Part I - Financial Information..........................................................................................................................

3

    Item 1.  Consolidated Financial Statements..............................................................................................

3

        Consolidated Statements of Operations...............................................................................................

3

        Consolidated Balance Sheets.................................................................................................................

4

        Consolidated Statements of Cash Flows..............................................................................................

5

        Consolidated Statements of Comprehensive (Loss) Income.............................................................

6

        Notes to Consolidated Financial Statements.......................................................................................

7

    Item 2.  Management's Discussion and Analysis of Financial Condition and Results of
                 Operations........................................................................................................................................

35

        Overview....................................................................................................................................................

35

        Critical Accounting Estimates................................................................................................................

37

        Results of Operations..............................................................................................................................

40

        Financial Condition..................................................................................................................................

46

        Risk Factors...............................................................................................................................................

47

        Indemnifications.......................................................................................................................................

49

        Recent Accounting Pronouncements...................................................................................................

49

        Forward-Looking Statements.................................................................................................................

50

    Item 3.  Quantitative and Qualitative Disclosures About Market Risk................................................

50

    Item 4.  Controls and Procedures...............................................................................................................

50

Part II - Other Information...............................................................................................................................

52

    Item 1.  Legal Proceedings..........................................................................................................................

52

    Item 6.  Exhibits.............................................................................................................................................

52

    Signature........................................................................................................................................................

53

    Exhibit Index..................................................................................................................................................

54

PART I - FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements

HERCULES INCORPORATED                                     

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Unaudited)

(Dollars in millions, expect per share)                                                        

Three Months Ended

Nine Months Ended

September 30,

September 30,

2004

2003

2004

2003

Net sales

$  

501

$

463

$

1,486 

$

1,388 

Cost of sales (Note 6)

328

289

958 

871 

Selling, general and administrative expenses (Note 6)

94

89

290 

270 

Research and development

11

9

33 

29 

Intangible asset amortization (Note 4)

2

2

6 

6 

Other operating expense, net (Note 7)

1

9

23 

10 

Profit from operations

65 

65

176 

202 

Interest and debt expense

25 

32

85 

99 

Other expense, net (Note 8)

50 

7

68 

17 

(Loss) income before income taxes and equity income

(10)

26

23 

86 

Provision for income taxes (Note 17)

41 

9

44 

23 

(Loss) income before equity income

(51)

17

(21)

63 

Equity income of affiliated companies, net of tax

- 

-

- 

- 

Net (loss) income from continuing operations before    discontinued operations and cumulative effect of changes

   in accounting principle

(51)

17

(21)

63 

Net income on discontinued operations, net of tax

- 

-

- 

2 

Net (loss) income before cumulative effect of changes in

   accounting principle

(51)

17

(21)

65 

Cumulative effect of changes in accounting principle,

    net of tax

- 

-

- 

(28)

Net (loss) income

$  

(51)

$

17

$

(21)

$

37 

Basic (loss) earnings per share (Note 5)

Continuing operations

$  

(0.47)

$

0.16

$

(0.20)

$

0.59 

Discontinued operations

-  

-

- 

0.02 

Cumulative effect of changes in accounting principle

-

-

- 

(0.26)

Net (loss) income

$  

(0.47)

$

0.16

$

(0.20)

$

0.35 

Diluted (loss) earnings per share (Note 5)

Continuing operations

$  

(0.47)

$

0.16

$

(0.20)

$

0.58 

Discontinued operations

-

-

-

0.02 

Cumulative effect of changes in accounting principle

-

-

-

(0.26)

Net (loss) income

$  

(0.47)

$

0.16

$

(0.20)

$

0.34

Weighted-average number of shares - diluted (millions)

107.7

107.6

107.2

107.9

See accompanying notes to consolidated financial statements.

HERCULES INCORPORATED                                                                                                                               

CONSOLIDATED BALANCE SHEETS                                                                                                                 

(Dollars in millions)                                                                                          

(Unaudited)

(Unaudited)

September 30,

December 31,

2004

2003

As Restated
(Note 19)

ASSETS                                                                                                      

Current assets

         Cash and cash equivalents

$

99

$

125

        Accounts and notes receivable (net of allowance for doubtful

              accounts of $8 million and $5 million, respectively)

401

  408

         Inventories

              Finished products

99

  100

              Raw materials, work-in-process and supplies

94

   87

        Deferred income taxes

104

93

        Asbestos-related assets (Note 14)

16

7

        Total current assets

813

820

Property, plant, and equipment

2,029

2,039

Accumulated depreciation and amortization

(1,361

)

  (1,362

)

Net property, plant, and equipment

668

  677

Intangible assets, net (Note 4)

164

165

Goodwill, net (Note 4)

523

  518

Deferred income taxes

94

44

Asbestos-related assets (Note 14)

172

162

Other assets

224

  325

          Total assets

$

2,658

$

2,711

LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

Current liabilities

         Accounts payable

$

193

$

  192

         Accrued expenses

187

198

         Asbestos-related liabilities (Note 14)

47

45

         Current maturities of long-term debt (Note 10)

24

   22

          Total current liabilities

451

457

Long-term debt (Note 10)

1,269

1,326

Deferred income taxes

80

78

Pension liability (Note 12)

280

249

Other postretirement benefits (Note 12)

85

  96

Deferred credits and other liabilities

315

  318

Asbestos-related liabilities (Note 14)

218

176

Commitments and contingencies (Note 14)

-

-

Stockholders' (deficit) equity

          Series preferred stock

-

   -

          Common stock, (shares issued and outstanding:

             2004 – 159,984,444; 2003 - 159,984,444)

83

83

         Additional paid-in capital

573

603

          Unearned compensation

(80

)

  (87

)

          Accumulated other comprehensive losses

(359

)

(317

)

          Retained earnings

1,474

1,495

1,691

  1,777

          Reacquired stock, at cost (shares:  2004 – 48,052,728;

               2003 - 48,992,628)

1,731

1,766

          Total stockholders' (deficit) equity

(40

)

   11

          Total liabilities and stockholders' (deficit) equity

$

2,658

$

2,711

                                                                        See accompanying notes to consolidated financial statements.

HERCULES INCORPORATED                                                              

CONSOLIDATED STATEMENTS OF CASH FLOWS                      

(Dollars in millions)                                                                                                               

 (Unaudited)

Nine Months Ended
September 30,

2004

2003

Cash Flows from Operating Activities:                                     

Net (loss) income                                                                                             

$

(21

)

$

37

Adjustments to reconcile net (loss) income to net cash provided by
    operations:

   Depreciation

56

53

   Amortization

20

20

   Deferred income tax benefit

(9

)

(12

)

   Nonoperating gain on disposals

(26

)

(1

)

   Impairment charges

7

-

&nb