**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**FORM 10-Q**

| **x**                                                                                                                                                                                            | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------|
| **For the Quarterly Period Ended June 30,  2004**                                                                                                                                           |
| **or**                                                                                                                                                                                           |
| ** ̈**                                                                                                                                                                                       | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
| **For the transition period from             to             ** |

 

**Commissionfile number 0-50514**

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SUPERIOR ESSEX INC.

(Exact name of registrantas specified in its charter)

| **Delaware**(State or other jurisdiction of  incorporation or organization)                | **20-0282396**(I.R.S. Employer  Identification No.) |
|--------------------------------------------------------------------------------------------|-----------------------------------------------------|
| **150 Interstate North Parkway  Atlanta, Georgia**(Address of principal executive offices) | **30339**(Zip code)                                 |

 

**770-657-6000**

Registrant’s telephonenumber, including area code

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Indicate by check mark whetherthe registrant: (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports) and (2) has been subject to such filing requirementsfor the past 90 days. Yes x  No  ̈

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act). Yes  ̈  No x

As of August 6, 2004,the registrant had 17,006,615 shares of common stock, $0.01 par value,outstanding.

 

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**PART I.   FINANCIAL INFORMATION**

**ITEM 1.   FINANCIAL STATEMENTS**

The accompanying unaudited consolidated financialstatements have been prepared in accordance with the requirements of Section 13or 15(d) of the Securities Exchange Act of 1934, as amended, and, therefore,do not include all disclosures required by generally accepted accountingprinciples. However, in the opinion of management, these statements reflect alladjustments (which consist only of normal recurring accruals) necessary for afair presentation of the results of operations for the relevant periods.Results for the quarter and six months ended June 30, 2004 are notnecessarily indicative of the results to be expected for the entire fiscalyear. These financial statements should be read in conjunction with the auditedconsolidated financial statements and notes thereto included in SuperiorEssex Inc.’s Annual Report on Form 10-K for the year ended December 31,2003, as amended April 29, 2004.

Superior TeleCom Inc. and certain of its U.S.subsidiaries filed voluntary petitions for relief under Chapter 11 of theUnited States Bankruptcy Code on March 3, 2003. Superior TeleCom’s plan ofreorganization was confirmed by order of the Bankruptcy Court on October 22,2003 and became effective on November 10, 2003. In accordance with theplan of reorganization, as of November 10, 2003, the Company acquired thebusiness formerly conducted by Superior TeleCom and its subsidiaries and beganoperating its business under a new holding company and capital structure andadopted fresh-start reporting. Because of the emergence from bankruptcyand adoption of fresh-start reporting, the historical financialinformation for Superior TeleCom, the Company’s predecessor for financialreporting purposes, is not comparable to the Company’s financial informationfor periods after November 10, 2003. The historical consolidated statementof operations and statement of cash flows of Superior TeleCom are presentedherein in accordance with the requirements of Form 10-Q. Suchstatements were prepared on a going concern basis, which assumes continuity ofoperations and realization of assets and satisfaction of liabilities in theordinary course of business, and, for periods subsequent to March 3, 2003,in accordance with AICPA Statement of Position 90-7.

In this Form 10-Q,the following terms have the meanings indicated below:

·       unlessthe context otherwise requires, the terms “we,” “us” and “our,” as well as theterms “Superior Essex,” and the “Company,” refer to Superior Essex Inc.and its subsidiaries on and after November 10, 2003, the effective date ofthe plan of reorganization of Superior TeleCom Inc. and its subsidiaries.

·       “SuperiorTeleCom,” unless the context otherwise requires, refers to SuperiorTeleCom Inc. and its subsidiaries and the business carried on by themprior to November 10, 2003.

·       “SuperiorEssex Holding” refers to Superior Essex Holding Corp., Superior Essex’s whollyowned subsidiary.

·       “SuperiorEssex Communications” refers to Superior Essex Communications LP (formerlySuperior Essex Communications LLC). On June 17, 2004, Superior EssexCommunications LLC converted from a Delaware limited liability company into aDelaware limited partnership. Superior Essex Holding is the sole limitedpartner of Superior Essex Communications and SE Communications GP Inc., awholly owned subsidiary of Superior Essex Holding, is the sole general partnerof Superior Essex Communications.

·       “EssexInternational” refers to Essex International Inc., Superior Essex Holding’swholly owned subsidiary.

·       “EssexGroup” refers to Essex Group, Inc., Essex International’s wholly ownedsubsidiary.

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**SUPERIORESSEX INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(in thousands, except share data) (unaudited)**
| ** **                                                                                                                                                    | ** ** | **Superior Essex Inc.** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                                                                                    | ** ** | **June 30,  2004**           | ** ** | **December 31,  2003** | ** ** |
| **ASSETS**                                                                                                                                                    |       |                              |       |   |   |   |   |
| Current assets:                                                                                                                                               |       |                              |       |   |   |   |   |
| Cash and cash equivalents                                                                                                                                     |       | $                                 | 12,512     |   |   | $ | 10,606 |   |   |
| Accounts receivable (less allowance for doubtful  accounts of $2,041 and $2,140 at June 30, 2004 and December 31,  2003, respectively)              |       | 151,635                           |       |   | 100,893 |   |   |
| Inventories, net                                                                                                                                              |       | 162,864                           |       |   | 119,787 |   |   |
| Other current assets                                                                                                                                          |       | 17,379                            |       |   | 23,316 |   |   |
| Total current assets                                                                                                                                          |       | 344,390                           |       |   | 254,602 |   |   |
| Property, plant  and equipment, net                                                                                                                           |       | 239,495                           |       |   | 223,318 |   |   |
| Other assets                                                                                                                                                  |       | 41,257                            |       |   | 9,005 |   |   |
| Total assets                                                                                                                                                  |       | $                                 | 625,142    |   |   | $ | 486,925 |   |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                |       |                              |       |   |   |   |   |
| Current liabilities:                                                                                                                                          |       |                              |       |   |   |   |   |
| Short-term borrowings                                                                                                                                         |       | $                                 | 49,748     |   |   | $ | 42,755 |   |   |
| Accounts payable                                                                                                                                              |       | 61,005                            |       |   | 35,866 |   |   |
| Accrued expenses                                                                                                                                              |       | 56,568                            |       |   | 58,199 |   |   |
| Total current liabilities                                                                                                                                     |       | 167,321                           |       |   | 136,820 |   |   |
| Long-term  debt                                                                                                                                               |       | 262,132                           |       |   | 157,000 |   |   |
| Other long-term  liabilities, primarily pension obligations                                                                                                   |       | 28,039                            |       |   | 29,213 |   |   |
| Total liabilities                                                                                                                                             |       | 457,492                           |       |   | 323,033 |   |   |
| Stockholders’ equity:                                                                                                                                    |       |                              |       |   |   |   |   |
| Common stock, $.01 par value; 33,000,000 shares  authorized; 17,020,000 and 16,500,000 issued at June 30, 2004 and  December 31, 2003, respectively |       | 170                               |       |   | 165 |   |   |
| Capital in excess of par value                                                                                                                                |       | 170,730                           |       |   | 168,135 |   |   |
| Accumulated other comprehensive income                                                                                                                        |       | 1,226                             |       |   | 1,221 |   |   |
| Retained earnings (accumulated deficit)                                                                                                                       |       | 953                               |       |   | (2,443 | ) |   |
|                                                                                                                                                          |       | 173,079                           |       |   | 167,078 |   |   |
| Equity-based unearned compensation                                                                                                                            |       | (5,238                            | )          |   | (3,186 | ) |   |
| Treasury stock, at cost (13,385 shares at  June 30, 2004)                                                                                                |       | (191                              | )          |   | — |   |   |
| Total stockholders’ equity                                                                                                                               |       | 167,650                           |       |   | 163,892 |   |   |
| Total liabilities  and stockholders’ equity                                                                                                              |       | $                                 | 625,142    |   |   | $ | 486,925 |   |   |

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

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**SUPERIOR ESSEX INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)**
| ** **                                                                                                      | ** ** | **Superior  Essex Inc.**                   | ** ** | ** ** | **Superior  TeleCom Inc.** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|------------|---------------------------------|------------|
| ** **                                                                                                      | ** ** | **Three Months Ended  June 30,** | ** ** |
| ** **                                                                                                      | ** ** | **2004**                                        | ** ** | ** ** | **2003**                        | ** ** |
| Net sales                                                                                                       |       | $                                               | 357,351    |       |                            |       | $ | 248,780 |   |   |
| Cost of goods  sold                                                                                             |       | 323,734                                         |       |       |                            | 218,768    |   |   |
| Gross profit                                                                                                    |       | 33,617                                          |       |       |                            | 30,012     |   |   |
| Selling, general  and administrative expenses                                                                   |       | 22,291                                          |       |       |                            | 20,954     |   |   |
| Restructuring and  other charges                                                                                |       | 406                                             |       |       |                            | 669        |   |   |
| Operating income                                                                                                |       | 10,920                                          |       |       |                            | 8,389      |   |   |
| Interest expense  (contractual interest of $39,115 for the three months ended June 30,  2003)              |       | (7,111                                          | )          |       |                            | (2,349     | ) |   |
| Loss on early  extinguishment of debt                                                                           |       | (407                                            | )          |       |                            | —     |   |   |
| Other expense,  net                                                                                             |       | (110                                            | )          |       |                            | 170        |   |   |
| Income before reorganization items, income taxes and  distributions on preferred securities of Superior Trust I |       | 3,292                                           |       |       |                            | 6,210      |   |   |
| Reorganization  items                                                                                           |       | —                                          |       |       |                            | 1,800      |   |   |
| Income tax  expense                                                                                             |       | (1,250                                          | )          |       |                            | (273       | ) |   |
| Income before distributions on preferred securities  of Superior Trust I                                        |       | 2,042                                           |       |       |                            | 7,737      |   |   |
| Distributions on  preferred securities of Superior Trust I                                                      |       | —                                          |       |       |                            | (1,180     | ) |   |
| Net income                                                                                                      |       | $                                               | 2,042      |       |                            |       | $ | 6,557 |   |   |
| Net income per share of  common stock:                                                                          |       |                                            |       |       |                            |       |   |   |
| Basic                                                                                                           |       | $                                               | 0.12       |       |                            |       | $ | 0.30 |   |   |
| Diluted                                                                                                         |       | $                                               | 0.12       |       |                            |       | $ | 0.30 |   |   |
| Weighted average shares  outstanding:                                                                           |       |                                            |       |       |                            |       |   |   |
| Basic                                                                                                           |       | 16,516                                          |       |       |                            | 21,845     |   |   |
| Diluted                                                                                                         |       | 16,622                                          |       |       |                            | 21,845     |   |   |

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

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**SUPERIOR ESSEX INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Continued) (in thousands, except per share data) (unaudited)**

 
| ** **                                                                                                             | ** ** | **Superior  Essex Inc.**                 | ** ** | ** ** | **Superior  TeleCom Inc.** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|------------|---------------------------------|------------|
| ** **                                                                                                             | ** ** | **Six Months Ended  June 30,** | ** ** |
| ** **                                                                                                             | ** ** | **2004**                                      | ** ** | ** ** | **2003**                        | ** ** |
| Net sales                                                                                                              |       | $                                             | 659,202    |       |                            |       | $ | 498,318 |   |   |
| Cost of goods  sold                                                                                                    |       | 595,985                                       |       |       |                            | 442,217    |   |   |
| Gross profit                                                                                                           |       | 63,217                                        |       |       |                            | 56,101     |   |   |
| Selling, general  and administrative expenses                                                                          |       | 43,182                                        |       |       |                            | 41,701     |   |   |
| Restructuring and  other charges                                                                                       |       | 1,486                                         |       |       |                            | 4,835      |   |   |
| Operating income                                                                                                       |       | 18,549                                        |       |       |                            | 9,565      |   |   |
| Interest expense  (contractual interest of $67,792 for the six months ended June 30, 2003)                        |       | (11,980                                       | )          |       |                            | (23,021    | ) |   |
| Loss on early  extinguishment of debt                                                                                  |       | (407                                          | )          |       |                            | —     |   |   |
| Other expense,  net                                                                                                    |       | (186                                          | )          |       |                            | (30        | ) |   |
| Income (loss) before reorganization items, income  taxes and distributions on preferred securities of Superior Trust I |       | 5,976                                         |       |       |                            | (13,486    | ) |   |
| Reorganization  items                                                                                                  |       | —                                        |       |       |                            | (32,968    | ) |   |
| Income tax  (expense) benefit                                                                                          |       | (2,580                                        | )          |       |                            | 2,060      |   |   |
| Income (loss) before distributions on preferred securities  of Superior  Trust I                                       |       | 3,396                                         |       |       |                            | (44,394    | ) |   |
| Distributions on  preferred securities of Superior Trust I                                                             |       | —                                        |       |       |                            | (5,050     | ) |   |
| Net income (loss)                                                                                                      |       | $                                             | 3,396      |       |                            |       | $ | (49,444 | ) |   |
| Net income (loss) per  share of common stock:                                                                          |       |                                          |       |       |                            |       |   |   |
| Basic                                                                                                                  |       | $                                             | 0.21       |       |                            |       | $ | (2.27 | ) |   |
| Diluted                                                                                                                |       | $                                             | 0.20       |       |                            |       | $ | (2.27 | ) |   |
| Weighted average shares  outstanding:                                                                                  |       |                                          |       |       |                            |       |   |   |
| Basic                                                                                                                  |       | 16,508                                        |       |       |                            | 21,783     |   |   |
| Diluted                                                                                                                |       | 16,607                                        |       |       |                            | 21,783     |   |   |

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

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**SUPERIORESSEX INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)(unaudited)**
| ** **                                                                                            | ** ** | **Superior  Essex Inc.**                       | ** ** | ** ** | **Superior  TeleCom Inc.** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|------------|---------------------------------|------------|
| ** **                                                                                            | ** ** | **Six Months Ended   June 30,** | ** ** |
| ** **                                                                                            | ** ** | **2004**                                            | ** ** | ** ** | **2003**                        | ** ** |
| Cash flows from operating  activities:                                                                |       |                                                |       |       |                            |       |   |   |
| Net income (loss)                                                                                     |       | $                                                   | 3,396      |       |                            |       | $ | (49,444 | ) |   |
| Adjustments  to reconcile net income (loss) to net cash provided by (used for) operating  activities: |       |                                                |       |       |                            |       |   |   |
| Depreciation and amortization                                                                         |       | 9,889                                               |       |       |                            | 14,751     |   |   |
| Deferred distributions on Trust Convertible Preferred  Securities                                     |       | —                                              |       |       |                            | 5,050      |   |   |
| Amortization of deferred financing costs and discount                                                 |       | 772                                                 |       |       |                            | 4,891      |   |   |
| Reorganization items                                                                                  |       | —                                              |       |       |                            | 32,968     |   |   |
| Change  in operating assets and liabilities:                                                          |       |                                                |       |       |                            |       |   |   |
| Accounts receivable, net                                                                              |       | (50,622                                             | )          |       |                            | (20,480    | ) |   |
| Inventories, net                                                                                      |       | (4,661                                              | )          |       |                            | (9,862     | ) |   |
| Other current and non-current assets                                                                  |       | 5,083                                               |       |       |                            | 41,519     |   |   |
| Accounts payable, accrued expenses and other  liabilities                                             |       | 29,124                                              |       |       |                            | 41,210     |   |   |
| Other, net                                                                                            |       | 654                                                 |       |       |                            | 854        |   |   |
| Cash flows provided by (used for) operating  activities before reorganization items              |       | (6,365                                              | )          |       |                            | 61,457     |   |   |
| Reorganization items paid, net                                                                        |       | (12,253                                             | )          |       |                            | (2,828     | ) |   |
| Cash flows provided by (used for) operating  activities                                               |       | (18,618                                             | )          |       |                            | 58,629     |   |   |
| Cash flows from investing  activities:                                                                |       |                                                |       |       |                            |       |   |   |
| Capital expenditures                                                                                  |       | (3,910                                              | )          |       |                            | (1,175     | ) |   |
| Belden asset acquisition, including related fees and  expenses (note 6)                               |       | (83,010                                             | )          |       |                            | —     |   |   |
| Proceeds from asset sales                                                                             |       | 25                                                  |       |       |                            | 5,304      |   |   |
| Other                                                                                                 |       | —                                              |       |       |                            | 196        |   |   |
| Cash flows provided by (used for) investing  activities                                               |       | (86,895                                             | )          |       |                            | 4,325      |   |   |
| Cash flows from financing  activities:                                                                |       |                                                |       |       |                            |       |   |   |
| Short-term borrowings (repayments), net                                                               |       | 6,977                                               |       |       |                            | (11,829    | ) |   |
| Repayment of pre-petition revolving credit  facilities, net                                           |       | —                                              |       |       |                            | (28,330    | ) |   |
| Debt issuance costs                                                                                   |       | (4,507                                              | )          |       |                            | (3,900     | ) |   |
| Long-term borrowings                                                                                  |       | 250,004                                             |       |       |                            | —     |   |   |
| Repayments of long-term borrowings                                                                    |       | (145,000                                            | )          |       |                            | (19,402    | ) |   |
| Cash flows provided by (used for) financing  activities                                               |       | 107,474                                             |       |       |                            | (63,461    | ) |   |
| Effect of exchange rate changes on cash                                                               |       | (55                                                 | )          |       |                            | 1,822      |   |   |
| Net increase in cash and cash equivalents                                                             |       | 1,906                                               |       |       |                            | 1,315      |   |   |
| Cash and cash equivalents at beginning of period                                                      |       | 10,606                                              |       |       |                            | 7,101      |   |   |
| Cash and cash equivalents at end of period                                                            |       | $                                                   | 12,512     |       |                            |       | $ | 8,416 |   |   |
| Supplemental disclosures:                                                                             |       |                                                |       |       |                            |       |   |   |
| Cash paid for interest                                                                                |       | $                                                   | 10,898     |       |                            |       | $ | 13,076 |   |   |
| Cash paid  (received) for income taxes, net                                                           |       | $                                                   | 851        |       |                            |       | $ | (57,846 | ) |   |

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

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**SUPERIORESSEX INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSJUNE 30, 2004(unaudited)**

**1.   General**

***Basis of presentation***

Superior Essex Inc., a Delaware holding company,and its operating subsidiaries were formed in 2003 to acquire and conduct thebusiness formerly conducted by Superior TeleCom Inc., and itssubsidiaries, pursuant to a plan of reorganization confirmed by the UnitedStates Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”)and implemented by Superior TeleCom effective November 10, 2003 asdiscussed below. As a result of the reorganization and the Company’simplementation of fresh-start reporting as described below, theconsolidated financial statements of the Company (the successor entity forpurposes of fresh-start reporting) for periods subsequent to November 10,2003 reflect a new basis of accounting. Accordingly, the historical consolidatedfinancial statements of Superior TeleCom, the Company’s predecessor forfinancial reporting purposes, are not comparable to the consolidated financialstatements of the Company for periods subsequent to the effective date of theplan of reorganization.

The Company is amanufacturer and supplier of communications wire and cable products totelephone companies, CATV companies, distributors and systems integrators, andmagnet wire and insulation materials to major original equipment manufacturers,or OEMs, and, through its distribution operations, to small OEMs and themotor maintenance, repair and overhaul industry. The Company also convertscopper cathode to copper rod for sale to other wire and cable manufacturers.The Company operates manufacturing and distribution facilities in the UnitedStates, the United Kingdom and Mexico.

***Chapter 11 Filing and Reorganization***

On March 3, 2003, Superior TeleCom and certain ofits U.S. subsidiaries filed voluntary petitions for relief under Chapter 11 ofthe United States Bankruptcy Code and continued to manage their properties andoperate their businesses as “debtors-in-possession” under the jurisdiction ofthe Bankruptcy Court and in accordance with the applicable provisions of theBankruptcy Code. Under the Bankruptcy Code, actions to collect pre-petitionindebtedness, as well as most other pending litigation, were stayed and certaincontractual provisions could not be enforced against Superior TeleCom. Absentan order of the Bankruptcy Court, substantially all pre-petition liabilitieswere subject to settlement under a plan of reorganization voted upon by certainclasses of Superior TeleCom’s creditors and approved by the Bankruptcy Court. Aplan of reorganization was confirmed by order of the Bankruptcy Court on October 22,2003 and became effective on November 10, 2003.

In accordance with theplan of reorganization, on November 10, 2003 the Company acquired thebusiness formerly conducted by Superior TeleCom and its subsidiaries, andSuperior TeleCom and certain of its dormant subsidiaries were deemed dissolvedand ceased to have continuing corporate existences, subject only to obligationsunder the plan of reorganization to satisfy allowed claims. Except as otherwiseprovided in the plan of reorganization, the Company’s senior secured revolvingcredit facility, the Company’s senior notes or any agreement, instrument orindenture relating thereto, on and after the effective date of the plan, allproperty of Superior TeleCom and its subsidiaries vested in the Company, freeand clear of all liens, claims, charges or other encumbrances. On and after theeffective date of the plan of reorganization, the Company began operating itsbusiness without supervision or approval by the Bankruptcy Court.

6

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***Fresh-Start Reporting***

Upon implementation of theplan of reorganization, fresh-start reporting was adopted in accordancewith AICPA Statement of Position 90-7, or SOP 90-7, *Financial Reporting by Entities in Reorganization under the BankruptcyCode*. Under fresh-start reporting, the reorganization valuewas allocated to the Company’s net assets based on their relative fair valuesin a manner similar to the accounting provisions applied to businesscombinations under Statement of Financial Accounting Standards No. 141, *Business Combinations* (“SFAS No. 141”).The Company’s reorganization value was less than the fair value of the netassets acquired pursuant to the plan of reorganization. In accordance with SFASNo. 141, the excess of the fair value of the net assets over thereorganization value was used to reduce the value of property, plant andequipment. Liabilities existing at the effective date of the plan ofreorganization were stated at the present value of amounts to be paiddiscounted at appropriate current rates. Debt issued in connection with theplan of reorganization was recorded at the stated value, which approximatedfair value. All of the fresh-start reporting adjustments, includingallocation of the reorganization value to the assets and liabilities based ontheir respective fair values, have not been finalized.

***Stock-Based Compensation Plans***

TheCompany and Superior TeleCom applied the intrinsic-value based method ofaccounting prescribed by Accounting Principles Board (APB) Opinion No. 25,*Accounting for Stock Issued to Employees*,and related interpretations including FASB Interpretation No. 44, *Accounting for Certain Transactions involving StockCompensation, an interpretation of APB Opinion No. 25*, issuedin March 2000, to account for stock-based compensation plans. Underthis method, compensation expense is recorded on the date of grant only if thecurrent market price of the underlying stock exceeded the exercise price.Compensation expense attributable to fixed awards is recognized on astraight-line basis over the related vesting period. SFAS No. 123, *Accounting for Stock-Based Compensation*,established accounting and disclosure requirements using a fair-value basedmethod of accounting for stock-based employee compensation plans. Asallowed by SFAS No. 123, the Company and Superior TeleCom elected tocontinue to apply the intrinsic-value based method of accountingdescribed above, and adopted only the disclosure requirements of SFAS No. 123.The following table illustrates the effect on net income (loss) if the fair-valuebased method had been applied to all outstanding and unvested awards in eachperiod.
| ** **                                                                                                                   | ** ** | **Superior  Essex Inc.**                   | ** ** | ** ** | **Superior  TeleCom Inc.** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|------------|---------------------------------|------------|
| ** **                                                                                                                   | ** ** | **Three Months Ended  June 30,** | ** ** |
| ** **                                                                                                                   | ** ** | **2004**                                        | ** ** | ** ** | **2003**                        | ** ** |
| Net income, as  reported                                                                                                     |       |                                            | $          | 2,042      |                            |       |   |   | $ | 6,557 |   |   |
| Add stock-based  employee compensation expense included in reported net income, net of tax                                   |       |                                            | 350        |       |                            |       |   | 151 |   |   |
| Deduct total  stock-based employee compensation expense determined under fair-value  based method for all awards, net of tax |       |                                            | (454       | )          |                            |       |   | (336 | ) |   |
| Pro forma net  income                                                                                                        |       |                                            | $          | 1,938      |                            |       |   |   | $ | 6,372 |   |   |
| Net income per  share:                                                                                                       |       |                                            |       |       |                            |       |   |   |   |   |
| As reported:                                                                                                                 |       |                                            |       |       |                            |       |   |   |   |   |
| Basic                                                                                                                        |       |                                            | $          | 0.12       |                            |       |   |   | $ | 0.30 |   |   |
| Diluted                                                                                                                      |       |                                            | 0.12       |       |                            |       |   | 0.30 |   |   |
| Pro forma:                                                                                                                   |       |                                            |       |       |                            |       |   |   |   |   |
| Basic                                                                                                                        |       |                                            | 0.12       |       |                            |       |   | 0.29 |   |   |
| Diluted                                                                                                                      |       |                                            | 0.12       |       |                            |       |   | 0.29 |   |   |

 

7

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| ** **                                                                                                                   | ** ** | **Superior  Essex Inc.**                       | ** ** | ** ** | **Superior  TeleCom Inc.** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|------------|---------------------------------|------------|
| ** **                                                                                                                   | ** ** | **Six Months Ended   June 30,** | ** ** |
| ** **                                                                                                                   | ** ** | **2004**                                            | ** ** | ** ** | **2003**                        | ** ** |
| Net income  (loss), as reported                                                                                              |       |                                                | $          | 3,396      |                            |       |   |   | $ | (49,444 | ) |   |
| Add stock-based  employee compensation expense included in reported net income (loss), net of  tax                           |       |                                                | 545        |       |                            |       |   | 712 |   |   |
| Deduct total  stock-based employee compensation expense determined under fair-value  based method for all awards, net of tax |       |                                                | (680       | )          |                            |       |   | (1,092 | ) |   |
| Pro forma net  income (loss)                                                                                                 |       |                                                | $          | 3,261      |                            |       |   |   | $ | (49,824 | ) |   |
| Net income (loss) per  share:                                                                                                |       |                                                |       |       |                            |       |   |   |   |   |
| As reported:                                                                                                                 |       |                                                |       |       |                            |       |   |   |   |   |
| Basic                                                                                                                        |       |                                                | $          | 0.21       |                            |       |   |   | $ | (2.27 | ) |   |
| Diluted                                                                                                                      |       |                                                | 0.20       |       |                            |       |   | (2.27 | ) |   |
| Pro forma:                                                                                                                   |       |                                                |       |       |                            |       |   |   |   |   |
| Basic                                                                                                                        |       |                                                | 0.20       |       |                            |       |   | (2.29 | ) |   |
| Diluted                                                                                                                      |       |                                                | 0.20       |       |                            |       |   | (2.29 | ) |   |

 

The effects of applying SFAS No. 123 in the proforma disclosure are not necessarily indicative of future amounts, since the estimatedfair value of stock options is amortized to expense over the vesting period andadditional options may be granted in future years. Options to purchase 750,500shares of common stock with a weighted average fair value per option of $6.21were granted during the six months ended June 30, 2004 at an exerciseprice below the fair value of the underlying common stock at the date of grantin accordance with the terms of the 2003 Stock Incentive Plan. The 2003 StockIncentive Plan provides that the exercise price would be the initial value ofthe Company’s stock on the effective date of the plan of reorganization ($10per share) for options granted prior to May 10, 2004 to individuals whowere members of management as of the effective date of the plan of reorganization.Options to purchase 100,000 shares of common stock with a weighted average fairvalue per option of $3.87 were granted during the six months ended June 30,2004 at an exercise price equal to the fair value of the underlying commonstock at the date of grant. The fair value for these options was estimated atthe date of grant using the Black-Scholes option-pricing model withthe following weighted-average assumptions: dividend yield of 0%;expected volatility of 41%, risk-free interest rate of 2.5%, and expected lifeof three years. No options were granted during the six months ended June 30,2003.

During the first quarterof 2004, the Company awarded 150,000 shares of restricted stock with a weightedaverage per share value at the date of award of $13.25 to certain members ofsenior management. These restricted stock awards vest after 7 years withearlier vesting after 3 years if the Company’s stock price exceeds certainspecified levels for a period of 20 consecutive trading days. An additional40,000 shares of restricted stock with a weighted average per share value atthe date of award of $15.25 were granted during the first quarter of 2004 toother members of management. These shares vest 50% after three years and 50%after five years.

8

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**2.   Inventories,net**

At June 30,2004 and December 31, 2003, the components of inventories were as follows:
| ** **      | ** ** | **Superior Essex Inc.** | ** ** |
|-----------------|------------|-----------------------------------|------------|
| ** **      | ** ** | **June 30,  2004**           | ** ** | **December 31,  2003** | ** ** |
| ** **      | ** ** | **(in thousands)**           | ** ** |
| Raw materials   |       | $                                 | 20,821     |   |   | $ | 10,407 |   |   |
| Work in process |       | 24,988                            |       |   | 18,977 |   |   |
| Finished goods  |       | 127,626                           |       |   | 92,944 |   |   |
|            |       | 173,435                           |       |   | 122,328 |   |   |
| LIFO reserve    |       | (10,571                           | )          |   | (2,541 | ) |   |
|            |       | $                                 | 162,864    |   |   | $ | 119,787 |   |   |

 

Inventories valued usingthe LIFO method amounted to $74 million and $69 million at June 30,2004 and December 31, 2003, respectively.

**3.   Comprehensiveincome (loss)**

Thecomponents of comprehensive income (loss) for the three and six months ended June 30,2004 and 2003 were as follows:
| ** **                                      | ** ** | **Superior  Essex Inc.**                         | ** ** | ** ** | **Superior  TeleCom Inc.** | ** ** |
|-------------------------------------------------|------------|-------------------------------------------------------|------------|------------|---------------------------------|------------|
| ** **                                      | ** ** | **Three Months Ended   June 30,** | ** ** |
| ** **                                      | ** ** | **2004**                                              | ** ** | ** ** | **2003**                        | ** ** |
| ** **                                      | ** ** | **(in thousands)**                               | ** ** |
| Net income                                      |       | $                                                     | 2,042      |       |                            |       | $ | 6,557 |   |   |
| Foreign currency  translation adjustment        |       | (542                                                  | )          |       |                            | 2,099      |   |   |
| Change in  unrealized gains on derivatives, net |       | (1,499                                                | )          |       |                            | 978        |   |   |
| Additional  minimum pension liability           |       | —                                                |       |       |                            | (291       | ) |   |
| Other                                           |       | 3                                                     |       |       |                            | 11         |   |   |
| Comprehensive income                            |       | $                                                     | 4          |       |                            |       | $ | 9,354 |   |   |

 
| ** **                                      | ** ** | **Superior  Essex Inc.**                       | ** ** | ** ** | **Superior  TeleCom Inc.** | ** ** |
|-------------------------------------------------|------------|-----------------------------------------------------|------------|------------|---------------------------------|------------|
| ** **                                      | ** ** | **Six Months Ended   June 30,** | ** ** |
| ** **                                      | ** ** | **2004**                                            | ** ** | ** ** | **2003**                        | ** ** |
| ** **                                      | ** ** | **(in thousands)**                             | ** ** |
| Net income (loss)                               |       |                                                | $          | 3,396      |                            |       |   |   | $ | (49,444 | ) |   |
| Foreign currency  translation adjustment        |       |                                                | (53        | )          |                            |       |   | 1,712 |   |   |
| Change in  unrealized gains on derivatives, net |       |                                                | (7         | )          |                            |       |   | 1,183 |   |   |
| Additional  minimum pension liability           |       |                                                | —     |       |                            |       |   | (291 | ) |   |
| Other                                           |       |                                                | 65         |       |                            |       |   | 11 |   |   |
| Comprehensive income  (loss)                    |       |                                                | $          | 3,401      |                            |       |   |   | $ | (46,829 | ) |   |

 

9

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Thecomponents of accumulated other comprehensive income at June 30, 2004 and December 31,2003 were as follows:
| ** **                                                                                                                            | ** ** | **Superior Essex Inc.**               | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                                                                            | ** ** | **  June 30,    2004** | ** ** | **December 31,  2003** | ** ** |
| ** **                                                                                                                            | ** ** | **(in thousands)**                         | ** ** |
| Foreign currency  translation adjustment                                                                                              |       |                                            | $          | 823 |   |   |   | $ | 876 |   |   |
| Unrealized gain  on derivatives, net of deferred tax of $240 and $250 at June 30, 2004  and December 31, 2003, respectively |       |                                            | 373        |   |   |   | 380 |   |   |
| Other                                                                                                                                 |       |                                            | 30         |   |   |   | (35 | ) |   |
|                                                                                                                                  |       |                                            | $          | 1,226 |   |   |   | $ | 1,221 |   |   |

 

**4.   Reorganizationitems**

Reorganizationitems represent amounts incurred by Superior TeleCom as a result of its Chapter11 filings and are summarized as follows for the three and six months ended June 30,2003:
| ** **                               | ** ** | **Three Months Ended  June 30, 2003** | ** ** | **Six Months Ended  June 30, 2003** | ** ** |
|------------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                               | ** ** | **(in thousands)**                                   | ** ** |
| Professional fees                        |       |                                                      | $          | 5,838                                                   |       |   |   | $ | 6,790 |   |   |
| Adjustments to  pre-petition liabilities |       |                                                      | (2,008     | )                                                       |       |   | 27,006 |   |   |
| Deferred debt  issue costs               |       |                                                      | (350       | )                                                       |       |   | 3,452 |   |   |
| Settlement of  pre-petition liabilities  |       |                                                      | (5,010     | )                                                       |       |   | (5,010 | ) |   |
| Adequate  protection payments            |       |                                                      | (1,000     | )                                                       |       |   | — |   |   |
| Other                                    |       |                                                      | 730        |                                                    |       |   | 730 |   |   |
|                                     |       |                                                      | $          | (1,800                                                  | )          |   |   | $ | 32,968 |   |   |

 

Adjustments to pre-petitionliabilities represent amounts to adjust the carrying value of Superior TeleCom’sTrust Convertible Preferred Securities (which were exchanged for ConvertibleDebentures as a result of the liquidation of the Trust on or about April 30,2003) to the estimated amount of the allowed claim including accrued and unpaiddistributions. As a result of the Bankruptcy Court ruling on May 15, 2003,adequate protection payments previously reflected as reorganization expenseswere recorded as reductions in Superior TeleCom’s pre-petition indebtedness. Accordingly,the three month period ended June 30, 2003 reflects the reversal ofadequate protection payments initially recorded as reorganization expensesduring the quarter ended March 31, 2003.

**5.   Restructuringand other charges**

During the six monthsended June 30, 2003, Superior TeleCom recorded restructuring and othercharges of $1.2 million primarily related to ongoing closure activities atthe communication cable segment’s facilities in Elizabethtown, Kentucky andWinnipeg, Manitoba which were closed in 2002. Restructuring and other chargesfor the six months ended June 30, 2003 also included pre-petitionprofessional fees of $3.6 million incurred in connection with preparationfor Superior TeleCom’s Chapter 11 filings. Restructuring and other chargesfor the six months ended June 30, 2004 were $1.5 million consistingprimarily of ongoing professional fees related to implementation of the plan ofreorganization and employee retention and severance payments under plansestablished by Superior TeleCom in connection with its bankruptcy proceedings.

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**6.   BeldenAsset Acquisition**

On June 1,2004, Superior Essex Communications acquired certain assets from operatingsubsidiaries of Belden Inc. (“Belden”) related to their North American copperOSP communications wire and cable business (the “Belden Asset Acquisition”). Underthe terms of the asset purchase agreement, Superior Essex Communicationsacquired certain inventories, selected machinery and equipment and certaincustomer contracts related to a portion of Belden’s communications business fortotal consideration not to exceed $95 million (including a contingent paymentof up to $10 million to be made nine months after closing based on businessrelationships successfully transitioned to Superior Essex Communications). SuperiorEssex Communications intends to use the equipment acquired from Belden in itscommunications wire and cable business. Belden retained its manufacturingfacilities and employees together with all of the associated liabilities,including, among others, accounts payable, any employee-relatedobligations, plant shutdown costs and environmental obligations. The Companypaid an initial cash price of $82.2 million on June 1, 2004. The initialpurchase price is subject to adjustment based on a final accounting of theinventories acquired. Additionally, the Company has accrued the full contingentpayment of $10 million as of June 30, 2004 as the Company believes thepayment of this amount is probable based on customers transitioned to date. Theallocation of the purchase price, including the method and period ofamortization for acquired intangibles, based on the relative fair values of theassets acquired, has not been finalized and is subject to adjustment pendingfinalization of asset appraisals. The preliminary allocation of the purchaseprice is summarized as follows (in thousands):
| Initial purchase  price               |   | $      | 82,165 |   |
|---------------------------------------|--------|--------|--------|--------|
| Acquisition costs                     |   | 2,100  |   |
| Contingent  payment                   |   | 10,000 |   |
|                                  |   | $      | 94,265 |   |
| Allocated to:                         |   |   |   |
| Inventory and amounts due from seller |   | 45,545 |   |
| Machinery and equipment               |   | 22,209 |   |
| Intangible asset—customer  base  |   | 26,511 |   |
|                                  |   | $      | 94,265 |   |

 

The Company intends toinstall the machinery and equipment acquired in the Belden Asset Acquisition incertain of its manufacturing plants and replace certain existing machinery andequipment. As a result, machinery and equipment with a net book value ofapproximately $2.2 million at June 30, 2004 is expected to be taken out ofservice over the next twelve months. Accordingly, the Company has revised theestimated depreciable lives of the machinery and equipment to be replacedresulting in additional depreciation charges included in cost of goods sold of$0.3 million during the three months ended June 30, 2004. Additionally,the Company incurred approximately $0.7 million of plant employee trainingcosts for acquisition-related production capacity expansion which have beenincluded in cost of goods sold in the accompanying statement of operations forthe three months ended June 30, 2004.

 

11

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**7.   Debt**

At June 30,2004 and December 31, 2003, short-term borrowings and long-term debtconsist of the following:
| ** **                                  | ** ** | **Superior Essex Inc.** | ** ** |
|---------------------------------------------|------------|-----------------------------------|------------|
| ** **                                  | ** ** | **June 30,  2004**           | ** ** | **December 31,  2003** | ** ** |
| ** **                                  | ** ** | **(in thousands)**           | ** ** |
| Short-term  borrowings:                     |       |                              |       |   |   |   |   |
| Senior secured revolving credit facility    |       | $                                 | 48,764     |   |   | $ | 41,910 |   |   |
| Other                                       |       | 984                               |       |   | 845 |   |   |
|                                        |       | $                                 | 49,748     |   |   | $ | 42,755 |   |   |
| Long-term  debt:                            |       |                              |       |   |   |   |   |
| 9% senior notes (net of discount of $6,968) |       | $                                 | 250,132    |   |   | $ | — |   |   |
| 91¤2% senior  notes                    |       | —                            |       |   | 145,000 |   |   |
| Series A redeemable preferred stock    |       | 5,000                             |       |   | 5,000 |   |   |
| Other                                       |       | 7,000                             |       |   | 7,000 |   |   |
| Total long-term  debt                       |       | $                                 | 262,132    |   |   | $ | 157,000 |   |   |

 

On March 18 and April 30, 2004, the seniorsecured revolving credit facility was amended to (i) increase the totalfacility by $55 million to $175 million, (ii) increase the maximumamount of eligible inventory for purposes of computing availability from$60 million to $70 million, and (iii) increase the minimumavailability threshold requiring the maintenance of a specified EBITDA ratiofrom $10 million to $15 million. Undrawn availability under thesenior secured revolving credit facility (after considering outstanding lettersof credit) on June 30, 2004 amounted to $110.7 million. 

On April 14, 2004, the Company completed a Rule 144Aprivate placement offering of $257.1 million of 9% unsecured senior notesdue April 2012. Interest on the 9% senior notes is payable April 15and October 15 of each year beginning on October 15, 2004. The 9%senior notes were issued at an original issue discount of $7.1 million.The proceeds from the offering were primarily used to redeem the existing$145 million of 91¤2%senior notes and fund the Belden Asset Acquisition. 

The 9%senior notes were issued by Superior Essex Communications and Essex Group andare fully and unconditionally guaranteed by the Company and each of the Company’sexisting and future domestic subsidiaries. The Company may redeem some or allof the 9% senior notes at any time on or after April 15, 2008 at thefollowing redemption prices (expressed as percentages of the principal amountthereof) if redeemed during the twelve-month period commencing on April 15of the year set forth below: 
| **Year:**      | ** ** | ** ** | ** ** | **Percentage** | ** ** |
|----------------|------------|------------|------------|----------------|------------|
| 2008           |       |       | 104.50     | %              |       |
| 2009           |       |       | 102.25     | %              |       |
| 2010 and after |       |       | 100.00     | %              |       |

 

The Company may also redeem up to 40% of the aggregateprincipal amount of the 9% senior notes at a redemption price of 109% of theprincipal amount thereof using the proceeds of one or more equity offeringscompleted before April 15, 2007. Additionally, upon the occurrence ofspecific kinds of changes in control of the Company, as specified in theindenture governing the 9% senior notes, holders of the 9% senior notes willhave the right to require the Company to purchase all or a portion of theoutstanding 9% senior notes at a purchase price equal to 101% of the principalamount thereof plus accrued interest. 

The Company has entered into a registration rightsagreement with the initial purchasers of the 9% senior notes requiring theCompany to use its reasonable best efforts to file with the Securities and 

12

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Exchange Commission (the “SEC”)and cause to become effective a registration statement relating to an offer toexchange the 9% senior notes for an issue of notes registered under theSecurities Act of 1933, as amended, with terms substantially identical to the9% senior notes. If the exchange offer is not completed before October 11,2004, the annual interest rate on the 9% senior notes will be increased by0.25% per annum on October 11, 2004 and at the end of each 90-day periodthereafter up to a maximum of 1.0% per annum until the exchange offer iscompleted. 

The indenture governingthe 9% senior notes contains covenants which restrict the ability of theCompany and certain of its subsidiaries to, among other things: incuradditional debt and issue preferred stock; make certain distributions,investments and other restricted payments; create certain liens; enter intotransactions with affiliates; and merge, consolidate or sell substantially allof the Company’s assets. 

**8.   Income(loss) per share**

Thecomputation of basic and diluted income (loss) per share for the three and sixmonths ended June 30, 2004 and 2003 is as follows:
| ** **                        | ** ** | **Superior Essex Inc.**                                     | ** ** | ** ** | **Superior TeleCom Inc.** | ** **                 |
|-----------------------------------|------------|-----------------------------------------------------------------------|------------|------------|-------------------------------------|----------------------------|
| ** **                        | ** ** | **Three Months Ended June 30,**                                       | ** ** |
| ** **                        | ** ** | **2004**                                                              | ** ** | ** ** | **2003**                            | ** **                 |
| ** **                        | ** ** | **Net Income**                                                   | ** ** | **Shares** | ** **                          | **Per Share  Amount** | ** ** | ** ** | **Net Income** | ** ** | **Shares** | ** ** | **Per Share  Amount** | ** ** |
| ** **                        | ** ** | **(in thousands, except per share amounts)** | ** ** |
| Basic income per  common share    |       |                                                                  | $          | 2,042      |                                |                       | 16,516 |   |   | $ | 0.12 |   |   |   |   | $ | 6,557 |   |   | 21,845 |   |   | $ | 0.30 |   |   |
| Effect of  dilutive securities    |       |                                                                  |       |       |                                |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Restricted stock awards           |       |                                                                  | —     |       |                                | 85                         |   |   |   |   |   |   |   | — |   |   | — |   |   |   |   |   |
| Stock options                     |       |                                                                  | —     |       |                                | 21                         |   |   |   |   |   |   |   | — |   |   | — |   |   |   |   |   |
| Diluted income per  common  share |       |                                                                  | $          | 2,042      |                                |                       | 16,622 |   |   | $ | 0.12 |   |   |   |   | $ | 6,557 |   |   | 21,845 |   |   | $ | 0.30 |   |   |

 
| ** **                              | ** ** | **Superior Essex Inc.**                                     | ** ** | ** ** | **Superior TeleCom Inc.** | ** **                 |
|-----------------------------------------|------------|-----------------------------------------------------------------------|------------|------------|-------------------------------------|----------------------------|
| ** **                              | ** ** | **Six Months Ended June 30,**                                         | ** ** |
| ** **                              | ** ** | **2004**                                                              | ** ** | ** ** | **2003**                            | ** **                 |
| ** **                              | ** ** | **Net Income**                                                   | ** ** | **Shares** | ** **                          | **Per Share  Amount** | ** ** | ** ** | **Net Loss** | ** ** | **Shares** | ** ** | **Per Share  Amount** | ** ** |
| ** **                              | ** ** | **(in thousands, except per share amounts)** | ** ** |
| Basic income  (loss) per common share   |       |                                                                  | $          | 3,396      |                                |                       | 16,508 |   |   | $ | 0.21 |   |   |   | $ | (49,444 | ) | 21,783 |   |   | $ | (2.27 | ) |   |
| Effect of dilutive  securities          |       |                                                                  |       |       |                                |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Restricted stock awards                 |       |                                                                  | —     |       |                                | 82                         |   |   |   |   |   |   | — |   | — |   |   |   |   |   |
| Stock options                           |       |                                                                  | —     |       |                                | 17                         |   |   |   |   |   |   | — |   | — |   |   |   |   |   |
| Diluted income (loss)  per common share |       |                                                                  | $          | 3,396      |                                |                       | 16,607 |   |   | $ | 0.20 |   |   |   | $ | (49,444 | ) | 21,783 |   |   | $ | (2.27 | ) |   |

 

The assumed conversion ofSuperior TeleCom’s Trust Convertible Preferred Securities has been excludedfrom the income (loss) per share calculation for the three and six months endedJune 30, 2003 as the impact would be anti-dilutive. Stock optionsoutstanding at June 30, 2003 with respect to 4.2 million shares ofSuperior TeleCom common stock have not been included in the computation ofdiluted income (loss) per share for the three and six months ended June 30,2003 because to do so would be anti-dilutive. A total of 366,159 and 258,728anti-dilutive weighted average shares with respect to outstanding stock optionsand restricted stock awards have been excluded from the computation of diluted incomeper share for the three and six months ended June 30, 2004, respectively.

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**9.   Employeebenefits**

SuperiorTeleCom sponsored several defined benefit pension plans which were assumed bythe Company pursuant to the plan of reorganization. The components of netperiodic benefit cost of the defined benefit pension plans for the three andsix months ended June 30, 2004 and 2003 are presented below. 
| ** **                                    | ** ** | **Superior  Essex Inc.**                   | ** ** | ** ** | **Superior  TeleCom Inc.** | ** ** |
|-----------------------------------------------|------------|-------------------------------------------------|------------|------------|---------------------------------|------------|
| ** **                                    | ** ** | **Three Months Ended  June 30,** | ** ** |
| ** **                                    | ** ** | **2004**                                        | ** ** | ** ** | **2003**                        | ** ** |
| ** **                                    | ** ** | **(in thousands)**                         | ** ** |
| **Components  of net periodic benefit cost:** |       |                                            |       |       |                            |       |   |   |
| Service cost                                  |       | $                                               | 106        |       |                            |       | $ | 800 |   |   |
| Interest cost                                 |       | 1,568                                           |       |       |                            | 1,592      |   |   |
| Expected return  on plan assets               |       | (1,539                                          | )          |       |                            | (1,330     | ) |   |
| Actuarial loss                                |       | —                                          |       |       |                            | 215        |   |   |
|                                          |       | $                                               | 135        |       |                            |       | $ | 1,277 |   |   |

 
| ** **                                    | ** ** | **Superior  Essex Inc.**                 | ** ** | ** ** | **Superior  TeleCom Inc.** | ** ** |
|-----------------------------------------------|------------|-----------------------------------------------|------------|------------|---------------------------------|------------|
| ** **                                    | ** ** | **Six Months Ended  June 30,** | ** ** |
| ** **                                    | ** ** | **2004**                                      | ** ** | ** ** | **2003**                        | ** ** |
| ** **                                    | ** ** | **(in thousands)**                       | ** ** |
| **Components of net periodic  benefit cost:** |       |                                          |       |       |                            |       |   |   |
| Service cost                                  |       | $                                             | 212        |       |                            |       | $ | 1,600 |   |   |
| Interest cost                                 |       | 3,136                                         |       |       |                            | 3,184      |   |   |
| Expected return  on plan assets               |       | (3,078                                        | )          |       |                            | (2,660     | ) |   |
| Actuarial loss                                |       | —                                        |       |       |                            | 255        |   |   |
|                                          |       | $                                             | 270        |       |                            |       | $ | 2,379 |   |   |

 

The Company’s cash contributions to the definedbenefit plans amounted to $3.1 million during the six months ended June 30,2004. The Company expects to make additional cash contributions of $8.8 millionfor the remainder of 2004. 

In July 2004, theCompany’s board of directors approved the adoption of an unfunded supplementalexecutive retirement plan (the “SERP”). The SERP is designed to providebenefits to certain specified members of management commencing at retirement(between the ages of 55 and 65) based on the employee’s length of service andcompensation.

**10.   Derivativefinancial instruments**

The Company, to a limitedextent, uses forward fixed price contracts and derivative financial instrumentsto manage commodity price and interest rate risks. The Company does not hold orissue financial instruments for investment or trading purposes. The Company isexposed to credit risk in the event of nonperformance by counterparties forforeign exchange forward contracts, metal forward price contracts and metalsfutures contracts, but the Company does not anticipate nonperformance by any ofthese counterparties. The amount of such exposure is generally limited to anyunrealized gains within the underlying contracts. 

14

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***Commodity price risk management***

The costs of copper, theCompany’s most significant raw material, and aluminum have historically beensubject to considerable volatility. To manage the risk associated with suchvolatility, the Company enters into futures contracts to match the metalcomponent of customer product pricing with the cost component of the inventoryshipped. At June 30, 2004, the Company had futures purchase contracts for13.5 million pounds of copper expiring through March 2006 and 2.5 millionpounds of aluminum expiring through December 2004 related to certainfuture customer firm sales commitments. These futures contracts have beendesignated as cash flow hedges with unrealized gains and losses recorded inother comprehensive income until the hedged sales transactions are reflected inthe income statement which are generally expected to occur in the nexttwenty-four months. Hedge ineffectiveness, which is not significant, isimmediately recognized in earnings. At June 30, 2004, the Company had anunrealized gain of $1.5 million on these futures contracts. A total of $0.6million of this unrealized gain arose subsequent to November 11, 2003 andis recorded in accumulated other comprehensive income net of deferred incometaxes of $0.2 million. The Company recorded a liability of $3.0 million($0.9 million as of June 30, 2004) representing the unrealized loss onsales commitments to customers in connection with the application of fresh-startreporting as of November 10, 2003 corresponding with a $3.0 millionunrealized gain on copper futures contracts at that time. 

***Interest rate risk management***

Inorder to limit its exposure to rising interest rates with respect to borrowingsunder its variable rate senior secured revolving credit facility, the Companyhas entered into interest rate cap agreements. The following interest rate capagreements were outstanding as of June 30, 2004:
| **Type**          | ** ** | ** **              | ** ** | **Notional Amount** | ** ** | **Interest Rate** | ** **   | **Cap Rate** | ** ** | **Expiration Date** | ** ** | **Fair Value** | ** **         |
|-------------------|------------|-------------------------|------------|--------------------------|------------|------------------------|--------------|-------------------|------------|--------------------------|------------|---------------------|--------------------|
| ** **        | ** ** | **(in thousands)** | ** ** | ** **               | ** ** | ** **             | ** **   | ** **        | ** ** | **(in thousands)**  | ** ** |
| Interest rate cap |       |                    | $          | 30,000                   |       |                   | 30-day LIBOR |              |       | 1.75                     | %          |                | December 2005 |   |   | $ | 421 |   |   |
| Interest rate cap |       |                    | 30,000     |                     |       | 30-day LIBOR           |         |              | 5.0        | %                        |       | December 2004  |               |   | 1 |   |   |
| Interest rate cap |       |                    | 15,000     |                     |       | 30-day LIBOR           |         |              | 5.0        | %                        |       | April 2005     |               |   | — |   |   |
| Interest rate cap |       |                    | 12,500     |                     |       | 3-month LIBOR          |         |              | 7.0        | %                        |       | May 2005       |               |   | 1 |   |   |

 

**11.   Commitmentsand contingencies**

The Company’s operations are subject to environmentallaws and regulations in each of the jurisdictions in which it owns or operatesfacilities governing, among other things, emissions into the air, discharges towater, the use, handling and disposal of hazardous substances and theinvestigation and remediation of soil and groundwater contamination bothon-site at past and current facilities and at off-site disposal locations.On-site contamination at certain of the Company’s facilities is the result ofhistoric activities, including certain activities attributable to SuperiorTeleCom’s and the Company’s operations and those occurring prior to the use ofa facility by Superior TeleCom or the Company. Off-site liability includesclean-up responsibilities and response costs incurred by others at varioussites, under federal or state statutes, for which Superior TeleCom has beenidentified by the United States Environmental Protection Agency, or stateenvironmental agency, as a Potentially Responsible Party, or “PRP,” or theequivalent. At the effective date of the plan of reorganization, SuperiorTeleCom or one of its subsidiaries was named as a PRP with respect to sevensites. Certain PRP representatives filed claims in connection with SuperiorTeleCom’s Chapter 11 proceedings. These claims are being negotiated, andallowed claims will receive a portion of the $3.0 million amount that theplan of reorganization allocated to holders of general unsecured claims. 

Essex International (including subsidiaries thereof),which Superior TeleCom acquired in 1998 and 1999, has been named as a PRP at anumber of sites. Many of the sites for which Essex International is 

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currently named as a PRPare covered by an indemnity from United Technologies Corporation provided inconnection with the February 1988 sale of Essex Group by UnitedTechnologies to Essex International. Pursuant to the indemnity, UnitedTechnologies agreed to indemnify Essex International against losses incurredunder any environmental protection and pollution control laws or resultingfrom, or in connection with, damage or pollution to the environment arisingfrom events, operations or activities of Essex Group prior to February 29,1988, or from conditions or circumstances existing at or prior to February 29,1988. In order to be covered by the indemnity, the condition, event orcircumstance must have been known to United Technologies prior to, and UnitedTechnologies must have received notice of the indemnity claim during thefive-year period commencing on, February 29, 1988. The sites covered by thisindemnity historically have been handled directly by United Technologies andrequired payments generally have been made directly by United Technologies.Most of these sites are mature sites where allocations of liability have beensettled and remediation is well underway or has been completed. 

United Technologies also provided an additionalenvironmental indemnity, referred to as the “basket indemnity.” This indemnityrelates to liabilities arising from environmental events, conditions orcircumstances existing at or prior to February 29, 1988 of which UnitedTechnologies received notice during the five-year period commencing on February 29,1988. As to such liabilities, Essex International is responsible for the first$4.0 million incurred. Thereafter, United Technologies has agreed toindemnify Essex International fully for any liabilities in excess of$4.0 million. Essex International has not incurred any liabilities coveredby this indemnity. 

Apart from the indemnified sites, Essex Internationalhas been named as a PRP or a defendant in a civil lawsuit at, or has receivedinquiries from regulatory agencies involving, a number of off-site or formerlyowned sites. Operations of Superior Telecommunications Inc. and DNE, whichwere subsidiaries of Superior TeleCom, have resulted in releases of hazardoussubstances or wastes at sites currently or formerly owned or operated by suchcompanies. 

Except for the air quality matters involving twoIndiana facilities, none of the sites or matters mentioned above involves theimposition of sanctions, fines or administrative penalties on the Company. TheCompany believes that any of the environmental proceedings in which it isinvolved have been or will be addressed in the bankruptcy claims resolutionprocess or will not have a material adverse effect either individually, or inthe aggregate, upon its business, financial condition, liquidity or results ofoperations. There can be no assurance that future developments will not alterthis conclusion. 

Since approximately 1990, Essex International has beennamed as a defendant in a number of product liability lawsuits brought byelectricians and other skilled tradesmen claiming injury from exposure toasbestos found in electrical wire products produced many years ago. Litigationagainst various past insurers of Essex International who had previously refusedto defend and indemnify Essex International against these lawsuits was settledduring 1999. Under the settlement, Essex International was reimbursed forsubstantially all of its costs and expenses incurred in the defense of theselawsuits, and the insurers have undertaken to defend, are currently directlydefending and, if it should become necessary, will indemnify EssexInternational against those asbestos lawsuits, subject to the terms and limitsof the respective policies. Under the plan of reorganization, certain of theclaimants in these actions will be able to assert claims under applicableinsurance coverage and other similar arrangements. The Company believes that EssexInternational’s liability, if any, in these matters will not have a materialadverse effect either individually, or in the aggregate, upon its business,financial condition, liquidity or results of operations. There can be noassurance, however, that future developments will not alter this conclusion. 

On January 18, 2002, United Technologies broughta third party claim against Essex International in a civil action inMassachusetts. United Technologies had been sued by an insurer for, among otherthings, approximately $3.1 million in compensatory damages forretrospective premiums for 1999, 2000 and 2001 relating to certain events thatallegedly occurred while Essex Group was a subsidiary of 

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United Technologies.United Technologies’ third party complaint against Essex Internationalcontended, among other things, that Essex International had agreed, in thestock purchase agreement dated January 15, 1998, to pay such premiums andsought a declaratory judgment, contribution and indemnification for any suchretrospective premiums that United Technologies might have to pay the insurer.On January 13, 2003, the court granted the insurer’s motion for summaryjudgment against United Technologies and Essex International’s motion todismiss with prejudice United Technologies’ claim against it. UnitedTechnologies thereafter indicated an intention to appeal the ruling dismissingthe action against Essex International. However, before Essex International’stime to respond, those proceedings were stayed by the filing of SuperiorTeleCom’s bankruptcy proceedings. United Technologies and the insurer filedproofs of claim in connection with Superior TeleCom’s bankruptcy. The Companybelieves that these claims will be addressed in the bankruptcy claimsresolution process or will not have a material adverse effect eitherindividually, or in the aggregate, upon its business, financial condition,liquidity or results of operations. There can be no assurance that futuredevelopments will not alter this conclusion. 

The Company acceptscertain customer orders for future delivery at fixed prices. As copper is themost significant raw material used in the manufacturing process, the Companyenters into forward purchase fixed price commitments for copper to properlymatch its cost to the value of the copper to be billed to the customers. At June 30,2004, the Company had forward fixed price copper purchase commitments for $42.4million. 

**12.   Businesssegments**

Reportable segments are strategic businesses thatoffer different products and services to different customers. These segmentsare communications cable, magnet wire and distribution and copper rod. Thecommunications cable segment manufactures communications wire and cableproducts sold to telephone companies, CATV companies, distributors and systemsintegrators, principally in North America. The magnet wire and distributionsegment manufactures and supplies magnet wire, fabricated insulation andaccessory products for motors, transformers and electrical controls soldprimarily to original equipment manufacturers. The copper rod segment includessales of copper rod produced by the Company’s continuous casting units toexternal customers. Copper rod produced for internal processing is recorded bythe consuming segment at cost as a component of cost of goods sold. 

The Company evaluates segment performance based on anumber of factors, with operating income, excluding restructuring and othercharges, being the most critical. 

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Financialinformation with respect to reportable segments is presented below. Corporateand other items shown below are provided to reconcile to the accompanyingconsolidated statements of operations. 
| ** **                      | ** ** | **Superior  Essex Inc.**                      | ** ** | ** **                                        | **Superior  TeleCom Inc.** | ** ** | **Superior  Essex Inc.** | ** ** | ** ** | **Superior  TeleCom Inc.** | ** ** |
|---------------------------------|------------|----------------------------------------------------|------------|---------------------------------------------------|---------------------------------|------------|-------------------------------|------------|------------|---------------------------------|------------|
| ** **                      | ** ** | **Three Months Ended June 30** | ** ** | **Six Months Ended June 30,** | ** **                      |
| ** **                      | ** ** | **2004**                                           | ** ** | ** **                                        | **2003**                        | ** ** | **2004**                      | ** ** | ** ** | **2003**                        | ** ** |
| ** **                      | ** ** | **(in thousands)**                            | ** ** |
| Net sales:                      |       |                                               |       |                                              |                            |       |                          |       |       |                            |       |   |   |   |   |
| Communications cable            |       | 131,026                                            |       |                                              |                            | $          | 93,140                        |       |       | $                               | 221,626    |   |   |   | $ | 168,124 |   |   |
| Magnet wire and distribution    |       | 153,153                                            |       |                                              |                            | 120,031    |                          |       | 299,516    |                            |       |   | 244,079 |   |   |
| Copper rod                      |       | 73,172                                             |       |                                              |                            | 35,609     |                          |       | 138,060    |                            |       |   | 86,115 |   |   |
|                            |       | $                                                  | 357,351    |                                              |                            |       | $                             | 248,780    |       |                            | $          | 659,202 |   |   |   | $ | 498,318 |   |   |
| Operating income  (loss):       |       |                                               |       |                                              |                            |       |                          |       |       |                            |       |   |   |   |   |
| Communications cable            |       | $                                                  | 6,044      |                                              |                            |       | $                             | 6,871      |       |                            | $          | 9,941 |   |   |   | $ | 9,112 |   |   |
| Magnet wire and distribution    |       | 8,670                                              |       |                                              |                            | 6,822      |                          |       | 15,971     |                            |       |   | 14,779 |   |   |
| Copper rod                      |       | 106                                                |       |                                              |                            | (1,662     | )                             |       | 819        |                            |       |   | (2,745 | ) |   |
| Corporate and other             |       | (3,494                                             | )          |                                              |                            | (2,973     | )                             |       | (6,696     | )                               |       |   | (6,746 | ) |   |
| Restructuring and other charges |       | (406                                               | )          |                                              |                            | (669       | )                             |       | (1,486     | )                               |       |   | (4,835 | ) |   |
|                            |       | $                                                  | 10,920     |                                              |                            |       | $                             | 8,389      |       |                            | $          | 18,549 |   |   |   | $ | 9,565 |   |   |

 
| ** **                   | ** ** | **Superior Essex Inc.** | ** ** |
|------------------------------|------------|-----------------------------------|------------|
| ** **                   | ** ** | **June 30,  2004**           | ** ** | **December 31,  2003** | ** ** |
| ** **                   | ** ** | **(in thousands)**           | ** ** |
| Total assets:                |       |                              |       |   |   |   |   |
| Communications Cable         |       | $                                 | 294,229    |   |   | $ | 180,262 |   |   |
| Magnet Wire and Distribution |       | 261,968                           |       |   | 239,468 |   |   |
| Copper Rod                   |       | 40,291                            |       |   | 46,625 |   |   |
| Corporate and other          |       | 28,654                            |       |   | 20,570 |   |   |
|                         |       | $                                 | 625,142    |   |   | $ | 486,925 |   |   |

 

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**ITEM 2.**          MANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This reportcontains “forward-looking statements” within the meaning of Section 27Aof the Securities Act of 1933 and Section 21E of the Securities ExchangeAct of 1934. These forward-looking statements are based on currentexpectations, estimates and forecasts about us, our future performance, theindustries in which we operate and our liquidity. In addition, other writtenand oral statements that constitute forward-looking statements may bemade by us or on our behalf. Such forward-looking statements includestatements regarding expected financial results and other planned events,including, but not limited to, anticipated liquidity and capital expenditures.Words such as “anticipate,” “assume,” “believe,” “estimate,” “expect,” “intend,”“plan,” “seek,” “target,” “goal,” variations of such words and similarexpressions are intended to identify such forward-looking statements.These statements are not guarantees of future performance and involve certainrisks, uncertainties and assumptions that are difficult to predict. Therefore,actual future events or results may differ materially from these statements.These risks and uncertainties include the impact of the following:

·       Generaleconomic, business and industry conditions;

·       Spendingreductions by the telephone industry;

·       Competition,including from other wire and cable manufacturers and other alternative sourcesand technologies;

·       Rapidproduct and technology development;

·       Marketacceptance of new products and continuing product demand;

·       Productionand timing of customer orders;

·       Themigration of magnet wire demand to China and other countries;

·       Fluctuationsin the supply and pricing of copper and other principal raw materials;

·       Oursignificant level of indebtedness and debt covenant requirements;

·       Thepotential need for and availability of additional sources of capital andliquidity;

·       Ourability to successfully realize the benefits of our acquisition of assets fromBelden Inc. and to identify, finance and integrate other acquisitions;

·       Changesin short-term interest rates and foreign exchange rates;

·       Asignificant deterioration in our labor relations;

·       Thevolatility of the market price of our common stock; and

·       Otherrisks and uncertainties, including those included under the caption “RiskFactors” in our Annual Report on Form 10-K, as amended, for the year endedDecember 31, 2003.

Forward-looking statements should be consideredin light of various important factors, including those set forth elsewhere inthis report and our other filings with the SEC. Moreover, we caution you not toplace undue reliance on these forward-looking statements, which speakonly as of the date they were made. We do not undertake any obligation topublicly release any revisions to these forward-looking statements toreflect events or circumstances after the date of this report or to reflect theoccurrence of unanticipated events. All subsequent forward-lookingstatements attributable to us or any person acting on our behalf are expresslyqualified in their entirety by the cautionary statements contained or referredto in this report and in our other SEC filings.

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**General**

Superior Essex Inc., a Delaware holding company,and its operating subsidiaries were formed in 2003 to acquire and conduct thebusiness formerly conducted by Superior TeleCom Inc. and its subsidiaries.

We manufacture a portfolio of wire and cable productsgrouped into the following primary industry segments: (i) ourcommunications cable segment; (ii) our magnet wire and distributionsegment; and (iii) our copper rod operations. Our communications cablesegment manufactures communications wire and cable products sold to telephonecompanies, CATV companies, distributors and systems integrators, principally inNorth America. Our magnet wire and distribution segment manufactures andsupplies magnet wire, fabricated insulation and accessory products for motors,transformers and electrical controls sold primarily to original equipmentmanufacturers, or OEMs. Our copper rod operations include sales of copperrod produced by continuous casting units to external customers.

Industry segment financialdata (including sales and operating income by industry segment) for the threeand six month periods ended June 30, 2004 and 2003 is included inNote 12 to the accompanying consolidated financial statements.

***Chapter 11 Filing and Reorganization***

On March 3, 2003, Superior TeleCom and certain ofits U.S. subsidiaries filed voluntary petitions for relief under Chapter 11 ofthe United States Bankruptcy Code and continued to manage their properties andoperate their businesses as “debtors-in-possession” under the jurisdiction ofthe Bankruptcy Court and in accordance with the applicable provisions of theBankruptcy Code. Under the Bankruptcy Code, actions to collect pre-petitionindebtedness, as well as most other pending litigation, were stayed and certaincontractual provisions could not be enforced against Superior TeleCom. Absentan order of the Bankruptcy Court, substantially all pre-petition liabilitieswere subject to settlement under a plan of reorganization voted upon by certainclasses of Superior TeleCom’s creditors and approved by the Bankruptcy Court. Aplan of reorganization was confirmed by order of the Bankruptcy Court on October 22,2003 and became effective on November 10, 2003.

In accordance with theplan of reorganization, on November 10, 2003, the effective date of theplan, we acquired the business formerly conducted by Superior TeleCom and itssubsidiaries, and Superior TeleCom and certain of its dormant subsidiaries weredeemed dissolved and ceased to have continuing corporate existences, subjectonly to obligations under the plan of reorganization to satisfy allowed claims.Except as otherwise provided in the plan of reorganization, our senior securedrevolving credit facility, our senior notes or any agreement, instrument orindenture relating thereto, on and after the effective date of the plan, allproperty of Superior TeleCom and its subsidiaries vested in the Company, freeand clear of all liens, claims, charges or other encumbrances. On and after theeffective date of the plan of reorganization, we began operating our businesswithout supervision or approval by the Bankruptcy Court.

***Fresh-Start Reporting***

Upon implementation of the plan of reorganization, weadopted fresh-start reporting in accordance with AICPA Statement ofPosition 90-7, or SOP 90-7, “*FinancialReporting by Entities in Reorganization under the Bankruptcy Code*.”Under fresh-start reporting, the reorganization value was allocated toour net assets based on their relative fair values in a manner similar to theaccounting provisions applied to business combinations under Statement ofFinancial Accounting Standards No. 141, “*BusinessCombinations*” (“SFAS No. 141”). Our reorganization value wasless than the fair value of the net assets acquired pursuant to the plan ofreorganization. In accordance with SFAS No. 141, the excess of the fairvalue of the net assets over the reorganization value was used to reduce thevalue of property, plant and equipment. Liabilities existing at the effectivedate of the plan of reorganization were stated at the present 

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value of amounts to bepaid discounted at appropriate current rates. Debt issued in connection withthe plan of reorganization was recorded at the stated value, which approximatedfair value.

As a result of thereorganization and our implementation of fresh-start reporting, ourconsolidated financial statements for periods subsequent to November 10,2003 reflect a new basis of accounting. Accordingly, the historical financialstatements of Superior TeleCom, our predecessor, are not comparable to ourconsolidated financial statements for periods subsequent to the effective dateof the plan of reorganization.

***Belden Asset Acquisition***

On June 1, 2004, Superior Essex Communicationsacquired certain assets from operating subsidiaries of Belden Inc. (“Belden”)related to their North American copper OSP communications wire and cablebusiness (the “Belden Asset Acquisition”). Under the terms of the assetpurchase agreement, Superior Essex Communications acquired certain inventories,selected machinery and equipment and certain customer contracts related to aportion of Belden’s communications business for total consideration not toexceed $95 million (including a contingent payment of up to $10 million to bemade nine months after closing based on business relationships successfullytransitioned to Superior Essex Communications). Superior Essex Communicationsintends to use the equipment acquired from Belden in its communications wireand cable business. Belden retained its manufacturing facilities and employeestogether with all of the associated liabilities, including, among others,accounts payable, any employee-related obligations, plant shutdown costs andenvironmental obligations. We paid an initial cash purchase price of $82.2million on June 1, 2004. The initial purchase price is subject toadjustment based on a final accounting of the inventories acquired.

For the year end December 31,2003, Belden reported revenues of $202.4 million from its North Americancopper OSP communications wire and cable operations. We believe the BeldenAsset Acquisition represents an attractive opportunity for us to develop newcustomer relationships and increase our level of business with existingcustomers in the copper OSP communications business. We also believe we will beable to generate meaningful cost benefits from manufacturing efficiencies andgreater capacity. In the short term, we expect the incremental revenues willyield lower profit contributions while we deplete purchased inventory and incurtransitional expenses and charges.

***Impact of Copper Price Fluctuations on OperatingResults***

Copper is one of theprincipal raw materials used in our wire and cable product manufacturing.Fluctuations in the price of copper affect per unit product pricing and relatedrevenues. Historically the cost of copper has not had a material impact onprofitability, as, in certain cases, we have the ability to adjust pricesbilled for our products to properly match the copper cost component ofinventory shipped. In our communications cable segment these adjustmentsinclude, among others, certain contractual arrangements under which productprices are adjusted quarterly based on an average of previous periods’ copperindices. Beginning in the fourth quarter of 2003 and continuing through thefirst six months of 2004, copper prices have escalated rapidly, increasing froman average of $0.88 per pound for the month of October 2003 to an averageof $1.23 per pound for the first six months of 2004. The rapid increase incopper prices can impact profitability in the short term based upon the timingof product price adjustments to match the increased copper costs. While we didnot experience a material negative impact from this situation in the firstquarter of 2004, our results in the second quarter of 2004 were negativelyimpacted due to accelerated orders by some communications cable customers inthe first quarter of 2004 in anticipation of future contractual priceadjustments related to increased copper costs. Increases in copper prices canalso impact our working capital. See “Liquidity and Capital Resources” below.

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**Results of Operations—Three Month Period Ended June 30,2004 Compared to the Three Month Period Ended June 30, 2003**

The discussion below compares the results of ouroperations for the three months ended June 30, 2004 to those of SuperiorTeleCom for the three months ended June 30, 2003.

Averagecopper prices for the three months ended June 30, 2004 increased 65% ascompared to the three months ended June 30, 2003. Due to the impact ofthis increase on reported sales, the following table provides supplementalsales information adjusted to a constant $0.80/lb COMEX cost of copper to aidin a comparison of period-to-period revenues by segment.
| ** **                         | ** ** | **Superior  Essex Inc.**                   | ** ** | ** **                                      | **Superior  TeleCom Inc.** | ** ** | **Superior  Essex Inc.** | ** ** | ** ** | **Superior  TeleCom Inc.** | ** ** |
|------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|---------------------------------|------------|-------------------------------|------------|------------|---------------------------------|------------|
| ** **                         | ** ** | **Actual**                                      | ** ** | **Copper-adjusted**                             | ** **                      |
| ** **                         | ** ** | **Three months ended  June 30,** | ** ** | **Three months ended  June 30,** | ** **                      |
| ** **                         | ** ** | **2004**                                        | ** ** | ** **                                      | **2003**                        | ** ** | **2004**                      | ** ** | ** ** | **2003**                        | ** ** |
| ** **                         | ** ** | **(in millions)**                          | ** ** |
| Net sales:                         |       |                                            |       |                                            |                            |       |                          |       |       |                            |       |   |   |   |   |   |   |   |   |
| Communications cable               |       |                                            | $          | 131.0                                           |                            |       |                          |       | $          | 93.1                            |       |   |   | $ | 119.8 |   |   |   |   | $ | 94.6 |   |   |
| Magnet wire and distribution       |       |                                            | 153.1      |                                            |                            |       |                          | 120.1      |       |                            |       | 132.1 |   |   |   |   | 123.6 |   |   |
| Copper rod                         |       |                                            | 73.2       |                                            |                            |       |                          | 35.6       |       |                            |       | 49.1 |   |   |   |   | 38.0 |   |   |
|                               |       |                                            | 357.3      |                                            |                            |       |                          | 248.8      |       |                            |       | 301.0 |   |   |   |   | 256.2 |   |   |
| Constant cost of copper adjustment |       |                                            | —     |                                            |                            |       |                          | —     |       |                            |       | 56.3 |   |   |   |   | (7.4 | ) |   |
| Total                              |       |                                            | $          | 357.3                                           |                            |       |                          |       | $          | 248.8                           |       |   |   | $ | 357.3 |   |   |   |   | $ | 248.8 |   |   |

 

Consolidated sales for the three months ended June 30,2004 were $357.3 million, an increase of 44% as compared to consolidated salesof $248.8 million for the quarter ended June 30, 2003. Sales for the 2004quarter were significantly impacted by the increase in copper prices. Salesadjusted for a constant cost of copper increased $44.8 million, or 17%, for thequarter ended June 30, 2004 compared to the prior year period. Sales inour communications cable segment for the three months ended June 30, 2004also included approximately $15.1 million ($13.5 million on a copper-adjustedbasis) attributable to customer contracts acquired in the Belden AssetAcquisition. Excluding the impact of the Belden Asset Acquisition, consolidatedsales adjusted for a constant cost of copper increased 12% reflecting volumeincreases in all of our business segments.

Sales for our communications cable segment for the June 30,2004 quarter were $131.0 million, an increase of 41%, as compared to sales of$93.1 million for the quarter ended June 30, 2003. Sales adjusted for aconstant cost of copper increased 27%. Excluding the impact of the Belden AssetAcquisition, sales for our communications cable segment adjusted for a constantcost of copper increased 12%. The sales increase in 2004, excluding the effectsof the Belden Asset Acquisition, reflects a broad-based increase indemand for our OSP cable product lines, which we believe is due in part tohigher spending levels to support deferred maintenance by the major telephonecompanies (the largest customer group of the communications cable segment) aswell as increased demand for our copper and fiber premise products supported bygrowing investment in information technology, including new and upgradedcomputer systems and associated wiring. We also believe the increase in salesreflects an increase in our market share due in part to the effects ofcontinuing industry consolidation.

Sales for our magnet wire and distribution segmentwere $153.1 million for the quarter ended June 30, 2004, an increase of28% as compared to the prior year. On a copper-adjusted basis, sales forthe quarter increased 7% from the same quarter in the prior year. The increasereflects volume increases in both our Essex Brownell distribution business andto a lesser degree our major OEM customer base. We believe the increase incopper adjusted sales in the quarter ended June 30, 2004 reflects therecovery in the general 

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economy, as well as in ourbasic end markets, particularly related to industrial production and the energysector.

Copper rod sales for the three months ended June 30,2004 were $73.2 million compared to $35.6 million for the comparable 2003period, an increase of $37.6 million. On a copper- adjusted basis, salesfor our copper rod segment increased by $11.1 million, or 29%, for the threemonths ended June 30, 2004 compared to the prior year period. Pricing forcopper rod is generally based on monthly average COMEX spot prices and thussales are directly impacted by changes in copper prices. The copper-adjustedsales increase reflects sales to a major new customer obtained in 2004 togetherwith a significant reduction in demand in the second quarter of 2003 from amajor customer.

For the quarter ended June 30, 2004, gross profitwas $33.6 million, an increase of 12% as compared to the prior year quarterprimarily attributable to increased volume in our communications cable andmagnet wire and distribution segments and lower depreciation charges in 2004resulting from the application of fresh-start reporting. The gross profitmargin in the 2004 quarter was 9.4% compared to 12.1% for same quarter in 2003.The comparative decline in gross profit margin primarily reflects the effectsof increased copper prices on sales. Gross profit margin on a copper-adjusted basiswas 11.2% for the three months ended June 30, 2004 compared to 11.7% forthe three months ended June 30, 2003. Copper-adjusted gross profit marginsin our communications cable business decreased by 2.9% for the 2004 quartercompared to the prior year quarter due to integration costs incurred inconnection with the Belden Asset Acquisition and a shortfall in recoveringsecond quarter 2004 increases in copper costs through contractual priceadjustments. This was principally the result of first quarter 2004 acceleratedorders by some customers in anticipation of copper-based contractual priceadjustments. Additionally, gross profit margins in our communications cablesegment reflect lower product pricing resulting from the effects of competitivepressures on contracts renegotiated in the second half of 2003 and continuingin 2004. Copper-adjusted gross profit margin for our magnet wire anddistribution business for the three months ended June 30, 2004 increased1.3% compared to the prior year quarter. This increase reflects lowerdepreciation charges resulting from the application of fresh-start reporting,increased volume through our higher margin Essex Brownell distribution channeland improved capacity utilization partially offset by certain inflationary costincreases including higher natural gas prices.

Selling, general and administrative expenses (“SG&Aexpense”) for the three month period ended June 30, 2004 were $22.3million, an increase of 6% as compared to SG&A expense of $21.0 million forthe three months ended June 30, 2003. The increase primarily reflects theimpact of increased sales volume and related sales commissions in ourcommunications cable segment as well as corporate stock-based compensationcharges.

Superior TeleCom incurred $0.7 million ofrestructuring and other charges in the second quarter of 2003 primarily relatedto ongoing closure and sale activities at its communication cable segment’sElizabethtown, Kentucky and Winnipeg, Manitoba facilities which were closed in2002. Restructuring and other charges for the three months ended June 30,2004 were $0.4 million and consisted primarily of ongoing professional feesrelated to implementation of the plan of reorganization and employee retentionand severance payments under plans established by Superior TeleCom inconnection with its bankruptcy proceedings.

We had operating income of $10.9 million for thequarter ended June 30, 2004, compared to $8.4 million for the same periodin 2003. The comparative improvement in operating income for the current yearwas principally attributable to increased sales volumes and related grossprofit.

Superior TeleCom reported a net benefit fromreorganization items related to its Chapter 11 filing of $1.8 million in thequarter ended June 30, 2003. This benefit reflected gains of approximately$5.0 million on the settlement of pre-petition claims, $2.0 million to adjustthe accrued dividends on the Trust Convertible Preferred Securities to theamount of the allowed claim, and $1.0 million related to the 

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reversal of previouslyexpensed adequate protection payments. As a result of a ruling by theBankruptcy Court in May 2003, adequate protection payments previouslyreflected as reorganization expenses were recorded as reductions ofpre-petition indebtedness. These benefits were offset by approximately $5.8million in reorganization related professional fees.

Interest expense for the quarter ended June 30,2004 was $7.1 million, compared to interest expense of $2.3 million for thequarter ended June 30, 2003. Interest expense for the 2003 quarter consistedof interest on Superior TeleCom’s debtor-in-possession financing only asSuperior TeleCom ceased accruing interest on all pre-petition indebtedness asof March 3, 2003. The increase in interest expense in 2004 reflects ournew capital structure under the plan of reorganization as well as increasedborrowings to finance increased working capital and the Belden AssetAcquisition. During the quarter ended June 30, 2004 we also recognized aloss on early extinguishment of debt of $0.4 million resulting from thewrite-off of deferred debt issue costs associated with our 91¤2%senior notes which were redeemed with the proceeds of our 9% senior noteoffering in April 2004.

Superior TeleCom recorded $1.2 million ofdistributions on the preferred securities of Superior Trust I for the threemonths ended June 30, 2003. Superior TeleCom’s Chapter 11 filingconstituted an early dissolution event under the terms of the instrumentsgoverning the Trust and as a result the Trust was liquidated on or about April 30,2003 by distribution to holders of the Trust Convertible Preferred Securitiesof an aggregate principal amount of 81¤2% ConvertibleDebentures equal to the aggregate liquidation amount of their Trust ConvertiblePreferred Securities. All outstanding 81¤2% ConvertibleDebentures were cancelled on November 10, 2003 in accordance with theterms of the plan of reorganization. 

Superior TeleCom recordeda full valuation allowance on its net deferred tax assets for the three monthsended June 30, 2003 because the realization of such assets in futureperiods was uncertain as a result of the bankruptcy filing. The tax benefitrecorded for 2003 quarter primarily represents the elimination of the netdeferred tax liabilities existing at December 31, 2002. Our effective taxrate for the three months ended June 30, 2004 was 38%. The effective taxrate exceeds the U.S. statutory tax rate due to the impact of state taxes.

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**Results of Operations—Six-Month Period Ended June 30,2004 Compared to the Six-Month Period Ended June 30, 2003**

The discussion below compares the results of ouroperations for the six months ended June 30, 2004 to those of SuperiorTeleCom for the six months ended June 30, 2003.

Averagecopper prices for the six months ended June 30, 2004 increased 64% ascompared to the six months ended June 30, 2003. Due to the impact of thisincrease on reported sales, the following table provides supplemental salesinformation adjusted to a constant $0.80/lb COMEX cost of copper to aid in acomparison of period-to-period revenues by segment.
| ** **                         | ** ** | **Superior  Essex Inc.**                 | ** ** | ** **                                    | **Superior  TeleCom Inc.** | ** ** | **Superior  Essex Inc.** | ** ** | ** ** | **Superior  TeleCom Inc.** | ** ** |
|------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|---------------------------------|------------|-------------------------------|------------|------------|---------------------------------|------------|
| ** **                         | ** ** | **Actual**                                    | ** ** | **Copper-adjusted**                           | ** **                      |
| ** **                         | ** ** | **Six months ended  June 30,** | ** ** | **Six months ended  June 30,** | ** **                      |
| ** **                         | ** ** | **2004**                                      | ** ** | ** **                                    | **2003**                        | ** ** | **2004**                      | ** ** | ** ** | **2003**                        | ** ** |
| ** **                         | ** ** | **(in millions)**                             | ** ** |
| Net sales:                         |       |                                          |       |                                          |                            |       |                          |       |       |                            |       |   |   |   |   |   |   |   |   |
| Communications cable               |       |                                          | $          | 221.6                                         |                            |       |                          |       | $          | 168.1                           |       |   |   | $ | 207.1 |   |   |   |   | $ | 171.6 |   |   |
| Magnet wire and distribution       |       |                                          | 299.5      |                                          |                            |       |                          | 244.1      |       |                            |       | 259.6 |   |   |   |   | 250.9 |   |   |
| Copper rod                         |       |                                          | 138.1      |                                          |                            |       |                          | 86.1       |       |                            |       | 92.1 |   |   |   |   | 90.7 |   |   |
|                               |       |                                          | 659.2      |                                          |                            |       |                          | 498.3      |       |                            |       | 558.8 |   |   |   |   | 513.2 |   |   |
| Constant cost of copper adjustment |       |                                          | —     |                                          |                            |       |                          | —     |       |                            |       | 100.4 |   |   |   |   | (14.9 | ) |   |
| Total                              |       |                                          | $          | 659.2                                         |                            |       |                          |       | $          | 498.3                           |       |   |   | $ | 659.2 |   |   |   |   | $ | 498.3 |   |   |

 

Consolidated sales for the six months ended June 30,2004 were $659.2 million, an increase of 32% as compared to consolidated salesof $498.3 million for the quarter ended June 30, 2003. Sales for the 2004period were significantly impacted by the increase in copper prices. Salesadjusted for a constant cost of copper increased 9% for the six months ended June 30,2004 compared to the prior year period. Sales in our communications cablesegment for the six months ended June 30, 2004 also included approximately$15.1 million ($13.5 million on a copper-adjusted basis) attributable tocustomer contracts acquired in the Belden Asset Acquisition. Excluding theimpact of the Belden Asset Acquisition, consolidated sales adjusted for aconstant cost of copper increased 6% primarily as a result of increased volumesin our communications cable and magnet wire and distribution segments.

Sales for our communications cable segment for the sixmonths ended June 30, 2004 were $221.6 million, an increase of 32%, ascompared to sales of $168.1 million for the six months ended June 30,2003. Sales adjusted for a constant cost of copper increased 21%. Excluding theimpact of the Belden Asset Acquisition, sales for our communications cablesegment adjusted for a constant cost of copper increased 13%. The sales increasein 2004, excluding the effects of the Belden Asset Acquisition, reflects abroad-based increase in demand for our OSP cable product lines, which webelieve is due in part to higher spending levels to support deferredmaintenance by the major telephone companies (the largest customer group of thecommunications cable segment) as well as increased demand for our copper andfiber premise products supported by growing investment in informationtechnology, including new and upgraded computer systems and associated wiring.We also believe the increase in sales reflects an increase in our market sharedue in part to the effects of continuing industry consolidation.

Sales for our magnet wire and distribution segmentwere $299.5 million for the six months ended June 30, 2004, an increase of23% as compared to the prior year. On a copper-adjusted basis, sales forthe six months ended June 30, 2004 increased 3% over the same period inthe prior year. For the past three fiscal years (2001-2003), copper adjusted salesfor our magnet wire and distribution segment have declined on a comparativeyear-over-year basis, principally as a result of weak economic conditions inthe industrial sector, including substantial reductions during this period indurable goods consumption, factory 

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production and commercialconstruction. To a lesser extent, migration to foreign markets of production ofcertain customer manufacturing impacted sales from 2001 through 2003. Webelieve the stabilization and increase in copper adjusted sales in the sixmonths ended June 30, 2004 reflects the recovery in the general economy,as well as in our basic end markets, particularly related to industrialproduction and the energy sector.

Copper rod sales for the six months ended June 30,2004 were $138.1 million compared to $86.1 million for the comparable 2003period, an increase of $52.0 million. On a copper- adjusted basis, salesfor our copper rod segment increased by only $1.4 million, or approximately 2%.Pricing for copper rod is generally based on monthly average COMEX spot pricesand thus sales are directly impacted by changes in copper prices.

For the six months ended June 30, 2004, grossprofit was $63.2 million, an increase of 13% as compared to the same period inthe prior year primarily attributable to increased volume in our communicationscable and magnet wire and distribution segments and lower depreciation chargesin 2004 resulting from the application of fresh-start reporting. Thegross profit margin for the six months ended June 30, 2004 quarter was9.6% compared to 11.3% for same period in 2003. The comparative decline ingross profit margin primarily reflects the effects of increased copper priceson sales. Gross profit margin on a copper-adjusted basis was 11.3% for the sixmonths ended June 30, 2004 compared to 10.9% for the six months ended June 30,2003. Copper-adjusted gross profit margins in our communications cable businessdecreased by 1.0% for the 2004 period compared to the prior year due tointegration costs incurred in connection with the Belden Asset Acquisition anda shortfall in recovering second quarter 2004 increases in copper costs throughcontractual product price adjustments. This was principally the result of firstquarter 2004 accelerated orders by some customers in anticipation ofcopper-based contractual price adjustments. Additionally, gross profit marginsin our communications cable segment reflect lower product pricing resultingfrom the effects of competitive pressures on contracts renegotiated in the lasthalf of 2003 and continuing in 2004. Copper-adjusted gross profit margin forour magnet wire and distribution business for the six months ended June 30,2004 increased 0.7% compared to the prior year quarter. This increase reflectslower depreciation charges resulting from the application of fresh-startreporting, increased volume in our higher margin Essex Brownell distributionchannel and improved capacity utilization partially offset by certaininflationary cost increases including higher natural gas prices in the secondquarter of 2004.

Selling, general and administrative expenses (“SG&Aexpense”) for the six-month period ended June 30, 2004 were $43.2 million,an increase of 4% as compared to SG&A expense of $41.7 million for the sixmonths ended June 30, 2003. The slight increase primarily reflects theimpact of increased sales volume and related sales commissions in ourcommunications cable segment and corporate stock-based compensation charges.

Superior TeleCom incurred $1.2 million ofrestructuring and other charges in the first six months of 2003 primarilyrelated to ongoing closure and sale activities at its communication cablesegment’s Elizabethtown, Kentucky and Winnipeg, Manitoba facilities which wereclosed in 2002. Restructuring and other charges for the six months ended June 30,2003 also includes pre-petition professional fees of $3.6 million incurredin connection with Superior TeleCom’s Chapter 11 filings. Restructuring andother charges for the six months ended June 30, 2004 were $1.5 million andconsisted primarily of ongoing professional fees related to implementation ofthe plan of reorganization and employee retention and severance payments underplans established by Superior TeleCom in connection with its bankruptcyproceedings.

We had operating income of $18.5 million for the sixmonths ended June 30, 2004, compared to $9.6 million for the same periodin 2003. Operating income in the six months ended June 30, 2003 includedrestructuring and other charges of $4.8 million as compared to $1.5 million ofsuch charges for the six 

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months ended June 30,2004. The comparative improvement in operating income for the current year wasprincipally attributable to increased sales volume and related gross profittogether with the decrease in restructuring and other charges.

Superior TeleCom recorded charges for reorganizationitems related to its Chapter 11 filing of $33.0 million in the six months endedJune 30, 2003. These costs primarily consisted of $6.8 million ofpost-petition professional fees related to the reorganization, $27.0 million toadjust the carrying value of the Trust Convertible Preferred Securities andrelated unpaid distributions to the amount of the allowed claim in respect ofthis liability, $3.5 million to write-off deferred debt issue costs associatedwith Superior TeleCom’s refinanced accounts receivable securitization and abenefit of $5.0 million from the settlement of pre-petition claims.

Interest expense for the six months ended June 30,2004 was $12.0 million, compared to interest expense of $23.0 million for thesix months ended June 30, 2003. Interest expense for the 2003 periodconsisted of interest on Superior TeleCom’s debtor-in-possession financing andinterest on Superior TeleCom’s pre-petition indebtedness through March 3,2003. At the time of the Chapter 11 bankruptcy filing, Superior TeleCom hadapproximately $890 million of senior debt and $222 million of seniorsubordinated notes outstanding. The decrease in interest expense in 2004reflects our new capital structure under the plan of reorganization as well asborrowings to finance increased working capital and the Belden AssetAcquisition. During the quarter ended June 30, 2004 we also recognized aloss on early extinguishment of debt of $0.4 million resulting from thewrite-off of deferred debt issue costs associated with our 91¤2% senior notes which were redeemed with the proceeds of our 9% senior noteoffering in April 2004.

Superior TeleCom recorded $5.1 million ofdistributions on the preferred securities of Superior Trust I for the sixmonths ended June 30, 2003. Superior TeleCom’s Chapter 11 filingconstituted an early dissolution event under the terms of the instrumentsgoverning the Trust and as a result the Trust was liquidated on or about April 30,2003 by distribution to holders of the Trust Convertible Preferred Securitiesof an aggregate principal amount of 81¤2% ConvertibleDebentures equal to the aggregate liquidation amount of their Trust ConvertiblePreferred Securities. All outstanding 81¤2% ConvertibleDebentures were cancelled on November 10, 2003 in accordance with theterms of the plan of reorganization.

Superior TeleCom recordeda full valuation allowance on its net deferred tax assets for the six monthsended June 30, 2003 because the realization of such assets in futureperiods was uncertain as a result of the bankruptcy filing. The tax benefitrecorded for 2003 period primarily represents the elimination of the netdeferred tax liabilities existing at December 31, 2002. Our effective taxrate for the six months ended June 30, 2004 was 43%. The effective taxrate exceeds the U.S. statutory tax rate due to the impact of state taxes and avaluation allowance established with respect to net operating losses incurredby our U.K. subsidiary.

**Liquidity and Capital Resources**

We reported cash used by operating activities of $18.6million for the six months ended June 30, 2004 compared to cash providedby operating activities of $58.6 million for the six months ended June 30,2003. Cash from operations for the 2003 period was positively impacted bySuperior TeleCom’s Chapter 11 filing as payment of interest on pre-petitionindebtedness was suspended and actions to collect pre-petition liabilities werestayed pending settlement under a plan of reorganization. In addition, cashfrom operations for the six months ended June 30, 2003 includedapproximately $58.1 million of tax refunds related to Superior TeleCom’s fiscal2002. The tax refund was used to repay pre-petition indebtedness. Cash used byoperating activities for the six months ended June 30, 2004 includes a networking capital increase of $20.4 million, which reflects normal seasonal buildin accounts receivable and inventory, incremental accounts 

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receivable attributable tosales under customer contracts acquired in the Belden Asset Acquisition and theimpact of substantially higher copper costs. Additionally, we paidapproximately $12.3 million during the 2004 period of previously accruedreorganization costs consisting primarily of professional fees related toimplementation of the plan of reorganization and employee retention andseverance payments under plans established by Superior TeleCom in connectionwith its bankruptcy proceedings. On June 1, 2004, we closed the BeldenAsset Acquisition and paid an initial purchase price of $82.2 million,excluding fees and expenses. The initial purchase price was financed with theproceeds from our 9% senior note offering. This initial purchase price issubject to adjustment based on a final accounting of the inventories acquired. Basedon a preliminary analysis, we believe in excess of $5 million of the initialpurchase price will be refunded to us. Additionally, a contingent payment of upto $10 million is payable nine months after the closing based on businessrelationships successfully transitioned to us. We have accrued the full $10million contingent payment as of June 30, 2004 as we believe payment ofthis amount is probable based on customers transitioned to date.

As of the effective date of the plan ofreorganization, $145 million principal amount of senior notes of SuperiorEssex Communications and Essex Group, 5 million shares of series Apreferred stock, par value $1 per share, of Superior Essex Holding and16,500,000 shares of our common stock were issued to creditors of SuperiorTeleCom in accordance with the plan of reorganization. The plan ofreorganization also provides for the payment of $3 million in cash toholders of general unsecured claims against Superior TeleCom.

The senior notes were issued jointly by Superior EssexCommunications and Essex Group in an aggregate principal amount of$145 million due in November 2008, with interest payablesemi-annually in cash at a rate of 91¤2%. On April 29,2004 we redeemed the senior notes with the proceeds from a Rule 144Aprivate placement offering, completed on April 14, 2004, of$257.1 million of 9% unsecured senior notes due April 2012, which werefer to as the “9% senior notes”. Interest on the 9% senior notes is payable April 15and October 15 of each year beginning on October 15, 2004. The 9%senior notes were issued at an original issue discount of $7.1 million.The proceeds from the offering were also used to pay fees and expenses of theoffering and fund the Belden Asset Acquisition.

The 9%senior notes issued by Superior Essex Communications and Essex Group are fullyand unconditionally guaranteed by the Company and each of our existing andfuture domestic subsidiaries. We may redeem some or all of the 9% senior notesat any time on or after April 15, 2008 at the following redemption prices(expressed as percentages of the principal amount thereof) if redeemed duringthe twelve-month period commencing on April 15 of the year set forthbelow: 
| **Year:**      | ** ** | ** ** | ** ** | **Percentage** | ** ** |
|----------------|------------|------------|------------|----------------|------------|
| 2008           |       |       | 104.50     | %              |       |
| 2009           |       |       | 102.25     | %              |       |
| 2010 and after |       |       | 100.00     | %              |       |

 

We may also redeem up to 40% of the aggregateprincipal amount of the 9% senior notes at a redemption price of 109% of theprincipal amount thereof using the proceeds of one or more equity offeringscompleted before April 15, 2007. Additionally, upon the occurrence ofspecific kinds of changes in control of the Company, as specified in theindenture governing the 9% senior notes, holders of the 9% senior notes willhave the right to require the Company to purchase all or a portion of theoutstanding 9% senior notes at a purchase price equal to 101% of the principalamount thereof plus accrued interest.

We have entered into a registration rights agreementwith the initial purchasers of the 9% senior notes requiring us to use ourreasonable best efforts to file with the Securities and Exchange Commission(the “SEC”) and cause to become effective a registration statement relating toan offer to exchange the 9% senior notes for an issue of SEC-registered noteswith terms substantially identical to the 9% senior notes. 

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We filed an initialregistration statement with respect to this exchange offer with the SEC on August 2,2004. If the exchange offer is not completed before October 11, 2004, theannual interest rate on the 9% senior notes will be increased by 0.25% perannum on October 11, 2004 and at the end of each 90-day period thereafter up toa maximum of 1.0% per annum until the exchange offer is completed.

The indenture governing the 9% senior notes containscovenants which restrict our ability and the ability of certain of oursubsidiaries to, among other things: incur additional debt and issue preferredstock; make certain distributions, investments and other restricted payments;create certain liens; enter into transactions with affiliates; and merge,consolidate or sell substantially all of our assets.

Holders of the series A preferred stock issued bySuperior Essex Holding are entitled to receive cumulative cash dividends at arate of 91¤2%per annum per share, payable semi-annually. The series A preferred stockranks junior to all other classes of preferred stock of Superior Essex Holding.The series A preferred stock is mandatorily redeemable in November 2013at $1 per share plus accrued and unpaid dividends. The series A preferredstock contains certain other mandatory and optional redemption provisions. Eachshare of series A preferred stock shall have one vote with respect to allmatters submitted to stockholders for a vote, provided however, that holders ofthe series A preferred stock shall not be entitled to vote generally fordirectors.

On the effective date of the plan of reorganization,we entered into a new $120 million senior secured revolving credit facilitywith a $25 million sublimit for letters of credit. The senior securedrevolving credit facility was subsequently amended to (i) increase thetotal facility amount by $55 million to $175 million, (ii) increasethe maximum amount of eligible inventory for purposes of computing availabilityfrom $60 million to $70 million, and (iii) increase the minimumavailability threshold requiring the maintenance of a specified EBITDA ratio asdiscussed below from $10 million to $15 million. Superior Essex,Superior Essex Holding and our domestic subsidiaries have fully guaranteed thesenior secured revolving credit facility. Interest accrues on outstandingborrowings at an annual rate equal to, at our option, LIBOR or a base rate,plus, in each case, an applicable margin, determined quarterly based on averageborrowing availability, ranging from 1.75% to 2.75% for LIBOR loans and 0.25%to 1.25% for base rate loans. The applicable margin in effect for the thirdquarter of 2004 is 1.75% for LIBOR loans and 0.25% for base rate. Obligationsunder the senior secured revolving credit facility are secured by substantiallyall of our tangible and intangible assets. Availability under the seniorsecured revolving credit facility is subject to a borrowing base equal to thelesser of (1) $175 million less outstanding letters of credit and (2) aspecified percentage of eligible accounts receivable and inventory lessspecified reserves. The specified percentages of eligible accounts receivableand eligible inventory are each subject to decrease in the reasonable creditjudgment of the administrative agent. Currently, the applicable percentages are(i) 85% of eligible receivables and (ii) with respect to eligibleinventory the lesser of (a) $70 million or (b) the lesser of(x) 65% of the value of the eligible inventory and (y) 85% multipliedby the net orderly liquidation value percentage then applicable to ourinventory multiplied by the value of the eligible inventory. The specifiedreserves that reduce availability are not fixed and may be imposed by theadministrative agent of the revolving credit facility in its reasonable creditjudgment. Current specified reserves consist of (a) rent reserves relatedto property on which collateral is located, (b) amounts in respect ofliabilities or obligations secured by liens on the collateral senior to liensheld by the administrative agent and (c) certain outstanding personalproperty taxes. Under the revolving credit facility, if availability under therevolving credit line falls below $15 million for any period of twoconsecutive days, the borrowers will be required to maintain a ratio of 1.1 to1 of (a) the sum of the consolidated EBITDA of the borrowers minusspecified distributions of the borrowers relating to capital expenditures,foreign investments, tax distributions and pension contributions of theborrowers to (b) all principal and cash interest payments on specifieddebt of the borrowers. The senior secured revolving credit facility alsocontains covenants that limit our and our subsidiaries’ ability to (i) paydividends, redeem capital stock or make other restricted payments, (ii) sellor dispose of assets, (iii) incur additional indebtedness or permit liensto exist on our property, (iv) engage in 

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transactions withaffiliates and (v) make additional investments or acquisitions. We arecurrently obligated to pay an unused commitment fee of 0.375% per annum on theunused amount of the maximum committed amount and a fee of 0.125% per annum onthe outstanding face amount of outstanding letters of credit. A total of $48.9million was drawn under this facility as of June 30, 2004. Undrawnavailability (after considering outstanding letters of credit) on such dateamounted to $110.7 million. The senior secured revolving credit facilitymatures in November 2007, however in accordance with Emerging Issues TaskForce Issue 95-22, *Balance SheetClassification of Borrowings Outstanding under Revolving Credit Agreements ThatInclude Both a Subjective Acceleration Clause and a Lock-Box Arrangement*,borrowings under our senior secured revolving credit facility have beenclassified as a current liability.

Our principal cash requirements include interestpayments on our senior secured revolving credit facility and 9% senior notes,dividend payments on our series A preferred stock, capital expenditurescurrently estimated at approximately $10 to $15 million annually, fundingthe Belden Asset Acquisition contingent payment and funding obligations relatedto our defined benefit pension plans. We are also in advanced discussions witha leading Chinese magnet wire producer to form a strategic partnership to enterthe Chinese magnet wire market. If successful, we expect this partnership willrequire an initial capital investment of approximately $12 million. In addition,the price of copper, our principal raw material, has increased approximately16% as of June 30, 2004 compared to December 31, 2003. Significantincreases in the price of copper and the resultant increase in accountsreceivable and, to a lesser degree, inventory impacts our working capitalfunding requirements. We have experienced an increase in net working capital(excluding short-term borrowings) at June 30, 2004 of approximately$20.4 million compared to December 31, 2003 reflecting the increase incopper prices, incremental accounts receivable attributable to sales undercustomer contracts acquired in the Belden Asset Acquisition and normal seasonalincreases. We believe that cash provided by operations together with borrowingavailability under our senior secured revolving credit facility ($110.7 millionat June 30, 2004) will be sufficient to meet our obligations and fund ourworking capital requirements for the foreseeable future.

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**ITEM 3.**   QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK

The Company, to a limitedextent, uses forward fixed price contracts and derivative financial instrumentsto manage commodity price and interest rate risks. We do not hold or issuefinancial instruments for investment or trading purposes. We are exposed tocredit risk in the event of nonperformance by counter parties for foreignexchange forward contracts, metal forward price contracts and metals futurescontracts but we do not anticipate nonperformance by any of these counterparties. The amount of such exposure is generally limited to any unrealizedgains within the underlying contracts. 

***Commodity price risk management***

The costs of copper, ourmost significant raw material, and aluminum, have historically been subject toconsiderable volatility. To manage the risk associated with such volatility, weenter into futures contracts to match the metal component of customer productpricing with the cost component of the inventory shipped. At June 30,2004, we had futures purchase contracts for 13.5 million pounds of copperexpiring through March 2006 and 2.5 million pounds of aluminum expiringthrough December 2004 related to certain future customer firm salescommitments. These futures contracts have been designated as cash flow hedgeswith unrealized gains and losses recorded in other comprehensive income untilthe hedged sales transactions are reflected in the income statement which aregenerally expected to occur in the next twenty-four months. Hedgeineffectiveness, which is not significant, is immediately recognized inearnings. At June 30, 2004, we had an unrealized gain of $1.5 million onthese futures contracts. A total of $0.6 million of this unrealized gain arosesubsequent to November 11, 2003 and is recorded in accumulated othercomprehensive income net of deferred income taxes of $0.2 million. We recordeda liability of $3.0 million ($0.9 million as of June 30, 2004)representing the unrealized loss on sales commitments to customers in connectionwith the application of fresh-start reporting as of November 10,2003 corresponding with a $3.0 million unrealized gain on copper futurescontracts at that time. 

***Interest rate risk management***

Inorder to limit our exposure to rising interest rates with respect to borrowingsunder our variable rate senior secured revolving credit facility, we haveentered into interest rate cap agreements. The following interest rate capagreements were outstanding as of June 30, 2004:
| **Type**          | ** ** | ** **              | ** ** | **Notional Amount** | ** ** | **Interest Rate** | ** **   | **Cap Rate** | ** ** | **Expiration Date** | ** ** | **Fair Value** | ** **         |
|-------------------|------------|-------------------------|------------|--------------------------|------------|------------------------|--------------|-------------------|------------|--------------------------|------------|---------------------|--------------------|
| ** **        | ** ** | **(in thousands)** | ** ** | ** **               | ** ** | ** **             | ** **   | ** **        | ** ** | **(in thousands)**  | ** ** |
| Interest rate cap |       |                    | $          | 30,000                   |       |                   | 30-day LIBOR |              |       | 1.75                     | %          |                | December 2005 |   |   | $ | 421 |   |   |
| Interest rate cap |       |                    | 30,000     |                     |       | 30-day LIBOR           |         |              | 5.0        | %                        |       | December 2004  |               |   | 1 |   |   |
| Interest rate cap |       |                    | 15,000     |                     |       | 30-day LIBOR           |         |              | 5.0        | %                        |       | April 2005     |               |   | — |   |   |
| Interest rate cap |       |                    | 12,500     |                     |       | 3-month LIBOR          |         |              | 7.0        | %                        |       | May 2005       |               |   | 1 |   |   |

 

As previously discussed, on April 14, 2004 wecompleted a private placement of $257.1 million of 9% unsecured seniornotes due April 2012. Interest on the 9% senior notes is payable April 15and October 15 of each year beginning on October 15, 2004. The 9%senior notes were issued at an initial discount of $7.1 million.

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**ITEM 4.   CONTROLS AND PROCEDURES**

*Evaluation ofControls and Procedures*

As of the end of theperiod covered by this Quarterly Report on Form 10-Q, we carried out anevaluation of the effectiveness of the design and operation of the Company’sdisclosure controls and procedures under the supervision and with theparticipation of the Company’s management, including our Chief ExecutiveOfficer and Chief Financial Officer. Based on that evaluation, the ChiefExecutive Officer and Chief Financial Officer concluded that the Company’sdisclosure controls and procedures have been designed and are being operated ina manner that provides reasonable assurance that the information required to bedisclosed by the Company in reports filed under the Securities Exchange Act of1934, as amended, is recorded, processed, summarized and reported within thetime periods specified in the SEC’s rules and forms. A system of controls,no matter how well designed and operated, cannot provide absolute assurancethat the objectives of the system of controls are met, and no evaluation ofcontrols can provide absolute assurance that all control issues and instancesof fraud, if any, within a company have been detected.

*Changes in InternalControls Over Financial Reporting*

There have been no changes in the Company’s internalcontrol over financial reporting that occurred during the most recent fiscalquarter that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

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**PART II.   OTHER INFORMATION**

**ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K**

**(a)****          Exhibits**
| 10.1* | Fifth Amendment to Credit Agreement, dated  June 16, 2004, by and among Superior Essex Communications LLC, as a  borrower, Essex Group Inc., as a borrower, the financial institutions party  thereto, as lenders, Fleet Capital Corporation, as collateral and  administrative agent for the lenders, and General Electric Capital  Corporation, as syndication agent for the lenders |
|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1* | Certification of the Company’s Chief Executive  Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                           |
| 31.2* | Certification of the Company’s Chief Financial  Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                           |
| 32.1* | Certification of the Company’s Chief Executive  Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                           |
| 32.2* | Certification of the Company’s Chief Financial  Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                           |

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*                    Filedherewith

**(b)****          Reportson Form 8-K**

(1)         On May 5, 2004, theCompany furnished a Current Report on Form 8-K under Item 12 to announceissuance of a press release with respect to its results of operations for thequarter ended March 31, 2004.

(2)         On June 16, 2004,the Company filed a Current Report on Form 8-K under Item 2 to announcethat on June 1, 2004, Superior Essex Communications LLC, a wholly ownedsubsidiary of the Company, acquired certain assets from operating subsidiariesof Belden Inc. related to their North American copper OSP communications wireand cable business.

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized. 
|                             | Superior Essex Inc. |
|-----------------------------|---------------------|
| Date: August 12,  2004 | By:                 | /s/  David S. Aldridge |
| * *                    |                | David S. Aldridge*Executive Vice President,  Chief Financial Officer  and Treasurer*(duly authorized officer and principal financial  and accounting officer) |

 

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