting Principle                                                                                             |   | Exhibit                18.1, Annual report on Form 10-K, filed March 3, 2006 |
| 21.1*                          | Principal                Consolidated Subsidiaries as of December 31, 2006                                                                                 |   |                                                                         |
| 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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