##### 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 June 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
(State or Other Jurisdiction of
Incorporation or Organization)
    
    34-0201460
(I.R.S. Employer
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




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##### 



INDEX TO QUARTERLY REPORT
 Page No.Part I.
    
    Financial InformationItem 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005
    
    
    2Condensed Consolidated Income Statements for the Three and Six Months Ended June 30, 2006 and 2005
    
    
    3Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 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
    
    
    16Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4.
    
    Controls and Procedures
    
    
    22Part II.
    
    Other InformationItem 6.
    
    Exhibits
    
    
    23Signatures
    
    
    24EX-31.1EX-31.2EX-32
  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)
 June 30,
    
    December 31,2006
    
    2005(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    17,144
    
    
    $
    19,561Trade accounts receivable, net
    
    
    75,607
    
    
    
    54,802Inventories, net
    
    
    55,959
    
    
    
    46,710Other current assets
    
    
    7,352
    
    
    
    6,758Total current assets
    
    
    156,062
    
    
    
    127,831Property, plant and equipment, net
    
    
    39,333
    
    
    
    42,799Goodwill
    
    
    95,518
    
    
    
    95,524Other intangible assets, net
    
    
    36,609
    
    
    
    36,802Other assets
    
    
    7,996
    
    
    
    8,315Total assets
    
    $
    335,518
    
    
    $
    311,271Liabilities and stockholders net investmentCurrent liabilities:Trade accounts payable
    
    $
    40,581
    
    
    $
    29,157Accrued compensation
    
    
    14,715
    
    
    
    15,699Dividend payable
    
    
    
    
    
    
    11,000Other current liabilities
    
    
    25,886
    
    
    
    20,344Total current liabilities
    
    
    81,182
    
    
    
    76,200Long-term debt
    
    
    141,675
    
    
    
    141,675Deferred income taxes
    
    
    26,164
    
    
    
    26,561Other long-term liabilities
    
    
    13,626
    
    
    
    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
    
    
    74,003
    
    
    
    56,202Accumulated other comprehensive loss
    
    
    (1,132
    )
    
    
    (3,219
    )Total stockholders net investment
    
    
    72,871
    
    
    
    52,983Total liabilities and stockholders net investment
    
    $
    335,518
    
    
    $
    311,271
  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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    117,150
    
    
    $
    100,128
    
    
    $
    222,621
    
    
    $
    190,078Cost of sales
    
    
    73,059
    
    
    
    64,089
    
    
    
    139,218
    
    
    
    123,090Gross profit
    
    
    44,091
    
    
    
    36,039
    
    
    
    83,403
    
    
    
    66,988Operating expenses
    
    
    25,417
    
    
    
    23,004
    
    
    
    49,389
    
    
    
    44,623Operating income
    
    
    18,674
    
    
    
    13,035
    
    
    
    34,014
    
    
    
    22,365Interest expense, net
    
    
    3,348
    
    
    
    3,905
    
    
    
    6,727
    
    
    
    7,785Foreign exchange loss, net
    
    
    200
    
    
    
    275
    
    
    
    62
    
    
    
    466Other income
    
    
    
    
    
    
    
    
    
    
    (594
    )
    
    
    Income before income taxes
    
    
    15,126
    
    
    
    8,855
    
    
    
    27,819
    
    
    
    14,114Provision for income taxes
    
    
    5,813
    
    
    
    3,062
    
    
    
    10,668
    
    
    
    5,111Net income
    
    $
    9,313
    
    
    $
    5,793
    
    
    $
    17,151
    
    
    $
    9,003
 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)
 Six Months EndedJune 30,2006
    
    
    2005Operating activitiesNet income
    
    $
    17,151
    
    
    $
    9,003Gain on sale of building
    
    
    (594
    )
    
    
    Depreciation and amortization
    
    
    5,489
    
    
    
    6,664Other operating activities
    
    
    (13,507
    )
    
    
    (6,848
    )Net cash provided by operating activities
    
    
    8,539
    
    
    
    8,819Investing activitiesCapital expenditures
    
    
    (1,498
    )
    
    
    (1,175
    )Proceeds from sale of building
    
    
    787
    
    
    
    Other investing activities
    
    
    (91
    )
    
    
    (624
    )Net cash used in investing activities
    
    
    (802
    )
    
    
    (1,799
    )Financing activitiesDividends paid
    
    
    (11,000
    )
    
    
    (15,000
    )Net transfers from Parent Company
    
    
    650
    
    
    
    Net borrowings on revolving line of credit
    
    
    
    
    
    
    8,000Net cash used in financing activities
    
    
    (10,350
    )
    
    
    (7,000
    )Effect of exchange rate changes on cash and cash
equivalents
    
    
    196
    
    
    
    (47
    )Decrease in cash and cash equivalents
    
    
    (2,417
    )
    
    
    (27
    )Cash and cash equivalents at beginning of period
    
    
    19,561
    
    
    
    2,321Cash and cash equivalents at end of period
    
    $
    17,144
    
    
    $
    2,294
 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
June 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




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ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2006  (Dollars in thousands)
 2. Inventories
  June 30,
    
    
    December 31,2006
    
    
    2005Finished goods
    
    $
    46,534
    
    
    $
    38,779Work in process
    
    
    4,508
    
    
    
    4,333Raw materials
    
    
    10,617
    
    
    
    8,66561,659
    
    
    
    51,777Inventory reserves
    
    
    (5,700
    )
    
    
    (5,067
    )Inventories, net
    
    $
    55,959
    
    
    $
    46,710
 3. Goodwill and Other Intangible Assets
 ® ® ® ® ® ® ®
   June 30, 2006GrossCarrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    NetFinite-lived intangible assets:Patents
    
    $
    4,206
    
    
    $
    (1,853
    )
    
    $
    2,353Customer relationships
    
    
    787
    
    
    
    (141
    )
    
    
    646$
    4,993
    
    
    $
    (1,994
    )
    
    $
    2,999Indefinite-lived intangible assets:Trademarks
    
    $
    33,610
    
    
    $
    
    
    
    $
    33,610Goodwill
    
    
    95,518
    
    
    
    
    
    
    
    95,518$
    129,128
    
    
    $
    
    
    
    $
    129,128
 6




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ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 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
  June 30,
    
    
    December 31,2006
    
    
    20058.875% subordinated notes, due 2012
    
    $
    141,000
    
    
    $
    141,000Other notes, due 2009
    
    
    675
    
    
    
    675$
    141,675
    
    
    $
    141,675
  7




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ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 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
 8




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ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2006  (Dollars in thousands)
 6. Post-Retirement Benefit Plan (continued)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    1
    
    
    $
    1
    
    
    $
    2
    
    
    $
    3Interest cost
    
    
    6
    
    
    
    7
    
    
    
    12
    
    
    
    24Amortization of net gain
    
    
    (138
    )
    
    
    (106
    )
    
    
    (277
    )
    
    
    (310
    )Curtailment gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (68
    )Net periodic benefit income
    
    $
    (131
    )
    
    $
    (98
    )
    
    $
    (263
    )
    
    $
    (351
    )
 7. Commitments and Contingencies
  8. Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income
    
    $
    9,313
    
    
    $
    5,793
    
    
    $
    17,151
    
    
    $
    9,003Foreign currency translation adjustments
    
    
    1,550
    
    
    
    (2,643
    )
    
    
    2,087
    
    
    
    (4,271
    )Comprehensive income
    
    $
    10,863
    
    
    $
    3,150
    
    
    $
    19,238
    
    
    $
    4,732
 9




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ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2006  (Dollars in thousands)
 9. Guarantor and Non-Guarantor Subsidiaries
  Unaudited Condensed Consolidating Balance Sheets
June 30, 2006
 Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash and cash equivalents
    
    $
    10,411
    
    
    $
    20
    
    
    $
    6,713
    
    
    $
    
    
    
    $
    17,144Trade accounts receivable, net
    
    
    
    
    
    
    38,727
    
    
    
    36,880
    
    
    
    
    
    
    
    75,607Inventories, net
    
    
    
    
    
    
    31,635
    
    
    
    24,324
    
    
    
    
    
    
    
    55,959Other current assets
    
    
    2,080
    
    
    
    2,489
    
    
    
    2,783
    
    
    
    
    
    
    
    7,352Total current assets
    
    
    12,491
    
    
    
    72,871
    
    
    
    70,700
    
    
    
    
    
    
    
    156,062Property, plant and equipment, net
    
    
    158
    
    
    
    29,877
    
    
    
    9,298
    
    
    
    
    
    
    
    39,333Goodwill
    
    
    95,518
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95,518Other intangible assets, net
    
    
    36,609
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,609Investment in and advances to subsidiaries
    
    
    100,919
    
    
    
    
    
    
    
    
    
    
    
    (100,919
    )
    
    
    Other assets
    
    
    5,494
    
    
    
    2,346
    
    
    
    156
    
    
    
    
    
    
    
    7,996Total assets
    
    $
    251,189
    
    
    $
    105,094
    
    
    $
    80,154
    
    
    $
    (100,919
    )
    
    $
    335,518Trade accounts payable
    
    $
    141
    
    
    $
    24,271
    
    
    $
    16,169
    
    
    $
    
    
    
    $
    40,581Accrued compensation
    
    
    1,278
    
    
    
    8,338
    
    
    
    5,099
    
    
    
    
    
    
    
    14,715Other current liabilities
    
    
    5,699
    
    
    
    8,777
    
    
    
    11,410
    
    
    
    
    
    
    
    25,886Total current liabilities
    
    
    7,118
    
    
    
    41,386
    
    
    
    32,678
    
    
    
    
    
    
    
    81,182Long-term debt
    
    
    141,000
    
    
    
    675
    
    
    
    
    
    
    
    
    
    
    
    141,675Deferred income taxes
    
    
    23,003
    
    
    
    2,774
    
    
    
    387
    
    
    
    
    
    
    
    26,164Intercompany balance
    
    
    
    
    
    
    (18,728
    )
    
    
    48,606
    
    
    
    (29,878
    )
    
    
    Other long-term liabilities
    
    
    6,065
    
    
    
    5,430
    
    
    
    2,131
    
    
    
    
    
    
    
    13,626Total stockholders net investment
    
    
    74,003
    
    
    
    73,557
    
    
    
    (3,648
    )
    
    
    (71,041
    )
    
    
    72,871Total liabilities and stockholders
net investment
    
    $
    251,189
    
    
    $
    105,094
    
    
    $
    80,154
    
    
    $
    (100,919
    )
    
    $
    335,518
 10




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ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2006  (Dollars in thousands)
 9. Guarantor and Non-Guarantor Subsidiaries ( continued )
 Condensed Consolidating Balance Sheets
December 31, 2005
 Guarantor
    
    
    Non-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
June 30, 2006  (Dollars in thousands)
 9. Guarantor and Non-Guarantor Subsidiaries ( continued )
 Unaudited Condensed Consolidating Income Statements
Three Months Ended June 30, 2006
 Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    74,202
    
    
    $
    49,615
    
    
    $
    (6,667
    )
    
    $
    117,150Cost of sales
    
    
    
    
    
    
    47,241
    
    
    
    32,485
    
    
    
    (6,667
    )
    
    
    73,059Gross profit
    
    
    
    
    
    
    26,961
    
    
    
    17,130
    
    
    
    
    
    
    
    44,091Operating expenses
    
    
    2,554
    
    
    
    12,412
    
    
    
    10,451
    
    
    
    
    
    
    
    25,417Operating (loss) income
    
    
    (2,554
    )
    
    
    14,549
    
    
    
    6,679
    
    
    
    
    
    
    
    18,674Interest expense (income), net
    
    
    2,698
    
    
    
    685
    
    
    
    (35
    )
    
    
    
    
    
    
    3,348Foreign exchange (gain) loss, net
    
    
    
    
    
    
    (3
    )
    
    
    203
    
    
    
    
    
    
    
    200(Loss) income before income taxes
and equity income
    
    
    (5,252
    )
    
    
    13,867
    
    
    
    6,511
    
    
    
    
    
    
    
    15,126(Benefit) provision for income taxes
    
    
    (1,814
    )
    
    
    5,090
    
    
    
    2,537
    
    
    
    
    
    
    
    5,813(Loss) income before equity income
    
    
    (3,438
    )
    
    
    8,777
    
    
    
    3,974
    
    
    
    
    
    
    
    9,313Equity income from subsidiaries
    
    
    12,751
    
    
    
    
    
    
    
    
    
    
    
    (12,751
    )
    
    
    Net income
    
    $
    9,313
    
    
    $
    8,777
    
    
    $
    3,974
    
    
    $
    (12,751
    )
    
    $
    9,313
 Unaudited Condensed Consolidating Income Statements  Three Months Ended June 30, 2005
 Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    64,671
    
    
    $
    40,037
    
    
    $
    (4,580
    )
    
    $
    100,128Cost of sales
    
    
    
    
    
    
    41,503
    
    
    
    27,166
    
    
    
    (4,580
    )
    
    
    64,089Gross profit
    
    
    
    
    
    
    23,168
    
    
    
    12,871
    
    
    
    
    
    
    
    36,039Operating expenses
    
    
    1,760
    
    
    
    11,095
    
    
    
    10,149
    
    
    
    
    
    
    
    23,004Operating (loss) income
    
    
    (1,760
    )
    
    
    12,073
    
    
    
    2,722
    
    
    
    
    
    
    
    13,035Interest expense, net
    
    
    3,048
    
    
    
    682
    
    
    
    175
    
    
    
    
    
    
    
    3,905Foreign exchange loss, net
    
    
    
    
    
    
    64
    
    
    
    211
    
    
    
    
    
    
    
    275(Loss) income before income taxes
and equity income
    
    
    (4,808
    )
    
    
    11,327
    
    
    
    2,336
    
    
    
    
    
    
    
    8,855(Benefit) provision for income taxes
    
    
    (2,318
    )
    
    
    4,464
    
    
    
    916
    
    
    
    
    
    
    
    3,062(Loss) income before equity income
    
    
    (2,490
    )
    
    
    6,863
    
    
    
    1,420
    
    
    
    
    
    
    
    5,793Equity income from subsidiaries
    
    
    8,283
    
    
    
    
    
    
    
    
    
    
    
    (8,283
    )
    
    
    Net income
    
    $
    5,793
    
    
    $
    6,863
    
    
    $
    1,420
    
    
    $
    (8,283
    )
    
    $
    5,793
 12




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##### Table of Contents



ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2006  (Dollars in thousands)
 9. Guarantor and Non-Guarantor Subsidiaries ( continued )
 Unaudited Condensed Consolidating Income Statements
Six Months Ended June 30, 2006
 Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    142,822
    
    
    $
    93,399
    
    
    $
    (13,600
    )
    
    $
    222,621Cost of sales
    
    
    
    
    
    
    91,959
    
    
    
    60,859
    
    
    
    (13,600
    )
    
    
    139,218Gross profit
    
    
    
    
    
    
    50,863
    
    
    
    32,540
    
    
    
    
    
    
    
    83,403Operating expenses
    
    
    4,411
    
    
    
    24,453
    
    
    
    20,525
    
    
    
    
    
    
    
    49,389Operating (loss) income
    
    
    (4,411
    )
    
    
    26,410
    
    
    
    12,015
    
    
    
    
    
    
    
    34,014Interest expense (income), net
    
    
    5,397
    
    
    
    1,368
    
    
    
    (38
    )
    
    
    
    
    
    
    6,727Foreign exchange (gain) loss, net
    
    
    
    
    
    
    (4
    )
    
    
    66
    
    
    
    
    
    
    
    62Other income
    
    
    (47
    )
    
    
    
    
    
    
    (547
    )
    
    
    
    
    
    
    (594
    )(Loss) income before income taxes
and equity income
    
    
    (9,761
    )
    
    
    25,046
    
    
    
    12,534
    
    
    
    
    
    
    
    27,819(Benefit) provision for income taxes
    
    
    (3,222
    )
    
    
    9,152
    
    
    
    4,738
    
    
    
    
    
    
    
    10,668(Loss) income before equity income
    
    
    (6,539
    )
    
    
    15,894
    
    
    
    7,796
    
    
    
    
    
    
    
    17,151Equity income from subsidiaries
    
    
    23,690
    
    
    
    
    
    
    
    
    
    
    
    (23,690
    )
    
    
    Net income
    
    $
    17,151
    
    
    $
    15,894
    
    
    $
    7,796
    
    
    $
    (23,690
    )
    
    $
    17,151
 Unaudited Condensed Consolidating Income Statements
Six Months Ended June 30, 2005
 Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    121,089
    
    
    $
    79,100
    
    
    $
    (10,111
    )
    
    $
    190,078Cost of sales
    
    
    
    
    
    
    79,724
    
    
    
    53,477
    
    
    
    (10,111
    )
    
    
    123,090Gross profit
    
    
    
    
    
    
    41,365
    
    
    
    25,623
    
    
    
    
    
    
    
    66,988Operating expenses
    
    
    2,804
    
    
    
    21,721
    
    
    
    20,098
    
    
    
    
    
    
    
    44,623Operating (loss) income
    
    
    (2,804
    )
    
    
    19,644
    
    
    
    5,525
    
    
    
    
    
    
    
    22,365Interest expense, net
    
    
    6,085
    
    
    
    1,363
    
    
    
    337
    
    
    
    
    
    
    
    7,785Foreign exchange loss, net
    
    
    1
    
    
    
    175
    
    
    
    290
    
    
    
    
    
    
    
    466(Loss) income before income taxes
and equity income
    
    
    (8,890
    )
    
    
    18,106
    
    
    
    4,898
    
    
    
    
    
    
    
    14,114(Benefit) provision for income taxes
    
    
    (3,929
    )
    
    
    7,137
    
    
    
    1,903
    
    
    
    
    
    
    
    5,111(Loss) income before equity income
    
    
    (4,961
    )
    
    
    10,969
    
    
    
    2,995
    
    
    
    
    
    
    
    9,003Equity income from subsidiaries
    
    
    13,964
    
    
    
    
    
    
    
    
    
    
    
    (13,964
    )
    
    
    Net income
    
    $
    9,003
    
    
    $
    10,969
    
    
    $
    2,995
    
    
    $
    (13,964
    )
    
    $
    9,003
 13




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##### Table of Contents



ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2006  (Dollars in thousands)
 9. Guarantor and Non-Guarantor Subsidiaries ( continued )
 Unaudited Condensed Consolidating Statements of Cash Flows
Six Months Ended June 30, 2006
 Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating activitiesNet income
    
    $
    17,151
    
    
    $
    15,894
    
    
    $
    7,796
    
    
    $
    (23,690
    )
    
    $
    17,151Gain on sale of building
    
    
    (47
    )
    
    
    
    
    
    
    (547
    )
    
    
    
    
    
    
    (594
    )Depreciation and amortization
    
    
    349
    
    
    
    4,213
    
    
    
    927
    
    
    
    
    
    
    
    5,489Other operating activities
    
    
    291
    
    
    
    (9,763
    )
    
    
    (4,035
    )
    
    
    
    
    
    
    (13,507
    )Net cash provided by (used in) operating activities
    
    
    17,744
    
    
    
    10,344
    
    
    
    4,141
    
    
    
    (23,690
    )
    
    
    8,539Investing activitiesCapital expenditures
    
    
    (58
    )
    
    
    (909
    )
    
    
    (531
    )
    
    
    
    
    
    
    (1,498
    )Proceeds from sale of building
    
    
    
    
    
    
    
    
    
    
    787
    
    
    
    
    
    
    
    787Other investing activities
    
    
    (157
    )
    
    
    62
    
    
    
    4
    
    
    
    
    
    
    
    (91
    )Net cash used in investing activities
    
    
    (215
    )
    
    
    (847
    )
    
    
    260
    
    
    
    
    
    
    
    (802
    )Financing activitiesDividends paid
    
    
    (11,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,000
    )Change in intercompany payables/receivables
    
    
    (6,203
    )
    
    
    (9,494
    )
    
    
    (7,993
    )
    
    
    23,690
    
    
    
    Net transfers from Parent Company
    
    
    650
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    650Net cash (used in) provided by financing activities
    
    
    (16,553
    )
    
    
    (9,494
    )
    
    
    (7,993
    )
    
    
    23,690
    
    
    
    (10,350
    )Effect of exchange rate changes on cash
    
    
    
    
    
    
    
    
    
    
    196
    
    
    
    
    
    
    
    196Net increase (decrease) in cash and cash equivalents
    
    
    976
    
    
    
    3
    
    
    
    (3,396
    )
    
    
    
    
    
    
    (2,417
    )Cash and cash equivalents at beginning of period
    
    
    9,435
    
    
    
    17
    
    
    
    10,109
    
    
    
    
    
    
    
    19,561Cash and cash equivalents at end of period
    
    $
    10,411
    
    
    $
    20
    
    
    $
    6,713
    
    
    $
    
    
    
    $
    17,144
 14




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##### Table of Contents



ERICO International Corporation and Subsidiaries
 Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2006  (Dollars in thousands)
 9. Guarantor and Non-Guarantor Subsidiaries ( continued )
 Unaudited Condensed Consolidating Statements of Cash Flows
Six Months Ended June 30, 2005
 Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating activitiesNet income
    
    $
    9,003
    
    
    $
    10,969
    
    
    $
    2,995
    
    
    $
    (13,964
    )
    
    $
    9,003Depreciation and amortization
    
    
    342
    
    
    
    4,289
    
    
    
    2,033
    
    
    
    
    
    
    
    6,664Other operating activities
    
    
    1,956
    
    
    
    (1,846
    )
    
    
    (6,958
    )
    
    
    
    
    
    
    (6,848
    )Net cash provided by (used in) operating activities
    
    
    11,301
    
    
    
    13,412
    
    
    
    (1,930
    )
    
    
    (13,964
    )
    
    
    8,819Investing activitiesCapital expenditures
    
    
    (2
    )
    
    
    (632
    )
    
    
    (541
    )
    
    
    
    
    
    
    (1,175
    )Other investing activities
    
    
    (516
    )
    
    
    (150
    )
    
    
    42
    
    
    
    
    
    
    
    (624
    )Net cash used in investing activities
    
    
    (518
    )
    
    
    (782
    )
    
    
    (499
    )
    
    
    
    
    
    
    (1,799
    )Financing
activitiesDividends paid
    
    
    (15,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,000
    )Change in intercompany payables/receivables
    
    
    (3,712
    )
    
    
    (12,136
    )
    
    
    1,884
    
    
    
    13,964
    
    
    
    Net borrowings on revolving line of credit
    
    
    8,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,000Net cash (used in) provided by financing activities
    
    
    (10,712
    )
    
    
    (12,136
    )
    
    
    1,884
    
    
    
    13,964
    
    
    
    (7,000
    )Effect of exchange rate changes on cash
    
    
    
    
    
    
    
    
    
    
    (47
    )
    
    
    
    
    
    
    (47
    )Net increase (decrease) in cash and cash equivalents
    
    
    71
    
    
    
    494
    
    
    
    (592
    )
    
    
    
    
    
    
    (27
    )Cash and cash equivalents at beginning of period
    
    
    398
    
    
    
    21
    
    
    
    1,902
    
    
    
    
    
    
    
    2,321Cash and cash equivalents at end of period
    
    $
    469
    
    
    $
    515
    
    
    $
    1,310
    
    
    $
    
    
    
    $
    2,294
 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
    
    Six Months EndedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    62.4
    
    
    
    64.0
    
    
    
    62.5
    
    
    
    64.8Gross profit
    
    
    37.6
    
    
    
    36.0
    
    
    
    37.5
    
    
    
    35.2Operating expenses
    
    
    21.7
    
    
    
    23.0
    
    
    
    22.2
    
    
    
    23.5Interest expense, net
    
    
    2.9
    
    
    
    3.9
    
    
    
    3.0
    
    
    
    4.1Foreign exchange loss, net
    
    
    0.1
    
    
    
    0.3
    
    
    
    
    
    
    
    0.2Other income
    
    
    
    
    
    
    
    
    
    
    (0.2
    )
    
    
    Income before income taxes
    
    
    12.9
    
    
    
    8.8
    
    
    
    12.5
    
    
    
    7.4Provision for income taxes
    
    
    4.9
    
    
    
    3.0
    
    
    
    4.8
    
    
    
    2.7Net income
    
    
    8.0
    
    
    
    5.8
    
    
    
    7.7
    
    
    
    4.7
 16




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##### Table of Contents



Three Months Ended June 30, 2006 Compared With Three Months Ended June 30, 2005
 Net sales.
 Gross profit.
 Operating expenses
 Interest expense, net.
 Foreign exchange loss, net
 Provision for income taxes.
 Net income.
 Six Months Ended June 30, 2006 Compared With Six Months Ended June 30, 2005
 Net sales.
 Gross profit.
 Operating expenses
 17




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##### Table of Contents



Interest expense, net.
 Foreign exchange loss, net
 Other Income.
 Provision for income taxes.
 Net income.
 Liquidity and Capital Resources
     18




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##### Table of Contents



Six Months Ended June 30, 2006 Compared With Six Months Ended June 30, 2005
      Reconciliation of EBITDA to Net Cash Provided by Operating Activities
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net cash provided by operating activities
    
    $
    13,965
    
    
    $
    16,720
    
    
    $
    8,539
    
    
    $
    8,819Interest expense, net
    
    
    3,348
    
    
    
    3,905
    
    
    
    6,727
    
    
    
    7,785Provision for income taxes
    
    
    5,813
    
    
    
    3,062
    
    
    
    10,668
    
    
    
    5,111Foreign exchange loss, net
    
    
    (200
    )
    
    
    (275
    )
    
    
    (62
    )
    
    
    (466
    )Deferred taxes
    
    
    192
    
    
    
    917
    
    
    
    384
    
    
    
    1,136Amortization of financing fees and discount on
senior subordinated notes included in interest
expense, net
    
    
    (222
    )
    
    
    (223
    )
    
    
    (445
    )
    
    
    (446
    )Net changes in operating assets and liabilities
    
    
    (1,676
    )
    
    
    (8,467
    )
    
    
    13,630
    
    
    
    6,623Gain on sale of building
    
    
    
    
    
    
    
    
    
    
    594
    
    
    
    EBITDA
    
    $
    21,220
    
    
    $
    15,639
    
    
    $
    40,035
    
    
    $
    28,562
 19




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##### 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
 FORWARD-LOOKING STATEMENTS
  20




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##### Table of Contents




    
    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.
 
 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 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
 23




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##### Table of Contents



SIGNATURES
  ERICO INTERNATIONAL CORPORATIONBy:
    /s/ William H. RojName:
    William H. RojTitle:
    Chairman, Chief Executive Officer and Director
August 9, 2006By:
    /s/ Jeffrey R. SteinhilberName:
    Jeffrey R. SteinhilberTitle:
    Chief Financial Officer and Director
August 9, 2006 24