##### 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 March 31, 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
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer 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 March 31, 2006 and December 31, 2005
    
    
    2Condensed Consolidated Income Statements for the Three Months Ended
March 31, 2006 and 2005
    
    
    3Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2006 and 2005
    
    
    4Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    20Part II. Other InformationItem 6. Exhibits
    
    
    21Signatures
    
    
    22EX-31.1 302 CEO CERTIFICATIONEX-31.2      302 CFO CERTIFICATIONEX-32    906 CEO AND CFO CERTIFICATION
  1




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##### 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)
 March 31,
    
    December 31,2006
    
    2005(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    4,626
    
    
    $
    19,561Trade accounts receivable, net
    
    
    66,234
    
    
    
    54,802Inventories, net
    
    
    51,780
    
    
    
    46,710Other current assets
    
    
    7,324
    
    
    
    6,758Total current assets
    
    
    129,964
    
    
    
    127,831Property, plant and equipment, net
    
    
    40,924
    
    
    
    42,799Goodwill
    
    
    95,518
    
    
    
    95,524Other intangible assets, net
    
    
    36,675
    
    
    
    36,802Other assets
    
    
    8,095
    
    
    
    8,315Total assets
    
    $
    311,176
    
    
    $
    311,271Liabilities and stockholders net investmentCurrent liabilities:Trade accounts payable
    
    $
    36,985
    
    
    $
    29,157Accrued compensation
    
    
    9,892
    
    
    
    15,699Dividend payable
    
    
    
    
    
    
    11,000Other current liabilities
    
    
    19,699
    
    
    
    20,344Total current liabilities
    
    
    66,576
    
    
    
    76,200Long-term debt
    
    
    142,414
    
    
    
    141,675Deferred income taxes
    
    
    26,362
    
    
    
    26,561Other long-term liabilities
    
    
    13,816
    
    
    
    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
    
    
    64,690
    
    
    
    56,202Accumulated other comprehensive loss
    
    
    (2,682
    )
    
    
    (3,219
    )Total stockholders net investment
    
    
    62,008
    
    
    
    52,983Total liabilities and stockholders net investment
    
    $
    311,176
    
    
    $
    311,271
  The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.
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ERICO International Corporation and Subsidiaries
 
 Condensed Consolidated Income Statements (Unaudited)
 (Dollars in thousands)
 Three Months EndedMarch 31,2006
    
    
    2005Net sales
    
    $
    105,471
    
    
    $
    89,950Cost of sales
    
    
    66,159
    
    
    
    59,001Gross profit
    
    
    39,312
    
    
    
    30,949Operating expenses
    
    
    23,972
    
    
    
    21,619Operating income
    
    
    15,340
    
    
    
    9,330Interest expense, net
    
    
    3,379
    
    
    
    3,880Foreign exchange (gain) loss, net
    
    
    (138
    )
    
    
    191Other income
    
    
    (594
    )
    
    
    Income before income taxes
    
    
    12,693
    
    
    
    5,259Provision for income taxes
    
    
    4,855
    
    
    
    2,049Net income
    
    $
    7,838
    
    
    $
    3,210
 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)
 Three Months EndedMarch 31,2006
    
    
    2005Operating activitiesNet income
    
    $
    7,838
    
    
    $
    3,210Depreciation and amortization
    
    
    2,743
    
    
    
    3,784Other operating activities
    
    
    (16,007
    )
    
    
    (14,895
    )Net cash used in operating activities
    
    
    (5,426
    )
    
    
    (7,901
    )Investing activitiesCapital expenditures
    
    
    (720
    )
    
    
    (699
    )Proceeds from sale of building
    
    
    787
    
    
    
    Other investing activities
    
    
    (61
    )
    
    
    (398
    )Net cash provided by (used in) investing activities
    
    
    6
    
    
    
    (1,097
    )Financing activitiesDividends paid
    
    
    (11,000
    )
    
    
    (15,000
    )Net transfers from Parent Company
    
    
    650
    
    
    
    Net borrowings on revolving line of credit
    
    
    739
    
    
    
    24,964Net cash (used in) provided by financing activities
    
    
    (9,611
    )
    
    
    9,964Effect of exchange rate changes on cash and cash
equivalents
    
    
    96
    
    
    
    5(Decrease) increase in cash and cash equivalents
    
    
    (14,935
    )
    
    
    971Cash and cash equivalents at beginning of period
    
    
    19,561
    
    
    
    2,321Cash and cash equivalents at end of period
    
    $
    4,626
    
    
    $
    3,292
 The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.
 4




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ERICO International Corporation and Subsidiaries
 
 Notes to Unaudited Condensed Consolidated Financial Statements
 March 31, 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
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ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2006  (Dollars in thousands)
 2. Inventories
  March 31,
    
    
    December 31,2006
    
    
    2005Finished goods
    
    $
    42,611
    
    
    $
    38,779Work in process
    
    
    4,755
    
    
    
    4,333Raw materials
    
    
    9,593
    
    
    
    8,66556,959
    
    
    
    51,777Inventory reserves
    
    
    (5,179
    )
    
    
    (5,067
    )Inventories, net
    
    $
    51,780
    
    
    $
    46,710
 3. Goodwill and Other Intangible Assets
   March 31, 2006GrossCarrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    NetFinite-lived intangible assets:Patents
    
    $
    4,131
    
    
    $
    (1,711
    )
    
    $
    2,420Customer relationships
    
    
    787
    
    
    
    (131
    )
    
    
    656$
    4,918
    
    
    $
    (1,842
    )
    
    $
    3,076Indefinite-lived intangible assets:Trademarks
    
    $
    33,599
    
    
    $
    
    
    
    $
    33,599Goodwill
    
    
    95,518
    
    
    
    
    
    
    
    95,518$
    129,117
    
    
    $
    
    
    
    $
    129,117
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ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2006  (Dollars in thousands)
 3. Goodwill and Other Intangible Assets (continued)
 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
  4. Debt and Financing Arrangements
  March 31,
    
    
    December 31,2006
    
    
    2005Revolving credit facility with commercial banks
    
    $
    739
    
    
    $
    8.875% subordinated notes, due 2012
    
    
    141,000
    
    
    
    141,000Other notes, due 2009
    
    
    675
    
    
    
    675$
    142,414
    
    
    $
    141,675
  7




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ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2006  (Dollars in thousands)
 4. Debt and Financing Arrangements (continued)
   5. Income Taxes
   6. Post-Retirement Benefit Plan
  Accounting and Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003
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ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2006  (Dollars in thousands)
 6. Post-Retirement Benefit Plan (continued)
  Three Months EndedMarch 31,2006
    
    
    2005Service cost
    
    $
    1
    
    
    $
    3Interest cost
    
    
    6
    
    
    
    16Amortization of net gain
    
    
    (139
    )
    
    
    (205
    )Curtailment gain
    
    
    
    
    
    
    (68
    )Net periodic benefit income
    
    $
    (132
    )
    
    $
    (254
    )
 7. Commitments and Contingencies
  8. Comprehensive Income
  Three Months EndedMarch 31,2006
    
    
    2005Net income
    
    $
    7,838
    
    
    $
    3,210Foreign currency translation adjustments
    
    
    537
    
    
    
    (1,628
    )Comprehensive income
    
    $
    8,375
    
    
    $
    1,582
 9. Other Income
  9




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ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2006  (Dollars in thousands)
 10. Guarantor and Non-Guarantor Subsidiaries
  Unaudited Condensed Consolidating Balance Sheets
March 31, 2006
 Non-Guarantor
    
    
    GuarantorParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash and cash equivalents
    
    $
    53
    
    
    $
    34
    
    
    $
    4,539
    
    
    $
    
    
    
    $
    4,626Trade accounts receivable, net
    
    
    
    
    
    
    35,462
    
    
    
    30,772
    
    
    
    
    
    
    
    66,234Inventories, net
    
    
    
    
    
    
    30,001
    
    
    
    21,779
    
    
    
    
    
    
    
    51,780Other current assets
    
    
    1,853
    
    
    
    2,490
    
    
    
    2,981
    
    
    
    
    
    
    
    7,324Total current assets
    
    
    1,906
    
    
    
    67,987
    
    
    
    60,071
    
    
    
    
    
    
    
    129,964Property, plant and equipment, net
    
    
    185
    
    
    
    31,475
    
    
    
    9,264
    
    
    
    
    
    
    
    40,924Goodwill
    
    
    95,518
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95,518Other intangible assets, net
    
    
    36,675
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,675Investment in and advances to subsidiaries
    
    
    98,563
    
    
    
    
    
    
    
    
    
    
    
    (98,563
    )
    
    
    Other assets
    
    
    5,598
    
    
    
    2,346
    
    
    
    151
    
    
    
    
    
    
    
    8,095Total assets
    
    $
    238,445
    
    
    $
    101,808
    
    
    $
    69,486
    
    
    $
    (98,563
    )
    
    $
    311,176Trade accounts payable
    
    $
    (83
    )
    
    $
    23,492
    
    
    $
    13,576
    
    
    $
    
    
    
    $
    36,985Accrued compensation
    
    
    633
    
    
    
    5,074
    
    
    
    4,185
    
    
    
    
    
    
    
    9,892Other current liabilities
    
    
    2,092
    
    
    
    8,746
    
    
    
    8,861
    
    
    
    
    
    
    
    19,699Total current liabilities
    
    
    2,642
    
    
    
    37,312
    
    
    
    26,622
    
    
    
    
    
    
    
    66,576Long-term debt
    
    
    141,739
    
    
    
    675
    
    
    
    
    
    
    
    
    
    
    
    142,414Deferred income taxes
    
    
    23,196
    
    
    
    2,774
    
    
    
    392
    
    
    
    
    
    
    
    26,362Intercompany
balance
    
    
    
    
    
    
    (9,441
    )
    
    
    49,714
    
    
    
    (40,273
    )
    
    
    Other long-term liabilities
    
    
    6,178
    
    
    
    5,708
    
    
    
    1,930
    
    
    
    
    
    
    
    13,816Total stockholders net investment
    
    
    64,690
    
    
    
    64,780
    
    
    
    (9,172
    )
    
    
    (58,290
    )
    
    
    62,008Total liabilities and stockholders
net investment
    
    $
    238,445
    
    
    $
    101,808
    
    
    $
    69,486
    
    
    $
    (98,563
    )
    
    $
    311,176
 10




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##### Table of Contents



ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2006  (Dollars in thousands)
 10. 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
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##### Table of Contents



ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2006  (Dollars in thousands)
 10. Guarantor and Non-Guarantor Subsidiaries ( continued )
 Unaudited Condensed Consolidating Income Statements
Three Months Ended March 31, 2006
 Non-Guarantor
    
    
    GuarantorParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    68,620
    
    
    $
    43,784
    
    
    $
    (6,933
    )
    
    $
    105,471Cost of sales
    
    
    
    
    
    
    44,718
    
    
    
    28,374
    
    
    
    (6,933
    )
    
    
    66,159Gross profit
    
    
    
    
    
    
    23,902
    
    
    
    15,410
    
    
    
    
    
    
    
    39,312Operating expenses
    
    
    1,857
    
    
    
    12,041
    
    
    
    10,074
    
    
    
    
    
    
    
    23,972Operating (loss) income
    
    
    (1,857
    )
    
    
    11,861
    
    
    
    5,336
    
    
    
    
    
    
    
    15,340Interest expense, net
    
    
    2,699
    
    
    
    683
    
    
    
    (3
    )
    
    
    
    
    
    
    3,379Foreign exchange gain, net
    
    
    
    
    
    
    (1
    )
    
    
    (137
    )
    
    
    
    
    
    
    (138
    )Other income
    
    
    (47
    )
    
    
    
    
    
    
    (547
    )
    
    
    
    
    
    
    (594
    )(Loss) income before income taxes
and equity income
    
    
    (4,509
    )
    
    
    11,179
    
    
    
    6,023
    
    
    
    
    
    
    
    12,693(Benefit) provision for income taxes
    
    
    (1,408
    )
    
    
    4,062
    
    
    
    2,201
    
    
    
    
    
    
    
    4,855(Loss) income before equity income
    
    
    (3,101
    )
    
    
    7,117
    
    
    
    3,822
    
    
    
    
    
    
    
    7,838Equity income from subsidiaries
    
    
    10,939
    
    
    
    
    
    
    
    
    
    
    
    (10,939
    )
    
    
    Net income
    
    $
    7,838
    
    
    $
    7,117
    
    
    $
    3,822
    
    
    $
    (10,939
    )
    
    $
    7,838
 Unaudited Condensed Consolidating Income Statements
Three Months Ended March 31, 2005
 Non-Guarantor
    
    
    GuarantorParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    56,418
    
    
    $
    39,063
    
    
    $
    (5,531
    )
    
    $
    89,950Cost of sales
    
    
    
    
    
    
    38,221
    
    
    
    26,311
    
    
    
    (5,531
    )
    
    
    59,001Gross profit
    
    
    
    
    
    
    18,197
    
    
    
    12,752
    
    
    
    
    
    
    
    30,949Operating expenses
    
    
    1,044
    
    
    
    10,626
    
    
    
    9,949
    
    
    
    
    
    
    
    21,619Operating (loss) income
    
    
    (1,044
    )
    
    
    7,571
    
    
    
    2,803
    
    
    
    
    
    
    
    9,330Interest expense, net
    
    
    3,037
    
    
    
    681
    
    
    
    162
    
    
    
    
    
    
    
    3,880Foreign exchange loss, net
    
    
    1
    
    
    
    111
    
    
    
    79
    
    
    
    
    
    
    
    191(Loss) income before income taxes
and equity income
    
    
    (4,082
    )
    
    
    6,779
    
    
    
    2,562
    
    
    
    
    
    
    
    5,259(Benefit) provision for income taxes
    
    
    (1,611
    )
    
    
    2,673
    
    
    
    987
    
    
    
    
    
    
    
    2,049(Loss) income before equity income
    
    
    (2,471
    )
    
    
    4,106
    
    
    
    1,575
    
    
    
    
    
    
    
    3,210Equity income from subsidiaries
    
    
    5,681
    
    
    
    
    
    
    
    
    
    
    
    (5,681
    )
    
    
    Net income
    
    $
    3,210
    
    
    $
    4,106
    
    
    $
    1,575
    
    
    $
    (5,681
    )
    
    $
    3,210
 12




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##### Table of Contents



ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2006  (Dollars in thousands)
 10. Guarantor and Non-Guarantor Subsidiaries ( continued )
 Unaudited Condensed Consolidating Statements of Cash Flows
Three Months Ended March 31, 2006
 Non-Guarantor
    
    
    GuarantorParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating activitiesNet income
    
    $
    7,838
    
    
    $
    7,117
    
    
    $
    3,822
    
    
    $
    (10,939
    )
    
    $
    7,838Depreciation and amortization
    
    
    171
    
    
    
    2,095
    
    
    
    477
    
    
    
    
    
    
    
    2,743Other operating activities
    
    
    (3,272
    )
    
    
    (9,278
    )
    
    
    (3,457
    )
    
    
    
    
    
    
    (16,007
    )Net cash provided by (used in) operating activities
    
    
    4,737
    
    
    
    (66
    )
    
    
    842
    
    
    
    (10,939
    )
    
    
    (5,426
    )Investing activitiesCapital expenditures
    
    
    (58
    )
    
    
    (336
    )
    
    
    (326
    )
    
    
    
    
    
    
    (720
    )Proceeds from sale of building
    
    
    
    
    
    
    
    
    
    
    787
    
    
    
    
    
    
    
    787Other investing activities
    
    
    (71
    )
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    (61
    )Net cash (used in) provided by investing activities
    
    
    (129
    )
    
    
    (326
    )
    
    
    461
    
    
    
    
    
    
    
    6Financing activitiesDividends paid
    
    
    (11,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,000
    )Net transfers from Parent Company
    
    
    650
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    650Change in intercompany payables/receivables
    
    
    (4,379
    )
    
    
    409
    
    
    
    (6,969
    )
    
    
    10,939
    
    
    
    Net borrowings on revolving line of credit
    
    
    739
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    739Net cash (used in) provided by financing activities
    
    
    (13,990
    )
    
    
    409
    
    
    
    (6,969
    )
    
    
    10,939
    
    
    
    (9,611
    )Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    
    
    
    
    96Net (decrease) increase in cash and cash equivalents
    
    
    (9,382
    )
    
    
    17
    
    
    
    (5,570
    )
    
    
    
    
    
    
    (14,935
    )Cash and cash equivalents at beginning of period
    
    
    9,435
    
    
    
    17
    
    
    
    10,109
    
    
    
    
    
    
    
    19,561Cash and cash equivalents at end of period
    
    $
    53
    
    
    $
    34
    
    
    $
    4,539
    
    
    $
    
    
    
    $
    4,626
 13




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##### Table of Contents



ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2006  (Dollars in thousands)
 10. Guarantor and Non-Guarantor Subsidiaries ( continued )
 Unaudited Condensed Consolidating Statements of Cash Flows
Three Months Ended March 31, 2005
 Non-Guarantor
    
    
    GuarantorParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating activitiesNet income
    
    $
    3,210
    
    
    $
    4,106
    
    
    $
    1,575
    
    
    $
    (5,681
    )
    
    $
    3,210Depreciation and amortization
    
    
    164
    
    
    
    2,135
    
    
    
    1,485
    
    
    
    
    
    
    
    3,784Other operating activities
    
    
    (3,213
    )
    
    
    (4,268
    )
    
    
    (7,414
    )
    
    
    
    
    
    
    (14,895
    )Net cash provided by (used in) operating activities
    
    
    161
    
    
    
    1,973
    
    
    
    (4,354
    )
    
    
    (5,681
    )
    
    
    (7,901
    )Investing activitiesCapital expenditures
    
    
    (2
    )
    
    
    (363
    )
    
    
    (334
    )
    
    
    
    
    
    
    (699
    )Other investing activities
    
    
    (402
    )
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    (398
    )Net cash used in investing activities
    
    
    (404
    )
    
    
    (363
    )
    
    
    (330
    )
    
    
    
    
    
    
    (1,097
    )Financing activitiesDividends paid
    
    
    (15,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,000
    )Change in intercompany payables/receivables
    
    
    (8,768
    )
    
    
    (1,566
    )
    
    
    4,653
    
    
    
    5,681
    
    
    
    Net borrowings on revolving line of credit
    
    
    24,964
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,964Net cash (used in) provided by financing activities
    
    
    1,196
    
    
    
    (1,566
    )
    
    
    4,653
    
    
    
    5,681
    
    
    
    9,964Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    5Net increase (decrease) in cash and cash equivalents
    
    
    953
    
    
    
    44
    
    
    
    (26
    )
    
    
    
    
    
    
    971Cash and cash equivalents at beginning of period
    
    
    398
    
    
    
    21
    
    
    
    1,902
    
    
    
    
    
    
    
    2,321Cash and cash equivalents at end of period
    
    $
    1,351
    
    
    $
    65
    
    
    $
    1,876
    
    
    $
    
    
    
    $
    3,292
 14




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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 EndedMarch 31,2006
    
    2005Net sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    62.7
    
    
    
    65.6Gross profit
    
    
    37.3
    
    
    
    34.4Operating expenses
    
    
    22.7
    
    
    
    24.0Interest expense, net
    
    
    3.2
    
    
    
    4.3Foreign exchange (gain) loss, net
    
    
    (0.1
    )
    
    
    0.2Other income
    
    
    (0.5
    )
    
    
    Income before income taxes
    
    
    12.0
    
    
    
    5.9Provision for income taxes
    
    
    4.6
    
    
    
    2.3Net income
    
    
    7.4
    
    
    
    3.6
 15




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##### Table of Contents



Three Months Ended March 31, 2006 Compared With Three Months Ended March 31, 2005
 Net sales.
 Gross profit.
 Operating expenses
  Interest expense, net.
 Foreign exchange loss, net
 Other Income.
 Provision for income taxes.
 Net income.
 Liquidity and Capital Resources
   16




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##### Table of Contents



Three Months Ended March 31, 2006 Compared With Three Months Ended March 31, 2005
      Reconciliation of EBITDA to Net Cash Provided by Operating Activities
  17




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##### Table of Contents



Three Months EndedMarch 31,2006
    
    
    2005Net cash used in operating activities
    
    $
    (5,426
    )
    
    $
    (7,901
    )Interest expense, net
    
    
    3,379
    
    
    
    3,880Provision for income taxes
    
    
    4,855
    
    
    
    2,049Foreign exchange gain (loss), net
    
    
    138
    
    
    
    (191
    )Deferred taxes
    
    
    192
    
    
    
    219Amortization of financing fees and discount on
Subordinated Notes included in interest
expense, net
    
    
    (223
    )
    
    
    (223
    )Net changes in operating assets and liabilities
    
    
    15,900
    
    
    
    15,090EBITDA
    
    $
    18,815
    
    
    $
    12,923
 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
 18




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##### 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.
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
    19




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##### Table of Contents



Item 4. Controls and Procedures
   20




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 6. Exhibits
 Exhibit Number
    
    Description of Document31.1
    
    Form of Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer31.2
    
    Form of Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer32
    
    Form of Section 1350 Certification of Chief Financial Officer and Chief Executive Officer
 21




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##### Table of Contents



SIGNATURES
  ERICO INTERNATIONAL CORPORATIONBy:
    
    /s/ William H. RojName:
    
    William H. RojTitle:
    
    Chairman, Chief Executive Officer and DirectorMay 9, 2006By:
    
    /s/ Jeffrey R. SteinhilberName:
    
    Jeffrey R. SteinhilberTitle:
    
    Chief Financial Officer and DirectorMay 9, 2006
 22