** **

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

**FORM 10-Q/A**

**AmendmentNumber 1 to Form 10-Q**

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

**For thequarterly period ended March 31, 2006**

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

**For thetransition period from             to**

**COMMISSION FILE NUMBER  1-13889**

**MacDermid,Incorporated**(Exact name ofregistrant 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’s telephone number, including areacode  **(720) 479-3060**

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements 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 “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the ExchangeAct.:  

| 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 June 6, 2006** |
|-----------------------------|------------|---------------------------------------|
| Common Stock, no  par value |       | 30,834,790  shares                    |

 

 

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Introductory Note:

This Form 10-Q/A is being filed for the purposes of makingchanges to the Company’s footnote disclosures related to Basis of Presentationand Goodwill and Intangible Assets Currency Translation Adjustments and makingrevisions to Item 4 Controls and Procedures included in the Company’s Form 10-Qfor the period ended March 31, 2006. The Company has deleted Exhibit 4,Credit Agreement, dated as of March 29, 2006, among MacDermidIncorporated, the banks signatory thereto and Bank of America, N.A. as letterof credit issuing bank and swing line lender from this Form 10-Q/A,which was originally filed as Exhibit 4 to the Company’s Form 10-Qas originally filed on May 15, 2006.

In addition, the Company has updated certifications related to thesechanges:

·                  Exhibit 31.1 Principal Executive OfficerCertification under Section 302 of the Sarbanes-Oxley Act of 2002;

·                  Exhibit 31.2 Principal Financial OfficerCertification under Section 302 of the Sarbanes-Oxley Act of 2002;

·                  Exhibit 32 Certification of ChiefExecutive Officer and Senior Vice President, Finance pursuant to 18 U.S.C Section 1350,as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Except as described above, the Company has not amended or modified thefinancial information or other disclosures contained in the Company Form 10-Qas originally filed on May 15, 2006. This Form 10-Q/A does notreflect events occurring after the filing of the original Form 10-Qon May 15, 2006, nor does it modify or update the disclosures therein inany way other than as required to reflect the changes described above and setforth below. The following represents the Company’s Form 10-Q in itsentirety including changes to only those items set forth above.

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MACDERMID, INCORPORATED

TABLE OF CONTENTS
| PART I: Financial  Information |                                                                                           |   |
|-------------------------------------|------------------------------------------------------------------------------------------------|--------|
|                                |                                                                                           |   |   |
| Item  1:                            | Financial  Statements (Unaudited):                                                             |   |   |
|                                |                                                                                           |   |   |
|                                | Consolidated Statements of Earnings for the three  months ended March 31, 2006 and 2005   |   |   |
|                                |                                                                                           |   |   |
|                                | Consolidated Balance Sheets as of March 31, 2006  and December 31, 2005              |   |   |
|                                |                                                                                           |   |   |
|                                | Consolidated Statements of Cash Flows for the three  months ended March 31, 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                                                                                     |   |   |

 

ii

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##  

**PART I—FINANCIALINFORMATION**

**ITEM 1. Financial Statements**

**MACDERMID,INCORPORATEDCONSOLIDATED STATEMENTS OF EARNINGS**(Amountsin thousands of dollars except per share data)(Unaudited)
| ** **                                   | ** ** | **Three months ended March 31,** | ** ** |
|----------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                   | ** ** | **2006**                                             | ** ** | **2005** | ** ** |
| Net sales                                    |       | $                                                    | 200,358    |   | $ | 170,247 |   |
| Cost of sales                                |       | 111,887                                              |       | 92,594 |   |
| Gross profit                                 |       | 88,471                                               |       | 77,653 |   |
| Operating  expenses:                         |       |                                                 |       |   |   |
| Selling, technical and  administrative       |       | 53,017                                               |       | 46,670 |   |
| Research and development                     |       | 7,304                                                |       | 6,532 |   |
| Loss on disposal                             |       | 2,224                                                |       | — |   |
| Restructuring                                |       | 1,482                                                |       | — |   |
|                                         |       | 64,027                                               |       | 53,202 |   |
| Operating profit                             |       | 24,444                                               |       | 24,451 |   |
| Other  income (expense):                     |       |                                                 |       |   |   |
| Interest income                              |       | 850                                                  |       | 622 |   |
| Interest expense                             |       | (6,688                                               | )          | (7,644 | ) |
| Miscellaneous (expense) income               |       | (367                                                 | )          | 30 |   |
|                                         |       | (6,205                                               | )          | (6,992 | ) |
|                                         |       |                                                 |       |   |   |
| Earnings before income taxes                 |       | 18,239                                               |       | 17,459 |   |
| Income taxes                                 |       | (4,961                                               | )          | (5,674 | ) |
| Net earnings                                 |       | $                                                    | 13,278     |   | $ | 11,785 |   |
| Earnings  per common share:                  |       |                                                 |       |   |   |
| Basic                                        |       | $                                                    | 0.43       |   | $ | 0.39 |   |
| Diluted                                      |       | $                                                    | 0.43       |   | $ | 0.38 |   |
| Weighted  average common shares outstanding: |       |                                                 |       |   |   |
| Basic                                        |       | 30,658                                               |       | 30,293 |   |
| Diluted                                      |       | 31,065                                               |       | 30,810 |   |
|                                         |       |                                                 |       |   |   |
| Dividends  declared per common share         |       | $                                                    | 0.06       |   | $ | 0.06 |   |

 

Seeaccompanying notes to consolidated financial statements.

1

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**MACDERMID,INCORPORATEDCONSOLIDATED BALANCE SHEETS**(Amountsin thousands of dollars except share data)
| ** **                                                                                                                                                             | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                             | ** ** | **2006**           | ** ** | **2005**              | ** ** |
| ** **                                                                                                                                                             | ** ** | **(unaudited)**    | ** ** | **(unaudited)**       | ** ** |
| ** **                                                                                                                                                             | ** ** | ** **         | ** ** | **(restated)**        | ** ** |
| Assets                                                                                                                                                                 |       |               |       |                  |       |
| Current assets:                                                                                                                                                        |       |               |       |                  |       |
| Cash and cash  equivalents                                                                                                                                             |       | $                  | 83,037     |                  | $          | 80,932 |   |
| Accounts  receivable, net of allowance for doubtful receivables of $11,247 and $10,966,  respectively                                                                  |       | 163,469            |       | 155,718               |       |
| Inventories                                                                                                                                                            |       | 105,969            |       | 92,973                |       |
| Prepaid expenses                                                                                                                                                       |       | 10,942             |       | 14,108                |       |
| Deferred income  taxes                                                                                                                                                 |       | 14,752             |       | 16,629                |       |
| Total current assets                                                                                                                                                   |       | 378,169            |       | 360,360               |       |
|                                                                                                                                                                   |       |               |       |                  |       |
| Property, plant  and equipment, net of accumulated depreciation of $189,603 and $184,499,  respectively                                                                |       | 120,755            |       | 123,229               |       |
| Goodwill                                                                                                                                                               |       | 243,961            |       | 242,935               |       |
| Intangibles, net  of accumulated amortization of $16,065 and $14,793, respectively                                                                                     |       | 41,990             |       | 40,916                |       |
| Deferred income  taxes                                                                                                                                                 |       | 37,279             |       | 37,667                |       |
| Other assets,  net                                                                                                                                                     |       | 15,081             |       | 14,820                |       |
| Total assets                                                                                                                                                           |       | $                  | 837,235    |                  | $          | 819,927 |   |
|                                                                                                                                                                   |       |               |       |                  |       |
| Liabilities and  shareholders’ equity                                                                                                                             |       |               |       |                  |       |
| Current  liabilities:                                                                                                                                                  |       |               |       |                  |       |
| Accounts payable                                                                                                                                                       |       | $                  | 64,530     |                  | $          | 60,202 |   |
| Dividends  payable                                                                                                                                                     |       | 1,846              |       | 1,836                 |       |
| Accrued  compensation                                                                                                                                                  |       | 15,787             |       | 16,261                |       |
| Accrued interest                                                                                                                                                       |       | 6,044              |       | 12,784                |       |
| Accrued income  taxes payable                                                                                                                                          |       | 11,246             |       | 11,461                |       |
| Short-term notes  payable                                                                                                                                              |       | 2,163              |       | 498                   |       |
| Current  installments of long-term obligations                                                                                                                         |       | 229                |       | 232                   |       |
| Other current  liabilities                                                                                                                                             |       | 36,403             |       | 38,565                |       |
| Total current liabilities                                                                                                                                              |       | 138,248            |       | 141,839               |       |
|                                                                                                                                                                   |       |               |       |                  |       |
| Long-term debt  and capital lease obligations                                                                                                                          |       | 300,986            |       | 301,043               |       |
| Retirement  benefits, less current portion                                                                                                                             |       | 22,544             |       | 22,343                |       |
| Deferred income  taxes                                                                                                                                                 |       | 12,067             |       | 11,489                |       |
| Other long-term  liabilities                                                                                                                                           |       | 4,712              |       | 4,136                 |       |
| Total liabilities                                                                                                                                                      |       | 478,557            |       | 480,850               |       |
|                                                                                                                                                                   |       |               |       |                  |       |
| Shareholders’  equity                                                                                                                                             |       |               |       |                  |       |
| Common stock,  authorized 75,000,000 shares, issued 47,319,685 at March 31, 2006, and  47,131,950 shares at December 31, 2005, at stated value of $1.00 per share |       | 47,320             |       | 47,132                |       |
| Additional  paid-in capital                                                                                                                                            |       | 45,935             |       | 42,869                |       |
| Retained  earnings                                                                                                                                                     |       | 378,239            |       | 366,807               |       |
| Accumulated  other comprehensive (loss) income                                                                                                                         |       | 1,838              |       | (3,051                | )          |
| Less—cost of  common shares held in treasury, 16,545,831 at March 31, 2006, 16,546,763  at December 31, 2005                                            |       | (114,654           | )          | (114,680              | )          |
| Total shareholders’ equity                                                                                                                                        |       | 358,678            |       | 339,077               |       |
| Total liabilities and  shareholders’ equity                                                                                                                       |       | $                  | 837,235    |                  | $          | 819,927 |   |

 

See accompanying notes to consolidated financialstatements.

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**MACDERMID,INCORPORATEDCONSOLIDATED STATEMENTS OF CASH FLOWS**(Amountsin thousands of dollars)(Unaudited)

 
| ** **                                                                                                       | ** ** | **Three months ended March 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                                                       | ** ** | **2006**                                             | ** ** | **2005** | ** ** |
| Net cash flows  from operating activities:                                                                       |       |                                                 |       |   |   |
| Net earnings                                                                                                     |       | $                                                    | 13,278     |   | $ | 11,785 |   |
| Adjustments to reconcile earnings from  continuing operations to net cash provided by operating activities: |       |                                                 |       |   |   |
| Depreciation                                                                                                     |       | 4,897                                                |       | 3,846 |   |
| Amortization                                                                                                     |       | 1,452                                                |       | 891 |   |
| Provision for bad debts                                                                                          |       | 463                                                  |       | 517 |   |
| Deferred income taxes                                                                                            |       | 3,072                                                |       | 163 |   |
| Stock compensation expense                                                                                       |       | 752                                                  |       | 2,177 |   |
| Restructuring                                                                                                    |       | 1,482                                                |       | — |   |
| Changes in  assets and liabilities:                                                                              |       |                                                 |       |   |   |
| (Increase) in receivables                                                                                        |       | (6,792                                               | )          | (7,825 | ) |
| (Increase) in inventories                                                                                        |       | (12,337                                              | )          | (5,547 | ) |
| Decrease in prepaid expenses                                                                                     |       | 3,276                                                |       | 1,309 |   |
| Increase in accounts payable                                                                                     |       | 3,642                                                |       | 3,167 |   |
| Decrease in accrued expenses                                                                                     |       | (11,707                                              | )          | (10,541 | ) |
| (Decrease) increase in income tax liabilities                                                                    |       | (1,001                                               | )          | 196 |   |
| Other                                                                                                            |       | 24                                                   |       | 1,885 |   |
| Net cash flows provided by operating activities                                                                  |       | 501                                                  |       | 2,023 |   |
|                                                                                                             |       |                                                 |       |   |   |
| Cash flows from  investing activities:                                                                           |       |                                                 |       |   |   |
| Capital expenditures                                                                                             |       | (1,562                                               | )          | (3,006 | ) |
| Proceeds from disposition of fixed assets                                                                        |       | 79                                                   |       | 16 |   |
| Other                                                                                                            |       | 37                                                   |       | — |   |
| Proceeds from disposition of business                                                                            |       | —                                               |       | 263 |   |
| Net cash flows used in investing activities                                                                      |       | (1,446                                               | )          | (2,727 | ) |
|                                                                                                             |       |                                                 |       |   |   |
| Cash flows from  financing activities:                                                                           |       |                                                 |       |   |   |
| Net short-term borrowings                                                                                        |       | 1,668                                                |       | 142 |   |
| Repayments of long-term borrowings                                                                               |       | (97                                                  | )          | (204 | ) |
| Issuance from treasury shares                                                                                    |       | 26                                                   |       | 33 |   |
| Proceeds from exercise of stock options                                                                          |       | 2,501                                                |       | 17 |   |
| Dividends paid                                                                                                   |       | (1,836                                               | )          | (1,212 | ) |
| Net cash flows provided by (used in) financing  activities                                                       |       | 2,262                                                |       | (1,224 | ) |
|                                                                                                             |       |                                                 |       |   |   |
| Effect of  exchange rate changes on cash and cash equivalents                                                    |       | 788                                                  |       | (2,160 | ) |
| Net increase  (decrease) in cash and cash equivalents                                                            |       | 2,105                                                |       | (4,088 | ) |
| Cash and cash  equivalents at beginning of period                                                                |       | 80,932                                               |       | 137,829 |   |
| Cash and cash  equivalents at end of period                                                                      |       | $                                                    | 83,037     |   | $ | 133,741 |   |
|                                                                                                             |       |                                                 |       |   |   |
| Supplemental  disclosures of Cash Flow Information:                                                              |       |                                                 |       |   |   |
| Cash paid for  interest                                                                                          |       | $                                                    | 13,936     |   | $ | 14,226 |   |
| Cash paid for income  taxes                                                                                      |       | $                                                    | 4,655      |   | $ | 5,085 |   |

 

See accompanying notes to consolidated financialstatements.

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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 financialstatements, in conformity with GAAP, requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities and thedisclosure of contingencies at the date of the financial statements as well asthe reported amounts of revenues and expenses during the reporting period.Estimates have been prepared on the basis of the most current and bestavailable information and actual results could differ from those estimates. Certainamounts in the prior period have been restated to conform to current periodpresentation, including the December 31, 2005 balance sheet accounts ofGoodwill, Intangibles, Total Assets, Accumulated other comprehensive (loss)income, Total shareholders’ equity and Total liabilities and shareholders’equity (See Notes 2 and 6 below) and the March 31, 2005 foreign currencytranslation adjustment (see Note 7 below). Below are tables that present thebalances 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** | ** ** | **March 31, 2005  balance, as reported** | ** ** | **Restatement  Adjustments** | ** ** | **March 31, 2005  balance, restated** | ** ** |
|------------------------------------------|------------|--------------------------------------------------------------|------------|------------------------------|------------|------------------------------------------------------|------------|
| Foreign currency  translation adjustment |       | $                                                            | (6,779     | )                            | $          | (2,819                                               | )          | $ | (9,598 | ) |
| Comprehensive income                     |       | 5,170                                                        |       | (2,819                       | )          | 2,351                                                |       |
|                                          |            |                                                              |            |                              |            |                                                      |            |  |  |  |

 

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 March 31, 2006 and the results of operationsand cash flows for the periods presented. All such adjustments are of a normalrecurring nature. The results of operations for the three months ended March 31,2006 are not necessarily indicative of the results that may be achieved for afull year and cannot be used to indicate financial performance for the entireyear. These financial statements should be read in conjunction with the notesto the consolidated financial statements contained in MacDermid’s Annual Reportfor the year ended December 31, 2005 (see Note 2).

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 resultedin an understatement of goodwill and Canning intangibles as of December 31,2005. In connection with the Company adopting the provision of Statement ofFinancial Accounting Standards No. 154, Accounting Changes and ErrorCorrections, in the first quarter of 2006, the 

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Company restated the December 31, 2005 balances of Goodwill,Intangibles and Other Comprehensive (Loss) Income to correct an error relatedto foreign currency translation. As a result, the Company made certain restatementadjustments to the December 31, 2005 Consolidated Balance Sheet to statethese assets at the correct currency conversion rates.  The Company also restated Other ComprehensiveIncome for the three months ended March 31, 2005 to correct an errorrelated to foreign currency translation (see note 7 below).

Uponfurther investigation the Company’s management determined that goodwill relatedto the 1998 acquisition of Canning Ltd. had been pushed-down into the books ofthe acquisition holding company instead of being pushed-down to the books ofthe geographic business segments, where it is tested for impairment. TheCompany should have allocated the goodwill into the books of the regionalbusiness segments benefiting from the acquisition. 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.

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 the December 31, 2005 Consolidated Balance Sheet, as described in Notes6 and 7 below.

These restatement adjustments have no impact on earnings as reported inthe Company’s financial statements dated December 31, 2005, or any of thetangible assets and liabilities accounts stated therein. For financialreporting purposes, the Company treated these restatement adjustments similar to a reclassification of theaffected 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 itsgoodwill and intangible assets impairment tests for 2005. The Company added therespective restatement adjustments and compared the adjusted net assets to thediscounted cash flows, as calculated in the original impairment test. The restatementadjustments noted above did not trigger an impairment, and as such, the Companyconcluded that there is no impairment to its goodwill or intangible assets(including the Canning intangibles) as a result of the above restatement adjustments.

OnJune 20, 2001, MacDermid issued 9 1/8% Senior Subordinated Notes (“BondOffering”) due 2011. Under the Bond Offering the Company is required to performtests of certain metrics in order to demonstrate that the Company meetsrestrictive covenants embedded in the Bond Offering. As a result of the restatementadjustments noted above, the Company adjusted its goodwill balances andre-performed the net worth, restricted payment, and indebtedness covenant testsas of December 31, 2005, as calculated in accordance with Bond Offeringagreement. The restatement adjustments noted above did not trigger a default,and as such, the Company concluded that the above restatement adjustments hadno impact on its Bond Offering covenant tests as of December 31, 2005.

Note 3.                                  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 ahigh technology producer of specialty coated film products for the electronicsand printing industries. In electronics, Autotype is a 

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producerof hard coated films for the membrane switch and touch screen markets. Inprinting, Autotype provides high quality stencil materials and digitalpre-press products for screen printing. As of March 31, 2006, the purchaseprice 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 andliabilities based on preliminary estimates of the fair values of the assetspurchased and liabilities assumed as of the date of acquisition. The estimatedpurchase price allocations are subject to adjustment, generally within one yearof the date of acquisition. Adjustments to the purchase price allocation duringthe first quarter ended March 31, 2006 included primarily the workingcapital revisions and facility consolidation costs described in Note 12. Allocationof the purchase price is as follows:

 

| Current assets, net of cash Acquired          |   | $  | 30,673 |   |
|-----------------------------------------------|--------|---------|--------|--------|
| Fixed assets and  other                       |   | 22,912  |   |
| Intangible  assets                            |   | 15,794  |   |
| Acquired  in-process research and development |   | 386     |   |
| Goodwill                                      |   | 40,978  |   |
| Total assets acquired                         |   | 110,743 |   |
| Current  liabilities                          |   | (11,898 | )      |
| Long-term debt                                |   | (376    | )      |
| Deferred tax  liability                       |   | (6,037  | )      |
| Total liabilities assumed                     |   | (18,311 | )      |
| Net assets acquired                           |   | $       | 92,432 |   |

 

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

Note 4.                                  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 ofdiluted earnings per share is based upon the weighted average number ofoutstanding common shares plus the effect of all dilutive contingently issuablecommon shares from stock options, stock awards and warrants that wereoutstanding during the period, under the treasury stock method. Options topurchase 2,657,671 and 2,417,950 shares of common stock were outstanding as of March 31,2006 and 2005, respectively, but were not included in the computation ofdiluted EPS because those options would be antidilutive based on market pricesas of March 31, 2006 and 2005, respectively.

Thefollowing table reconciles basic weighted-average common shares outstanding todiluted weighted-average common shares outstanding:

 

|                                   | ** ** | **Three months Ended March 31,** | ** ** |
|-----------------------------------|------------|------------------------------------------------------|------------|
| ** **                        | ** ** | **2006**                                             | ** ** | **2005** | ** ** |
| Basic common  shares              |       | 30,658,391                                           |       | 30,293,269 |   |
| Dilutive effect  of stock options |       | 406,800                                              |       | 516,351 |   |
| Diluted common shares             |       | 31,065,191                                           |       | 30,809,620 |   |

 

Note 5.                                  Stock-Based Plans

MacDermid grants stock options and stock awards to Boardmembers and to employees.  Effective January 1,2006, MacDermid adopted the provisions of Statement of Financial AccountingStandards No. 123(R), Share-Based Payment (“SFAS 123(R)”), which requiresthe use of the fair value method of accounting for all stock-basedcompensation, including stock options. SFAS 123(R) was adopted using themodified prospective method of application. Under this method, in addition toreflecting compensation expense for new share-based awards, expense is alsorecognized for those awards vesting in the current period based on the valuethat had been included in pro forma disclosures in prior periods. Results fromprior 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 BasedCompensation (“SFAS 123”), prospectively, to all stock options granted,modified or settled after April 1, 2001. Accordingly, compensation expensewas measured using the fair value at the date of grant for options grantedafter April 1, 2001. The resulting expense 

6

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is amortized over the period in which the options are earned.During the three months ended March 31, 2006 and 2005, $524 and $2,043,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 threemonths ended March 31, 2006 and 2005, respectively:

 

|                                | ** ** | **Three months Ended  March 31,** | ** ** |
|--------------------------------|------------|--------------------------------------------------|------------|
| ** **                     | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| Volatility                     |       | 31.5                                             | %          | 31.9 | % |
| Risk-free  interest rate       |       | 4.53                                             | %          | 1.60 | % |
| Dividend yield                 |       | 0.80                                             | %          | 0.49 | % |
| Expected lives  (years)        |       | 8.5                                              |       | 6.0 |   |
| Fair value per option  granted |       | $                                                | 13.45      |   | $ | 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 stock options represents the period of time thestock options are expected to be outstanding and is based on historical trends.

MacDermidhas five stock incentive plans under which there were outstanding stock options.These plans have different terms andfeatures 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”). The1995 Plan provides for the issuance of up to 900,000 shares. In February 2006,the Compensation Committee of the Company proposed that the Company’sshareholders consider 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 proposed changes above, were approved by the Company’sshareholders in 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 compensation expense for shares issued underthis plan equal to the market value of the shares on the date of grant. Forstock awards granted prior to 2006, the stock awards are granted at fair marketvalue and the related expense is recognized at the date of grant. For stockawards granted after January 1, 2006, the stock awards are granted at fairmarket value and the related expense is recognized over the vesting terms ofstock awards. The amount of expense recognized during the three months ended March 31,2006 and 2005, related to the stock awards was $132 and $134, respectively. Thefollowing table summarizes stock award activity from December 31, 2005 throughMarch 31, 2006 regarding 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     |       | $                                                               | 31.02      |   |
| Shares vested                                |       | —     |       |                                                            |       |
| Shares forfeited                             |       | —     |       |                                                            |       |
| Nonvested balance at  March 31, 2006    |       | 87,828     |       | $                                                               | 30.72      |   |

 

As of March 31, 2006, there was $2,246 of totalunrecognized compensation cost related to stock awards granted under the EquityIncentive Plan. That cost is expected to be recognized over a weighted averageperiod of 2.7 years.

Stock Option Plans

7

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The1992 Plan

In1993, MacDermid adopted a non-qualified stock option plan, approved byshareholders in July 1992 (the “1992 Plan”). The 1992 Plan provides forthe issuance of up to 2,700,000 shares. Options granted under the 1992 plan,which vest between four and six years, are generally exercisable at a fixedprice that can be as low as two-thirds of the market price at the grant date. Theoptions are exercisable into restricted shares of common stock, which cannot besold or transferred, except back to MacDermid at cost, during the four-yearperiod commencing with the exercise date. In February 2006, MacDermid’sBoard of Directors voted to cancel all remaining unissued shares in the 1992Plan. As of March 31, 2006, there were 12,065 options outstanding underthe 1992 plan.

The1998 Plan

MacDermidadopted a non-qualified stock option plan, approved by shareholders in July 1999(the “1998 Plan”). The 1998 Plan provides for the issuance of up to 1,500,000shares. Options granted under the 1998 Plan generally are exercisable during aten-year period beginning with the grant date, at a fixed price equal to aone-third-premium over market price at the date of grant. The options areexercisable into unrestricted shares of common stock, except as otherwiseprovided, under the terms of the plan, at the time of grant. In February 2006,MacDermid’s Board of Directors voted to cancel all remaining unissued shares inthe 1998 Plan. As of March 31, 2006, there were 733,400 optionsoutstanding under the 1998 plan.

The2001 Executive Plan

MacDermidadopted a non-qualified key executive stock option plan, approved byshareholders in July 2001 (the “2001 Executive Plan”). The 2001 ExecutivePlan, as amended by MacDermid’s shareholders in 2004, provides for the issuanceof up to 5,000,000 shares. Options granted under the 2001 Executive Plangenerally are exercisable during a six-year period beginning at the vestingdate, which is four years after the grant date. The options are exercisableinto unrestricted shares of common stock, except as otherwise provided at thetime of grant. The options are also subject to an “Index Effect”, whichinvolves 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 years followingthe date of grant. The options initially had exercise prices ranging from$16.75 to $38.65 per share; the exercise prices of these options as of March 31,2006, now range from $19.72 to $38.65 per share based on Company stock priceperformance.

·                  Thenumber of options exercisable is variable, either up or down, based upon amultiple either (a) determined by the cumulative percentage of ownerearnings growth (defined as cash flow from operations less net capitalexpenditures), or (b) determined using earnings per share growth duringthe four year vesting period, based on targets set at the time of grant. Themultiple can range from 50% to 200% of the original shares issued.

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 2001Employee Plan provides for the issuance of up to 1,000,000 shares. Optionsgranted under the 2001 Employee Plan generally are exercisable during asix-year period beginning at the vesting date, which is four years after thegrant date, at a fixed price equal to the market price at the date of grant. Theoptions are exercisable into unrestricted shares of common stock, except asotherwise provided at the time of grant. In February 2006, MacDermid’sBoard of Directors voted to cancel all remaining unissued shares in the 2001Employee Plan. As of March 31, 2006, there were 212,335 optionsoutstanding under the 2001 Employee plan.

The2006 Plan

InFebruary 2006, the Company’s board of directors, adopted a non-qualifiedall employee stock option plan approved by the Company’s shareholders in May 2006(the “2006 Plan”). The 2006 Plan provides for the issuance of up to 1,100,000shares. Options granted under the 2006 Plan generally are exercisable during afour-year period beginning at the vesting date, which is six years after thegrant date, at a  price equal to theaverage of the Company’s closing common stock price for the previous fivetrading days preceding the stock option grant. The options are exercisable intounrestricted shares of common stock, except as otherwise provided at the timeof grant. During the three months ended March 31, 2006, 194,856 of stockoptions were granted to employees, executive officers and non-employeedirectors of the Company at a fair market price of $30.47. As of March 31,2006, there are 905,144 shares available for future grant under the 2006 plan. Totalcompensation expense 

8

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forthe three months ended March 31, 2006 and 2005 related to stock optionsgrants under the 2006 plans was $73 and $0, respectively.

The following table summarizes stock option activity from December 31,2005 through March 31, 2006 regarding the Company’s fixed stock optionplans:

Fixed Option Plans:
| ** **                           | ** ** | **Outstanding  Options** | ** ** | **Aggregate  IntrinsicValue** | ** ** | **Weighted Average  Exercise Price  Per Share** | ** ** | **Weighted Average  Remaining  Contractual Term** | ** ** |
|--------------------------------------|------------|--------------------------|------------|-------------------------------|------------|----------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| Outstanding,  December 31, 2005 |       | 1,047,435                |       |                          |       | $                                                              | 36.81      |                                                        | 4.2        |   |
| Granted                              |       | 195,206                  |       |                          |       | $                                                              | 30.47      |                                                        |       |   |
| Exercised                            |       | (29,685                  | )          |                          |       | $                                                              | 16.47      |                                                        |       |   |
| Forfeited                            |       | (60,300                  | )          |                          |       | $                                                              | 39.94      |                                                        |       |   |
| Outstanding,  March 31, 2006    |       | 1,152,656                |       | $                             | —     |                                                           | $          | 36.08                                                       |       | 4.8 |   |
| Exercisable,  March 31, 2006    |       | 918,025                  |       | $                             | —     |                                                           | $          | 37.62                                                       |       | 3.7 |   |

 

The weighted-average grant date fair value of stock optionsgranted under fixed option plans during the three months ended March 31,2006 and 2005 was $13.45 and $11.07, respectively. The total intrinsic value ofstock options exercised under fixed option plans during the three months ended March 31,2006 and 2005 was $396 and $0, respectively.

As of March 31, 2006, there was $2,460 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 3.7years. The total fair value of stock options vested under the fixed optionplans during the three months ended March 31, 2006 and 2005 was $54 and$0, respectively.

The following table summarizes stock option activity from December 31,2005 through March 31, 2006 regarding the Company’s indexed stock optionplans:

Indexed Option Plan:
| ** **                           | ** ** | **Shares  Available  for Grant** | ** ** | **Outstanding  Options** | ** ** | **Aggregate  IntrinsicValue** | ** ** | **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                            |       | —                                |       | (93,500                  | )          |                          |       | $                                                              | 22.57      |                                                        |       |   |
| Forfeited                            |       | 28,000                                |       | (28,000                  | )          |                          |       | $                                                              | 30.79      |                                                        |       |   |
| Index effect                         |       | 295,237                               |       | (295,237                 | )          |                          |       | $                                                              | 12.37      |                                                        |       |   |
| Outstanding,  March 31, 2006    |       | 1,732,348                             |       | 3,108,152                |       | $                             | 9,666      |                                                           | $          | 26.70                                                       |       | 6.7 |   |
| Exercisable, March 31,  2006    |       | —                                |       | 1,398,527                |       | $                             | 9,944      |                                                           | $          | 22.70                                                       |       | 5.4 |   |

 

The weighted-average grant date fair value of stock optionsgranted under the indexed option plan during the three months ended March 31,2006 and 2005 was $0 and $11.07, respectively. The total intrinsic value ofstock options exercised under indexed option plan during the three months endedMarch 31, 2006 and 2005 was $27 and $0, respectively.

As of March 31, 2006, there was $7,593 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 5.4years. The total fair value of stock options vested under the indexed optionplan during the three months ended March 31, 2006 and 2005 was $4,558 and$0, respectively.

Note 6.                                  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 inan understatement of goodwill and Canning intangibles as of December 31,2005. As a result, the Company has determined that certain restatement adjustmentsare necessary as described below to state these assets at the current currencyconversion rates.

9

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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 have allocated the goodwill into the books ofthe regional business segments benefiting from the acquisition. The goodwill,however, was “pushed down” to, and denominated in British Pounds as opposed tobeing pushed-down to, and denominated in the currencies of the regions to whichthe goodwill benefits.

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

 

|            | ** ** | **As of March 31, 2006** | ** ** |
|------------|------------|----------------------------------------------|------------|
| ** ** | ** ** | **Gross Carrying**                      | ** ** | **Accumulated** | ** ** | **Net** | ** ** |
| ** ** | ** ** | **Amount**                                   | ** ** | **Amortization** | ** ** | **Amount** | ** ** |
| Patents    |       | $                                            | 17,920     |   | $ | (9,581 | ) | $ | 8,339 |   |
| Trademarks |       | 20,487                                       |       | (3,278 | ) | 17,209 |   |
| Others     |       | 19,648                                       |       | (3,206 | ) | 16,442 |   |
| Total      |       | $                                            | 58,055     |   | $ | (16,065 | ) | $ | 41,990 |   |

 

|            | ** ** | **As of December 31, 2005** | ** ** |
|------------|------------|-------------------------------------------------|------------|
| ** ** | ** ** | **As Reported  Gross Carrying**       | ** ** | **RestatementForeign  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 deductedfrom Goodwill and charged to the intangible asset account. In March 2006,the Company notified employees in Autotype’s Kvistgaard, Denmark facility thatthe plant would be relocated to Wantage, England, and added $369 to goodwillpursuant to Emerging Issues Task Force No. 95-3, Recognition ofLiabilities in Connection with a Purchase Business Combination (“EITF 95-3”)related to employee severance benefits. In March 2006, Goodwill wasreduced by an adjustment of $135 to true-up severance costs related to Autotype’sSchaumberg, Illinois plant.

Amortization expense related to amortization of intangible assets forthe three month ended March 31, 2006 and 2005, was $1,257 and $409,respectively. Amortization expense for intangible assets is expected to rangefrom $3,870 to $4,563 over the next five years.

Useful lives for amortizable patents are approximately 15 years. Otherintangible assets have useful lives of five to fifteen years.

The following table presents the changes in goodwill allocated to thereportable segments for the three months ended March 31, 2006: 
| **Reportable Segment** | ** ** | **As reported  balance at  December 31,  2005** | ** ** | **Restatement  Foreign  Currency  Adjustments** | ** ** | **Restated  Balance at  December 31,  2005** | ** ** | **Acquisitions  and Purchase  Accounting  Adjustments** | ** ** | **Q1 2006  Currency  Translation  Adjustments** | ** ** | **Balance at  March 31, 2006** | ** ** |
|-----------------------------|------------|----------------------------------------------------------------|------------|-------------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------|------------|
| Advanced Surface  Finishing |       | $                                                              | 155,953    |                                            | $          | 2,685                                                  |       | $                                                            | 158,638    |                                                 | $          | (1,274                                        | )          | $ | 2,120 |   | $ | 159,484 |   |
| Printing  Solutions         |       | 80,579                                                         |       | 3,718                                           |       | 84,297                                                 |       | (31                                                          | )          | 211                                                  |       | 84,477                                        |       |
| Total                       |       | $                                                              | 236,532    |                                            | $          | 6,403                                                  |       | $                                                            | 242,935    |                                                 | $          | (1,305                                        | )          | $ | 2,331 |   | $ | 243,961 |   |

 

The goodwill carrying amount for the Advanced Surface Finishing segmentwas $159,484 and $158,638, as of March 31, 2006 and December 31,2005, respectively. The goodwill carrying amount for the Printing Solutionssegment was $84,477 

10

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and $84,297, as of March 31, 2006 and December 31, 2005,respectively. Included in the March 31, 2006 amounts above is theallocation of goodwill from the June 2005 Autotype acquisition, which isbased on the preliminary purchase price allocation and totals $32,783 and$8,195, respectively, for the Advanced Surface Finishing and the PrintingSolutions segments.  Included in the December 31,2005 amounts above is the allocation of goodwill from the June 2005Autotype acquisition, which is based on the preliminary purchase priceallocation and totals $33,796 and $8,449, respectively, for the AdvancedSurface Finishing and the Printing Solutions segments. The total carrying valueof goodwill as of March 31, 2006 and December 31, 2005, respectively,was $243,961 and $242,935.

Statement of Financial Accounting Standards No. 142, Goodwill andOther Intangible Assets (“SFAS 142”), stipulates that MacDermid is required toperform goodwill and other intangible asset impairment tests on at least anannual basis and more frequently in certain circumstances. MacDermid willperform the annual impairment testing for 2006 during the fourth fiscal quarter.Currently, MacDermid is not aware of any event that occurred since the lastimpairment testing date that would have caused the Company’s goodwill orintangible assets to become impaired.

Note 7.                                  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 6 above. These restatement adjustments have noimpact on earnings as reported in the Company’s financial statements dated December 31,2005, or any of the tangible assets, liabilities, or equity accounts statedtherein.

Thecomponents of comprehensive income for the three months ended March 31,2006 and 2005, are as follows:

|                                          | ** ** | **Three months Ended March 31,** | ** ** |
|------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                               | ** ** | **2006**                                             | ** ** | **2005 (Restated)** | ** ** |
| Net earnings                             |       | $                                                    | 13,278     |   | $ | 11,785 |   |
| Other comprehensive  income:             |       |                                                 |       |   |   |
| Foreign currency  translation adjustment |       | 4,958                                                |       | (9,598 | ) |
| Other                                    |       | (69                                                  | )          | 164 |   |
| Comprehensive income                     |       | $                                                    | 18,167     |   | $ | 2,351 |   |

 

Note 8.                                  Segment Reporting

MacDermid operates on a worldwide basis, supplyingproprietary chemicals for two distinct segments, Advanced Surface Finishing andPrinting Solutions. These segments are managed separately as each segment hasdifferences in technology and marketing strategies. Chemicals supplied by theAdvanced Surface Finishing segment are used for cleaning, activating,polishing, mechanical plating and galvanizing, electro-plating, phosphatising,stripping and coating, filtering, anti-tarnishing and rust retarding for metaland plastic surfaces associated with automotive and industrial applications.The Advanced Surface Finishing segment also supplies chemicals for etchingcopper and imprinting electrical patterns for various electronics applicationsand lubricants and cleaning agents associated with offshore oil and gasoperations. The products supplied by the Printing Solutions segment includeoffset printing blankets and photo-polymer plates used in packaging andnewspaper printing, offset printing applications, and digital printers andrelated supplies. Net sales for all of our products fall into one of these twobusiness segments.

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 businesssegment are reconciled to total consolidated assets including unallocatedcorporate assets. Unallocated corporate assets consist primarily of deferred taxassets, deferred bond financing fees and certain other long term assets notdirectly associated with the support of the individual segments. Intersegmentloans and accounts receivable are included in the calculation of identifiableassets and are eliminated separately.

11

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|                                    | ** ** | **Three months Ended March 31,** | ** ** |
|------------------------------------|------------|------------------------------------------------------|------------|
| ** **                         | ** ** | **2006**                                             | ** ** | **2005** | ** ** |
| Results of operations  by segment: |       |                                                 |       |   |   |
| Net sales:                         |       |                                                 |       |   |   |
| Advanced Surface  Finishing        |       |                                                 |       |   |   |
| Total segment net sales            |       | $                                                    | 119,048    |   | $ | 101,308 |   |
| Intersegment sales                 |       | (1,888                                               | )          | (2,167 | ) |
| Net external sales for the segment |       | 117,160                                              |       | 99,141 |   |
|                               |       |                                                 |       |   |   |
| Printing Solutions                 |       | 83,198                                               |       | 71,106 |   |
| Consolidated net sales             |       | $                                                    | 200,358    |   | $ | 170,247 |   |
|                               |       |                                                 |       |   |   |
| Operating profit:                  |       |                                                 |       |   |   |
| Advanced Surface Finishing         |       | $                                                    | 14,754     |   | $ | 14,135 |   |
| Printing Solutions                 |       | 9,690                                                |       | 10,316 |   |
| Consolidated  operating profit     |       | $                                                    | 24,444     |   | $ | 24,451 |   |

 

|                                  | ** ** | **As of**     | ** ** |
|----------------------------------|------------|--------------------|------------|
| ** **                       | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
| ** **                       | ** ** | **2006**           | ** ** | **2005 (Restated)** | ** ** |
| Identifiable assets by  segment: |       |               |       |   |   |
| Advanced Surface Finishing       |       | $                  | 546,922    |   | $ | 550,364 |   |
| Printing Solutions               |       | 321,588            |       | 316,050 |   |
| Unallocated corporate assets     |       | 108,164            |       | 95,430 |   |
| Intercompany eliminations        |       | (139,439           | )          | (141,917 | ) |
| Consolidated  assets             |       | $                  | 837,235    |   | $ | 819,927 |   |

 

Note 9.                                  Inventory

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

 

|                             | ** ** | **March 31, 2006** | ** ** | **December 31, 2005** | ** ** |
|-----------------------------|------------|------------------------------|------------|---------------------------------|------------|
|                        |       |                         |       |                            |       |
| Finished goods              |       | $                            | 63,772     |                            | $          | 51,820 |   |
| Raw materials  and supplies |       | 35,909                       |       | 35,679                          |       |
| Equipment                   |       | 6,288                        |       | 5,474                           |       |
| Inventories, net            |       | $                            | 105,969    |                            | $          | 92,973 |   |

 

Note 10.                            Pension and Postretirement Benefit Plans

Thefollowing table shows the components of the net periodic pension benefit costswe incurred in the three month ended March 31, 2006 and 2005:

12

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|                                      | ** ** | **Three months Ended March 31,** | ** ** |
|--------------------------------------|------------|------------------------------------------------------|------------|
| ** **                           | ** ** | **2006**                                             | ** ** | **2005** | ** ** |
| ** **                           | ** ** | **Domestic**                                         | ** ** | **Foreign** | ** ** | **Domestic** | ** ** | **Foreign** | ** ** |
| Net periodic benefit  cost:          |       |                                                 |       |   |   |   |   |   |   |
| Service costs                        |       | $                                                    | 1,123      |   | $ | — |   | $ | 936 |   | $ | 144 |   |
| Interest costs                       |       | 1,077                                                |       | 749 |   | 898 |   | 815 |   |
| Expected return  on plan assets      |       | (958                                                 | )          | (859 | ) | (798 | ) | (807 | ) |
| Amortization of  prior service costs |       | 7                                                    |       | — |   | 6 |   | — |   |
| Recognized  actuarial (gain)/loss    |       | 100                                                  |       | 249 |   | 83 |   | 286 |   |
| Net periodic benefit  cost           |       | $                                                    | 1,349      |   | $ | 139 |   | $ | 1,125 |   | $ | 438 |   |

 

Theestimated net periodic benefit cost for our other postretirement benefits was$126 and $160, respectively, for the three months ended March 31, 2006 and2005.

MacDermidpreviously disclosed in its financial statements for the year ended December 31,2005, that the Company expects to contribute $9,000 to MacDermid’s pensionplans in 2006. During the first quarter of 2006, the Company increased the 2006expected contribution amount to $12,000. As of March 31, 2006, $3,860 ofcontributions have been made. The current portion of pension and postretirementbenefit plans is included in other current liabilities in the Company’s balancesheet at March 31, 2006 and December 31, 2005.

InMay 2004, the Financial Accounting Standards Board (“FASB”) issued FASBStaff Position (“FSP”) No. 106-2 (“FSP 106-2”), “Accountingand Disclosure Requirements Related to the Medicare Prescription Drug,Improvement and Modernization Act of 2003” (the “Medicare Act”). The MedicareAct provides for certain federal subsidies on drug benefits in retiree healthplans. In the third quarter of fiscal 2004, MacDermid adopted FSP 106-2,and, at that time, the Company was unable to assess the impact to our financialstatements from the adoption because the legislation related to the exactcalculation of a Federal subsidy for qualifying plans had not been finalized. OnJanuary 21, 2005, the Centers for Medicare and Medicaid Services releasedfinal regulations on the requirements and operational mechanics for employersfiling to receive the 28% federal subsidy. The impact of the finalizedregulations was insignificant to the Company’s post-retirement medical planobligations and expense during the three months ended March 31, 2006 and2005.

Note 11.                            Contingencies, Environmental and LegalMatters

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. The Company is subject to extensive domesticand foreign laws and regulations relating to environmental protection andworker health and safety, including those governing discharges of pollutantsinto the air and water, the management and disposal of hazardous substances andwastes, and the cleanup of contaminated properties. The Company has 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 ensurecompliance with applicable environmental, health and safety laws andregulations, the Company maintains a disciplined environmental and occupationalsafety and health compliance program, which includes conducting regularinternal and external audits at Company plants to identify and categorizepotential environmental exposure.

AssetRetirement Obligations:

Assetretirement obligations are based principally on legal and regulatoryrequirements. At March 31, 2006 and December 31, 2005 the Company hasaccrued $1,440 and $1,404, respectively, for its asset retirement obligationfor properties where the Company can make a reasonable estimate of the futurecost. On an ongoing basis, management evaluates its estimates and assumptions;however, actual amounts could differ from those based on such estimates andassumptions. Changes in the estimate during three months ended March 31,2006 and 2005, were not significant.

EnvironmentalRemediation:

13

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Asof March 31, 2006 and December 31, 2005, $2,715 and $2,715,respectively, was reserved for various environmental matters. Ultimate costsmay vary from current estimates and reserves, and the discovery of additionalcontaminants at these or other sites, or the imposition of additional cleanupobligations, or third-party claims relating thereto, could result insignificant additional costs.

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

·                  MacDermidis named as a potentially responsible party (“PRP”) at two Superfund sites(Fike-Artel in Nitro, West Virginia, and Solvents Recovery in Southington,Connecticut), in which many other PRPs are also involved. With respect to bothof these sites, the Company has entered into cost sharing agreements thatresult in costs of less than $10 per year for funding MacDermid’s share of theongoing cleanup costs at each site. No reserve has been established, given thedeminimus nature of the costs. The Company’s cost sharing percentage at eachsite 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 intoa settlement agreement with the EPA to resolve this deminimus liability for apayment of $1.

·                  Someof the Company’s facilities have an extended history of chemical and industrialactivity. The Company is directly involved in the remediation of sites thathave environmental contamination arising from its operations. These sitesinclude certain sites such as the Kearny, New Jersey and Waukegan, Illinoissites, which were acquired in the December 1998 acquisition of W. Canningplc. With respect to the Kearny, New Jersey site, the Canning subsidiarywithheld, under the Acquisition Agreement (“the Acquisition Agreement”), adeferred purchase price payment of approximately $1,600. Clean-up costs atthese sites are estimated to be between $2,000 and $5,000. The owners of theKearny, New Jersey site have primary responsibility for clean-up costs thatexceed the deferred purchase price. Investigations into the extent ofcontamination at these sites are, however, ongoing.

·                  MacDermidis in the process of characterizing contamination at the Huntingdon Avenue,Waterbury, Connecticut site, which was closed 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 the Company. MacDermidconsiders all such proceedings to be ordinary litigation incident to the natureof our business. Certain claims are covered by liability insurance. MacDermidbelieves that the resolution of these claims, to the extent not covered byinsurance, will not individually or in the aggregate, have a material adverseeffect on its financial position or results of operations. To the extentreasonably estimable, reserves have been established regarding pending legalproceedings.

Note 12.                            Restructuring Activities

Duringthe three months ended March 31, 2006, MacDermid recognized restructuringcharges in the amount of $1,482 related to employee severance and other charges.There were no restructuring charges recorded in the three months ended March 31,2005.

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 charges of $601 against earnings whichconsists entirely of employee severance costs related to the reduction ofthirteen management, sales and administrative position reductions in the US MPSbusiness unit. Of the initial restructuring amount of $601, the Company paid$194 as of March 31, 2006, and expects to pay the remainder in the secondquarter of 2006.

Duringthe first quarter ended March 31, 2006, the Company continued its effortsto maximize synergies related to the Autotype acquisition by announcing therelocation of the Autotype’s Kvistgaard, Denmark facility to an existingfacility in Wantage, England. This announcement effects 21 employees inmanufacturing, administrative, and managerial roles. Total severance benefitsof $369 were charged to goodwill under Emerging Issues Task Force No. 95-3,Recognition of Liabilities in Connection with a Purchase Business Combination (“EITF95-3”). An additional $583 in costs related to the Autotype acquisitionnot qualifying for purchase accounting treatment was charged to the incomestatement during the first quarter of 2006. The Kvistgaard reorganization isexpected to be completed during the second quarter of 2006.

14

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Duringthe first quarter of 2006 the Company proceeded with plans to merge Autotype’sSingapore plant into an existing ASF facility in Singapore. The amalgamation ofthese facilities will not include employee severance, and as such most costsassociated with the merger do not qualify as purchase accounting costs and wereexpensed. During the first quarter of 2006, a charge of $195 was recorded tothe income statement related to equipment relocation related to thisconsolidation initiative.

Theactivity in the accrued restructuring balances related to all of the plansdescribed above was as follows for the three months ended March 31, 2006,by segment:

 
| ** **                        | ** ** | ** **            | ** ** | ** **  | ** ** | ** **      | ** ** | ** **   | ** ** | ** **      | ** ** | **As of March 31, 2006** | ** ** |
|-----------------------------------|------------|-----------------------|------------|-------------|------------|-----------------|------------|--------------|------------|-----------------|------------|----------------------------------------------|------------|
| ** **                        | ** ** | ** **            | ** ** | ** **  | ** ** | ** **      | ** ** | ** **   | ** ** | ** **      | ** ** | **Total**                                    | ** ** | **Total** | ** ** |
| ** **                        | ** ** | **Balance,**          | ** ** | **Q1**      | ** ** | ** **      | ** ** | ** **   | ** ** | ** **      | ** ** | **costs and**                           | ** ** | **expected** | ** ** |
| ** **                        | ** ** | **December 31,** | ** ** | **2006**    | ** ** | **Goodwill**    | ** ** | **Cash**     | ** ** | **Non-cash**    | ** ** | **adjustments**                              | ** ** | **costs and** | ** ** |
| ** **                        | ** ** | **2005**              | ** ** | **Charges** | ** ** | **adjustments** | ** ** | **payments** | ** ** | **adjustments** | ** ** | **Q1 2006**                             | ** ** | **adjustments** | ** ** |
| Printing  Solutions:              |       |                  |       |        |       |            |       |         |       |            |       |                                         |       |   |   |
| Equipment relocation              |       | $                | 134        |        | $     | 78              |       | $       | —     |            | $     | (9                                           | )          | $  | 1 |   | $  | 70 |   | $  | 204 |   |
| Asset disposals                   |       | 18                    |       | —      |       | —          |       | —       |       | —          |       | —                                       |       | 18 |   |
| Site clean-up Costs               |       | 45                    |       | —      |       | —          |       | —       |       | —          |       | —                                       |       | 45 |   |
| Severance and other benefits      |       | 1,739                 |       | 1,163       |       | 369             |       | (563         | )          | 35              |       | 1,004                                        |       | 2,743 |   |
| Legal and other                   |       | 5                     |       | —      |       | —          |       | —       |       | —          |       | —                                       |       | 5 |   |
| Total Printing Solutions          |       | $                | 1,941      |        | $     | 1,241           |       | $       | 369        |            | $     | (572                                         | )          | $  | 36 |   | $  | 1,074 |   | $  | 3,015 |   |
|                              |       |                  |       |        |       |            |       |         |       |            |       |                                         |       |   |   |
| Advanced Surface  Finishing:      |       |                  |       |        |       |            |       |         |       |            |       |                                         |       |   |   |
| Equipment relocation              |       | $                | 36         |        | $     | 116             |       | $       | —     |            | $     | —                                       |       | $  | — |   | $  | 116 |   | $  | 152 |   |
| Asset disposals                   |       | 12                    |       | —      |       | —          |       | —       |       | —          |       | —                                       |       | 12 |   |
| Site clean-up Costs               |       | 30                    |       | —      |       | —          |       | —       |       | —          |       | —                                       |       | 30 |   |
| Severance and other benefits      |       | 791                   |       | 125         |       | (135            | )          | (371         | )          | (274            | )          | (655                                         | )          | 136 |   |
| Total Advanced Surface  Finishing |       | $                | 869        |        | $     | 241             |       | $       | (135       | )               | $     | (371                                         | )          | $  | (274 | ) | $  | (539 | ) | $  | 330 |   |
| Total  restructuring charges      |       | $                | 2,810      |        | $     | 1,482           |       | $       | 234        |            | $     | (943                                         | )          | $  | (238 | ) | $  | 535 |   | $  | 3,345 |   |
| Other  acquisition charges        |       | $                | 385        |        | $     | —          |       | $       | —     |            | $     | —                                       |       | $  | — |   | $  | — |   | $  | 385 |   |
| Total                             |       | $                     | 3,195      |        | $          | 1,482           |       | $            | 234        |            | $          | (943                                         | )          | $ | (238 | ) | $ | 535 |   | $ | 3,730 |   |

 

15

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Note 13.                            Loss on Disposal

Duringthe three months ended March 31, 2006, MacDermid recorded a loss ondisposal of $2,224 related to two separate dispositions. The first disposal related to MacDermidEquipment (“MEI”), a small equipment manufacturing unit that supported theCompany’s electronics sales. In 2001, the Company wrote off all the inventoryon MEI’s balance sheet. Inventory was the only significant asset on MEI’sbooks, and the write off effectively impaired the Company’s investment in thesubsidiary. In February of this year, the Company sold the subsidiary forone dollar and recorded a loss on disposal of assets of $1,664. The seconddisposal related to a dormant international business unit that was disposed inthe first quarter of 2006. A loss on disposal of assets of $560 was recorded inthe first quarter 2006 related to this dormant business unit.

Note 14.                            Guarantor Financial Statements

MacDermid, Inc.(“Issuer”) issued 9 1/8%Senior Subordinated Notes (“Bond Offering”)effective June 20, 2001, for the face amount of $301,500, which payinterest semiannually on January 15th and July 15th and mature in2011. The proceeds were used to pay down existing long-term debt. This BondOffering is guaranteed by substantially all existing and future directly orindirectly 100% owned domestic restricted subsidiaries of MacDermid, Inc.(“Guarantors”). The Guarantors, fully, jointly and severally, irrevocably andunconditionally guarantee the performance and payment when due of all theobligations under the Bond Offering. MacDermid’s foreign subsidiaries (“Non-Guarantors”)are not guarantors of the indebtedness under the 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.When dividend payments are made, they are charged against the basket. As of March 31,2006 and December 31, 2005, MacDermid had $88,611 and $81,972,respectively, available for future restricted payments. The net assets of theGuarantors are restricted and may not be transferred to anyone other than theIssuer or another Guarantor without the consent of the Trustee of the BondOffering, subject to specified baskets. Thus the net assets of the Guarantorscan be transferred to the Issuer or other Guarantors within the group freely,but cannot be transferred outside the group of Guarantors and the Issuerwithout the consent of the Trustee of the Bond Offering, subject to certainbaskets.

Inconnection with the restatement adjustments made to goodwill, intangibles andaccumulated other comprehensive (loss) income as described in Note 2, 6 and 7above, the Company recalculated certain ratios whose components changed as aresult of these restatement adjustments. The Company adjusted its goodwillbalances and re-performed the net worth, restricted payment, and indebtednesscovenant tests as of December 31, 2005, as calculated in accordance withBond Offering agreement. The restatement adjustments noted above did nottrigger a default, and as such, the Company concluded that the above restatementadjustments had no impact on its Bond Offering covenant tests as of December 31,2005.

Certainamounts in the Condensed Consolidating Balance Sheet as of December 31, 2005were restated. The restatement adjustments necessary to properly convertgoodwill and intangible assets are offset with a corresponding restatement adjustmentto the Accumulated Other Comprehensive (Loss) Income section of Shareholders’Equity in the Condensed Consolidating Balance Sheet as of December 31,2005. The equity method was used by MacDermid with respect toinvestments in subsidiaries for these financial statements. The equity methodalso has been used by subsidiary guarantors with respect to investments innon-guarantor subsidiaries. Financial statements for subsidiary guarantors arepresented 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, these statements should be read in conjunctionwith the consolidated financial statements and notes thereto included in theAnnual Report on Form 10-K for the year ended December 31,2005.

Thefollowing financial information sets forth our Condensed Consolidating BalanceSheets as of March 31, 2006 and December 31, 2005; the CondensedConsolidating Statements of Earnings for the three months ending March 31,2006 and 2005; and the Condensed Consolidating Statements of Cash Flows for thethree months ending March 31, 2006 and 2005:

 

16

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**CONDENSED CONSOLIDATINGSTATEMENTS OF EARNINGS**

THREE MONTHS ENDED MARCH 31, 2006

(Unaudited)
| ** **                                         | ** ** | **Issuer** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Nonguarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **MacDermid  Incorporated  and Subsidiaries** | ** ** | ** ** |
|----------------------------------------------------|------------|------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|----------------------------------------------------|------------|------------|
| Net sales                                     |       | $          | 20,617     |                        | $          | 62,778                         |       | $                | 136,731    |                                               | $          | (19,768)   |   | $ | 200,358 |   |   |
| Cost of sales                                      |       | 12,970     |       | 38,572                      |       | 80,113                         |       | (19,768)         |       | 111,887                                            |       |       |
| Gross profit                                       |       | 7,647      |       | 24,206                      |       | 56,618                         |       | —           |       | 88,471                                             |       |       |
|                                               |       |       |       |                        |       |                           |       |             |       |                                               |       |       |
| Operating  expenses:      |       |       |       |                        |       |                           |       |             |       |                                               |       |       |
| Selling, technical and administrative              |       | 12,463     |       | 11,086                      |       | 29,468                         |       | —           |       | 53,017                                             |       |       |
| Research and development                           |       | 1,618      |       | 2,473                       |       | 3,213                          |       | —           |       | 7,304                                              |       |       |
| Loss on Disposal                                   |       | —     |       | —                      |       | 2,224                          |       | —           |       | 2,224                                              |       |       |
| Restructuring                                      |       | 106        |       | 493                         |       | 883                            |       | —           |       | 1,482                                              |       |       |
|                                               |       | 14,187     |       | 14,052                      |       | 35,788                         |       | —           |       | 64,027                                             |       |       |
| Operating (loss) profit                            |       | (6,540     | )          | 10,154                      |       | 20,830                         |       | —           |       | 24,444                                             |       |       |
|                                               |       |       |       |                        |       |                           |       |             |       |                                               |       |       |
| Equity in earnings of subsidiaries                 |       | 20,891     |       | 14,428                      |       | —                         |       | (35,319          | )          | —                                             |       |       |
| Interest income                                    |       | 721        |       | 36                          |       | 93                             |       | —           |       | 850                                                |       |       |
| Interest expense                                   |       | (6,638     | )          | 22                          |       | (72                            | )          | —           |       | (6,688                                             | )          |       |
| Miscellaneous income (expense), net                |       | 154        |       | 34                          |       | (555                           | )          | —           |       | (367                                               | )          |       |
|                                               |       | 15,128     |       | 14,520                      |       | (534                           | )          | (35,319          | )          | (6,205                                             | )          |       |
|                                               |       |       |       |                        |       |                           |       |             |       |                                               |       |       |
| Earnings (loss) before taxes                       |       | 8,588      |       | 24,674                      |       | 20,296                         |       | (35,319          | )          | 18,239                                             |       |       |
| Income tax benefit (expense)                       |       | 4,690      |       | (3,783                      | )          | (5,868                         | )          | —           |       | (4,961                                             | )          |       |
| Net  earnings (loss)                               |       | $          | 13,278     |                        | $          | 20,891                         |       | $                | 14,428     |                                               | $          | (35,319    | ) | $ | 13,278 |   |   |

 

17

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**CONDENSED CONSOLIDATINGSTATEMENTS OF EARNINGS**

THREE MONTHS ENDED MARCH 31, 2005

(Unaudited)

 
| ** **                            | ** ** | **Issuer** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Nonguarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **MacDermid  Incorporated  and Subsidiaries** | ** ** | ** ** |
|---------------------------------------|------------|------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|----------------------------------------------------|------------|------------|
| Net sales                             | ** ** | $          | 22,519     |                        | $          | 45,004                         |       | $                | 110,543    |                                               | $          | (7,819     | ) | $ | 170,247 | ** ** | ** ** |
| Cost of sales                         | ** ** | 15,170     |       | 22,027                      |       | 63,216                         |       | (7,819           | )          | 92,594                                             | ** ** | ** ** |
| Gross profit                          |       | 7,349      |       | 22,977                      |       | 47,327                         |       | —           |       | 77,653                                             |       |       |
|                                  |       |       |       |                        |       |                           |       |             |       |                                               |       |       |
| Operating  expenses:                  |       |       |       |                        |       |                           |       |             |       |                                               |       |       |
| Selling, technical and administrative |       | 10,889     |       | 8,256                       |       | 27,525                         |       | —           |       | 46,670                                             |       |       |
| Research and development              |       | 1,679      |       | 2,271                       |       | 2,582                          |       | —           |       | 6,532                                              |       |       |
|                                  |       | 12,568     |       | 10,527                      |       | 30,107                         |       | —           |       | 53,202                                             |       |       |
| Operating (loss) profit               |       | (5,219     | )          | 12,450                      |       | 17,220                         |       |             |       | 24,451                                             |       |       |
|                                  |       |       |       |                        |       |                           |       |             |       |                                               |       |       |
| Equity in earnings of subsidiaries    |       | 19,880     |       | 11,652                      |       | —                         |       | (31,532          |       | —                                             |       |       |
| Interest income                       |       | 340        |       | 1                           |       | 281                            |       | —           |       | 622                                                |       |       |
| Interest expense                      |       | (7,570     | )          | —                      |       | (74                            | )          | —           |       | (7,644                                             | )          |       |
| Miscellaneous income (expense), net   |       | 154        |       | 262                         |       | (386                           | )          | —           |       | 30                                                 |       |       |
|                                  |       | 12,804     |       | 11,915                      |       | (179                           | )          | (31,532          | )          | (6,992                                             | )          |       |
|                                  |       |       |       |                        |       |                           |       |             |       |                                               |       |       |
| Earnings (loss) before taxes          |       | 7,585      |       | 24,365                      |       | 17,041                         |       | (31,532          | )          | 17,459                                             |       |       |
| Income tax benefit (expense)          |       | 4,200      |       | (4,485                      | )          | (5,389                         | )          | —           |       | (5,674                                             | )          |       |
| Net  earnings (loss)                  |       | $          | 11,785     |                        | $          | 19,880                         |       | $                | 11,652     |                                               | $          | (31,532    | ) | $ | 11,785 |   |   |

 

18

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**CONDENSED CONSOLIDATING BALANCE SHEETS**

MARCH  31, 2006

(UNAUDITED)

 
|                                                              | ** ** | **Issuer** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Nonguarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **MacDermid  Incorporated  and Subsidiaries** | ** ** |      |
|--------------------------------------------------------------|------------|------------|------------|-----------------------------|------------|--------------------------------|------------|------------------|------------|----------------------------------------------------|------------|-----------|
| Assets                                                       | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                     | ** ** | ** **       | ** ** | ** **                                         | ** ** |
| Current assets:                                              |       |       |       |                        |       |                           |       |             |       |                                               |       |
| Cash and cash equivalents                                    |       | $          | 42,414     |                        | $          | 2,467                          |       | $                | 38,156     |                                               | $          | —    |   | $ | 83,037 |   |
| Accounts receivables, net                                    |       | 12,459     |       | 20,551                      |       | 130,459                        |       | —           |       | 163,469                                            |       |
| Due (to) from affiliates                                     |       | 27,803     |       | 94,361                      |       | (122,164                       | )          | —           |       | —                                             |       |
| Inventories, net                                             |       | 7,864      |       | 34,409                      |       | 63,696                         |       | —           |       | 105,969                                            |       |
| Prepaid expenses                                             |       | 2,099      |       | 1,650                       |       | 7,193                          |       | —           |       | 10,942                                             |       |
| Deferred income taxes                                        |       | 8,051      |       | 1,849                       |       | 4,852                          |       | —           |       | 14,752                                             |       |
| Total current assets                                         |       | 100,690    |       | 155,287                     |       | 122,192                        |       | —           |       | 378,169                                            |       |
|                                                         |       |       |       |                        |       |                           |       |             |       |                                               |       |
| Property, plant and equipment, net                           |       | 11,908     |       | 32,315                      |       | 76,532                         |       | —           |       | 120,755                                            |       |
| Goodwill                                                     |       | 51,525     |       | 79,112                      |       | 113,324                        |       | —           |       | 243,961                                            |       |
| Intangibles, net                                             |       | —     |       | 4,394                       |       | 37,596                         |       | —           |       | 41,990                                             |       |
| Investments in subsidiaries                                  |       | 513,142    |       | 257,161                     |       | —                         |       | (770,303         | )          | —                                             |       |
| Deferred income taxes                                        |       | 16,785     |       | 8,536                       |       | 11,958                         |       | —           |       | 37,279                                             |       |
| Other assets, net                                            |       | 5,911      |       | 4,120                       |       | 5,050                          |       | —           |       | 15,081                                             |       |
|                                                         |       | $          | 699,961    |                        | $          | 540,925                        |       | $                | 366,652    |                                               | $          | (770,303  | ) | $ | 837,235 |   |
|                                                         |       |       |       |                        |       |                           |       |             |       |                                               |       |
|                                                         |       |       |       |                        |       |                           |       |             |       |                                               |       |
| Current liabilities:                                         |       |       |       |                        |       |                           |       |             |       |                                               |       |
| Accounts and dividends Payable                               |       | $          | 8,919      |                        | $          | 12,700                         |       | $                | 44,757     |                                               | $          | —    |   | $ | 66,376 |   |
| Accrued compensation                                         |       | 1,781      |       | 2,292                       |       | 11,714                         |       | —           |       | 15,787                                             |       |
| Accrued interest                                             |       | 5,812      |       | 129                         |       | 103                            |       | —           |       | 6,044                                              |       |
| Accrued income taxes payable                                 |       | (907)      |       | 5,952                       |       | 6,201                          |       | —           |       | 11,246                                             |       |
| Other current liabilities                                    |       | 16,081     |       | 6,187                       |       | 16,527                         |       | —           |       | 38,795                                             |       |
| Total current liabilities                                    |       | 31,686     |       | 27,260                      |       | 79,302                         |       | —           |       | 138,248                                            |       |
|                                                         |       |       |       |                        |       |                           |       |             |       |                                               |       |
| Long-term obligations                                        |       | 300,550    |       | 271                         |       | 165                            |       | —           |       | 300,986                                            |       |
| Retirement benefits, less Current portion               |       | 5,192      |       | —                      |       | 17,352                         |       | —           |       | 22,544                                             |       |
| Deferred income taxes                                        |       | —     |       | —                      |       | 12,067                         |       | —           |       | 12,067                                             |       |
| Other long-term liabilities                                  |       | 3,855      |       | 252                         |       | 605                            |       | —           |       | 4,712                                              |       |
| Total liabilities                                            |       | 341,283    |       | 27,783                      |       | 109,491                        |       | —           |       | 478,557                                            |       |
|                                                         |       |       |       |                        |       |                           |       |             |       |                                               |       |
| Total shareholders’ equity                              |       | 358,678    |       | 513,142                     |       | 257,161                        |       | (770,303         | )          | 358,678                                            |       |
| Total  Liabilities and Shareholders’ Equity   |       | $          | 699,961    |                        | $          | 540,925                        |       | $                | 366,652    |                                               | $          | (770,303) |   | $ | 837,235 |   |
|                                                              |            |            |            |                             |            |                                |            |                  |            |                                                    |            |           |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

19

----

 

**CONDENSED CONSOLIDATING BALANCE SHEETS**

DECEMBER 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 |   |

 

20

----

 

**CONDENSEDCONSOLIDATING STATEMENTS OF CASH FLOWS**

THREE MONTHS ENDED MARCH 31, 2006

(Unaudited)

 
| ** **                                                   | ** ** | **Issuer** | ** ** | **Guarantor   Subsidiaries** | ** ** | **Nonguarantor   Subsidiaries** | ** ** | **MacDermid  Incorporated  and Subsidiaries** | ** ** | ** ** |
|--------------------------------------------------------------|------------|------------|------------|-----------------------------------|------------|--------------------------------------|------------|----------------------------------------------------|------------|------------|
|                                                         | ** ** | ** ** | ** ** | ** **                        | ** ** | ** **                           | ** ** | ** **                                         | ** ** | ** ** |
| Net cash flows (used in) provided by operating activities    |       | $          | (5,301     | )                                 | $          | 1,697                                |       | $                                                  | 4,105      |       | 501 |   |   |
|                                                         |       |       |       |                              |       |                                 |       |                                               |       |       |
| Investing  activities:                                       |       |       |       |                              |       |                                 |       |                                               |       |       |
| Capital expenditures                                         |       | (140       | )          | (2,215                            | )          | 793                                  |       | (1,562                                             | )          |       |
| Proceeds from disposition of fixed assets                    |       | —     |       | —                            |       | 79                                   |       | 79                                                 |       |       |
| Other                                                        |       | 234        |       | (145                              | )          | (52                                  | )          | 37                                                 |       |       |
|                                                         |       |       |       |                              |       |                                 |       |                                               |       |       |
| Net cash flows (used in) provided by investing activities    |       | 94         |       | (2,360                            | )          | 820                                  |       | (1,446                                             | )          |       |
|                                                         |       |       |       |                              |       |                                 |       |                                               |       |       |
| Financing  activities:                                       |       |       |       |                              |       |                                 |       |                                               |       |       |
| Net proceeds from short-term borrowings                      |       | —     |       | —                            |       | 1,668                                |       | 1,668                                              |       |       |
| Repayments of long-term borrowings                           |       | —     |       | —                            |       | (97                                  | )          | (97                                                | )          |       |
| Issuance of treasury shares                                  |       | 26         |       |                              |       |                                 |       | 26                                                 |       |       |
| Proceeds from exercise of stock options                      |       | 2,501      |       | —                            |       | —                               |       | 2,501                                              |       |       |
| Dividends paid                                               |       | (1,836     | )          | —                            |       | —                               |       | (1,836                                             | )          |       |
| Net cash flows provided by (used in) financing activities    |       | 691        |       | —                            |       | 1,571                                |       | 2,262                                              |       |       |
|                                                         |       |       |       |                              |       |                                 |       |                                               |       |       |
| Effect of exchange rate Changes on cash and cash equivalents |       | —     |       | —                            |       | 788                                  |       | 788                                                |       |       |
|                                                         |       |       |       |                              |       |                                 |       |                                               |       |       |
| Net increase (decrease) in cash and cash equivalents         |       | (4,516     | )          | (663                              | )          | 7,284                                |       | 2,105                                              |       |       |
|                                                         |       |       |       |                              |       |                                 |       |                                               |       |       |
| Cash and cash equivalents at beginning of period             |       | 46,925     |       | 3,131                             |       | 30,876                               |       | 80,932                                             |       |       |
|                                                         |       |       |       |                              |       |                                 |       |                                               |       |       |
| Cash  and cash equivalents at end of period                  |       | $          | 42,409     |                              | $          | 2,468                                |       | $                                                  | 38,160     |       | $ | 83,037 |   |   |
|                                                              |            |            |            |                                   |            |                                      |            |                                                    |            |            |  |  |  |  |

 

21

----

 

**CONDENSEDCONSOLIDATING STATEMENTS OF CASH FLOWS**

THREE MONTHS ENDED MARCH 31, 2005

(Unaudited)
| ** **                                                   | ** ** | **Issuer** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Nonguarantor  Subsidiaries** | ** ** | **MacDermid  Incorporated  and Subsidiaries** | ** ** | ** ** |
|--------------------------------------------------------------|------------|------------|------------|-----------------------------|------------|--------------------------------|------------|----------------------------------------------------|------------|------------|
|                                                         | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                     | ** ** | ** **                                         | ** ** | ** ** |
| Net cash flows (used in) provided by operating activities    |       | $          | (17,337    | )                           | $          | 7,467                          |       | $                                                  | 11,893     |       | $ | 2,023 |   |   |
|                                                         |       |       |       |                        |       |                           |       |                                               |       |       |
| Investing  activities:                                       |       |       |       |                        |       |                           |       |                                               |       |       |
| Capital expenditures                                         |       | (696       | )          | (485                        | )          | (1,825                         | )          | (3,006                                             | )          |       |
| Proceeds from disposition of fixed assets and business       |       | —     |       | —                      |       | 279                            |       | 279                                                |       |       |
| Net cash flows (used in) provided by investing activities    |       | (696       | )          | (485                        | )          | (1,546                         | )          | (2,727                                             | )          |       |
|                                                         |       |       |       |                        |       |                           |       |                                               |       |       |
| Financing  activities:                                       |       |       |       |                        |       |                           |       |                                               |       |       |
| Net proceeds from (repayments of) short-term borrowings      |       | 8,822      |       | (8,067                      | )          | (613                           | )          | 142                                                |       |       |
| Repayments of long-term borrowings                           |       | —     |       | (57                         | )          | (147                           | )          | (204                                               | )          |       |
| Issuance of treasury shares                                  |       | 33         |       | —                      |       | —                         |       | 33                                                 |       |       |
| Proceeds from exercise of stock options                      |       | 17         |       | —                      |       | —                         |       | 17                                                 |       |       |
| Dividends paid                                               |       | 6,103      |       | 1,239                       |       | (8,554                         | )          | (1,212                                             | )          |       |
| Net cash flows provided by (used in) financing activities    |       | 14,975     |       | (6,885                      | )          | (9,314                         | )          | (1,224                                             | )          |       |
|                                                         |       |       |       |                        |       |                           |       |                                               |       |       |
| Effect of exchange rate Changes on cash and cash equivalents |       | —     |       | —                      |       | (2,160                         | )          | (2,160                                             | )          |       |
|                                                         |       |       |       |                        |       |                           |       |                                               |       |       |
| Net increase (decrease) in cash and cash equivalents    |       | (3,058     | )          | 97                          |       | (1,127                         | )          | (4,088                                             | )          |       |
|                                                         |       |       |       |                        |       |                           |       |                                               |       |       |
| Cash and cash equivalents at beginning of period             |       | 69,512     |       | 688                         |       | 67,629                         |       | 137,829                                            |       |       |
|                                                         |       |       |       |                        |       |                           |       |                                               |       |       |
| Cash  and cash equivalents at end of period                  |       | $          | 66,454     |                        | $          | 785                            |       | $                                                  | 66,502     |       | $ | 133,741 |   |   |

 

22

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ITEM 2:

**Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

**(inthousand of dollars, except shares and per share data)**

** **

CONSOLIDATEDOVERVIEW

Goodwill and Intangible Asset Restatement Adjustments

As discussed inNotes 2, 6 and 7 above,in the first quarter of fiscal 2006 we reviewed our foreign currency conversionrates used to convert goodwill and intangible assets. Beginning in 2002, weheld all goodwill and certain intangible assets related to the acquisition ofCanning Ltd. (“Canning intangibles”) constant at historic currency conversionrates, effectively holding the value of goodwill and Canning intangiblesconstant at 2002 currency conversion rates. This resulted in an understatementof goodwill and Canning intangibles as of December 31, 2005. In connectionwith our adoption of the provision of Statement of Financial AccountingStandards No. 154, Accounting Changes and Error Corrections, in the firstquarter of 2006, we restated the December 31, 2005 balances of Goodwill,Intangibles and Other Comprehensive (Loss) Income to correct an error relatedto foreign currency translation. As a result, we made certain restatement adjustmentsto our December 31, 2005 Consolidated Balance Sheet to state these assetsat the correct currency conversion rates. We also restated Other ComprehensiveIncome for the three months ended March 31, 2005 to correct an errorrelated to foreign 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 have allocated the goodwill into the booksof the regional business segments benefiting 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 restatement adjustments have no impact on earnings as reported inour financial statements dated December 31, 2005, or any of the tangibleassets and liabilities accounts stated therein. For financial reportingpurposes, we treated these restatementadjustments similar to a reclassification of the affected December 31,2005 balances.

Executive Overview

Our consolidated businessconsists of two business segments, Advanced Surface Finishing (“ASF”) andPrinting Solutions (“MPS”). The ASF segment supplies chemicals used forfinishing metals and non-metallic surfaces for automotive and other industrialapplications, electro-plating metal surfaces, etching, and imaging to createelectrical patterns on circuit boards for the electronics industry, andoffshore lubricants and cleaners for the offshore oil and gas markets. Theacquisition of Autotype International Ltd and associated entities (“Autotype”)in June 2005 further augments this segment by adding production of hardcoated films for the membrane switch and touch screen markets.  The MPS segment supplies an extensive line ofoffset printing blankets, photo-polymer plates and wide-format digital printersfor use in the commercial printing and packaging industries for image transfer.The acquisition of Autotype added high quality stencil materials and digitalpre-press products for screen printing 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

·                  strategicacquisitions of companies, products, or technologies.

23

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Ourproducts are sold in a competitive, global economy, which exposes us to certaincurrency, economic and regulatory risks and opportunities. Approximately 56% ofour net sales and identifiable assets for the three month period ended and asof March 31, 2006, are denominated in currencies other than the UnitedStates dollar. These currencies include predominantly the Euro, British Pound,the Hong Kong dollar and the Japanese Yen. We do not manage our foreigncurrency exposure in a manner that would eliminate the effects of changes inforeign exchange rates on our earnings, cash flows and fair values of assetsand liabilities; therefore, our financial performance could be positively ornegatively impacted by changes in foreign exchange rates in any given reportingperiod. For most currencies, we are a net receiver of the foreign currency andtherefore benefit from a weaker United States dollar and are adversely affectedby a stronger United States dollar relative to the foreign currency. For thethree months ended March 31, 2006, net sales and net earnings were positivelyimpacted as the dollar weakened against both the Euro and Pound when comparedto exchange rates at the beginning of the year. When compared with the sameperiod last year, net sales and net earnings were negatively impacted as thedollar strengthened against both the Euro and the Pound. In both cases, theabsolute impact on earnings was immaterial.

Ourcompetitors include many large multi-national chemical firms based in Europe,Asia, and the United States. New competitive products or pricing policies ofour competitors can materially affect demand for and pricing of our products,which could have a significant impact on our financial results.

Weare influenced predominantly by two general industries:  the specialty chemical and printingindustries. In the specialty chemical industry, profit is generated by creatingproprietary products and process technologies, and delivering high levels ofcustomer service. Currently, a number of key characteristics and trends areimpacting the industry, including market fragmentation, globalization, the needfor financial resources to support research and development, a renewed focus oncore businesses and the increasing importance of size and scale. The Asianmarket presents growth opportunities, and our electronics group continued tosee growth in Asia due to favorable market conditions. In 2005, we opened asecond facility in China to support our expansion in this market. Our growth inthe electronics market in Asia was partially offset by market weakness in Europeand the Americas. We also experienced growth in our Offshore Fluids group in2005, which continued in 2006, due largely to a worldwide increase in offshoreoil field development activities. In the printing industry, we continue to seechallenging growth opportunities in an increasingly competitive environment. Theindustry is marked by globalization, market fragmentation, pricing pressures,and the growing digital printing technologies. Between 1997 and 2005,businesses calling themselves “digital printers” accounted for most of thisindustry’s growth. Our business groups that supply offset printing blankets andphoto-polymer plates continue to be affected by an overall soft market andchanges in our distribution system, as we are increasingly selling directly toour customers in the United States. 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. We intend to selectively pursue strategicacquisitions, where appropriate, to expand 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 in the future will depend, in part, on oursuccess in penetrating Asian markets and leveraging our existing customer baseacross all product lines in Europe and in the Americas. We continually evaluatealternatives to lower the operating costs of our company. This includes therealignment of our existing manufacturing capacity, facility closures orsimilar actions.

InJune 2005, we acquired all of the outstanding capital stock of Autotype fromNorcros (Holdings) Limited of the UK. The acquisition broadened our productofferings in both of our operating segments. Net assets acquired, includinggoodwill and intangibles, totaled $92,432. The net assets and results ofoperations are included in our financial statements since the acquisition date.For more information regarding this acquisition, see Note 17 in our 2005 AnnualReport, Notes to the Consolidated Financial Statements.

Duringthe second half of 2005 and first quarter of 2006, as part of our effort tolower the operating costs of our company, we began to implement certainconsolidation actions. These actions are intended to better align ourmanufacturing capacity with the changing needs of our customers, eliminateexcess capacity, lower our operating costs, and streamline our organizationalstructure for improved long-term profitability. The restructuring actionsconsist primarily of facility consolidations and closures, including themovement of certain manufacturing operations, and employee terminations. Inconnection with the restructuring actions, we incurred charges of $1,482 duringthe three months ended March 31, 2006. For more information regarding ourconsolidation actions, see Note 12 above and Note 18 in our 2005 Annual Report,Notes to the Consolidated Financial Statements.

24

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Forthe three months ended March 31, 2006, our results reflected top linesales growth of $30,111 as compared to the same period last year. Our acquisition of Autotype in June 2005contributed $24,627 to sales in the first quarter of 2006. Sales in ourexisting business segments increased $5,484, or 3.2% when compared to last year.Sales in our existing ASF segment increased a total of $5,684, or 5.7% onstrong sales in both the Americas and Asia as industrial production recovers inthe United States and continues to grow in Asia. Sales in ASF Europe continuesto lag as industrial production has not recovered as well as in the US. Salesin our existing MPS segment were flat as sales increases in our digital printingdivision were offset by declines in our printing and packaging units.

Froma cash flow standpoint, our liquidityposition remained sufficient during the first quarter 2006, with workingcapital of $239,921 at March 31, 2006. Cash increased $2,105 during thefirst quarter 2006, primarily due an increase in proceeds from exercise ofstock options and lower capital expenditures offset by decreased cash generatedfrom our operations.

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. Thediscussion of results of operations includes both consolidated andsegment-level information.

Summaryof the consolidated results for the three months ended March 31, 2006 and2005:

|                                 | ** ** | **Three months Ended** | ** ** | ** ** | ** ** | ** **                   |
|---------------------------------|------------|----------------------------------|------------|------------|------------|------------------------------|
| ** **                      | ** ** | **March 31,**               | ** ** | ** ** | ** ** | ** **                   |
| ** **                      | ** ** | **2006**                         | ** ** | **2005**   | ** ** | **%Change**                  | ** ** | ** ** |
| ** **                      | ** ** | ** **                       | ** ** | ** ** | ** ** | **Favorable  (Unfavorable)** | ** ** | ** ** |
| Net sales                       |       | $                                | 200,358    |       | $          | 170,247                      |   | 17.7 | % |   |
| Cost of sales                   |       | 111,887                          |       | 92,594     |       | (20.8                        | %) |   |
| Gross profit                    |       | 88,471                           |       | 77,653     |       | 13.9                         | % |   |
|                            |       |                             |       |       |       |                         |   |   |
| Gross profit  percentage        |       | 44.2                             | %          | 45.6       | %          |                         | ** |   |
|                            |       |                             |       |       |       |                         |   |   |
| Operating expenses              |       | 64,027                           |       | 53,202     |       | (20.3                        | %) |   |
|                            |       |                             |       |       |       |                         |   |   |
| Operating profit                |       | 24,444                           |       | 24,451     |       |                         | ** |   |
|                            |       |                             |       |       |       |                         |   |   |
| Interest income  (expense), net |       | (5,838                           | )          | (7,022     | )          | 16.9                         | % |   |
| Other (expense)  income, net    |       | (367                             | )          | 30         |       |                         | ** |   |
|                            |       | (6,205                           | )          | (6,992     | )          | 11.3                         | % |   |
|                            |       |                             |       |       |       |                         |   |   |
| Earnings before  income taxes   |       | 18,239                           |       | 17,459     |       | 4.5                          | % |   |
| Income taxes                    |       | (4,961                           | )          | (5,674     | )          | 12.6                         | % |   |
| Net earnings                    |       | $                                | 13,278     |       | $          | 11,785                       |   | 12.7 | % |   |
| Basic earnings per share        |       | $                                | 0.43       |       | $          | 0.39                         |   | 10.3 | % |   |
| Diluted earnings per  share     |       | $                                | 0.43       |       | $          | 0.38                         |   | 13.2 | % |   |

----

**    Not ameaningful statistic.

25

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Summaryof key segmented results for the three months ended March 31, 2006 and2005:
| ** **                           | ** ** | **Three months Ended** | ** ** | ** ** | ** ** |
|--------------------------------------|------------|----------------------------------|------------|------------|------------|
| ** **                           | ** ** | **March 31,**               | ** ** | ** ** | ** ** |
| ** **                           | ** ** | **2006**                         | ** ** | **2005**   | ** ** | **%Change** | ** ** |
| ** **                           | ** ** | ** **                       | ** ** | ** ** | ** ** | **Favorable  (Unfavorable)** | ** ** |
| Advanced Surface Finishing |       |                             |       |       |       |   |   |
| Total net sales                      |       | $                                | 117,160    |       | $          | 99,141 |   | 18.2 | % |
| Operating profit                     |       | $                                | 14,754     |       | $          | 14,135 |   | 4.4 | % |
| Operating profit  percentage         |       | 12.6                             | %          | 14.3       | %          |   | ** |
|                                 |       |                             |       |       |       |   |   |
|                                 |       |                             |       |       |       |   |   |
| Printing  Solutions                  |       |                             |       |       |       |   |   |
| Total net sales                      |       | $                                | 83,198     |       | $          | 71,106 |   | 17.0 | % |
| Operating profit                     |       | $                                | 9,690      |       | $          | 10,316 |   | (6.1 | %) |
| Operating profit  percentage         |       | 11.6                             | %          | 14.5       | %          |   | ** |
|                                 |       |                             |       |       |       |   |   |
| Consolidated  Total                  |       |                             |       |       |       |   |   |
| Total net sales                      |       | $                                | 200,358    |       | $          | 170,247 |   | 17.7 | % |
| Operating profit                     |       | $                                | 24,444     |       | $          | 24,451 |   |   | ** |
| Operating profit  percentage         |       | 12.2                             | %          | 14.4       | %          |   | ** |

----

**    Not ameaningful statistic.

Netsales

Duringthe three months ended March  31, 2006, our net sales grew by $30,111, or17.7%, compared to the same period in 2005. The June 2005 acquisition ofAutotype added $24,627 to sales, which benefited both the ASF and MPS segments.On a currency-adjusted basis, net sales grew by 21.9%. Our ASF segmentbenefited from volume growth in both our electronics and offshore fluids groups.Our electronics group continued to see growth all through Asia due to favorablemarket conditions, this increase was partially offset by market weakness inEurope. Our offshore fluids group benefited this quarter from increased oilfield development activities throughout the world. 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 March 31, 2006, increased $19,293 or20.8% when compared to the same period last year. Autotype contributed $15,784,or 81.8% of the increase in cost of sales in the first quarter of 2006. Cost ofsales in our existing business units increased $3,509, or 3.8%, which isprimarily attributable to higher raw material costs and inefficiencies incertain MPS production facilities. These costs caused a slight decrease in ourgross profit percentages, which decreased to 44.2% from 45.6% compared withlast year.

Operatingexpenses

Operatingexpenses increased $10,825 or 20.3% during the first quarter of 2006 comparedto the same quarter in 2005, or 18.5% on a currency adjusted basis. Autotypecontributed $6,470, or 59.8% of this increase. Operating expenses in ourexisting units increased by $4,355 or 8.2%. This increase in the first quarter2006 is due to $1,913 in expenses related to the write off of costs associatedwith the unsuccessful pursuit of a major acquisition, restructuring charges of$1,482 and $2,224 of expenses related to the loss on disposal of twoinsignificant business units. These expenses total $5,619 and were significantcontributors to our increase in operating expenses in the first quarter 2006. Theseexpenses were partially offset by the reversal of a contingency accrual of $875recorded in the first quarter 2006. Operating expenses, excluding these chargesand Autotype operating expenses, decreased $1,264 during the first quarter2006.

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Duringthe first quarter of 2006, we recognized a loss on disposal of assets of $2,224related to two separate disposals. The first disposal related to MacDermidEquipment (“MEI”), a small equipment manufacturing unit that supported ourelectronics sales. In 2001, we wrote off all the inventory on MEI’s balancesheet. Inventory was the only significant asset on MEI’s books, and the writeoff effectively impaired our investment in the subsidiary. In February ofthis year, we sold the subsidiary for one dollar and recorded a loss ondisposal of assets of $1,664. By selling the subsidiary for one dollar, we savedthe cost that would have been associated with shutting the business, includingseverance, asset disposal, and site clean up costs. This loss is offset in ourcurrent quarter income taxes in the income statement as we recorded a largerloss on the tax basis of MEI. This loss effectively reduced our tax rate to27.2% from 33.3%.  The second disposalrelated to a dormant international business unit that was disposed in the firstquarter of 2006. A loss on disposal of assets of $560 was recorded in the firstquarter 2006.

Operatingprofit

Operatingprofit of $24,444 for the first quarter of 2006 was flat compared to the sameperiod last year. Autotype contributed $2,001 of operating profit during thefirst quarter of 2006, while our existing business units contributed operatingprofit of $22,443 for the first quarter of 2006. Operating profit for theexisting business units for the first quarter of 2006 was lower by $2,008. Operatingprofit for the first quarter 2006 was negatively impacted by $5,619 due to thecharges discussed above.

Interestincome (expense)

Interestincome increased $228 in the first quarter of 2006 compared with the samequarter last year. The increase is attributable to slightly higher interestearned on cash deposits, as well as interest paid by the IRS related to taxrefunds. Interest expense decreased $956 in the first quarter of 2006 comparedwith the same quarter last year due an interest expense adjustment recorded inthe first quarter of 2006 of $714.

Otherincome (expense)

For the three months ended March 31, 2006, otherexpense totaled $(367) compared to income of $30 for the same period in 2005. Theincrease in expense of $397 is attributable to several minor expense chargesrecorded in the first quarter of 2006.

Incometax expense

Our effective tax ratefor the three months ended March 31, 2006, was 27.2%, down from 32.5% inthe same period in 2005. The decrease is due to the disposal of MEI in thethree months ended March 31, 2006 as discussed above as well as also lowerexpected repatriations for 2006 versus 2005 repatriations expected at the sametime in 2005. We expect that our effective tax rate for the year willapproximate 28.5%. Factors such as pending tax rulings in Europe, our dividendrepatriation policy, and the Research and Development tax credit pending inCongress will influence the actual tax rate.

Netearnings

Netearnings during the quarter ended March 31, 2006 increased $1,493 or 12.7%compared to the same period in 2005. The increase is primarily related to Autotype,which contributed approximately $900 to the increase. As discussed above, thereare several factors that both positively and negatively impacted our netearnings for the first quarter of 2006.

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LIQUIDITYAND CAPITAL RESOURCES

Overview

Our primary source of liquidity during the threemonths ended March 31, 2006 was cash generated from operating activities. Weexpect that our future working capital, capital expenditures and dividendrequirements will be satisfied primarily from existing cash balances, cashgenerated from operations and available credit facilities.

Thetable below summarizes our cash flows for the three months ended March 31,2006 and 2005:

|                                          | ** ** | **2006** | ** ** | **2005** | ** ** | **Variance** | ** ** |
|------------------------------------------|------------|----------|------------|----------|------------|--------------|------------|
| Cash provided by  (used in):             |       |     |       |     |       |         |       |
| Operating Activities                     |       | $        | 501        |     | $          | 2,023        |       | $ | (1,522 | ) |
| Investing  Activities                    |       | (1,446   | )          | (2,727   | )          | 1,281        |       |
| Financing  Activities                    |       | 2,262    |       | (1,224   | )          | 3,486        |       |
| Effect of  exchange rate changes on cash |       | 788      |       | (2,160   | )          | 2,948        |       |
| Net change in cash                       |       | $        | 2,105      |     | $          | (4,088       | )          | $ | 6,193 |   |

 

Cashflow from operating activities declined during the three months ended March 31,2006, compared to the same period in 2005 primarily as a result of higherincome, the timing of tax payments and changes in our inventory, accountsreceivable and accrued expenses. Increases in accounts receivable andinventories are a result of our current focus on driving growth in sales.  In the first quarter of 2006 we paid taxestotaling $4,655 compared to tax payments of $5,085 in the first quarter of2005.

Netcash used in investing activities decreased during the three months ended March 31,2006, compared to the same period in 2005. Driving this change was a decreasein capital spending during the first quarter of 2006. The majority of capitalspending during first quarter of 2005 was related to a new plant in China forour ASF segment.

Netcash used in financing activities increased by $3,486 in the quarter ended March 31,2006, when compared to the same quarter last year. This increase was primarilythe result of higher proceeds from the exercise of stock options and highershort-term borrowings, offset by increased dividends paid in the first quarter2006.

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 futurerepurchases by us will depend on various factors, including the market price ofthe shares, our business and financial position and general economic and marketconditions. Additional shares acquired pursuant to such authorizations will beheld in our treasury and will be available for us to issue for variouscorporate purposes without further shareholder action (except as required byapplicable law or the rules of any securities exchange on which the sharesare then listed). At March 31, 2006, the outstanding authorization topurchase approximately 5,000,000 shares would cost approximately $160,750.

Webelieve that we have the financial flexibility to deliver shareholder valuedescribed above while meeting our contractual obligations. As of March 31,2006, we currently have $83,037 in cash and cash equivalents and workingcapital of $239,921. Excluding our non-monetary items, prepaid expenses anddeferred taxes, our working capital is $214,227. We also have a long-termcredit arrangement, which consists of a combined revolving loan facility thatpermits borrowings, denominated in United States dollars and certain foreigncurrencies, of up to $75,000. There has been no balance outstanding, oractivity on this revolving loan facility for any of the periods presented. Thislong-term credit facility was established in March 2006 to replace a$50,000 long-term credit facility which was to expire in April 2006. Wehave other uncommitted credit facilities which presently total approximately$50,860.

We have a 9 1/8% Senior Subordinated Notes (“BondOffering” or “Bonds”), due 2011, for the face amount of $301,500. Interest onthis Bond Offering is due semi-annually on January 15th and July 15th.Pursuant to the Bond Offering, we are subject to covenants requiring certainqualitative and quantitative thresholds, including a requirement to maintain adefined fixed charge ratio greater than or equal to 2.25 to 1.0. The incurrenceof additional debt (excluding the Bond Offering) is also limited, as arecertain defined restricted payments. We were in compliance with all of thesecovenants as of March 31, 2006. If these covenants are violated, and weare unable to negotiate a waiver or amendment thereof, the Bonds may be calledfor payment.

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Wehave a long-term credit arrangement, which consists of a committed revolvingloan facility that permits borrowings, denominated in U.S. dollars and certainforeign currencies, of up to $75,000. This long-term credit facility expires inMarch 2011. We have other uncommitted credit facilities which presentlytotal approximately $50,860. These credit facilities expire and may be renewedon a yearly basis.

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 quarterending on or 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 forany fiscal 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 of March 31,2006. If these covenantsare violated, and we are unable to negotiate a waiver or amendment thereof, thelender would have the right to declare an event of default, terminate theremaining commitment and accelerate all principal and interest outstanding. Therehas been no balance outstanding or activity on this committed revolving loanfacility for any of the periods presented.

The following table reflects our ability to fund both our requiredobligations, anticipated pension funding and our shareholder growth initiativesfor next twelve months:

| Cash and cash equivalents as  of March 31, 2006                         |   | $       | 83,037  |   |
|------------------------------------------------------------------------------|--------|---------|---------|--------|
| Other net  current monetary assets and liabilities as of March 31, 2006 |   | 131,190 |    |
|                                                                         |   | 214,227 |    |
|                                                                         |   |    |    |
| Available  borrowings under revolving loan facility                          |   | 75,000  |    |
| Availability  under other uncommitted credit facilities                      |   | 50,860  |    |
| Total cash  available and potentially available                              |   | 340,087 |    |
|                                                                         |   |    |    |
| Contractual cash  commitments due in next twelve months                      |   | 42,422  |    |
| Pension funding  expenditures                                                |   | 12,000  |    |
| Expected capital  expenditures                                               |   | 15,000  |    |
| Expected  dividend payments                                                  |   | 7,344   |    |
| Excess of cash  available and potentially available over Requirements        |   | $       | 263,321 |   |

 

Ourliquidity position remained sufficient as of March 31, 2006. Futurepension funding expenditures are discretionary subject to minimum fundings asrequired by the Employee Retirement Income Security Act, asset performance ofthe various plans, changes in pension plan asset allocation and other factors.  Our ability to obtain additional financing, ifnecessary, 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 related disclosures. Suchdecisions include the selection of the appropriate accounting principles to beapplied and also assumptions upon which accounting estimates are based. Managementapplies judgment based on its understanding and analysis of the relevantcircumstances to reach these decisions. By their nature, these judgments aresubject to an inherent degree of uncertainty. Accordingly actual results coulddiffer significantly from the estimates applied.

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

NewAccounting Standards

InMay 2005, the FASB issued Statement of Financial Accounting Standards No. 154,Accounting Changes and Error Corrections — a replacement of APB Opinion No. 20and FASB Statement No. 3 (“SFAS 154”). This statement applies to all

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voluntarychanges in accounting principle and changes required by an accountingpronouncement where no specific transition provisions are included.SFAS 154 requires retrospective application to prior periods’ financialstatements of changes in accounting principle, unless it is impracticable todetermine either the period-specific effects or the cumulative effect of thechange. Retrospective application is limited to the direct effects of thechange; the indirect effects should be recognized in the period of the change. Weadopted the provisions of SFAS 154 in the first quarter of 2006. The adoptionof SFAS 154 did not have a material impact on our financial position, resultsof operations or cash flows.

InNovember 2004, the FASB issued Statement of Financial Accounting StandardsNo. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4(“SFAS 151”). This statement amends the guidance of ARB. No 43,Chapter 4 “Inventory Pricing” and requires that abnormal amounts of idlefacility expense, freight, handling costs, and wasted material be recognized ascurrent period charges. In addition, this statement requires that allocation offixed production overheads to the costs of conversion be based on the normalcapacity of the production facilities. SFAS 151 is effective for inventorycosts incurred during fiscal years beginning after June 15, 2005. Weadopted the provisions of SFAS 151 during the first quarter of 2006. Theadoption of SFAS 151 did not have a material impact on our financial position,results of operations or cash flows.

InDecember 2004, the FASB finalized Staff Position No. SFAS 109-1,Application of FASB Statement No. 109, Accounting for Income Taxes, to theTax Deduction on Qualified Production Activities Provided by the American JobsCreation Act of 2004 (“SFAS 109-1”), and Staff Position No. SFAS 109-2,Accounting and Disclosure for the Foreign Earnings Provision within theAmerican Jobs Creation Act of 2004 (“SFAS 109-2”).  The American Jobs Creation Act of 2004 doesnot have a significant impact on our first quarter 2006 and 2005 income taxexpense.

In December 2004,the FASB issued a revision (“the revision”) of FASB Statement No. 123,Accounting for Stock-Based Compensation, (“SFAS 123(R)”) which also supersedesAPB Opinion No. 25, Accounting for Stock Issued to Employees, and itsrelated implementation guidance. The revision establishes standards for theaccounting treatment of transactions in which an entity exchanges its equityinstruments for goods or services, as well as certain transactions in which theentity may settle based on the fair value or exchange of the entity’s equityinstruments.   In April 2005, theSecurities and Exchange Commission postponed the effective date of SFAS 123(R) tothe first annual period that begins after June 15, 2005. We adopted theprovisions of SFAS 123(R) during the first quarter of 2006. The adoptionof SFAS 123(R) did not have a material impact on our financial position,results of operations or cash flows (see note 4 above).

##### 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 Commissionfilings and our press 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.

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ITEM 3:

**Quantitative and QualitativeDisclosures 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 loss can be assessed from the perspective ofadverse changes in fair values, cash flows 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. Managementcontinually reviews the balance between foreign-currency-denominated assets andliabilities in order to minimize our exposure to foreign exchange fluctuations;however we do not currently actively hedge any of our foreign currency risk.

We operate manufacturing facilities in ten countries and sellproducts in over twenty-five countries. Approximately 57% of our net sales andtotal assets are denominated in currencies other than the United States Dollar,predominantly the Euro, the British Pound, the Japanese Yen, and the Hong KongDollar. For the three months ending March 31, 2006 foreign currencytranslation had a slight positive effect on net income. The impact of exchangerate changes on operating cash flows historically been comparable to the impacton earnings.

Our business operations consist principally of manufactureand sale of specialty chemicals, supplies and related equipment to customersthroughout much of the world. Approximately 42% of our business is concentratedin the printing business, used for a wide variety of applications, while 58% ofour business is concentrated on customers supplying a wide variety of chemicalsto manufacturers 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 that reserves for losses, which are establishedbased upon review of account balances and historical experience, are adequate.

Inthe past, we were exposed to interest rate risk, primarily from our floatinginterest rate credit facilities. At the time, we entered into interest rateswap agreements for the purpose of reducing our exposure to possible futurechanges in interest rates on these facilities. On September 20, 2001, werefinanced these facilities with 9 1/8% Senior Subordinated Notes, whichreduced our exposure to changing interest rates and is currently unhedged. However,there is still one interest rate swap outstanding. This swap formerly hedgedour floating rate debt, but because we refinanced these obligations, the swapis now considered speculative. Foradditional information, see Note 14 above, Guarantor Financial Statements.Based upon our current debt structure and expected levels of borrowing for theremainder of 2006, an increase in interest rates would not result in anincremental 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.

ITEM 4:

**Controls and 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, is recorded, processed, summarized andreported within the  time periods specifiedin the Securities and Exchange Commission’s rules and forms.

Ourmanagement, with the participation of our Chief Executive Officer and ourSenior Vice President, Finance, evaluated the effectiveness of our disclosurecontrols and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or15d-15(e)) as of March 31, 2006. Based on that evaluation, our ChiefExecutive Officer and Senior Vice President, Finance concluded that, as of thatdate, our disclosure controls and procedures required by paragraph (a) ofExchange Act Rules 13a-15 or 15d-15, were effective, eventhough we identified an error and a material weaknesses in our internal controlover accounting for foreign currency translation in our consolidation reportingprocess and the preparation of the Statement of Comprehensive Income describedbelow. The material weakness related to our accounting for foreign currencytranslation and consequently to the preparation of the Statement ofComprehensive Income, and did not extend to our entire system of internalcontrol over financial reporting. Accordingly, management believes that ourdisclosure controls and procedures were effective as of the end of the periodscovered by our reports. The error noted was first recognized in April 2006,while management and our new independent auditor were reviewing our financialstatements in preparation of our March 31, 2006 Form 10-Q andis further explained below.

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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. During preparation of our March 31, 2006 Form 10-Qmanagement and our new independent auditors reviewed our historical goodwilland intangible balances. Upon further review it was determined that ourhistorical 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, BusinessCombination  (“SFAS 141”) on April 1,2001. SFAS 141 required us to allocate goodwill and intangibles to our businessunits that benefited the most from assets acquired in a business combination. Beginningin 2002, 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. Thisresulted in an understatement of goodwill and Canning intangibles as of December 31,2005 and an understatement in 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 denominatedin foreign currencies were not translated into United States Dollars at thecurrent period translation rates as required by Statement of FinancialAccounting Standards No. 52 Foreign Currency Translation. The error in ouraccounting for foreign currency translation was corrected by restating our December 31,2005 balances that were affected by this error. Our management is in theprocess 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.

Inlight of the error described above, as of the date of the filing of this Form 10-Q/A,we have adopted remedial measures to address the deficiency in our internalcontrol that gave rise to the understatement of goodwill and intangiblesbalances as of December 31, 2005 and the understatement of OtherComprehensive Income for the year ended December 31, 2005. In addition, wehave applied compensating procedures and processes as necessary to ensure theaccuracy of our financial reporting. Such additional procedures included acomprehensive review of our foreign goodwill and intangible balances and OtherComprehensive Income, a risk assessment of our accounting policies andprocedures and the commencement of discussions with outside professionalservice firms to perform a review of our accounting policies and procedures. Accordingly,management believes that the consolidated financial statements included in thequarterly report presents fairly, in all material respects, our financialcondition, results of operations and cash flows as of, and for, the periodspresented. Other than indicated above, there were no changes in our internalcontrol over financial reporting that occurred during the quarter ended March 31,2006, that have materially affected, or are reasonably likely to materially affect,the Corporation’s internal 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, andthere can be no assurance that any design will succeed in achieving its statedgoals under all potential future conditions. Over time, controls may becomeinadequate because of changes in conditions or deterioration in the degree ofcompliance with associated policies or procedures. Because of the inherentlimitations in a cost-effective control system, misstatements due to error orfraud may occur and not be detected.

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PART II. OTHER INFORMATION

### ITEM 1 : Legal Proceedings

Referto the notes to the consolidated financial statements, Contingencies and LegalMatters, Note 11.

### ITEM 1A : Risk Factors

We are affected by risks specific to us aswell as factors that affect all businesses operating in a global market. Thesignificant factors known to us that could materially affect our business,operating results and financial condition are described in our most recentlyfiled Form 10-K (Item 1A). There has been no material change inthose 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

None.

### ITEM 5 : Other Information

OnMarch 29, 2006, we established a new long-term credit facility whichincreased our borrowing capacity from $50,000 to $75,000. This new long-termcredit facility expires in March 2011.

### 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:  June 16, 2006 |   | /s/ Daniel H. Leever                  |   |
|                      |   | Daniel H. Leever                      |
|                      |   | Chairman and Chief  Executive Officer |
|                      |   |                                  |
|                      |   |                                  |
| Date:  June 16, 2006 |   | /s/ Gregory M. Bolingbroke            |   |
|                      |   | Gregory M.  Bolingbroke               |
|                      |   | Senior Vice  President, Finance       |
|                           |        |                                       |  |  |

 

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