**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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**FORM 10-Q**

**(MarkOne)**
| **x** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|-------------------------------------------------------------------------------------------------------------|

 

**Forthe Quarterly Period Ended June 30, 2006**

 

**or**

 
| **o** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|--------------------------------------------------------------------------------------------------------------|

 

**Forthe transition period from                    to                    **

 

**Commission file number 0-50514**

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**SUPERIORESSEX INC.**

(Exact name of registrant as specified in its charter)

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

 

**770-657-6000**

Registrant’s telephone number, including area code

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Indicateby check mark whether the registrant: (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports) and (2) has been subject tosuch filing requirements for the past 90 days. Yes x  No o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
| Large accelerated filer o | Accelerated filer x | Non-accelerated filer o |
|--------------------------------|--------------------------|------------------------------|

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).o Yes xNo

Indicateby check mark whether the registrant has filed all documents and reportsrequired to be filed by Section 12, 13 or 15(d) of the Securities ExchangeAct of 1934 subsequent to the distribution of securities under a plan confirmedby a court. Yes x  No o

As of August 1,2006, the registrant had 20,278,855 shares of common stock, $0.01 par value,outstanding.

 

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**PART I. FINANCIAL INFORMATION**

In this QuarterlyReport on Form 10-Q, the following terms have the meanings indicatedbelow:

·                  Unlessthe context otherwise requires, the terms “we,” “us” and “our,” as well as theterm “Superior Essex,” refer to (1) Superior Essex Inc. and itssubsidiaries on and after November 10, 2003, the effective date of theplan of reorganization of Superior TeleCom Inc. and its subsidiaries

·                  “COMEX”refers to Commodity Exchange Inc., a subsidiary of the New York MercantileExchange, Inc. that operates the principal U.S. copper futures and optionstrading market.

·                  “EssexGroup” refers to Essex Group, Inc., a wholly owned subsidiary of EssexInternational.

·                  “EssexInternational” refers to Essex International Inc., a wholly owned subsidiaryof Superior Essex Holding Corp.

·                  “EssexNexans” refers to our 60% owned corporate joint venture, Essex Nexans EuropeS.A.S. and its subsidiaries

·                  “LME”refers to the London Metal Exchange, which operates the principal Europeancopper futures and options trading market.

·                  “SuperiorEssex Communications” refers to Superior Essex Communications LP.

·                  “SuperiorEssex Holding” refers to Superior Essex Holding Corp., a wholly ownedsubsidiary of Superior Essex Inc. and the sole limited partner of SuperiorEssex Communications LP.

·                  “Superior TeleCom,” unless thecontext otherwise requires, refers to Superior TeleCom Inc. and itssubsidiaries and the business carried on by them prior to November 10,2003.

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**Forward-Looking Statements**

This Form 10-Q contains “forward-lookingstatements” within the meaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of 1934,as amended, or the Exchange Act. These forward-looking statements are based oncurrent expectations, estimates and forecasts about us, our future performance,the industries in which we operate and our liquidity. In addition, otherwritten and oral statements that constitute forward-looking statements may bemade by us or on our behalf. Such forward-looking statements include statementsregarding expected financial results and other planned events, including, butnot 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 similar expressions are intended to identify suchforward-looking statements. These statements are not guarantees of futureperformance and involve certain risks, uncertainties and assumptions that aredifficult to predict. Therefore, actual future events or results may differmaterially from these statements. These risks and uncertainties include theimpact of the following:

·                  General economic, business and industry conditions;

·                  Increases and volatility in the price of copper andour ability to adjust our product pricing for such changes in copper costs;

·                  Spending reductions by the telecommunicationsindustry;

·                  Competition, including from other wire and cablemanufacturers and other alternative sources and technologies such as fiberoptics;

·                  Increases or decreases in sales due to contractlosses or gains as expirations, renewals and rebidding efforts occur;

·                  Rapid product and technology development,particularly in the telecommunications industry;

·                  Market acceptance of new products and continuingproduct demand;

·                  Production and timing of customer orders;

·                  The migration of magnet wire demand to China andother countries;

·                  Fluctuations in the supply, availability and pricingof non-copper principal raw materials, natural gas, fuel and freight;

·                  Our significant level of indebtedness and debtcovenant requirements;

·                  The potential need for and availability ofadditional sources of capital and liquidity, including the effects of increasedcopper prices on working capital;

·                  Our ability to integrate the operations of ourEuropean magnet wire joint venture and attain the expected benefits of thetransaction and to identify, finance and integrate other acquisitions;

·                  Our ability to successfully complete construction ofand operate a magnet wire facility in an emerging market such as China;

·                  Changes in short-term interest rates and foreignexchange rates;

·                  Any deterioration in our labor relations;

·                  The volatility of the market price of our commonstock; and

·                  Other risks and uncertainties, including thoseincluded under the caption “Risk factors” herein and under the caption “Riskfactors” in our Annual Report on Form 10K for the year ended December 31, 2005.

Forward-lookingstatements should be considered in light of various important factors,including those set forth elsewhere in this Form 10-Q and our otherfilings with the Securities and Exchange Commission (“SEC”). Moreover, wecaution you not to place undue reliance on these forward-looking statements,which speak only as of the date they were made. We do not undertake anyobligation to publicly release any revisions to these forward-lookingstatements to reflect events or circumstances after the date of thisForm 10-Q or to reflect the occurrence of unanticipated events. Allsubsequent forward-looking statements attributable to us or any person actingon our behalf are expressly qualified in their entirety by the cautionarystatements contained or referred to in this Form 10-Q and in our otherfilings with the SEC.

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**ITEM1. FINANCIAL STATEMENTS**

**SUPERIOR ESSEX INC. ANDSUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

**(in thousands, except share data)**

**(unaudited)**
| ** **                                                                                                                                                           | ** ** | **June 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                                                                           |       |                    |       |                        |       |
| Current assets:                                                                                                                                                      |       |                    |       |                        |       |
| Cash and cash equivalents                                                                                                                                            |       | $                       | 19,569     |                        | $          | 8,184 |   |
| Accounts receivable (less allowance for doubtful  accounts of $6,565 and $5,151 at June 30, 2006 and December 31,  2005, respectively)                     |       | 422,163                 |       | 259,615                     |       |
| Inventories, net                                                                                                                                                     |       | 255,559                 |       | 238,355                     |       |
| Other current assets                                                                                                                                                 |       | 38,547                  |       | 35,385                      |       |
| Total current assets                                                                                                                                                 |       | 735,838                 |       | 541,539                     |       |
| Property, plant  and equipment, net                                                                                                                                  |       | 244,679                 |       | 240,732                     |       |
| Intangible and  other long-term assets, net                                                                                                                          |       | 40,395                  |       | 45,921                      |       |
| Total assets                                                                                                                                                         |       | $                       | 1,020,912  |                        | $          | 828,192 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                        |       |                    |       |                        |       |
| Current  liabilities:                                                                                                                                                |       |                    |       |                        |       |
| Short-term borrowings                                                                                                                                                |       | $                       | 36,359     |                        | $          | 34,119 |   |
| Current portion of long-term debt                                                                                                                                    |       | 468                     |       | 499                         |       |
| Accounts payable                                                                                                                                                     |       | 193,435                 |       | 143,931                     |       |
| Accrued expenses                                                                                                                                                     |       | 104,064                 |       | 92,426                      |       |
| Total current liabilities                                                                                                                                            |       | 334,326                 |       | 270,975                     |       |
| Long-term debt                                                                                                                                                       |       | 280,259                 |       | 279,226                     |       |
| Other long-term  liabilities, primarily pension obligations                                                                                                          |       | 51,024                  |       | 51,516                      |       |
| Total liabilities                                                                                                                                                    |       | 665,609                 |       | 601,717                     |       |
| Minority  interest in consolidated subsidiaries                                                                                                                      |       | 24,801                  |       | 20,822                      |       |
| Stockholders’  equity:                                                                                                                                          |       |                    |       |                        |       |
| Preferred stock, $.01 par value; 7,000,000 shares  authorized, none issued or outstanding                                                                            |       | —                  |       | —                      |       |
| Common stock, $.01 par value; 33,000,000 shares  authorized; 20,223,013 and 17,294,848 shares issued at June 30, 2006 and  December 31, 2005, respectively |       | 202                     |       | 173                         |       |
| Capital in excess of par value (note 1)                                                                                                                              |       | 254,533                 |       | 175,928                     |       |
| Accumulated other comprehensive income (loss)                                                                                                                        |       | 1,883                   |       | (4,361                      | )          |
| Retained earnings                                                                                                                                                    |       | 75,875                  |       | 39,957                      |       |
| Equity-based unearned compensation (note 1)                                                                                                                          |       | —                  |       | (4,920                      | )          |
| Treasury stock, at cost (95,303 shares and 66,793  shares at June 30, 2006 and December 31, 2005, respectively)                                                      |       | (1,991                  | )          | (1,124                      | )          |
| Total stockholders’ equity                                                                                                                                      |       | 330,502                 |       | 205,653                     |       |
| Total  liabilities and stockholders’ equity                                                                                                                     |       | $                       | 1,020,912  |                        | $          | 828,192 |   |

 

The accompanyingnotes are an integral part of these condensed consolidated financial statements

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**SUPERIOR ESSEX INC. ANDSUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(in thousands, except per share data)**

**(unaudited)**
| ** **                                       | ** ** | **Three Months Ended  June 30,** | ** ** |
|--------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                       | ** ** | **2006**                                        | ** ** | **2005** | ** ** |
| Net sales                                        |       | $                                               | 818,193    |   | $ | 429,946 |   |
| Cost of goods  sold                              |       | 731,494                                         |       | 385,576 |   |
| Gross profit                                     |       | 86,699                                          |       | 44,370 |   |
| Selling, general  and administrative expenses    |       | (38,238                                         | )          | (24,690 | ) |
| Restructuring  and other charges                 |       | (197                                            | )          | (180 | ) |
| Operating income                                 |       | 48,264                                          |       | 19,500 |   |
| Interest expense                                 |       | (8,011                                          | )          | (7,409 | ) |
| Other income  (expense), net                     |       | (61                                             | )          | 81 |   |
| Income before income taxes and minority interest |       | 40,192                                          |       | 12,172 |   |
| Income tax  expense                              |       | (15,225                                         | )          | (5,138 | ) |
| Income before minority interest                  |       | 24,967                                          |       | 7,034 |   |
| Minority  interest in earnings of subsidiaries   |       | (2,148                                          | )          | — |   |
| Net income                                       |       | $                                               | 22,819     |   | $ | 7,034 |   |
| Net income per  share of common stock:           |       |                                            |       |   |   |
| Basic                                            |       | $                                               | 1.31       |   | $ | 0.42 |   |
| Diluted                                          |       | 1.27                                            |       | 0.42 |   |
| Weighted average  shares outstanding:            |       |                                            |       |   |   |
| Basic                                            |       | 17,427                                          |       | 16,646 |   |
| Diluted                                          |       | 17,992                                          |       | 16,943 |   |

 

The accompanyingnotes are an integral part of these condensed consolidated financial statements

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**SUPERIOR ESSEX INC. ANDSUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(in thousands, except per share data)**

**(unaudited)**

 
| ** **                                                            | ** ** | **Six Months Ended  June 30,** | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                            | ** ** | **2006**                                      | ** ** | **2005** | ** ** |
| Net sales                                                             |       | $                                             | 1,469,887  |   | $ | 833,234 |   |
| Cost of goods  sold                                                   |       | 1,324,739                                     |       | 746,943 |   |
| Gross profit                                                          |       | 145,148                                       |       | 86,291 |   |
| Selling, general  and administrative expenses                         |       | (73,850                                       | )          | (50,163 | ) |
| Restructuring  and other charges                                      |       | (978                                          | )          | (632 | ) |
| Asset impairment  charge (note 4)                                     |       | —                                        |       | (2,306 | ) |
| Gain on sale of  product line (note 5)                                |       | —                                        |       | 10,355 |   |
| Operating income                                                      |       | 70,320                                        |       | 43,545 |   |
| Interest expense                                                      |       | (16,089                                       | )          | (14,482 | ) |
| Gain on sale of  investment (note 5)                                  |       | 5,788                                         |       | — |   |
| Other income,  net                                                    |       | 137                                           |       | 196 |   |
| Income before income taxes, minority interest and  extraordinary gain |       | 60,156                                        |       | 29,259 |   |
| Income tax  expense                                                   |       | (22,928                                       | )          | (12,244 | ) |
| Income before minority interest and extraordinary  gain               |       | 37,228                                        |       | 17,015 |   |
| Minority  interest in earnings of subsidiaries                        |       | (2,181                                        | )          | — |   |
| Income before extraordinary gain                                      |       | 35,047                                        |       | 17,015 |   |
| Extraordinary  gain (net of minority interest of $581) - (note 5)     |       | 871                                           |       | — |   |
| Net income                                                            |       | $                                             | 35,918     |   | $ | 17,015 |   |
| Net income per  share of common stock:                                |       |                                          |       |   |   |
| Basic:                                                                |       |                                          |       |   |   |
| Income before extraordinary gain                                      |       | $                                             | 2.05       |   | $ | 1.02 |   |
| Extraordinary gain                                                    |       | 0.05                                          |       | — |   |
| Net income                                                            |       | $                                             | 2.10       |   | $ | 1.02 |   |
| Diluted:                                                              |       |                                          |       |   |   |
| Income before extraordinary gain                                      |       | $                                             | 1.99       |   | $ | 1.01 |   |
| Extraordinary gain                                                    |       | 0.05                                          |       | — |   |
| Net income                                                            |       | $                                             | 2.04       |   | $ | 1.01 |   |
| Weighted average  shares outstanding:                                 |       |                                          |       |   |   |
| Basic                                                                 |       | 17,095                                        |       | 16,615 |   |
| Diluted                                                               |       | 17,598                                        |       | 16,916 |   |

 

The accompanying notes are an integral part of these condensedconsolidated financial statements

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**SUPERIOR ESSEX INC. ANDSUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(in thousands)**

**(unaudited)**
| ** **                                                                                | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                | ** ** | **2006**                                      | ** ** | **2005** | ** ** |
| Cash flows from  operating activities:                                                    |       |                                          |       |   |   |
| Net income                                                                                |       | $                                             | 35,918     |   | $ | 17,015 |   |
| Adjustments to reconcile net income to net cash used  for operating activities:           |       |                                          |       |   |   |
| Depreciation and amortization                                                             |       | 13,493                                        |       | 11,402 |   |
| Amortization of deferred financing costs and  discount                                    |       | 1,122                                         |       | 979 |   |
| Asset impairment charges (note 4)                                                         |       | —                                        |       | 2,306 |   |
| Gain on sale of investment (note 5)                                                       |       | (5,788                                        | )          | — |   |
| Gain on sale of product line (note 5)                                                     |       | —                                        |       | (10,355 | ) |
| Minority interest in earnings of subsidiary                                               |       | 2,181                                         |       | — |   |
| Extraordinary gain (net of minority interest)                                             |       | (871                                          | )          | — |   |
| Settlement of derivatives                                                                 |       | 7,030                                         |       | (880 | ) |
| Change in operating assets and liabilities:                                               |       |                                          |       |   |   |
| Accounts receivable, net                                                                  |       | (155,208                                      | )          | (30,699 | ) |
| Inventories, net                                                                          |       | (12,016                                       | )          | (20,730 | ) |
| Other current and non-current assets                                                      |       | (2,843                                        | )          | 2,718 |   |
| Accounts payable, accrued expenses and other  liabilities                                 |       | 55,771                                        |       | 15,846 |   |
| Other, net                                                                                |       | 3,222                                         |       | 1,556 |   |
| Cash flows used  for operating activities                                                 |       | (57,989                                       | )          | (10,842 | ) |
| Cash flows from  investing activities:                                                    |       |                                          |       |   |   |
| Capital expenditures                                                                      |       | (17,903                                       | )          | (7,472 | ) |
| SDS acquisition, net of cash acquired (note 5)                                            |       | (947                                          | )          | — |   |
| Proceeds from sale of investment (note 5)                                                 |       | 8,500                                         |       | — |   |
| Belden asset acquisition contingent payment                                               |       | —                                        |       | (10,000 | ) |
| Proceeds from sale of product line (note 5)                                               |       | —                                        |       | 11,563 |   |
| Other                                                                                     |       | 59                                            |       | — |   |
| Cash flows used  for investing activities                                                 |       | (10,291                                       | )          | (5,909 | ) |
| Cash flows from  financing activities:                                                    |       |                                          |       |   |   |
| Borrowings (repayments) under senior secured  revolving credit facility, net              |       | (13,049                                       | )          | 10,000 |   |
| Borrowings (repayments) on Essex Nexans and other  short-term borrowings, net             |       | 13,793                                        |       | (610 | ) |
| Repayments of long-term debt                                                              |       | (258                                          | )          | — |   |
| Proceeds from common stock offering                                                       |       | 76,541                                        |       | — |   |
| Proceeds from exercise of stock options                                                   |       | 1,880                                         |       | 705 |   |
| Excess tax benefits resulting from exercise of stock  options and vesting of stock awards |       | 566                                           |       | — |   |
| Cash flows  provided by financing activities                                              |       | 79,473                                        |       | 10,095 |   |
| Effect of  exchange rate changes on cash                                                  |       | 192                                           |       | (304 | ) |
| Net increase  (decrease) in cash and cash equivalents                                     |       | 11,385                                        |       | (6,960 | ) |
| Cash and cash  equivalents at beginning of period                                         |       | 8,184                                         |       | 18,312 |   |
| Cash and cash  equivalents at end of period                                               |       | $                                             | 19,569     |   | $ | 11,352 |   |
| Supplemental  disclosures:                                                                |       |                                          |       |   |   |
| Cash paid for interest                                                                    |       | $                                             | 15,075     |   | $ | 13,651 |   |
| Cash paid for  income taxes, net                                                          |       | $                                             | 20,727     |   | $ | 5,317 |   |

 

The accompanying notes are an integral part of these condensedconsolidated financial statements

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**SUPERIOR ESSEX INC. ANDSUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

**June 30, 2006**

**(unaudited)**

**1.****             General**

***Basis of presentation***

Theaccompanying balance sheet as of December 31, 2005, which has been derived fromaudited financial statements, and the unaudited consolidated financialstatements as of June 30, 2006 and for the three and six months then ended havebeen prepared in accordance with the requirements of Section 13 or 15(d)of the Securities Exchange Act of 1934, as amended, and, therefore, do notinclude all disclosures required by accounting principles generally accepted inthe United States for complete financial statements. However, in the opinion ofmanagement, these statements reflect all adjustments (which consist only ofnormal recurring accruals) necessary for a fair presentation of the results ofoperations for the relevant periods. Results for the three and six months endedJune 30, 2006 are not necessarily indicative of the results to be expected forthe entire fiscal year. These financial statements should be read inconjunction with the audited consolidated financial statements and notesthereto included in Superior Essex Inc.’s Annual Report on Form 10-Kfor the year ended December 31, 2005.

TheCompany is a manufacturer and supplier of communications wire and cableproducts to telephone companies, CATV companies, distributors and systemsintegrators, and magnet wire and fabricated insulation materials to majororiginal equipment manufacturers, or OEMs, for use in motors, transformers,generators and electrical controls and, through its distribution operations, toOEMs and the motor repair industry. The Company also converts coppercathode to copper rod for internal consumption and for sale to other wire andcable manufacturers and OEMs. The Company currently operates manufacturingfacilities in the United States, the United Kingdom, France, Germany, Portugaland Mexico.

***Stock-Based Compensation Plans***

EffectiveJanuary 1, 2006 the Company adopted Statement of Financial Accounting Standards(“SFAS”) No. 123(R), *Share-Based Payment.*SFAS No. 123(R) requires all entities to recognize compensation expense in anamount equal to the fair value of share-based payments (e.g. stock options andunvested stock awards) granted to employees. SFAS No. 123(R) also requiresrecognition of compensation expense based on the grant date fair value for theunvested portion of outstanding options and awards granted prior to theadoption date. Prior to the adoption of SFAS No. 123(R) the Company applied theintrinsic-value based method of accounting prescribed by Accounting PrinciplesBoard (“APB”) Opinion No. 25, *Accountingfor Stock Issued to Employees*, and related interpretations includingFinancial Accounting Standards Board (“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. Under thismethod, compensation expense was recorded only if the market price of theunderlying stock on the date of grant exceeded the exercise price. The Companyadopted SFAS No. 123(R) using the modified prospective method and accordingly,results from prior periods have not been restated. The adoption of SFAS 123(R)resulted in a decrease in income before income taxes, minority interest andextraordinary gain, net income and net income per diluted common share of $0.2million, $0.1 million and $0.01, respectively, for the three months ended June30, 2006 and $0.4 million, $0.2 million and $0.02, respectively, for the sixmonths ended June 30, 2006. Additionally, as a result of the initial adoptionof SFAS 123(R), contra-equity balances for unearned stock-based compensation of$4.9 million were reclassified to capital in excess of par value and accruedliabilities of $1.3 million related to unexercised stock options were creditedto capital in excess of par value. Compensation expense attributable to allstock-based compensation plans is recognized on a straight-line basis over therelated vesting period. The Company’s policy is to issue authorized butunissued shares to satisfy stock option exercises.

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 for periodsprior to the adoption of SFAS 123(R). As allowed by SFAS No. 123, prior to2006 the Company elected to continue to apply the intrinsic-value based methodof accounting described above, and adopted only the disclosure requirements ofSFAS No. 123. The following table illustrates the effect on net income ifthe fair-value based method had been applied to all outstanding awards for thethree and six months ended June 30, 2005 (in thousands except per share data):

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| ** **                                                                                                                   | ** ** | **Three Months  Ended June 30,  2005** | ** ** | **Six Months  Ended June 30,  2005** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|
| Net income, as  reported                                                                                                     |       | $                                                     | 7,034      |                                                | $          | 17,015 |   |
| Add stock-based  employee compensation expense included in reported net income, net of tax                                   |       | 382                                                   |       | 761                                                 |       |
| Deduct total  stock-based employee compensation expense determined under fair-value based  method for all awards, net of tax |       | (568                                                  | )          | (1,060                                              | )          |
| Pro forma net  income                                                                                                        |       | $                                                     | 6,848      |                                                | $          | 16,716 |   |
| Net income per  share:                                                                                                       |       |                                                  |       |                                                |       |
| As reported:                                                                                                                 |       |                                                  |       |                                                |       |
| Basic                                                                                                                        |       | $                                                     | 0.42       |                                                | $          | 1.02 |   |
| Diluted                                                                                                                      |       | 0.42                                                  |       | 1.01                                                |       |
| Pro forma:                                                                                                                   |       |                                                  |       |                                                |       |
| Basic                                                                                                                        |       | 0.41                                                  |       | 1.01                                                |       |
| Diluted                                                                                                                      |       | 0.40                                                  |       | 0.99                                                |       |

 

Optionsto purchase 24,195 shares and 223,400 shares of common stock with a weightedaverage Black Scholes fair value per option of $12.26 and $8.62 were grantedduring the six months ended June 30, 2006 and 2005, respectively. The fairvalue for options granted during the following periods was estimated at thedate of grant using the Black Scholes option pricing model and the followingweighted average assumptions:
|                          | ** ** | **Six Months Ended  June 30,**            | ** ** |
|--------------------------|------------|----------------------------------------------------------|------------|
| ** **               | ** ** | **    2006    ** | ** ** | **    2005    ** | ** ** |
| Volatility               |       | 40                                                       | %          | 43 | % |
| Dividend yield           |       | 0                                                        | %          | 0 | % |
| Risk-free  interest rate |       | 4.9                                                      | %          | 4.1 | % |
| Expected life (years)    |       | 6.2                                                      |       | 6.2 |   |

 

Theexpected volatility is estimated using the historical daily volatility of theCompany’s stock as well as the historical volatilities of publicly-traded stockof certain of the Company’s competitors. The Company has not made any dividendpayments on its common stock and does not intend to declare cash dividends onits stock in the foreseeable future. The risk-free interest rate is based onU.S. Treasury yields in effect at the time of grant for the expected term ofthe stock options. The expected term was determined using the “simplified”method, as prescribed by the Securities and Exchange Commission’s StaffAccounting Bulletin No. 107.

***Stockholders’ Equity***

OnJune 12, 2006 the Company completed an underwritten public offering of2,700,000 shares of its common stock. Net proceeds from the sale afterunderwriting discounts and related expenses were approximately $76.5 millionand were used to pay down borrowings outstanding under the senior securedrevolving credit facility. On July 11, 2006, the underwriters’ exercised theirover-allotment option to purchase an additional 151,145 shares of the Company’scommon stock. Net proceeds from the exercise of the over-allotment option afterunderwriting discounts and related expenses were approximately $4.3 million.

***New Accounting Pronouncements***

InJune 2006 the FASB ratified the consensus reached in EITF 06-3, *How Taxes Collected from Customers and Remitted toGovernmental Authorities Should Be Presented in the Income Statement (That Is,Gross versus Net Presentation)*. EITF 06-3 requires disclosure of acompany’s accounting policy with respect to taxes assessed by a governmentalauthority that are directly imposed on a revenue-producing transaction betweena seller and a customer including, but are not limited to, sales, use, valueadded, and some excise taxes. The Company presents such taxes, primarily sales,use and value added taxes, on a net basis.

In July 2006, the FASBissued Interpretation No. 48, *Accounting forUncertainty in Income Taxes*. Interpretation No. 48 prescribes aconsistent recognition threshold and measurement attribute, as well asestablishes criteria for subsequently recognizing, derecognizing and measuringuncertain tax positions for financial statement purposes. The Interpretationalso requires expanded disclosure with respect to the uncertainty in incometaxes. Interpretations No. 48 is effective for fiscal years beginning after December

9

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15, 2006. The Company hasnot completed its evaluation of the impact of Interpretation No. 48 on itsfinancial statements.

**2.****             Inventories, net**

AtJune 30, 2006 and December 31, 2005, the components of inventorieswere as follows:
|                 | ** ** | **June 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|-----------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **      | ** ** | **(in thousands)** | ** ** |
| Raw materials   |       | $                       | 34,598     |                        | $          | 32,530 |   |
| Work in process |       | 81,755                  |       | 56,304                      |       |
| Finished goods  |       | 273,729                 |       | 207,280                     |       |
|            |       | 390,082                 |       | 296,114                     |       |
| LIFO reserve    |       | (134,523                | )          | (57,759                     | )          |
|            |       | $                       | 255,559    |                        | $          | 238,355 |   |

 

Inventoriesvalued using the LIFO method amounted to $112.1 million and$119.7 million at June 30, 2006 and December 31, 2005,respectively.

**3.****             Comprehensive income**

Thecomponents of comprehensive income for the three and six months endedJune 30, 2006 and 2005 were as follows:

|                                                                                                                                                                                           | ** ** | **Three Months Ended June 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                                                                                                                                | ** ** | **2006**                                            | ** ** | **2005** | ** ** |
| ** **                                                                                                                                                                                | ** ** | **(in thousands)**                             | ** ** |
| Net income                                                                                                                                                                                |       | $                                                   | 22,819     |   | $ | 7,034 |   |
| Foreign currency  translation adjustment                                                                                                                                                  |       | 1,411                                               |       | (410 | ) |
| Unrealized  holding gains (losses) on derivatives during the period, net of income tax of  $3,730 and $4 for the three months ended June 30, 2006 and 2005,  respectively            |       | 5,833                                               |       | (6 | ) |
| Less  reclassification adjustment for gains on derivatives included in net income,  net of income tax of $2,683 and $432 for the three months ended June 30, 2006  and 2005, respectively |       | (4,197                                              | )          | (676 | ) |
| Net unrealized gains (losses) on derivatives                                                                                                                                              |       | 1,636                                               |       | (682 | ) |
| Other                                                                                                                                                                                     |       | (10                                                 | )          | (64 | ) |
| Comprehensive income                                                                                                                                                                      |       | $                                                   | 25,856     |   | $ | 5,878 |   |

 

|                                                                                                                                                                                         | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                                                                                                              | ** ** | **2006**                                          | ** ** | **2005** | ** ** |
| ** **                                                                                                                                                                              | ** ** | **(in thousands)**                           | ** ** |
| Net income                                                                                                                                                                              |       | $                                                 | 35,918     |   | $ | 17,015 |   |
| Foreign currency  translation adjustment                                                                                                                                                |       | 1,910                                             |       | (684 | ) |
| Unrealized  holding gains on derivatives during the period, net of income tax of $6,357  and $500 for the six months ended June 30, 2006 and 2005, respectively                    |       | 9,935                                             |       | 793 |   |
| Less  reclassification adjustment for gains on derivatives included in net income,  net of income tax of $3,613 and $847 for the six months ended June 30, 2006  and 2005, respectively |       | (5,650                                            | )          | (1,326 | ) |
| Net unrealized gains (losses) on derivatives                                                                                                                                            |       | 4,285                                             |       | (533 | ) |
| Other                                                                                                                                                                                   |       | 49                                                |       | (17 | ) |
| Comprehensive income                                                                                                                                                                    |       | $                                                 | 42,162     |   | $ | 15,781 |   |

 

10

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The components of accumulated other comprehensiveincome (loss) at June 30, 2006 and December 31, 2005 were as follows:

|                                                                                                                                      | ** ** | **June 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                           | ** ** | **(in thousands)** | ** ** |
| Foreign currency  translation adjustment                                                                                             |       | $                       | 2,280      |                        | $          | 370 |   |
| Unrealized gain  on derivatives, net of deferred tax of $4,809 and $2,065 at June 30, 2006 and  December 31, 2005, respectively |       | 7,516                   |       | 3,231                       |       |
| Additional  minimum pension liability, net of deferred tax of $5,090 at June 30, 2006 and  December 31, 2005                    |       | (7,965                  | )          | (7,965                      | )          |
| Other                                                                                                                                |       | 52                      |       | 3                           |       |
|                                                                                                                                 |       | $                       | 1,883      |                        | $          | (4,361 | ) |

 

**4.****             Restructuring and other charges and assetimpairments**

EssexNexans recorded a restructuring reserve of $0.9 million during the firstquarter of 2006 with respect to planned workforce reductions at one of itsmanufacturing facilities in Germany. The reserve was recorded as part of thecontinued refinement of the initial purchase price allocation to the assets andliabilities acquired in the Essex Nexans acquisition (see Note 5) and did notimpact operating results. Essex Nexans also recorded a restructuring reserve of$1.0 million as part of the initial purchase price allocation in connectionwith the acquisition of SDS (see Note 5). During the six months ended June 30,2006, Essex Nexans recorded a provision of $0.9 million which was charged tooperations related to workforce reductions at the Company’s U.K. magnet wireoperations. All restructuring activities are expected to be completed in 2006.A summary of the changes in the restructuring reserves for the six months endedJune 30, 2006 is as follows (in thousands):

|                                 | ** ** | **Germany**             | ** ** | **SDS** | ** ** | **U.K.** | ** ** | **Total** | ** ** |
|---------------------------------|------------|-------------------------|------------|---------|------------|----------|------------|-----------|------------|
| ** **                      | ** ** | **(in thousands)** | ** ** |
| Balance at  December 31, 2005   |       | $                       | —     |    | $          | —   |       | $         | 134        |   | $ | 134 |   |
| Essex Nexans transaction        |       | 911                     |       | —  |       | —   |       | 911       |       |
| SDS acquisition                 |       | —                  |       | 989     |       | —   |       | 989       |       |
| Increases charged to operations |       | —                  |       | —  |       | 866      |       | 866       |       |
| Payments                        |       | (248                    | )          | —  |       | (571     | )          | (819      | )          |
| Foreign currency effects        |       | 40                      |       | 59      |       | 14       |       | 113       |       |
| Balance at June 30,  2006       |       | $                       | 703        |    | $          | 1,048    |       | $         | 443        |   | $ | 2,194 |   |

 

Inaddition to the amounts above, restructuring and other charges for the sixmonths ended June 30, 2006 included $0.3 million of ongoing facility exit costsprimarily related to the prior year closure of an insulation manufacturingfacility in our North American magnet wire and distribution segment and$0.2 million of professional fees incurred in connection with theadministration of Superior TeleCom’s plan of reorganization. These charges wereoffset by a $0.4 million gain on the favorable settlement of an employeerelated dispute in our European magnet wire and distribution segment.Restructuring and other charges for the six months ended June 30, 2005consisted of $0.4 million of facility exit costs related to closure of aninsulation manufacturing facility in Athens, Georgia and $0.2 million ofprofessional fees related to the administration of the plan of reorganization.The facility exit costs primarily consisted of future lease payments net ofestimated sublease rentals.

During the first quarterof 2005 the Company recorded an impairment charge of $2.3 million relatedto property, plant and equipment of the Company’s U.K. subsidiary. The Companyevaluated the long-lived assets of its U.K. subsidiary for impairment as ofMarch 31, 2005 after consideration of deterioration in the European magnetwire market in the first quarter of 2005, the loss of a major customer in 2005and negotiated reductions in the value ascribed to the U.K. net assets inconnection with the Essex Nexans acquisition (see Note 5). The impairmenttest was based on probability weighted estimated cash flows associated withsuch assets. The fair value of the assets was based on appraised valuedetermined primarily by comparison to prices for similar assets. The U.K.operation is included in the European magnet wire and distribution segment.

11

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**5.****             Acquisitions and dispositions**

***Essex Nexansacquisition***

OnOctober 21, 2005, the Company acquired Nexans’ magnet wire operations inEurope through formation of a corporate joint venture, Essex Nexans, a Frenchholding company, combining the Company’s U.K. magnet wire business and Nexans’European magnet wire and enamel businesses (the “Essex Nexans Transaction”).The Company owns 60% of Essex Nexans and Nexans has a 40% minority ownership.The Contribution and Formation Agreement (the “Agreement”) governing thetransaction, provided for certain post-closing adjustments based on the finalnet book values of the acquired net assets. Essex Nexans made a provisionalpayment of $2.5 million to Nexans in December 2005. The post-closingadjustments were finalized in April 2006 resulting in a refund of $1.0 millionof the provisional payments from Nexans to Essex Nexans.

The Agreement providesfor the Company to pay additional contingent cash consideration to Nexans of upto €3.0 million ($3.8 million) if Essex Nexans achieves certainspecified levels of Adjusted EBITDA (as defined in the Agreement) for the yearended December 31, 2006. The preliminary fair value of the net assetsacquired exceeded the purchase price and therefore the full amount of thecontingent payment was accrued by the Company as of October 21, 2005.

In connection with thetransaction, Essex Nexans entered into agreements to purchase a substantialmajority of its copper rod and pre-drawn copper wire requirements from Nexans.The purchase agreements expire on December 31, 2008 with automatic oneyear renewals unless cancelled by either party upon six months prior notice inthe case of copper rod and twelve months prior notice in the case of drawncopper wire. Total purchases pursuant to these agreements amounted to $146.0 millionfor the six months ended June 30, 2006.

The transaction wasaccounted for as a purchase of the Nexans magnet wire and enamel businesses anda partial sale of the Company’s U.K. subsidiary. The operations of Essex Nexansare included in the consolidated results of operations of the Company from thedate of acquisition. The Company is in the process of finalizing certain assetand liability valuations and therefore the allocation of the acquisition costis subject to refinement and adjustment.

***SDS acquisition***

On January 4, 2006, EssexNexans acquired all of the outstanding capital stock of Societe de Distributionet de Services (“SDS”) from Nexans for a cash payment of $1.2 million. SDS isengaged in the business of distributing magnet wire and related products inFrance. The assets acquired and liabilities assumed in the SDS acquisition andthe pro forma results of operations reflecting the SDS acquisition are notsignificant. In connection with the acquisition, Essex Nexans recorded arestructuring reserve of $1.0 million related primarily to workforce reductionsand the closure of certain of SDS’s leased warehouse locations. Nexans hasagreed to reduce the purchase price for certain restructuring costs incurred byEssex Nexans up to a maximum of $1.2 million. The acquisition of SDS wasaccounted for as a purchase and the results of operations of SDS have beenincluded in the Company’s results of operations from the date of acquisition.The preliminary allocation of the acquisition cost resulted in unallocated negativegoodwill of $1.5 million which has been reflected as an extraordinary gain (netof minority interest of $0.6 million) in the statement of operations for thesix months ended June 30, 2006. The Company is in the process of finalizingcertain asset and liability valuations and therefore the allocation of theacquisition cost, including the amount of unallocated negative goodwill, issubject to refinement and adjustment.

***Essex Electricdisposition***

InJanuary 2006 the Company sold its investment in the common stock of EssexElectric Inc. together with its warrant to purchase additional shares of EssexElectric Inc. to The Alpine Group, Inc. for a cash payment of $8.5 million. Asa result of the transaction the Company recognized a pre-tax gain of $5.8 million.Following the sale the Company no longer has any equity interest in EssexElectric Inc.

***US Seal disposition***

On March 4, 2005,the Company sold accounts receivable and inventory totaling approximately$1.2 million together with related trademarks and service namesconstituting the business conducted by the Company under the US Seal trade namefor a net total purchase price of $11.6 million. A gain of$10.4 million was recognized on the sale. In connection with the sale, theCompany also signed a non-exclusive distribution agreement to act as adistributor for certain of the US Seal products for a period of five years. TheCompany believes the expected revenues under the distribution agreementrepresent a significant continuation of the direct cash flows of the disposedUS Seal product line and accordingly, the disposition is not reported as adiscontinued operation in accordance

12

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with SFASNo. 144, *Accounting for the Impairmentand Disposal of Long-Lived Assets* and EITF Issue No. 03-13. TheUS Seal product line is included in the North American magnet wire anddistribution segment.

**6.****             Debt**

AtJune 30, 2006 and December 31, 2005, short-term borrowings and long-termdebt consist of the following:

|                                                                                                                        | ** ** | **June 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                                                                             | ** ** | **(in thousands)** | ** ** |
| Short-term  borrowings:                                                                                                |       |                    |       |                        |       |
| Senior secured revolving credit facility                                                                               |       | $                       | —     |                        | $          | 13,049 |   |
| Essex Nexans factoring agreement                                                                                       |       | 36,359                  |       | 21,070                      |       |
|                                                                                                                   |       | $                       | 36,359     |                        | $          | 34,119 |   |
| Long-term debt:                                                                                                        |       |                    |       |                        |       |
| Short-term borrowings refinanced - senior secured  revolving credit facility                                           |       | $                       | —     |                        | $          | — |   |
| 9% senior notes (net of discount of $5,628 and  $5,987 at June 30, 2006 and December 31, 2005, respectively) |       | 251,472                 |       | 251,113                     |       |
| Series A redeemable preferred stock of Superior  Essex Holding                                                         |       | 5,000                   |       | 5,000                       |       |
| 8.975% subordinated note of Essex Nexans                                                                               |       | 14,183                  |       | 13,416                      |       |
| Other                                                                                                                  |       | 10,072                  |       | 10,196                      |       |
|                                                                                                                   |       | 280,727                 |       | 279,725                     |       |
| Less current portion of long-term debt                                                                                 |       | 468                     |       | 499                         |       |
| Total long-term debt                                                                                                   |       | $                       | 280,259    |                        | $          | 279,226 |   |

 

OnApril 14, 2006, Superior Essex Communications and Essex Group, as borrowers,entered into an amendment and restatement of their existing senior securedrevolving credit facility. The amended and restated senior secured revolvingcredit facility, among other things:

·              increasedthe borrowing limit from $175 million to $225 million;

·              extendedthe maturity date from November 10, 2007 to April 13, 2011;

·              reducedthe applicable interest margin charged over short-term index rates; the margin,determined quarterly based on average availability, now ranges from 1.00% to2.00% for LIBOR based loans and 0% to 0.75% for base rate loans; and

·              providedgreater flexibility with respect to certain restrictive covenants.

Interest on theamended and restated senior secured credit facility accrues on outstandingborrowings at an annual rate equal to, at the borrowers’ option, LIBOR or abase rate, plus, in each case, an applicable margin as discussed above.Obligations under the amended and restated senior secured credit facility aresecured by substantially all domestic assets of the Company and 65% of thevoting stock of certain of the Company’s foreign subsidiaries. Availabilityunder the amended and restated senior secured credit facility is subject to aborrowing base equal to the lesser of (1) $225 million less outstanding lettersof credit and (2) a specified percentage of eligible accounts receivable andinventory less specified reserves. The specified percentages are (i) 85% of thevalue of the eligible accounts receivable and with respect to inventory thelesser of (a) $110 million or (b) the lesser of (x) 65% of the value ofeligible inventory and (y) 85% multiplied by the net orderly liquidationpercentage then applicable multiplied by the value of the eligible inventory.Certain of the specified reserves that reduce availability are not fixed andmay be increased or imposed by the administrative agent for the amended andrestated senior secured credit facility at its reasonable credit judgment. Theborrowers are obligated to pay an unused commitment fee of 0.25% per annum on theunused amount of the maximum committed amounts and a fee of 0.125% per annum onthe outstanding face amount of outstanding letters of credit. Undrawnavailability under the amended and restated senior secured credit facility was$223 million as of June 30, 2006. Based on the terms of the amended andrestated senior secured credit facility and the provisions of Statement ofFinancial Accounting Standards No. 6, *Classificationof Short-Term Obligations Expected to Be Refinanced*, the balance ofthe senior secured credit facility has been reclassified as long-term debt asof June 30, 2006.

The amended and restatedsenior secured credit facility contains covenants which may limit SuperiorEssex Communications’ and Essex Group’s and their subsidiaries’ ability to (i)pay dividends, redeem capital stock or make other restricted payments, (ii)sell or dispose of assets, (iii) incur additional indebtedness or permit liensto exist on Company property, (iv) engage in transactions with affiliates and(v) make additional investments or acquisitions. Capital expenditures,distributions, acquisitions and

13

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asset dispositions arenot limited so long as no event of default exists and the borrowers meetcertain availability and liquidity conditions specified in the amended andrestated senior secured credit facility.

InJuly 2006 Essex Nexans amended its factoring agreement to increase the maximumavailable advances by €20 million to €55 million ($69.0 million) until May 31,2007. The maximum amount of advances was also reduced to 88% of assignedreceivables. Interest on advances in excess of €35 million bear interest at theEuropean Overnight Index Average rate plus 0.67%.

In July2006 the Company’s subsidiary, Essex Magnet Wire (Suzhou) Ltd., entered into aconstruction loan agreement with a Chinese development authority to providefinancing for construction of the Company’s Greenfield manufacturing facilityin Suzhou, China. The agreement provides for five monthly draws beginning July21, 2006 of up to 96 million Yuan Renminbi ($12.0 million). Interest on amountsdrawn under the agreement is payable monthly at a floating rate, adjustedannually, equal to 90% of the benchmark interest rate set by the People’s Bankof China. The loan is secured by a mortgage on the facility and is repayable intwo annual installments beginning July 2010. The loan is not guaranteed by theCompany or any of its subsidiaries.

Theindenture governing the 9% senior notes contains covenants which restrict theability of the Company and certain of its subsidiaries to, among other things:incur additional 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.

**7.****             Income per share**

Thecomputation of basic and diluted net income and income before extraordinarygain per share for the three and six months ended June 30, 2006 and 2005 is asfollows:
| ** **                           | ** ** | **Three Months Ended June 30**                    | ** ** |
|--------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                           | ** ** | **2006**                                                              | ** ** | **2005** | ** ** |
| ** **                           | ** ** | **Net  Income**                                                       | ** ** | **Shares** | ** ** | **Per Share  Amount** | ** ** | **Net  Income** | ** ** | **Shares** | ** ** | **Per Share  Amount** | ** ** |
| ** **                           | ** ** | **(in thousands, except per share amounts)** | ** ** |
| Basic net income  per common share   |       | $                                                                     | 22,819     |   | 17,427 |   | $ | 1.31 |   | $ | 7,034 |   | 16,646 |   | $ | 0.42 |   |
| Effect of  dilutive securities       |       |                                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Restricted stock  awards             |       | —                                                                |       | 233 |   |   |   | — |   | 141 |   |   |   |
| Stock options                        |       | —                                                                |       | 281 |   |   |   | — |   | 156 |   |   |   |
| Warrants                             |       | —                                                                |       | 51 |   |   |   | — |   | — |   |   |   |
| Diluted net income per  common share |       | $                                                                     | 22,819     |   | 17,992 |   | $ | 1.27 |   | $ | 7,034 |   | 16,943 |   | $ | 0.42 |   |

 
| ** **                                                 | ** ** | **Six Months Ended June 30**                      | ** ** |
|------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                 | ** ** | **2006**                                                              | ** ** | **2005** | ** ** |
| ** **                                                 | ** ** | **Net  Income**                                                       | ** ** | **Shares** | ** ** | **Per Share  Amount** | ** ** | **Net  Income** | ** ** | **Shares** | ** ** | **Per Share  Amount** | ** ** |
| ** **                                                 | ** ** | **(in thousands, except per share amounts)** | ** ** |
| Basic income per  common share before extraordinary gain   |       | $                                                                     | 35,047     |   | 17,095 |   | $ | 2.05 |   | $ | 17,015 |   | 16,615 |   | $ | 1.02 |   |
| Effect of  dilutive securities                             |       |                                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Restricted stock  awards                                   |       | —                                                                |       | 223 |   |   |   | — |   | 135 |   |   |   |
| Stock options                                              |       | —                                                                |       | 254 |   |   |   | — |   | 166 |   |   |   |
| Warrants                                                   |       | —                                                                |       | 26 |   |   |   | — |   | — |   |   |   |
| Diluted income per  common share before extraordinary gain |       | $                                                                     | 35,047     |   | 17,598 |   | $ | 1.99 |   | $ | 17,015 |   | 16,916 |   | $ | 1.01 |   |

 

A total of 23,663 and1,091,071 anti-dilutive weighted average shares with respect to outstandingstock options, restricted stock awards and Superior Essex’s warrants have beenexcluded from the computation of diluted income per share for the three monthsended June 30, 2006 and 2005, respectively. Warrants issued in connectionwith Superior TeleCom’s plan of reorganization to purchase 868,421 shares ofthe Company’s common stock expired unexercised on May 10, 2006. A total of575,548 and 979,746 anti-dilutive weighted average shares with respect tooutstanding stock options, restricted stock awards and Superior Essex’s warranthave been excluded from the computation of diluted income per share for the sixmonths ended June 30, 2006 and 2005, respectively. Additionally, 193,620 sharescontingently issuable pursuant to performance awards granted in March 2006 (seeNote 8) have been excluded from the computation of basic and diluted income pershare for the three and six months ended June 30, 2006 as the

14

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performanceconditions have not been satisfied.

**8.****             Stock-based compensation plans**

In connection with theplan of reorganization, the Company adopted the Superior Essex Inc. 2003Stock Incentive Plan (the “2003 Plan”) pursuant to which a committee of theCompany’s board of directors were authorized to grant stock options orrestricted stock awards to employees, non-employee directors and certainservice providers. The 2003 Plan permitted grants of awards or options topurchase up to 1,833,333 shares of authorized but unissued common stock, stockheld in treasury or both. Stock options under the 2003 Plan could be grantedwith an exercise price less than, equal to or greater than the stock’s fairmarket value at the date of grant. The term of stock options granted under the2003 Plan could not exceed 10 years.

In May 2005 theshareholders of the Company approved the Superior Essex Inc. 2005 IncentivePlan (the “2005 Plan”) pursuant to which a committee of the Company’s board ofdirectors may grant stock options, stock appreciation rights, restricted stock,restricted stock units, deferred stock units, performance awards, dividend andinterest equivalents and cash-based awards to eligible employees, officers,non-employee directors and consultants. Stock options can be granted under the2005 Plan with an exercise price equal to or greater than the stock’s fairmarket value at the date of grant. The term of stock options granted may notexceed 10 years. A total of 500,000 shares of common stock are reservedfor issuance under the 2005 Plan. In addition, unissued awards and any sharesunderlying currently outstanding options granted under the 2003 Plan whichexpire unexercised are available for issuance under the 2005 Plan. As a resultof adoption of the 2005 Plan, no further grants or awards may be made pursuantto the 2003 Plan.

In March 2006 the Company’sboard of directors granted performance share awards to certain of the Company’sexecutive officers under the 2005 Plan. Under the terms of the award theexecutives may vest in up to 193,620 shares of the Company’s common stock onDecember 31, 2007 contingent upon meeting specified performance goals withrespect to return on net assets and core business revenues (as defined in theaward) for the year ended December 31, 2007. Compensation expense related tothe performance share awards is based on the grant date fair value of the awardand the estimated number of shares that will ultimately vest. Compensationexpense is subject to future adjustment based upon changes in expectedperformance.

Total compensation costrelated to all stock-based compensation plans was $2.0 million and $0.7 millionfor the three months ended June 30, 2006 and 2005, respectively. Totalcompensation cost related to all stock-based compensation plans was $3.3million and $1.3 million for the six months ended June 30, 2006 and 2005, respectively.The total income tax benefit recognized with respect to all stock-basedcompensation plans was $0.7 million and $0.3 million for the three months endedJune 30, 2006 and 2005, respectively. The total income tax benefit recognizedwith respect to all stock-based compensation plans was $1.2 million and $0.5million for the six months ended June 30, 2006 and 2005, respectively. As ofJune 30, 2006, there was $9.7 million of unrecognized compensation cost relatedto the Company’s stock-based compensation plans which is expected to berecognized over a weighted average period of 2.0 years.

Thefollowing table summarizes stock option activity for the six months ended June30, 2006:

|                                   | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual  Term (in  years)** | ** ** | **Aggregate  Intrinsic  Value (in  thousands)** | ** ** |
|-----------------------------------|------------|------------|------------|----------------------------------------|------------|----------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                        | ** ** | ** ** | ** ** | ** **                             | ** ** | ** **                                                           | ** ** | ** **                                           | ** ** |
| Outstanding at  December 31, 2005 |       | 1,059,000  |       | $                                      | 14.24      |                                                                 |       |                                                 |       |   |
| Granted                           |       | 24,195     |       | 25.75                                  |       |                                                                 |       |                                                 |       |
| Exercised                         |       | (134,458   | )          | 13.99                                  |       |                                                                 |       |                                                 |       |
| Forfeitures                       |       | (167       | )          | 18.14                                  |       |                                                                 |       |                                                 |       |
| Outstanding at  June 30, 2006     |       | 948,570    |       | $                                      | 14.56      |                                                                 | 8.0        |                                                 | $          | 14,575 |   |
| Exercisable at June 30,  2006     |       | 421,334    |       | $                                      | 12.85      |                                                                 | 7.8        |                                                 | $          | 7,195 |   |

 

Thetotal intrinsic value of options exercised during the six months ended June 30,2006 and 2005 was $1.4 million and $0.5 million, respectively. The Company’spolicy is to issue authorized but unissued shares upon the exercise of options.

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Thefollowing table summarizes the status of the Company’s unvested share awards,including the performance share awards discussed above, for the six monthsended June 30, 2006:

 

|                                                               | ** ** | **Shares  Outstanding** | ** ** | **Weighted Average  Grant Date  Fair Value** | ** ** |
|---------------------------------------------------------------|------------|-------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                    | ** ** | ** **              | ** ** | ** **                                                  | ** ** |
| Nonvested share awards  outstanding at December 31, 2005 |       | 498,750                 |       | $                                                           | 13.39      |   |
| Granted                                                       |       | 296,117                 |       | 25.55                                                       |       |
| Vested                                                        |       | (94,094                 | )          | 13.81                                                       |       |
| Forfeited                                                     |       | —                  |       | —                                                      |       |
| Nonvested share awards outstanding at June 30, 2006      |       | 700,773                 |       | $                                                           | 18.47      |   |

 

Thetotal fair value of share awards vesting during the six months ended June 30,2006 and 2005 was $2.8 million and $0.7 million, respectively.

**9.             Employee benefits**

Thecomponents of net periodic benefit cost of the Company’s defined benefitpension plans for the three and six months ended June 30, 2006 and 2005are presented below.

 

|                                                              | ** ** | **Three Months Ended  June 30,** | ** ** |
|--------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                   | ** ** | **2006**                                        | ** ** | **2005** | ** ** |
| ** **                                                   | ** ** | **(in thousands)**                         | ** ** |
| **Components of net periodic  benefit cost:**                | ** ** | ** **                                      | ** ** | ** ** | ** ** |
| Service cost                                                 |       | $                                               | 657        |   | $ | 661 |   |
| Interest cost                                                |       | 2,085                                           |       | 2,015 |   |
| Expected return on plan  assets                              |       | (2,024                                          | )          | (2,262 | ) |
| Amortization of prior  service costs and unrecognized losses |       | 220                                             |       | 19 |   |
|                                                         |       | $                                               | 938        |   | $ | 433 |   |

 

|                                                              | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                   | ** ** | **2006**                                      | ** ** | **2005** | ** ** |
| ** **                                                   | ** ** | **(in thousands)**                       | ** ** |
| **Components of net periodic  benefit cost:**                | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Service cost                                                 |       | $                                             | 1,282      |   | $ | 1,067 |   |
| Interest cost                                                |       | 4,036                                         |       | 3,642 |   |
| Expected return on plan  assets                              |       | (4,059                                        | )          | (3,853 | ) |
| Amortization of prior  service costs and unrecognized losses |       | 268                                           |       | 38 |   |
|                                                         |       | $                                             | 1,527      |   | $ | 894 |   |

 

TheCompany’s cash contributions to the defined benefit plans amounted to $2.5million and $1.7 million during the six months ended June 30, 2006and 2005, respectively. The Company expects to make additional cashcontributions of $6.0 million for the remainder of 2006.

**10.          Derivative financial instruments**

The Company, to a limitedextent, uses or has used forward fixed price contracts and derivative financialinstruments to manage commodity price, interest rate and foreign currencyexchange risks. The Company does not hold or issue financial instruments forinvestment or trading purposes. The Company is exposed to credit risk in theevent of nonperformance by counterparties for foreign exchange forwardcontracts, metal forward price contracts and metals futures contracts but the Companydoes not anticipate nonperformance by any of these counterparties. The amountof such exposure is generally limited to any unrealized gains within theunderlying contracts.

 

16

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***Commodity price risk management***

Thecost of copper, the Company’s most significant raw material, has historicallybeen subject to considerable volatility. To manage the risk associated withsuch volatility, the Company enters into futures contracts to match the metalcomponent of customer product pricing with the cost component of the inventoryshipped. These futures contracts have been designated as cash flow hedges withunrealized gains and losses recorded in other comprehensive income. Gains andlosses are reclassified into earnings, as a component of cost of goods sold, whenthe hedged sales transactions are reflected in the income statement. Hedgeineffectiveness, which is not significant, is immediately recognized inearnings. The Company’s commodities futures purchase contracts are summarizedas follows at June 30, 2006:

 

| Type       | ** ** | **Notional  Amount**                    | ** ** | **Maturity  Date** | ** ** | **Weighted  Average  Settlement Rate** | ** ** | **Fair Value  Gain (Loss)** | ** ** |
|------------|------------|-----------------------------------------|------------|--------------------|------------|---------------------------------------------|------------|---------------------------------------|------------|
| ** ** | ** ** | **(in thousands of  pounds)** | ** ** | ** **         | ** ** | ** **                                  | ** ** | **(in  thousands)**                   | ** ** |
|       |       |                                    |       |               |       |                                        |       |                                  |       |
| Copper     |       | 7,350                                   |       | 2006               |       | $                                           | 3.33       |                                  | $          | 9,328 |   |
| Copper     |       | 3,525                                   |       | 2007               |       | 3.14                                        |       | 2,997                                 |       |
|       |       |                                    |       |               |       |                                        |       | $                                     | 12,325     |   |
|            |            |                                         |            |                    |            |                                             |            |                                       |            |  |  |

 

Approximately$12.4 million of unrealized gains on commodity futures outstanding at June 30,2006 are expected to be reclassified in earnings within the next twelve monthsto match the copper component of product pricing for outstanding customerorders.

EssexNexans enters into commodity futures contracts to match the copper component ofcustomer product pricing with the cost component of the inventory shipped. Thefutures contracts are intended to minimize the risks associated with forwardproduct pricing for customers and changing copper prices. These contractsgenerally have maturities of less than two months and represent economic hedgesbut have not been designated as hedges for accounting purposes. Accordingly,gains and losses on these contracts are recorded in income as a component ofcost of goods sold. Essex Nexans had no open copper futures positions atJune 30, 2006.

***Interest rate risk management***

Inorder to limit the Company’s exposure to rising interest rates with respect toborrowings under its variable rate senior secured revolving credit facility,the Company has entered into interest rate cap agreements. The followinginterest rate cap agreements were outstanding as of June 30, 2006:

 

| Type              | ** ** | **Notional  Amount**    | ** ** | **Interest Rate** | ** **   | **Cap Rate** | ** ** | **Expiration Date** | ** **    | **Fair Value**     | ** ** |
|-------------------|------------|-------------------------|------------|------------------------|--------------|-------------------|------------|--------------------------|---------------|-------------------------|------------|
| ** **        | ** ** | **(in thousands)** | ** ** | ** **             | ** **   | ** **        | ** ** | ** **               | ** **    | **(in thousands)** | ** ** |
|              |       |                    |       |                   |         |              |       |                     |          |                    |       |
| Interest rate cap |       | $                       | 30,000     |                   | 30-day LIBOR |              | 7.0        | %                        | December 2006 |                    | $          | — |   |
| Interest rate cap |       | 15,000                  |       | 30-day LIBOR           |         | 5.0               | %          | April 2007               |          | 61                      |       |
|                   |            |                         |            |                        |              |                   |            |                          |               |                         |            |  |  |

 

***Foreign currency exchange risk management***

TheCompany engages in the sale of products which result in accounts receivabledenominated in foreign currencies. The Company enters into foreign currencyforward exchange contracts to hedge against fluctuations in the value ofcertain of these receivables. Changes in the fair value of these contracts arereflected in current earnings. At June 30, 2006, the Company hadoutstanding foreign currency forward exchange contracts to exchange 7.2 millionCanadian dollars for $6.5 million in July 2006. The fair value of theforward exchange contracts was insignificant at June 30, 2006.Additionally, the Company has entered into foreign currency forward exchangecontracts to purchase 2.6 million Chinese Yuan for $0.3 million at variousdates through August 2006. These contracts represent an economic hedge ofa portion of expected capital expenditures to be made in connection withconstruction of the Company’s manufacturing facility in China. Changes in thefair value of these contracts are reflected in current earnings. The fair valueof these contracts was insignificant at June 30, 2006.

**11.          Commitments and contingencies**

The Company is involved in lawsuits, claims,investigations and proceedings, including those described below, consisting ofcommercial, employment, employee benefits, environmental and other matterswhich arise in the ordinary course of business. In

 

17

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accordance with SFAS No.5, “Accounting for Contingencies,” the Company records a liability whenmanagement believes it is both probable that a liability has been incurred andthe amount of loss can be reasonably estimated. Management believes it hasadequate provisions for any such matters. The Company reviews these provisionsat least quarterly and adjusts these provisions to reflect the impact ofnegotiations, settlement, rulings, advice of legal counsel and otherinformation and events pertaining to a particular matter. Litigation isinherently unpredictable. However, management believes it has valid defenses withrespect to all legal matters against the Company and its subsidiaries and doesnot believe any such matters, either individually or in the aggregate, willhave a material adverse effect on its business, financial condition, liquidityor results of operations.

Since approximately 1990, Essex International andcertain subsidiaries have been named as defendants in a number of productliability lawsuits brought by electricians, other skilled tradesmen and othersclaiming injury, in a substantial majority of cases, from exposure to asbestosfound in electrical wire products produced many years ago. Litigation againstvarious past insurers of Essex International who had previously refused todefend 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. Management believes thatEssex International’s liability, if any, in these matters will not have amaterial adverse effect either individually, or in the aggregate, upon theCompany’s business, financial condition, liquidity or results of operations.There can be no assurance, however, that future developments will not alterthis conclusion.

On January 18, 2002, United TechnologiesCorporation, or United Technologies, brought a third party claim against EssexInternational in a civil action in Massachusetts. United Technologies had beensued by an insurer for, among other things, approximately $3.1 million incompensatory damages for retrospective premiums for 1999, 2000 and 2001 relatingto certain events that allegedly occurred while Essex Group was a subsidiary ofUnited Technologies. United Technologies’ third party complaint against EssexInternational contended, among other things, that Essex International hadagreed, in the stock purchase agreement dated January 15, 1988, to paysuch premiums and sought a declaratory judgment, contribution andindemnification for any such retrospective premiums that United Technologiesmight have to pay the insurer. On January 13, 2003, the court granted theinsurer’s motion for summary judgment against United Technologies and EssexInternational’s motion to dismiss with prejudice United Technologies’ claimagainst it. United Technologies thereafter indicated an intention to appeal theruling dismissing the action against Essex International. However, before EssexInternational’s time to respond, on March 3, 2003, Superior TeleCom andcertain of its U.S. subsidiaries filed voluntary petitions for relief underChapter 11 of the United States Bankruptcy Code in the Unites States BankruptcyCourt for the District of Delaware. The United Technologies proceedings werestayed by the filing of Superior TeleCom’s bankruptcy proceedings. UnitedTechnologies and the insurer filed proofs of claim in connection with SuperiorTeleCom’s bankruptcy. Management believes that these claims have been addressedin the bankruptcy claims resolution process and will not have a materialadverse effect either individually, or in the aggregate, on the Company’sbusiness, financial condition, liquidity or results of operations. There can beno assurance that future developments will not alter this conclusion.

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 (or one of its subsidiaries) and the Company’s operations and thoseoccurring prior to the use of a facility by Superior TeleCom or the Company.Off-site liability includes clean-up responsibilities and response costsincurred by others at various sites, under federal or state statutes, for whichSuperior TeleCom (or one of its subsidiaries) has been identified by the UnitedStates Environmental Protection Agency, or state environmental agency, as aPotentially Responsible Party (“PRP”), or the equivalent. Management believesall such matters related to previously owned facilities, off-site disposallocations or fines existing at the time of filing have been addressed in thebankruptcy claims resolution process.

A liability for environmental remediation and otherenvironmental costs is accrued when it is considered probable and the costs canbe reasonably estimated. The Company has accrued amounts with respect toenvironmental matters that management believes were adequate at June 30, 2006.These accruals are not material to the Company’s operations or financialposition.

TheCompany accepts certain customer orders for future delivery at fixed prices. Ascopper is the most significant raw material used in the manufacturing process,the Company enters into forward purchase fixed price commitments for copper toproperly match its cost to the value of the copper to be billed to thecustomers. At June 30, 2006, the Company had forward fixed price copperpurchase commitments for delivery of 31.9 million pounds through May 2007for $94.2 million. Additionally at June 30, 2006, the Company has forwardpurchase fixed price commitments for 2.7 million pounds of aluminum and 760,000MMBTUs of natural gas

 

18

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amounting to$3.2 million and $7.0 million, respectively.

**12.          Business segments**

Reportable segments arestrategic businesses that offer different products and services to differentcustomers. These segments are communications cable, North American magnet wireand distribution (formerly magnet wire and distribution), European magnet wireand distribution and copper rod. The communications cable segment includescopper and fiber optic outside plant wire and cable for voice and datatransmission in telecommunications networks and copper and fiber optic datacomor premises wire and cable for use within homes and offices for local areanetworks, Internet connectivity and other applications. The North Americanmagnet wire and distribution segment manufactures and markets magnet wire andrelated products to major OEMs for use in motors, transformers and electricalcoils and controls primarily in North America. The North American magnet wireand distribution segment also distributes magnet wire and fabricated insulationproducts manufactured by the Company and related accessory products purchasedfrom third parties to small OEMs and motor repair facilities. The Europeanmagnet wire and distribution segment consists of Essex Nexans and manufacturesand markets magnet wire for use in motors, transformers and electrical coilsand controls primarily in Europe. Essex Nexans also produces enamels that areused both for internal consumption in the production of magnet wire and forsale to third parties. Prior to the formation of Essex Nexans, the Company’sU.K. magnet wire operations were included in the North American magnet wire anddistribution segment. The Company’s U.K. magnet wire operations are currentlyreported with the European magnet wire and distribution segment and,accordingly, all prior period segment information has been restated to reflectthe current segment reporting structure. The copper rod segment includes salesof copper rod produced by the Company’s North American continuous casting unitsto external customers. The copper rod segment also produces copper rod forinternal processing which is recorded by the consuming segment at cost as acomponent of cost of goods sold. Corporate and other charges consist primarilyof parent company and executive payroll costs, including stock-basedcompensation charges, corporate headquarters costs and corporate professionalfees and compliance costs. The components of restructuring and other chargesand asset impairments are discussed in Note 4.

TheCompany’s chief operating decision maker evaluates segment performance based ona number of factors with operating income, excluding corporate and other costs,restructuring and other charges and asset impairments, being the most critical.Accordingly, corporate and other costs, restructuring and other charges, assetimpairments and gain on sale of product line are not allocated to the Company’sreportable segments.

Financialinformation with respect to reportable segments is presented below. Corporateand other items shown below are provided to reconcile to the accompanyingconsolidated statements of operations.

 
| ** **                                             | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                             | ** ** | **2006**                                        | ** ** | **2005**                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                             | ** ** | **(in thousands)**                         | ** ** |
| Net sales:                                             |       |                                            |       |                                          |       |   |   |   |   |
| Communications  cable                                  |       | $                                               | 237,135    |                                          | $          | 177,612 |   | $ | 423,708 |   | $ | 329,576 |   |
| North American  magnet wire and distribution           |       | 274,340                                         |       | 174,103                                       |       | 507,877 |   | 349,793 |   |
| European magnet  wire and distribution                 |       | 174,270                                         |       | 9,006                                         |       | 312,879 |   | 17,856 |   |
| Copper rod                                             |       | 132,448                                         |       | 69,225                                        |       | 225,423 |   | 136,009 |   |
|                                                   |       | $                                               | 818,193    |                                          | $          | 429,946 |   | $ | 1,469,887 |   | $ | 833,234 |   |
| Operating income  (loss):                              |       |                                            |       |                                          |       |   |   |   |   |
| Communications  cable                                  |       | $                                               | 32,454     |                                          | $          | 14,910 |   | $ | 50,807 |   | $ | 26,614 |   |
| North American  magnet wire and distribution           |       | 13,446                                          |       | 10,170                                        |       | 22,712 |   | 20,512 |   |
| European magnet  wire and distribution                 |       | 9,096                                           |       | (949                                          | )          | 10,880 |   | (1,607 | ) |
| Copper rod                                             |       | 256                                             |       | (147                                          | )          | 117 |   | 102 |   |
| Corporate and  other                                   |       | (6,791                                          | )          | (4,304                                        | )          | (13,218 | ) | (9,493 | ) |
| Gain on sale of  product line                          |       | —                                          |       | —                                        |       | — |   | 10,355 |   |
| Restructuring  and other charges and asset impairments |       | (197                                            | )          | (180                                          | )          | (978 | ) | (2,938 | ) |
|                                                   |       | $                                               | 48,264     |                                          | $          | 19,500 |   | $ | 70,320 |   | $ | 43,545 |   |

 

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|                                              | ** ** | **June 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|----------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                   | ** ** | **(in thousands)** | ** ** |
| Total assets:                                |       |                    |       |                        |       |
| Communications  cable                        |       | $                       | 362,668    |                        | $          | 309,301 |   |
| North American  magnet wire and distribution |       | 354,534                 |       | 290,701                     |       |
| European magnet  wire and distribution       |       | 244,059                 |       | 182,533                     |       |
| Copper rod                                   |       | 55,823                  |       | 39,450                      |       |
| Corporate and  other                         |       | 3,828                   |       | 6,207                       |       |
|                                         |       | $                       | 1,020,912  |                        | $          | 828,192 |   |

 

**13.          Supplemental guarantor information**

The 9%senior unsecured notes were issued by Superior Essex Communications and EssexGroup, as joint and several obligors. The notes are jointly and severallyguaranteed by the Company and each of its existing and future domesticrestricted subsidiaries (as defined in the indenture governing the notes). Allof the Company’s current domestic subsidiaries, other than IP Licensing LLP,are restricted subsidiaries. The following consolidating information presentsinformation about the Company (the “Parent”), the issuers, guarantorsubsidiaries and non-guarantor subsidiaries. Investments in subsidiaries arepresented on the equity method. Intercompany transactions are eliminated inconsolidation.

 
| ** **                                      | ** ** | **June 30, 2006** | ** ** |
|-------------------------------------------------|------------|-----------------------------|------------|
| ** **                                      | ** ** | **Parent**                  | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                      | ** ** | **(in thousands)**     | ** ** |
| **ASSETS**                                      | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current assets:                                 |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                      |       | $                           | 2          |   | $ | 11,987 |   | $ | 194 |   | $ | 7,386 |   | $ | — |   | $ | 19,569 |   |
| Accounts  receivable, net                       |       | —                      |       | 271,367 |   | 4,952 |   | 145,844 |   | — |   | 422,163 |   |
| Inventories, net                                |       | —                      |       | 178,050 |   | 9,793 |   | 67,716 |   | — |   | 255,559 |   |
| Other current  assets                           |       | 2,676                       |       | 22,946 |   | 370 |   | 12,555 |   | — |   | 38,547 |   |
| Total current  assets                           |       | 2,678                       |       | 484,350 |   | 15,309 |   | 233,501 |   | — |   | 735,838 |   |
| Property, plant and  equipment, net             |       | 587                         |       | 197,307 |   | 16,129 |   | 30,656 |   | — |   | 244,679 |   |
| Intangible and other  long-term assets          |       | 8,746                       |       | 36,056 |   | 2 |   | 3,776 |   | (8,185 | ) | 40,395 |   |
| Investment in  subsidiaries                     |       | 249,480                     |       | 89,135 |   | 211,370 |   | — |   | (549,985 | ) | — |   |
| Intercompany accounts                           |       | 94,469                      |       | — |   | 18,419 |   | — |   | (112,888 | ) | — |   |
| Total assets                                    |       | $                           | 355,960    |   | $ | 806,848 |   | $ | 261,229 |   | $ | 267,933 |   | $ | (671,058 | ) | $ | 1,020,912 |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**  | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current liabilities:                            |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Short-term  borrowings                          |       | $                           | —     |   | $ | — |   | $ | — |   | $ | 36,359 |   | — |   | $ | 36,359 |   |
| Current portion  of long-term debt              |       | —                      |       | — |   | — |   | 468 |   | — |   | 468 |   |
| Accounts payable                                |       | 4,100                       |       | 117,689 |   | 3,031 |   | 68,615 |   | — |   | 193,435 |   |
| Accrued expenses                                |       | 18,127                      |       | 36,031 |   | 338 |   | 49,568 |   | — |   | 104,064 |   |
| Total current  liabilities                      |       | 22,227                      |       | 153,720 |   | 3,369 |   | 155,010 |   | — |   | 334,326 |   |
| Long term-debt, less  current portion           |       | —                      |       | 258,472 |   | 5,000 |   | 16,787 |   | — |   | 280,259 |   |
| Other long-term  liabilities                    |       | 3,231                       |       | 42,106 |   | 3,380 |   | 10,492 |   | (8,185 | ) | 51,024 |   |
| Intercompany accounts                           |       | —                      |       | 98,406 |   | — |   | 14,482 |   | (112,888 | ) | — |   |
| Total liabilities                               |       | 25,458                      |       | 552,704 |   | 11,749 |   | 196,771 |   | (121,073 | ) | 665,609 |   |
| Minority interest in  consolidated subsidiaries |       | —                      |       | — |   | — |   | 24,801 |   | — |   | 24,801 |   |
| Stockholders’ equity                       |       | 330,502                     |       | 254,144 |   | 249,480 |   | 46,361 |   | (549,985 | ) | 330,502 |   |
|                                            |       | $                           | 355,960    |   | $ | 806,848 |   | $ | 261,229 |   | $ | 267,933 |   | $ | (671,058 | ) | $ | 1,020,912 |   |

 

20

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| ** **                                      | ** ** | **December 31, 2005** | ** ** |
|-------------------------------------------------|------------|---------------------------------|------------|
| ** **                                      | ** ** | **Parent**                      | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                      | ** ** | **(in thousands)**         | ** ** |
| **ASSETS**                                      |       |                            |       |   |   |   |   |   |   |   |   |   |   |
| Current assets:                                 |       |                            |       |   |   |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                      |       | $                               | 69         |   | $ | 395 |   | $ | 125 |   | $ | 7,595 |   | — |   | $ | 8,184 |   |
| Accounts  receivable, net                       |       | —                          |       | 167,744 |   | 2,613 |   | 89,258 |   | — |   | 259,615 |   |
| Inventories, net                                |       | —                          |       | 165,688 |   | 12,519 |   | 60,148 |   | — |   | 238,355 |   |
| Other current  assets                           |       | 2,643                           |       | 17,008 |   | 369 |   | 15,365 |   | — |   | 35,385 |   |
| Total current  assets                           |       | 2,712                           |       | 350,835 |   | 15,626 |   | 172,366 |   | — |   | 541,539 |   |
| Property, plant and  equipment, net             |       | 613                             |       | 203,325 |   | 17,082 |   | 19,712 |   | — |   | 240,732 |   |
| Intangible and other  long-term assets          |       | 11,067                          |       | 36,940 |   | 2 |   | 6,097 |   | (8,185 | ) | 45,921 |   |
| Investment in  subsidiaries                     |       | 210,849                         |       | 71,488 |   | 183,231 |   | — |   | (465,568 | ) | — |   |
| Intercompany accounts                           |       | 10,040                          |       | — |   | 5,303 |   | — |   | (15,343 | ) | — |   |
| Total assets                                    |       | $                               | 235,281    |   | $ | 662,588 |   | $ | 221,244 |   | $ | 198,175 |   | $ | (489,096 | ) | $ | 828,192 |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**  |       |                            |       |   |   |   |   |   |   |   |   |   |   |
| Current liabilities:                            |       |                            |       |   |   |   |   |   |   |   |   |   |   |
| Short-term  borrowings                          |       | $                               | —     |   | $ | 13,049 |   | $ | — |   | $ | 21,070 |   | — |   | $ | 34,119 |   |
| Current portion  of long-term debt              |       | —                          |       | — |   | — |   | 499 |   | — |   | 499 |   |
| Accounts payable                                |       | 4,483                           |       | 93,321 |   | 1,779 |   | 44,348 |   | — |   | 143,931 |   |
| Accrued expenses                                |       | 22,894                          |       | 32,271 |   | 237 |   | 37,024 |   | — |   | 92,426 |   |
| Total current  liabilities                      |       | 27,377                          |       | 138,641 |   | 2,016 |   | 102,941 |   | — |   | 270,975 |   |
| Long term-debt, less  current portion           |       | —                          |       | 258,113 |   | 5,000 |   | 16,113 |   | — |   | 279,226 |   |
| Other long-term  liabilities                    |       | 2,251                           |       | 43,859 |   | 3,379 |   | 10,212 |   | (8,185 | ) | 51,516 |   |
| Intercompany accounts                           |       | —                          |       | 6,297 |   | — |   | 9,046 |   | (15,343 | ) | — |   |
| Total  liabilities                              |       | 29,628                          |       | 446,910 |   | 10,395 |   | 138,312 |   | (23,528 | ) | 601,717 |   |
| Minority interest in  consolidated subsidiaries |       | —                          |       | — |   | — |   | 20,822 |   | — |   | 20,822 |   |
| Stockholders’ equity                       |       | 205,653                         |       | 215,678 |   | 210,849 |   | 39,041 |   | (465,568 | ) | 205,653 |   |
|                                            |       | $                               | 235,281    |   | $ | 662,588 |   | $ | 221,244 |   | $ | 198,175 |   | $ | (489,096 | ) | $ | 828,192 |   |

 

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| ** **                                                                            | ** ** | **Three Months Ended June 30, 2006** | ** ** |
|---------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                            | ** ** | **Parent**                                                    | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                                                            | ** ** | **(in thousands)**                                       | ** ** |
| Net sales                                                                             |       | $                                                             | 6,868      |   | $ | 638,953 |   | $ | 66,917 |   | $ | 180,567 |   | $ | (75,112 | ) | $ | 818,193 |   |
| Cost of goods  sold                                                                   |       | —                                                        |       | 575,242 |   | 60,748 |   | 163,748 |   | (68,244 | ) | 731,494 |   |
| Gross profit                                                                          |       | 6,868                                                         |       | 63,711 |   | 6,169 |   | 16,819 |   | (6,868 | ) | 86,699 |   |
| Selling, general  and administrative expenses                                         |       | (6,773                                                        | )          | (30,645 | ) | (258 | ) | (7,430 | ) | 6,868 |   | (38,238 | ) |
| Restructuring  and other charges                                                      |       | (111                                                          | )          | (291 | ) | — |   | 205 |   | — |   | (197 | ) |
| Operating income (loss)                                                               |       | (16                                                           | )          | 32,775 |   | 5,911 |   | 9,594 |   | — |   | 48,264 |   |
| Interest income  (expense)                                                            |       | 16                                                            |       | (7,386 | ) | (118 | ) | (523 | ) | — |   | (8,011 | ) |
| Other income  (expense), net                                                          |       | —                                                        |       | 219 |   | 29 |   | (309 | ) | — |   | (61 | ) |
| Income before income taxes, equity in earnings of  subsidiaries and minority interest |       | —                                                        |       | 25,608 |   | 5,822 |   | 8,762 |   | — |   | 40,192 |   |
| Income tax  expense                                                                   |       | —                                                        |       | (9,470 | ) | (2,242 | ) | (3,513 | ) | — |   | (15,225 | ) |
| Equity in  earnings of subsidiaries                                                   |       | 22,819                                                        |       | 6,760 |   | 19,239 |   | — |   | (48,818 | ) | — |   |
| Minority  interest in income of subsidiaries                                          |       | —                                                        |       | — |   | — |   | (2,148 | ) | — |   | (2,148 | ) |
| Net income                                                                            |       | $                                                             | 22,819     |   | $ | 22,898 |   | $ | 22,819 |   | $ | 3,101 |   | $ | (48,818 | ) | $ | 22,819 |   |

 
| ** **                                                                       | ** ** | **Three Months Ended June 30, 2005** | ** ** |
|----------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                       | ** ** | **Parent**                                                    | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                                                       | ** ** | **(in thousands)**                                       | ** ** |
| Net sales                                                                        |       | $                                                             | 4,362      |   | $ | 427,764 |   | $ | 33,749 |   | $ | 12,988 |   | $ | (48,917 | ) | $ | 429,946 |   |
| Cost of goods  sold                                                              |       | —                                                        |       | 383,658 |   | 33,665 |   | 12,808 |   | (44,555 | ) | 385,576 |   |
| Gross profit                                                                     |       | 4,362                                                         |       | 44,106 |   | 84 |   | 180 |   | (4,362 | ) | 44,370 |   |
| Selling, general  and administrative expenses                                    |       | (4,293                                                        | )          | (23,840 | ) | (275 | ) | (644 | ) | 4,362 |   | (24,690 | ) |
| Restructuring  and other charges                                                 |       | (71                                                           | )          | (109 | ) | — |   | — |   | — |   | (180 | ) |
| Operating income (loss)                                                          |       | (2                                                            | )          | 20,157 |   | (191 | ) | (464 | ) | — |   | 19,500 |   |
| Interest expense                                                                 |       | —                                                        |       | (7,322 | ) | (81 | ) | (6 | ) | — |   | (7,409 | ) |
| Other income,  net                                                               |       | 2                                                             |       | 83 |   | (4 | ) | — |   | — |   | 81 |   |
| Income (loss) before income taxes and equity in  earnings (loss) of subsidiaries |       | —                                                        |       | 12,918 |   | (276 | ) | (470 | ) | — |   | 12,172 |   |
| Benefit  (provision) for income taxes                                            |       | —                                                        |       | (4,794 | ) | 109 |   | (453 | ) | — |   | (5,138 | ) |
| Equity in  earnings (loss) of subsidiaries                                       |       | 7,034                                                         |       | (1,011 | ) | 7,201 |   | — |   | (13,224 | ) | — |   |
| Net income  (loss)                                                               |       | $                                                             | 7,034      |   | $ | 7,113 |   | $ | 7,034 |   | $ | (923 | ) | $ | (13,224 | ) | $ | 7,034 |   |

 

22

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| ** **                                                                                                     | ** ** | **Six Months Ended June 30, 2006** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                                                                     | ** ** | **Parent**                                                  | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                                                                                     | ** ** | **(in thousands)**                                     | ** ** |
| Net sales                                                                                                      |       | $                                                           | 13,363     |   | $ | 1,148,511 |   | $ | 113,174 |   | $ | 323,657 |   | $ | (128,818 | ) | $ | 1,469,887 |   |
| Cost of goods  sold                                                                                            |       | —                                                      |       | 1,039,602 |   | 103,266 |   | 297,326 |   | (115,455 | ) | 1,324,739 |   |
| Gross profit                                                                                                   |       | 13,363                                                      |       | 108,909 |   | 9,908 |   | 26,331 |   | (13,363 | ) | 145,148 |   |
| Selling, general  and administrative expenses                                                                  |       | (13,195                                                     | )          | (58,520 | ) | (501 | ) | (14,997 | ) | 13,363 |   | (73,850 | ) |
| Restructuring  and other charges                                                                               |       | (195                                                        | )          | (330 | ) | — |   | (453 | ) | — |   | (978 | ) |
| Operating income (loss)                                                                                        |       | (27                                                         | )          | 50,059 |   | 9,407 |   | 10,881 |   | — |   | 70,320 |   |
| Interest income  (expense)                                                                                     |       | 25                                                          |       | (14,829 | ) | (237 | ) | (1,048 | ) | — |   | (16,089 | ) |
| Gain on sale of  investment                                                                                    |       | 5,788                                                       |       | — |   | — |   | — |   |   |   | 5,788 |   |
| Other income  (expense), net                                                                                   |       | 2                                                           |       | 252 |   | 29 |   | (146 | ) | — |   | 137 |   |
| Income before income taxes, equity in earnings of  subsidiaries, minority interest and extraordinary item |       | 5,788                                                       |       | 35,482 |   | 9,199 |   | 9,687 |   | — |   | 60,156 |   |
| Income tax  expense                                                                                            |       | (2,257                                                      | )          | (12,774 | ) | (3,542 | ) | (4,355 | ) | — |   | (22,928 | ) |
| Equity in  earnings of subsidiaries                                                                            |       | 32,387                                                      |       | 9,839 |   | 26,730 |   | — |   | (68,956 | ) | — |   |
| Minority  interest in income of subsidiaries                                                                   |       | —                                                      |       | — |   | — |   | (2,181 | ) | — |   | (2,181 | ) |
| Extraordinary  gain                                                                                            |       | —                                                      |       | — |   | — |   | 871 |   | — |   | 871 |   |
| Net income                                                                                                     |       | $                                                           | 35,918     |   | $ | 32,547 |   | $ | 32,387 |   | $ | 4,022 |   | $ | (68,956 | ) | $ | 35,918 |   |

 
| ** **                                                                       | ** ** | **Six Months Ended June 30, 2005** | ** ** |
|----------------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                                       | ** ** | **Parent**                                                  | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                                                       | ** ** | **(in thousands)**                                     | ** ** |
| Net sales                                                                        |       | $                                                           | 9,637      |   | $ | 827,784 |   | $ | 65,549 |   | $ | 25,869 |   | (95,605 | ) | $ | 833,234 |   |
| Cost of goods  sold                                                              |       | —                                                      |       | 742,025 |   | 65,493 |   | 25,393 |   | (85,968 | ) | 746,943 |   |
| Gross profit                                                                     |       | 9,637                                                       |       | 85,759 |   | 56 |   | 476 |   | (9,637 | ) | 86,291 |   |
| Selling, general  and administrative expenses                                    |       | (9,471                                                      | )          | (48,726 | ) | (524 | ) | (1,079 | ) | 9,637 |   | (50,163 | ) |
| Restructuring  and other charges                                                 |       | (168                                                        | )          | (464 | ) | — |   | — |   | — |   | (632 | ) |
| Asset impairment  charge                                                         |       | —                                                      |       | — |   | — |   | (2,306 | ) | — |   | (2,306 | ) |
| Gain on sale of  product line                                                    |       | —                                                      |       | 10,355 |   | — |   | — |   | — |   | 10,355 |   |
| Operating income (loss)                                                          |       | (2                                                          | )          | 46,924 |   | (468 | ) | (2,909 | ) | — |   | 43,545 |   |
| Interest expense                                                                 |       | —                                                      |       | (14,312 | ) | (159 | ) | (11 | ) | — |   | (14,482 | ) |
| Other income,  net                                                               |       | 2                                                           |       | 177 |   | 17 |   | — |   | — |   | 196 |   |
| Income (loss) before income taxes and equity in  earnings (loss) of subsidiaries |       | —                                                      |       | 32,789 |   | (610 | ) | (2,920 | ) | — |   | 29,259 |   |
| Benefit  (provision) for income taxes                                            |       | —                                                      |       | (11,869 | ) | 238 |   | (613 | ) | — |   | (12,244 | ) |
| Equity in  earnings (loss) of subsidiaries                                       |       | 17,015                                                      |       | (3,747 | ) | 17,387 |   | — |   | (30,655 | ) | — |   |
| Net income  (loss)                                                               |       | $                                                           | 17,015     |   | $ | 17,173 |   | $ | 17,015 |   | $ | (3,533 | ) | $ | (30,655 | ) | $ | 17,015 |   |
|                                                                                  |            |                                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

23

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| ** **                                                      | ** ** | **Six Months Ended June 30, 2006** | ** ** |
|-----------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                      | ** ** | **Parent**                                                  | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                                      | ** ** | **(in thousands)**                                     | ** ** |
| Cash flows provided by  (used for) operating activities         |       | $                                                           | (3,008     | ) | $ | (53,830 | ) | $ | 8,350 |   | $ | (9,501 | ) | — |   | $ | (57,989 | ) |
| Cash flows from  investing activities:                          |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Capital  expenditures                                           |       | (68                                                         | )          | (7,531 | ) | — |   | (10,304 | ) | — |   | (17,903 | ) |
| SDS acquisition,  net of cash acquired                          |       | —                                                      |       | — |   | — |   | (947 | ) | — |   | (947 | ) |
| Proceeds from  sale of investment                               |       | 8,500                                                       |       | — |   | — |   | — |   | — |   | 8,500 |   |
| Investment in  subsidiaries                                     |       | —                                                      |       | (5,900 | ) | — |   | — |   | 5,900 |   | — |   |
| Dividends  received                                             |       |                                                        |       |   |   | 238 |   | — |   | (238 | ) | — |   |
| Other                                                           |       |                                                        |       | 56 |   | — |   | 3 |   | — |   | 59 |   |
| Cash flows provided by  (used for) investing activities         |       | 8,432                                                       |       | (13,375 | ) | 238 |   | (11,248 | ) | 5,662 |   | (10,291 | ) |
| Cash flows from  financing activities:                          |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Borrowings under  senior secured revolving credit facility, net |       | —                                                      |       | (13,049 | ) | — |   | — |   | — |   | (13,049 | ) |
| Essex Nexans  short-term borrowings, net                        |       | —                                                      |       | — |   | — |   | 13,793 |   | — |   | 13,793 |   |
| Repayments of  long-term debt                                   |       | —                                                      |       | — |   | — |   | (258 | ) | — |   | (258 | ) |
| Proceeds from  common stock offering                            |       | 76,541                                                      |       | — |   | — |   | — |   | — |   | 76,541 |   |
| Proceeds from  exercise of stock options                        |       | 1,880                                                       |       | — |   | — |   | — |   | — |   | 1,880 |   |
| Capital  contributions                                          |       | —                                                      |       | — |   | — |   | 1,475 |   | (1,475 | ) | — |   |
| Dividends paid                                                  |       |                                                        |       | (238 | ) | — |   | — |   | 238 |   | — |   |
| Other                                                           |       | 566                                                         |       | — |   | — |   | — |   | — |   | 566 |   |
| Intercompany  accounts                                          |       | (84,478                                                     | )          | 92,073 |   | (8,519 | ) | 5,349 |   | (4,425 | ) | — |   |
| Cash flows provided by  (used for) financing activities         |       | (5,491                                                      | )          | 78,786 |   | (8,519 | ) | 20,359 |   | (5,662 | ) | 79,473 |   |
| Effect of exchange rate  changes on cash                        |       | —                                                      |       | 11 |   | — |   | 181 |   | — |   | 192 |   |
| Net increase (decrease)  in cash and cash equivalents           |       | (67                                                         | )          | 11,592 |   | 69 |   | (209 | ) | — |   | 11,385 |   |
| Cash and cash  equivalents at beginning of period               |       | 69                                                          |       | 395 |   | 125 |   | 7,595 |   | — |   | 8,184 |   |
| Cash and cash equivalents at end of period                      |       | $                                                           | 2          |   | $ | 11,987 |   | $ | 194 |   | $ | 7,386 |   | — |   | $ | 19,569 |   |

 

24

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| ** **                                              | ** ** | **Six Months Ended June 30, 2005** | ** ** |
|---------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                              | ** ** | **Parent**                                                  | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                              | ** ** | **(in thousands)**                                     | ** ** |
| Cash flows  provided by (used for) operating activities |       | $                                                           | 899        |   | $ | (7,178 | ) | $ | (6,222 | ) | $ | 1,659 |   | $ | — |   | $ | (10,842 | ) |
| Cash flows from  investing activities:                  |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Capital expenditures                                    |       | (38                                                         | )          | (6,041 | ) | (962 | ) | (431 | ) | — |   | (7,472 | ) |
| Belden asset acquisition contingent payment             |       | —                                                      |       | (10,000 | ) | — |   | — |   | — |   | (10,000 | ) |
| Proceeds from sale of product line                      |       | —                                                      |       | 11,563 |   | — |   | — |   | — |   | 11,563 |   |
| Investment in subsidiaries                              |       | —                                                      |       | (1,800 | ) | — |   | — |   | 1,800 |   | — |   |
| Dividends received                                      |       | —                                                      |       | — |   | 238 |   | — |   | (238 | ) | — |   |
| Cash flows used  for investing activities               |       | (38                                                         | )          | (6,278 | ) | (724 | ) | (431 | ) | 1,562 |   | (5,909 | ) |
| Cash flows from  financing activities:                  |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Short-term borrowings (repayments), net                 |       | —                                                      |       | 10,000 |   | — |   | (610 | ) | — |   | 9,390 |   |
| Proceeds from exercise of stock options                 |       | 705                                                         |       | — |   | — |   | — |   | — |   | 705 |   |
| Capital contributions                                   |       | —                                                      |       | — |   | — |   | 1,800 |   | (1,800 | ) | — |   |
| Dividends paid                                          |       | —                                                      |       | (238 | ) | — |   | — |   | 238 |   | — |   |
| Intercompany accounts                                   |       | (1,829                                                      | )          | (4,480 | ) | 7,192 |   | (883 | ) | — |   | — |   |
| Cash flows  provided by (used for) financing activities |       | (1,124                                                      | )          | 5,282 |   | 7,192 |   | 307 |   | (1,562 | ) | 10,095 |   |
| Effect of  exchange rate changes on cash                |       | —                                                      |       | (912 | ) | — |   | 608 |   | — |   | (304 | ) |
| Net increase  (decrease) in cash and cash equivalents   |       | (263                                                        | )          | (9,086 | ) | 246 |   | 2,143 |   | — |   | (6,960 | ) |
| Cash and cash  equivalents at beginning of period       |       | 106                                                         |       | 18,097 |   | 43 |   | 66 |   | — |   | 18,312 |   |
| Cash and cash  equivalents at end of period             |       | $                                                           | (157       | ) | $ | 9,011 |   | $ | 289 |   | $ | 2,209 |   | $ | — |   | $ | 11,352 |   |

 

25

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**ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

**General**

Wecurrently manufacture a portfolio of wire and cable products grouped into thefollowing segments: (i) our communications cable segment; (ii) ourNorth American magnet wire and distribution segment (formerly magnet wire anddistribution); (iii) our European magnet wire and distribution segment and(iv) our copper rod segment. Our communications cable segment includescopper and fiber optic outside plant wire and cable for voice and datatransmission in telecommunications networks and copper and fiber optic datacomand premises wire and cable for use within homes and offices for local areanetworks, internet connectivity and other applications. Our North Americanmagnet wire and distribution segment manufactures and markets magnet wire andrelated products to major OEMs for use in motors, transformers and electricalcoils and controls primarily in North America. Our North American magnet wireand distribution segment also distributes magnet wire and fabricated insulationproducts manufactured by us and related accessory products purchased from thirdparties to OEMs and motor repair facilities. Our European magnet wire anddistribution segment consists of the operations of the joint venture formed in2005 in connection with the acquisition of Nexans’ European magnet wirebusiness as discussed below. Our European magnet wire and distribution segmentmanufactures and markets magnet wire for use in motors, transformers andelectrical coils and controls primarily in Europe as well as enamels that areused both for internal consumption in the production of magnet wire and forsale to third parties. Prior to the formation of Essex Nexans our U.K. magnetwire operations were included in the North American magnet wire anddistribution segment. Our U.K. magnet wire operations are currently reportedwithin the European magnet wire and distribution segment and, accordingly, allprior period segment information has been restated to reflect the currentsegment reporting structure. Our copper rod segment includes sales of copperrod produced by our North American continuous casting units to externalcustomers. Our copper rod segment also produces copper rod for internal processingwhich is recorded by the consuming segment at cost as a component of cost ofgoods sold.

Industrysegment financial data for the three and six months ended June 30, 2006and 2005 is included in Note 12 to the accompanying condensed consolidatedfinancial statements.

**Operating Environment**

Copperis the primary raw material we use in the manufacture of our wire and cableproducts. Foreign economies have been consuming an increasing proportion ofworldwide copper production resulting in a reduction of copper stock levelsheld in COMEX and LME warehouses and sold through merchants. Thesemacro-economic and other factors have contributed to extremely high andvolatile prices and periodic shortages of supply of copper. Over the past twoand a half years, the spot price of copper has escalated rapidly, increasingfrom an average COMEX daily spot price of $0.88 per pound in October 2003,to $2.17 per pound in December 2005. Copper prices have increased evenmore rapidly during 2006, with the COMEX daily spot price for copper increasingto an average of $3.40 per pound for June 2006 and fluctuating from a low of$2.13 per pound to a high of $4.08 per pound for the six months ended June 30,2006. Copper LME prices have experienced similar increases and fluctuations.

Whilewe have not experienced a material negative impact on our results of operationsto date as a result of rising copper prices or supply shortages, as describedbelow under “Risk factors—Risks to our business related to copper”, this recentand, in our experience, unprecedented increase in copper prices along with thepotential for dramatic increases and decreases in future copper prices, mayhave adverse effects on our business, including the following:

·                  Exposing our businesses to additional copper hedgingrisks and potential losses

·                  Reducing customer demand for our products

·                  Increasing our need for working capital to financeinventory and receivables

We engage in hedging andcopper purchase strategies in an attempt to limit the commodity price riskassociated with copper and we recently amended our senior secured revolvingcredit facility to increase our available credit to meet our increasing workingcapital needs. In June and July of 2006 we completed an underwritten publicoffering of 2,851,145 shares of our common stock and used the net proceeds ofapproximately $80.8 million to pay down borrowings outstanding under our seniorsecured revolving credit facility. However, there is no assurance that thesemeasures will be sufficient to mitigate the impact of rising or volatile copperprices. The high level of copper prices and the magnitude of copper pricechanges increase our exposure to hedging risks. Furthermore, our markets haverarely experienced copper costs at current levels and there can be no assurancethat continued high copper prices will not

 

26

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have otherunanticipated negative impacts. Although we have not experienced any shortagesduring recent years that have had a significant impact on our operations, noassurance can be given that we will be able to procure adequate supplies ofcopper and copper rod to meet our future production needs. Furthermore, supplyshortages or disruptions may cause us to procure our copper rod from less costeffective sources and may have a negative impact on our results of operations.

In addition to copper,raw materials we use in the manufacture of our products include aluminum,steel, optical fibers, plastics, such as polyethylene and polyvinyl chlorideand various chemicals and chemical compounds used in the production of enamels.Additionally, natural gas is a key energy source used in the manufacture ofmagnet wire. The natural disasters that hit the Gulf Coast region of the UnitedStates in 2005 had a significant effect on natural gas supply and on raw materialproducers located in the region or those which rely on oil and gas or rawmaterials produced in the region. In 2005 certain of our raw material suppliersdeclared force majeure and instituted significant surcharges for energy andother costs. Crude oil prices have continued to increase reaching record levelsin 2006. The increased cost of oil has resulted in increased production andfreight costs and shortages in the availability of shipping resources. Themarkets for these key raw materials are extremely tight and are forecasted toremain so for the near term. There can be no assurance that we will be able toprocure adequate supplies of our essential raw materials to meet our futureneeds or that we can increase prices for our products in amounts sufficient tooffset increases in the costs of raw materials, energy and freight.

**EssexNexans Acquisitions**

On October 21, 2005,we acquired Nexans’ magnet wire operations in Europe through formation of acorporate joint venture, Essex Nexans, a French holding company, combining ourU.K. magnet wire business and Nexans’ European magnet wire and enamelbusinesses. We own 60% of the joint venture and Nexans has a 40% minorityownership. We believe the acquisition enhances our ability to serve our globalcustomer base, provides synergies with respect to our U.K. magnet wire businessand increases our geographic diversification. The acquired operations areincluded in our results of operation from the date of acquisition. See Note 5to the accompanying condensed consolidated financial statements.

**Resultsof Operations**

In discussing our resultsof operations below, we present supplemental sales information adjusted to aconstant $2.00/lb COMEX cost of copper, or copper-adjusted sales, which is afinancial measure that is not calculated in accordance with accountingprinciples generally accepted in the United States of America, or a non-GAAPfinancial measure. A non-GAAP financial measure is defined as a numericalmeasure of a company’s financial performance, financial position or cash flowsthat (i) excludes amounts, or is subject to adjustments that have the effect ofexcluding amounts, that are included in the most directly comparable measurecalculated and presented in accordance with GAAP in the statement ofoperations, balance sheet or statement of cash flows; or (ii) includes amounts,or is subject to adjustments that have the effect of including amounts, thatare excluded from the comparable measure so calculated and presented. Webelieve sales adjusted for a constant cost of copper is a useful measure to aidin analyzing period-to-period sales revenues, particularly in periods ofchanging copper prices. Sales adjusted for a constant cost of copper as used byus may not be comparable to similarly titled measures of other companies.

 

27

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***Three Month Period Ended June 30, 2006Compared to the Three Month Period Ended June 30, 2005***

*Net sales*

Thefollowing table provides net sales and supplemental copper adjusted salesinformation for the three months ended June 30, 2006 and 2005:

 
| ** **                                          | ** ** | **Actual**                                      | ** ** | **Copper-adjusted** | ** ** |
|-----------------------------------------------------|------------|-------------------------------------------------|------------|---------------------|------------|
| ** **                                          | ** ** | **Three Months Ended  June 30,** | ** ** | **%**               | ** ** | **Three Months Ended  June 30,** | ** ** | **%** | ** ** |
| ** **                                          | ** ** | **2006**                                        | ** ** | **2005**            | ** ** | **Change** | ** ** | **2006** | ** ** | **2005** | ** ** | **Change** | ** ** |
| Net sales:                                          |       |                                            |       |                |       |   |   |   |   |   |   |   |   |
| Communications cable                                |       | $                                               | 237,135    |                | $          | 177,612 |   | 34 | % | $ | 218,208 |   | $ | 201,186 |   | 8 | % |
| North American magnet wire and distribution         |       | 274,340                                         |       | 174,103             |       | 58 | % | 219,532 |   | 203,898 |   | 8 | % |
| European magnet wire and distribution               |       | 174,270                                         |       | 9,006               |       |   | * | 135,423 |   | 10,775 |   |   | * |
| Copper rod                                          |       | 132,448                                         |       | 69,225              |       | 91 | % | 79,989 |   | 88,880 |   | (10 | )% |
|                                                |       | 818,193                                         |       | 429,946             |       | 90 | % | 653,152 |   | 504,739 |   | 29 | % |
| Constant cost of copper adjustment                  |       | —                                          |       | —              |       |   |   | 165,041 |   | (74,793 | ) |   |   |
| Total                                               |       | $                                               | 818,193    |                | $          | 429,946 |   | 90 | % | $ | 818,193 |   | $ | 429,946 |   | 90 | % |
| Average daily  COMEX spot price per pound of copper |       | $                                               | 3.39       |                | $          | 1.53 |   | 122 | % |   |   |   |   |   |   |

 

----

* Not meaningful

Consolidatedsales for the three months ended June 30, 2006 were $818.2 million, an increaseof 90% as compared to consolidated sales of $429.9 million for the quarterended June 30, 2005. Sales for the 2006 quarter were significantly impacted bythe increase in copper prices and the effects of the Essex Nexans transaction.Sales adjusted for a constant cost of copper increased 29% for the quarterended June 30, 2006. Sales in our European magnet wire and distribution segmentattributable to the entities acquired in the Essex Nexans transaction amountedto $150.0 million ($121.4 million on a copper-adjusted basis) for thethree months ended June 30, 2006. Consolidated net sales and sales adjusted fora constant cost of copper increased 35% and 24%, respectively, as a result ofthe Essex Nexans transaction. The remaining 5% increase in consolidated salesadjusted for a constant cost of copper is due to revenue growth in both thecommunications cable and North American magnet wire and distribution segmentspartially offset by reductions in sales of our copper rod segment.

Salesfor our communications cable segment for the June 30, 2006 quarter were $237.1million, an increase of 34%, as compared to sales of $177.6 million for thequarter ended June 30, 2005. Sales adjusted for a constant cost of copperincreased 8%. The copper-adjusted increase reflects price increases inour copper OSP products, primarily related to non-copper cost-based passthrough price adjustments with respect to our contract and distributioncustomers, as well as volume and price increases in copper and fiber opticpremise products. Copper OSP unit volume for the 2006 quarter was essentiallyflat compared with the prior year second quarter, as demand related tohurricane repair work, which we believe was largely completed in May 2006,essentially offset other market-related declines. We believe the increasein demand for our copper and fiber optic premise products is supported bygrowing investment in information technology, including new and upgradedcomputer systems and associated wiring and an increase in our market share.

Salesfor our North American magnet wire and distribution segment were $274.3 millionfor the quarter ended June 30, 2006, an increase of 58% as compared to the prioryear. On a copper-adjusted basis, sales for the three months ended June30, 2006 increased 8% from the same quarter in the prior year. The copper-adjustedincrease results primarily from the current year impact of 2005 market sharegains at certain major customers as well as strengthening in our motor,transformer and generator end-markets, including demand due to hurricane-relatedreplacement and repair. Additionally, sales for the three months ended June 30,2006 include some benefit from product price improvement and price surcharges.These increases were offset somewhat by reduced demand in the automotive andappliance end markets.

Sales for the Europeanmagnet wire and distribution segment were $174.3 million for the three monthsended June 30, 2006 compared to $9.0 million for the three months ended June30, 2005, an increase of $165.3 million. On a copper-adjusted basis,sales increased $124.6 million for the three months ended June 30, 2006compared to the prior year quarter. The increase was largely

 

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attributable tothe Essex Nexans transaction. Sales for the 2006 quarter include $150.0 million($121.4 million on a copper-adjusted basis) related to the entitiesacquired in the Essex Nexans transaction in October 2005. The secondquarter is typically the strongest seasonal quarter for the European magnetwire and distribution segment.

Copperrod sales for the three months ended June 30, 2006 were $132.5 million comparedto $69.2 million for the comparable 2005 period. On a copper-adjustedbasis, sales for our copper rod segment decreased by 10% for the three monthsended June 30, 2006 compared to the prior year period. The copper-adjusteddecrease in the 2006 quarter reflects the loss of a major customer in the firstquarter of 2006 as well as increased internal consumption of copper rod. Copperrod segment sales consist primarily of external sales of processed copper rodthat cannot be used for internal production and allow for fixed cost recoveryat gross profit margins that are generally break even.****Copper rod volumes fluctuate from periodto period due to changes in internal consumption needs and external marketconditions.

*Gross profit*

Forthe three months ended June 30, 2006, gross profit was $86.7 million, anincrease of 95% as compared to the prior year quarter primarily due to copperadjusted gross profit margin (computed as gross profit divided bycopper-adjusted sales) improvements in our communications cable and NorthAmerican magnet wire and distribution segments and gross profit of $15.9 millionattributable to the entities acquired in the Essex Nexans transaction. Thegross profit margin in the 2006 quarter was 10.6% compared to 10.3% for thesame quarter in 2005. Gross profit margin on a copper-adjusted basis was13.3% for the three months ended June 30, 2006 compared to 8.8% for the threemonths ended June 30, 2005. The increase in copper-adjusted gross margin isattributable to improved product pricing and mix, particularly in ourcommunications cable segment, improved cost absorption as a result of higherproduction and an estimated $17 million benefit related to the significantupward volatility in copper prices experienced during 2006, particularly in thesecond quarter. Approximately one-half of the copper-related benefit is due to lowercopper-cost flow through compared to product pricing. This was particularly thecase in the distribution market as more timely copper-based price adjustmentscombined with a shortening of order lead times for products resulted incopper-related gains on shipments of inventories accounted for on a FIFO basis.Additionally, on certain of our products we do achieve a modest mark-up on thecomponent of the product cost related to copper. The balance of thecopper-related benefit is attributable to the inverted forward pricing curve inthe COMEX copper futures market experienced during much of the first half of2006 which favorably impacted certain of our forward buying and hedgingarrangements along with gains related to LIFO inventory and other procurement benefitsrelated to the timing of product receipts and intraperiod inventory builds anddepletion. Our communications cable and North American and European magnet wireand distribution segments all experienced improved copper-adjusted grossmargins for the quarter ended June 30, 2006 compared to the quarter ended June30, 2005, including the effects of the copper-related benefit discussed above.Considering the relative stabilization of copper price levels subsequent toJune 30, 2006, we expect future copper-related gross margin benefits, if any,to be reduced from those achieved in the second quarter of 2006. If copperprices decrease significantly during the second half of 2006 we may experiencelosses. See “Risk Factors – Risks to Our Business Related to Copper”.

*Selling, general and administrative expenses*

Selling,general and administrative expenses (SG&A expense) for the three monthperiod ended June 30, 2006 were $38.2 million as compared to SG&A expenseof $24.7 million for the three months ended June 30, 2005. SG&A expense forthe three months ended June 30, 2006 included $6.6 million attributable to theentities acquired in the Essex Nexans transaction. The remaining increase of$6.9 million is attributable to a number of factors including normal salary andbenefit increases, including incentive based compensation, ($2.5 million),corporate stock-based compensation and supplemental executive retirementplan charges ($2.2 million), group insurance and pension costs($1.1 million), product development and information system implementationcosts ($0.4 million) and the impact of increased sales volume and relatedsales costs and commissions, primarily in our communications cable segment.

*Restructuring and other charges*

In the three months endedJune 30, 2006, Essex Nexans recorded a provision of $0.2 million relatedto workforce reductions. In addition, restructuring and other charges for thethree months ended June 30, 2006 included $0.3 million of ongoing facility exitcosts primarily related to the prior year closure of an insulationmanufacturing facility in our North American magnet wire and distributionsegment and $0.1 million related to professional fees incurred inconnection with the administration of Superior TeleCom’s plan ofreorganization. These charges were offset by a $0.4 million gain on thefavorable settlement of an employee related dispute in our European magnet wireand distribution segment. Restructuring and other charges of $0.2 million forthe three months ended June 30, 2005 consisted primarily of facility exit costsrelated to closure of an insulation manufacturing facility in Athens, Georgiaand professional fees related to the administration of plan of reorganization.The facility exit costs primarily consisted of future lease payments net ofestimated sublease rentals.

 

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*Operating income*

Thefollowing table sets forth information regarding our operating income bysegment for the three months ended June 30, 2006 and 2005. We measure oursegment operating performance based primarily on segment operating income,excluding restructuring and other charges and asset impairments.

 

|                                                        | ** ** | **2006**                | ** ** | **2005** | ** ** |
|--------------------------------------------------------|------------|-------------------------|------------|----------|------------|
| ** **                                             | ** ** | **(in thousands)** | ** ** |
| Operating income  (loss)                               |       |                    |       |     |       |
| Communications cable                                   |       | $                       | 32,454     |     | $          | 14,910 |   |
| North American magnet wire and distribution            |       | 13,446                  |       | 10,170   |       |
| European magnet wire and distribution                  |       | 9,096                   |       | (949     | )          |
| Copper rod                                             |       | 256                     |       | (147     | )          |
| Corporate and other                                    |       | (6,791                  | )          | (4,304   | )          |
| Restructuring and other charges and asset  impairments |       | (197                    | )          | (180     | )          |
|                                                   |       | $                       | 48,264     |     | $          | 19,500 |   |

 

Operatingincome for the communications cable segment increased $17.5 million for thethree months ended June 30, 2006 compared to the 2005 quarter due to increasedgross profit primarily attributable to improvements in copper-adjusted grossmargin percentage as discussed above. Communications cable gross profitincreases were partially offset by an increase in SG&A expense of$1.8 million due primarily to higher sales costs and commissions in 2006associated with increased sales and normal compensation and benefits increases.

Operatingincome for our North American magnet wire and distribution segment increased$3.3 million due to increased gross profit primarily attributable toimprovements in copper-adjusted gross margin percentage as discussed abovepartially offset by higher SG&A expense of $2.5 million comprisedprincipally of higher group insurance, pension and employee benefit relatedcosts.

Theoperating loss for our European magnet wire and distribution segment for thethree months ended June 30, 2005 reflects the results of our U.K. magnet wirebusiness which sustained negative gross margins for the three months ended June30, 2005 due to reduced sales volumes and pricing. Operating income for thethree months ended June 30, 2006 includes $9.2 million attributable to theentities acquired in the Essex Nexans transaction.

Thecopper rod segment had operating income of $0.3 million for the three monthsended June 30, 2006 compared to an operating loss of $0.1 million for the sameperiod in 2005. As previously discussed, copper rod sales allow for fixed costrecovery at gross profit margins that are generally break even.

Corporateand other charges consist primarily of parent company and executive payrollcosts, stock-based compensation charges, corporate headquarters costs andcorporate professional fees and compliance costs. The increase in corporate andother costs for the three months ended June 30, 2006 compared to the threemonths ended June 30, 2005 is primarily due to increased incentive and stock-basedcompensation.

Consolidatedoperating income for the three months ended June 30, 2005 includedrestructuring and other charges of $0.2 million compared to $0.2 million ofsuch charges in the three months ended June 30, 2006, the components of whichare discussed above.

*Interest expense*

Interest expense for thequarter ended June 30, 2006 was $8.0 million compared to interest expense of$7.4 million for the three months ended June 30, 2005 due primarily to interestof $0.5 million related to borrowings by Essex Nexans. The increase in interestexpense in the 2006 quarter also reflects an increase in interest rates on oursenior secured revolving credit facility due to increases in the base borrowingrates tied to short-term interest rates as well as increased borrowingsoutstanding to finance working capital increases resulting from higher copperprices partially offset by increased capitalized interest.

 

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*Income tax expense*

Oureffective income tax rate for the three months ended June 30, 2006 was 38%compared to an effective tax rate of 42% for the three months ended June 30,2005. The effective tax rate for the three months ended June 30, 2006 exceedsthe U.S. statutory rate of 35% due primarily to the effects of state taxes. Theeffective rate decreased for the three months ended June 30, 2006 compared tothe same period in the prior year due primarily to a greater proportion ofearnings attributable to legal entities with lower effective tax rates as wellas a reduction in losses attributable to our former U.K. subsidiary for whichno tax benefit was recognized in 2005.

***Six Month Period Ended June 30, 2006Compared to the Six Month Period Ended June 30, 2005***

Thefollowing table provides net sales and supplemental copper adjusted salesinformation for the six months ended June 30, 2006 and 2005:

 
| ** **                                     | ** ** | **Actual**                                    | ** ** | **Copper-adjusted** | ** ** |
|------------------------------------------------|------------|-----------------------------------------------|------------|---------------------|------------|
| ** **                                     | ** ** | **Six Months Ended  June 30,** | ** ** | **%**               | ** ** | **Six Months Ended  June 30,** | ** ** | **%** | ** ** |
| ** **                                     | ** ** | **2006**                                      | ** ** | **2005**            | ** ** | **Change** | ** ** | **2006** | ** ** | **2005** | ** ** | **Change** | ** ** |
| Net sales:                                     |       |                                          |       |                |       |   |   |   |   |   |   |   |   |
| Communications cable                           |       | $                                             | 423,708    |                | $          | 329,576 |   | 29 | % | $ | 406,093 |   | $ | 377,419 |   | 8 | % |
| North American magnet wire and distribution    |       | 507,877                                       |       | 349,793             |       | 45 | % | 448,182 |   | 412,396 |   | 9 | % |
| European magnet wire and distribution          |       | 312,879                                       |       | 17,856              |       |   | * | 265,960 |   | 21,646 |   |   | * |
| Copper rod                                     |       | 225,423                                       |       | 136,009             |       | 66 | % | 163,324 |   | 178,170 |   | (8 | )% |
|                                           |       | 1,469,887                                     |       | 833,234             |       | 76 | % | 1,283,559 |   | 989,631 |   | 30 | % |
| Constant cost of copper adjustment             |       | —                                        |       | —              |       |   |   | 186,328 |   | (156,397 | ) |   |   |
| Total                                          |       | $                                             | 1,469,887  |                | $          | 833,234 |   | 76 | % | $ | 1,469,887 |   | $ | 833,234 |   | 76 | % |
| Average daily  COMEX price per pound of copper |       | $                                             | 2.83       |                | $          | 1.50 |   | 89 | % |   |   |   |   |   |   |

 

----

* Not meaningful

Consolidatedsales for the six months ended June 30, 2006 were $1,470 million, an increaseof 76% as compared to consolidated sales of $833.2 million for the six monthsended June 30, 2005. Sales for the 2006 period were significantly impacted bythe increase in copper prices and the effects of the Essex Nexans transaction.Sales adjusted for a constant cost of copper increased 30% for the six monthsended June 30, 2006. Sales in our European magnet wire and distribution segmentattributable to the entities acquired in the Essex Nexans transaction amountedto $271.1 million ($240.5 million on a copper-adjusted basis) for the sixmonths ended June 30, 2006. Consolidated net sales and sales adjusted for aconstant cost of copper increased 33% and 24%, respectively, as a result of theEssex Nexans transaction. The remaining 6% increase in consolidated salesadjusted for a constant cost of copper is due to revenue growth in both thecommunications cable and North American magnet wire and distribution segmentspartially offset by reductions in sales of our copper rod segment.

Salesfor our communications cable segment for the six months ended June 30, 2006were $423.7 million, an increase of 29%, as compared to sales of $329.6 millionfor the six months ended June 30, 2005. Sales adjusted for a constant cost ofcopper increased 8%. The copper-adjusted increase reflects priceincreases in our copper OSP products, primarily related to non-coppercost-based pass through price adjustments with respect to our contract anddistribution customers, as well as volume and second quarter 2006 priceincreases in copper and fiber optic premise products. Copper OSP volume for thesix months ended June 30, 2006 decreased slightly compared with the prior yearperiod as hurricane related increases partially offset other market-relateddeclines. We believe the increase in demand for our copper and fiber opticpremise products is supported by growing investment in information technology,including new and upgraded computer systems and associated wiring and anincrease in our market share.

Sales for our NorthAmerican magnet wire and distribution segment were $507.9 million for the sixmonths ended June 30, 2006, an increase of 45% as compared to the prior year.On a copper-adjusted basis, sales for the six months ended June 30, 2006increased 9% from the same period in the prior year. The copper-adjustedincrease results primarily from the current year impact of 2005 market sharegains at certain major customers as well as strengthening in our motor,transformer and generator end-markets, including demand due to hurricane-relatedreplacement and repair. Additionally, sales for the six months ended June 30,2006 include some benefit

 

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from product priceimprovement and price surcharges. These increases were offset somewhat byreduced demand in the automotive and appliance end markets.

Salesfor the European magnet wire and distribution segment were $312.9 million forthe six months ended June 30, 2006 compared to $17.9 million for the six monthsended June 30, 2005, an increase of $295.0 million. On a copper-adjustedbasis, sales increased $244.3 million for the six months ended June 30, 2006compared to the prior year period. The increase was largely attributable to theEssex Nexans transaction. Sales for the 2006 period include $271.1 million($240.5 million on a copper-adjusted basis) related to the entitiesacquired in the Essex Nexans transaction in October 2005.

Copperrod sales for the six months ended June 30, 2006 were $225.4 million comparedto $136.0 million for the comparable 2005 period. On a copper-adjustedbasis, sales for our copper rod segment decreased by 8% for the six monthsended June 30, 2006 compared to the prior year period. The copper-adjusteddecrease in 2006 reflects the loss of a major customer in the first quarter of2006 as well as increased second quarter 2006 internal consumption of copperrod. Copper rod segment sales consist primarily of external sales of processedcopper rod that cannot be used for internal production and allow for fixed costrecovery at gross profit margins that are generally break even.****Copper rod volumes fluctuate from periodto period due to changes in internal consumption needs and external marketconditions

*Gross profit*

Forthe six months ended June 30, 2006, gross profit was $145.1 million, anincrease of 68% as compared to the six months ended June 30, 2005 primarily dueto copper-adjusted gross profit margin improvements in our communications cableand North American magnet wire and distribution segments and gross profit of$24.9 million attributable to the entities acquired in the Essex Nexanstransaction. The gross profit margin for the six months ended June 30, 2006 was9.9% compared to 10.4% for the same period in 2005. The decrease in grossprofit margin reflects the effect of increased copper prices. Gross profitmargin on a copper-adjusted basis was 11.3% for the six months ended June30, 2006 compared to 8.7% for the six months ended June 30, 2005. The increasein copper-adjusted gross margin is attributable to improved product pricing andmix, particularly in our communications cable segment, improved cost absorptionas a result of higher production and benefits related to the extreme upwardvolatility in copper prices experienced during 2006 as discussed above. Ourcommunications cable and North American and European magnet wire anddistribution segments all experienced improved copper-adjusted gross marginsfor the six months ended June 30, 2006 compared to the six months ended June30, 2005, including the effects of the copper-related benefit discussed above.Copper-adjusted gross profit margin for our North American magnet wireand distribution business for the six months ended June 30, 2006 werenegatively impacted by the effects of inflationary non-copper cost increasesrelated primarily to higher natural gas prices, freight costs and non-copperraw materials and changes in product mix, in particular increased sales oflower margin aluminum products representing, to some degree, substitution forcopper in response to the increase in copper prices. Considering the relativestabilization of copper price levels subsequent to June 30, 2006, we expectfuture copper-related gross margin benefits, if any, to be reduced from thoseachieved in the first six months of 2006. If copper prices decreasesignificantly during the second half of 2006 we may experience losses. See “RiskFactors – Risks to Our Business Related to Copper”.

*Selling, general and administrative expenses*

SG&A expense for thesix month period ended June 30, 2006 were $73.9 million as compared to SG&Aexpense of $50.2 million for the six months ended June 30, 2005. SG&Aexpense for the six months ended June 30, 2006 included $13.2 million attributableto the entities acquired in the Essex Nexans transaction. The remainingincrease of $10.5 million is attributable to a number of factors includingnormal salary and benefit increases, including incentive-based compensation,($3.4 million), stock-based compensation and supplemental executiveretirement plan charges ($3.0 million), group insurance and pension costs ($1.1million), professional fees ($0.6 million), product development andinformation system implementation costs ($0.7 million) and the impact ofincreased sales volume and related sales costs and commissions in ourcommunications cable segment.

 

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*Impairment and restructuring and other charges*

In thesix months ended June 30, 2006, Essex Nexans recorded a provision of$0.9 million related to workforce reductions at its U.K. magnet wireoperation (formerly included in the North American magnet wire and distributionsegment). In addition, restructuring and other charges for the six months endedJune 30, 2006 included $0.3 million of ongoing facility exit costs primarilyrelated to the prior year closure of an insulation manufacturing facility inour North American magnet wire and distribution segment and $0.2 millionof professional fees incurred in connection with the administration of SuperiorTeleCom’s plan of reorganization. These charges were offset by a $0.4 milliongain on the favorable  settlement of anemployee related dispute in our European magnet wire and distribution segment.Restructuring and other charges for the six months ended June 30, 2005consisted of $0.4 million of facility exit costs related to closure of aninsulation manufacturing facility in Athens, Georgia and $0.2 million ofprofessional fees related to the administration of plan of reorganization. Thefacility exit costs primarily consisted of future lease payments net ofestimated sublease rentals.

*Gain on sale of product line*

InMarch 2005, we sold accounts receivable and inventory totalingapproximately $1.2 million together with related trademarks and servicenames constituting the business conducted by us under the US Seal trade namefor a total purchase price of $11.6 million. A gain of $10.4 millionwas recognized on the sale. In connection with the sale, we also signed anon-exclusive distribution agreement to act as a distributor for certain of theUS Seal products for a period of five years. We believe the expected revenuesunder the distribution agreement represent a significant continuation of thedirect cash flows of the disposed US Seal product line. The US Seal productline was included in the North American magnet wire and distribution segmentand revenues and expenses associated with the distribution agreement continueto be reported in that segment.

*Operating income*

Thefollowing table sets forth information regarding our operating income bysegment for the six months ended June 30, 2006 and 2005. We measure our segmentoperating performance based primarily on segment operating income, excludingrestructuring and other charges and asset impairments.

 

|                                                        | ** ** | **2006**                | ** ** | **2005** | ** ** |
|--------------------------------------------------------|------------|-------------------------|------------|----------|------------|
| ** **                                             | ** ** | **(in thousands)** | ** ** |
| Operating income  (loss)                               |       |                    |       |     |       |
| Communications cable                                   |       | $                       | 50,807     |     | $          | 26,614 |   |
| North American magnet wire and distribution            |       | 22,712                  |       | 20,512   |       |
| European magnet wire and distribution                  |       | 10,880                  |       | (1,607   | )          |
| Copper rod                                             |       | 117                     |       | 102      |       |
| Corporate and other                                    |       | (13,218                 | )          | (9,493   | )          |
| Gain on sale of product line                           |       | —                  |       | 10,355   |       |
| Restructuring and other charges and asset  impairments |       | (978                    | )          | (2,938   | )          |
|                                                   |       | $                       | 70,320     |     | $          | 43,545 |   |

 

Operatingincome for the communications cable segment increased $24.2 million for the sixmonths ended June 30, 2006 compared to the 2005 period due to increased grossprofit primarily attributable to improvements in copper-adjusted gross marginpercentage as discussed above. Communications cable gross profit increases werepartially offset by an increase in SG&A expense of $2.5 million dueprimarily to higher sales costs and commissions in 2006 associated withincreased sales and normal compensation and benefits increases.

Operatingincome for our North American magnet wire and distribution segment increased$2.2 million due primarily to increased gross profit attributable toimprovements in copper-adjusted gross margin percentage as discussed abovepartially offset by increased  SG&Aexpense of $3.9 million comprised principally of higher employee benefitrelated costs, start-up expenses related to our Greenfield facility in Chinaand information systems implementation costs..

The operating loss forour European magnet wire and distribution segment for the six months ended June30, 2005 reflects the results of our U.K. magnet wire business which sustainednegative gross margins for the six months ended June 30, 2005 due to reducedsales volumes and pricing. Operating income for the six months ended June 30,2006 includes $11.7 million attributable to the entities acquired in the EssexNexans transaction. Operating income for the European magnet wire anddistribution segment for the six months ended June 30, 2006 was negativelyimpacted by bad debt expense of $1.0 million related to the bankruptcy ofa major customer.

 

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Thecopper rod segment’s operating income was essentially flat for the six monthsended June 30, 2006 compared to the six months ended June 30, 2005. Asdiscussed above, copper rod sales allow for fixed cost recovery at gross profitmargins that are generally break even.

Corporateand other charges consist primarily of parent company and executive payrollcosts, stock-based compensation charges, corporate headquarters costs andcorporate professional fees and compliance costs. The increase in corporate andother costs for the six months ended June 30, 2006 compared to the six monthsended June 30, 2005 is primarily due to increased compensation and benefitscosts related to salary increases, incentive-based compensation and stock-basedcompensation.

Consolidatedoperating income for the six months ended June 30, 2005 included restructuringand other charges and asset impairment charges of $2.9 million compared to $1.0million of such charges in the six months ended June 30, 2006, the componentsof which are discussed above. Additionally, consolidated operating income forsix months ended June 30, 2005 included a gain of $10.4 million on thesale of a product line as discussed above.

*Interest expense*

Interestexpense for the six months June 30, 2006 was $16.1 million compared to interestexpense of $14.5 million for the six months ended June 30, 2005 due primarilyto interest of $1.0 million related to borrowings by Essex Nexans. The increasein interest expense in 2006 also reflects an increase in interest rates on oursenior secured revolving credit facility due to increases in the base borrowingrates tied to short-term interest rates as well as increased borrowingsoutstanding to finance increased working capital resulting from higher copperprices partially offset by increased capitalized interest.

*Income tax expense*

Oureffective income tax rate for the six months ended June 30, 2006 was 38%compared to an effective tax rate of 42% for the six months ended June 30, 2005.The effective tax rate for the six months ended June 30, 2006 exceeds the U.S.statutory rate of 35% primarily due to the effects of state taxes. Theeffective rate decreased for the six months ended June 30, 2006 compared to thesame period in the prior year due primarily to a greater proportion of earningsattributable to legal entities with lower effective tax rates as well as areduction in losses attributable to our former U.K. subsidiary for which no taxbenefit was recognized in 2005.

*Gain on sale of investment*

InJanuary 2006 we sold our investment in the common stock of Essex Electric Inc.together with our warrant to purchase additional shares of Essex Electric Inc.to The Alpine Group, Inc. for a cash payment of $8.5 million. As a result ofthe transaction we recognized a pre-tax gain of $5.8 million. Following thesale, we no longer have any equity interest in Essex Electric Inc.

*Extraordinary gain*

OnJanuary 4, 2006, Essex Nexans acquired all of the outstanding capitalstock of Societe de Distribution et de Services, or SDS, from Nexans. Theacquisition of SDS was accounted for as a purchase. The preliminary allocationof the acquisition cost resulted in unallocated negative goodwill of$1.5 million which has been reflected as an extraordinary gain (net ofminority interest of $0.6 million) in the statement of operations for thesix months ended June 30, 2006.

**Liquidityand Capital Resources**

***Cash from Operating Activities***

We reported cash used byoperating activities of $58.0 million for the six months ended June 30,2006 compared to cash used by operating activities of $10.8 million forthe six months ended June 30, 2005. Cash used by operating activities for thesix months ended June 30, 2006 and 2005 includes net working capital increasesof $114.3 million and $32.9 million, respectively, which reflect normalseasonal build in accounts receivable and inventory and the impact ofsubstantially higher copper costs. We estimate that higher copper costs haveincreased our working capital by approximately $80 million since December 31,2005 and $100 million year-over-year at June 30, 2006. The seasonal increase inour working capital results from increased production, inventory stockinglevels and related sales attributable to historically higher customer demandlevels in March through October. Conversely, our sales volumes are generallylower in our fourth and early first quarters due primarily to cold weatherrelated reduction in demand from our communications cable segment customers andthe impact of year end holiday related plant shutdowns of major OEM customersof our North American and European magnet wire and distribution segments.

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***Capital Resources***

*Common stock offering*

OnJune 12, 2006 we completed an underwritten public offering of 2,700,000 sharesof our common stock. Net proceeds from the sale after underwriting discountsand related expenses were approximately $76.5 million and were used to pay downborrowings outstanding under the senior secured revolving credit facility. OnJuly 11, 2006, the underwriters’ exercised their over-allotment option topurchase an additional 151,145 shares of our common stock. Net proceeds fromthe exercise of the over-allotment option after underwriting discounts andrelated expenses were approximately $4.3 million.

*Senior Notes*

AtJune 30, 2006, we had total debt of $317.1 million of which $251.5 consisted of9% senior notes due in 2012. The 9% senior notes were issued jointly bySuperior Essex Communications and Essex Group in an aggregate principal amountof $257.1 million due in April 2012, with interest payable semi-annuallyin cash on April 15 and October 15 of each year. The 9% senior noteswere issued at an original issue discount of $7.1 million. The 9% seniornotes are fully and unconditionally guaranteed by us and each of our existingand future domestic restricted subsidiaries.

Uponthe occurrence of specific kinds of changes in control or asset sales asspecified in the indenture governing the 9% senior notes, holders of the 9%senior notes will have the right to require us to purchase all or a portion ofthe outstanding 9% senior notes at a purchase price equal to 101% of theprincipal amount thereof plus accrued interest.

Theindenture governing the 9% senior notes contains covenants which restrict ourability and the ability of certain of our subsidiaries to, among other things:incur additional 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 our assets.

*Preferred stock of our subsidiary*

Holdersof the 5,000,000 outstanding shares of the series A preferred stock issuedby our subsidiary, Superior Essex Holding, are entitled to receive cumulativecash dividends at a rate of 91/2% perannum per share, payable semi-annually. The series A preferred stock ranksjunior to all other classes of preferred stock of Superior Essex Holding. Theseries 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 for directors.

*Senior secured revolving credit facility*

OnApril 14, 2006, Superior Essex Communications and Essex Group, as borrowers,entered into an amendment and restatement of their existing senior securedrevolving credit facility. The amended and restated senior secured revolvingcredit facility, among other things:

·              increasedthe borrowing limit from $175 million to $225 million;

·              extendedthe maturity date from November 10, 2007 to April 13, 2011;

·              reducedthe applicable interest margin charged over short-term index rates; the margin,determined quarterly based on average availability, now ranges from 1.00% to2.00% for LIBOR based loans and 0% to 0.75% for base rate loans; and

·              providedgreater flexibility with respect to certain restrictive covenants.

Interest on the amendedand restated senior secured credit facility accrues on outstanding borrowingsat an annual rate equal to, at the borrowers’ option, LIBOR or a base rate,plus, in each case, an applicable margin as discussed above. Obligations underthe amended and restated senior secured credit facility are secured bysubstantially all domestic assets of the Company and 65% of the voting stock ofthe Company’s foreign subsidiaries other than Essex Nexans. Availability underthe amended and restated senior secured credit

 

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facility issubject to a borrowing base equal to the lesser of (1) $225 million lessoutstanding letters of credit and (2) a specified percentage of eligibleaccounts receivable and inventory less specified reserves. The specifiedpercentages are (i) 85% of the value of the eligible accounts receivable andwith respect to inventory the lesser of (a) $110 million or (b) the lesser of(x) 65% of the value of eligible inventory and (y) 85% multiplied by the netorderly liquidation percentage then applicable multiplied by the value of theeligible inventory. Certain of the specified reserves that reduce availabilityare not fixed and may be increased or imposed by the administrative agent forthe amended and restated senior secured credit facility at its reasonablecredit judgment. The borrowers are obligated to pay an unused commitment fee of0.25% per annum on the unused amount of the maximum committed amounts and a feeof 0.125% per annum on the outstanding face amount of outstanding letters ofcredit. Undrawn availability under the amended and restated senior securedcredit facility was $223 million as of June 30, 2006.

Theamended and restated senior secured credit facility contains covenants whichmay limit Superior Essex Communications’ and Essex Group’s and theirsubsidiaries’ ability to (i) pay dividends, redeem capital stock or make otherrestricted payments, (ii) sell or dispose of assets, (iii) incur additionalindebtedness or permit liens to exist on Company property, (iv) engage intransactions with affiliates and (v) make additional investments oracquisitions. Capital expenditures, distributions and asset dispositions arenot limited so long as no event of default exists and the borrowers meetcertain availability and liquidity conditions specified in the amended andrestated senior secured credit facility.

*EssexNexans*

Essex Nexans has afactoring agreement with a third-party French financial institution (the “Factor”)pursuant to which Essex Nexans may assign its eligible accounts receivable tothe Factor. Essex Nexans can request advances in anticipation of customercollections on the assigned receivables. . In July 2006 Essex Nexans amendedthe agreement to increase the amount of maximum available advances by €20 millionto €55 million ($69.0 million) until May 31, 2007. Interest is payable on thenet outstanding advances at the European Overnight Index Average (“EONIA”) rateplus 0.47% per annum (3.1% at June 30, 2006) for advances up to €35million and at the EONIA rate plus 0.67% for advances in excess of €35 million.The amount of advances available to Essex Nexans is limited to 88% (80% ifEBITDA is less than zero for any year, equity of the joint venture is 10% orless of total assets or social charges due to governmental agencies and allother miscellaneous taxes exceed 5% of sales) of assigned receivables up to amaximum of €55 million ($69.0 million). Borrowings of $36.4 million wereoutstanding under the factoring agreement as of June 30, 2006 and undrawnavailability under the agreement on a pro forma basis would have been $31.8million. The factoring agreement expires in October 2008. The factoringagreement may be terminated by the Factor if Nexans ceases to own 38% to 42% ofEssex Nexans. Neither Superior Essex nor any of its domestic subsidiaries areguarantors under the factoring agreement

In connection with theEssex Nexans acquisition, Essex Nexans entered into a subordinated note payableto Nexans in the amount of €11.3 million ($14.2 million). The subordinated notepayable is unsecured and bears interest at 8.975% per annum payable quarterly.A total of €3.8 million ($4.7 million) in principal is due September 30,2009 and the remainder matures September 30, 2010. The maturity of thesubordinated note will be accelerated if we exercise our option to purchaseNexans’ minority interest in Essex Nexans. The subordinated note is notguaranteed by Superior Essex or any of its domestic subsidiaries.

EssexNexans has been designated an unrestricted subsidiary under our 9% senior noteindenture and is not considered a subsidiary for purposes of our amended andrestated senior secured credit facility. As a result, creditors of Essex Nexansmay not have recourse to any assets of Superior Essex or our othersubsidiaries, and Essex Nexans has no responsibility for debts or obligationsincurred by Superior Essex or our other subsidiaries. Transactions with EssexNexans, including capital contributions, are generally subject to the samerestrictions as transactions with unrelated third parties, except that thosetransactions must also satisfy affiliate transaction tests. Further, operatingprofit from Essex Nexans is not generally included in determining whetherfinancial tests for indenture and senior credit facility purposes have beensatisfied, such as debt incurrence or restricted investment tests, unless cashfrom those operating profits is transferred to us.

***Liquidity***

Our principal cashrequirements generally include funding of our working capital, interestpayments on our senior secured revolving credit facility and the 9% seniornotes, dividend payments on our subsidiary’s series A preferred stock,interest payments on the Essex Nexans factoring agreement and subordinated note,capital expenditures currently estimated at approximately $20 million to$25 million annually (excluding investments in China discussed below), theNexans contingent payment and obligations related to our defined benefitpension plans. Copper prices have increased rapidly during 2006, with the COMEXdaily spot price for copper increasing from an average of $2.17 per pound inDecember 2005 to an average of $3.40 per pound in June 2006 andfluctuating from a low of $2.13 per pound to a high of $4.08 per pound forthe six months ended June 30, 2006. Significant increases in the price ofcopper and the resultant increase in accounts receivable and, to a lesserdegree, inventory, impacts our working capital funding requirements. As

 

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discuseed above,we have experienced significant increases in our working capital requirementsin 2006 as a result of increases in copper prices and expect such increases tocontinue based on current copper price levels. We have amended our seniorsecured revolving credit facility to increase our borrowing capacity in lightof rising and volatile copper costs. See “Risk factors—Risks to our businessrelated to copper.”

We arecurrently constructing a Greenfield manufacturing facility near Shanghai, Chinawhich we expect to be operational in the fourth quarter of 2006, with12 million pounds of capacity online before the end of the year. Thecapital expenditure requirements for this phase of the project are estimated tobe around $26 million. In 2007, we currently plan to add 12 millionadditional pounds of capacity to the facility at an estimated capital cost of$5 to $8 million. Furthermore, we anticipate incurring approximately $1.5of start-up expenses related to China in the third and fourth quarters of 2006.In July 2006 our subsidiary, Essex Magnet Wire (Suzhou) Ltd., entered into aconstruction loan agreement with a Chinese development authority to providefinancing for construction of the Company’s Greenfield manufacturing facilityin Suzhou, China. The agreement provides for five monthly draws beginning July21, 2006 of up to 96 million Yuan Renminbi ($12.0 million). Interest on amountsdrawn under the agreement is payable monthly at a floating rate, adjustedannually, equal to 90% of the benchmark interest rate set by the People’s Bankof China. The loan is secured by a mortgage on the facility and is repayable intwo annual installments beginning July 2010.

The Essex Nexans jointventure Contribution and Formation Agreement provides for us to pay additionalcontingent cash consideration to Nexans of up to €3.0 million($3.8 million) if Essex Nexans achieves certain specified levels ofAdjusted EBITDA (as defined in the Contribution and Formation Agreement) forthe year ended December 31, 2006. The shareholders agreement governing theEssex Nexans joint venture provides that Nexans will have the right to requireus to purchase its 40% interest in Essex Nexans at a price equal to Nexans’initial allocated equity value plus 40% of (i) the cumulative net income(adjusted for certain items as specified in the shareholders agreement) ofEssex Nexans, and (ii) any post-closing capital contributions minus anypost-closing distributions, but only if Adjusted EBITDA of Essex Nexans exceeds€14.0 million ($17.6 million) in 2008, 2009 or 2010. The purchase price may beincreased by up to €10 million ($12.6 million) if Essex Nexans achieves certainAdjusted EBITDA thresholds as specified in the shareholders agreement. The putright is exercisable for one year following the completion of audited financialstatements demonstrating that the Adjusted EBITDA threshold was met during2008, 2009 or 2010. At our option, the put price may be paid in cash by us orEssex Nexans or by issuance of our common stock (or a combination thereof). Ifwe elect to pay the put price in our common stock, the portion of the put pricepayable in our common stock is subject to certain limitations specified in theshareholders agreement, including a general limit of 7.5% of our outstandingcommon stock, with any excess put price payable in cash. Furthermore, theportion of the put price paid in our common stock will be increased by 5% (or15% if certain conditions are not met with regard to the registration of suchshares).

We believe that cashprovided by operations and borrowing availability under our amended andrestated senior secured revolving credit facility together with our cash onhand ($19.6 million at June 30, 2006), the Essex Nexans factoringagreement and the China construction loan will be sufficient to meet ourobligations and fund our working capital requirements for the foreseeablefuture.

***New Accounting Pronouncements***

InJune 2006 the FASB ratified the consensus reached in EITF 06-3, *How Taxes Collected from Customers and Remitted toGovernmental Authorities Should Be Presented in the Income Statement (That Is,Gross versus Net Presentation)*. EITF 06-3 requires disclosure of acompany’s accounting policy with respect to taxes assessed by a governmentalauthority that are directly imposed on a revenue-producing transaction betweena seller and a customer including, but are not limited to, sales, use, valueadded, and some excise taxes. We present such taxes, primarily sales, use andvalue added taxes, on a net basis.

InJuly 2006, the FASB issued Interpretation No. 48, *Accounting for Uncertainty in Income Taxes*. InterpretationNo. 48 prescribes a consistent recognition threshold and measurement attribute,as well as establishes criteria for subsequently recognizing, derecognizing andmeasuring uncertain tax positions for financial statement purposes. TheInterpretation also requires expanded disclosure with respect to theuncertainty in income taxes. Interpretations No. 48 is effective for fiscalyears beginning after December 15, 2006. We have not completed our evaluationof the impact of Interpretation No. 48 on our financial statements.

**ITEM3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

We, to a limited extent,use or have used forward fixed price contracts and derivative financialinstruments to manage commodity price, interest rate and foreign currencyexchange risks. We do not hold or issue financial instruments for investment ortrading purposes. We are exposed to credit risk in the event of nonperformanceby counterparties for foreign exchange forward contracts, metal forward pricecontracts and metals futures contracts but we do not anticipate nonperformanceby any of these

 

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counterparties.The amount of such exposure is generally limited to any unrealized gains withinthe underlying contracts.

***Commodity price risk management***

Thecost of copper, our most significant raw material, has historically beensubject to considerable volatility. To manage the risk associated with suchvolatility, we enter into futures contracts to match the metal component ofcustomer product pricing with the cost component of the inventory shipped.These futures contracts have been designated as cash flow hedges withunrealized gains and losses recorded in other comprehensive income. Gains andlosses are reclassified into earnings, as a component of cost of goods sold,when the hedged sales transactions are reflected in the income statement. Hedgeineffectiveness, which is not significant, is immediately recognized inearnings. Our commodities futures purchase contracts are summarized as followsat June 30, 2006:

 

| Type       | ** ** | **Notional  Amount**                    | ** ** | **Maturity  Date** | ** ** | **Weighted  Average  Settlement Rate** | ** ** | **Fair Value  Gain (Loss)** | ** ** |
|------------|------------|-----------------------------------------|------------|--------------------|------------|---------------------------------------------|------------|---------------------------------------|------------|
| ** ** | ** ** | **(in thousands of  pounds)** | ** ** | ** **         | ** ** | ** **                                  | ** ** | **(in  thousands)**                   | ** ** |
|       |       |                                    |       |               |       |                                        |       |                                  |       |
| Copper     |       | 7,350                                   |       | 2006               |       | $                                           | 3.33       |                                  | $          | 9,328 |   |
| Copper     |       | 3,525                                   |       | 2007               |       | 3.14                                        |       | 2,997                                 |       |
|       |       |                                    |       |               |       |                                        |       | $                                     | 12,325     |   |
|            |            |                                         |            |                    |            |                                             |            |                                       |            |  |  |

 

Approximately$12.4 million of unrealized gains on commodity futures outstanding at June 30,2006 are expected to be reclassified in earnings within the next twelve monthsto match the copper component of product pricing for outstanding customerorders.

EssexNexans enters into commodity futures contracts to match the copper component ofcustomer product pricing with the cost component of the inventory shipped. Thefutures contracts are intended to minimize the risks associated with forwardproduct pricing for customers and changing copper prices. These contractsgenerally have maturities of less than two months and represent economic hedgesbut have not been designated as hedges for accounting purposes. Accordingly,gains and losses on these contracts are recorded in income as a component ofcost of goods sold. Essex Nexans had no open copper futures positions atJune 30, 2006.

***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, 2006:

 

| Type               | ** ** | **Notional  Amount**    | ** ** | **Interest Rate** | ** **   | **Cap Rate** | ** ** | **Expiration Date** | ** **    | **Fair Value**     | ** ** |
|--------------------|------------|-------------------------|------------|------------------------|--------------|-------------------|------------|--------------------------|---------------|-------------------------|------------|
| ** **         | ** ** | **(in thousands)** | ** ** | ** **             | ** **   | ** **        | ** ** | ** **               | ** **    | **(in thousands)** | ** ** |
|               |       |                    |       |                   |         |              |       |                     |          |                    |       |
| Interest rate  cap |       | $                       | 30,000     |                   | 30-day LIBOR |              | 7.0        | %                        | December 2006 |                    | $          | — |   |
| Interest rate cap  |       | 15,000                  |       | 30-day LIBOR           |         | 5.0               | %          | April 2007               |          | 61                      |       |
|                    |            |                         |            |                        |              |                   |            |                          |               |                         |            |  |  |

 

***Foreign currency exchange risk management***

We engage in the sale ofproducts which result in accounts receivable denominated in foreign currencies.We enter into foreign currency forward exchange contracts to hedge againstfluctuations in the value of certain of these receivables. Changes in the fairvalue of these contracts are reflected in current earnings. At June 30,2006, we had outstanding foreign currency forward exchange contracts toexchange 7.2 million Canadian dollars for $6.5 million in July 2006.The fair value of the forward exchange contracts was insignificant atJune 30, 2006. Additionally, we have entered into foreign currency forwardexchange contracts to purchase 2.6 million Chinese Yuan for $0.3 million atvarious dates through August 2006. These contracts represent an economichedge of a portion of expected capital expenditures to be made in connectionwith construction of our manufacturing facility in China. Changes in the fairvalue of these contracts are reflected in current earnings. The fair value ofthese contracts was insignificant at June 30, 2006.

 

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**ITEM4. CONTROLS AND PROCEDURES**

*Evaluationof Controls 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 our disclosurecontrols and procedures, including internal controls over financial reporting,under the supervision and with the participation of our management, includingour Chief Executive Officer and Chief Financial Officer. Based on thatevaluation, the Chief Executive Officer and Chief Financial Officer concludedthat our disclosure controls and procedures have been designed and are beingoperated in a manner that provides reasonable assurance that the informationrequired to be disclosed by us in reports filed under the Securities ExchangeAct of 1934, as amended, is recorded, processed, summarized and reported withinthe time periods specified in the SEC’s rules and forms. Further, the ChiefExecutive Officer and Chief Financial Officer concluded that our disclosurecontrols and procedures have been designed to ensure that information requiredto be disclosed in reports filed by us under the Securities Exchange Act of1934, as amended, is accumulated and communicated to our management, includingthe Chief Executive Officer and Chief Financial Officer, in a manner to allowtimely decisions regarding the required disclosure. A system of controls, nomatter how well designed and operated, cannot provide absolute assurance thatthe objectives of the system of controls are met, and no evaluation of controlsprovides absolute assurance that all control issues and instances of fraud, ifany, within a company have been detected. Notwithstanding the above, our ChiefExecutive Officer and Chief Financial Officer have concluded that ourdisclosure controls and procedures are effective at a reasonable assurancelevel.

 

*Changesin Internal Controls Over Financial Reporting*

There have been nochanges in our internal control over financial reporting that occurred duringthe most recent fiscal quarter that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.

 

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**PART II. OTHER INFORMATION**

**ITEM1A. RISK FACTORS**

In addition to the otherinformation set forth in this report, you should carefully consider the riskfactors discussed below and those discussed in Part I, “Item 1A. RiskFactors” in our Annual Report on Form 10-K for the year ended December 31,2005. These risk factors could materially affect our business, financialcondition or future results. The risks described in our Annual Report on Form10-K, as updated and supplemented below, are not the only risks facing theCompany. Additional risks and uncertainties not currently known to us or thatwe currently deem to be immaterial also may materially adversely affect ourbusiness, financial condition and/or operating results.

**RISKSTO OUR BUSINESS RELATED TO COPPER**

Copper is theprimary raw material we use in the manufacture of our products. A majority ofour sales are pursuant to customer arrangements which provide for adjustmentsin pricing to take into account changes in the cost of copper. Over the pasttwo and a half years, the spot price of copper has escalated rapidly,increasing from an average COMEX daily spot price of $0.88 per pound inOctober 2003, to $2.17 per pound in December 2005. Copper prices haveincreased even more rapidly during 2006, with the COMEX daily spot price forcopper increasing to an average of $3.40 per pound in June 2006 and fluctuatingfrom a low of $2.13 per pound to a high of $4.08 per pound for the six monthsended June 30, 2006. Copper LME prices have experienced similar increases andfluctuations. These recent and, in our experience, unprecedented increases incopper prices may have material adverse effects on our business, includingthose described below:

**Wemay be unable to adequately hedge risks related to volatility, includingdeclines, in copper pricing, which may have a material adverse effect on ourbusiness.**

A majority of ourcommunications cable segment sales are to telecommunications company customerspursuant to multi-year agreements under which the price of the copper componentof our communications cable products is fixed for each quarter based on theaverage daily COMEX spot price for copper during the three-month period endingone month before the end of the prior quarter. Some contracts provide that thecopper component of the purchase price during one month will be based on theaverage daily COMEX spot price for copper for a portion of the prior month. Asa result, the price of the copper component of our product billed to customers maybe different than the current price of copper at the time of sale and we maynot be able to match the price billed with the copper cost component of theinventory shipped. To limit this risk, we forward price copper purchases withour suppliers based on forecasted demand. Volatility in the price of copper,among other factors, may adversely impact our ability to accurately forecastdemand and have a material adverse impact on our results of operations. Forexample, if copper prices decline rapidly, actual demand may be less thanforecasted demand as customers may reduce or delay purchases in anticipation offuture contractual sales price reductions. As a result, the cost of inventory,including the cost of copper acquired under forward purchase agreements, mayexceed the current or expected selling price of the product and may result inreduced profitability or even operating losses. In addition, rapid increases incopper prices can impact operating results in the short term if actual demandexceeds forecasted demand because customers may accelerate orders in advance ofexpected future contractual sales price increases to take advantage of existingcopper prices.

Certain of ourNorth American and European magnet wire business customers frequently fix thecopper cost component of future committed purchases. We utilize COMEX or LMEfixed price futures contracts to minimize the commodity price risk associatedwith these sales. If copper prices decline rapidly, the risk that our customersmay default on their committed purchases may increase. As a result we may incurlosses on our COMEX or LME futures contracts or be required to take delivery ofcopper inventory at prices in excess of then-current copper prices.

In addition to theabove, we maintain finished goods inventories, particularly with respect to ourdistribution customers, to meet near term expected demand. Pricing for the saleof these inventories is generally based on current copper prices or the averageCOMEX or LME price for the prior month. Rapid declines in the price of coppermay result in our inventories being carried at costs in excess of netrealizable value and may have an adverse effect on our results of operations.

 

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**Increasesin copper prices may reduce customer demand for our products which may have amaterial adverse effect on our business.**

As our productprices increase due to rises in copper prices, customers, particularly in ourcommunications business, may more quickly exceed their capital budgets for aparticular period and reduce the funds available for the purchase of ourproducts. Additionally, as pricing for our copper-based productsincreases, particularly in our communications business, alternative products,such as fiber optic cable, may become more price competitive with our copperOSP cable and certain other copper-based communications products anddemand for such products may be materially adversely affected.

**Increasesin copper prices will increase our need for working capital.**

As the price ofcopper increases, our working capital requirements increase. Average COMEXcopper prices increased to $3.39 and $2.83 per pound for the three and sixmonths ended June 30, 2006, respectively, from an average of $1.68 per pound in2005 and $1.29 per pound in 2004. In 2005, we experienced an estimated increasein our working capital financing requirements of approximately $30 to$35 million as a result of increases in copper prices. We have experiencedfurther increases in our working capital requirements in 2006 and expect suchincreases to continue based on current copper price levels. Increases in ourworking capital requirements can materially adversely impact our results ofoperations, our cash flow and our available liquidity to fund other businessneeds. Furthermore, there is no assurance we would be able to financeadditional working capital requirements or finance such working capitalrequirements on favorable terms. If we were unable to obtain financing onfavorable terms, our business and results of operations may be materially adverselyaffected. See “Management’s discussion and analysis of financial condition andresults of operations—Liquidity and capital resources”.

**Increasesin copper prices may increase credit and default risk with respect to ourcustomers.**

Increases in theprice of our products as copper prices rise may place additional demands on theworking capital and liquidity needs of our customers. Accordingly, ourcustomers’ cash flow may be negatively impacted which may have an adverseeffect on the timing and amount of payment of our accounts receivable.

**Shortagesor disruptions in the availability of copper could have a material adverseeffect on our business.**

Foreign economieshave been consuming an increasing proportion of worldwide copper productionresulting in a reduction of copper stock levels held in COMEX and LMEwarehouses and sold through merchants. These macro-economic factors,together with labor and other business interruptions experienced by certaincopper suppliers, have contributed to periodic shortages of supply of copperand such shortages may increase in the future. Furthermore, there are a limitednumber of copper suppliers. If we are unable to maintain good relations withour copper suppliers or if there are any business interruptions at our copper suppliers,we may not have access to a sufficient supply of copper. Although we have notexperienced any shortages during recent years that have had a significantimpact on our operations, no assurance can be given that we will be able toprocure adequate supplies of copper and copper rod to meet our futureproduction needs and customer demand, which could result in a material loss ofcustomers and revenues and adversely impact our results of operations. Inaddition, supply shortages or disruptions or the loss of suppliers may cause usto procure our copper rod from less cost effective sources and may have amaterial adverse effect on our business, revenues and results of operations.

 

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**OTHERRISKS RELATED TO OUR BUSINESS**

**We may not complete our new China manufacturing facility ontime, or at all, and may not be able to operate the China facilitysuccessfully, any of which may adversely affect our business.**

We arecurrently constructing a wholly owned “Greenfield” manufacturing facility inChina to produce magnet wire for sale to customers with China-basedoperations. We expect the first phase of the facility to be operational in thefourth quarter of 2006, and estimate capital expenditures for this phase of theproject to be approximately $26 million. We currently expect to expand thefacility to add capacity at a further cost of an estimated $5 million to$8 million of additional capital expenditures, which we project will becompleted in 2007. We face all the risks inherent in building a new facility ina new market, particularly in an emerging market like China where we have notpreviously constructed facilities or operated them, including such risks asthose arising from:

·                  unexpected legal, regulatory or governmentalrequirements or approvals;

·                  operating in a market with a less developed supplychain, transportation and distribution infrastructure;

·                  unfavorable political or economic factors;

·                  difficulties in recruiting and retaining personnel;and

·                  managing international operations.

Therecan be no assurance that we will be successful in completing the productionfacilities in China or completing them on the timetable that we currentlyexpect.

**Our customer base in our copper rod segment is highlyconcentrated and a loss of a major customer of our copper rod products couldsubstantially impact the financial performance of that segment.**

Ourcustomer base for our copper rod segment is highly concentrated among a limitednumber of large customers, and, therefore, a limited number of customersaccount for a significant percentage of our revenues in any year in thatsegment. In particular, our largest customer in the copper rod segmentaccounted for 44%, 45% and 36% of the copper rod segment’s net sales for thesix months ended June 30, 2006 and the years ended December 31, 2005 and2004, respectively. This customer, a large automotive industry supplier, has afiled voluntary petition for business reorganization under chapter 11 of theU.S. Bankruptcy Code. If this customer’s financial condition were to deteriorate,resulting in an impairment of its ability to emerge from bankruptcy or continueto purchase copper rod or make payments for existing purchases our copper rodbusiness, the loss of or reduced demand for products or related services fromthis customer could have a material adverse effect on our business, revenuesand results of operations.

**Our revenues, operating income and net income are subject toquarterly and seasonal fluctuations due to the seasonal nature of our business,which makes it more difficult for investors and analysts to make meaningfulcomparisons of our interim quarterly results.**

Weexperience seasonal fluctuations in our revenues, operating income and netincome in the third and fourth fiscal quarters due to the following factors:

·                  seasonal reductions in demand by our communicationscable segment customers during cold weather seasons in North America;

·                  year end holiday related plant shutdowns of majorOEM customers of our magnet wire and distribution segments; and

·                  seasonal decrease in sales volumes in Europe duringthe summer holiday season, which impacts our European magnet wire anddistribution segment.

Due to the seasonalnature of our business, our interim financial results are typically notindicative of results for the entire fiscal year.

 

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**ITEM2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

Thefollowing table provides information about our purchases of equity securitiesthat are registered pursuant to Section 12 of the Exchange Act during thequarter ended June 30, 2006:

 
| **Period**        | ** ** | **Total Number of  Shares Purchased** | ** ** | **Average Price Paid  per Share** | ** ** | **Total Number of  Shares Purchased as  Part of Publicly  Announced Plans  or Programs** | ** ** | **Maximum Number of  Shares that May Yet  Be Purchased Under  the Plans or Programs** | ** ** |
|-------------------|------------|------------------------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------|------------|
| April 2006   |       | —                                               |       | —                                           |       | —                                                                                                                           |       | —                                                                                                                                  |       |
| May 2006 (a) |       | 16,999                                               |       | $                                                | 33.45      |                                                                                                                             | —     |                                                                                                                                    | —     |   |
| June 2006    |       | —                                               |       | —                                           |       | —                                                                                                                           |       | —                                                                                                                                  |       |
|                   |            |                                                      |            |                                                  |            |                                                                                                                                  |            |                                                                                                                                         |            |  |

 

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(a)                                  Representsshares withheld from our chief executive officer to satisfy minimum statutorytax withholdings due upon the vesting of restricted stock awards.

**ITEM4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

Thefollowing matters were submitted to a vote of security holders at the Company’sannual meeting of shareowners held on May 2, 2006:

 
| ** **                             | ** ** | **Votes Cast For** | ** ** | **Votes Withheld** | ** ** |
|----------------------------------------|------------|------------------------------|------------|-------------------------|------------|
| Election of  Class III directors: |       |                         |       |                    |       |
| Monte R. Haymon                        |       | 14,163,624                   |       | 729,169                 |       |
| Andrew P. Hines                        |       | 14,165,584                   |       | 727,209                 |       |

 
| ** **                                                                                                                 | ** ** | **Votes Cast** | ** ** | ** **  | ** ** | ** **  | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|-------------|------------|-------------|------------|
| ** **                                                                                                                 | ** ** | **For**             | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Broker Non-Votes** | ** ** |
| Company  proposals to:                                                                                                     |       |                |       |        |       |        |       |   |   |
| Ratify the  appointment of Deloitte & Touche LLP as the Company’s independent  registered public accountants |       | 13,913,806          |       | 3,945       |       | 975,042     |       | — |   |

 

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**ITEM6. EXHIBITS**
| Exhibit   Number | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1              |       | Disclosure Statement with respect to First Amended  Joint Plan of Reorganization of Superior TeleCom Inc. and its affiliated  debtors and debtors-in-possession (including the Amended Joint Plan of  Reorganization attached as Exhibit A thereto) (incorporated herein by  reference to Exhibit 2(a) to the Registration Statement on  Form 10 (Registration No. 000-50514) of Superior Essex Inc., as  filed with the Securities and Exchange Commission on December 15, 2003,  as amended (the “Superior Essex Form 10”)). |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 2.2              |       | Asset Purchase Agreement, dated as of March 18,  2004, by and among Superior Essex Communications LLC, Belden Communications  Company and Belden (Canada) Inc. (incorporated herein by reference to  Exhibit 2.1 to the Current Report on Form 8-K of Superior Essex  Inc. dated June 16, 2004)                                                                                                                                                                                                                                                         |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 2.3              |       | Contribution and Formation Agreement dated  July 27, 2005 among Superior Essex Inc., Essex Group, Inc., Nexans,  Nexans Participations, Nexans Wires and Lacroix and Kress GmbH. (incorporated  herein by reference to Exhibit 2.3 to the Quarterly Report on  Form 10Q of Superior Essex Inc. for the quarter ended June 30,  2005)                                                                                                                                                                                                               |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 2.4              |       | Side Letter dated October 21, 2005 by and  between Superior Essex Inc., Essex Group, Inc., SE Holding, C.V.,  Nexans, Nexans Participations, Lacroix & Kress GmbH and Nexans Wires  (incorporated by reference to Exhibit 10.2 to the Current Report on  Form 8-K of Superior Essex dated October 21, 2005)                                                                                                                                                                                                                               |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 3.1              |       | Amended and Restated Certificate of Incorporation of  Superior Essex Inc. (incorporated herein by reference to  Exhibit 3(a) to the Superior Essex Form 10).                                                                                                                                                                                                                                                                                                                                                                                                 |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 3.2              |       | Restated By-Laws of Superior Essex Inc.  (incorporated herein by reference to Exhibit 3(b) to the Superior Essex  Form 10).                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 3.3              |       | Certificate of Amendment to Amended and Restated  Certificate of Incorporation of Superior Essex Inc. (incorporated herein by  reference to Exhibit 3.3 to the Quarterly Report on Form 10-Q of  Superior Essex Inc. for the quarter ended March 31, 2005)                                                                                                                                                                                                                                                                                                   |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.1              |       | Indenture dated as of April 14, 2004 among  Superior Essex Communications LLC and Essex Group, Inc., as Co-Issuers,  the Guarantors named therein and The Bank of New York Trust Company, N.A., as  Trustee (incorporated herein by reference to Exhibit 10.3 to the  Quarterly Report on Form 10-Q of Superior Essex Inc. for the quarter  ended March 31, 2004 (the “Q1 2004 Form 10-Q”)).                                                                                                                                        |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.2              |       | Form of 9% Senior Series B Note due 2012  (included in Exhibit 4.1) (incorporated herein by reference to  Exhibit 10.3 to the Q1 2004 Form 10-Q).                                                                                                                                                                                                                                                                                                                                                                                                  |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.3              |       | Registration Rights Agreement, dated as of  November 10, 2003, by and among Superior Essex Inc., the holders of  Registrable Common Stock (as defined therein) and the holders of the Warrants  (as defined therein) and such other Persons who may become a party thereto  pursuant to Section 16 or 19(i) thereof (incorporated herein by  reference to Exhibit 10(b) to the Superior Essex Form 10).                                                                                                                                       |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.4              |       | Specimen Common Stock Certificate (incorporated  herein by reference to Exhibit 4.11 to the Superior Essex  Form S-3).                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.5              |       | Third Supplemental Indenture dated  September 12, 2005 among Superior Essex Communications LP, Essex  Group, Inc., certain subsidiary guarantors named therein and The Bank of  New York Trust Company, N.A. (incorporated by reference to Exhibit 10.1  to the Current Report on Form 8-K of Superior Essex dated  September 12, 2005).                                                                                                                                                                                                           |

 

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| Exhibit   Number | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1             |       | Amended and Restated Loan and Security Agreement,  dated April 14, 2006, by and among Superior Essex Communications LP, as  a borrower, Essex Group, Inc., as a borrower, the financial institutions  party thereto, as lenders, General Electric Capital Corporation, as  syndication agent, Banc of America Securities LLC and GECC Capital Markets,  Inc. as co-lead arrangers, and Bank of America, N.A. as agent (incorporated  herein by reference to Exhibit 10 to the Current Report on  Form 8-K of Superior Essex dated April 14, 2006). |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.2             |       | Warrant Agreement, dated as of November 10,  2003, between Superior Essex Inc. and American Stock Transfer &  Trust Company, as warrant agent (incorporated herein by reference to  Exhibit 10(d) to the Superior Essex Form 10).                                                                                                                                                                                                                                                                                                                   |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.3             |       | Superior Essex Inc. 2003 Stock Incentive Plan  (incorporated herein by reference to Exhibit 10(e) to the Superior  Essex Form 10).                                                                                                                                                                                                                                                                                                                                                                                                                                |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.4*            |       | Amended and Restated Employment Agreement, dated  March 10, 2006, between Superior Essex and Stephen M. Carter  (incorporated herein by reference to Exhibit 10.1 to the Current Report  on Form 8-K of Superior Essex Inc. dated March 10, 2006).                                                                                                                                                                                                                                                                                                           |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.5*            |       | Amended and Restated Employment Agreement, dated  March 10, 2006, between Superior Essex and David S. Aldridge  (incorporated herein by reference to Exhibit 10.2 to the Current Report  on Form 8-K of Superior Essex Inc. dated March 10, 2006).                                                                                                                                                                                                                                                                                                           |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.6*            |       | Amended and Restated Employment Agreement, dated  March 10, 2006, between Superior Essex and Justin F. Deedy, Jr.  (incorporated herein by reference to Exhibit 10.3 to the Current Report  on Form 8-K of Superior Essex Inc. dated March 10, 2006).                                                                                                                                                                                                                                                                                                   |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.7*            |       | Amended and Restated Employment Agreement, dated  March 10, 2006, between Superior Essex and H. Patrick Jack (incorporated  herein by reference to Exhibit 10.4 to the Current Report on  Form 8-K of Superior Essex Inc. dated March 10, 2006).                                                                                                                                                                                                                                                                                                             |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.8*            |       | Amended and Restated Employment Agreement, dated  March 10, 2006, between Superior Essex Inc. and Barbara L. Blackford  (incorporated herein by reference to Exhibit 10.5 to the Current Report  on Form 8-K of Superior Essex Inc. dated March 10, 2006).                                                                                                                                                                                                                                                                                                   |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.9*            |       | Separation Agreement, dated November 5, 2003,  between Superior Essex Inc. and Stephen C. Knup (incorporated herein by  reference to Exhibit 10(j) to the Superior Essex Form 10).                                                                                                                                                                                                                                                                                                                                                                           |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.10            |       | Lease Agreement, dated as of December 16, 1993,  by and between ALP (TX) QRS 11-28, Inc. and Superior TeleTec  Transmission Products, Inc. (incorporated herein by reference to  Exhibit (i) to the Quarterly Report on Form 10-Q of The Alpine  Group, Inc. for the quarter ended January 31, 1994).                                                                                                                                                                                                                                    |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.11            |       | First Amendment to Lease Agreement, dated as of  May 10, 1995, by and between ALP (TX) QRS 11-28, Inc. and Superior  TeleTec Inc. (incorporated herein by reference to Exhibit 10(o) to  the Annual Report on Form 10-K of The Alpine Group, Inc. for the  year ended April 30, 1995 (the “1995 Alpine 10-K”)).                                                                                                                                                                                                                     |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.12            |       | Second Amendment to Lease Agreement, dated as of  July 21, 1995, by and between ALP (TX) QRS 11-28, Inc. and Superior  Telecommunications Inc. (incorporated herein by reference to  Exhibit 10(x) to the 1995 Alpine 10-K).                                                                                                                                                                                                                                                                                                                                 |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.13            |       | Third Amendment to Lease Agreement, dated as of  October 2, 1996, by and between ALP (TX) QRS 11-28, Inc. and  Superior Telecommunications Inc. (incorporated herein by reference to  Exhibit 10.8 to the Registration Statement on Form S-1  (Registration No. 333-09933) of Superior TeleCom Inc., as filed with the  Securities and Exchange Commission on August 9, 1996, as amended (the  “Superior TeleCom S-1”)).                                                                                                                 |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.14            |       | First Amendment to Guaranty and Surety Agreement,  dated as of October 2, 1996, among Superior TeleCom Inc., The Alpine  Group, Inc. and ALP (TX) QRS 11- 28, Inc. (incorporated herein by  reference to Exhibit 10.12 to the Superior TeleCom S-1).                                                                                                                                                                                                                                                                                                         |

 

45

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| Exhibit   Number | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                |
|------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.15            |       | Fourth Amendment to Lease Agreement, dated as of  November 27, 1998, between ALP (TX) QRS 11-28, Inc. and Superior  Telecommunications Inc. (incorporated herein by reference to  Exhibit 10(x) to the Annual Report on Form 10-K of Superior  TeleCom Inc. for the year ended December 31, 1999 (the “1999 Superior  TeleCom 10-K”)). |
|             |       |                                                                                                                                                                                                                                                                                                                                                                           |
| 10.16            |       | Second Amendment to Guaranty and Suretyship  Agreement, dated as of November 27, 1998, among ALP (TX) QRS  11-28, Inc., Superior TeleCom Inc. and The Alpine Group, Inc.  (incorporated herein by reference to Exhibit 10(y) to the 1999  Superior TeleCom 10-K).                                                                                     |
|             |       |                                                                                                                                                                                                                                                                                                                                                                           |
| 10.17            |       | Fifth Amendment to Lease Agreement and Waiver, dated  as of December 27, 2001, between ALP (TX) QRS 11-28, Inc. and  Superior Telecommunications Inc. (incorporated herein by reference to  Exhibit 10(yy) to the Annual Report on Form 10-K of Superior  TeleCom Inc. for the year ended December 31, 2001).                                         |
|             |       |                                                                                                                                                                                                                                                                                                                                                                           |
| 10.18            |       | Consent, Amendment and Waiver to Lease Agreement,  dated as of December 11, 2002, between ST (TX) LP and Superior  Telecommunications Inc. (incorporated herein by reference to  Exhibit 10(eee) to the Annual Report on Form 10-K of Superior  TeleCom Inc. for the year ended December 31, 2002).                                                        |
|             |       |                                                                                                                                                                                                                                                                                                                                                                           |
| 10.19            |       | Superior Essex Inc. Senior Executive Retirement Plan  (incorporated herein by reference to Exhibit 10.27 to the Quarterly  Report on Form 10-Q of Superior Essex Inc. for the quarter ended  September 30, 2004)                                                                                                                                                |
|             |       |                                                                                                                                                                                                                                                                                                                                                                           |
| 10.20            |       | Consulting Agreement, dated February 1, 2005,  between DG Network and Superior Essex Inc. (incorporated herein by reference  to Exhibit 99.1 to the Current Report on Form 8-K of Superior Essex  Inc. dated February 18, 2005)                                                                                                                            |
|             |       |                                                                                                                                                                                                                                                                                                                                                                           |
| 10.21            |       | Amendment to Consulting Agreement dated as of  July 1, 2005, between DG Network and Superior Essex Inc. (incorporated  herein by reference to the Current Report on Form 8-K of Superior Essex  dated August 1, 2005)                                                                                                                                           |
|             |       |                                                                                                                                                                                                                                                                                                                                                                           |
| 10.22*           |       | Superior Essex Inc. Director Compensation Plan  (incorporated herein by reference to Exhibit 99.1 to the Current Report  on Form 8-K of Superior Essex Inc. dated November 10, 2004)                                                                                                                                                                            |
|             |       |                                                                                                                                                                                                                                                                                                                                                                           |
| 10.23*           |       | Form of Director Restricted Stock Certificate  (incorporated herein by reference to Exhibit 99.2 to the Current Report  on Form 8-K of Superior Essex Inc. dated November 10, 2004)                                                                                                                                                                        |
|             |       |                                                                                                                                                                                                                                                                                                                                                                           |
| 10.24*           |       | Form of Non-qualified Stock Option Certificate  (incorporated herein by reference to Exhibit 99.1 to the Current Report  on Form 8-K of Superior Essex Inc. dated April 1, 2005)                                                                                                                                                                           |
|             |       |                                                                                                                                                                                                                                                                                                                                                                           |
| 10.25*           |       | Superior Essex Inc. 2005 Incentive Plan  (incorporated herein by reference to Appendix C of the Company’s Definitive  Proxy Statement on Schedule 14A (File No. 000-50514) filed with the  Securities and Exchange Commission on March 30, 2005)                                                                                                           |
|             |       |                                                                                                                                                                                                                                                                                                                                                                           |
| 10.26*           |       | Superior Essex Inc. 2005 Employee Stock Purchase  Plan (incorporated herein by reference to Appendix D of the Company’s  Definitive Proxy Statement on Schedule 14A (File No. 000-50514)  filed with the Securities and Exchange Commission on March 30, 2005)                                                                                             |
|             |       |                                                                                                                                                                                                                                                                                                                                                                           |
| 10.27*           |       | Form of Performance Accelerated Restricted  Stock Award Certificate (incorporated herein by reference to  Exhibit 99.1 to the Current Report on Form 8-K of Superior Essex  Inc. dated April 20, 2005)                                                                                                                                                     |
|             |       |                                                                                                                                                                                                                                                                                                                                                                           |
| 10.28*           |       | Superior Essex Inc. 2005 Executive Bonus Plan  (incorporated herein by reference to Exhibit 99.3 to the Current Report  on Form 8-K of Superior Essex Inc. dated May 3, 2005)                                                                                                                                                                                   |
|             |       |                                                                                                                                                                                                                                                                                                                                                                           |
| 10.29*           |       | Superior Essex Inc. 2005 Executive Special  Recognition Bonus Plan (incorporated herein by reference to Exhibit 99.4  to the Current Report on Form 8-K of Superior Essex Inc. dated May 3,  2005)                                                                                                                                                              |
|             |       |                                                                                                                                                                                                                                                                                                                                                                           |
| 10.30*           |       | Amended and  Restated Executive Bonus Plan (incorporated herein by reference to  Exhibit 10.2 to the Current Report on Form 8-K of Superior Essex  dated March 29, 2006)                                                                                                                                                                                        |

 

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| Exhibit   Number | ** ** | **Description**                                                                                                                                                                                                                                                                                             |
|------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.31            |       | Shareholders Agreement dated October 21, 2005  by and between Superior Essex Inc., SE Holding, C.V., Nexans, Nexans  Participations and Essex Nexans SAS (incorporated herein by reference to  Exhibit 10.1 to the Current Report on Form 8-K of Superior Essex  dated October 21,2005) |
|             |       |                                                                                                                                                                                                                                                                                                        |
| 10.32*           |       | Superior Essex Inc. 2005 Amended and Restated  Director Compensation Plan (incorporated herein by reference to  Exhibit 99.1 to the Current Report on Form 8-K of Superior Essex  dated October 27, 2005)                                                                                    |
|             |       |                                                                                                                                                                                                                                                                                                        |
| 10.33*           |       | Form of Director Restricted Stock Unit  Certificate (incorporated herein by reference to Exhibit 99.2 to the  Current Report on Form 8-K of Superior Essex dated October 27,  2005)                                                                                                     |
|             |       |                                                                                                                                                                                                                                                                                                        |
| 10.34*           |       | Form of Director Option Certificate  (incorporated herein by reference to Exhibit 99.3 to the Current Report  on Form 8-K of Superior Essex dated October 27, 2005)                                                                                                                     |
|             |       |                                                                                                                                                                                                                                                                                                        |
| 10.35*           |       | Form of Stock Option Certificate (incorporated  herein by reference to Exhibit 10.1 to the Current Report on  Form 8-K of Superior Essex dated November 9, 2005)                                                                                                                        |
|             |       |                                                                                                                                                                                                                                                                                                        |
| 10.36*           |       | Form of Restricted Stock Award Certificate  (incorporated herein by reference to Exhibit 10.2 to the Current Report  on Form 8-K of Superior Essex dated November 9, 2005)                                                                                                              |
|             |       |                                                                                                                                                                                                                                                                                                        |
| 10.37*           |       | Form of Performance Contingent Share Award  Certificate (incorporated herein by reference to Exhibit 10.2 to the  Current Report on Form 8-K of Superior Essex dated March 29, 2006)                                                                                                         |
|             |       |                                                                                                                                                                                                                                                                                                        |
| 10.38            |       | Consulting Agreement dated as of January 18,  2006 between the Company and DG Network (incorporated herein by reference to  Exhibit 10.1 to the Current Report on Form 8-K of Superior Essex  dated January 13, 2006)                                                                   |
|             |       |                                                                                                                                                                                                                                                                                                        |
| 10.39*           |       | Agreement dated as of January 18, 2006 between  the Company and Denys Gounot (incorporated herein by reference to  Exhibit 10.2 to the Current Report on Form 8-K of Superior Essex  dated January 13, 2006)                                                                            |
|             |       |                                                                                                                                                                                                                                                                                                        |
| 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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*                    Managementcontract or compensatory plan or arrangement.

47

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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. |
|----------------------|--------|----------|---------------------|
|                 |   |     |                |   |
|                 |   |     | By:                 | /s/ DAVID S. ALDRIDGE |
|                 |   |     |                | David S. Aldridge |
|                 |   | * * |                | *Executive Vice President, Chief  Financial Officer and Treasurer* |
| Date: August 4, 2006 |   | * * |                | (duly authorized officer and principal financial and  accounting officer) |

 

48

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