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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 1934For the quarterly period ended March 31, 2005o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934For 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) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes o No þ Indicate by a check mark whether the registrant is an accelerated filer (as determined in Rule
12b-2 of the Exchange Act). Yes o No þ At May 12, 2005, the registrant had one outstanding share of common stock.




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INDEX TO QUARTERLY
REPORT Page No.PART I. FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSCONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2005 AND DECEMBER 31, 2004
    
    
    2CONDENSED CONSOLIDATED INCOME STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 31, 2005 AND 2004
    
    
    3CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED
MARCH 31, 2005 AND 2004
    
    
    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
    
    
    20ITEM 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 Certifications
   
 1




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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 31,2005
    
    
    2004(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    3,292
    
    
    $
    2,321Trade accounts receivable, net
    
    
    55,655
    
    
    
    50,485Inventories, net
    
    
    61,182
    
    
    
    59,600Other current assets
    
    
    7,570
    
    
    
    8,909Total current assets
    
    
    127,699
    
    
    
    121,315Property, plant and equipment, net
    
    
    49,126
    
    
    
    52,522Goodwill
    
    
    101,403
    
    
    
    101,303Other intangible assets, net
    
    
    36,915
    
    
    
    36,905Other assets
    
    
    10,547
    
    
    
    10,676Total assets
    
    $
    325,690
    
    
    $
    322,721Liabilities and stockholders net investmentCurrent liabilities:Trade accounts payable
    
    $
    30,565
    
    
    $
    26,422Accrued compensation
    
    
    8,212
    
    
    
    13,446Dividend payable
    
    
    
    
    
    
    15,000Other current liabilities
    
    
    15,174
    
    
    
    21,874Total current liabilities
    
    
    53,951
    
    
    
    76,742Long-term debt
    
    
    177,139
    
    
    
    152,175Deferred income taxes
    
    
    28,674
    
    
    
    28,894Other long-term liabilities
    
    
    16,219
    
    
    
    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
    
    
    49,909
    
    
    
    46,699Accumulated other comprehensive (loss) income
    
    
    (202
    )
    
    
    1,426Total stockholders net investment
    
    
    49,707
    
    
    
    48,125Total liabilities and stockholders net investment
    
    $
    325,690
    
    
    $
    322,721
 The balance sheet at December 31, 2004 has been derived from the audited financial statements at
that date but does not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial statements. 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 EndedMarch 31,2005
    
    
    2004Net sales
    
    $
    89,950
    
    
    $
    83,450Cost of sales
    
    
    59,001
    
    
    
    53,611Gross profit
    
    
    30,949
    
    
    
    29,839Operating expenses
    
    
    21,619
    
    
    
    21,339Operating income
    
    
    9,330
    
    
    
    8,500Interest expense, net
    
    
    3,880
    
    
    
    3,490Foreign exchange loss, net
    
    
    191
    
    
    
    424Other expense
    
    
    
    
    
    
    1,236Income before income taxes
    
    
    5,259
    
    
    
    3,350Provision for income taxes
    
    
    2,049
    
    
    
    1,328Net income
    
    $
    3,210
    
    
    $
    2,022
 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 Ended March 31,2005
    
    
    2004Operating activitiesNet income
    
    $
    3,210
    
    
    $
    2,022Depreciation and amortization
    
    
    3,784
    
    
    
    3,036Other operating activities
    
    
    (14,895
    )
    
    
    (10,070
    )Net cash used in operating activities
    
    
    (7,901
    )
    
    
    (5,012
    )Investing activitiesCapital expenditures
    
    
    (699
    )
    
    
    (171
    )Other investing activities
    
    
    (398
    )
    
    
    (44
    )Net cash used in investing activities
    
    
    (1,097
    )
    
    
    (215
    )Financing activitiesDividends paid
    
    
    (15,000
    )
    
    
    (25,000
    )Net borrowings (payments) on revolving line of credit
    
    
    24,964
    
    
    
    (14,605
    )Proceeds from issuance of subordinated debt
    
    
    
    
    
    
    121,500Principal payments on long-term debt
    
    
    
    
    
    
    (72,950
    )Financing fees paid
    
    
    
    
    
    
    (4,316
    )Net cash provided by financing activities
    
    
    9,964
    
    
    
    4,629Effect of exchange rate changes on cash and cash
equivalents
    
    
    5
    
    
    
    (4
    )Increase (decrease) in cash and cash equivalents
    
    
    971
    
    
    
    (602
    )Cash and cash equivalents at beginning of period
    
    
    2,321
    
    
    
    2,421Cash and cash equivalents at end of period
    
    $
    3,292
    
    
    $
    1,819
 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, 2005(Dollars in thousands) 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements of ERICO International
Corporation and subsidiaries (ERICO or the Company) have been prepared in accordance with
accounting principles generally accepted in the United States (GAAP) for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by GAAP for complete financial
statements, and should be read together with the consolidated financial statements and footnotes
thereto included in the Companys Annual Report on Form 10-K filed on March 9, 2005. In the
opinion of management, all adjustments (consisting of normal recurring accruals) considered
necessary to present fairly the financial position, results of operations and cash flows for the
periods presented have been included. Certain prior year amounts have been reclassified to conform
to the current year presentation. Operating results for the three months ended March 31, 2005 are
not necessarily indicative of the results that may be expected for the year ending December 31,
2005. Nature of Operations: The Company is a wholly owned subsidiary of ERICO Holding Company
(Holding), which is a wholly owned subsidiary of ERICO Global Company (Global), the Companys
ultimate parent. All activity associated with Holding and Global relates to the operations of the
Company. Accordingly, all operating costs incurred by Holding and Global are reflected in the
Companys financial statements. In addition, in accordance with Staff Accounting Bulletin (SAB)
No. 73, Pushdown Basis of Accounting Required in Certain Limited Circumstances, senior
subordinated notes issued by Holding and outstanding through February 20, 2004, including related
financing costs, have been pushed down and are reflected in the accompanying financial
statements. The Company is a leading designer, manufacturer and marketer of precision-engineered specialty
metal products serving global niche product markets in a diverse range of electrical, commercial
and industrial construction, utility and rail applications. The Company is headquartered in Solon,
Ohio, USA with a network of sales locations serving more than 25 countries. The Company operates
in one reportable segment. Use of Estimates: The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes. Actual results
could differ from these estimates. Principles of Consolidation: The unaudited condensed consolidated financial statements include the
accounts of the Company and its subsidiaries. Intercompany accounts and transactions are
eliminated in consolidation. Recently Issued Accounting Standards:In November 2004, the Financial Accounting Standards Board
(FASB) issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4. SFAS No. 151
clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and
wasted material, and requires that such items be recognized as current-period charges regardless of
whether they meet the so abnormal criterion outlined in ARB No. 43. SFAS No. 151 also introduces
the concept of normal capacity and requires the allocation of fixed production overheads to
inventory based on the normal capacity of the production facilities. Unallocated overheads must be
recognized as an expense in the period incurred. SFAS No. 151 is effective for inventory costs
incurred during fiscal years beginning after June 15, 2005. While we are still evaluating the
impact of this statement, we do not currently believe it will have a material impact on our
consolidated results of operations, financial position or cash flows. In
December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment, which replaces the prior
SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for
Stock Issued to Employees. SFAS 123(R) requires compensation costs related to share-based payment
transactions to be recognized in the financial statements. With limited exceptions, the amount of
compensation cost will be measured based on the grant-date fair value of the equity or liability
instruments issued. In addition, liability awards will be re-measured each reporting period.
Compensation cost will be recognized over the period that an employee provides services in exchange
for the award. This new standard will become effective for the Company on January 1, 2006. While we are still evaluating the impact of this statement, we do not currently
believe it will have a material impact on our consolidated results of operations, financial
position or cash flows. 5




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ERICO International Corporation and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2005(Dollars in thousands) 2. Inventories Inventories are stated at the lower of cost or market with cost being determined by the first-in,
first-out (FIFO) method. The components of inventory are as follows: March 31,
    
    
    December 31,2005
    
    
    2004Finished goods
    
    $
    50,785
    
    
    $
    51,439Work in process
    
    
    5,033
    
    
    
    4,166Raw materials
    
    
    11,805
    
    
    
    9,51567,623
    
    
    
    65,120Inventory reserves
    
    
    (6,441
    )
    
    
    (5,520
    )Inventories, net
    
    $
    61,182
    
    
    $
    59,600
 3. Goodwill and Other Intangible Assets Goodwill represents the excess of purchase price paid over the fair value of the net assets
acquired. Goodwill and indefinite-lived intangible assets are no longer amortized but are subject
to annual impairment testing. Impairment exists when the carrying amount of goodwill or
indefinite-lived intangible assets exceeds its fair value. The Companys policy is to perform its
annual impairment testing in the fourth quarter of each year, unless circumstances dictate the need
for more frequent assessments. The 2004 annual impairment assessments confirmed that the fair
value of the Company exceeded its carrying value, and no impairment loss recognition was required
for goodwill or indefinite-lived intangible assets. The following table displays the gross carrying amount, accumulated amortization amount and net
carrying value for finite-lived intangible assets and indefinite-lived intangible assets: March 31, 2005GrossCarrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    NetFinite-lived intangible assets:Patents
    
    $
    3,795
    
    
    $
    (1,144
    )
    
    $
    2,651Customer relationships
    
    
    787
    
    
    
    (92
    )
    
    
    695$
    4,582
    
    
    $
    (1,236
    )
    
    $
    3,346Indefinite-lived intangible assets:Trademarks
    
    $
    33,569
    
    
    $
    
    
    
    $
    33,569Goodwill
    
    
    101,403
    
    
    
    
    
    
    
    101,403$
    134,972
    
    
    $
    
    
    
    $
    134,972
 6




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ERICO International Corporation and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 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
    )
    
    
    7054,434
    
    
    
    (1,092
    )
    
    
    3,342Indefinite-lived intangible assets:Trademarks
    
    $
    33,563
    
    
    $
    
    
    
    
    33,563Goodwill
    
    
    101,303
    
    
    
    
    
    
    
    101,303$
    134,866
    
    
    $
    
    
    
    $
    134,866
 Amortization expense for finite-lived intangible assets was $144 and $125 for the three months
ended March 31, 2005 and 2004, respectively. Based upon the gross carrying amount of finite-lived
intangible assets as of March 31, 2005, amortization expense for 2005 through 2010 is expected to
be approximately $600 per year. 4. Debt and Financing Arrangements Long-term debt at March 31, 2005 and December 31, 2004 consists of the following: March 31,
    
    
    December 31,2005
    
    
    2004Revolving credit facility with commercial banks
    
    $
    24,964
    
    
    $
    8.875% subordinated notes, due 2012
    
    
    151,500
    
    
    
    151,500Other notes, due 2009
    
    
    675
    
    
    
    675$
    177,139
    
    
    $
    152,175
 On February 20, 2004, the Company refinanced substantially all of its long-term debt. The Company
issued $140,900 of 8.875% senior subordinated notes due 2012 (the Subordinated Notes), of which
$19,400 was exchanged for its 11.0% senior subordinated notes. The proceeds of $140,900 were used
in part to reduce amounts outstanding under the Companys previous revolving credit facility, to
repay $39,000 of term loans outstanding, to repay $35,000 of the 11.0% senior subordinated notes of
Holding and to pay a dividend of $25,000 to the holders of Global Class L shares. On August 13,
2004, the Company exchanged the remaining $10,600 of 11.0% senior subordinated notes for $10,600 of
its Subordinated Notes. The Company recorded non-cash charges of $1,236 and $500 in the first
quarter and third quarter of 2004, respectively, to write-off original issue discount costs and
deferred financing costs related to the February 2004 refinancing and August 2004 debt exchange
transactions. In connection with the February 20, 2004 refinancing, the Company amended its $75,000 Multicurrency
Credit and Security Agreement (the Credit Facility) that expires December 2, 2007. The Credit
Facility provides a revolving credit line of $75,000, of which $25,000 may be used for the issuance
of letters of credit. The Credit Facility allows for multicurrency borrowing options in Australian
dollars, Euros, Swiss francs, Swedish kronor, British pounds and other currencies that are readily
available and freely traded. Borrowings under the Credit Facility are secured by substantially all
of the assets of the Company and accrue interest at the Alternate Base Rate (as defined in the
Credit Facility) or LIBOR plus a 1.75% margin. The Credit Facility provides for a commitment fee
of 0.25% on the revolving credit line. 7




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ERICO International Corporation and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2005(Dollars in thousands) 4. Debt and Financing Arrangements (continued) The Credit Facility and the Subordinated Notes contain certain customary covenants that impose
limitations on the Company, including covenants limiting the ability of the Company and its
subsidiaries to sell, pledge or incur liens on assets and to incur additional debt. The Credit
Facility also includes requirements to meet certain financial tests and to maintain on a quarterly
basis certain consolidated financial ratios, including minimum net worth, minimum fixed charge
coverage ratio, maximum leverage ratio and minimum net income before interest expense, net, income
taxes, depreciation, amortization and certain other non-cash, non-recurring items (EBITDA). The
Company was in compliance with all covenants of the Credit Facility and the Subordinated Notes, and
the conditions of the Credit Facility, at March 31, 2005. At March 31, 2005, the Company had borrowings outstanding of $24,964 under the revolving credit
line of the Credit Facility, all in U.S. dollars, and letters of credit outstanding of $268
supported by the Credit Facility. The amount available for additional borrowing under the Credit
Facility at March 31, 2005 was $49,768. 5. Income Taxes The Companys operations have been included in the consolidated income tax returns filed by Global.
Income tax expense in the Companys consolidated income statements is calculated on a separate tax
return basis as if the Company had operated as a stand-alone entity. The Companys income tax provision was $2,049, or 38.9%, and $1,328, or 39.6%, for the three months
ended March 31, 2005 and 2004, respectively. Income tax expense varies from the amount computed by
applying the statutory federal tax rate to income before income taxes, due principally to state and
local taxes. 6. Post-Retirement Benefit Plan The Company has a health care post-retirement benefit plan (the Health Care Plan) that provides
benefits to certain employees in the United States hired prior to January 1, 1993. On February 10,
2005, the Company amended the Health Care Plan to limit eligibility to those employees hired prior
to January 1, 1993 that also have at least 24 years of service as of December 31, 2004. This
amendment eliminated approximately 50 employees from eligibility and caused the Company to
recognize a curtailment gain of $68 in the first quarter of 2005. At the same time, the Company
increased retiree contributions such that retirees will pay 100% of medical costs by January 1,
2010. This change in assumption resulted in an unrecognized net gain that will be amortized to
income as a component of periodic benefit income. The following table sets forth the components of net periodic (income) expense for the Companys
Health Care Plan for the three months ended March 31, 2005 and 2004: Three Months EndedMarch 31,2005
    
    
    2004Service cost
    
    $
    3
    
    
    $
    30Interest cost
    
    
    16
    
    
    
    100Amortization of net gain
    
    
    (205
    )
    
    
    Curtailment gain
    
    
    (68
    )
    
    
    Net periodic (income) expense
    
    $
    (254
    )
    
    $
    130
 8




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ERICO International Corporation and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2005(Dollars in thousands) 6. Post-Retirement Benefit Plan (continued) On December 8, 2003, Congress passed the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 (Medicare Act). On May 19, 2004, the Financial Accounting Standards Board issued
Financial Staff Position Number 106-2, Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of 2003(FSP). The FSP was
effective for the three-month period ending September 30, 2004. The Companys accumulated
post-retirement benefit obligation at March 31, 2005 and net periodic (income) expense for the
three months ended March 31, 2005 and 2004 do not reflect any amount associated with the Medicare
Act because the Company is unable to conclude at this time whether the benefits provided by the
Companys Health Care Plan are actuarially equivalent to Medicare Part D under the Medicare Act.
The Company will continue to evaluate the effects of the Medicare Act on the accumulated
post-retirement benefit obligation and post-retirement benefit costs to determine the amount of
subsidy, if any, that may be available. 7. Commitments and Contingencies The Company is subject to legal proceedings, claims and litigation arising in the ordinary course
of business. The Companys management does not expect that the ultimate costs to resolve these
matters will have a material adverse effect on the Companys consolidated results of operations,
financial position or cash flows. 8. Comprehensive Income (Loss) Accumulated other comprehensive (loss) income of $(202) and $1,426 at March 31, 2005 and December
31, 2004, respectively, consists entirely of foreign currency translation adjustments. Total
comprehensive income and its components are as follows: Three Months EndedMarch 31,2005
    
    
    2004Net income
    
    $
    3,210
    
    
    $
    2,022Foreign currency translation adjustments
    
    
    (1,628
    )
    
    
    (243
    )Comprehensive income
    
    $
    1,582
    
    
    $
    1,779
 9




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ERICO International Corporation and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2005(Dollars in thousands) 9. Guarantor and Non-Guarantor Subsidiaries The following unaudited condensed consolidating financial statements set forth the Companys
balance sheets as of March 31, 2005 and December 31, 2004, the statements of income for the three
months ended March 31, 2005 and 2004 and the statements of cash flows for the three months ended
March 31, 2005 and 2004. In the following schedules, Parent refers to the Company, Holding and
Global, collectively, Guarantor Subsidiary refers to ERICO Products, Inc., the Companys sole
domestic subsidiary, and Non-Guarantor Subsidiaries refers to the Companys non-U.S.
subsidiaries. Eliminations represent the adjustments necessary to (a) eliminate intercompany
transactions and (b) eliminate the investments in the Companys subsidiaries. Unaudited Condensed Consolidating Balance Sheets
March 31, 2005 Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash and cash equivalents
    
    $
    1,351
    
    
    $
    65
    
    
    $
    1,876
    
    
    $
    
    
    
    $
    3,292Trade accounts receivable, net
    
    
    
    
    
    
    28,419
    
    
    
    27,236
    
    
    
    
    
    
    
    55,655Inventories, net
    
    
    
    
    
    
    33,225
    
    
    
    27,957
    
    
    
    
    
    
    
    61,182Other current assets
    
    
    1,233
    
    
    
    2,668
    
    
    
    3,669
    
    
    
    
    
    
    
    7,570Total current assets
    
    
    2,584
    
    
    
    64,377
    
    
    
    60,738
    
    
    
    
    
    
    
    127,699Property, plant and equipment, net
    
    
    256
    
    
    
    37,208
    
    
    
    11,662
    
    
    
    
    
    
    
    49,126Goodwill
    
    
    101,403
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101,403Other intangible assets, net
    
    
    36,915
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,915Investment in and advances to subsidiaries
    
    
    110,899
    
    
    
    
    
    
    
    
    
    
    
    (110,899
    )
    
    
    Other assets
    
    
    6,625
    
    
    
    2,971
    
    
    
    951
    
    
    
    
    
    
    
    10,547Total assets
    
    
    258,682
    
    
    $
    104,556
    
    
    $
    73,351
    
    
    $
    (110,899
    )
    
    $
    325,690Trade accounts payable
    
    $
    
    
    
    $
    18,896
    
    
    $
    11,669
    
    
    $
    
    
    
    $
    30,565Accrued compensation
    
    
    279
    
    
    
    3,874
    
    
    
    4,059
    
    
    
    
    
    
    
    8,212Other current liabilities
    
    
    2,018
    
    
    
    6,342
    
    
    
    6,814
    
    
    
    
    
    
    
    15,174Total current liabilities
    
    
    2,297
    
    
    
    29,112
    
    
    
    22,542
    
    
    
    
    
    
    
    53,951Long-term debt
    
    
    176,464
    
    
    
    675
    
    
    
    
    
    
    
    
    
    
    
    177,139Deferred income taxes
    
    
    21,811
    
    
    
    5,761
    
    
    
    1,102
    
    
    
    
    
    
    
    28,674Intercompany payable
    
    
    
    
    
    
    30,432
    
    
    
    61,289
    
    
    
    (91,721
    )
    
    
    Other long-term liabilities
    
    
    8,403
    
    
    
    6,532
    
    
    
    1,284
    
    
    
    
    
    
    
    16,219Total stockholders net investment
    
    
    49,707
    
    
    
    32,044
    
    
    
    (12,866
    )
    
    
    (19,178
    )
    
    
    49,707Total liabilities and stockholders
net investment
    
    $
    258,682
    
    
    $
    104,556
    
    
    $
    73,351
    
    
    $
    (110,899
    )
    
    $
    325,690
 10




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##### Table of Contents



ERICO International Corporation and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2005(Dollars in thousands) 9. Guarantor and Non-Guarantor Subsidiaries (continued) Condensed Consolidating Balance Sheets
December 31, 2004 Guarantor
    
    
    Non-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
    
    
    104,110
    
    
    
    
    
    
    
    
    
    
    
    (104,110
    )
    
    
    Other assets
    
    
    6,680
    
    
    
    2,983
    
    
    
    1,013
    
    
    
    
    
    
    
    10,676Total assets
    
    $
    252,421
    
    
    $
    101,843
    
    
    $
    72,567
    
    
    $
    (104,110
    )
    
    $
    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
    
    
    
    58,707
    
    
    
    (90,613
    )
    
    
    Other long-term liabilities
    
    
    8,547
    
    
    
    6,860
    
    
    
    1,378
    
    
    
    
    
    
    
    16,785Total stockholders net investment
    
    
    48,125
    
    
    
    27,938
    
    
    
    (14,441
    )
    
    
    (13,497
    )
    
    
    48,125Total liabilities and stockholders
net investment
    
    $
    252,421
    
    
    $
    101,843
    
    
    $
    72,567
    
    
    $
    (104,110
    )
    
    $
    322,721
 11




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##### Table of Contents



ERICO International Corporation and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2005(Dollars in thousands) 9. Guarantor and Non-Guarantor Subsidiaries (continued) Unaudited Condensed Consolidating Income Statements
Three Months Ended March 31, 2005 Guarantor
    
    
    Non-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
 Unaudited Condensed Consolidating Income Statements
Three Months Ended March 31, 2004 Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    51,911
    
    
    $
    35,182
    
    
    $
    (3,643
    )
    
    $
    83,450Cost of sales
    
    
    
    
    
    
    33,187
    
    
    
    24,067
    
    
    
    (3,643
    )
    
    
    53,611Gross profit
    
    
    
    
    
    
    18,724
    
    
    
    11,115
    
    
    
    
    
    
    
    29,839Operating expenses
    
    
    1,261
    
    
    
    10,150
    
    
    
    9,928
    
    
    
    
    
    
    
    21,339Operating (loss) income
    
    
    (1,261
    )
    
    
    8,574
    
    
    
    1,187
    
    
    
    
    
    
    
    8,500Interest expense, net
    
    
    2,588
    
    
    
    679
    
    
    
    223
    
    
    
    
    
    
    
    3,490Foreign exchange loss, net
    
    
    
    
    
    
    114
    
    
    
    310
    
    
    
    
    
    
    
    424Other expense
    
    
    1,236
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,236(Loss) income before income taxes
and equity income
    
    
    (5,085
    )
    
    
    7,781
    
    
    
    654
    
    
    
    
    
    
    
    3,350(Benefit) provision for income taxes
    
    
    (2,033
    )
    
    
    3,133
    
    
    
    228
    
    
    
    
    
    
    
    1,328(Loss) income before equity income
    
    
    (3,052
    )
    
    
    4,648
    
    
    
    426
    
    
    
    
    
    
    
    2,022Equity income from subsidiaries
    
    
    5,074
    
    
    
    
    
    
    
    
    
    
    
    (5,074
    )
    
    
    Net income
    
    $
    2,022
    
    
    $
    4,648
    
    
    $
    426
    
    
    $
    (5,074
    )
    
    $
    2,022
 12




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##### Table of Contents



ERICO International Corporation and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2005(Dollars in thousands) 9. Guarantor and Non-Guarantor Subsidiaries (continued) Unaudited Condensed Consolidating Statements of Cash Flows
Three Months Ended March 31, 2005 Guarantor
    
    
    Non-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 provided by (used in) 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
 13




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ERICO International Corporation and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2005(Dollars in thousands) 9. Guarantor and Non-Guarantor Subsidiaries (continued) Unaudited Condensed Consolidating Statements of Cash Flows
Three Months Ended March 31, 2004 Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiary
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating activitiesNet income
    
    $
    2,022
    
    
    $
    4,648
    
    
    $
    426
    
    
    $
    (5,074
    )
    
    $
    2,022Depreciation and amortization
    
    
    139
    
    
    
    1,716
    
    
    
    1,181
    
    
    
    
    
    
    
    3,036Other operating activities
    
    
    666
    
    
    
    (4,230
    )
    
    
    (6,506
    )
    
    
    
    
    
    
    (10,070
    )Net cash provided by (used in) operating activities
    
    
    2,827
    
    
    
    2,134
    
    
    
    (4,899
    )
    
    
    (5,074
    )
    
    
    (5,012
    )Investing activitiesCapital expenditures
    
    
    
    
    
    
    (63
    )
    
    
    (108
    )
    
    
    
    
    
    
    (171
    )Other investing activities
    
    
    (44
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (44
    )Net cash used in investing activities
    
    
    (44
    )
    
    
    (63
    )
    
    
    (108
    )
    
    
    
    
    
    
    (215
    )Financing activitiesDividends paid
    
    
    (25,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,000
    )Change in intercompany payables/receivables
    
    
    (36,743
    )
    
    
    29,947
    
    
    
    1,722
    
    
    
    5,074
    
    
    
    Net borrowing (payments) on revolving line of credit
    
    
    14,954
    
    
    
    (32,020
    )
    
    
    2,461
    
    
    
    
    
    
    
    (14,605
    )Proceeds from issuance of subordinated debentures
    
    
    121,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    121,500Principal payments on long-term debt
    
    
    (72,950
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (72,950
    )Financing fees paid
    
    
    (4,316
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,316
    )Net cash (used in) provided by financing activities
    
    
    (2,555
    )
    
    
    (2,073
    )
    
    
    4,183
    
    
    
    5,074
    
    
    
    4,629Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Net increase (decrease) in cash and cash equivalents
    
    
    228
    
    
    
    (2
    )
    
    
    (828
    )
    
    
    
    
    
    
    (602
    )Cash and cash equivalents at beginning of period
    
    
    400
    
    
    
    3
    
    
    
    2,018
    
    
    
    
    
    
    
    2,421Cash and cash equivalents at end of period
    
    $
    628
    
    
    $
    1
    
    
    $
    1,190
    
    
    $
    
    
    
    $
    1,819
 14




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our consolidated financial condition and results of
operations should be read in conjunction with our unaudited condensed consolidated financial
statements and the accompanying notes, which are included elsewhere in this report. The following
discussion and analysis also contains forward-looking statements, which reflect the expectations,
beliefs, plans and objectives of management about future financial performance and assumptions
underlying our judgments concerning matters discussed below. These statements, accordingly,
involve estimates, assumptions, judgments and uncertainties. In particular, this discussion
pertains to managements comments on financial resources, capital spending and the outlook for our
business. You should read and review the section entitled Forward-Looking Statements for some
important factors that could cause actual results or outcomes to differ materially from those
addressed in forward-looking statements. Overview ERICO is a leading designer, manufacturer and marketer of precision-engineered specialty metal
products serving global niche product markets in a diverse range of electrical, commercial and
industrial construction, utility and rail applications. The Company is headquartered in Solon,
Ohio, USA, with a network of sales locations serving more than 25 countries and with manufacturing
and distribution facilities worldwide. The Company is a wholly owned subsidiary of Holding. On December 2, 2002, a newly formed wholly
owned subsidiary of Global merged with Holding, with Holding as the surviving company. As a
result, Holding became a wholly owned subsidiary of Global. In connection with the merger,
Citigroup Venture Capital Equity Partners, L.P. and its affiliates acquired approximately
two-thirds of the stock of Global. Market Outlook We expect performance in the electrical, commercial and industrial construction, utility and rail
markets to increase over 2004 levels. We continue to expect sales growth in 2005 through new
product introductions and market penetration. Results of Operations The following table sets forth statements of operations data expressed as a percentage of net
sales: Three Months EndedMarch 31,2005
    
    
    2004Net sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    65.6
    
    
    
    64.2Gross profit
    
    
    34.4
    
    
    
    35.8Operating expenses
    
    
    24.0
    
    
    
    25.6Interest expense, net
    
    
    4.3
    
    
    
    4.2Foreign exchange loss, net
    
    
    0.2
    
    
    
    0.5Other expense, net
    
    
    
    
    
    
    1.5Income before income taxes
    
    
    5.9
    
    
    
    4.0Provision for income taxes
    
    
    2.3
    
    
    
    1.6Net income
    
    
    3.6
    
    
    
    2.4
 Three Months Ended March 31, 2005 Compared With Three Months Ended March 31, 2004 Net sales.Net sales for the three months ended March 31, 2005 were $89.9 million, an increase of
$6.5 million, or 7.8%, from the $83.4 million reported for the three months ended March 31, 2004.
The increase in net sales in the three months ended March 31, 2005 compared with the three months
ended March 31, 2004 was due primarily to higher sales volume and increased selling prices. 15




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Gross profit.Gross profit for the three months ended March 31, 2005 increased by $1.1 million, or
3.7%, to $30.9 million from the $29.8 million reported for the three months ended March 31, 2004.
Gross profit margin declined to 34.4% in the three months ended March 31, 2005 from 35.8% in the
three months ended March 31, 2004. Gross profit margin decreased primarily due to the significant
increases in raw material costs, primarily steel and copper, that the Company experienced starting
in the second quarter of 2004. Operating expenses. Operating expenses include engineering and development expenses, selling and
marketing expenses, and general and administrative expenses. Operating expenses increased by $0.3
million, or 1.3%, to $21.6 million in the three months ended March 31, 2005 from $21.3 million in
the three months ended March 31, 2004. As a percentage of net sales, operating expenses decreased
to 24.0% in the three months ended March 31, 2005 from 25.6% in the three months ended March 31,
2004. The decrease in operating expenses as a percent of sales in the three months ended March 31,
2005 was primarily due to the higher sales level along with managements continued focus on
controlling expenses. On February 10, 2005, the Company amended the Health Care Plan to limit eligibility to those
employees hired prior to January 1, 1993 that also have at least 24 years of service as of December
31, 2004. This amendment eliminated approximately 50 employees from eligibility and caused the
Company to recognize a curtailment gain of $0.1 million in the first quarter of 2005. At the same
time, the Company increased retiree contributions such that retirees will pay 100% of medical costs
by January 1, 2010. This change in assumption resulted in an unrecognized net gain that will be
amortized to income as a component of periodic benefit income. Interest expense, net.Interest expense for the three months ended March 31, 2005 was $3.9 million
compared with $3.5 million for the three months ended March 31, 2004. The increase in interest
expense was primarily caused by higher average debt balances in the three months ended March 31,
2005 compared with the three months ended March 31, 2004 as a result of the February 2004
refinancing. Foreign exchange loss, net. The Company reported a foreign exchange loss of $0.2 million for the
three months ended March 31, 2005 compared with a foreign exchange loss of $0.4 million for the
three months ended March 31, 2004. Other expense.Other expense for the three months ended March 31, 2004 represented a $1.2 million
non-cash charge to write-off previously deferred financing costs and original issue discount costs
related to the February 2004 refinancing. Provision for income taxes.The provision for income taxes was $2.0 million for the three months
ended March 31, 2005 compared with $1.3 million for the three months ended March 31, 2004. The
effective tax rate was 38.9% for the three months ended March 31, 2005 compared with 39.6% for the
three months ended March 31, 2004. Net income.As a result of the foregoing, the Company reported net income of $3.2 million for the
three months ended March 31, 2005, an increase of $1.2 million, or 58.8%, from net income of $2.0
million in the three months ended March 31, 2004. Liquidity and Capital Resources Short-term liquidity requirements consist of activities related to day-to-day operations, required
debt service, capital expenditure funding and meeting working capital requirements. Long-term
liquidity requirements include principal payments relating to long-term debt and acquisition
funding. Sources for our short-term liquidity needs are primarily cash generated from operations
and borrowings under the revolving credit portion of our Credit Facility. On February 20, 2004, we refinanced substantially all of our long-term debt outstanding. We issued
$140.9 million aggregate principal amount of Subordinated Notes, of which $19.4 million was
exchanged for our 11.0% senior subordinated notes. The proceeds of $140.9 million were used in
part to reduce amounts outstanding under the previous revolving credit facility, to repay $39.0
million of term loans outstanding and to repay $35.0 million of the 11.0% senior subordinated notes
of Holding. In addition, we paid a dividend of $25.0 million to Holding, as our sole stockholder.
On August 13, 2004, we exchanged the remaining $10.6 million of 11.0% senior subordinated notes for
$10.6 million of our Subordinated Notes. In connection with the February 20, 2004 refinancing, the Company amended its Credit Facility,
which expires December 2, 2007. The Credit Facility provides a revolving credit line of $75.0
million, of which $25.0 million may be used for the issuance of letters of credit. The Credit
Facility allows for multicurrency borrowing options in 16




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Australian dollars, Euros, Swiss francs, Swedish kronor, British pounds and other currencies that
are readily available and freely traded. Borrowings under the Credit Facility are secured by
substantially all of the assets of the Company and accrue interest at the Alternate Base Rate (as
defined in the Credit Facility) or LIBOR plus a 1.75% margin. The Credit Facility provides for a
commitment fee of 0.25% on the revolving credit line. The Credit Facility and the Subordinated Notes contain certain customary covenants that impose
limitations on the Company, including covenants limiting the ability of the Company and its
subsidiaries to sell, pledge or incur liens on assets and to incur additional debt. The Credit
Facility also includes requirements to meet certain financial tests and to maintain on a quarterly
basis certain consolidated financial ratios, including minimum net worth, minimum fixed charge
coverage ratio, maximum leverage ratio and minimum EBITDA. The Company was in compliance with all
covenants of the Credit Facility and the Subordinated Notes, and the conditions of the Credit
Facility, at March 31, 2005. At March 31, 2005, the Company had borrowings outstanding of $25.0 million under the revolving
credit line of the Credit Facility, all in U.S. dollars, and letters of credit outstanding of $0.3
million supported by the Credit Facility. The amount available for additional borrowing under the
Credit Facility at March 31, 2005 was $49.7 million. Three Months Ended March 31, 2005 Compared With Three Months Ended March 31, 2004 Cash used in operating activities for the three months ended March 31, 2005 was $7.9 million
compared with $5.0 million for the three months ended March 31, 2004. In comparison to the first
quarter of 2004, the Companys first quarter 2005 operating cash flow reflects a $1.9 million
increase in net income plus depreciation and amortization, offset by a $4.8 million increase in
cash used for working capital. Capital expenditures were $0.7 million for the three months ended March 31, 2005, compared with
$0.2 million for the three months ended March 31, 2004. We currently do not have any significant
capital projects in process. Cash provided by financing activities was $10.0 million for the three months ended March 31, 2005
and reflects $25.0 million of borrowings on the Credit Facility to fund the $15.0 million dividend
paid to the Holders of Global Class L Shares, interest and bonus payments and general working
capital needs. The 2004 financing activities primarily reflect the net effect of the February 2004
debt refinancing activities previously discussed. We have significant future cash commitments, primarily for debt service requirements and scheduled
lease payments. There have been no material changes to our cash commitments and commercial
commitments in the three months ended March 31, 2005 from those shown as of December 31, 2004 in
our Annual Report on Form 10-K under Managements Discussion and Analysis of Financial Condition and Results of
Operations  Liquidity and Capital Resources, other than the payment in January 2005 of the
dividend as discussed above. We believe that cash forecasted to be generated from operations, together with amounts available
under our Credit Facility, will be adequate to meet our cash commitments, capital expenditures and
working capital needs for at least the next 12 months, although no assurance can be given. Our
future operating performance and ability to extend or refinance our indebtedness will be dependent
on future economic conditions and general financial, business and other factors, many of which are
beyond our control. Reconciliation of EBITDA to Net Cash Provided by Operating Activities The Company has chosen to present EBITDA because the Company believes it is a widely accepted
financial indicator of a companys ability to service and incur indebtedness, and because EBITDA is
used in the Companys financial covenants under the Credit Facility and in the indenture governing
the Subordinated Notes. Additionally, management uses EBITDA, among other financial measures, for
planning and forecasting purposes. However, EBITDA should not be considered as an alternative to
net cash provided by operating activities as a measure of liquidity in accordance with GAAP. Since
EBITDA is not calculated identically by all companies, the Companys method of computation may not
be comparable to those disclosed by other companies. Following is a reconciliation of EBITDA to
net cash used in operating activities, which the Company believes is the most directly comparable
GAAP measure of a companys ability to service and incur indebtedness: 17




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Three Months EndedMarch 31,2005
    
    
    2004Net cash used in operating activities
    
    $
    (7,901
    )
    
    $
    (5,012
    )Interest expense, net
    
    
    3,880
    
    
    
    3,490Provision for income taxes
    
    
    2,049
    
    
    
    1,328Foreign exchange loss, net
    
    
    (191
    )
    
    
    (424
    )Deferred taxes
    
    
    219
    
    
    
    205Amortization of financing fees and discount on
senior subordinated notes included in interest
expense, net
    
    
    (223
    )
    
    
    (175
    )Net changes in operating assets and liabilities
    
    
    15,090
    
    
    
    11,700EBITDA
    
    $
    12,923
    
    
    $
    11,112
 Critical Accounting Policies and Estimates The Companys unaudited condensed consolidated financial statements have been prepared in
accordance with GAAP. As such, some accounting policies have a significant impact on amounts
reported in these unaudited condensed consolidated financial statements. A summary of those
significant accounting policies can be found in the Companys Annual Report on Form 10-K filed
March 9, 2005 under the caption Critical Accounting Policies and Estimates within Managements
Discussion and Analysis of Financial Condition and Results of Operations. In particular, judgment
is used in areas such as determining the allowance for doubtful accounts and inventory valuation
reserves, goodwill and indefinite lived intangible assets, product warranty costs, debt covenants
and deferred tax assets. Recently Issued Accounting Standards In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43,
Chapter 4. SFAS No. 151 clarifies the accounting for abnormal amounts of idle facility expense,
freight, handling costs and wasted material, and requires that such items be recognized as
current-period charges regardless of whether they meet the so abnormal criterion outlined in ARB
No. 43. SFAS No. 151 also introduces the concept of normal capacity and requires the allocation
of fixed production overheads to inventory based on the normal capacity of the production
facilities. Unallocated overheads must be recognized as an expense in the period incurred. SFAS
No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15,
2005. While we are still evaluating the impact of this statement, we do not currently believe it
will have a material impact on our consolidated results of operations, financial position or cash
flows. In
December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment, which replaces the prior
SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for
Stock Issued to Employees. SFAS 123(R) requires compensation costs related to share-based payment
transactions to be recognized in the financial statements. With limited exceptions, the amount of
compensation cost will be measured based on the grant-date fair value of the equity or liability
instruments issued. In addition, liability awards will be re-measured each reporting period.
Compensation cost will be recognized over the period that an employee provides services in exchange
for the award. This new standard will become effective for the Company on
January 1, 2006. While we are still evaluating the impact of this statement, we do not currently
believe it will have a material impact on our consolidated results of operations, financial
position or cash flows. 18




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FORWARD-LOOKING STATEMENTS The Company is making this statement in order to satisfy the safe harbor provisions contained in
the Private Securities Litigation Reform Act of 1995. This Quarterly Report on Form 10-Q includes
forward-looking statements related to the business of the Company that are not historical facts.
These forward-looking statements can be identified by the use of terminology such as believe,
may, anticipate, should, intend, plan, will, expect, estimate, continue,
positioned, strategy and similar expressions. These statements are only our predictions. The
forward-looking statements included in this report are not guarantees of future performances, and
should one or more of these, or other, risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results could differ materially from those contemplated by
these forward-looking statements. In the light of these risks and uncertainties, we cannot assure
that the results and events contemplated by the forward-looking information contained in this
report will in fact transpire. Readers are cautioned not to place undue reliance on these
forward-looking statements, which, unless otherwise noted, speak only as of the date of this
report. The Company undertakes no obligation, except as required by law, to update these
statements. Risks, uncertainties and contingencies that could cause actual results to vary materially from
those anticipated in forward-looking statements in this report include general economic conditions
in the markets in which we operate and industry related and other factors including, without
limitation, the following:  
    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. For additional information on risks and uncertainties that could cause actual results to differ
from those anticipated in forward-looking statements, see the discussion set forth under Risk
Factors in the Companys SEC filings, including its Annual Report on Form 10-K filed with the SEC
on March 9, 2005. 19




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, we are exposed to various changes in financial market conditions,
including fluctuations in interest rates, foreign currency exchange rates and commodity prices. We
manage our exposure to such risks through various operating and financing activities. We are exposed to interest rate risk associated with borrowings under our Credit Facility.
Borrowings under the Credit Facility bear interest at variable rates, based upon published indices.
In order to partially mitigate this exposure, we have occasionally entered into interest rate swaps
to fix a portion of our interest payable. There were no interest rate swaps outstanding as of
March 31, 2005. We are also exposed to various foreign currency risks, i.e., there is a risk that we will incur
economic losses due to adverse changes in foreign currency exchange rates. Our foreign currency
exchange rate risks primarily relate to the Euro, the Australian dollar and the Brazilian real. We
monitor these risks, and attempt to establish offsetting positions, when practical, between our
various subsidiaries. Under our Credit Facility, we also have the option of denominating a portion
of our borrowings in multiple foreign currencies. There are no amounts outstanding under the
multicurrency borrowing options at March 31, 2005. We had net assets denominated in foreign
currencies of approximately $48.4 million associated with our foreign subsidiaries at March 31,
2005. We utilize various raw material commodities in our manufacturing processes, including steel and
copper. These materials are obtained from various supply sources, and there have historically been
adequate levels of material available. We are exposed to adverse price fluctuations when purchasing
these materials, and may not necessarily be able to offset such increases through increased selling
prices for our products. We do not hedge our commodity price risks via the derivatives markets. 
 ITEM 4. CONTROLS AND PROCEDURES As of March 31, 2005 an evaluation was performed, under the supervision and with the
participation of the Companys management including the Companys Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the Companys disclosure
controls and procedures pursuant to Rule 13a-15 under the Securities and Exchange Act of 1934, as
amended (the Exchange Act). Based upon that evaluation, such officers concluded that the
Companys disclosure controls and procedures are effective to ensure that information required to
be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms. There were no changes in the Companys internal control over financial reporting that occurred
during the Companys most recent fiscal quarter that have materially affected, or are reasonably
likely to materially affect, the Companys internal control over financial reporting. 20




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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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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized. ERICO INTERNATIONAL CORPORATIONBy:
    
    /s/ William H. RojName:
    William H. RojTitle:
    Chairman, Chief Executive Officer and Director 
May 12, 2005 By:
    
    /s/ Jeffrey R. SteinhilberName:
    Jeffrey R. SteinhilberTitle:
    Chief Financial Officer and Director 
May 12, 2005 22