WILMINGTON, DE, April 26, 2006 . . . Hercules Incorporated (NYSE: HPC) today reported net income for the quarter ended March 31, 2006 of $14.7 million, or $0.13 per diluted share, as compared to $4.9 million, or $0.04 per diluted share, for the first quarter of 2005.⁽¹⁾

Net income from ongoing operations⁽²⁾ for the first quarter of 2006 was $26.4 million, or $0.24 per diluted share. This compares to net income from ongoing operations of $21.1 million, or $0.19 per diluted share, in the first quarter of 2005. Please refer to Table 2 for a reconciliation of net income from ongoing operations to reported net income.

Cash flow from operations for the quarter ended March 31, 2006 was $27.7 million, an increase of $58.0 million as compared to the same period last year. In the first quarter of 2005, the Company voluntarily contributed $40 million to its U.S. pension plan.

Net sales in the first quarter of 2006 were $527.3 million, an increase of 5% from the same period last year. Volumes and pricing increased by 6% and 2%, respectively. Rates of exchange reduced sales by 3% during the quarter.

Compared to the first quarter of 2005, net sales in the first quarter of 2006 increased 12% in North America, 31% in Latin America and 7% in Asia Pacific. Europe was lower by 7%. Excluding the impact of the Euro, sales in Europe increased 2% against the first quarter of 2005. Aqualon’s strong European sales offset weaker sales of Paper Technologies in that region.

Reported profit from operations in the first quarter of 2006 was $56.9 million, an increase of 34% compared with $42.6 million for the same period in 2005. Profit from ongoing operations in the first quarter of 2006 was $63.6 million, an increase of 16% compared with $55.0 million in the first quarter of 2005.

"We are off to a strong start in 2006," said Craig A. Rogerson, President and Chief Executive Officer. "I am pleased with our results and our progress in sales, earnings and cash flow growth, as well as the continued strengthening of our balance sheet in spite of $20 million of higher raw material, utility and freight costs in the first quarter as compared to the same quarter of 2005."

On March 31st, the Company received $109 million in cash proceeds as a result of the FiberVisions transaction.

Interest and debt expense was $20.7 million in the first quarter of 2006, down $1.5 million or 7% compared with the first quarter of 2005, reflecting lower outstanding debt balances and improved debt mix, partially offset by increased variable short term rates.

Total debt was $1.088 billion at March 31, 2006, a decrease of $21 million from year-end 2005. Cash and cash equivalents was $160.5 million at March 31, 2006, an increase of $83.2 million from year-end 2005, primarily reflecting the proceeds from the FiberVisions’ sale. On April 6, 2006, $103 million of the 11.125% Senior Notes was retired through a tender offer at a total cash cost of $112 million.

Capital spending was $8.1 million in the first quarter as compared to $10.5 million in the same period last year. Cash outflows for severance, restructuring and other exit costs were $7.7 million in the quarter.

Segment Results – Reported Basis

In the Aqualon Group, net sales increased 16% while profit from operations increased 10% in the first quarter as compared with the first quarter of 2005. All segments had increased sales in the first quarter as compared to the prior year. In the aggregate, the sales increase was driven by 25% higher volumes (16% excluding the acquisition of the guar and guar derivatives business), partially offset by 5% unfavorable product mix (flat excluding the acquisition) and 4% unfavorable rates of exchange. Pricing, in the aggregate, was flat. Overall the acquisition accounted for a 4% sales increase.

Coatings & Construction sales increased 8% in the first quarter of 2006 as compared to the same period of last year, primarily due to 18% higher volumes partially offset by 5% lower pricing and 5% unfavorable rates of exchange. Sales were strong in most regions, recovering from the soft conditions noted last year in the European markets. Pricing in the aggregate was lower, reflecting in part continued pricing challenges in methylcellulose construction products.

Regulated industry sales increased 13% in the first quarter of 2006 as compared to the same period of last year, primarily due to 16% increased volumes and 1% increased prices, partially offset by 4% unfavorable rates of exchange. Solid volume growth was achieved in both the pharmaceutical and food industries.

Energy & Specialties sales increased 29% in the first quarter of 2006 as compared to the same period of last year. The increase was due to 27% higher volumes/mix (15% excluding the acquisition) and 5% higher prices, partially offset by 3% unfavorable rates of exchange. The natural gas and oil services sector demand continues to be strong and price increases were achieved across many of the specialty products families.

Profit from operations increased $3.7 million, primarily as a result of the higher volumes and the associated contribution margin, partially offset by higher raw material, transportation and utility costs. SG&A costs were slightly higher compared to the prior year, reflecting higher technology and other spending to support growth.

"Aqualon’s volumes improved significantly from last year as we benefited from both organic growth and bolt-on acquisitions," said Mr. Rogerson. "We continue to grow in emerging markets and expect pricing to show steady improvement going forward.”

In the Paper Technologies and Ventures Group, net sales in the first quarter increased 1% and profit from operations increased 11% compared with the same quarter in 2005.

Paper Technologies sales increased 1% due to 3% increased prices and a 4% improved product mix, partially offset by 4% lower volumes and 2% unfavorable rates of exchange. The improved mix reflects higher sales of new products in both the process and functional products families. Increased pricing in the aggregate was achieved in all regions of the world. Volumes were lower in both the Americas and Europe, while Asia remained strong.

Venture sales increased 5% primarily due to 5% higher prices and a 1% improved product mix, partially offset by 1% lower volumes.

The increase in profit from operations reflects improved selling prices, a favorable product mix and lower selling, general and administrative (SG&A) costs, partially offset by higher raw materials, transportation and utility costs. Severance, restructuring and other exit costs and accelerated depreciation of impaired assets taken in the first quarter of 2006 were $6.4 million, essentially flat as compared to the same period of 2005. Reflecting the benefit of restructuring initiatives, SG&A costs were lower than the prior year despite higher legal fees associated with patent defense costs and higher allocated pension expenses.

"Western European markets proved challenging again in the first quarter of this year, but our strategy of improving the product mix and increasing selling prices continues to show progress," commented Mr. Rogerson. “And our continued focus on streamlining the costs to serve our customers has helped improve our results."

In FiberVisions, net sales in the first quarter decreased 8% compared with the first quarter of 2005. Profit from operations was $0.5 million, an increase of $2.6 million compared with a loss of $2.1 million in the first quarter of 2005. The net sales decrease reflected 2% higher prices and a 1% favorable product mix, offset by 8% unfavorable volume and 3% unfavorable rates of exchange.

FiberVisions' selling prices have increased, essentially offsetting raw material cost increases. Raw material costs, primarily polypropylene, have increased by approximately $1.7 million from the first quarter of 2005. The higher operating profit reflected the discontinuation of depreciation charges due to the then pending sale, partially offset by lower sales volumes due to the delay in the commercialization of new products. Due to the sale of a majority interest in FiberVisions, Hercules share of the division’s results will be included within the equity earnings of affiliated companies starting in the second quarter.

Outlook

“We are optimistic about both earnings and cash flow growth as we look forward into 2006 and beyond, in spite of the continuing challenges we and our industry face related to elevated energy prices," said Mr. Rogerson. "We see many opportunities in our businesses and markets for profitable growth. We are investing organically and through acquisitions to seize these opportunities.”

First Quarter Conference Call and Webcast

The Company will discuss first quarter 2006 results tomorrow, April 27th, at 8:00 a.m. EDST.

Teleconference: (973) 582-2734 – Ask for Conference ID # 7284954
Please call 10 to 15 minutes prior to the call.

Webcast: Listen-only mode via Internet broadcast from www.herc.com under Shareholder Info.

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Hercules manufactures and markets chemical specialties globally for making a variety of products for home, office and industrial markets. For more information, visit the Hercules website at www.herc.com.

This news release includes forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, reflecting management's current analysis and expectations, based on what management believes to be reasonable assumptions. Forward-looking statements may involve known and unknown risks, uncertainties and other factors, which may cause the actual results to differ materially from those projected, stated or implied, depending on such factors as: ability to generate cash, changes resulting from ongoing reviews of tax liabilities, ability to raise capital, ability to refinance, ability to execute productivity improvements and reduce costs, ability to execute and integrate acquisitions, ability to execute divestitures, ability to increase prices, business climate, business performance, changes in tax laws or regulations and related liabilities, changes in tax rates, economic and competitive uncertainties, higher manufacturing costs, reduced level of customer orders, changes in strategies, risks in developing new products and technologies, risks in developing new market opportunities, environmental and safety regulations and clean-up costs, foreign exchange rates, asset dispositions, the impact of changes in the value of pension fund assets and liabilities, changes in generally accepted accounting principles, adverse legal and regulatory developments, including increases in the number or financial exposures of claims, lawsuits, settlements or judgments, the financial capacity of settling insurers, the impact of increased accruals and reserves for such exposures, the outcome of litigation and appeals, and adverse changes in economic and political climates around the world, including terrorist activities, international hostilities and potential natural disasters. Accordingly, there can be no assurance that the Company will meet future results, performance or achievements expressed or implied by such forward-looking statements. As appropriate, additional factors are contained in other reports filed by the Company with the Securities and Exchange Commission. This paragraph is included to provide safe harbor for forward-looking statements, which are not generally required to be publicly revised as circumstances change, and which the Company does not intend to update.

HERCULES INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS  

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