##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2005
 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 þ
 o þ




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INDEX TO QUARTERLY REPORT
 Page No.Part I.
    
    Financial InformationItem 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004
    
    
    2Condensed Consolidated Income Statements for the Three and Nine Months Ended September 30, 2005 and 2004
    
    
    3Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2005 and 2004
    
    
    4Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4.
    
    Controls and Procedures
    
    
    22Part II.
    
    Other InformationItem 6.
    
    Exhibits
    
    
    23Signatures
    
    
    24EX-10.1 Amendment No. 3EX-10.2 Amendment No. 4EX-31.1 302 Certification for CEOEX-31.2 302 Certification for CFOEX-32 906 Certification for CEO and CFO
  1




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##### Table of Contents



PART 1. FINACIAL INFORMATION
 
 Item 1. Financial Statements
 ERICO International Corporation and Subsidiaries
 
 Condensed
Consolidated Balance Sheets  (Dollars in thousands, except per share amounts)
 September 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    8,009
    
    
    $
    2,321Trade accounts receivable, net
    
    
    65,218
    
    
    
    50,485Inventories, net
    
    
    47,262
    
    
    
    59,600Other current assets
    
    
    6,078
    
    
    
    8,909Total current assets
    
    
    126,567
    
    
    
    121,315Property, plant and equipment, net
    
    
    43,958
    
    
    
    52,522Goodwill
    
    
    101,847
    
    
    
    101,303Other intangible assets, net
    
    
    36,844
    
    
    
    36,905Other assets
    
    
    10,085
    
    
    
    10,676Total assets
    
    $
    319,301
    
    
    $
    322,721Liabilities and stockholders net investmentCurrent liabilities:Trade accounts payable
    
    $
    26,736
    
    
    $
    26,422Accrued compensation
    
    
    14,870
    
    
    
    13,446Dividend payable
    
    
    
    
    
    
    15,000Other current liabilities
    
    
    20,587
    
    
    
    21,874Total current liabilities
    
    
    62,193
    
    
    
    76,742Long-term debt
    
    
    152,175
    
    
    
    152,175Deferred income taxes
    
    
    29,082
    
    
    
    28,894Other long-term liabilities
    
    
    15,195
    
    
    
    16,785Stockholders net investment:Common stock, par value $1.00 per share, 1,500,000 shares authorized,
1 share issued and outstanding
    
    
    
    
    
    
    Parent company investment
    
    
    63,323
    
    
    
    46,699Accumulated other comprehensive (loss) income
    
    
    (2,667
    )
    
    
    1,426Total stockholders net investment
    
    
    60,656
    
    
    
    48,125Total liabilities and stockholders net investment
    
    $
    319,301
    
    
    $
    322,721
  The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.
 2




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ERICO International Corporation and Subsidiaries
 
 Condensed Consolidated Income Statements (Unaudited)  (Dollars in thousands)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    $
    104,435
    
    
    $
    92,398
    
    
    $
    294,513
    
    
    $
    267,960Cost of sales
    
    
    65,318
    
    
    
    59,468
    
    
    
    188,408
    
    
    
    171,608Gross profit
    
    
    39,117
    
    
    
    32,930
    
    
    
    106,105
    
    
    
    96,352Operating expenses
    
    
    23,435
    
    
    
    22,356
    
    
    
    68,058
    
    
    
    64,667Operating income
    
    
    15,682
    
    
    
    10,574
    
    
    
    38,047
    
    
    
    31,685Interest expense, net
    
    
    3,658
    
    
    
    3,927
    
    
    
    11,443
    
    
    
    11,274Foreign exchange loss (gain), net
    
    
    196
    
    
    
    212
    
    
    
    662
    
    
    
    (181
    )Other expense
    
    
    
    
    
    
    500
    
    
    
    
    
    
    
    1,736Income before income taxes
    
    
    11,828
    
    
    
    5,935
    
    
    
    25,942
    
    
    
    18,856Provision for income taxes
    
    
    4,207
    
    
    
    2,349
    
    
    
    9,318
    
    
    
    7,426Net income
    
    $
    7,621
    
    
    $
    3,586
    
    
    $
    16,624
    
    
    $
    11,430
 The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.
 3




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ERICO International Corporation and Subsidiaries
 
 Condensed Consolidated Statements of Cash Flows (Unaudited)  (Dollars in thousands)
 Nine Months EndedSeptember 30,2005
    
    
    2004Operating activitiesNet income
    
    $
    16,624
    
    
    $
    11,430Depreciation and amortization
    
    
    9,594
    
    
    
    9,049Other operating activities
    
    
    (3,083
    )
    
    
    (10,558
    )Net cash provided by operating activities
    
    
    23,135
    
    
    
    9,921Investing activitiesCapital expenditures
    
    
    (1,810
    )
    
    
    (2,024
    )Other investing activities
    
    
    (559
    )
    
    
    (463
    )Net cash used in investing activities
    
    
    (2,369
    )
    
    
    (2,487
    )Financing activitiesDividends paid
    
    
    (15,000
    )
    
    
    (25,000
    )Net payments on revolving line of credit
    
    
    
    
    
    
    (26,100
    )Proceeds from issuance of subordinated debt
    
    
    
    
    
    
    121,500Principal payments on long-term debt
    
    
    
    
    
    
    (72,950
    )Financing fees paid
    
    
    
    
    
    
    (5,582
    )Net cash used in financing activities
    
    
    (15,000
    )
    
    
    (8,132
    )Effect of exchange rate changes on cash and cash
equivalents
    
    
    (78
    )
    
    
    15Increase (decrease) in cash and cash equivalents
    
    
    5,688
    
    
    
    (683
    )Cash and cash equivalents at beginning of period
    
    
    2,321
    
    
    
    2,421Cash and cash equivalents at end of period
    
    $
    8,009
    
    
    $
    1,738
 The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.
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ERICO International Corporation and Subsidiaries
 
 Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2005  (Dollars in thousands)
 1. Basis of Presentation
  Nature of Operations , Pushdown Basis of Accounting Required in Certain Limited Circumstances
  Use of Estimates
 Principles of Consolidation
 Recently Issued Accounting Standards: Inventory Costs, an Amendment of ARB No. 43, Chapter 4
 Share-Based Payment Accounting for Stock-Based Compensation Accounting for
Stock Issued to Employees
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ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2005  (Dollars in thousands)
 2. Inventories
  September 30,
    
    
    December 31,2005
    
    
    2004Finished goods
    
    $
    37,672
    
    
    $
    51,439Work in process
    
    
    4,379
    
    
    
    4,166Raw materials
    
    
    10,236
    
    
    
    9,51552,287
    
    
    
    65,120Inventory reserves
    
    
    (5,025
    )
    
    
    (5,520
    )Inventories, net
    
    $
    47,262
    
    
    $
    59,600
 3. Goodwill and Other Intangible Assets
   September 30, 2005GrossCarrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    NetFinite-lived intangible assets:Patents
    
    $
    4,011
    
    
    $
    (1,424
    )
    
    $
    2,587Customer relationships
    
    
    787
    
    
    
    (112
    )
    
    
    675$
    4,798
    
    
    $
    (1,536
    )
    
    $
    3,262Indefinite-lived intangible assets:Trademarks
    
    $
    33,582
    
    
    $
    
    
    
    $
    33,582Goodwill
    
    
    101,847
    
    
    
    
    
    
    
    101,847$
    135,429
    
    
    $
    
    
    
    $
    135,429
 6




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ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2005  (Dollars in thousands)
 3. Goodwill and Other Intangible Assets (continued)
 December 31, 2004GrossCarrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    NetFinite-lived intangible assets:Patents
    
    $
    3,647
    
    
    $
    (1,010
    )
    
    $
    2,637Customer relationships
    
    
    787
    
    
    
    (82
    )
    
    
    705$
    4,434
    
    
    $
    (1,092
    )
    
    $
    3,342Indefinite-lived intangible assets:Trademarks
    
    $
    33,563
    
    
    $
    
    
    
    $
    33,563Goodwill
    
    
    101,303
    
    
    
    
    
    
    
    101,303$
    134,866
    
    
    $
    
    
    
    $
    134,866
  4. Debt and Financing Arrangements
  September 30,
    
    
    December 31,2005
    
    
    20048.875% subordinated notes, due 2012
    
    $
    151,500
    
    
    $
    151,500Other notes, due 2009
    
    
    675
    
    
    
    675$
    152,175
    
    
    $
    152,175
   7




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ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2005  (Dollars in thousands)
 4. Debt and Financing Arrangements (continued)
    5. Income Taxes
   6. Post-Retirement Benefit Plan
  8




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ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2005  (Dollars in thousands)
 6. Post-Retirement Benefit Plan (continued)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Service cost
    
    $
    1
    
    
    $
    29
    
    
    $
    4
    
    
    $
    87Interest cost
    
    
    7
    
    
    
    98
    
    
    
    31
    
    
    
    295Amortization of net gain
    
    
    (106
    )
    
    
    
    
    
    
    (416
    )
    
    
    Curtailment gain
    
    
    
    
    
    
    
    
    
    
    (68
    )
    
    
    Net periodic (income) expense
    
    $
    (98
    )
    
    $
    127
    
    
    $
    (449
    )
    
    $
    382
 Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of 2003
 7. Commitments and Contingencies
  8. Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    2004Net income
    
    $
    7,621
    
    
    $
    3,586
    
    
    $
    16,624
    
    
    $
    11,430Foreign currency translation adjustments
    
    
    178
    
    
    
    1,279
    
    
    
    (4,093
    )
    
    
    (446
    )Comprehensive income
    
    $
    7,799
    
    
    $
    4,865
    
    
    $
    12,531
    
    
    $
    10,984
 9




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ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2005  (Dollars in thousands)
 9. Guarantor and Non-Guarantor Subsidiaries
  Unaudited Condensed Consolidating Balance Sheets
September 30, 2005
 Non-Guarantor
    
    
    GuarantorParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash and cash equivalents
    
    $
    2,291
    
    
    $
    36
    
    
    $
    5,682
    
    
    $
    
    
    
    $
    8,009Trade accounts receivable, net
    
    
    
    
    
    
    35,722
    
    
    
    29,496
    
    
    
    
    
    
    
    65,218Inventories, net
    
    
    
    
    
    
    27,041
    
    
    
    20,221
    
    
    
    
    
    
    
    47,262Other current assets
    
    
    1,285
    
    
    
    2,522
    
    
    
    2,271
    
    
    
    
    
    
    
    6,078Total current assets
    
    
    3,576
    
    
    
    65,321
    
    
    
    57,670
    
    
    
    
    
    
    
    126,567Property, plant and equipment, net
    
    
    173
    
    
    
    33,801
    
    
    
    9,984
    
    
    
    
    
    
    
    43,958Goodwill
    
    
    101,847
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101,847Other intangible assets, net
    
    
    36,844
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,844Investment in and advances to subsidiaries
    
    
    99,274
    
    
    
    
    
    
    
    
    
    
    
    (99,274
    )
    
    
    Other assets
    
    
    6,203
    
    
    
    3,006
    
    
    
    876
    
    
    
    
    
    
    
    10,085Total assets
    
    $
    247,917
    
    
    $
    102,128
    
    
    $
    68,530
    
    
    $
    (99,274
    )
    
    $
    319,301Trade accounts payable
    
    $
    
    
    
    $
    20,229
    
    
    $
    6,507
    
    
    $
    
    
    
    $
    26,736Accrued compensation
    
    
    1,533
    
    
    
    8,175
    
    
    
    5,162
    
    
    
    
    
    
    
    14,870Other current liabilities
    
    
    1,686
    
    
    
    8,433
    
    
    
    10,468
    
    
    
    
    
    
    
    20,587Total current liabilities
    
    
    3,219
    
    
    
    36,837
    
    
    
    22,137
    
    
    
    
    
    
    
    62,193Long-term debt
    
    
    151,500
    
    
    
    675
    
    
    
    
    
    
    
    
    
    
    
    152,175Deferred income taxes
    
    
    22,015
    
    
    
    5,750
    
    
    
    1,317
    
    
    
    
    
    
    
    29,082Intercompany payable
    
    
    
    
    
    
    6,314
    
    
    
    58,066
    
    
    
    (64,380
    )
    
    
    Other long-term liabilities
    
    
    7,860
    
    
    
    6,077
    
    
    
    1,258
    
    
    
    
    
    
    
    15,195Total stockholders net investment
    
    
    63,323
    
    
    
    46,475
    
    
    
    (14,248
    )
    
    
    (34,894
    )
    
    
    60,656Total liabilities and stockholders
net investment
    
    $
    247,917
    
    
    $
    102,128
    
    
    $
    68,530
    
    
    $
    (99,274
    )
    
    $
    319,301
 10




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ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2005  (Dollars in thousands)
 9. Guarantor and Non-Guarantor Subsidiaries ( continued )
 Condensed Consolidating Balance Sheets
December 31, 2004
 Non -Guarantor
    
    
    GuarantorParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash and cash equivalents
    
    $
    398
    
    
    $
    21
    
    
    $
    1,902
    
    
    $
    
    
    
    $
    2,321Trade accounts receivable, net
    
    
    
    
    
    
    24,646
    
    
    
    25,839
    
    
    
    
    
    
    
    50,485Inventories, net
    
    
    
    
    
    
    32,709
    
    
    
    26,891
    
    
    
    
    
    
    
    59,600Other current assets
    
    
    2,801
    
    
    
    2,498
    
    
    
    3,610
    
    
    
    
    
    
    
    8,909Total current assets
    
    
    3,199
    
    
    
    59,874
    
    
    
    58,242
    
    
    
    
    
    
    
    121,315Property, plant and equipment, net
    
    
    224
    
    
    
    38,986
    
    
    
    13,312
    
    
    
    
    
    
    
    52,522Goodwill
    
    
    101,303
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101,303Other intangible assets, net
    
    
    36,905
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,905Investment in and advances to subsidiaries
    
    
    102,684
    
    
    
    
    
    
    
    
    
    
    
    (102,684
    )
    
    
    Other assets
    
    
    6,680
    
    
    
    2,983
    
    
    
    1,013
    
    
    
    
    
    
    
    10,676Total assets
    
    $
    250,995
    
    
    $
    101,843
    
    
    $
    72,567
    
    
    $
    (102,684
    )
    
    $
    322,721Trade accounts payable
    
    $
    
    
    
    $
    15,972
    
    
    $
    10,450
    
    
    $
    
    
    
    $
    26,422Accrued compensation
    
    
    1,555
    
    
    
    6,547
    
    
    
    5,344
    
    
    
    
    
    
    
    13,446Dividend payable
    
    
    15,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000Other current liabilities
    
    
    5,664
    
    
    
    6,184
    
    
    
    10,026
    
    
    
    
    
    
    
    21,874Total current liabilities
    
    
    22,219
    
    
    
    28,703
    
    
    
    25,820
    
    
    
    
    
    
    
    76,742Long-term debt
    
    
    151,500
    
    
    
    675
    
    
    
    
    
    
    
    
    
    
    
    152,175Deferred income taxes
    
    
    22,030
    
    
    
    5,761
    
    
    
    1,103
    
    
    
    
    
    
    
    28,894Intercompany payable
    
    
    
    
    
    
    31,906
    
    
    
    59,444
    
    
    
    (91,350
    )
    
    
    Other long-term liabilities
    
    
    8,547
    
    
    
    6,860
    
    
    
    1,378
    
    
    
    
    
    
    
    16,785Total stockholders net investment
    
    
    46,699
    
    
    
    27,938
    
    
    
    (15,178
    )
    
    
    (11,334
    )
    
    
    48,125Total liabilities and stockholders
net investment
    
    $
    250,995
    
    
    $
    101,843
    
    
    $
    72,567
    
    
    $
    (102,684
    )
    
    $
    322,721
 11




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##### Table of Contents



ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2005  (Dollars in thousands)
 9. Guarantor and Non-Guarantor Subsidiaries ( continued )
 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
 Unaudited Condensed Consolidating Income Statements
Three Months Ended September 30, 2004
 Non-Guarantor
    
    
    GuarantorParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    59,139
    
    
    $
    37,306
    
    
    $
    (4,047
    )
    
    $
    92,398Cost of sales
    
    
    
    
    
    
    39,187
    
    
    
    24,328
    
    
    
    (4,047
    )
    
    
    59,468Gross profit
    
    
    
    
    
    
    19,952
    
    
    
    12,978
    
    
    
    
    
    
    
    32,930Operating expenses
    
    
    2,319
    
    
    
    10,561
    
    
    
    9,476
    
    
    
    
    
    
    
    22,356Operating (loss) income
    
    
    (2,319
    )
    
    
    9,391
    
    
    
    3,502
    
    
    
    
    
    
    
    10,574Interest expense, net
    
    
    3,077
    
    
    
    683
    
    
    
    167
    
    
    
    
    
    
    
    3,927Foreign exchange loss, net
    
    
    
    
    
    
    85
    
    
    
    127
    
    
    
    
    
    
    
    212Other expense
    
    
    500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500(Loss) income before income taxes
and equity income
    
    
    (5,896
    )
    
    
    8,623
    
    
    
    3,208
    
    
    
    
    
    
    
    5,935(Benefit) provision for income taxes
    
    
    (2,374
    )
    
    
    3,443
    
    
    
    1,280
    
    
    
    
    
    
    
    2,349(Loss) income before equity income
    
    
    (3,522
    )
    
    
    5,180
    
    
    
    1,928
    
    
    
    
    
    
    
    3,586Equity income from subsidiaries
    
    
    7,108
    
    
    
    
    
    
    
    
    
    
    
    (7,108
    )
    
    
    Net income
    
    $
    3,586
    
    
    $
    5,180
    
    
    $
    1,928
    
    
    $
    (7,108
    )
    
    $
    3,586
 12




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##### Table of Contents



ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2005  (Dollars in thousands)
 9. Guarantor and Non-Guarantor Subsidiaries ( continued )
 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
 Unaudited Condensed Consolidating Income Statements
Nine Months Ended September 30, 2004
 Non-Guarantor
    
    
    GuarantorParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    169,846
    
    
    $
    110,048
    
    
    $
    (11,934
    )
    
    $
    267,960Cost of sales
    
    
    
    
    
    
    110,826
    
    
    
    72,716
    
    
    
    (11,934
    )
    
    
    171,608Gross profit
    
    
    
    
    
    
    59,020
    
    
    
    37,332
    
    
    
    
    
    
    
    96,352Operating expenses
    
    
    5,131
    
    
    
    30,517
    
    
    
    29,019
    
    
    
    
    
    
    
    64,667Operating (loss) income
    
    
    (5,131
    )

    
    

    28,503
    
    
    

    8,313
    
    

    
    
    
    
    
    31,685Interest expense, net
    
    
    8,689
    
    
    
    2,035
    
    
    
    550
    
    
    
    
    
    
    
    11,274Foreign exchange loss (gain), net
    
    
    
    
    
    
    300
    
    
    
    (481
    )
    
    
    
    
    
    
    (181
    )Other expense
    
    
    1,736
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,736(Loss) income before income taxes
and equity income
    
    
    (15,556
    )
    
    
    26,168
    
    
    
    8,244
    
    
    
    
    
    
    
    18,856(Benefit) provision for income taxes
    
    
    (6,238
    )
    
    
    10,460
    
    
    
    3,204
    
    
    
    
    
    
    
    7,426(Loss) income before equity income
    
    
    (9,318
    )
    
    
    15,708
    
    
    
    5,040
    
    
    
    
    
    
    
    11,430Equity income from subsidiaries
    
    
    20,748
    
    
    
    
    
    
    
    
    
    
    
    (20,748
    )
    
    
    Net income
    
    $
    11,430
    
    
    $
    15,708
    
    
    $
    5,040
    
    
    $
    (20,748
    )
    
    $
    11,430
 13




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##### Table of Contents



ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2005  (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 rates on cash
    
    
    
    
    
    
    
    
    
    
    (78
    )
    
    
    
    
    
    
    (78
    )Net increase 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
 14




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##### Table of Contents



ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2005  (Dollars in thousands)
 9. Guarantor and Non-Guarantor Subsidiaries ( continued )
 Unaudited Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2004
 Non-Guarantor
    
    
    GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating activitiesNet income
    
    $
    11,430
    
    
    $
    15,708
    
    
    $
    5,040
    
    
    $
    (20,748
    )
    
    $
    11,430Depreciation and amortization
    
    
    534
    
    
    
    6,417
    
    
    
    2,098
    
    
    
    
    
    
    
    9,049Other operating activities
    
    
    4,954
    
    
    
    (6,386
    )
    
    
    (9,126
    )
    
    
    
    
    
    
    (10,558
    )Net cash provided by (used in) operating activities
    
    
    16,918
    
    
    
    15,739
    
    
    
    (1,988
    )
    
    
    (20,748
    )
    
    
    9,921Investing activitiesCapital expenditures
    
    
    (2
    )
    
    
    (1,258
    )
    
    
    (764
    )
    
    
    
    
    
    
    (2,024
    )Other investing activities
    
    
    (706
    )
    
    
    3
    
    
    
    240
    
    
    
    
    
    
    
    (463
    )Net cash used in investing activities
    
    
    (708
    )
    
    
    (1,255
    )
    
    
    (524
    )
    
    
    
    
    
    
    (2,487
    )Financing activitiesTransfer to parent company
    
    
    (25,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,000
    )Change in intercompany payables/receivables
    
    
    (7,957
    )
    
    
    (14,487
    )
    
    
    1,696
    
    
    
    20,748
    
    
    
    Net payments on revolving line of credit
    
    
    (26,100
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,100
    )Proceeds from issuance of subordinated debentures
    
    
    121,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    121,500Principal payments on long-term debt
    
    
    (72,950
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (72,950
    )Financing fees paid
    
    
    (5,582
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,582
    )Net cash (used in) provided by financing activities
    
    
    (16,089
    )
    
    
    (14,487
    )
    
    
    1,696
    
    
    
    20,748
    
    
    
    (8,132
    )Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    15Net increase (decrease) in cash and cash equivalents
    
    
    121
    
    
    
    (3
    )
    
    
    (801
    )
    
    
    
    
    
    
    (683
    )Cash and cash equivalents at beginning of period
    
    
    400
    
    
    
    3
    
    
    
    2,018
    
    
    
    
    
    
    
    2,421Cash and cash equivalents at end of period
    
    $
    521
    
    
    $
    
    
    
    $
    1,217
    
    
    $
    
    
    
    $
    1,738
 15




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##### 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 30,2005
    
    2004
    
    2005
    
    2004Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    62.5
    
    
    
    64.4
    
    
    
    64.0
    
    
    
    64.0Gross profit
    
    
    37.5
    
    
    
    35.6
    
    
    
    36.0
    
    
    
    36.0Operating expenses
    
    
    22.5
    
    
    
    24.2
    
    
    
    23.1
    
    
    
    24.1Interest expense, net
    
    
    3.5
    
    
    
    4.3
    
    
    
    3.9
    
    
    
    4.2Foreign exchange loss (gain), net
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    Other expense, net
    
    
    
    
    
    
    0.5
    
    
    
    
    
    
    
    0.6Income before income taxes
    
    
    11.3
    
    
    
    6.4
    
    
    
    8.8
    
    
    
    7.1Provision for income taxes
    
    
    4.0
    
    
    
    2.5
    
    
    
    3.2
    
    
    
    2.8Net income
    
    
    7.3
    
    
    
    3.9
    
    
    
    5.6
    
    
    
    4.3
 Three
Months Ended September 30, 2005 Compared With Three Months Ended
September 30, 2004
 Net sales.
 16




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##### Table of Contents



Gross profit.
 Operating expenses
 Interest expense, net.
 Foreign exchange loss (gain), net
 Other
expense.
 Provision for income taxes.
 Net income.
 Nine
Months Ended September 30, 2005 Compared With Nine Months Ended
September 30, 2004
 Net sales.
 Gross profit.
 Operating expenses
  Interest expense, net.
 17




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##### Table of Contents



Foreign exchange loss (gain), net
 Other expense.
 Provision for income taxes.
 Net income.
 Liquidity and Capital Resources
      18




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##### Table of Contents



Nine Months Ended September 30, 2005 Compared With Nine Months Ended September 30, 2004
      Reconciliation of EBITDA to Net Cash Provided by Operating Activities
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net cash provided by operating activities
    
    $
    14,316
    
    
    $
    3,318
    
    
    $
    23,135
    
    
    $
    9,921Interest expense, net
    
    
    3,658
    
    
    
    3,927
    
    
    
    11,443
    
    
    
    11,274Provision for income taxes
    
    
    4,207
    
    
    
    2,349
    
    
    
    9,318
    
    
    
    7,426Foreign exchange (loss) gain, net
    
    
    (196
    )
    
    
    (212
    )
    
    
    (662
    )
    
    
    181Deferred taxes
    
    
    209
    
    
    
    233
    
    
    
    1,345
    
    
    
    690Amortization of financing fees and
discount on senior subordinated notes
included in interest expense, net
    
    
    (223
    )
    
    
    (287
    )
    
    
    (669
    )
    
    
    (686
    )Net changes in operating assets and
liabilities
    
    
    (3,554
    )
    
    
    4,009
    
    
    
    3,069
    
    
    
    12,109EBITDA
    
    $
    18,417
    
    
    $
    13,337
    
    
    $
    46,979
    
    
    $
    40,915
 19




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##### Table of Contents



Critical Accounting Policies and Estimates
  Recently Issued Accounting Standards
 Inventory Costs, an Amendment of ARB No.
43, Chapter 4
 Share-Based Payment Accounting for Stock-Based Compensation Accounting for
Stock Issued to Employees
 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;
 20




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##### Table of Contents




    
    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.
  21




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
     
 Item 4. Controls and Procedures
   22




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 6. Exhibits
 Exhibit Number
    
    Description of Document10.1
    
    Amendment No. 3 to Second Amended and Restated Multicurrency Credit and Security Agreement,
dated as of December 2, 2002, by and among ERICO International Corporation, ERICO Products, Inc. and ERICO Europa B.V., as
Borrowers, and the Banks that are signatories thereto and LaSalle Bank National
Association, as Administrative Agent, Lead Arranger and Issuing Bank, and General Electric Capital
Corporation, as Co-Lead Arranger and Co-Documentation Agent, National City Bank as Syndication
Agent, and Key Bank National Association, as Documentation Agent (the Second Amended and Restated
Multicurrency Credit and Security Agreement) dated as of December 22, 2004.10.2
    
    Amendment No. 4 to the Second Amended and Restated Multicurrency Credit and Security Agreement,
dated as of June 16, 2005.31.1
    
    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
 23




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##### Table of Contents



SIGNATURES
  ERICO INTERNATIONAL CORPORATIONBy:
    
    /s/ William H. RojName:
    
    William H. RojTitle:
    
    Chairman, Chief Executive Officerand DirectorNovember 2, 2005By:
    
    /s/ Jeffrey R. SteinhilberName:
    
    Jeffrey R. SteinhilberTitle:
    
    Chief Financial Officer and DirectorNovember 2, 2005
 24