##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2006
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from                    to
 Commission file number 333-115267
 ERICO INTERNATIONAL CORPORATION
 (Exact Name of Registrant as Specified in Its Charter)
 Ohio
    
    34-0201460(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification Number)
 
 30575 Bainbridge Road
Suite 300
Solon, Ohio 44139
(440) 349-2630
 Address, including zip code, and telephone number, including area code, of Registrants Principal
Executive Offices)
 o þ
  o o þ
 o þ




---



##### 



INDEX TO QUARTERLY REPORT
 Page No.Part I. Financial InformationItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005
    
    
    2Condensed Consolidated Income Statements for the Three and Nine Months Ended
September 30, 2006 and 2005
    
    
    3Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2006 and 2005
    
    
    4Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    23Item 4. Controls and Procedures
    
    
    23Part II. Other InformationItem 6. Exhibits
    
    
    24Signatures
    
    
    25EX-31.1EX-31.2EX-32
  1




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 ERICO International Corporation and Subsidiaries
 
 Condensed Consolidated Balance Sheets
 (Dollars in thousands, except per share amounts)
 September 30,
    
    December 31,2006
    
    2005(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    29,496
    
    
    $
    19,561Trade accounts receivable, net
    
    
    74,936
    
    
    
    54,802Inventories, net
    
    
    60,764
    
    
    
    46,710Other current assets
    
    
    7,869
    
    
    
    6,758Total current assets
    
    
    173,065
    
    
    
    127,831Property, plant and equipment, net
    
    
    38,937
    
    
    
    42,799Goodwill
    
    
    95,518
    
    
    
    95,524Other intangible assets, net
    
    
    36,513
    
    
    
    36,802Other assets
    
    
    7,591
    
    
    
    8,315Total assets
    
    $
    351,624
    
    
    $
    311,271Liabilities and stockholders net investmentCurrent liabilities:Trade accounts payable
    
    $
    40,820
    
    
    $
    29,157Accrued compensation
    
    
    19,626
    
    
    
    15,699Dividend payable
    
    
    
    
    
    
    11,000Other current liabilities
    
    
    27,300
    
    
    
    20,344Total current liabilities
    
    
    87,746
    
    
    
    76,200Long-term debt
    
    
    141,675
    
    
    
    141,675Deferred income taxes
    
    
    25,979
    
    
    
    26,561Other long-term liabilities
    
    
    13,486
    
    
    
    13,852Stockholders net investment:Common stock, par value $1.00 per share, 1,500,000 shares authorized,
1 share issued and outstanding
    
    
    
    
    
    
    Parent company investment
    
    
    83,584
    
    
    
    56,202Accumulated other comprehensive loss
    
    
    (846
    )
    
    
    (3,219
    )Total stockholders net investment
    
    
    82,738
    
    
    
    52,983Total liabilities and stockholders net investment
    
    $
    351,624
    
    
    $
    311,271
  The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.
 2




---



##### Table of Contents



ERICO International Corporation and Subsidiaries
 
 Condensed Consolidated Income Statements (Unaudited)
 (Dollars in thousands)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    117,947
    
    
    $
    104,435
    
    
    $
    340,568
    
    
    $
    294,513Cost of sales
    
    
    74,037
    
    
    
    65,318
    
    
    
    213,255
    
    
    
    188,408Gross profit
    
    
    43,910
    
    
    
    39,117
    
    
    
    127,313
    
    
    
    106,105Operating expenses
    
    
    25,271
    
    
    
    23,435
    
    
    
    74,660
    
    
    
    68,058Operating income
    
    
    18,639
    
    
    
    15,682
    
    
    
    52,653
    
    
    
    38,047Interest expense, net
    
    
    3,224
    
    
    
    3,658
    
    
    
    9,951
    
    
    
    11,443Foreign exchange loss, net
    
    
    156
    
    
    
    196
    
    
    
    218
    
    
    
    662Other income
    
    
    
    
    
    
    
    
    
    
    (594
    )
    
    
    Income before income taxes
    
    
    15,259
    
    
    
    11,828
    
    
    
    43,078
    
    
    
    25,942Provision for income taxes
    
    
    5,853
    
    
    
    4,207
    
    
    
    16,521
    
    
    
    9,318Net income
    
    $
    9,406
    
    
    $
    7,621
    
    
    $
    26,557
    
    
    $
    16,624
 The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.
 3




---



##### Table of Contents



ERICO International Corporation and Subsidiaries
 
 Condensed Consolidated Statements of Cash Flows (Unaudited)
 (Dollars in thousands)
 Nine Months EndedSeptember 30,2006
    
    
    2005Operating activitiesNet income
    
    $
    26,557
    
    
    $
    16,624Gain on sale of building
    
    
    (594
    )
    
    
    Depreciation and amortization
    
    
    7,993
    
    
    
    9,594Other operating activities
    
    
    (11,437
    )
    
    
    (3,083
    )Net cash provided by operating activities
    
    
    22,519
    
    
    
    23,135Investing activitiesCapital expenditures
    
    
    (3,423
    )
    
    
    (1,810
    )Proceeds from sale of building
    
    
    787
    
    
    
    Other investing activities
    
    
    (139
    )
    
    
    (559
    )Net cash used in investing activities
    
    
    (2,775
    )
    
    
    (2,369
    )Financing activitiesDividends paid
    
    
    (11,000
    )
    
    
    (15,000
    )Net transfers from Parent Company
    
    
    825
    
    
    
    Net cash used in financing activities
    
    
    (10,175
    )
    
    
    (15,000
    )Effect of exchange rate changes on cash and cash
equivalents
    
    
    366
    
    
    
    (78
    )Increase in cash and cash equivalents
    
    
    9,935
    
    
    
    5,688Cash and cash equivalents at beginning of period
    
    
    19,561
    
    
    
    2,321Cash and cash equivalents at end of period
    
    $
    29,496
    
    
    $
    8,009
 The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.
 4




---



##### Table of Contents



ERICO International Corporation and Subsidiaries
 
 Notes to Unaudited Condensed Consolidated Financial Statements
 September 30, 2006
 (Dollars in thousands)
 1. Basis of Presentation
  Nature of Operations
  Use of Estimates
 Principles of Consolidation
 Recently Adopted Accounting Standards Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to
Employees
 Inventory Costs, an amendment of ARB
No. 43, Chapter 4
 Recently Issued Accounting Standards Accounting for Uncertainty in Income Taxes Accounting for Income Taxes
 5




---



##### Table of Contents



ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
 September 30, 2006
 (Dollars in thousands)
 1. Basis of Presentation (continued)
  Fair Value Measurements
 Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans  an Amendment of FASB Statements No. 87, 88, 106 and 132(R)
 2. Inventories
  September 30,
    
    
    December 31,2006
    
    
    2005Finished goods
    
    $
    50,618
    
    
    $
    38,779Work in process
    
    
    5,311
    
    
    
    4,333Raw materials
    
    
    10,693
    
    
    
    8,66566,622
    
    
    
    51,777Inventory reserves
    
    
    (5,858
    )
    
    
    (5,067
    )Inventories, net
    
    $
    60,764
    
    
    $
    46,710
 3. Goodwill and Other Intangible Assets
 ® ® ® ® ® ® ®
  6




---



##### Table of Contents



ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
 September 30, 2006
 (Dollars in thousands)
 3. Goodwill and Other Intangible Assets (continued)
  September 30, 2006GrossCarrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    NetFinite-lived intangible assets:Patents
    
    $
    4,225
    
    
    $
    (1,993
    )
    
    $
    2,232Customer relationships
    
    
    787
    
    
    
    (151
    )
    
    
    636$
    5,012
    
    
    $
    (2,144
    )
    
    $
    2,868Indefinite-lived intangible assets:Trademarks
    
    $
    33,645
    
    
    $
    
    
    
    $
    33,645Goodwill
    
    
    95,518
    
    
    
    
    
    
    
    95,518$
    129,163
    
    
    $
    
    
    
    $
    129,163
 December 31, 2005GrossCarrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    NetFinite-lived intangible assets:Patents
    
    $
    4,120
    
    
    $
    (1,569
    )
    
    $
    2,551Customer relationships
    
    
    787
    
    
    
    (121
    )
    
    
    666$
    4,907
    
    
    $
    (1,690
    )
    
    $
    3,217Indefinite-lived intangible assets:Trademarks
    
    $
    33,585
    
    
    $
    
    
    
    $
    33,585Goodwill
    
    
    95,524
    
    
    
    
    
    
    
    95,524$
    129,109
    
    
    $
    
    
    
    $
    129,109
  7




---



##### Table of Contents



ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2006
 (Dollars in thousands)
 4. Debt and Financing Arrangements
  September 30,
    
    
    December 31,2006
    
    
    20058.875% subordinated notes, due 2012
    
    $
    141,000
    
    
    $
    141,000Other notes, due 2009
    
    
    675
    
    
    
    675$
    141,675
    
    
    $
    141,675
    5. Income Taxes
   8




---



##### Table of Contents



ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2006
 (Dollars in thousands)
 6. Post-Retirement Benefit Plan
  Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization
Act of 2003
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    1
    
    
    $
    1
    
    
    $
    3
    
    
    $
    4Interest cost
    
    
    7
    
    
    
    7
    
    
    
    19
    
    
    
    31Amortization of net gain
    
    
    (139
    )
    
    
    (106
    )
    
    
    (416
    )
    
    
    (416
    )Curtailment gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (68
    )Net periodic benefit income
    
    $
    (131
    )
    
    $
    (98
    )
    
    $
    (394
    )
    
    $
    (449
    )
 9




---



##### Table of Contents



ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2006
 (Dollars in thousands)
 7. Commitments and Contingencies
  8. Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income
    
    $
    9,406
    
    
    $
    7,621
    
    
    $
    26,557
    
    
    $
    16,624Foreign currency translation adjustments
    
    
    286
    
    
    
    178
    
    
    
    2,373
    
    
    
    (4,093
    )Comprehensive income
    
    $
    9,692
    
    
    $
    7,799
    
    
    $
    28,930
    
    
    $
    12,531
 10




---



##### Table of Contents



ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2006
 (Dollars in thousands)
 9. Guarantor and Non-Guarantor Subsidiaries
  Unaudited Condensed Consolidating Balance Sheets
September 30, 2006
 Non-Guarantor
    
    
    GuarantorParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash and cash equivalents
    
    $
    23,292
    
    
    $
    15
    
    
    $
    6,189
    
    
    $
    
    
    
    $
    29,496Trade accounts receivable, net
    
    
    
    
    
    
    39,956
    
    
    
    34,980
    
    
    
    
    
    
    
    74,936Inventories, net
    
    
    
    
    
    
    33,261
    
    
    
    27,503
    
    
    
    
    
    
    
    60,764Other current assets
    
    
    2,105
    
    
    
    2,639
    
    
    
    3,125
    
    
    
    
    
    
    
    7,869Total current assets
    
    
    25,397
    
    
    
    75,871
    
    
    
    71,797
    
    
    
    
    
    
    
    173,065Property, plant and equipment, net
    
    
    133
    
    
    
    29,768
    
    
    
    9,036
    
    
    
    
    
    
    
    38,937Goodwill
    
    
    95,518
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95,518Other intangible assets, net
    
    
    36,513
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,513Investment in and advances to subsidiaries
    
    
    94,744
    
    
    
    
    
    
    
    
    
    
    
    (94,744
    )
    
    
    Other assets
    
    
    5,062
    
    
    
    2,360
    
    
    
    169
    
    
    
    
    
    
    
    7,591Total assets
    
    $
    257,367
    
    
    $
    107,999
    
    
    $
    81,002
    
    
    $
    (94,744
    )
    
    $
    351,624Trade accounts payable
    
    $
    137
    
    
    $
    26,133
    
    
    $
    14,550
    
    
    $
    
    
    
    $
    40,820Accrued compensation
    
    
    1,859
    
    
    
    11,163
    
    
    
    6,604
    
    
    
    
    
    
    
    19,626Other current liabilities
    
    
    1,902
    
    
    
    10,178
    
    
    
    15,220
    
    
    
    
    
    
    
    27,300Total current liabilities
    
    
    3,898
    
    
    
    47,474
    
    
    
    36,374
    
    
    
    
    
    
    
    87,746Long-term debt
    
    
    141,000
    
    
    
    675
    
    
    
    
    
    
    
    
    
    
    
    141,675Deferred income taxes
    
    
    22,811
    
    
    
    2,773
    
    
    
    395
    
    
    
    
    
    
    
    25,979Intercompany balance
    
    
    
    
    
    
    (31,221
    )
    
    
    42,442
    
    
    
    (11,221
    )
    
    
    Other long-term liabilities
    
    
    6,074
    
    
    
    5,235
    
    
    
    2,177
    
    
    
    
    
    
    
    13,486Total stockholders net investment
    
    
    83,584
    
    
    
    83,063
    
    
    
    (386
    )
    
    
    (83,523
    )
    
    
    82,738Total
liabilities and stockholders net investment
    
    $
    257,367
    
    
    $
    107,999
    
    
    $
    81,002
    
    
    $
    (94,744
    )
    
    $
    351,624
 11




---



##### Table of Contents



ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
 September 30, 2006
 (Dollars in thousands)
 9. Guarantor and Non-Guarantor Subsidiaries ( continued )
 Condensed Consolidating Balance Sheets
December 31, 2005
 Non-Guarantor
    
    
    GuarantorParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash and cash equivalents
    
    $
    9,435
    
    
    $
    17
    
    
    $
    10,109
    
    
    $
    
    
    
    $
    19,561Trade accounts receivable, net
    
    
    
    
    
    
    29,515
    
    
    
    25,287
    
    
    
    
    
    
    
    54,802Inventories, net
    
    
    
    
    
    
    27,046
    
    
    
    19,664
    
    
    
    
    
    
    
    46,710Other current assets
    
    
    1,868
    
    
    
    2,391
    
    
    
    2,499
    
    
    
    
    
    
    
    6,758Total current assets
    
    
    11,303
    
    
    
    58,969
    
    
    
    57,559
    
    
    
    
    
    
    
    127,831Property, plant and equipment, net
    
    
    152
    
    
    
    33,243
    
    
    
    9,404
    
    
    
    
    
    
    
    42,799Goodwill
    
    
    95,524
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95,524Other intangible assets, net
    
    
    36,802
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,802Investment in and advances to subsidiaries
    
    
    95,587
    
    
    
    
    
    
    
    
    
    
    
    (95,587
    )
    
    
    Other assets
    
    
    5,822
    
    
    
    2,346
    
    
    
    147
    
    
    
    
    
    
    
    8,315Total assets
    
    $
    245,190
    
    
    $
    94,558
    
    
    $
    67,110
    
    
    $
    (95,587
    )
    
    $
    311,271Trade accounts payable
    
    $
    312
    
    
    $
    20,937
    
    
    $
    7,908
    
    
    $
    
    
    
    $
    29,157Accrued compensation
    
    
    1,933
    
    
    
    8,267
    
    
    
    5,499
    
    
    
    
    
    
    
    15,699Dividend payable
    
    
    11,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,000Other current liabilities
    
    
    5,159
    
    
    
    6,669
    
    
    
    8,516
    
    
    
    
    
    
    
    20,344Total current liabilities
    
    
    18,404
    
    
    
    35,873
    
    
    
    21,923
    
    
    
    
    
    
    
    76,200Long-term debt
    
    
    141,000
    
    
    
    675
    
    
    
    
    
    
    
    
    
    
    
    141,675Deferred income taxes
    
    
    23,387
    
    
    
    2,775
    
    
    
    399
    
    
    
    
    
    
    
    26,561Intercompany balance
    
    
    
    
    
    
    (8,345
    )
    
    
    56,581
    
    
    
    (48,236
    )
    
    
    Other long-term liabilities
    
    
    6,197
    
    
    
    5,917
    
    
    
    1,738
    
    
    
    
    
    
    
    13,852Total stockholders net investment
    
    
    56,202
    
    
    
    57,663
    
    
    
    (13,531
    )
    
    
    (47,351
    )
    
    
    52,983Total liabilities and stockholders
net investment
    
    $
    245,190
    
    
    $
    94,558
    
    
    $
    67,110
    
    
    $
    (95,587
    )
    
    $
    311,271
 12




---



##### Table of Contents



ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2006
 (Dollars in thousands)
 9. Guarantor and Non-Guarantor Subsidiaries ( continued )
 Unaudited Condensed Consolidating Income Statements
Three Months Ended September 30, 2006
 Non-Guarantor
    
    
    GuarantorParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    76,234
    
    
    $
    47,493
    
    
    $
    (5,780
    )
    
    $
    117,947Cost of sales
    
    
    
    
    
    
    48,443
    
    
    
    31,374
    
    
    
    (5,780
    )
    
    
    74,037Gross profit
    
    
    
    
    
    
    27,791
    
    
    
    16,119
    
    
    
    
    
    
    
    43,910Operating expenses
    
    
    1,097
    
    
    
    12,111
    
    
    
    12,063
    
    
    
    
    
    
    
    25,271Operating (loss) income
    
    
    (1,097
    )
    
    
    15,680
    
    
    
    4,056
    
    
    
    
    
    
    
    18,639Interest expense (income), net
    
    
    2,544
    
    
    
    683
    
    
    
    (3
    )
    
    
    
    
    
    
    3,224Foreign exchange (gain) loss, net
    
    
    
    
    
    
    
    
    
    
    156
    
    
    
    
    
    
    
    156(Loss) income before income taxes
and equity income
    
    
    (3,641
    )
    
    
    14,997
    
    
    
    3,903
    
    
    
    
    
    
    
    15,259(Benefit) provision for income taxes
    
    
    (565
    )
    
    
    5,491
    
    
    
    927
    
    
    
    
    
    
    
    5,853(Loss) income before equity income
    
    
    (3,076
    )
    
    
    9,506
    
    
    
    2,976
    
    
    
    
    
    
    
    9,406Equity income from subsidiaries
    
    
    12,482
    
    
    
    
    
    
    
    
    
    
    
    (12,482
    )
    
    
    Net income
    
    $
    9,406
    
    
    $
    9,506
    
    
    $
    2,976
    
    
    $
    (12,482
    )
    
    $
    9,406
 Unaudited Condensed Consolidating Income Statements
Three Months Ended September 30, 2005
 Non-Guarantor
    
    
    GuarantorParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    68,431
    
    
    $
    40,588
    
    
    $
    (4,584
    )
    
    $
    104,435Cost of sales
    
    
    
    
    
    
    43,398
    
    
    
    26,504
    
    
    
    (4,584
    )
    
    
    65,318Gross profit
    
    
    
    
    
    
    25,033
    
    
    
    14,084
    
    
    
    
    
    
    
    39,117Operating expenses
    
    
    1,834
    
    
    
    11,858
    
    
    
    9,743
    
    
    
    
    
    
    
    23,435Operating (loss) income
    
    
    (1,834
    )
    
    
    13,175
    
    
    
    4,341
    
    
    
    
    
    
    
    15,682Interest expense, net
    
    
    2,792
    
    
    
    681
    
    
    
    185
    
    
    
    
    
    
    
    3,658Foreign exchange loss, net
    
    
    
    
    
    
    59
    
    
    
    137
    
    
    
    
    
    
    
    196(Loss) income before income taxes
and equity income
    
    
    (4,626
    )
    
    
    12,435
    
    
    
    4,019
    
    
    
    
    
    
    
    11,828(Benefit) provision for income taxes
    
    
    (2,651
    )
    
    
    4,867
    
    
    
    1,991
    
    
    
    
    
    
    
    4,207(Loss) income before equity income
    
    
    (1,975
    )
    
    
    7,568
    
    
    
    2,028
    
    
    
    
    
    
    
    7,621Equity income from subsidiaries
    
    
    9,596
    
    
    
    
    
    
    
    
    
    
    
    (9,596
    )
    
    
    Net income
    
    $
    7,621
    
    
    $
    7,568
    
    
    $
    2,028
    
    
    $
    (9,596
    )
    
    $
    7,621
 13




---



##### Table of Contents



ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2006
 (Dollars in thousands)
 9. Guarantor and Non-Guarantor Subsidiaries ( continued )
 Unaudited Condensed Consolidating Income Statements
Nine Months Ended September 30, 2006
 Non-Guarantor
    
    
    GuarantorParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    219,056
    
    
    $
    140,892
    
    
    $
    (19,380
    )
    
    $
    340,568Cost of sales
    
    
    
    
    
    
    140,402
    
    
    
    92,233
    
    
    
    (19,380
    )
    
    
    213,255Gross profit
    
    
    
    
    
    
    78,654
    
    
    
    48,659
    
    
    
    
    
    
    
    127,313Operating expenses
    
    
    5,508
    
    
    
    36,564
    
    
    
    32,588
    
    
    
    
    
    
    
    74,660Operating (loss) income
    
    
    (5,508
    )
    
    
    42,090
    
    
    
    16,071
    
    
    
    
    
    
    
    52,653Interest expense (income), net
    
    
    7,941
    
    
    
    2,051
    
    
    
    (41
    )
    
    
    
    
    
    
    9,951Foreign exchange (gain) loss, net
    
    
    
    
    
    
    (4
    )
    
    
    222
    
    
    
    
    
    
    
    218Other income
    
    
    (47
    )
    
    
    
    
    
    
    (547
    )
    
    
    
    
    
    
    (594
    )(Loss) income before income taxes
and equity income
    
    
    (13,402
    )
    
    
    40,043
    
    
    
    16,437
    
    
    
    
    
    
    
    43,078(Benefit) provision for income taxes
    
    
    (3,787
    )
    
    
    14,643
    
    
    
    5,665
    
    
    
    
    
    
    
    16,521(Loss) income before equity income
    
    
    (9,615
    )
    
    
    25,400
    
    
    
    10,772
    
    
    
    
    
    
    
    26,557Equity income from subsidiaries
    
    
    36,172
    
    
    
    
    
    
    
    
    
    
    
    (36,172
    )
    
    
    Net income
    
    $
    26,557
    
    
    $
    25,400
    
    
    $
    10,772
    
    
    $
    (36,172
    )
    
    $
    26,557
 Unaudited Condensed Consolidating Income Statements
Nine Months Ended September 30, 2005
 Non-Guarantor
    
    
    GuarantorParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    189,520
    
    
    $
    119,688
    
    
    $
    (14,695
    )
    
    $
    294,513Cost of sales
    
    
    
    
    
    
    123,122
    
    
    
    79,981
    
    
    
    (14,695
    )
    
    
    188,408Gross profit
    
    
    
    
    
    
    66,398
    
    
    
    39,707
    
    
    
    
    
    
    
    106,105Operating expenses
    
    
    4,638
    
    
    
    33,579
    
    
    
    29,841
    
    
    
    
    
    
    
    68,058Operating (loss) income
    
    
    (4,638
    )
    
    
    32,819
    
    
    
    9,866
    
    
    
    
    
    
    
    38,047Interest expense, net
    
    
    8,877
    
    
    
    2,044
    
    
    
    522
    
    
    
    
    
    
    
    11,443Foreign exchange loss, net
    
    
    1
    
    
    
    234
    
    
    
    427
    
    
    
    
    
    
    
    662(Loss) income before income taxes
and equity income
    
    
    (13,516
    )
    
    
    30,541
    
    
    
    8,917
    
    
    
    
    
    
    
    25,942(Benefit) provision for income taxes
    
    
    (6,580
    )
    
    
    12,004
    
    
    
    3,894
    
    
    
    
    
    
    
    9,318(Loss) income before equity income
    
    
    (6,936
    )
    
    
    18,537
    
    
    
    5,023
    
    
    
    
    
    
    
    16,624Equity income from subsidiaries
    
    
    23,560
    
    
    
    
    
    
    
    
    
    
    
    (23,560
    )
    
    
    Net income
    
    $
    16,624
    
    
    $
    18,537
    
    
    $
    5,023
    
    
    $
    (23,560
    )
    
    $
    16,624
 14




---



##### Table of Contents



ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2006
 (Dollars in thousands)
 9. Guarantor and Non-Guarantor Subsidiaries ( continued )
 Unaudited Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2006
 Non-Guarantor
    
    
    GuarantorParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating activitiesNet income
    
    $
    26,557
    
    
    $
    25,400
    
    
    $
    10,772
    
    
    $
    (36,172
    )
    
    $
    26,557Gain on sale of building
    
    
    (47
    )
    
    
    
    
    
    
    (547
    )
    
    
    
    
    
    
    (594
    )Depreciation and amortization
    
    
    526
    
    
    
    6,021
    
    
    
    1,446
    
    
    
    
    
    
    
    7,993Other operating activities
    
    
    (2,189
    )
    
    
    (7,374
    )
    
    
    (1,874
    )
    
    
    
    
    
    
    (11,437
    )Net cash provided by (used in) operating activities
    
    
    24,847
    
    
    
    24,047
    
    
    
    9,797
    
    
    
    (36,172
    )
    
    
    22,519Investing activitiesCapital expenditures
    
    
    (58
    )
    
    
    (2,736
    )
    
    
    (629
    )
    
    
    
    
    
    
    (3,423
    )Proceeds from sale of building
    
    
    
    
    
    
    
    
    
    
    787
    
    
    
    
    
    
    
    787Other investing activities
    
    
    (212
    )
    
    
    191
    
    
    
    (118
    )
    
    
    
    
    
    
    (139
    )Net cash used in investing activities
    
    
    (270
    )
    
    
    (2,545
    )
    
    
    40
    
    
    
    
    
    
    
    (2,775
    )Financing activitiesDividends paid
    
    
    (11,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,000
    )Change in intercompany payables/receivables
    
    
    (545
    )
    
    
    (21,504
    )
    
    
    (14,123
    )
    
    
    36,172
    
    
    
    Net transfers from Parent Company
    
    
    825
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    825Net cash (used in) provided by financing activities
    
    
    (10,720
    )
    
    
    (21,504
    )
    
    
    (14,123
    )
    
    
    36,172
    
    
    
    (10,175
    )Effect of exchange rate changes on cash
    
    
    
    
    
    
    
    
    
    
    366
    
    
    
    
    
    
    
    366Net increase (decrease) in cash and cash equivalents
    
    
    13,857
    
    
    
    (2
    )
    
    
    (3,920
    )
    
    
    
    
    
    
    9,935Cash and cash equivalents at beginning of period
    
    
    9,435
    
    
    
    17
    
    
    
    10,109
    
    
    
    
    
    
    
    19,561Cash and cash equivalents at end of period
    
    $
    23,292
    
    
    $
    15
    
    
    $
    6,189
    
    
    $
    
    
    
    $
    29,496
 15




---



##### Table of Contents



ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements


September 30, 2006  (Dollars in thousands)
 9. Guarantor and Non-Guarantor Subsidiaries ( continued )
 Unaudited Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2005
 Non-Guarantor
    
    
    GuarantorParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating activitiesNet income
    
    $
    16,624
    
    
    $
    18,537
    
    
    $
    5,023
    
    
    $
    (23,560
    )
    
    $
    16,624Depreciation and amortization
    
    
    509
    
    
    
    6,301
    
    
    
    2,784
    
    
    
    
    
    
    
    9,594Other operating activities
    
    
    (182
    )
    
    
    (350
    )
    
    
    (2,551
    )
    
    
    
    
    
    
    (3,083
    )Net cash provided by (used in) operating activities
    
    
    16,951
    
    
    
    24,488
    
    
    
    5,256
    
    
    
    (23,560
    )
    
    
    23,135Investing activitiesCapital expenditures
    
    
    (10
    )
    
    
    (1,038
    )
    
    
    (762
    )
    
    
    
    
    
    
    (1,810
    )Other investing activities
    
    
    (581
    )
    
    
    (85
    )
    
    
    107
    
    
    
    
    
    
    
    (559
    )Net cash used in investing activities
    
    
    (591
    )
    
    
    (1,123
    )
    
    
    (655
    )
    
    
    
    
    
    
    (2,369
    )Financing activitiesDividends paid
    
    
    (15,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,000
    )Change in intercompany payables/receivables
    
    
    533
    
    
    
    (23,350
    )
    
    
    (743
    )
    
    
    23,560
    
    
    
    Net borrowings on revolving line of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash (used in) provided by financing activities
    
    
    (14,467
    )
    
    
    (23,350
    )
    
    
    (743
    )
    
    
    23,560
    
    
    
    (15,000
    )Effect of exchange rate changes on cash
    
    
    
    
    
    
    
    
    
    
    (78
    )
    
    
    
    
    
    
    (78
    )Net increase (decrease) in cash and cash equivalents
    
    
    1,893
    
    
    
    15
    
    
    
    3,780
    
    
    
    
    
    
    
    5,688Cash and cash equivalents at beginning of period
    
    
    398
    
    
    
    21
    
    
    
    1,902
    
    
    
    
    
    
    
    2,321Cash and cash equivalents at end of period
    
    $
    2,291
    
    
    $
    36
    
    
    $
    5,682
    
    
    $
    
    
    
    $
    8,009
 16




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
  Overview
   Market Outlook
   Results of Operations
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    62.8
    
    
    
    62.5
    
    
    
    62.6
    
    
    
    64.0Gross profit
    
    
    37.2
    
    
    
    37.5
    
    
    
    37.4
    
    
    
    36.0Operating expenses
    
    
    21.5
    
    
    
    22.5
    
    
    
    21.9
    
    
    
    23.1Interest expense, net
    
    
    2.7
    
    
    
    3.5
    
    
    
    2.9
    
    
    
    3.9Foreign exchange loss, net
    
    
    0.1
    
    
    
    0.2
    
    
    
    
    
    
    
    0.2Other income
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    Income before income taxes
    
    
    12.9
    
    
    
    11.3
    
    
    
    12.7
    
    
    
    8.8Provision for income taxes
    
    
    4.9
    
    
    
    4.0
    
    
    
    4.9
    
    
    
    3.2Net income
    
    
    8.0
    
    
    
    7.3
    
    
    
    7.8
    
    
    
    5.6
 17




---



##### Table of Contents



Three Months Ended September 30, 2006 Compared With Three Months Ended September 30, 2005
 Net sales.
 Gross profit.
 Operating expenses
 Interest expense, net.
 Foreign exchange loss, net
 Provision for income taxes.
 Net income.
 Nine Months Ended September 30, 2006 Compared With Nine Months Ended September 30, 2005
 Net sales.
 Gross profit.
 Operating expenses
 18




---



##### Table of Contents



Interest expense, net.
 Foreign exchange loss, net
 Other Income.
 Provision for income taxes.
 Net income.
 Liquidity and Capital Resources
     19




---



##### Table of Contents



Nine Months Ended September 30, 2006 Compared With Nine Months Ended September 30, 2005
      Reconciliation of EBITDA to Net Cash Provided by Operating Activities
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net cash provided by operating activities
    
    $
    13,980
    
    
    $
    14,316
    
    
    $
    22,519
    
    
    $
    23,135Interest expense, net
    
    
    3,224
    
    
    
    3,658
    
    
    
    9,951
    
    
    
    11,443Provision for income taxes
    
    
    5,853
    
    
    
    4,207
    
    
    
    16,521
    
    
    
    9,318Foreign exchange loss, net
    
    
    (156
    )
    
    
    (196
    )
    
    
    (218
    )
    
    
    (662
    )Deferred taxes
    
    
    193
    
    
    
    209
    
    
    
    577
    
    
    
    1,345Amortization of financing fees and discount on
senior subordinated notes included in interest
expense, net
    
    
    (223
    )
    
    
    (223
    )
    
    
    (668
    )
    
    
    (669
    )Net changes in operating assets and liabilities
    
    
    (1,884
    )
    
    
    (3,554
    )
    
    
    11,746
    
    
    
    3,069Gain on sale of building
    
    
    
    
    
    
    
    
    
    
    594
    
    
    
    EBITDA
    
    $
    20,987
    
    
    $
    18,417
    
    
    $
    61,022
    
    
    $
    46,979
 20




---



##### Table of Contents



Critical Accounting Policies and Estimates
  Recently Adopted Accounting Standards
 Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees
 Inventory Costs, an amendment of ARB
No. 43, Chapter 4
 Recently Issued Accounting Standards
 Accounting for Uncertainty in Income Taxes Accounting for Income Taxes
 Fair Value Measurements
 Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans  an Amendment of FASB Statements No. 87, 88, 106 and 132(R)
 21




---



##### Table of Contents



FORWARD-LOOKING STATEMENTS
   
    
    the availability of sufficient amounts of raw materials, particularly steel and copper,
and our ability to acquire these raw materials on an economic basis;
    
    risks associated with foreign operations, including fluctuations in exchange rates of foreign currencies;
    
    competitive pressures on pricing;
    
    operational issues at our facilities;
    
    availability of financing to fund operations at anticipated rates and terms;
    
    prolonged work stoppages;
    
    governmental or regulatory policies;
    
    product warranty, product liability and product recall costs;
    
    rapid increases in health care costs;
    
    our acquisition activities;
    
    our substantial debt and leverage and our ability to service our debt;
    
    the restrictive covenants contained in the agreements governing our indebtedness;
    
    our ability to realize revenue growth;
    
    our ability to implement initiatives designed to increase operating efficiencies and improve results;
    
    the loss of major customers; and
    
    acts of war or terrorism.
  22




---



##### Table of Contents



Item 3.
Quantitative and Qualitative disclosures About Market Risk
     
 Item 4. Controls and Procedures
   23




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 6. Exhibits
 Exhibit Number
    
    Description of Document31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer32
    
    Section 1350 Certification of Chief Financial Officer and Chief Executive Officer
 24




---



##### Table of Contents



SIGNATURES
  ERICO INTERNATIONAL CORPORATIONBy:
    
    /s/ William H. RojName:
    
    William H. RojTitle:
    
    Chairman, Chief Executive Officer and DirectorNovember 1, 2006By:
    
    /s/ Jeffrey R. SteinhilberName:
    
    Jeffrey R. SteinhilberTitle:
    
    Chief Financial Officer and DirectorNovember 1, 2006
 25