**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION****Washington,D. C. 20549**

**FORM 10-Q**

**x****           ****QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the quarterly period endedJune 30, 2006**

**o****              ****TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the transition period from            to            **

**COMMISSION FILE NUMBER  1-13889**

**MacDermid, Incorporated**

(Exactname of registrant as specified in its charter)

* *
| **Connecticut**                                                 | **06-0435750**                        |
|-----------------------------------------------------------------|---------------------------------------|
| (State or other  jurisdiction of incorporation or organization) | (I.R.S. Employer  Identification No.) |
|                                                            |                                  |
| **1401  Blake St. Denver, Colorado**                            | **80202**                             |
| (Address of  principal executive offices)                       | (Zip Code)                            |

 

Registrant’stelephone number, including area code **(720) 479-3062**

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.   Yes x   No o

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act.:  
| Large accelerated  filer x | Accelerated  filer o | Non-accelerated  filer o |
|---------------------------------|---------------------------|-------------------------------|

 

Indicate by check mark whether the registrant is a shell company (asdefined by Rule 12b-2 of the Exchange Act).   Yes o   No x

Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practicable date.
| Class                           | **Outstanding at August 4, 2006** |
|---------------------------------|-----------------------------------|
| **Common  Stock, no par value** | **30,835,962  shares**            |

 

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MACDERMID, INCORPORATEDTABLE OF CONTENTS
| PART I: Financial  Information |   |                                                                                           |
|--------------------------------|--------|------------------------------------------------------------------------------------------------|
|                           |   |                                                                                           |   |   |
| Item 1:                        |   | Financial Statements (Unaudited):                                                              |   |   |
|                           |   |                                                                                           |   |   |
|                           |   | Consolidated Statements of Earnings for the three and  six months ended June 30, 2006 and 2005 |   |   |
|                           |   |                                                                                           |   |   |
|                           |   | Consolidated Balance Sheets as of June 30, 2006 and  December 31, 2005                         |   |   |
|                           |   |                                                                                           |   |   |
|                           |   | Consolidated Statements of Cash Flows for the six  months ended June 30, 2006 and 2005         |   |   |
|                           |   |                                                                                           |   |   |
|                           |   | Notes to Consolidated Financial Statements                                                     |   |   |
|                           |   |                                                                                           |   |   |
| Item 2:                        |   | Management’s Discussion and Analysis of Financial  Condition and Results of Operations    |   |   |
|                           |   |                                                                                           |   |   |
| Item 3:                        |   | Quantitative and Qualitative Disclosures About Market  Risk                                    |   |   |
|                           |   |                                                                                           |   |   |
| Item 4:                        |   | Controls and Procedures                                                                        |   |   |
|                           |   |                                                                                           |   |   |
| PART  II: Other Information    |   |                                                                                           |
|                           |   |                                                                                           |   |   |
| Item 1:                        |   | Legal Proceedings                                                                              |   |   |
|                           |   |                                                                                           |   |   |
| Item 1A:                       |   | Risk Factors                                                                                   |   |   |
|                           |   |                                                                                           |   |   |
| Item 2:                        |   | Unregistered Sales of Equity Securities and Use of  Proceeds                                   |   |   |
|                           |   |                                                                                           |   |   |
| Item 3:                        |   | Defaults Upon Senior Securities                                                                |   |   |
|                           |   |                                                                                           |   |   |
| Item 4:                        |   | Submission of Matters to a Vote of Security Holders                                            |   |   |
|                           |   |                                                                                           |   |   |
| Item 5:                        |   | Other Information                                                                              |   |   |
|                           |   |                                                                                           |   |   |
| Item 6:                        |   | Exhibits                                                                                       |   |   |
|                           |   |                                                                                           |   |   |
|                           |   | Signatures                                                                                     |   |   |

 

2

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## **PART I — FINANCIAL INFORMATION**

## **ITEM 1.Financial Statements**

## **MACDERMID, INCORPORATEDCONSOLIDATED STATEMENTS OF EARNINGS**(Amounts in thousands of dollars except per share data)(Unaudited)

| ** **                                   | ** ** | **Three months ended June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|----------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                   | ** ** | **2006**                                            | ** ** | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                         |       |                                                |       |                                              |       |   |   |   |   |
| Net sales                                    |       | $                                                   | 207,257    |                                              | $          | 178,281 |   | $ | 407,615 |   | $ | 348,528 |   |
| Cost of sales                                |       | 115,882                                             |       | 98,255                                            |       | 227,769 |   | 190,849 |   |
| Gross profit                                 |       | 91,375                                              |       | 80,026                                            |       | 179,846 |   | 157,679 |   |
|                                         |       |                                                |       |                                              |       |   |   |   |   |
| Operating expenses:                          |       |                                                |       |                                              |       |   |   |   |   |
| Selling,  technical and administrative       |       | 54,727                                              |       | 49,907                                            |       | 107,745 |   | 96,577 |   |
| Research and  development                    |       | 7,996                                               |       | 6,509                                             |       | 15,300 |   | 13,041 |   |
| Loss on disposal                             |       | —                                              |       | —                                            |       | 2,224 |   | — |   |
| Restructuring                                |       | 622                                                 |       | —                                            |       | 2,107 |   | — |   |
|                                         |       | 63,345                                              |       | 56,416                                            |       | 127,376 |   | 109,618 |   |
| Operating profit                             |       | 28,030                                              |       | 23,610                                            |       | 52,470 |   | 48,061 |   |
|                                         |       |                                                |       |                                              |       |   |   |   |   |
| Other income (expense):                      |       |                                                |       |                                              |       |   |   |   |   |
| Interest income                              |       | 690                                                 |       | 676                                               |       | 1,540 |   | 1,298 |   |
| Interest expense                             |       | (7,312                                              | )          | (7,725                                            | )          | (13,998 | ) | (15,369 | ) |
| Other, net                                   |       | (14                                                 | )          | (622                                              | )          | (378 | ) | (592 | ) |
|                                         |       | (6,636                                              | )          | (7,671                                            | )          | (12,836 | ) | (14,663 | ) |
|                                         |       |                                                |       |                                              |       |   |   |   |   |
| Earnings before income  taxes                |       | 21,394                                              |       | 15,939                                            |       | 39,634 |   | 33,398 |   |
| Income taxes                                 |       | (5,859                                              | )          | (4,011                                            | )          | (10,820 | ) | (9,685 | ) |
| Net earnings                                 |       | $                                                   | 15,535     |                                              | $          | 11,928 |   | $ | 28,814 |   | $ | 23,713 |   |
|                                         |       |                                                |       |                                              |       |   |   |   |   |
| Earnings per common  share:                  |       |                                                |       |                                              |       |   |   |   |   |
| Basic                                        |       | $                                                   | 0.50       |                                              | $          | 0.39 |   | $ | 0.94 |   | $ | 0.78 |   |
| Diluted                                      |       | $                                                   | 0.49       |                                              | $          | 0.39 |   | $ | 0.92 |   | $ | 0.77 |   |
|                                         |       |                                                |       |                                              |       |   |   |   |   |
| Weighted average common  shares outstanding: |       |                                                |       |                                              |       |   |   |   |   |
| Basic                                        |       | 30,808,018                                          |       | 30,348,830                                        |       | 30,734,081 |   | 30,321,662 |   |
| Diluted                                      |       | 31,402,758                                          |       | 30,787,829                                        |       | 31,234,851 |   | 30,799,337 |   |
|                                         |       |                                                |       |                                              |       |   |   |   |   |
| Dividends declared per common share          |       | $                                                   | 0.06       |                                              | $          | 0.06 |   | $ | 0.12 |   | $ | 0.12 |   |

 

Seeaccompanying notes to consolidated financial statements.

3

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**MACDERMID, INCORPORATEDCONSOLIDATED BALANCE SHEETS**(Amounts in thousands of dollars except share data) 
| ** **                                                                                                                                                       | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                       | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| ** **                                                                                                                                                       | ** ** | **(Unaudited)**   | ** ** | **(Unaudited)**       | ** ** |
| ** **                                                                                                                                                       | ** ** | ** **        | ** ** | **(Restated)**        | ** ** |
| Assets                                                                                                                                                           |       |              |       |                  |       |
| Current assets:                                                                                                                                                  |       |              |       |                  |       |
| Cash and cash  equivalents                                                                                                                                       |       | $                 | 99,041     |                  | $          | 80,932 |   |
| Accounts receivable,  net of allowance for doubtful receivables of $11,459 and $10,966,  respectively                                                            |       | 170,001           |       | 155,718               |       |
| Inventories, net                                                                                                                                                 |       | 115,886           |       | 92,973                |       |
| Prepaid expenses                                                                                                                                                 |       | 13,710            |       | 14,108                |       |
| Deferred income taxes                                                                                                                                            |       | 15,589            |       | 16,629                |       |
| Total current  assets                                                                                                                                            |       | 414,227           |       | 360,360               |       |
|                                                                                                                                                             |       |              |       |                  |       |
| Property, plant and  equipment, net of accumulated depreciation of $197,687 and $184,499,  respectively                                                          |       | 122,229           |       | 123,229               |       |
| Goodwill                                                                                                                                                         |       | 250,934           |       | 242,935               |       |
| Intangibles, net of  accumulated amortization of $18,239 and $14,793, respectively                                                                               |       | 42,211            |       | 40,916                |       |
| Deferred income taxes                                                                                                                                            |       | 37,073            |       | 37,667                |       |
| Other assets, net                                                                                                                                                |       | 14,946            |       | 14,820                |       |
| Total assets                                                                                                                                                     |       | $                 | 881,620    |                  | $          | 819,927 |   |
|                                                                                                                                                             |       |              |       |                  |       |
| Liabilities and  shareholders’ equity                                                                                                                       |       |              |       |                  |       |
| Current liabilities:                                                                                                                                             |       |              |       |                  |       |
| Accounts payable                                                                                                                                                 |       | $                 | 68,798     |                  | $          | 60,202 |   |
| Dividends payable                                                                                                                                                |       | 1,850             |       | 1,836                 |       |
| Accrued compensation                                                                                                                                             |       | 16,726            |       | 16,261                |       |
| Accrued interest                                                                                                                                                 |       | 13,043            |       | 12,784                |       |
| Accrued income taxes  payable                                                                                                                                    |       | 10,189            |       | 11,461                |       |
| Short-term notes  payable                                                                                                                                        |       | 1,001             |       | 498                   |       |
| Current installments of  long-term obligations                                                                                                                   |       | 221               |       | 232                   |       |
| Other current  liabilities                                                                                                                                       |       | 42,770            |       | 38,565                |       |
| Total current  liabilities                                                                                                                                       |       | 154,598           |       | 141,839               |       |
| Long-term debt and  capital lease obligations                                                                                                                    |       | 300,972           |       | 301,043               |       |
| Retirement benefits,  less current portion                                                                                                                       |       | 22,797            |       | 22,343                |       |
| Deferred income taxes                                                                                                                                            |       | 12,582            |       | 11,489                |       |
| Other long-term  liabilities                                                                                                                                     |       | 4,273             |       | 4,136                 |       |
| Total  liabilities                                                                                                                                               |       | 495,222           |       | 480,850               |       |
| Shareholders’ equity                                                                                                                                        |       |              |       |                  |       |
| Common stock,  authorized 75,000,000 shares, issued 47,365,063 at June 30, 2006, and  47,131,950 shares at December 31, 2005, at stated value of $1.00 per share |       | 47,365            |       | 47,132                |       |
| Additional paid-in  capital                                                                                                                                      |       | 47,985            |       | 42,869                |       |
| Retained earnings                                                                                                                                                |       | 391,924           |       | 366,807               |       |
| Accumulated other  comprehensive (loss) income                                                                                                                   |       | 13,778            |       | (3,051                | )          |
| Less — cost of common  shares held in treasury, 16,545,831 at June 30, 2006, 16,546,763 at December  31, 2005                                               |       | (114,654          | )          | (114,680              | )          |
| Total  shareholders’ equity                                                                                                                                 |       | 386,398           |       | 339,077               |       |
| Total liabilities and shareholders’ equity                                                                                                                  |       | $                 | 881,620    |                  | $          | 819,927 |   |

 

See accompanying notes to consolidated financialstatements.

4

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## **MACDERMID, INCORPORATEDCONSOLIDATED STATEMENTS OF CASH FLOWS**(Amounts in thousands of dollars)(Unaudited)

| ** **                                                                         | ** ** | **Six months ended June 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                         | ** ** | **2006**                                          | ** ** | **2005** | ** ** |
| Net cash flows from  operating activities:                                         |       |                                              |       |   |   |
| Net earnings                                                                       |       | $                                                 | 28,814     |   | $ | 23,713 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                                              |       |   |   |
| Depreciation                                                                       |       | 9,913                                             |       | 7,617 |   |
| Amortization                                                                       |       | 2,970                                             |       | 1,788 |   |
| Provision for  bad debts                                                           |       | 573                                               |       | 738 |   |
| Deferred income  taxes                                                             |       | 3,509                                             |       | 625 |   |
| Stock  compensation expense                                                        |       | 2,248                                             |       | 4,050 |   |
| Restructuring                                                                      |       | 2,107                                             |       | — |   |
| In-process  research and development                                               |       | —                                            |       | 386 |   |
| Changes in assets and  liabilities                                                 |       |                                              |       |   |   |
| Increase in  receivables                                                           |       | (9,146                                            | )          | (11,414 | ) |
| Increase in  inventories                                                           |       | (19,669                                           | )          | (7,948 | ) |
| Decrease in  prepaid expenses                                                      |       | 878                                               |       | 71 |   |
| Increase in  accounts payable                                                      |       | 5,727                                             |       | 1,016 |   |
| Increase  (decrease) in accrued expenses                                           |       | (704                                              | )          | 1,542 |   |
| Increase  (decrease) in income tax liabilities                                     |       | (2,090                                            | )          | 2,024 |   |
| Other                                                                              |       | (4,194                                            | )          | 2,660 |   |
| Net cash flows  provided by operating activities                                   |       | 20,936                                            |       | 26,868 |   |
|                                                                               |       |                                              |       |   |   |
| Cash flows from  investing activities:                                             |       |                                              |       |   |   |
| Capital  expenditures                                                              |       | (5,099                                            | )          | (7,826 | ) |
| Proceeds from  disposition of fixed assets                                         |       | 289                                               |       | 778 |   |
| Acquisition of  business, net of cash acquired                                     |       | —                                            |       | (89,270 | ) |
| Disposition of  business                                                           |       | —                                            |       | 263 |   |
| Net cash flows  used in investing activities                                       |       | (4,810                                            | )          | (96,055 | ) |
|                                                                               |       |                                              |       |   |   |
| Cash flows from  financing activities:                                             |       |                                              |       |   |   |
| Net short-term  borrowings (repayments)                                            |       | 443                                               |       | 10,912 |   |
| Repayments of  long-term borrowings                                                |       | (156                                              | )          | (255 | ) |
| Issuance from  treasury shares                                                     |       | 26                                                |       | 33 |   |
| Proceeds from  exercise of stock options                                           |       | 3,101                                             |       | 260 |   |
| Dividends paid                                                                     |       | (3,682                                            | )          | (3,031 | ) |
| Net cash flows  provided by (used in) financing activities                         |       | (268                                              | )          | 7,919 |   |
|                                                                               |       |                                              |       |   |   |
| Effect of exchange rate  changes on cash and cash equivalents                      |       | 2,251                                             |       | (6,447 | ) |
| Net (decrease) increase  in cash and cash equivalents                              |       | 18,109                                            |       | (67,715 | ) |
| Cash and cash  equivalents at beginning of period                                  |       | 80,932                                            |       | 137,829 |   |
| Cash and cash  equivalents at end of period                                        |       | $                                                 | 99,041     |   | $ | 70,114 |   |
| Supplemental  disclosures of Cash Flow Information:                                |       |                                              |       |   |   |
| Cash paid for interest                                                             |       | $                                                 | 13,952     |   | $ | 14,731 |   |
| Cash paid for income taxes                                                         |       | $                                                 | 10,569     |   | $ | 7,627 |   |

 

See accompanying notes to consolidated financialstatements.

 

5

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MACDERMID,INCORPORATEDNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)(In thousands of dollars, except share and per share amounts)

Note 1.                                  Summary of Significant Accounting Policies

Basisof Presentation

Theaccompanying unaudited interim financial information has been prepared inaccordance with the interim reporting rules and regulations of the U.S.Securities and Exchange Commission and therefore does not include allinformation and footnotes necessary for a fair presentation of financial position,results of operations and cash flows in conformity with accounting principlesgenerally accepted in the United States (“GAAP”). Certain information andfootnote disclosures normally included in financial statements prepared inaccordance with GAAP have been omitted. The preparation of financial statements, in conformity with GAAP,requires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingencies at thedate of the financial statements as well as the reported amounts of revenuesand expenses during the reporting period. Estimates have been prepared on thebasis of the most current and best available information and actual resultscould differ from those estimates.  Certain amounts in the prior periodhave been restated to conform to current period presentation, including theDecember 31, 2005 balance sheet accounts of Goodwill, Intangibles, TotalAssets, Accumulated Other Comprehensive (Loss) Income, Total Shareholders’ Equityand Total Liabilities and Shareholders’ Equity (See Notes 2 and 7 below) andthe June 30, 2005 foreign currency translation adjustment (see Note 8below).  Below are tables that presentthe balances that have been restated from previously reported amounts due to acorrection of an error in accounting for the Company’s historical goodwill andintangible balances:
| **Balance Sheet Items**               | ** ** | **December 31, 2005  balance, as reported** | ** ** | **Restatement**

**Adjustments** | ** ** | **December 31, 2005  balance, restated** | ** ** |
|-------------------------------------------------|------------|-----------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------------------------------|------------|
| Goodwill                                        |       | $                                                               | 236,532    |                             | $          | 6,403                                                   |       | $ | 242,935 |   |
| Intangibles, net                                |       | 40,128                                                          |       | 788                              |       | 40,916                                                  |       |
| Accumulated Other  Comprehensive (Loss) Income  |       | (10,242                                                         | )          | 7,191                            |       | (3,051                                                  | )          |
| Total Assets                                    |       | 812,736                                                         |       | 7,191                            |       | 819,927                                                 |       |
| Total Shareholders’  Equity                |       | 331,886                                                         |       | 7,191                            |       | 339,077                                                 |       |
| Total Liabilities and Shareholders’ Equity |       | 812,736                                                         |       | 7,191                            |       | 819,927                                                 |       |
|                                                 |            |                                                                 |            |                                  |            |                                                         |            |  |  |  |

 
| **Other  Comprehensive Income**          | ** ** | **Three months ended  June 30, 2005  balance, as reported** | ** ** | **Restatement**

**Adjustments** | ** ** | **Three months ended  June 30, 2005  balance, restated** | ** ** |
|------------------------------------------|------------|-------------------------------------------------------------------------------------------|------------|----------------------------------|------------|-----------------------------------------------------------------------------------|------------|
| Foreign currency  translation adjustment |       | $                                                                                         | (10,288    | )                                | $          | (7,092                                                                            | )          | $ | (17,380 | ) |
| Other                                    |       | 545                                                                                       |       | 2,539                            |       | 3,084                                                                             |       |
| Comprehensive income  (loss)             |       | $                                                                                         | 2,185      |                             | $          | (4,553                                                                            | )          | $ | (2,368 | ) |

 
| **Other Comprehensive Income** | ** ** | **Six months ended  June 30, 2005  balance, as reported** | ** ** | **Restatement**

**Adjustments** | ** ** | **Six months ended  June 30, 2005  balance, restated** | ** ** |
|------------------------------------------|------------|-----------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------------------------------------------------------|------------|
| Foreign currency  translation adjustment |       | $                                                                                       | (17,067    | )                                | $          | (9,748                                                                          | )          | $ | (26,815 | ) |
| Other                                    |       | 709                                                                                     |       | 3,003                            |       | 3,712                                                                           |       |
| Comprehensive income                     |       | $                                                                                       | 7,355      |                             | $          | (6,745                                                                          | )          | $ | 610 |   |

 

Inthe opinion of MacDermid, Incorporated and its subsidiaries (collectively “MacDermid” or the “Company”)management, the accompanying unaudited consolidated  financial statements of the interim periodspresented contain all adjustments necessary to present fairly the financialposition of MacDermid as of June 30, 2006 and the results of operations andcash flows for the periods presented. All such adjustments are of a normal recurring nature. The results ofoperations for the three and six months ended June 30, 2006 are not necessarilyindicative of the results that may be achieved for a full year and cannot beused to indicate financial performance for the entire year.  These financial statements should be read inconjunction 

6

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withthe notes to the consolidated financial statements contained in MacDermid’sAnnual Report for the year ended December 31, 2005.

Note 2.                                  Goodwill and Intangible Assets CurrencyTranslation Restatement Adjustments

In the first quarter of 2006, the Company reviewed its foreign currencyconversion rates used to convert goodwill and intangible assets. Beginning in2002, the Company held all goodwill and certain intangible assets related tothe acquisition of Canning Ltd. (“Canning intangibles”) constant at historiccurrency conversion rates, effectively holding the value of goodwill andCanning intangibles constant at 2002 currency conversion rates.  This resulted in an understatement ofgoodwill and Canning intangibles as of December 31, 2005.  In connection with the Company adopting theprovision of Statement of Financial Accounting Standards No. 154, AccountingChanges and Error Corrections, in the first quarter of 2006, the Companyrestated the December 31, 2005 balances of Goodwill, Intangibles and OtherComprehensive (Loss) Income to correct an error related to foreign currencytranslation.  As a result, the Companymade certain restatement adjustments to the December 31, 2005 ConsolidatedBalance Sheet to state these assets at the correct currency conversionrates.   The Company also restated OtherComprehensive Income for the three and six months ended June 30, 2005 tocorrect an error related to foreign currency translation (see note 8 below).

Uponfurther investigation the Company’s management determined that goodwill relatedto the 1998 acquisition of Canning Ltd. had been pushed-down into the books of theacquisition holding company instead of being pushed-down to the books of thegeographic business segments, where it is tested for impairment.  The Company should have allocated thegoodwill into the books of the regional business segments benefiting from theacquisition.  The goodwill, however, waspushed-down to, and denominated in British Pounds as opposed to beingpushed-down to, and denominated in the currencies of the regions that benefitfrom the goodwill.

The restatement adjustments necessary to properly convert goodwill andintangible assets are offset with a corresponding restatement adjustment to theAccumulated Other Comprehensive (Loss) Income section of Shareholders’ Equityin the December 31, 2005 Consolidated Balance Sheet, as described in Notes 7and 8 below.

These restatementadjustments have no impact on earnings as reported in the Company’s financialstatements dated December 31, 2005, or any of the tangible assets andliabilities accounts stated therein.  Forfinancial reporting purposes, the Company treated these restatement adjustmentssimilar to a reclassification of the affected December 31, 2005 balances.

Therestatement adjustments to the Company’s Goodwill, Intangible Assets, andAccumulated Other Comprehensive (Loss) Income are as follows:
| **Balance Sheet Item**               | ** ** | **December 31, 2005  balance, as reported** | ** ** | **Restatement  Adjustments** | ** ** | **December 31, 2005  balance, restated** | ** ** |
|------------------------------------------------|------------|-----------------------------------------------------------------|------------|------------------------------|------------|---------------------------------------------------------|------------|
| Goodwill                                       |       | $                                                               | 236,532    |                         | $          | 6,403                                                   |       | $ | 242,935 |   |
| Intangibles, net                               |       | 40,128                                                          |       | 788                          |       | 40,916                                                  |       |
| Accumulated Other  Comprehensive (Loss) Income |       | (10,242                                                         | )          | 7,191                        |       | (3,051                                                  | )          |
|                                                |            |                                                                 |            |                              |            |                                                         |            |  |  |  |

 

Asa result of the above restatement adjustments, the following balance sheettotals changed as follows:
| **Balance Sheet Totals**               | ** ** | **December 31, 2005  balance, as reported** | ** ** | **Restatement  Adjustments** | ** ** | **December 31, 2005  balance, restated** | ** ** |
|--------------------------------------------------|------------|-----------------------------------------------------------------|------------|------------------------------|------------|---------------------------------------------------------|------------|
| Total Assets                                     |       | $                                                               | 812,736    |                         | $          | 7,191                                                   |       | $ | 819,927 |   |
| Total  Shareholders’ Equity                 |       | 331,886                                                         |       | 7,191                        |       | 339,077                                                 |       |
| Total Liabilities and  Shareholders’ Equity |       | 812,736                                                         |       | 7,191                        |       | 819,927                                                 |       |
|                                                  |            |                                                                 |            |                              |            |                                                         |            |  |  |  |

 

Asa result of these restatement adjustments, the Company re-performed its goodwilland intangible assets impairment tests for 2005.  The Company added the respective restatementadjustments and compared the adjusted net assets to the discounted cash flows,as calculated in the original impairment test. The restatement adjustments noted above did not trigger an impairment,and as such, the Company concluded that there is no impairment to its goodwillor intangible assets (including the Canning intangibles) as a result of theabove restatement adjustments.

OnJune 20, 2001, MacDermid issued 9 1/8% Senior Subordinated Notes (“BondOffering”) due 2011.  Under the BondOffering the Company is required to perform tests of certain metrics in orderto demonstrate that the Company meets 

7

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restrictivecovenants embedded in the Bond Offering. As a result of the restatement adjustments noted above, the Companyrestated its goodwill balances and re-performed the net worth, restrictedpayment, and indebtedness covenant tests as of December 31, 2005, as calculatedin accordance with Bond Offering agreement. The restatement adjustments noted above did not trigger a default, andas such, the Company concluded that the above restatement adjustments had noimpact on its Bond Offering covenant tests as of December 31, 2005.

Note 3.                                  New Accounting Standards

In July 2006, theFinancial Accounting Standards Board (FASB) released FASB Interpretation No.48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASBStatement No. 109” (“FIN 48”).  FIN 48 clarifies the accounting andreporting for uncertainties in income tax law.  This Interpretationprescribes a comprehensive model for the financial statement recognition,measurement, presentation and disclosure of uncertain tax positions taken orexpected to be taken in income tax returns.  We will adopt thisInterpretation in the first quarter of 2007.  The cumulative effects, ifany, of applying this Interpretation will be recorded as an adjustment toretained earnings as of the beginning of the period of adoption.  TheCompany is currently in the process of evaluating the expected effect of FIN 48on its consolidated financial statements and is currently not yet in a positionto determine such effects.

In April 2006, the FASBissued FASB Staff Position (FSP) FIN 46(R)-6, “Determining the Variability toBe Considered in Applying FASB Interpretation No. 46(R)” (“FSP FIN 46(R)-6”),that will become effective beginning third quarter of 2006. FSP FIN No. 46(R)-6clarifies that the variability to be considered in applying FASB Interpretation46(R) shall be based on an analysis of the design of the variable interestentity.   The Company is currently in theprocess of evaluating the expected effect of FSP FIN No. 46(R)-6 on itsconsolidated financial statements and is not yet in a position to determinesuch effects.

InMay 2005, the FASB issued Statement of Financial Accounting StandardsNo. 154, Accounting Changes and Error Corrections — a replacement ofAPB Opinion No. 20 and FASB Statement No. 3 (“SFAS 154”). Thisstatement applies to all voluntary changes in accounting principle and changesrequired by an accounting pronouncement where no specific transition provisionsare included. SFAS 154 requires retrospective application to prior periods’financial statements of changes in accounting principle, unless it isimpracticable to determine either the period-specific effects or the cumulativeeffect of the change. Retrospective application is limited to the directeffects of the change; the indirect effects should be recognized in the periodof the change.  The Company adopted theprovisions of SFAS 154 in the first quarter of 2006.  The adoption of SFAS 154 did not have amaterial impact on the Company’s financial position, results of operations orcash flows.

Note 4.                                  Acquisitions

OnJune 14, 2005, MacDermid acquired all of the outstanding capital stock ofAutotype International Ltd. and associated entities (“Autotype”) from NorcrosIndustry (International) Limited of the UK. The Autotype business acquired is a high technology producer ofspecialty coated film products for the electronics and printing industries. Inelectronics, Autotype is a producer of hard coated films for the membraneswitch and touch screen markets.  Inprinting, Autotype provides high quality stencil materials and digital pre-pressproducts for screen printing.  Thepurchase price was $97,031, net of cash acquired of $4,599.

Theacquisition was accounted for under the purchase method of accounting, andaccordingly, the purchase price was allocated to the acquired assets and liabilitiesbased on preliminary estimates of the fair values of the assets purchased andliabilities assumed as of the date of acquisition.  The estimated purchase price allocations aresubject to adjustment, generally within one year of the date of acquisition.  Adjustments to the purchase price allocationduring the six months ended June 30, 2006 included primarily the workingcapital revisions and facility consolidation costs described in Note 12.  Allocation of the purchase price is asfollows:

8

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| Current assets, net of cash  acquired         |   | $       | 30,673 |   |
|-----------------------------------------------|--------|---------|--------|--------|
| Fixed assets and  other                       |   | 22,586  |   |
| Intangible  assets                            |   | 15,794  |   |
| Acquired  in-process research and development |   | 386     |   |
| Goodwill                                      |   | 42,048  |   |
| Total assets acquired                         |   | 111,487 |   |
| Current  liabilities                          |   | (12,641 | )      |
| Long-term debt                                |   | (377    | )      |
| Deferred tax  liability                       |   | (6,037  | )      |
| Total liabilities assumed                     |   | (19,055 | )      |
| Net assets acquired                           |   | $       | 92,432 |   |

 

Theresults of operations from the Autotype acquisition were included in theaccompanying Consolidated Financial Statements since the acquisition date.

Note 5.                                  Earnings Per Common Share and Other CommonShare Information

Earningsper share (“EPS”) is calculated based upon net earnings available for commonshareholders. The computation of basic earnings per share is based upon theweighted average number of outstanding common shares.  The computation of diluted earnings per shareis based upon the weighted average number of outstanding common shares plus theeffect of all dilutive contingently issuable common shares from stock options,stock awards and warrants that were outstanding during the period, under thetreasury stock method.  For the threemonths ended June 30, 2006 and 2005, 1,765,726 and 2,418,015,respectively, of options to purchase shares of common stock were outstandingbut not included in the computation of diluted earnings per share because theeffect would have been anti-dilutive. For the six months ended June 30,2006 and 2005, 2,211,699 and 2,417,983, respectively, of options to purchaseshares of common stock were outstanding but not included in the computation ofdiluted earnings per share because the effect would have been anti-dilutive

Thefollowing table reconciles basic weighted-average common shares outstanding todiluted weighted-average common shares outstanding:
| ** **                        | ** ** | **Three Months Ended June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|-----------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                        | ** ** | **2006**                                            | ** ** | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| Basic common  shares              |       | 30,808,018                                          |       | 30,348,830                                        |       | 30,734,081 |   | 30,321,662 |   |
| Dilutive effect  of stock options |       | 594,740                                             |       | 438,999                                           |       | 500,770 |   | 477,675 |   |
| Diluted common shares             |       | 31,402,758                                          |       | 30,787,829                                        |       | 31,234,851 |   | 30,799,337 |   |

 

Note 6.                                  Stock-Based Plans

MacDermid grants stock options and stock awards to Boardmembers and to employees.   EffectiveJanuary 1, 2006, MacDermid adopted the provisions of Statement of Financial AccountingStandards No. 123(R), Share-Based Payment (“SFAS 123(R)”), which requires theuse of the fair value method of accounting for all stock-based compensation,including stock options.  SFAS 123(R) wasadopted using the modified prospective method of application.  Under this method, in addition to reflectingcompensation expense for new share-based awards, expense is also recognized forthose awards vesting in the current period based on the value that had been includedin pro forma disclosures in prior periods. Results from prior periods have not been restated.  Prior to the adoption of SFAS 123(R),MacDermid adopted the fair value expense recognition provisions of Statement ofFinancial Accounting Standards No. 123, Accounting for Stock Based Compensation(“SFAS 123”), prospectively, to all stock options granted, modified or settledafter April 1, 2001.  Accordingly,compensation expense was measured using the fair value at the date of grant foroptions granted after April 1, 2001.  Theresulting expense is amortized over the period in which the options areearned.    During the three and sixmonths ended June 30, 2006, $1,482 and $2,079, respectively, was charged toexpense related to stock options.  Duringthe three and six months ended June 30, 2005, $1,873 and $3,915, respectively,was charged to expense related to stock options.

The following table presents the weighted-average assumptionsused in the option pricing model for stock options granted during the three andsix months ended June 30, 2006 and 2005, respectively:

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| ** **                     | ** ** | **Three months Ended June 30,** | ** ** | **Six months Ended June 30,** | ** ** |
|--------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                     | ** ** | **2006**                                            | ** ** | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| Volatility                     |       | 28.9                                                | %          | 31.9                                              | %          | 28.9 | % | 31.9 | % |
| Risk-free  interest rate       |       | 5.07                                                | %          | 1.60                                              | %          | 5.07 | % | 1.60 | % |
| Dividend yield                 |       | 0.70                                                | %          | 0.49                                              | %          | 0.70 | % | 0.49 | % |
| Expected lives  (years)        |       | 8.0                                                 |       | 6.0                                               |       | 8.0 |   | 6.0 |   |
| Fair value per option  granted |       | $                                                   | 15.75      |                                              | $          | 11.07 |   | $ | 15.75 |   | $ | 11.07 |   |
|                                |            |                                                     |            |                                                   |            |  |  |  |  |  |  |  |  |

 

For all of MacDermid’s stock options, the fair value of eachgrant was estimated at the date of grant using the Black-Scholes option pricingmodel.  The expected life of the stockoptions represents the period of time the stock options are expected to beoutstanding and is based on historical trends.

MacDermidhas five stock incentive plans under which there are outstanding stockoptions.  These plans have different terms and features as described below:

Equity Incentive Plan

In 1996, MacDermid adopted a non-qualified equity incentiveplan, approved by the shareholders in July 1995 (the “1995 Plan”).  The 1995 Plan provides for the issuance of upto 900,000 shares.  In February 2006, theCompensation Committee of the Company proposed that the Company’s shareholdersconsider the following changes to the 1995 plan:

·                  increase the aggregatemaximum number of shares that may be granted in any one year from 50,000 to150,000;

·                  allow the CompensationCommittee to place additional restrictions and/or vesting requirements on anyaward;

·                  shorten the vesting termfrom four to three years;

·                  increase the retirement agefor accelerated vesting from 60 to 65, and

·                  change the pro-rata vestingto one-third per year over the three year vesting period in case of involuntarytermination without cause.

The changes above were approved by the Company’s shareholdersin May 2006.

All shares of restricted stock issued under this plan must beheld and cannot be sold or transferred, except to the Company, for a period ofthree or four years depending on the date the restricted shares were originallyawarded.  The Company recognizes compensationexpense for shares issued under this plan equal to the market value of theshares on the date of grant. For stock awards granted prior to 2006, the stockawards are granted at fair market value and the related expense is recognizedat the date of grant.  For stock awardsgranted after January 1, 2006, the stock awards are granted at fair marketvalue and the related expense is recognized over the vesting terms of stockawards.  The amount of expense recognizedduring the three and six months ended June 30, 2006 was $160 and $160,respectively.  The amount of expenserecognized during the three and six months ended June 30, 2005 was $0 and $135,respectively.  The following tablesummarizes stock award activity from December 31, 2005 through June 30, 2006regarding the Company’s equity incentive plan:
| **Equity Incentive Plan:**    | ** ** | **Shares** | ** ** | **Weighted Average  Grant Date Fair Value** | ** ** |
|-----------------------------------------|------------|------------|------------|-----------------------------------------------------------------|------------|
| Nonvested  balance at December 31, 2005 |       | 11,163     |       | $                                                               | 28.67      |   |
| Changes during  the period:             |       |       |       |                                                            |       |
| Shares granted                          |       | 76,665     |       | $                                                               | 34.40      |   |
| Shares vested                           |       | —     |       |                                                            |       |
| Shares forfeited                        |       | —     |       |                                                            |       |
| Nonvested balance at  June 30, 2006     |       | 87,828     |       | $                                                               | 33.67      |   |

 

As of June 30, 2006, there was $2,477 of total unrecognizedcompensation cost related to stock awards granted under the Equity IncentivePlan.  That cost is expected to berecognized over a weighted average period of 2.4 years.

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Stock Option Plans

The1992 Plan

In1993, MacDermid adopted a non-qualified stock option plan, approved byshareholders in July 1992 (the “1992 Plan”). The 1992 Plan provides for the issuance of up to 2,700,000 shares.  Options granted under the 1992 plan, whichvest between four and six years, are generally exercisable at a fixed pricethat can be as low as two-thirds of the market price at the grant date.  The options are exercisable into restrictedshares of common stock, which cannot be sold or transferred, except back toMacDermid at cost, during the four-year period commencing with the exercisedate.  In February 2006, MacDermid’sBoard of Directors voted to cancel all remaining unissued shares in the 1992Plan.  As of June 30, 2006, there were12,065 options outstanding under the 1992 plan.

The1998 Plan

MacDermidadopted a non-qualified stock option plan, approved by shareholders in July1999 (the “1998 Plan”).  The 1998 Planprovides for the issuance of up to 1,500,000 shares.  Options granted under the 1998 Plan generallyare exercisable during a ten-year period beginning with the grant date, at afixed price equal to a one-third-premium over market price at the date ofgrant.  The options are exercisable intounrestricted shares of common stock, except as otherwise provided, under theterms of the plan, at the time of grant. In February 2006, MacDermid’s Board of Directors voted to cancel allremaining unissued shares in the 1998 Plan. As of June 30, 2006, there were 793,400 options outstanding under the1998 plan.

The2001 Executive Plan

MacDermidadopted a non-qualified key executive stock option plan, approved byshareholders in July 2001 (the “2001 Executive Plan”).  The 2001 Executive Plan, as amended byMacDermid’s shareholders in 2004, provides for the issuance of up to 5,000,000shares.  Options granted under the 2001Executive Plan generally are exercisable during a six-year period beginning atthe vesting date, which is four years after the grant date.  The options are exercisable into unrestrictedshares of common stock, except as otherwise provided at the time of grant.  The options are also subject to an “IndexEffect”, which involves two tiers of variability:

·                  Theoption price is variable, either up or down, based upon the market price atdate of grant, adjusted for MacDermid’s stock price performance in comparisonto the Standard and Poor’s Specialty Chemicals Index during the six yearsfollowing the date of grant.  The optionsinitially had exercise prices ranging from $16.75 to $38.65 per share; theexercise prices of these options as of June 30, 2006, now range from $19.72 to$38.65 per share based on Company stock price performance.

·                  Thenumber of options exercisable is variable, either up or down, based upon amultiple either (a) determined by the cumulative percentage of owner earningsgrowth (defined as cash flow from operations less net capital expenditures), or(b) determined using earnings per share growth during the four year vestingperiod, based on targets set at the time of grant.  The multiple can range from 50% to 200% ofthe original shares issued.

Asof June 30, 2006, there were 2,724,994 options outstanding under the 2001Executive plan.

The2001 Employee Plan

In2001, the Company adopted a non-qualified all employee stock option plan,approved by shareholders in July 2001 (the “2001 Employee Plan”).  The 2001 Employee Plan provides for theissuance of up to 1,000,000 shares. Options granted under the 2001 Employee Plan generally are exercisableduring a six-year period beginning at the vesting date, which is four yearsafter the grant date, at a fixed price equal to the market price at the date ofgrant.  The options are exercisable intounrestricted shares of common stock, except as otherwise provided at the timeof grant.  In February 2006, MacDermid’sBoard of Directors voted to cancel all remaining unissued shares in the 2001Employee Plan.  As of June 30, 2006,there were 177,160 options outstanding under the 2001 Employee plan.

The2006 Plan

InFebruary 2006, the Company’s board of directors, adopted a non-qualified allemployee stock option plan approved by the Company’s shareholders in May 2006(the “2006 Plan”).  The 2006 Planprovides for the issuance of up to 1,100,000 shares.  Options granted under the 2006 Plan generallyare exercisable during a four-year period beginning at the vesting date, whichis six years after the grant date, at a price equal to the average of the Company’s closing common stock pricefor the previous 

11

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fivetrading days preceding the stock option grant. The options are exercisable into unrestricted shares of common stock,except as otherwise provided at the time of grant.  During the three and six months ended June30, 2006, 0 and 194,857, respectively, of stock options were granted toemployees, executive officers and non-employee directors of the Company at afair market price of $30.47.  As of June30, 2006, there are 905,144 shares available for future grant under the 2006plan.  Total compensation expense for thethree and six months ended June 30, 2006 related to stock options grants underthe 2006 plans was $85 and $85, respectively. Total compensation expense for the three and six months ended June 30,2005 related to stock options grants under the 2006 plans was $0 and $0,respectively.

The following table summarizes stock option activity fromDecember 31, 2005 through June 30, 2006 regarding the Company’s fixed stockoption plans:
| **Fixed Option Plans:** | ** ** | **Outstanding  Options** | ** ** | **Aggregate  Intrinsic  Value** | ** ** | **Weighted  Average  Exercise Price  Per Share** | ** ** | **Weighted  Average  Remaining  Contractual Term** | ** ** |
|-----------------------------------|------------|--------------------------|------------|---------------------------------|------------|------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| Outstanding,  December 31, 2005   |       | 1,047,435                |       |                            |       | $                                                          | 36.81      |                                                    | 4.2        |   |
| Granted                           |       | 194,856                  |       |                            |       | $                                                          | 30.47      |                                                    |       |   |
| Exercised                         |       | (58,210                  | )          |                            |       | $                                                          | 16.92      |                                                    |       |   |
| Forfeited                         |       | (6,599                   | )          |                            |       | $                                                          | 21.32      |                                                    |       |   |
| Outstanding,  June 30, 2006       |       | 1,177,482                |       | $                               | —     |                                                       | $          | 36.83                                                   |       | 4.6 |   |
| Exercisable, June 30,  2006       |       | 945,751                  |       | $                               | —     |                                                       | $          | 38.47                                                   |       | 3.4 |   |

 

The weighted-average grant date fair value of stock optionsgranted under fixed option plans during the three and six months ended June 30,2006 was $0 and $15.75, respectively. The weighted-average grant date fair value of stock options grantedunder fixed option plans during the three and six months ended June 30, 2005was $0 and $11.07, respectively.   Thetotal intrinsic value of stock options exercised under fixed option plansduring the three and six months ended June 30, 2006 was $403 and $799,respectively.   The total intrinsic valueof stock options exercised under fixed option plans during the three and sixmonths ended June 30, 2005 was $3,883 and $3,883, respectively.

As of June 30, 2006, there was $3,149 of unrecognizedcompensation costs related to non-vested stock options under the fixed optionplans that is expected to be recognized over a weighted average period of 4.6years.  The total fair value of stockoptions vested under the fixed option plans during the three and six monthsended June 30, 2006 was $0 and $54, respectively.  The total fair value of stock options vestedunder the fixed option plans during the three and six months ended June 30,2005 was $0 and $0, respectively.

The following table summarizes stock option activity fromDecember 31, 2005 through June 30, 2006 regarding the Company’s indexed stockoption plans:
| **Indexed Option Plan:** | ** ** | **Shares  Available  for Grant** | ** ** | **Outstanding  Options** | ** ** | **Aggregate  Intrinsic  Value** | ** ** | **Weighted  Average  Exercise Price  Per Share** | ** ** | **Weighted  Average  Remaining  Contractual Term** | ** ** |
|------------------------------------|------------|---------------------------------------|------------|--------------------------|------------|---------------------------------|------------|------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| Outstanding,  December 31, 2005    |       | 1,409,111                             |       | 3,524,889                |       |                            |       | $                                                          | 25.41      |                                                    | 6.8        |   |
| Granted                            |       | —                                |       | —                   |       |                            |       |                                                       |       |                                                    |       |
| Exercised                          |       | —                                |       | (97,500                  | )          |                            |       | $                                                          | 22.54      |                                                    |       |   |
| Forfeited                          |       | 70,500                                |       | (70,500                  | )          |                            |       | $                                                          | 32.99      |                                                    |       |   |
| Index effect                       |       | 298,987                               |       | (298,987                 | )          |                            |       | $                                                          | 12.40      |                                                    |       |   |
| Outstanding,  June 30, 2006        |       | 1,778,598                             |       | 3,057,902                |       | $                               | 12,385     |                                                       | $          | 26.61                                                   |       | 6.4 |   |
| Exercisable, June 30,  2006        |       | —                                |       | 1,397,777                |       | $                               | 11,126     |                                                       | $          | 22.70                                                   |       | 5.2 |   |

 

The weighted-average grant date fair value of stock optionsgranted under the indexed option plan during the three and six months endedJune 30, 2006 was $0 and $0, respectively. The weighted-average grant date fair value of stock options grantedunder the indexed option plan during the three and six months ended June 30,2005 was $0 and $11.07, respectively. The total intrinsic value of stockoptions exercised under indexed option plan during the three and six monthsended June 30, 2006 was $38 and $715, respectively.   The total intrinsic value of stock optionsexercised under indexed option plan during the three and six months ended June30, 2005 was $0 and $0, respectively.

As of June 30, 2006, there was $6,716 of unrecognizedcompensation costs related to non-vested stock options under the indexed optionplan that is expected to be recognized over a weighted average period of 5.2years.  The total fair value of stockoptions vested under the indexed option plan during the three and six monthsended June 30, 2006 was $28 and $4,586, 

12

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respectively.  Thetotal fair value of stock options vested under the indexed option plan duringthe three and six months ended June 30, 2005 was $0 and $0, respectively.

Note 7.                                  Goodwill and Other Intangible Assets

In the first quarter of 2006, the Company reviewed its foreign currencyconversion rates used to convert goodwill and intangible assets. Beginning in2002, the Company held all goodwill and certain intangible assets related tothe acquisition of Canning Ltd. (“Canning intangibles”) constant at historiccurrency conversion rates, effectively holding the value of goodwill andCanning intangibles constant at 2002 currency conversion rates.  This resulted in an understatement ofgoodwill and Canning intangibles as of December 31, 2005.  As a result, the Company has determined thatcertain restatement adjustments are necessary as described below to state theseassets at the current currency conversion rates.

Upon further investigation the Company’s management determined thatgoodwill related to the 1998 acquisition of Canning Ltd. had been pushed-downinto the books of the acquisition holding company instead of being pushed downto the books of the geographic business segments, where it is tested forimpairment.  The Company should haveallocated the goodwill into the books of the regional business segmentsbenefiting from the acquisition.  Thegoodwill, however, was “pushed down” to, and denominated in British Pounds asopposed to being pushed-down to, and denominated in the currencies of theregions to which the goodwill benefits.

Acquired intangible assets as of June 30, 2006 and December 31, 2005,are as follows:

|            | ** ** | **As of June 30, 2006** | ** ** |
|------------|------------|---------------------------------------------|------------|
| ** ** | ** ** | **Gross Carrying**                     | ** ** | **Accumulated** | ** ** | **Net** | ** ** |
| ** ** | ** ** | **Amount**                                  | ** ** | **Amortization** | ** ** | **Amount** | ** ** |
| Patents    |       | $                                           | 18,736     |   | $ | (10,815 | ) | $ | 7,921 |   |
| Trademarks |       | 21,850                                      |       | (3,230 | ) | 18,620 |   |
| Others     |       | 19,864                                      |       | (4,194 | ) | 15,670 |   |
| Total      |       | $                                           | 60,450     |   | $ | (18,239 | ) | $ | 42,211 |   |

 

|            | ** ** | **As of December 31, 2005** | ** ** |
|------------|------------|-------------------------------------------------|------------|
| ** ** | ** ** | **As Reported  Gross Carrying**       | ** ** | **Restatement  Foreign Currency** | ** ** | **Accumulated** | ** ** | **Restated Net** | ** ** |
| ** ** | ** ** | **Amount**                                      | ** ** | **Adjustments** | ** ** | **Amortization** | ** ** | **Amount** | ** ** |
| Patents    |       | $                                               | 17,573     |   | $ | 252 |   | $ | (9,276 | ) | $ | 8,549 |   |
| Trademarks |       | 19,908                                          |       | 536 |   | (2,671 | ) | 17,773 |   |
| Others     |       | 17,440                                          |       | — |   | (2,846 | ) | 14,594 |   |
| Total      |       | $                                               | 54,921     |   | $ | 788 |   | $ | (14,793 | ) | $ | 40,916 |   |

 

In February 2006, the Company re-evaluated the value assigned toAutotype’s intangible assets and the revised valuation increased the value ofthe technology know-how intangible asset by $2,145.  This amount was deducted from Goodwill andcharged to the intangible asset account. In March 2006, the Company notified employees in Autotype’s Kvistgaard,Denmark facility that the plant would be relocated to Wantage, England, andadded $369 to goodwill pursuant to Emerging Issues Task Force No. 95-3, Recognitionof Liabilities in Connection with a Purchase Business Combination (“EITF 95-3”)related to employee severance benefits. In March 2006, Goodwill was reduced by an adjustment of $135 to true-upseverance costs related to Autotype’s Schaumberg, Illinois plant.  In June 2006, the Company recorded anadditional amount of $890 to goodwill related to the closure of Autotype’sKvistgaard, Denmark facility in accordance with EITF 95-3 related to thefacility closure.  The Company alsorecorded in June 2006 an amount of $180 to goodwill related to closure ofAutotype’s Schaumberg, Illinois plant in accordance with EITF 95-3.

Amortization expense related to amortization of intangible assets forthe three and six months ended June 30, 2006, was $1,433 and $2,895, respectively.  Amortization expense related to amortizationof intangible assets for the three and six months ended June 30, 2005, was $427and $836, respectively.  Amortization expensefor intangible assets is expected to range from $3,862 to $4,519 over the nextfive years.

Useful lives for amortizable patents are approximately fifteenyears.  Other intangible assets haveuseful lives of five to fifteen years.

The following table presents the changes in goodwill allocated to thereportable segments for the six months ended June 30, 2006: 

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| **Reportable Segment** | ** ** | **As reported  balance at  December 31,  2005** | ** ** | **Restatement  Allocation and  Foreign Currency  Adjustments** | ** ** | **Restated**

**Balance at  December 31,  2005** | ** ** | **Acquisitions  and Purchase  Accounting  Adjustments** | ** ** | **Six months  ended June 30,  2006 Currency  Translation  Adjustments** | ** ** | **Balance at  June 30, 2006** | ** ** |
|-----------------------------|------------|----------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|--------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|
| Advanced Surface  Finishing |       | $                                                              | 155,953    |                                                                     | $          | (3,457                                                     | )          | $                                                            | 152,496    |                                                                                        | $          | (1,112                                       | )          | $ | 7,035 |   | $ | 158,419 |   |
| Printing  Solutions         |       | 80,579                                                         |       | 9,860                                                                    |       | 90,439                                                     |       | 866                                                          |       | 1,210                                                                                       |       | 92,515                                       |       |
| Total                       |       | $                                                              | 236,532    |                                                                     | $          | 6,403                                                      |       | $                                                            | 242,935    |                                                                                        | $          | (246                                         | )          | $ | 8,245 |   | $ | 250,934 |   |

 

Included in the June 30, 2006 amounts above is the allocation ofgoodwill from the June 2005 Autotype acquisition, which is based on thepurchase price allocation and totals $32,776 and $9,453, respectively, for theAdvanced Surface Finishing and the Printing Solutions segments.   Included in the December 31, 2005 amountsabove is the allocation of goodwill from the June 2005 Autotype acquisition,which is based on the purchase price allocation and totals $33,796 and $8,449,respectively, for the Advanced Surface Finishing and the Printing Solutionssegments.

Statement of Financial Accounting Standards No. 142, Goodwill and OtherIntangible Assets (“SFAS 142”), stipulates that MacDermid is required to performgoodwill and other intangible asset impairment tests on at least an annualbasis and more frequently in certain circumstances.  MacDermid will perform the annual impairmenttesting for 2006 during the fourth fiscal quarter.  Currently, MacDermid is not aware of anyevent that occurred since the last impairment testing date that would havecaused the Company’s goodwill or intangible assets to become impaired.

Note 8.                                  Other Comprehensive Income

Therestatement adjustments necessary to properly convert goodwill and intangibleassets are offset with a corresponding restatement adjustment to theAccumulated Other Comprehensive (Loss) Income section of Shareholders’ Equityas described in Notes 2 and 7 above. These restatement adjustments have no impact on earnings as reported inthe Company’s financial statements dated December 31, 2005, or any of thetangible assets or liabilities.

Thecomponents of comprehensive income for the three and six months ended June 30,2006 and 2005, are as follows:
| ** **                              | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                              | ** ** | **2006**                                            | ** ** | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                              | ** ** | ** **                                          | ** ** | **(restated)**                                    | ** ** | ** ** | ** ** | **(restated)** | ** ** |
| Net earnings                            |       | $                                                   | 15,535     |                                              | $          | 11,928 |   | $ | 28,814 |   | $ | 23,713 |   |
| Other  comprehensive income:            |       |                                                |       |                                              |       |   |   |   |   |
| Other                                   |       | 855                                                 |       | 3,084                                             |       | 786 |   | 3,712 |   |
| Foreign currency translation adjustment |       | 11,085                                              |       | (17,380                                           | )          | 16,043 |   | (26,815 | ) |
| Comprehensive income  (loss)            |       | $                                                   | 27,475     |                                              | $          | (2,368 | ) | $ | 45,643 |   | $ | 610 |   |

 

Note 9.                                  Segment Reporting

MacDermid operates on a worldwide basis, supplyingproprietary chemicals for two distinct segments, Advanced Surface Finishing andPrinting Solutions.  These segments aremanaged separately as each segment has differences in technology and marketingstrategies.  Chemicals supplied by the AdvancedSurface Finishing segment are used for cleaning, activating, polishing,mechanical plating and galvanizing, electro-plating, phosphatising, strippingand coating, filtering, anti-tarnishing and rust retarding for metal andplastic surfaces associated with automotive and industrial applications. TheAdvanced Surface Finishing segment also supplies chemicals for etching copperand imprinting electrical patterns for various electronics applications andlubricants and cleaning agents associated with offshore oil and gasoperations.  The products supplied by thePrinting Solutions segment include offset printing blankets and photo-polymerplates used in packaging and newspaper printing, offset printing applications,and digital printers and related supplies. Net sales for all of our products fall into one of these two businesssegments.

The results of operations for each business segment includecertain corporate operating costs which are allocated based on the relativeburden each segment bears on those costs. Identifiable assets for each business segment are reconciled to total consolidatedassets including unallocated corporate assets. Unallocated corporate assets consist primarily of deferred tax 

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assets, deferred bond financing fees and certain other longterm assets not directly associated with the support of the individualsegments.  Intersegment loans andaccounts receivable are included in the calculation of identifiable assets andare eliminated separately.
| ** **                         | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                         | ** ** | **2006**                                            | ** ** | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| Results of  operations by segment: |       |                                                |       |                                              |       |   |   |   |   |
| Net sales:                         |       |                                                |       |                                              |       |   |   |   |   |
| Advanced Surface Finishing         |       |                                                |       |                                              |       |   |   |   |   |
| Total segment net sales            |       | $                                                   | 124,085    |                                              | $          | 105,744 |   | $ | 243,134 |   | $ | 207,052 |   |
| Intersegment sales                 |       | (1,990                                              | )          | (2,411                                            | )          | (3,878 | ) | (4,578 | ) |
| Net external sales for the segment |       | 122,095                                             |       | 103,333                                           |       | 239,256 |   | 202,474 |   |
| Printing Solutions                 |       | 85,162                                              |       | 74,948                                            |       | 168,359 |   | 146,054 |   |
| Consolidated net sales             |       | $                                                   | 207,257    |                                              | $          | 178,281 |   | $ | 407,615 |   | $ | 348,528 |   |
|                               |       |                                                |       |                                              |       |   |   |   |   |
| Operating profit  (loss):          |       |                                                |       |                                              |       |   |   |   |   |
| Advanced Surface Finishing         |       | $                                                   | 18,709     |                                              | $          | 16,705 |   | $ | 36,050 |   | $ | 30,840 |   |
| Printing Solutions                 |       | 9,321                                               |       | 6,905                                             |       | 16,420 |   | 17,221 |   |
| Consolidated  operating profit     |       | $                                                   | 28,030     |                                              | $          | 23,610 |   | $ | 52,470 |   | $ | 48,061 |   |

 

|                                  | ** ** | **As of**    | ** ** |
|----------------------------------|------------|-------------------|------------|
| ** **                       | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
| ** **                       | ** ** | **2006**          | ** ** | **2005 (Restated)** | ** ** |
| Identifiable  assets by segment: |       |              |       |   |   |
| Advanced Surface Finishing       |       | $                 | 544,841    |   | $ | 550,364 |   |
| Printing Solutions               |       | 350,073           |       | 316,050 |   |
| Unallocated corporate assets     |       | 126,403           |       | 95,430 |   |
| Intercompany eliminations        |       | (139,697          | )          | (141,917 | ) |
| Consolidated  assets             |       | $                 | 881,620    |   | $ | 819,927 |   |

 

Note 10.                            Inventory

The major components of inventory as of June 30, 2006 and December 31,2005, were as follows:

|                             | ** ** | **June 30, 2006** | ** ** | **December 31, 2005** | ** ** |
|-----------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| Finished goods              |       | $                           | 70,740     |                            | $          | 51,820 |   |
| Raw materials  and supplies |       | 38,404                      |       | 35,679                          |       |
| Equipment                   |       | 6,742                       |       | 5,474                           |       |
| Inventories, net            |       | $                           | 115,886    |                            | $          | 92,973 |   |

 

Note 11.                            Pension and Postretirement Benefit Plans

Thefollowing table shows the components of the net periodic pension benefit coststhe Company incurred in the three and six months ended June30, 2006 and 2005:

 

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| ** **                           | ** ** | **Three Months Ended June 30,** | ** ** |
|--------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                           | ** ** | **2006**                                            | ** ** | **2005** | ** ** |
| ** **                           | ** ** | **Domestic**                                        | ** ** | **Foreign** | ** ** | **Domestic** | ** ** | **Foreign** | ** ** |
| Net periodic benefit  cost:          |       |                                                |       |   |   |   |   |   |   |
| Service Costs                        |       | $                                                   | 963        |   | $ | — |   | $ | 939 |   | $ | 144 |   |
| Interest Costs                       |       | 1,060                                               |       | 782 |   | 895 |   | 815 |   |
| Expected return on plan  assets      |       | (970                                                | )          | (897 | ) | (798 | ) | (807 | ) |
| Amortization of prior  service costs |       | 7                                                   |       | — |   | 6 |   | — |   |
| Recognized actuarial  loss           |       | 291                                                 |       | 260 |   | 83 |   | 55 |   |
| Net periodic benefit cost            |       | $                                                   | 1,351      |   | $ | 145 |   | $ | 1,125 |   | $ | 207 |   |

 
| ** **                           | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------|------------|---------------------------------------------------|------------|
| ** **                           | ** ** | **2006**                                          | ** ** | **2005** | ** ** |
| ** **                           | ** ** | **Domestic**                                      | ** ** | **Foreign** | ** ** | **Domestic** | ** ** | **Foreign** | ** ** |
| Net periodic benefit  cost:          |       |                                              |       |   |   |   |   |   |   |
| Service Costs                        |       | $                                                 | 2,085      |   | $ | — |   | $ | 1,875 |   | $ | 288 |   |
| Interest Costs                       |       | 2,137                                             |       | 1,530 |   | 1,793 |   | 1,630 |   |
| Expected return on plan  assets      |       | (1,927                                            | )          | (1,756 | ) | (1,596 | ) | (1,614 | ) |
| Amortization of prior  service costs |       | 14                                                |       | — |   | 12 |   | — |   |
| Recognized actuarial  loss           |       | 391                                               |       | 510 |   | 166 |   | 341 |   |
| Net periodic benefit cost            |       | $                                                 | 2,700      |   | $ | 284 |   | $ | 2,250 |   | $ | 645 |   |

 

Theestimated net periodic benefit cost for other postretirement benefits was $126and $252, respectively, for the three and six months ended June 30, 2006.  The estimated net periodic benefit cost forother postretirement benefits was $160 and $320, respectively, for the threeand six months ended June 30, 2005.

MacDermidpreviously disclosed in its financial statements for the year ended December31, 2005, that the Company expects to contribute $9,000 to MacDermid’s pensionplans in 2006.  During the first quarterof 2006, the Company increased the 2006 expected contribution amount to$12,000.  As of June 30, 2006, $5,896 ofcontributions have been made.  Thecurrent portion of pension and postretirement benefit plans is included inother current liabilities in the Company’s balance sheet at June 30, 2006 andDecember 31, 2005.

InMay 2004, the Financial Accounting Standards Board (“FASB”) issued FASBStaff Position (“FSP”) No. 106-2 (“FSP 106-2”), “Accounting andDisclosure Requirements Related to the Medicare Prescription Drug, Improvementand Modernization Act of 2003” (the “Medicare Act”). The Medicare Act providesfor certain federal subsidies on drug benefits in retiree health plans. In thethird quarter of fiscal 2004, MacDermid adopted FSP 106-2, and, at that time,the Company was unable to assess the impact to our financial statements fromthe adoption because the legislation related to the exact calculation of aFederal subsidy for qualifying plans had not been finalized.  On January 21, 2005, the Centers forMedicare and Medicaid Services released final regulations on the requirementsand operational mechanics for employers filing to receive the 28% federalsubsidy. The impact of the finalized regulations was insignificant to theCompany’s post-retirement medical plan obligations and expense during the threeand six months ended June 30, 2006 and 2005.

Note 12.                            Contingencies, Environmental and Legal Matters

EnvironmentalIssues:

MacDermidis a manufacturer and distributor of specialty chemical products, and istherefore exposed to the risk of liability or claims with respect toenvironmental cleanup or other matters, including those in connection with thedisposal of hazardous materials.  TheCompany is subject to extensive domestic and foreign laws and regulationsrelating to environmental protection and worker health and safety, includingthose governing discharges of pollutants into the air and water, the managementand disposal of hazardous substances and wastes, and the cleanup ofcontaminated properties.  The Company has

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incurred,and will continue to incur, significant costs and capital expenditures incomplying with these laws and regulations. Significant additional costs couldbe incurred, including cleanup costs, fines, sanctions, and third-party claims,as a result of violations of or liabilities under environmental laws.  To ensure compliance with applicableenvironmental, health and safety laws and regulations, the Company maintains adisciplined environmental and occupational safety and health complianceprogram, which includes conducting regular internal and external audits atCompany plants to identify and categorize potential environmental exposure.

AssetRetirement Obligations:

Assetretirement obligations are based principally on legal and regulatoryrequirements. At June 30, 2006 and December 31, 2005 the Company has accrued$1,476 and $1,404, respectively, for its asset retirement obligation forproperties where the Company can make a reasonable estimate of the futurecost.  On an ongoing basis, managementevaluates its estimates and assumptions; however, actual amounts could differfrom those based on such estimates and assumptions. Changes in the estimateduring three and six months ended June 30, 2006 and 2005, were not significant.

EnvironmentalRemediation:

Asof June 30, 2006 and December 31, 2005, $2,715 and $2,715, respectively, wasreserved for various environmental matters. Ultimate costs may vary fromcurrent estimates and reserves, and the discovery of additional contaminants atthese or other sites, or the imposition of additional cleanup obligations, orthird-party claims relating thereto, could result in significant additionalcosts.

Thefollowing summary provides some details regarding the Company’s environmentalliabilities:

·                  MacDermid is named as a potentiallyresponsible party (“PRP”) at two Superfund sites (Fike-Artel in Nitro, WestVirginia, and Solvents Recovery in Southington, Connecticut), in which manyother PRPs are also involved.  Withrespect to both of these sites, the Company has entered into cost sharingagreements that result in costs of less than $10 per year for funding MacDermid’sshare of the ongoing cleanup costs at each site. No reserve has beenestablished, given the deminimus nature of the costs. The Company’s costsharing percentage at each site is 0.2%. On October 31, 2005, the Environmental Protection Agency (“EPA”)notified the Company of alleged deminimus responsibility for certaincontamination at the Mercury Refining Site in New York.  MacDermid entered into a settlement agreementwith the EPA to resolve this deminimus liability for a payment of $1.

·                  Some of the Company’s facilities have an extendedhistory of chemical and industrial activity. The Company is directly involvedin the remediation of sites that have environmental contamination arising fromits operations. These sites include certain sites such as the Kearny, NewJersey and Waukegan, Illinois sites, which were acquired in the December 1998acquisition of W. Canning plc.  Withrespect to the Kearny, New Jersey site, the Canning subsidiary withheld, underthe Acquisition Agreement, a deferred purchase price payment of approximately $1,600.Clean-up costs at these sites are estimated to be between $2,000 and $5,000.The owners of the Kearny, New Jersey site have primary responsibility forclean-up costs that exceed the deferred purchase price.  Investigations into the extent of contaminationat these sites are, however, ongoing.

·                  MacDermid is in the process of characterizingcontamination at the Huntingdon Avenue, Waterbury, Connecticut site, which wasclosed in the quarter ended September 30, 2003. The extent of required remediation activities at the Huntingdon Avenuesite has not yet been determined; however, the Company does not anticipate thatit will be materially affected by the environmental remediation costs.

LegalProceedings:

Fromtime to time there are various legal proceedings pending against theCompany.  MacDermid considers all suchproceedings to be ordinary litigation incident to the nature of ourbusiness.  Certain claims are covered byliability insurance.  MacDermid believesthat the resolution of these claims, to the extent not covered by insurance,will not individually or in the aggregate, have a material adverse effect onits financial position or results of operations.  To the extent reasonably estimable, reserveshave been established regarding pending legal proceedings.

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Note 13.                            Restructuring Activities

Duringthe three and six months ended June 30, 2006, MacDermid recognizedrestructuring charges in the amount of $622 and $2,107, respectively, relatedto employee severance and other charges. There were no restructuring charges recorded in the three and six monthsended June 30, 2005.

Duringthe first quarter 2006, MacDermid’s implemented restructuring plans related tothe operations of the US MPS business unit. In the first quarter of 2006, MacDermid recorded restructuring chargesof $601 against earnings which consists entirely of employee severance costsrelated to the reduction of thirteen management, sales and administrativeposition reductions in the US MPS business unit.  Of the initial restructuring amount of $601,the Company paid $349 as of June 30, 2006, and expects to pay the remainder inthe second half of 2006.

Duringthe first quarter ended March 31, 2006, the Company continued its efforts tomaximize synergies related to the Autotype acquisition by announcing therelocation of the Autotype’s Kvistgaard, Denmark facility to an existingfacility in Wantage, England.  Theclosure of the Autotype Denmark facility impacts twenty one employees inmanufacturing, administrative, and managerial roles.  Total severance benefits of $369 were chargedto goodwill during the first quarter 2006 under Emerging Issues Task Force No.95-3, Recognition of Liabilities in Connection with a Purchase BusinessCombination (“EITF 95-3”).  An additional$583 in costs related to the Autotype acquisition not qualifying for purchaseaccounting treatment was charged to the income statement during the firstquarter of 2006.  During the secondquarter of 2006, the Company completed the relocation of Autotype’s Kvistgaard,Denmark facility.  The plant inKvistgaard, Denmark was closed and production was transferred to Autotype’sexisting facility in Wantage, England. During the three months ended June 30, 2006, $890 was charged togoodwill, in accordance with EITF 95-3, in connection with the closure ofAutotype’s Denmark facility, these costs included lease restoration costs,severance payments and asset write-offs. During the three months ended June 30, 2006 $401 charged torestructuring expense for stay bonus payments and moving costs formanufacturing equipment relocated to Autotype’s Wantage, England facility.

Duringthe second quarter of 2006, the Company completed the relocation of Autotype’sSchaumburg, Illinois facility to the Company’s existing facility in Middletown,Delaware.  In connection with thisrelocation $180 of lease restoration costs were charged to goodwill in thesecond quarter of 2006 in accordance with EITF 95-3.

Duringthe first quarter of 2006 the Company proceeded with plans to merge Autotype’sSingapore plant into an existing ASF facility in Singapore.  The amalgamation of these facilities will notinclude employee severance, and as such most costs associated with the mergerdo not qualify as purchase accounting costs and were expensed.  During the first quarter of 2006, a charge of$195 was recorded to the income statement related to equipment relocationrelated to this consolidation initiative. During the second quarter of 2006, a charge of $98 was recorded to the incomestatement related to equipment relocation related to this consolidationinitiative.

Theactivity in the accrued restructuring balances related to all of the plansdescribed above was as follows for the six months ended June 30, 2006, bysegment:

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| ** **                   | ** ** | **For the six months ended June 30, 2006** | ** ** | **As of June 30, 2006** | ** ** |
|------------------------------|------------|-------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                   | ** ** | **Balance, December 31,  2005**                                          | ** ** | **Restructuring  Charges**                  | ** ** | **Goodwill  adjustments** | ** ** | **Cash  payments** | ** ** | **Non-cash  adjustments** | ** ** | **Total costs and adjustments  six months ended  June 30,  2006** | ** ** | **Total expected costs and  adjustments** | ** ** |
| Printing  Solutions:         |       |                                                                          |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Equipment relocation         |       | $                                                                             | 134        |                                        | $          | 117 |   | $ | — |   | $ | (140 | ) | $ | 1 |   | $ | (22 | ) | $ | 112 |   |
| Asset disposals              |       | 18                                                                            |       | —                                      |       | 723 |   | — |   | — |   | 723 |   | 741 |   |
| Site clean-up costs          |       | 45                                                                            |       | —                                      |       | 164 |   | — |   | — |   | 164 |   | 209 |   |
| Severance and other benefits |       | 1,739                                                                         |       | 1,374                                       |       | 426 |   | (1,583 | ) | 17 |   | 234 |   | 1,973 |   |
| Legal and other              |       | 5                                                                             |       | 30                                          |       | 18 |   | (36 | ) | — |   | 12 |   | 17 |   |
| Total Printing Solutions     |       | $                                                                             | 1,941      |                                        | $          | 1,521 |   | $ | 1,331 |   | $ | (1,759 | ) | $ | 18 |   | $ | 1,111 |   | $ | 3,052 |   |
|                         |       |                                                                          |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Advanced Surface  Finishing: |       |                                                                          |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Equipment relocation         |       | $                                                                             | 36         |                                        | $          | 175 |   | $ | — |   | $ | (175 | ) | $ | — |   | $ | — |   | $ | 36 |   |
| Asset disposals              |       | 12                                                                            |       | —                                      |       | — |   | — |   | — |   | — |   | 12 |   |
| Site clean-up costs          |       | 30                                                                            |       | —                                      |       | 108 |   | — |   | — |   | 108 |   | 138 |   |
| Severance and other benefits |       | 791                                                                           |       | 411                                         |       | (135 | ) | (811 | ) | (274 | ) | (809 | ) | (18 | ) |
| Total Advanced               |       |                                                                          |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Surface Finishing            |       | $                                                                             | 869        |                                        | $          | 586 |   | $ | (27 | ) | $ | (986 | ) | $ | (274 | ) | $ | (701 | ) | $ | 168 |   |
| Total restructuring charges  |       | $                                                                             | 2,810      |                                        | $          | 2,107 |   | $ | 1,304 |   | $ | (2,745 | ) | $ | (256 | ) | $ | 410 |   | $ | 3,220 |   |
| Other acquisition charges    |       | $                                                                             | 385        |                                        | $          | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 385 |   |
| Total                        |       | $                                                                             | 3,195      |                                        | $          | 2,107 |   | $ | 1,304 |   | $ | (2,745 | ) | $ | (256 | ) | $ | 410 |   | $ | 3,605 |   |

 

Note 14.                            Loss on Disposal

Duringthe three and six months ended June 30, 2006, MacDermid recorded a loss ondisposal of $0 and $2,224, respectively, related to two separatedispositions.  The first disposal relatedto MacDermid Equipment (“MEI”), a small equipment manufacturing unit thatsupported the Company’s electronics sales. In 2001, the Company wrote off all the inventory on MEI’s balancesheet.  Inventory was the onlysignificant asset on MEI’s books, and the write off effectively impaired theCompany’s investment in the subsidiary. In February of this year, the Company sold the subsidiary for one dollarand recorded a loss on disposal of assets of $1,664, which reduced theCompany’s first quarter 2006 tax rate. The second 

19

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disposalrelated to a dormant international business unit that was disposed in the firstquarter of 2006.  A loss on disposal ofassets of $560 was recorded in the first quarter 2006 related to this dormantbusiness unit.

Note 15.                            Subsequent Events

InJuly 2006, the Company sold an idle manufacturing plant located in FranklinPark, Illinois for $1,588 and will recognize a gain related to this sale ofapproximately $585 in the third quarter of 2006.

InJuly 2006, the Company reached an agreement with the city council ofBirmingham, England to cease manufacturing operations at the facility locatedin Birmingham, England.  In connectionwith this agreement the city council of Birmingham agreed to pay the Company3,000 British pounds immediately and another 1,000 British pounds within threeyears, after manufacturing operations have ceased at this location.  The Company is currently in the process ofinvestigating environmental liabilities at this site in connection with theagreement, and does not expect to record a material gain or loss related to theclosing of this manufacturing facility.

Note 16.                            Guarantor Financial Statements

MacDermid,Inc. (“Issuer”) issued 9 1/8%Senior SubordinatedNotes (“Bond Offering”) effective June 20, 2001, for the face amount of$301,500, which pay interest semiannually on January 15th and July 15th andmature in 2011.  The proceeds were usedto pay down existing long-term debt. This Bond Offering is guaranteed by substantially all existing andfuture directly or indirectly 100% owned domestic restricted subsidiaries ofMacDermid, Inc. (“Guarantors”).  TheGuarantors, fully, jointly and severally, irrevocably and unconditionallyguarantee the performance and payment when due of all the obligations under theBond Offering.  MacDermid’s foreignsubsidiaries (“Non-Guarantors”) are not guarantors of the indebtedness underthe Bond Offering.

UnderMacDermid’s Bond Offering, the Company has several covenants that relate to theCompany’s fixed charge ratio (as defined in the Bond Offering agreement), assetsales, incurrence of additional indebtedness, and restricted payments. Therestricted payment covenant is used to measure the amount of dividends, sharerepurchases, and extraordinary repayments of debt that MacDermid may undertake.The covenant provides for a basket, with respect to, the above mentioned items.The basket is created by taking the aggregate of 50% of net income (or 100% ofany net loss, adjusted for non-cash charges) since June 2001 to present. Whendividend payments are made, they are charged against the basket.  As of June 30, 2006 and December 31, 2005,MacDermid had $94,529 and $81,972, respectively, available for futurerestricted payments.  The net assets ofthe Guarantors are restricted and may not be transferred to anyone other thanthe Issuer or another Guarantor without the consent of the Trustee of the BondOffering, subject to specified baskets. Thus the net assets of the Guarantors can be transferred to the Issueror other Guarantors within the group freely, but cannot be transferred outsidethe group of Guarantors and the Issuer without the consent of the Trustee ofthe Bond Offering, subject to certain baskets.

Inconnection with the restatement adjustments made to goodwill, intangibles andaccumulated other comprehensive (loss) income as described in Notes 2, 7 and 8above, the Company recalculated certain ratios whose components changed as aresult of these restatement adjustments. The Company restated its goodwill balances and re-performed the networth, restricted payment, and indebtedness covenant tests as of December 31,2005, as calculated in accordance with Bond Offering agreement.  The restatement adjustments noted above didnot trigger a default, and as such, the Company concluded that the aboverestatement adjustments had no impact on its Bond Offering covenant tests as ofDecember 31, 2005.

Certain amounts in theCondensed Consolidating Balance Sheet as of December 31, 2005 wererestated.  The restatement adjustmentsnecessary to properly convert goodwill and intangible assets are offset with acorresponding restatement adjustment to the Accumulated Other Comprehensive(Loss) Income section of Shareholders’ Equity in the Condensed ConsolidatingBalance Sheet as of December 31, 2005. The equity method was used by MacDermidwith respect to investments in subsidiaries for these financialstatements.  The equity method also hasbeen used by subsidiary guarantors with respect to investments in non-guarantorsubsidiaries.  Financial statements forsubsidiary guarantors are presented as a combined entity.  The financial information includes certainallocations of revenues and expenses based on management’s best estimates,which are not necessarily indicative of the financial position, results ofoperations and cash flows that these entities would have achieved on astand-alone basis.  Therefore, thesestatements should be read in conjunction with the consolidated financialstatements and notes thereto included in the Annual Report on Form 10-K for theyear ended December 31, 2005.

Thefollowing financial information sets forth our Condensed Consolidating BalanceSheets as of June 30, 2006 and December 31, 2005; the Condensed ConsolidatingStatements of Earnings for the three and six months ending June 30, 2006 and2005; and the Condensed Consolidating Statements of Cash Flows for the sixmonths ending June 30, 2006 and 2005:

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CONDENSED CONSOLIDATINGSTATEMENTS OF EARNINGSTHREE MONTHS ENDED JUNE 30, 2006(Unaudited)
| ** **                            | ** ** | **Issuer** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Nonguarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **MacDermid**

**Incorporated**

**and Subsidiaries** | ** ** |
|---------------------------------------|------------|------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|-------------------------------------------------------|------------|
| Net sales                             |       | $          | 23,794     |                        | $          | 58,885                         |       | $                | 133,850    |                                                  | $          | (9,272 | ) | $ | 207,257 |   |
| Cost of sales                         |       | 15,446     |       | 34,191                      |       | 75,517                         |       | (9,272           | )          | 115,882                                               |       |
| Gross profit                          |       | 8,348      |       | 24,694                      |       | 58,333                         |       | —           |       | 91,375                                                |       |
|                                  |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Operating expenses:                   |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Selling, technical and administrative |       | 10,347     |       | 10,026                      |       | 34,354                         |       | —           |       | 54,727                                                |       |
| Research and development              |       | 1,727      |       | 2,646                       |       | 3,623                          |       | —           |       | 7,996                                                 |       |
| Loss on Disposal                      |       | —     |       | —                      |       | —                         |       | —           |       | —                                                |       |
| Restructuring                         |       | 225        |       | —                      |       | 397                            |       | —           |       | 622                                                   |       |
|                                  |       | 12,299     |       | 12,672                      |       | 38,374                         |       | —           |       | 63,345                                                |       |
| Operating (loss) profit               |       | (3,951     | )          | 12,022                      |       | 19,959                         |       | —           |       | 28,030                                                |       |
|                                  |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Equity in earnings of subsidiaries    |       | 21,520     |       | 13,750                      |       | —                         |       | (35,270          | )          | —                                           |       |
| Interest income                       |       | 411        |       | 71                          |       | 208                            |       | —           |       | 690                                                   |       |
| Interest expense                      |       | (7,207     | )          | (51                         | )          | (54                            | )          | —           |       | (7,312                                                | )          |
| Other, net                            |       | 302        |       | 147                         |       | (463                           | )          | —           |       | (14                                                   | )          |
|                                  |       | 15,026     |       | 13,917                      |       | (309                           | )          | (35,270          | )          | (6,636                                                | )          |
|                                  |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Earnings (loss) before income taxes   |       | 11,075     |       | 25,939                      |       | 19,650                         |       | (35,270          | )          | 21,394                                                |       |
| Income tax benefit (expense)          |       | 4,457      |       | (4,419                      | )          | (5,897                         | )          | —           |       | (5,859                                                | )          |
| Net  earnings (loss)                  |       | $          | 15,532     |                        | $          | 21,520                         |       | $                | 13,753     |                                                  | $          | (35,270 | ) | $ | 15,535 |   |

 

21

----

 

CONSOLIDATED STATEMENTSOF EARNINGSTHREE MONTHS ENDED JUNE 30, 2005(Unaudited)
| ** **                            | ** ** | **Issuer** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Nonguarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **MacDermid**

**Incorporated**

**and Subsidiaries** | ** ** |
|---------------------------------------|------------|------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|-------------------------------------------------------|------------|
| Net sales                             |       | $          | 22,301     |                        | 48,456     |                           | 114,068    |             | (6,544     | )                                                     | 178,281    |   |
| Cost of sales                         |       | 15,024     |       | 24,165                      |       | 65,610                         |       | (6,544           | )          | 98,255                                                |       |
| Gross profit                          |       | 7,277      |       | 24,291                      |       | 48,458                         |       | —           |       | 80,026                                                |       |
|                                  |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Operating expenses:                   |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Selling, technical and administrative |       | 10,198     |       | 11,370                      |       | 28,339                         |       | —           |       | 49,907                                                |       |
| Research and development              |       | 1,562      |       | 2,378                       |       | 2,569                          |       | —           |       | 6,509                                                 |       |
|                                  |       | 11,760     |       | 13,748                      |       | 30,908                         |       | —           |       | 56,416                                                |       |
| Operating (loss) profit               |       | (4,483     | )          | 10,543                      |       | 17,550                         |       | —           |       | 23,610                                                |       |
|                                  |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Equity in earnings of subsidiaries    |       | 16,660     |       | 11,273                      |       | —                         |       | (27,933          | )          | —                                                |       |
| Interest income                       |       | 360        |       | 8                           |       | 308                            |       | —           |       | 676                                                   |       |
| Interest expense                      |       | (7,574     | )          | (24                         | )          | (127                           | )          | —           |       | (7,725                                                | )          |
| Other, net                            |       | 74         |       | 36                          |       | (732                           | )          | —           |       | (622                                                  | )          |
|                                  |       | 9,520      |       | 11,293                      |       | (551                           | )          | (27,933          | )          | (7,671                                                | )          |
|                                  |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Earnings (loss) before income taxes   |       | 5,037      |       | 21,836                      |       | 16,999                         |       | (27,933          | )          | 15,939                                                |       |
| Income tax benefit (expense)          |       | 6,891      |       | (5,176                      | )          | (5,726                         | )          | —           |       | (4,011                                                | )          |
| Net  earnings (loss)                  |       | $          | 11,928     |                        | 16,660     |                           | 11,273     |             | (27,933    | )                                                     | 11,928     |   |

 

22

----

 

CONDENSED CONSOLIDATINGSTATEMENTS OF EARNINGSSIX MONTHS ENDED JUNE 30, 2006(Unaudited)
| ** **                            | ** ** | **Issuer** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Nonguarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **MacDermid**

**Incorporated**

**and Subsidiaries** | ** ** |
|---------------------------------------|------------|------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|-------------------------------------------------------|------------|
| Net sales                             |       | $          | 44,411     |                        | $          | 121,663                        |       | $                | 270,581    |                                                  | $          | (29,040 | ) | $ | 407,615 |   |
| Cost of sales                         |       | 28,416     |       | 72,763                      |       | 155,630                        |       | (29,040          | )          | 227,769                                               |       |
| Gross profit                          |       | 15,995     |       | 48,900                      |       | 114,951                        |       | —           |       | 179,846                                               |       |
|                                  |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Operating expenses:                   |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Selling, technical and administrative |       | 22,811     |       | 21,112                      |       | 63,822                         |       | —           |       | 107,745                                               |       |
| Research and development              |       | 3,345      |       | 5,119                       |       | 6,836                          |       | —           |       | 15,300                                                |       |
| Loss on Disposal                      |       | —     |       | —                      |       | 2,224                          |       | —           |       | 2,224                                                 |       |
| Restructuring                         |       | 331        |       | 493                         |       | 1,283                          |       | —           |       | 2,107                                                 |       |
|                                  |       | 26,487     |       | 26,724                      |       | 74,165                         |       | —           |       | 127,376                                               |       |
| Operating (loss) profit               |       | (10,492    | )          | 22,176                      |       | 40,786                         |       | —           |       | 52,470                                                |       |
|                                  |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Equity in earnings of subsidiaries    |       | 42,411     |       | 28,178                      |       | —                         |       | (70,589          | )          | —                                                |       |
| Interest income                       |       | 1,132      |       | 107                         |       | 301                            |       | —           |       | 1,540                                                 |       |
| Interest expense                      |       | (13,843    | )          | (29                         | )          | (126                           | )          | —           |       | (13,998                                               | )          |
| Other, net                            |       | 459        |       | 181                         |       | (1,018                         | )          | —           |       | (378                                                  | )          |
|                                  |       | 30,159     |       | 28,437                      |       | (843                           | )          | (70,589          | )          | (12,836                                               | )          |
|                                  |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Earnings (loss) before income taxes   |       | 19,667     |       | 50,613                      |       | 39,943                         |       | (70,589          | )          | 39,634                                                |       |
| Income tax benefit (expense)          |       | 9,147      |       | (8,202                      | )          | (11,765                        | )          | —           |       | (10,820                                               | )          |
| Net  earnings (loss)                  |       | $          | 28,814     |                        | $          | 42,411                         |       | $                | 28,178     |                                                  | $          | (70,589 | ) | $ | 28,814 |   |

 

23

----

 

CONSOLIDATED STATEMENTSOF EARNINGSSIX MONTHS ENDED JUNE 30, 2005(Unaudited)
| ** **                             | ** ** | **Issuer** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Nonguarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **MacDermid**

**Incorporated**

**and Subsidiaries** | ** ** |
|----------------------------------------|------------|------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|-------------------------------------------------------|------------|
| Net  sales                             |       | $          | 44,820     |                        | 93,460     |                           | 224,611    |             | (14,363    | )                                                     | 348,528    |   |
| Cost  of sales                         |       | 30,194     |       | 46,192                      |       | 128,826                        |       | (14,363          | )          | 190,849                                               |       |
| Gross  profit                          |       | 14,626     |       | 47,268                      |       | 95,785                         |       | —           |       | 157,679                                               |       |
|                                   |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Operating  expenses:                   |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Selling,  technical and administrative |       | 21,087     |       | 19,626                      |       | 55,864                         |       | —           |       | 96,577                                                |       |
| Research  and development              |       | 3,241      |       | 4,649                       |       | 5,151                          |       | —           |       | 13,041                                                |       |
|                                   |       | 24,328     |       | 24,275                      |       | 61,015                         |       | —           |       | 109,618                                               |       |
| Operating  (loss) profit               |       | (9,702     | )          | 22,993                      |       | 34,770                         |       | —           |       | 48,061                                                |       |
|                                   |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Equity  in earnings of subsidiaries    |       | 36,540     |       | 22,926                      |       | —                         |       | (59,466          | )          | —                                                |       |
| Interest  income                       |       | 700        |       | 9                           |       | 589                            |       | —           |       | 1,298                                                 |       |
| Interest  expense                      |       | (15,144    | )          | (24                         | )          | (201                           | )          | —           |       | (15,369                                               | )          |
| Other,  net                            |       | 228        |       | 297                         |       | (1,117                         | )          | —           |       | (592                                                  | )          |
|                                   |       | 22,324     |       | 23,208                      |       | (729                           | )          | (59,466          | )          | (14,663                                               | )          |
|                                   |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Earnings  (loss) before income taxes   |       | 12,622     |       | 46,201                      |       | 34,041                         |       | (59,466          | )          | 33,398                                                |       |
| Income  tax benefit (expense)          |       | 11,091     |       | (9,661                      | )          | (11,115                        | )          | —           |       | (9,685                                                | )          |
| Net  earnings (loss)                   |       | $          | 23,713     |                        | 36,540     |                           | 22,926     |             | (59,466    | )                                                     | 23,713     |   |

 

 

24

----

 

CONDENSED CONSOLIDATING BALANCE SHEETSJUNE 30, 2006(UNAUDITED)
| ** **                                      | ** ** | **Issuer** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Nonguarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **MacDermid**

**Incorporated**

**and Subsidiaries** | ** ** |
|-------------------------------------------------|------------|------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|-------------------------------------------------------|------------|
| Assets                                          |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Current  assets:                                |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Cash  and cash equivalents                      |       | $          | 62,348     |                        | $          | 3,018                          |       | $                | 33,675     |                                                  | $          | — |   | $ | 99,041 |   |
| Accounts  receivables, net                      |       | 13,158     |       | 20,342                      |       | 136,501                        |       | —           |       | 170,001                                               |       |
| Due  (to) from affiliates                       |       | 20,360     |       | 98,087                      |       | (118,447                       | )          | —           |       | —                                                |       |
| Inventories,  net                               |       | 6,952      |       | 37,326                      |       | 71,608                         |       | —           |       | 115,886                                               |       |
| Prepaid  expenses                               |       | 869        |       | 3,263                       |       | 9,578                          |       | —           |       | 13,710                                                |       |
| Deferred  income taxes                          |       | 8,051      |       | 1,849                       |       | 5,689                          |       | —           |       | 15,589                                                |       |
| Total  current assets                           |       | 111,738    |       | 163,885                     |       | 138,604                        |       | —           |       | 414,227                                               |       |
|                                            |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Property,  plant and equipment, net             |       | 11,543     |       | 31,682                      |       | 79,004                         |       | —           |       | 122,229                                               |       |
| Goodwill                                        |       | 51,524     |       | 79,112                      |       | 120,298                        |       | —           |       | 250,934                                               |       |
| Intangibles,  net                               |       | —     |       | 4,808                       |       | 37,403                         |       | —           |       | 42,211                                                |       |
| Investments  in subsidiaries                    |       | 534,578    |       | 273,107                     |       | —                         |       | (807,685         | )          | —                                                |       |
| Deferred  income taxes                          |       | 16,716     |       | 8,536                       |       | 11,821                         |       | —           |       | 37,073                                                |       |
| Other  assets, net                              |       | 5,594      |       | 3,766                       |       | 5,586                          |       | —           |       | 14,946                                                |       |
|                                            |       | $          | 731,693    |                        | $          | 564,896                        |       | $                | 392,716    |                                                  | $          | (807,685 | ) | $ | 881,620 |   |
|                                            |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Current  liabilities:                           |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Accounts  and dividends payable                 |       | $          | 7,844      |                        | $          | 13,267                         |       | $                | 49,537     |                                                  | $          | — |   | $ | 70,648 |   |
| Accrued  compensation                           |       | 2,966      |       | 2,253                       |       | 11,507                         |       | —           |       | 16,726                                                |       |
| Accrued  interest                               |       | 12,638     |       | 296                         |       | 109                            |       | —           |       | 13,043                                                |       |
| Accrued  income taxes payable                   |       | (1,858     | )          | 6,541                       |       | 5,506                          |       | —           |       | 10,189                                                |       |
| Other  current liabilities                      |       | 14,249     |       | 7,538                       |       | 22,205                         |       | —           |       | 43,992                                                |       |
| Total  current liabilities                      |       | 35,839     |       | 29,895                      |       | 88,864                         |       | —           |       | 154,598                                               |       |
|                                            |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Long-term  obligations                          |       | 300,585    |       | 219                         |       | 168                            |       | —           |       | 300,972                                               |       |
| Retirement  benefits, less Current portion      |       | 5,318      |       | —                      |       | 17,479                         |       | —           |       | 22,797                                                |       |
| Deferred  income taxes                          |       | —     |       | —                      |       | 12,582                         |       | —           |       | 12,582                                                |       |
| Other  long-term liabilities                    |       | 3,554      |       | 204                         |       | 515                            |       | —           |       | 4,273                                                 |       |
| Total  liabilities                              |       | 345,296    |       | 30,318                      |       | 119,608                        |       | —           |       | 495,222                                               |       |
|                                            |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Total  shareholders’ equity                |       | 386,397    |       | 534,578                     |       | 273,108                        |       | (807,685         | )          | 386,398                                               |       |
| Total Liabilities and Shareholders’ Equity |       | $          | 731,693    |                        | $          | 564,896                        |       | $                | 392,716    |                                                  | $          | (807,685 | ) | $ | 881,620 |   |

 

25

----

 

CONDENSED CONSOLIDATING BALANCE SHEETSDECEMBER 31, 2005(UNAUDITED)(RESTATED)
| ** **                                       | ** ** | **Issuer** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Nonguarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **MacDermid**

**Incorporated**

**and Subsidiaries** | ** ** |
|--------------------------------------------------|------------|------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|-------------------------------------------------------|------------|
| Assets                                           |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Current assets:                                  |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Cash and cash equivalents                        |       | $          | 46,925     |                        | $          | 3,131                          |       | $                | 30,876     |                                                  | $          | — |   | $ | 80,932 |   |
| Accounts receivables, net                        |       | 10,811     |       | 22,799                      |       | 122,108                        |       | —           |       | 155,718                                               |       |
| Due (to) from affiliates                         |       | 23,496     |       | 94,217                      |       | (117,713                       | )          | —           |       | —                                                |       |
| Inventories, net                                 |       | 5,994      |       | 27,606                      |       | 59,373                         |       | —           |       | 92,973                                                |       |
| Prepaid expenses                                 |       | 3,122      |       | 1,749                       |       | 9,237                          |       | —           |       | 14,108                                                |       |
| Deferred income taxes                            |       | 11,372     |       | —                      |       | 5,257                          |       | —           |       | 16,629                                                |       |
| Total current assets                             |       | 101,720    |       | 149,502                     |       | 109,138                        |       | —           |       | 360,360                                               |       |
|                                             |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Property, plant and equipment, net               |       | 16,362     |       | 28,924                      |       | 77,943                         |       | —           |       | 123,229                                               |       |
| Goodwill                                         |       | 51,760     |       | 79,112                      |       | 112,063                        |       | —           |       | 242,935                                               |       |
| Intangibles, net                                 |       | —     |       | 4,880                       |       | 36,036                         |       | —           |       | 40,916                                                |       |
| Investments in subsidiaries                      |       | 484,326    |       | 245,050                     |       | —                         |       | (729,376         | )          | —                                                |       |
| Deferred income taxes                            |       | 25,550     |       | —                      |       | 12,117                         |       | —           |       | 37,667                                                |       |
| Other assets, net                                |       | 6,222      |       | 3,866                       |       | 4,732                          |       | —           |       | 14,820                                                |       |
|                                             |       | $          | 685,940    |                        | $          | 511,334                        |       | $                | 352,029    |                                                  | $          | (729,376 | ) | $ | 819,927 |   |
|                                             |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Current liabilities:                             |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Accounts and dividends payable                   |       | $          | 9,122      |                        | $          | 9,950                          |       | $                | 42,966     |                                                  | $          | — |   | $ | 62,038 |   |
| Accrued compensation                             |       | 2,118      |       | 3,248                       |       | 10,895                         |       | —           |       | 16,261                                                |       |
| Accrued interest                                 |       | 12,654     |       | 24                          |       | 106                            |       | —           |       | 12,784                                                |       |
| Accrued income taxes payable                     |       | (2,350     | )          | 7,622                       |       | 6,189                          |       | —           |       | 11,461                                                |       |
| Other current liabilities                        |       | 16,465     |       | 5,643                       |       | 17,187                         |       | —           |       | 39,295                                                |       |
| Total current liabilities                        |       | 38,009     |       | 26,487                      |       | 77,343                         |       | —           |       | 141,839                                               |       |
|                                             |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Long-term obligations                            |       | 300,516    |       | 271                         |       | 256                            |       | —           |       | 301,043                                               |       |
| Retirement benefits, less Current portion        |       | 5,066      |       | —                      |       | 17,277                         |       | —           |       | 22,343                                                |       |
| Deferred income taxes                            |       | —     |       | —                      |       | 11,489                         |       | —           |       | 11,489                                                |       |
| Other long-term liabilities                      |       | 3,271      |       | 250                         |       | 615                            |       | —           |       | 4,136                                                 |       |
| Total liabilities                                |       | 346,862    |       | 27,008                      |       | 106,980                        |       | —           |       | 480,850                                               |       |
|                                             |       |       |       |                        |       |                           |       |             |       |                                                  |       |
| Total shareholders’ equity                  |       | 339,078    |       | 484,326                     |       | 245,049                        |       | (729,376         | )          | 339,077                                               |       |
| Total  Liabilities and Shareholders’ Equity |       | $          | 685,940    |                        | $          | 511,334                        |       | $                | 352,029    |                                                  | $          | (729,376 | ) | $ | 819,927 |   |

 

26

----

 

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWSSIX MONTHS ENDED JUNE 30, 2006(Unaudited)
| ** **                                                | ** ** | **Issuer** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Nonguarantor  Subsidiaries** | ** ** | **MacDermid**

**Incorporated**

**and Subsidiaries** | ** ** |
|-----------------------------------------------------------|------------|------------|------------|-----------------------------|------------|--------------------------------|------------|-------------------------------------------------------|------------|
| Net cash flows provided by operating activities           |       | $          | 16,062     |                        | $          | 968                            |       | $                                                     | 3,906      |   | $ | 20,936 |   |
|                                                      |       |       |       |                        |       |                           |       |                                                  |       |
| Investing activities:                                     |       |       |       |                        |       |                           |       |                                                  |       |
| Capital expenditures                                      |       | (318       | )          | (1,344                      | )          | (3,437                         | )          | (5,099                                                | )          |
| Proceeds from disposition of fixed assets                 |       | —     |       | —                      |       | 289                            |       | 289                                                   |       |
| Other                                                     |       | 234        |       | 315                         |       | (549                           | )          | —                                                |       |
| Net cash flows (used in) investing activities             |       | (84        | )          | (1,029                      | )          | (3,697                         | )          | (4,810                                                | )          |
|                                                      |       |       |       |                        |       |                           |       |                                                  |       |
| Financing activities:                                     |       |       |       |                        |       |                           |       |                                                  |       |
| Net proceeds from short-term borrowings                   |       | —     |       | —                      |       | 443                            |       | 443                                                   |       |
| Repayments of long-term borrowings                        |       | —     |       | (52                         | )          | (104                           | )          | (156                                                  | )          |
| Issuance of treasury shares                               |       | 26         |       | 26                          |       |                           |       |                                                  |       |
| Proceeds from exercise of stock options                   |       | 3,101      |       | —                      |       | —                         |       | 3,101                                                 |       |
| Dividends paid                                            |       | (3,682     | )          | —                      |       | —                         |       | (3,682                                                | )          |
| Net cash flows provided by (used in) financing activities |       | (555       | )          | (52                         | )          | 339                            |       | (268                                                  | )          |
|                                                      |       |       |       |                        |       |                           |       |                                                  |       |
| Effect of exchange rate                                   |       |       |       |                        |       |                           |       |                                                  |       |
| Changes on cash and cash equivalents                      |       | —     |       | —                      |       | 2,251                          |       | 2,251                                                 |       |
|                                                      |       |       |       |                        |       |                           |       |                                                  |       |
| Net increase (decrease) in cash and cash equivalents      |       | 15,423     |       | (113                        | )          | 2,799                          |       | 18,109                                                |       |
|                                                      |       |       |       |                        |       |                           |       |                                                  |       |
| Cash and cash equivalents at beginning of period          |       | 46,925     |       | 3,131                       |       | 30,876                         |       | 80,932                                                |       |
|                                                      |       |       |       |                        |       |                           |       |                                                  |       |
| Cash  and cash equivalents at end of period               |       | $          | 62,348     |                        | $          | 3,018                          |       | $                                                     | 33,675     |   | $ | 99,041 |   |

 

27

----

 

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWSSIX MONTHS ENDED JUNE 30, 2005(Unaudited)
| ** **                                                   | ** ** | **Issuer** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Nonguarantor  Subsidiaries** | ** ** | **MacDermid**

**Incorporated**

**and Subsidiaries** | ** ** |
|--------------------------------------------------------------|------------|------------|------------|-----------------------------|------------|--------------------------------|------------|-------------------------------------------------------|------------|
| Net cash flows (used in) provided by operating activities    |       | $          | (25,334    | )                           | $          | 32,484                         |       | $                                                     | 19,718     |   | $ | 26,868 |   |
|                                                         |       |       |       |                        |       |                           |       |                                                  |       |
| Investing activities:                                        |       |       |       |                        |       |                           |       |                                                  |       |
| Capital expenditures                                         |       | (1,601     | )          | (1,100                      | )          | (5,125                         | )          | (7,826                                                | )          |
| Acquisition of business                                      |       | —     |       | (26,610                     | )          | (62,660                        | )          | (89,270                                               | )          |
| Proceeds from disposition of fixed assets and business       |       | 635        |       | —                      |       | 406                            |       | 1,041                                                 |       |
| Net cash flows (used in) provided by investing activities    |       | (966       | )          | (27,710                     | )          | (67,379                        | )          | (96,055                                               | )          |
|                                                         |       |       |       |                        |       |                           |       |                                                  |       |
| Financing activities:                                        |       |       |       |                        |       |                           |       |                                                  |       |
| Net proceeds from (repayments of) short-term borrowings      |       | —     |       | —                      |       | 10,912                         |       | 10,912                                                |       |
| Repayments of long-term borrowings                           |       | —     |       | (107                        | )          | (148                           | )          | (255                                                  | )          |
| Issuance of treasury shares                                  |       | 33         |       | —                      |       | —                         |       | 33                                                    |       |
| Proceeds from exercise of stock options                      |       | 260        |       | —                      |       | —                         |       | 260                                                   |       |
| Dividends paid                                               |       | (3,031     | )          | —                      |       | —                         |       | (3,031                                                | )          |
| Net cash flows provided by (used in) financing activities    |       | (2,738     | )          | (107                        | )          | 10,764                         |       | 7,919                                                 |       |
|                                                         |       |       |       |                        |       |                           |       |                                                  |       |
| Effect of exchange rate changes on cash and cash equivalents |       | —     |       | —                      |       | (6,447                         | )          | (6,447                                                | )          |
|                                                         |       |       |       |                        |       |                           |       |                                                  |       |
| Net increase (decrease) in cash and cash equivalents         |       | (29,038    | )          | 4,667                       |       | (43,344                        | )          | (67,715                                               | )          |
|                                                         |       |       |       |                        |       |                           |       |                                                  |       |
| Cash and cash equivalents at beginning of period             |       | 69,512     |       | 688                         |       | 67,629                         |       | 137,829                                               |       |
|                                                         |       |       |       |                        |       |                           |       |                                                  |       |
| Cash  and cash equivalents at end of period                  |       | $          | 40,474     |                        | $          | 5,355                          |       | $                                                     | 24,285     |   | $ | 70,114 |   |

 

 

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ITEM 2:

**Management’s Discussion and Analysis of Financial Condition and Results of Operations(in thousand of dollars, except shares and per share data)**

CONSOLIDATEDOVERVIEW

Goodwill and Intangible Asset Restatement Adjustments

As discussed inNotes 2, 7 and 8 to the consolidated financial statements in Part I, Item 1, in the first quarter of fiscal 2006 wereviewed our foreign currency conversion rates used to convert goodwill andintangible assets. Beginning in 2002, we held all goodwill and certain intangibleassets related to the acquisition of Canning Ltd. (“Canning intangibles”)constant at historic currency conversion rates, effectively holding the valueof goodwill and Canning intangibles constant at 2002 currency conversionrates.  This resulted in anunderstatement of goodwill and Canning intangibles as of December 31,2005.  In connection with our adoption ofthe provision of Statement of Financial Accounting Standards No. 154,Accounting Changes and Error Corrections, in the first quarter of 2006, werestated the December 31, 2005 balances of Goodwill, Intangibles and OtherComprehensive (Loss) Income to correct an error related to foreign currencytranslation.  As a result, we madecertain restatement adjustments to our December 31, 2005 Consolidated BalanceSheet to state these assets at the correct currency conversion rates.  We also restated Other Comprehensive Incomefor the three and six months ended June 30, 2005 to correct an error related toforeign currency translation

Wealso determined that goodwill related to the 1998 acquisition of Canning Ltd.had been pushed-down into the books of the acquisition holding company insteadof being pushed down to the books of the geographic business segments, where itis tested for impairment.  We should haveallocated the goodwill into the books of the regional business segmentsbenefiting from the acquisition.  Thegoodwill, however, was pushed-down to, and denominated in British Pounds asopposed to being pushed-down to, and denominated in the currencies of theregions that benefit from the goodwill.

Therestatement adjustments necessary to properly convert goodwill and intangibleassets are offset with a corresponding restatement adjustment to theAccumulated Other Comprehensive (Loss) Income section of Shareholders’ Equityin our December 31, 2005 Consolidated Balance Sheet.

These restatementadjustments have no impact on earnings as reported in our financial statementsdated December 31, 2005, or any of the tangible assets and liabilities accountsstated therein.  For financial reportingpurposes, we treated these restatement adjustments similar to areclassification of the affected December 31, 2005 balances.

Executive Overview

Our consolidated businessconsists of two business segments, Advanced Surface Finishing (“ASF”) andPrinting Solutions (“MPS”).  The ASFsegment supplies chemicals used for finishing metals and non-metallic surfacesfor automotive and other industrial applications, electro-plating metalsurfaces, etching, and imaging to create electrical patterns on circuit boardsfor the electronics industry, and offshore lubricants and cleaners for theoffshore oil and gas markets.  Theacquisition of Autotype International Ltd and associated entities (“Autotype”)in June 2005 further augments this segment by adding production of hard coatedfilms for the membrane switch and touch screen markets.   The MPS segment supplies an extensive lineof offset printing blankets, photo-polymer plates and wide-format digitalprinters for use in the commercial printing and packaging industries for imagetransfer.  The acquisition of Autotypeadded high quality stencil materials and digital pre-press products for screenprinting to the MPS segment.

In both of our business segments, we continue toinvest significant resources in research and development and intellectualproperties such as patents, trademarks, copyrights and trade secrets, as ourbusiness depends on these activities for our financial stability and futuregrowth.

Wefocus on growing revenues and the generation of cash from operations in orderto build shareholder value. Specifically, we plan to improve top line salesgrowth over the longer term by focusing on:

·                  utilizingour technical service and outstanding products to penetrate global markets forall products,

·                  supportingworking capital initiatives focused on maximizing cash flows during a period ofcontinued economic uncertainty in our primary markets,

·                  emphasizingefficiency improvements throughout the organization,

·                  addingnew products through internal research and development, relying heavily on ourinternal knowledge base,

·                  strengtheningthe common identity of our products through a new branding initiative called “YesWe Can!”, and

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·                  strategicacquisitions of companies, products, or technologies.

Our products are sold ina competitive, global economy, which exposes us to certain currency, economicand regulatory risks and opportunities. Approximately 56% of our net sales andidentifiable assets for the six month period ended and as of June 30, 2006, aredenominated in currencies other than the United States dollar.  These currencies include predominantly theEuro, British Pound, the Hong Kong Dollar, the Chinese Yuan and the JapaneseYen. We do not manage our foreign currency exposure in a manner that wouldeliminate the effects of changes in foreign exchange rates on our earnings,cash flows and fair values of assets and liabilities; therefore, our financialperformance could be positively or negatively impacted by changes in foreign exchangerates in any given reporting period. For most currencies, we are a net receiverof the foreign currency and therefore benefit from a weaker United StatesDollar and are adversely affected by a stronger United States Dollar relativeto the foreign currency.  For the threeand six months ended June 30, 2006, net sales and net earnings were positivelyimpacted as the United States Dollar weakened against both the Euro and Poundwhen compared to exchange rates at the beginning of the year.  When compared with the same periods lastyear, net sales and net earnings were negatively impacted as the United StatesDollar strengthened against both the Euro and the British Pound.  In both cases, the absolute impact on earningswas immaterial.

Ourcompetitors include many large multi-national chemical firms based in Europe,Asia, and the United States.  Newcompetitive products or pricing policies of our competitors can materiallyaffect demand for and pricing of our products, which could have a significantimpact on our financial results.

Weare influenced predominantly by two general industries:  the specialty chemical and printingindustries.  In the specialty chemicalindustry, profit is generated by creating proprietary products and processtechnologies, and delivering high levels of customer service.  Currently, a number of key characteristicsand trends are impacting the industry, including market fragmentation,globalization, the need for financial resources to support research anddevelopment, a renewed focus on core businesses and the increasing importanceof size and scale.  The Asian marketpresents growth opportunities, and our electronics group continued to seegrowth in Asia due to favorable market conditions.  In 2005, we opened a second facility in Chinato support our expansion in this market. Our growth in the electronics market in Asia was partially offset bymarket weakness in Europe and the Americas. We also experienced growth in our Offshore Fluids group in 2005, whichcontinued in 2006, due largely to a worldwide increase in offshore oil fielddevelopment activities. In the printing industry, we continue to seechallenging growth opportunities in an increasingly competitiveenvironment.  The industry is marked byglobalization, market fragmentation, pricing pressures, and the growing digitalprinting technologies.  Between 1997 and2005, businesses calling themselves “digital printers” accounted for most ofthis industry’s growth.  Our businessgroups that supply offset printing blankets and photo-polymer plates continueto be affected by an overall soft market and changes in our distributionsystem, as we are increasingly selling directly to our customers in the UnitedStates.  Our digital printer group, whichmanufactures wide-media printers, is currently benefiting from the marketacceptance of our new product offerings.

Weseek to enhance our profitability by investing in technology, designcapabilities and new product initiatives that respond to the needs of ourcustomers and consumers. We will continue to seek ways to expand our businessin Asia, Europe and the Americas.  Weintend to selectively pursue strategic acquisitions, where appropriate, toexpand or complement our existing business. We expect that any such acquisitions will be consistent with our corebusinesses, and will strengthen our relationships with our customers, enhanceour existing products, processes and technological capabilities or lower ourcosts.  Our ability to increase sales inthe future will depend, in part, on our success in penetrating Asian marketsand leveraging our existing customer base across all product lines in Europeand in the Americas.  We continuallyevaluate alternatives to lower the operating costs of our company.  This includes the realignment of our existingmanufacturing capacity, facility closures or similar actions.

InJune 2005, we acquired all of the outstanding capital stock of Autotype fromNorcros (Holdings) Limited of the UK. The acquisition broadened our product offerings in both of our operatingsegments.  Net assets acquired, includinggoodwill and intangibles, totaled $92,432. The net assets and results of operations are included in our financialstatements since the acquisition date. For more information regarding this acquisition, see Note 17 in our 2005Annual Report on Form 10-K, Notes to the Consolidated Financial Statements.

Duringthe second quarter ended June 30, 2006, we completed our integration of theAutotype units by closing three Autotype plants and relocating production toexisting facilities in order to maximize synergies from the acquisition.Production in Autotype’s Kvistgaard, Denmark facility was transferred to anexisting facility in Wantage, England. The closure of the Autotype Denmark facility impacts twenty one employeesin manufacturing, administrative, and managerial roles.  See Note 13 to the consolidated financialstatements in Part I, Item 1 for further information related to the closure ofthe Denmark facility.

30

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Duringthe second half of 2005 and first half of 2006, as part of our effort to lowerthe operating costs of our company, we began to implement certain consolidationactions.  These actions are intended tobetter align our manufacturing capacity with the changing needs of ourcustomers, eliminate excess capacity, lower our operating costs, and streamlineour organizational structure for improved long-term profitability. Therestructuring actions consist primarily of facility consolidations andclosures, including the movement of certain manufacturing operations, andemployee terminations. In connection with the restructuring actions, weincurred charges of $622 and $2,107, respectively during the three and sixmonths ended June 30, 2006.  For moreinformation regarding our consolidation actions, see Note 13 to theconsolidated financial statements in Part I, Item 1 and Note 18 in our 2005Annual Report on Form 10-K, Notes to the Consolidated Financial Statements.

For the three and sixmonths ended June 30, 2006, our consolidated results reflected top line salesgrowth of $28,976 and $59,087, respectively, as compared to the same periodslast year.  Our acquisition of Autotypecontributed $24,151 and $4,942 in sales for the three months ended June 30,2006 and 2005 respectively, and $48,777 and $4,942 in sales to the six monthsended June 30, 2006 and 2005 respectively. Sales in our existing business units increased $9,767 and $15,252respectively, for the three and six months ended June 30, 2006, or 5.6% and4.4%, respectively, when compared to same periods last year.

For the three and six months ended June 30, 2006,sales in our existing ASF segment increased a total of $9,278 and$14,962, respectively, or 9.2% and 7.5%, respectively, when compared to thesame periods last year on strong sales in both the Americas and Asia asindustrial production recovers in the United States and continues to grow inAsia.  Sales in ASF Europe were flat whencompared with the same three month ended June 30, 2005, but down ($3,070) forthe six months ended June 30, 2006 compared with the same six month period lastyear, primarily due to softer sales in our Offshore fluids unit, whichexperienced higher-than-usual sales volumes during the first six months of2005.  ASF Europe continues to seedeclines in the electronics product lines as production continues its migrationto Asia.  Sales in our existing MPS unitswere up slightly for the three and sixmonths ended June 30, 2006 when compared to the same periods last year, withsales increases in the Colorspan business unit being offset by declines in thepublishing plates and packaging units.

Froma cash flow standpoint, our liquidityposition remained sufficient during the six months ended June 30, 2006, withworking capital of $259,629 at June 30, 2006. Cash increased $18,109 during the six months ended June 30, 2006,primarily due cash provided by operating activities of $20,936, effect ofexchange rate changes on cash of $2,251, offset by cash used in investingactivities of $4,810.

RESULTSOF OPERATIONS

Weintend the discussion of our financial condition and results of operations thatfollows to provide information that will assist you in understanding ourConsolidated Financial Statements, the changes in certain key items in thosefinancial statements from quarter to quarter, and the primary factors thataccounted for those changes, as well as how certain accounting principles,policies and estimates affect our Consolidated Financial Statements.  The discussion of results of operationsincludes both consolidated and segment-level information.

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Summaryof the consolidated results for the three and six months ended June 30, 2006and 2005:
| ** **                           | ** ** | **Three Months Ended** | ** ** | ** ** | ** ** | **Six Months Ended** | ** ** | ** ** | ** ** |
|--------------------------------------|------------|----------------------------------|------------|------------|------------|--------------------------------|------------|------------|------------|
| ** **                           | ** ** | **June 30,**                | ** ** | ** ** | ** ** | **June 30,**              | ** ** | ** ** | ** ** |
| ** **                           | ** ** | **2006**                         | ** ** | **2005**   | ** ** | **%Change**                    | ** ** | **2006**   | ** ** | **2005** | ** ** | **%Change** | ** ** |
| ** **                           | ** ** | ** **                       | ** ** | ** ** | ** ** | **Favorable**                  | ** ** | ** ** | ** ** | ** ** | ** ** | **Favorable** | ** ** |
| ** **                           | ** ** | ** **                       | ** ** | ** ** | ** ** | **(Unfavorable)**              | ** ** | ** ** | ** ** | ** ** | ** ** | **(Unfavorable)** | ** ** |
| Net sales                            |       | $                                | 207,257    |       | $          | 178,281                        |       | 16.3       | %          | $ | 407,615 |   | $ | 348,528 |   | 17.0 | % |
| Cost of sales                        |       | 115,882                          |       | 98,255     |       | (17.9                          | %)         | 227,769    |       | 190,849 |   | (19.3 | %) |
| Gross profit                         |       | 91,375                           |       | 80,026     |       | 14.2                           | %          | 179,846    |       | 157,679 |   | 14.1 | % |
|                                 |       |                             |       |       |       |                           |       |       |       |   |   |   |   |
| Gross profit  percentage             |       | 44.1                             | %          | 44.9       | %          | **                             |       | 44.1       | %          | 45.2 | % | ** |   |
|                                 |       |                             |       |       |       |                           |       |       |       |   |   |   |   |
| Operating  expenses                  |       | 63,345                           |       | 56,416     |       | (12.3                          | %)         | 127,376    |       | 109,618 |   | (16.2 | %) |
|                                 |       |                             |       |       |       |                           |       |       |       |   |   |   |   |
| Operating profit                     |       | 28,030                           |       | 23,610     |       | 18.7                           | %          | 52,470     |       | 48,061 |   | 9.2 | % |
| Interest income  (expense), net |       | (6,622                           | )          | (7,049     | )          | 6.1                            | %          | (12,458    | )          | (14,071 | ) | 11.5 | % |
| Other, net                           |       | (14                              | )          | (622       | )          | **                             |       | (378       | )          | (592 | ) | ** |   |
|                                 |       | (6,636                           | )          | (7,671     | )          | (12,836                        | )          | (14,663    | )          |   |   |   |   |
| Earnings before income  taxes        |       | 21,394                           |       | 15,939     |       | 34.2                           | %          | 39,634     |       | 33,398 |   | 18.7 | % |
| Income taxes                         |       | (5,859                           | )          | (4,011     | )          | (46.1                          | %)         | (10,820    | )          | (9,685 | ) | (11.7 | %) |
| Net earnings                         |       | $                                | 15,535     |       | $          | 11,928                         |       | 30.2       | %          | $ | 28,814 |   | $ | 23,713 |   | 21.5 | % |
| Basic earnings  per share            |       | $                                | 0.50       |       | $          | 0.39                           |       | 28.2       | %          | $ | 0.94 |   | $ | 0.78 |   | 20.5 | % |
| Diluted earnings per  share          |       | $                                | 0.49       |       | $          | 0.39                           |       | 25.6       | %          | $ | 0.92 |   | $ | 0.77 |   | 19.5 | % |

----

**Not a meaningful statistic.

Threemonths ended June 30, 2006 compared to three months ended June 30, 2005

Netsales

Duringthe three months ended June 30, 2006, our consolidated net sales grew by$28,976, or 16.3%, compared to the same period in 2005.  The June 2005 acquisition of Autotypecontributed $19,209 to this increase and benefited both the ASF and MPSsegments.  On a currency-adjusted basis,net sales grew by 16.5%.  Our ASF segmentbenefited from volume growth in both our electronics and offshore fluidsgroups.  Our electronics group continuedto see growth all through Asia due to favorable market conditions, and theindustrial product lines continue to experience gains in Asia and in theAmericas.  Europe however, remains flatwith slight increases in industrial products being offset by decreases inelectronics which continue to migrate to Asia. Our offshore fluids group continues to benefit from increasing sales inSouth America.  Our MPS segment benefitedfrom growth in our digital printer group due to market acceptance of newproduct offerings.   Partially offsettingthis increase in our MPS business was a reduction in overall sales volume ingroups that supply the commercial, packaging and publication printingindustries due to continued soft markets.

Costof sales and gross profit

Costof sales for the three months ended June 30, 2006, increased $17,627 or 17.9%when compared to the same period last year. On a currency-adjusted basis, cost of sales increased 18.2%.  Of the increase, Autotype contributedapproximately 71% of the total increase in cost of sales in the second quarterof 2006.  Cost of sales in our existingbusiness units increased $5,120, or 5.4%, which is primarily attributable tohigher sales volumes.  Cost of sales on apercent-of-sales basis increased less than 1% compared to the same quarter lastyear.  Gross profit percentages decreasedto 44.1% from 44.9% compared to the same period last year primarily due tohigher conversion costs associated with the Autotype’s product line that yieldlower gross margins as compared to existing product lines.

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Operatingexpenses

Operatingexpenses increased $6,929 or 12.3% in the three months ended June 30, 2006compared to the same period in 2005, and 12.2% on a currency-adjustedbasis.  The increase is attributableprimarily to the inclusion of Autotype’s operating expenses for the full threemonths ended June 30, 2006, whereas in the same period in 2005 we only incurredtwo weeks of operating expenses related to Autotype.  We also recorded $622 in restructuringcharges in the second quarter of 2006. Operating expenses increased $1,004, during the second quarter of 2006in our existing units compared to the same period last year primarily due toincreased research and development costs in the second quarter of 2006.

Operatingprofit

Operatingprofit for the three months ended June 30, 2006 was $28,030, an increase of$4,420, or 18.7% compared the same period last year.  On a currency-adjusted basis, operatingprofit increased 19.1%.  For the threemonths ended June 30, 2006 our ASF segment had increased operating profits$2,004, or 12.0% compared to the same period last year due primarily to higherprofits in our ASF Asia business unit. For the three months ended June 30, 2006 our MPS segment had increasedoperating profits of $2,416, or 35.0% due primarily to a legal settlement ofapproximately $2,500 recorded in the three months ended June 30, 2005.

Interestincome (expense)

Netinterest expense decrease by $427, or 6.1% in the three months ended June 30,2006 compared with the same period last year. This decrease is primarily due to $199 of interest swap expense recordedin the second quarter of 2005 and higher amortization expense of deferredfinancing fees in the second quarter of 2005. There was no interest swap expense in the second quarter of 2006.

Other,net

Forthe three months ended June 30, 2006, other net expenses decreased $608 or97.7%.  The decrease is due to higherforeign exchange losses incurred in the second quarter of 2005 that did notrecur in the second quarter of 2006.

Incometax expense

Our effective tax ratefor the three months ended June 30, 2006, was 27.4%, up from 25.2% in the sameperiod last year due to lower expected repatriations of cash from foreign taxjurisdictions for the second quarter of 2005 compared to the second quarter of2006.

Netearnings

Netearnings for the three months ended June 30, 2006 increased $3,607 or 30.2%compared to the same period in 2005.  Ona currency-adjusted basis, net income increased 30.5% compared to the samequarter last year.  As discussed above,there are several factors that both positively and negatively impacted our netearnings for the second quarter of 2006.

Sixmonths ended June 30, 2006 compared to six months ended June 30, 2005

Netsales

Forthe six months ended June 30, 2006 net sales increased $59,087, or 17.0%,compared to the same period in 2005.  Ona currency-adjusted basis, net sales grew by 18.8%. The June 2005 acquisitionof Autotype accounted for $43,835 of the increase to sales, which benefitedboth the ASF and MPS segments.  Sales inour existing ASF segment increased by $14,962 during the six months ended June30, 2006 compared to the same period last year. Sales in our existing MPS segment increased by $290 during the sixmonths ended June 30, 2006 compared to the same period last year

OurASF segment benefited from volume growth in the industrial, electronics andoffshore fluid product groups.  Electronicsand industrial products experienced modest sales in the US and robust sales inAsia, while sales in Europe lagged behind the first six months of the sameperiod in 2005.  Sales in the offshorefluids group remains ahead of last year on increased sales to SouthAmerica.  Sales in our MPS segment wereup slightly through the first six months compared with last year as increasedsales in the digital printer group were offset by a reduction in overall salesvolume in groups that supply the commercial, packaging and publication printingindustries due to continued soft markets.

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Costof sales and gross profit

Costof sales for the six months ended June 30, 2006, increased $36,920 or 19.3%when compared to the same period last year. On acurrency-adjusted basis, cost of sales increased by 17.5%.  Autotype contributed approximately 77% of the increase in cost of salesfor the first six months of 2006.  Costof sales in our existing business units increased $8,534, or 4.5%, but remainedflat on a percent-of-sales basis at 54.7%. Gross profit for the six months ended June 30, 2006 was 44.1% comparedwith 45.2% for the same period last year. This is primarily attributable to Autotype, whose conversion costs runslightly higher than our traditional product lines.

Operatingexpenses

Forthe six months ended June 30, 2006, operating expenses increased $17,758 or16.2% during the six months ended June 30, 2006, compared to the same period in2005, or 16.4% on a currency-adjusted basis. The increase is attributable primarily to the inclusion of Autotype’soperating expenses for the full six months ended June 30, 2006, whereas in thesame period in 2005 we only incurred two weeks of operating expenses related toAutotype.   During the six months endedJune 30, 2006, we recorded $2,107 of restructuring expenses and $2,224 for losson disposal of assets.  There were nosimilar charges in the same period of 2005. Operating expenses in our existing units increased by $1,508, or 1.4%,primarily due to a charge of $1,913 recorded in the first quarter of 2006related to an unsuccessful acquisition, offset by other miscellaneousreductions in operating expenses during the first half of 2006.

Duringthe first quarter of 2006, we recognized a loss on disposal of assets of $2,224related to the disposal of two dormant business units.  The first disposal related to MacDermidEquipment (“MEI”), a small equipment manufacturing unit that supported ourelectronics sales.  In 2001, we wrote offall the inventory on MEI’s balance sheet. Inventory was the only significant asset on MEI’s books, and the writeoff effectively impaired our investment in the subsidiary.  In February of this year, we sold thesubsidiary for one dollar and recorded a loss on disposal of assets of $1,664which reduced our first quarter 2006 tax rate. By selling the subsidiary for one dollar, we saved costs that would havebeen associated with shutting the business, including severance, assetdisposal, and site clean up costs.  Thesecond disposal related to a dormant international business unit that wasdisposed in the first quarter of 2006.  Aloss on disposal of assets of $560 was recorded in the first quarter 2006.

Operatingprofit

Operatingprofit increased $4,409, or 9.2% for six months ended June 30, 2006 compared tothe same period last year.  On acurrency-adjusted basis operating profit increased 11.0%.  For the six months ended June 30, 2006 ourASF segment had increased operating profits $5,210, or 16.9% compared to thesame period last year due primarily to higher profits in our ASF Asia businessunit.  For the six months ended June 30,2006 our MPS segment had decreased operating profits of $801, or 4.7% dueprimarily to lower operating profit in our MPS North American business unitoffset by the legal settlement of approximately $2,500 recorded in the threemonths ended June 30, 2005.

Interestincome (expense)

Interestincome during the first six months of 2006 increased $242 compared to the sameperiod last year due to higher cash balances.   Interest expense decreased $1,371 in the first six months of 2006compared with the same period last year. Short term borrowings were up in 2005 as we prepared for our acquisitionof Autotype and we had expense of $387 related to an interest rate swap for thesix months ended June 30, 2005.  Therewas no interest swap expense in the six months ended June 30, 2006.

Other,net

Forthe six months ended June 30, 2006, other, net expenses totaled $378 comparedto $592 for the same period in 2005.  Thedecrease is primarily due to higher foreign exchange losses incurred in thesecond quarter of 2005 that did not recur in the second quarter of 2006.

Incometax expense

Our effective tax ratefor the six months ended June 30, 2006, was 27.3%, down from 29.0% in the sameperiod in 2005.  The decrease is due tothe disposal of MEI in the first quarter of 2006, which lowered our effectivetax rate in the first quarter of 2006. The tax rate is also lower because of the mix of profits from lowerforeign tax rates during the six months ended June 30, 2006 compared to thesame period in 2005.  Offsetting thesedecreases is an increase is higher expected repatriations for 2006 versus 2005which increased our 2006 tax rate.  Weexpect that our effective tax rate for the year will approximate 

34

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28.5%.  Factors such as pending tax rulings inEurope, our dividend repatriation policy, and the Research and Development taxcredit pending in the US Congress will influence the actual tax rate.

Netearnings

Netearnings for the six months ended June 30, 2006 increased $5,101 or 21.5%compared to the same period in 2005.  Ona currency-adjusted basis net income increased 23.2%. There are several factorsthat both positively and negatively impacted our net earnings during the firsthalf of 2006 as discussed above.

LIQUIDITYAND CAPITAL RESOURCES

Overview

Our primary source of liquidity during the three andsix months ended June 30, 2006 was cash generated from operatingactivities.  We expect that our futureworking capital, capital expenditures and dividend requirements will besatisfied primarily from existing cash balances, cash generated from operationsand available credit facilities.

Thetable below summarizes our cash flows for the six months ended June 30, 2006and 2005:
| ** **                               | ** ** | **2006** | ** ** | **2005** | ** ** | **Variance** | ** ** |
|------------------------------------------|------------|----------|------------|----------|------------|--------------|------------|
| Cash provided by  (used in):             |       |     |       |     |       |         |       |
| Operating  Activities                    |       | $        | 20,936     |     | $          | 26,868       |       | $ | (5,932 | ) |
| Investing  Activities                    |       | (4,810   | )          | (96,055  | )          | 91,245       |       |
| Financing  Activities                    |       | (268     | )          | 7,919    |       | (8,187       | )          |
| Effect of  exchange rate changes on cash |       | 2,251    |       | (6,447   | )          | 8,698        |       |
| Net change in cash                       |       | $        | 18,109     |     | $          | (67,715      | )          | $ | 85,824 |   |

 

Cashflow from operating activities declined during the six months ended June 30,2006, compared to the same period in 2005 primarily as a result of higherincome offset by the timing of tax payments and changes in our inventory,accounts receivable and accrued expenses. Increases in accounts receivable and inventories are a result of ourcurrent focus on driving growth in sales.  For the six months ended June 30, 2006 we paid taxes totaling $10,569 comparedto tax payments of $7,627 in the same period of 2005.

Netcash used in investing activities decreased by $91,245 for the six months endedJune 30, 2006, compared to the same period in 2005.  This change is due primarily the 2005purchase of Autotype and a decrease in capital spending during the first sixmonths of 2006 compared to the first six months of 2005.  The majority of capital spending during firstsix months of 2005 was related to a new plant in China for our ASF segment.

Netcash used in financing activities decreased by $8,187 for the six months endedJune 30, 2006, when compared to the same period last year. This decrease wasprimarily the result of lower short-term borrowing during the six months endedJune 30, 2006 compared to the same period in 2005, increased dividends paidduring the six months ended June 30, 2006 compared to the same period in 2005offset by higher proceeds from the exercise of stock options during the sixmonths ended June 30, 2006 compared to the same period in 2005.

OurBoard of Directors from time-to-time authorizes the purchase of issued andoutstanding shares of our common stock. Such additional shares may be acquiredthrough privately negotiated transactions or on the open market.  Any future repurchases by us will depend onvarious factors, including the market price of the shares, our business andfinancial position and general economic and market conditions.  Additional shares acquired pursuant to suchauthorizations will be held in our treasury and will be available for us toissue for various corporate purposes without further shareholder action (exceptas required by applicable law or the rules of any securities exchange on whichthe shares are then listed).  At June 30,2006, the outstanding authorization to purchase approximately 5,000,000 shareswould cost approximately $144,000.

Webelieve that we have the financial flexibility to deliver shareholder valuedescribed above while meeting our contractual obligations.  As of June 30, 2006, we currently have $99,041in cash and cash equivalents and working capital of $259,629. Excluding ournon-monetary items, prepaid expenses and deferred taxes, our working capital is$230,330.  We also have a long-termcredit arrangement, which consists of a combined revolving loan facility thatpermits borrowings, denominated in US dollars and certain foreign currencies,of up to $75,000.  There has been nobalance outstanding, or activity on this revolving loan facility for any of theperiods presented.  This long-term creditfacility was established in March 2006 to 

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replacea $50,000 long-term credit facility which was to expire in April 2006.  We have other uncommitted credit facilitieswhich presently total approximately $50,860. These credit facilities expire and may be renewed on a yearly basis.

We have a 9 1/8% Senior Subordinated Notes (“BondOffering” or “Bonds”), due 2011, for the face amount of $301,500.  Interest on the Bonds is due semi-annually onJanuary 15th and July 15th.  Pursuant tothe Bond Offering, we are subject to covenants requiring certain qualitativeand quantitative thresholds, including a requirement to maintain a definedfixed charge ratio greater than or equal to 2.25 to 1.0.  The incurrence of additional debt (excludingthe Bonds) is also limited, as are certain defined restricted payments.  We were in compliance with all of thesecovenants as of June 30, 2006.  If thesecovenants are violated, and we are unable to negotiate a waiver or amendmentthereof, the Bonds may be called for payment.

Therevolving credit facility above includes the following financial covenants:

·                  a ratio of bank-definedearnings before income taxes (“EBIT”) to interest expense greater than 2.75 to1.0 through December 31, 2006, and 3.0 to 1.0 for any fiscal quarter ending onor after March 31, 2007.

·                  a ratio of bank-definedtotal outstanding debt to earnings before tax, depreciation and amortization (“EBITDA”)to be less than 3.5 to 1.0 through December 31, 2006, and 3.25 to 1.0 for anyfiscal quarter ending on or after March 31, 2007.

·                  A ratio of bank-definedtotal outstanding senior debt to earnings before tax, depreciation andamortization (“EBITDA”) to be greater than 2.0 to 1.0.

We were in compliance with all of these covenants as ofJune 30, 2006.  If these covenants are violated, and we areunable to negotiate a waiver or amendment thereof, the lender would have theright to declare an event of default, terminate the remaining commitment andaccelerate all principal and interest outstanding.  There has been no balance outstanding oractivity on this committed revolving loan facility for any of the periodspresented.

Thefollowing table reflects our ability to fund both our required obligations,anticipated pension funding and our shareholder growth initiatives for nexttwelve months:
| Cash and cash  equivalents as of June 30, 2006                         |   | $       | 99,041  |   |
|------------------------------------------------------------------------|--------|---------|---------|--------|
| Other net  current monetary assets and liabilities as of June 30, 2006 |   | 131,289 |    |
|                                                                   |   | 230,330 |    |
|                                                                   |   |    |    |
| Available  borrowings under revolving loan facility                    |   | 75,000  |    |
| Availability  under other uncommitted credit facilities                |   | 50,860  |    |
| Total cash available and potentially available                         |   | 356,190 |    |
|                                                                   |   |    |    |
| Contractual cash  commitments due in next twelve months                |   | 42,422  |    |
| Pension funding  expenditures                                          |   | 12,000  |    |
| Expected capital  expenditures                                         |   | 15,000  |    |
| Expected  dividend payments                                            |   | 7,397   |    |
| Excess of cash  available and potentially available over requirements  |   | $       | 279,371 |   |

 

Ourliquidity position remained sufficient as of June 30, 2006.  Future pension funding expenditures arediscretionary subject to minimum fundings as required by the EmployeeRetirement Income Security Act, asset performance of the various plans, changesin pension plan asset allocation and other factors.   Our ability to obtain additional financing,if necessary, will depend upon a number of factors, including our futureperformance and financial results, and capital market conditions. We cannotassure you that we will be able to raise additional capital on reasonable termsor at all.

CRITICALACCOUNTING ESTIMATES

Inpreparing the consolidated financial statements in conformity with accountingprinciples generally accepted in the United States of America, management mustundertake decisions that impact the reported amounts and relateddisclosures.  Such decisions include theselection of the appropriate accounting principles to be applied and alsoassumptions upon which accounting estimates are based.  Management applies judgment based on itsunderstanding and analysis of the relevant circumstances to reach thesedecisions.  By their nature, thesejudgments are subject to an inherent degree of uncertainty.  Accordingly actual results could differsignificantly from the estimates applied.

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Ourcritical accounting policies are consistent with those disclosed in our AnnualReport on Form 10-K for the year ended December 31, 2005.

##### FORWARD-LOOKINGSTATEMENTS

This report andother of our reports include forward-looking statements within the meaning ofthe Private Securities Litigation Reform Act of 1995. These statements relateto analyses and other information that is based on forecasts of future resultsand estimates of amounts not yet determinable. These statements also relate tofuture prospects, developments and business strategies. The statementscontained in this report that are not statements of historical fact may includeforward-looking statements that involve a number of risks and uncertainties.

The words “anticipate,”“believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,”“will” and similar terms and phrases, including references to assumptions, havebeen used to identify forward-looking statements. These forward-lookingstatements are made based on management’s expectations and beliefs concerningfuture events affecting us and are subject to uncertainties and factorsrelating to our operations and business environment, all of which are difficultto predict and many of which are beyond our control, that could cause actualresults to differ materially from those matters expressed in or implied bythese forward-looking statements. The following factors are among those that may cause actual results todiffer materially from the forward-looking statements:  our ability to perform strategic acquisitionsand dispositions, our ability to integrate our acquisitions into ouroperations, environmental liabilities, changes in general economic, businessand industry conditions, changes in current advertising, promotional andpricing levels, changes in political and social conditions and localregulations, foreign currency fluctuations, trends in the specialty chemicaland printing industries, inflation, significant litigation; changes in salesmix, competition, disruptions of established supply channels, degree ofacceptance of new products, difficulty of forecasting sales at various times invarious markets, the availability, terms and deployment of capital, and theother factors discussed elsewhere in this report and in our most recent AnnualReport on Form 10-K, our other Securities and Exchange Commission filings and ourpress releases.

Allforward-looking statements should be considered in light of these factors. Weundertake no obligation to update forward-looking statements or risk factors toreflect new information, future events or otherwise.

ITEM3:

**Quantitativeand Qualitative Disclosures About Market Risk**

Weare exposed to market risk in the normal course of business activity due to ouroperations in different foreign currencies and our ongoing investing andfinancing activities.  The risk of losscan be assessed from the perspective of adverse changes in fair values, cashflows and future earnings.  We haveestablished policies and procedures governing our management of market risksand the use of financial instruments to manage exposure to such risks.  Management continually reviews the balancebetween foreign-currency-denominated assets and liabilities in order tominimize our exposure to foreign exchange fluctuations; however we do notcurrently actively hedge any of our foreign currency risk.

We operate manufacturing facilities in ten countries and sellproducts in over twenty-five countries. Approximately 56% of our net sales and total assets are denominated incurrencies other than the United States Dollar, predominantly the Euro, theBritish Pound, the Japanese Yen, the Chinese Yuan and the Hong KongDollar.  For the three and six monthsending June 30, 2006 foreign currency translation had a slight negative effecton net income.  The impact of exchangerate changes on operating cash flows historically has been comparable to theimpact on earnings.

Our business operations consist principally of manufactureand sale of specialty chemicals, supplies and related equipment to customersthroughout much of the world. Approximately 41% of our business is concentrated in the printingbusiness, used for a wide variety of applications, while 59% of our business isconcentrated on customers supplying a wide variety of chemicals tomanufacturers of automotive, other industrial, electronics and offshoreapplications.   As is usual for thesebusinesses, we generally do not require collateral or other security as acondition of sale, rather relying on credit approval, balance limitation andmonitoring procedures to control credit risk of trade account financialinstruments.  Management believes thatreserves for losses, which are established based upon review of accountbalances and historical experience, are adequate.

Inthe past, we were exposed to interest rate risk, primarily from our floatinginterest rate credit facilities.  At thetime, we entered into interest rate swap agreements for the purpose of reducingour exposure to possible future changes in interest rates on thesefacilities.  On September 20, 2001, werefinanced these facilities with 9 1/8% Senior Subordinated Notes, which 

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reducedour exposure to changing interest rates and is currently unhedged.    For additional information, see Note 16above, Guarantor Financial Statements. Based upon our current debt structureand expected levels of borrowing for the remainder of 2006, an increase ininterest rates would not result in an incremental interest expense.

Wedo not enter into derivative financial instruments for trading purposes buthave certain other supply agreements for raw material inventories and havechosen not to enter into any price hedging with our suppliers for commodities.

ITEM4:

**Controlsand Procedures**

Wemaintain disclosure controls and procedures designed to ensure that informationrequired to be disclosed in our reports filed or submitted under the SecuritiesExchange Act of 1934, as amended, (“Exchange Act”) is recorded, processed,summarized and reported within the  timeperiods specified in the Securities and Exchange Commission’s rules and forms.

Wecarried out an evaluation as of the last day of the period covered by thisQuarterly Report on Form 10-Q, under the supervision and with the participationof our management, including our Chief Executive Officer and Senior VicePresident, Finance, of the effectiveness of the design and operation of ourdisclosure controls and procedures (as defined in the Securities Exchange Actof 1934 Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, the Chief Executive Officer and Senior VicePresident, Finance, concluded that our disclosure controls and procedures (a)are effective to ensure that information required to be disclosed by us inreports filed or submitted under the Exchange Act is timely recorded,processed, summarized and reported and (b) included, without limitation,controls and procedures designed to ensure that information required to bedisclosed by us in reports filed or submitted under the Exchange Act isaccumulated and communicated to our management, including our Chief ExecutiveOfficer and Senior Vice President, Finance, as appropriate to allow timelydecisions regarding required disclosure.

Whilepreparing our March 31, 2006 Form 10-Q we identified an error and a materialweaknesses in our internal control over accounting for foreign currencytranslation in our consolidation reporting process and the preparation of theStatement of Comprehensive Income translation in our consolidation reportingprocess and the preparation of the Statement of Comprehensive Income describedbelow.  The material weakness related toour accounting for foreign currency translation and consequently to thepreparation of the Statement of Comprehensive Income, and did not extend to ourentire system of internal control over financial reporting.  The error noted was first recognized in April2006, while management and our new independent auditor were reviewing ourfinancial statements in preparation of our March 31, 2006 Form 10-Q and isfurther explained below.

Amaterial weakness is a control deficiency, or combination of controldeficiencies, that result in a more than remote likelihood that a materialmisstatement of the annual or interim financial statements will not beprevented or detected.  Duringpreparation of our March 31, 2006 Form 10-Q management and our new independentauditors reviewed our historical goodwill and intangible balances.  Upon further review it was determined thatour historical foreign goodwill and intangibles balances were not correctlytranslated into United States Dollars after we had adopted the provisions ofStatement of Financial Accounting Standards No. 141, Business Combination  (“SFAS 141”) on April 1, 2001.  SFAS 141 required us to allocate goodwill andintangibles to our business units that benefited the most from assets acquiredin a business combination.  Beginning in2002, we held all goodwill and certain intangible assets related to theacquisition of Canning Ltd. (“Canning intangibles”) constant at historiccurrency conversion rates, effectively holding the value of goodwill andCanning intangibles constant at 2002 currency conversion rates consistent.  This resulted in an understatement ofgoodwill and Canning intangibles as of December 31, 2005 and an understatementin Other Comprehensive Income for the year ended December 31, 2005.

Anerror was identified related to our accounting for foreign currency translationin our consolidation process and consequently to the preparation of theStatement of Comprehensive Income. Goodwill and intangible assets denominated in foreign currencies werenot translated into United States Dollars at the current period translationrates as required by Statement of Financial Accounting Standards No. 52Foreign Currency Translation. The error in our accounting for foreign currencytranslation was corrected by restating our December 31, 2005 balances that wereaffected by this error.  Our managementis in the process of remediating this material weakness through the design andimplementation of enhanced controls to aid in the correct preparation, review,presentation and disclosures of the foreign currency translations included inour consolidated balance sheet and preparation of the Statement ofComprehensive Income. Management will monitor, evaluate and test the operatingeffectiveness of these controls.

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Inlight of the error described above, as of the date of the filing of thisQuarterly Report on Form 10-Q, we have adopted remedial measures to address thedeficiency in our internal control that gave rise to the understatement ofgoodwill and intangibles balances as of December 31, 2005 and theunderstatement of Other Comprehensive Income for the year ended December 31,2005.  In addition, we have appliedcompensating procedures and processes as necessary to ensure the accuracy ofour financial reporting.  Such additionalprocedures included a comprehensive review of our foreign goodwill andintangible balances and Other Comprehensive Income, a risk assessment of ourcritical accounting policies and procedures. Accordingly, management believesthat the consolidated financial statements included in this Quarterly Report onForm 10-Q presents fairly, in all material respects, our financial condition,results of operations and cash flows as of, and for, the periodspresented.  We have hired an outsideprofessional service firm to perform a review of our critical accountingpolicies and procedures during the third quarter of 2006.

Otherthan indicated above, there were no changes in our internal control overfinancial reporting that occurred during the quarter ended June 30, 2006, thathave materially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

Limitationson the Effectiveness of Controls

Ourmanagement, including our Chief Executive Officer and Senior Vice President,Finance, does not expect that our disclosure controls will prevent or detectall errors and all fraud. A control system, no matter how well designed andoperated, can provide only reasonable, not absolute, assurance that the controlsystem’s objectives will be met. Further, the design of a control system mustreflect the fact that there are resource constraints, and the benefits ofcontrols must be considered relative to their costs. Because of the inherentlimitations in all control systems, no evaluation of controls can provideabsolute assurance that all control issues and instances of fraud, if any,within our company have been detected. These inherent limitations include therealities that judgments in decision-making can be faulty, and that breakdownscan occur because of simple error or mistake. Controls can also be circumventedby the individual acts of some persons, by collusion of two or more people, orby management override of the controls. The design of any system of controls isbased in part upon certain assumptions about the likelihood of future events,and there can be no assurance that any design will succeed in achieving itsstated goals under all potential future conditions. Over time, controls maybecome inadequate because of changes in conditions or deterioration in thedegree of compliance with associated policies or procedures. Because of theinherent limitations in a cost-effective control system, misstatements due toerror or fraud may occur and not be detected.

PART II.  OTHER INFORMATION

### ITEM 1 : Legal Proceedings

Refer to the Notes to the ConsolidatedFinancial Statements, Contingencies and Legal Matters contained in Part I Item1 of this Quarterly Report on Form 10-Q, Note 12.

### ITEM 1A : Risk Factors

We are affected by risks specific to us aswell as factors that affect all businesses operating in a global market.  The significant factors known to us thatcould materially affect our business, operating results and financial conditionare described in our most recently filed Annual Report on Form 10-K (Item1A).  There has been no material changein those risk factors.

### ITEM 2 : Unregistered Salesof Equity Securities and Use of Proceeds

None.

### ITEM 3 : Defaults UponSenior Securities

None.

### ITEM 4 : Submission ofMatters to a Vote of Security Holders

On May 2, 2006, we heldour annual meeting of shareholders.  Thefollowing matters were submitted to a vote of security holders at the annualmeeting of stockholders and the vote with respect to each such matters are asfollows:,

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The stockholders voted tore-elect Robert L. Ecklin, Daniel H. Leever, Donald G. Ogilvie, Joseph M.Silvestri, James C. Smith, and T. Quinn Spitzer, Jr. to continue as directorsof the Company.  A total of 29,276,441votes were represented with respect to this matter, with voting on eachspecific nominee as follows:

|                       | ** ** | **FOR**    | ** ** | **AGAINST OR  WITHHELD** | ** ** | **BROKER  NON-VOTES** | ** ** |
|-----------------------|------------|------------|------------|-------------------------------|------------|-----------------------|------------|
| Robert L. Ecklin      |       | 28,673,078 |       | 603,363                       |       | —                |       |
| Daniel H. Leever      |       | 28,764,863 |       | 511,578                       |       | —                |       |
| Donald G.  Ogilvie    |       | 28,407,378 |       | 869,063                       |       | —                |       |
| Joseph M.  Silvestri  |       | 28,432,250 |       | 844,191                       |       | —                |       |
| James C. Smith        |       | 28,674,348 |       | 602,093                       |       | —                |       |
| T. Quinn Spitzer, Jr. |       | 28,475,478 |       | 800,963                       |       | —                |       |

 

### A proposal to approve and adopt theMacDermid, Incorporated Stock Option Plan dated February 17, 2006 was approvedby the stockholders.  A total of29,276,441 votes were represented, with a total of 22,005,021 (72%) sharesvoting for the proposal, 4,235,481 voting against the proposal, 16,986 sharesabstaining from voting, and 3,018,953 broker non-votes.

### A proposal to approve amendments to theMacDermid, Incorporated 1995 Equity Incentive Plan was approved by thestockholders.  A total of 29,276,441votes were represented, with a total of 23,522,823 (77%) shares voting for theproposal, 2,712,502 voting against the proposal, 22,663 shares abstaining fromvoting, and 3,018,453 broker non-votes.

### ITEM 5: Other Information

### On August 9, 2006, the Corporation terminatedPaul Morrison as its Controller. The integrity of the Corporation’s financialstatements is not implicated by this matter.

### ITEM 6: Exhibits

| 31.1   |   | Certification of Chief Executive Officer pursuant to  Rule13a-14(a) and Rule15d-14(a) of the Securities Exchange Act, as amended                                       |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                   |
| 31.2   |   | Certification of Chief Financial Officer pursuant to  Rule13a-14(a) and Rule15d-14(a) of the Securities Exchange Act, as amended                                       |
|   |   |                                                                                                                                                                   |
| 32     |   | Certification of Chief Executive Officer and Chief  Financial Officer Pursuant to 18U.S.C. 1350, as adopted pursuant to Section  906 of the Sarbanes-Oxley Act of 2002 |

 

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#### SIGNATURES

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|                  | MacDermid, Incorporated |
|-----------------------|-------------------------|
|                  | (Registrant)            |
|                  |                    |   |
| Date: August 9,  2006 | /s/                     | Daniel H. Leever |
|                  |                    | Daniel H. Leever |
|                  |                    | Chairman and |
|                  |                    | Chief Executive Officer |
|                  |                    |   |
| Date: August 9,  2006 | /s/                     | Gregory M. Bolingbroke |
|                  |                    | Gregory M.  Bolingbroke |
|                  |                    | Senior Vice President, Finance |

 

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