**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q**

 
| **(Mark One)**                                              |
|-------------------------------------------------------------|
| **ý**                                                  | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                  | ** ** |
| **For the Quarterly Period Ended  September 30, 2005** |
| ** **                                                  | ** ** |
| **or**                                                      |
| ** **                                                  | ** ** |
| **o**                                                       | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                  | ** ** |
| **For the transition period from to**                       |

 

**Commission file number 0-50514**

 

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**SUPERIOR ESSEX INC.**

(Exact name of registrant as specified in itscharter)

 
| **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 areacode

 

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Indicate by check mark whether the registrant: (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorterperiod that the registrant was required to file such reports) and (2) hasbeen subject to such filing requirements for the past90 days. Yes ý  No o

 

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

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act). Yes o  No ý

 

As of November 2, 2005, the registrant had 17,133,028 shares ofcommon stock, $0.01 par value, outstanding.

 

 

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**PART I. FINANCIAL INFORMATION**

 

In this Quarterly Report on Form 10-Q, the following termshave the meanings indicated below:

 

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

 

**•****                 **“SuperiorTeleCom,” unless the context otherwise requires, refers to Superior TeleCom Inc.and its subsidiaries and the business carried on by them prior toNovember 10, 2003.

 

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

 

**•****                 **“SuperiorEssex Communications” refers to Superior Essex Communications LP. SuperiorEssex Holding is the sole limited partner of Superior Essex Communications. SECommunications GP Inc., a wholly owned subsidiary of Superior EssexHolding, is the sole general partner of Superior Essex Communications.

 

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

 

**•****                 **“Essex Group”refers to Essex Group, Inc., Essex International’s wholly ownedsubsidiary.

 

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**Forward-Looking Statements**

 

This report contains “forward-looking statements” within the meaning ofSection 27A of the Securities Act of 1933 and Section 21E of theSecurities Exchange Act of 1934. 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:

 

**•****                    **Generaleconomic, business and industry conditions;

 

**•****                    **Spendingreductions by the telephone industry;

 

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

 

**•****                    **Themigration of magnet wire demand to China and other countries;

 

**•****                    **Increasesor decreases in sales due to contract losses or gains as expirations, renewalsand rebidding efforts occur;

 

**•****                    **Rapidproduct and technology development, particularly in the telecommunicationsindustry;

 

**•****                    **Marketacceptance of new products and continuing product demand;

 

**•****                    **Productionand timing of customer orders;

 

**•****                    **Fluctuationsor shortages in the supply and pricing of copper and other principal rawmaterials;

 

**•****                    **Increasesin costs and shortages in supply of fuel, natural gas and shipping resources;

 

**•****                    **Oursignificant level of indebtedness and debt covenant requirements;

 

**•****                    **Thepotential need for and availability of additional sources of capital andliquidity;

 

**•****                    **Ourability to sustain the benefits of our acquisition of assets fromBelden Inc. and Nexans Magnet Wire USA Inc., to integrate theoperations of our European magnet wire joint venture with Nexans and attain theexpected benefits of the transaction, and to identify, finance and integrateother acquisitions;

 

•                     Our ability to successfullyconstruct and operate a magnet wire facility in China;

 

**•****                    **Changesin short-term interest rates and foreign exchange rates;

 

**•****                    **Adeterioration in our labor relations;

 

**•****                    **Thevolatility of the market price of our common stock; and

 

**•****                    **Otherrisks and uncertainties, including those included under the caption “RiskFactors” in our Annual Report on Form 10-K for the year endedDecember 31, 2004.

 

Forward-looking statements should be considered in light of variousimportant factors, including those set forth elsewhere in this report and ourother filings with the SEC. Moreover, we caution you not to place unduereliance on these forward-looking statements, which speak only as of the datethey were made. We do not undertake any obligation to publicly release anyrevisions to these forward-looking statements to reflect events orcircumstances after the date of this report or to reflect the occurrence ofunanticipated events. All subsequent forward-looking statements attributable tous or any person acting on our behalf are expressly qualified in their 

 

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entirety by the cautionarystatements contained or referred to in this report and in our other SECfilings.

 

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**ITEM 1. FINANCIAL STATEMENTS**

 

**SUPERIOR ESSEX INC. AND SUBSIDIARIES**

 

**CONSOLIDATED BALANCE SHEETS**

 

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

 

**(unaudited)**

 
| ** **                                                                                                                                                                | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                                                                                |       |                         |       |                        |       |
| Current assets:                                                                                                                                                           |       |                         |       |                        |       |
| Cash and cash equivalents                                                                                                                                                 |       | $                            | 6,412      |                        | $          | 18,312 |   |
| Accounts receivable (less allowance for  doubtful accounts of $1,973 and $1,800 at September 30, 2005 and  December 31, 2004, respectively)                     |       | 178,404                      |       | 144,954                     |       |
| Inventories, net                                                                                                                                                          |       | 163,531                      |       | 160,869                     |       |
| Other current assets                                                                                                                                                      |       | 19,091                       |       | 25,848                      |       |
| Total current assets                                                                                                                                                      |       | 367,438                      |       | 349,983                     |       |
| Property, plant and equipment, net                                                                                                                                        |       | 234,818                      |       | 239,219                     |       |
| Intangible and other long-term assets, net                                                                                                                                |       | 42,887                       |       | 41,769                      |       |
| Total assets                                                                                                                                                              |       | $                            | 645,143    |                        | $          | 630,971 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                             |       |                         |       |                        |       |
| Current liabilities:                                                                                                                                                      |       |                         |       |                        |       |
| Short-term borrowings                                                                                                                                                     |       | $                            | —     |                        | $          | 30,785 |   |
| Accounts payable                                                                                                                                                          |       | 83,343                       |       | 66,155                      |       |
| Accrued expenses                                                                                                                                                          |       | 47,435                       |       | 57,506                      |       |
| Total current liabilities                                                                                                                                                 |       | 130,778                      |       | 154,446                     |       |
| Long-term debt                                                                                                                                                            |       | 262,939                      |       | 262,444                     |       |
| Other long-term liabilities                                                                                                                                               |       | 46,518                       |       | 39,883                      |       |
| Total liabilities                                                                                                                                                         |       | 440,235                      |       | 456,773                     |       |
| 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; 17,173,183 and 17,048,694 shares issued at September 30,  2005 and December 31, 2004, respectively |       | 172                          |       | 171                         |       |
| Capital in excess of par value                                                                                                                                            |       | 173,867                      |       | 171,187                     |       |
| Accumulated other comprehensive income  (loss)                                                                                                                            |       | (1,064                       | )          | 95                          |       |
| Retained earnings                                                                                                                                                         |       | 36,922                       |       | 8,045                       |       |
| Equity-based unearned compensation                                                                                                                                        |       | (4,319                       | )          | (4,868                      | )          |
| Treasury stock, at cost (40,155 and 26,770  shares at September 30, 2005 and December 31, 2004, respectively)                                                   |       | (670                         | )          | (432                        | )          |
| Total stockholders’ equity                                                                                                                                           |       | 204,908                      |       | 174,198                     |       |
| Total liabilities and stockholders’ equity                                                                                                                           |       | $                            | 645,143    |                        | $          | 630,971 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements

 

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**SUPERIOR ESSEX INC. AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF OPERATIONS**

 

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

 

**(unaudited)**

 
| ** **                                                                                                                       | ** ** | **Three Months Ended  September 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                       | ** ** | **2005**                                   | ** ** | **2004** | ** ** |
| Net sales                                                                                                                        |       | $                                          | 439,120    |   | $ | 382,206 |   |
| Cost of goods sold                                                                                                               |       | 396,242                                    |       | 345,145 |   |
| Gross profit                                                                                                                     |       | 42,878                                     |       | 37,061 |   |
| Selling, general and administrative  expenses                                                                                    |       | (25,982                                    | )          | (24,038 | ) |
| Restructuring and other charges                                                                                                  |       | (89                                        | )          | (47 | ) |
| Operating income                                                                                                                 |       | 16,807                                     |       | 12,976 |   |
| Interest expense                                                                                                                 |       | (6,987                                     | )          | (7,289 | ) |
| Other income (expense), net                                                                                                      |       | (357                                       | )          | 400 |   |
| Income before income taxes                                                                                                       |       | 9,463                                      |       | 6,087 |   |
| Income tax benefit (expense), including a  $4,505 benefit in 2005 from resolution of preconfirmation tax contingencies  (note 1) |       | 2,399                                      |       | (2,544 | ) |
| Net income                                                                                                                       |       | $                                          | 11,862     |   | $ | 3,543 |   |
| Net income per share of common stock:                                                                                            |       |                                       |       |   |   |
| Basic                                                                                                                            |       | $                                          | 0.71       |   | $ | 0.21 |   |
| Diluted                                                                                                                          |       | $                                          | 0.70       |   | $ | 0.21 |   |
| Weighted average shares outstanding:                                                                                             |       |                                       |       |   |   |
| Basic                                                                                                                            |       | 16,673                                     |       | 16,532 |   |
| Diluted                                                                                                                          |       | 17,031                                     |       | 16,645 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements

 

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**SUPERIOR ESSEX INC. AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF OPERATIONS**

 

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

 

**(unaudited)**

 
| ** **                                                                                                         | ** ** | **Nine Months Ended  September 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                                         | ** ** | **2005**                                  | ** ** | **2004** | ** ** |
| Net sales                                                                                                          |       | $                                         | 1,272,354  |   | $ | 1,041,408 |   |
| Cost of goods sold                                                                                                 |       | 1,143,185                                 |       | 941,130 |   |
| Gross profit                                                                                                       |       | 129,169                                   |       | 100,278 |   |
| Selling, general and administrative  expenses                                                                      |       | (76,145                                   | )          | (67,220 | ) |
| Restructuring and other charges                                                                                    |       | (721                                      | )          | (1,533 | ) |
| Asset impairment charge (note 4)                                                                                   |       | (2,306                                    | )          | — |   |
| Gain on sale of product line (note 5)                                                                              |       | 10,355                                    |       | — |   |
| Operating income                                                                                                   |       | 60,352                                    |       | 31,525 |   |
| Interest expense                                                                                                   |       | (21,469                                   | )          | (19,269 | ) |
| Loss on early extinguishment of debt                                                                               |       | —                                    |       | (407 | ) |
| Other income (expense), net                                                                                        |       | (161                                      | )     | 214 |   |
| Income before income taxes                                                                                         |       | 38,722                                    |       | 12,063 |   |
| Income tax expense, net of a $4,505 benefit  in 2005 from resolution of preconfirmation tax contingencies (note 1) |       | (9,845                                    | )          | (5,124 | ) |
| Net income                                                                                                         |       | $                                         | 28,877     |   | $ | 6,939 |   |
| Net income per share of common stock:                                                                              |       |                                      |       |   |   |
| Basic                                                                                                              |       | $                                         | 1.74       |   | $ | 0.42 |   |
| Diluted                                                                                                            |       | $                                         | 1.70       |   | $ | 0.42 |   |
| Weighted average shares outstanding:                                                                               |       |                                      |       |   |   |
| Basic                                                                                                              |       | 16,634                                    |       | 16,516 |   |
| Diluted                                                                                                            |       | 16,954                                    |       | 16,620 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements

 

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**SUPERIOR ESSEX INC. AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 

**(in thousands)**

 

**(unaudited)**

 
| ** **                                                                                    | ** ** | **Nine Months  Ended September 30,** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                    | ** ** | **2005**                                  | ** ** | **2004** | ** ** |
| Cash flows from operating activities:                                                         |       |                                      |       |   |   |
| Net income                                                                                    |       | $                                         | 28,877     |   | $ | 6,939 |   |
| Adjustments to reconcile net income to net  cash provided by (used for) operating activities: |       |                                      |       |   |   |
| Depreciation and amortization                                                                 |       | 17,394                                    |       | 15,662 |   |
| Amortization of deferred financing costs  and discount                                        |       | 1,615                                     |       | 1,345 |   |
| Asset impairment charges (note 4)                                                             |       | 2,306                                     |       | — |   |
| Gain on sale of product line (note 5)                                                         |       | (10,355                                   | )          | — |   |
| Change in operating assets and liabilities:                                                   |       |                                      |       |   |   |
| Accounts receivable, net                                                                      |       | (34,516                                   | )          | (77,765 | ) |
| Inventories, net                                                                              |       | (3,719                                    | )          | (2,536 | ) |
| Other current and non-current assets                                                          |       | 6,527                                     |       | 4,848 |   |
| Accounts payable, accrued expenses and  other liabilities                                     |       | 22,208                                    |       | 39,469 |   |
| Other, net                                                                                    |       | 1,860                                     |       | 1,818 |   |
| Cash flows provided by (used for) operating  activities before reorganization items           |       | 32,197                                    |       | (10,220 | ) |
| Reorganization items paid, net                                                                |       | —                                    |       | (12,319 | ) |
| Cash flows provided by (used for) operating  activities                                       |       | 32,197                                    |       | (22,539 | ) |
| Cash flows from investing activities:                                                         |       |                                      |       |   |   |
| Capital expenditures                                                                          |       | (13,055                                   | )          | (9,459 | ) |
| Asset acquisitions (note 5)                                                                   |       | (10,000                                   | )          | (90,698 | ) |
| Proceeds from sale of product line (note 5)                                                   |       | 11,563                                    |       | — |   |
| Capitalized Nexans’ acquisition costs (note  13)                                         |       | (2,438                                    | )          | — |   |
| Other                                                                                         |       | 56                                        |       | 126 |   |
| Cash flows used for investing activities                                                      |       | (13,874                                   | )          | (100,031 | ) |
| Cash flows from financing activities:                                                         |       |                                      |       |   |   |
| Short-term borrowings (repayments), net                                                       |       | (30,785                                   | )          | 15,738 |   |
| Debt issuance costs                                                                           |       | —                                    |       | (4,583 | ) |
| Long-term borrowings                                                                          |       | —                                    |       | 250,004 |   |
| Repayments of long-term borrowings                                                            |       | —                                    |       | (145,000 | ) |
| Proceeds from exercise of stock options                                                       |       | 836                                       |       | — |   |
| Cash flows provided by (used for) financing  activities                                       |       | (29,949                                   | )     | 116,159 |   |
| Effect of exchange rate changes on cash                                                       |       | (274                                      | )          | (119 | ) |
| Net decrease in cash and cash equivalents                                                     |       | (11,900                                   | )          | (6,530 | ) |
| Cash and cash equivalents at beginning of  period                                             |       | 18,312                                    |       | 10,606 |   |
| Cash and cash equivalents at end of period                                                    |       | $                                         | 6,412      |   | $ | 4,076 |   |
| Supplemental disclosures:                                                                     |       |                                      |       |   |   |
| Cash paid for interest                                                                        |       | $                                         | 13,681     |   | $ | 9,376 |   |
| Cash paid for income taxes, net                                                               |       | $                                         | 5,039      |   | $ | 1,074 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements

 

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**SUPERIOR ESSEX INC. AND SUBSIDIARIES**

 

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS**

 

**September 30, 2005**

 

**(unaudited)**

 

**1.****                 General**

 

***Basis ofpresentation***

 

The accompanying unaudited consolidated financial statements have beenprepared in accordance with the requirements of Section 13 or15(d) of the Securities Exchange Act of 1934, as amended, and, therefore,do not include all disclosures required by accounting principles generallyaccepted in the United States for complete financial statements. However, inthe opinion of management, these statements reflect all adjustments (whichconsist only of normal recurring accruals) necessary for a fair presentation ofthe results of operations for the relevant periods. Results for the threemonths and nine months ended September 30, 2005 are not necessarilyindicative of the results to be expected for the entire fiscal year. Thesefinancial statements should be read in conjunction with the auditedconsolidated financial statements and notes thereto included in SuperiorEssex Inc.’s Annual Report on Form 10-K for the year endedDecember 31, 2004.

 

The Company is a manufacturer and supplier of communications wire andcable products to telephone companies, CATV companies, distributors and systemsintegrators, and magnet wire and insulation materials to major originalequipment manufacturers, or OEMs, and, through its distribution operations, tosmall OEMs and the motor maintenance, repair and overhaul industry. TheCompany also converts copper cathode to copper rod for sale to other thirdparties. The Company operates manufacturing and distribution facilities in theUnited States, the United Kingdom and Mexico. On October 21, 2005, the Companyacquired majority control of Nexans’ magnet wire operations in Europe throughformation of a corporate joint venture combining the Company’s U.K. magnet wirebusiness and Nexans’ European magnet wire and enamel businesses (see note 13).The joint venture will operate manufacturing and distribution facilities inFrance, Germany, the United Kingdom and Portugal.

 

***Stock-Based CompensationPlans***

 

The Company applies the intrinsic-value based method of accountingprescribed by Accounting Principles Board (APB) Opinion No. 25, *Accounting for Stock Issued to Employees*,and related interpretations including FASB Interpretation No. 44, *Accounting for Certain Transactions involving StockCompensation, an interpretation of APB Opinion No. 25*, issuedin March 2000, to account for stock-based compensation plans. Under thismethod, compensation expense is recorded only if the current market price ofthe underlying stock on the date of grant exceeded the exercise price.Compensation expense attributable to fixed awards is recognized on astraight-line basis over the related vesting period. SFAS No. 123, *Accounting for Stock-Based Compensation*,established accounting and disclosure requirements using a fair-value basedmethod of accounting for stock-based employee compensation plans. As allowed bySFAS No. 123, the Company elected to continue to apply the intrinsic-valuebased method of accounting described above, and adopted only the disclosurerequirements of SFAS No. 123. The following tables illustrate the effecton net income if the fair-value based method had been applied to alloutstanding awards in each period.

 
| ** **                                                                                                                   | ** ** | **Three Months  Ended September 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                   | ** ** | **2005**                                   | ** ** | **2004** | ** ** |
| Net income, as reported                                                                                                      |       | $                                          | 11,862     |   | $ | 3,543 |   |
| Add stock-based employee compensation  expense included in reported net income, net of tax                                   |       | 429                                        |       | 469 |   |
| Deduct total stock-based employee  compensation expense determined under fair-value based method for all awards,  net of tax |       | (617                                       | )          | (584 | ) |
| Pro forma net income                                                                                                         |       | $                                          | 11,674     |   | $ | 3,428 |   |
| Net income per share:                                                                                                        |       |                                       |       |   |   |
| As reported:                                                                                                                 |       |                                       |       |   |   |
| Basic                                                                                                                        |       | $                                          | 0.71       |   | $ | 0.21 |   |
| Diluted                                                                                                                      |       | 0.70                                       |       | 0.21 |   |
| Pro forma:                                                                                                                   |       |                                       |       |   |   |
| Basic                                                                                                                        |       | 0.70                                       |       | 0.21 |   |
| Diluted                                                                                                                      |       | 0.69                                       |       | 0.21 |   |

 

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| ** **                                                                                                                   | ** ** | **Nine Months  Ended September 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                                                   | ** ** | **2005**                                  | ** ** | **2004** | ** ** |
| Net income, as reported                                                                                                      |       | $                                         | 28,877     |   | $ | 6,939 |   |
| Add stock-based employee compensation  expense included in reported net income, net of tax                                   |       | 1,225                                     |       | 1,015 |   |
| Deduct total stock-based employee  compensation expense determined under fair-value based method for all awards,  net of tax |       | (1,711                                    | )          | (1,264 | ) |
| Pro forma net income                                                                                                         |       | $                                         | 28,391     |   | $ | 6,690 |   |
| Net income per share:                                                                                                        |       |                                      |       |   |   |
| As reported:                                                                                                                 |       |                                      |       |   |   |
| Basic                                                                                                                        |       | $                                         | 1.74       |   | $ | 0.42 |   |
| Diluted                                                                                                                      |       | 1.70                                      |       | 0.42 |   |
| Pro forma:                                                                                                                   |       |                                      |       |   |   |
| Basic                                                                                                                        |       | 1.71                                      |       | 0.41 |   |
| Diluted                                                                                                                      |       | 1.68                                      |       | 0.40 |   |

 

The effects of applying SFAS No. 123 in the pro forma disclosureare not necessarily indicative of future amounts, since the estimated fair valueof stock options is amortized to expense over the vesting period and additionaloptions may be granted in future years. Options to purchase 222,650shares of common stock with a weighted average fair value per option of $8.62were granted during the nine months ended September 30, 2005 at anexercise price equal to the fair value of the underlying common stock at thedate of grant. The fair value for these options was estimated at the date ofgrant using the Black-Scholes option-pricing model with the followingweighted-average assumptions: dividend yield of 0%; expected volatility of 43%,risk-free interest rate of 4.1%, and expected life of 6.25 years. Additionally,42,000 shares of restricted stock with a weighted average per share value of$16.36 were granted during the nine months ended September 30, 2005.Options to purchase 750,500 shares of common stock with a weighted average fairvalue per option of $6.21 were granted during the nine months endedSeptember 30, 2004 at an exercise price below the fair value of theunderlying common stock at the date of grant in accordance with the terms ofthe 2003 Stock Incentive Plan. The 2003 Stock Incentive Plan provided that theexercise price would be the initial value of the Company’s stock on the effectivedate of the plan of reorganization ($10 per share) for options granted prior toMay 10, 2004 to individuals who were members of management as of theeffective date of the plan of reorganization. Options to purchase 115,000shares of common stock with a weighted average fair value per option of $3.82were granted during the nine months ended September 30, 2004 at anexercise price equal to the fair value of the underlying common stock at thedate of grant. The fair value for the options granted during the nine monthsended September 30, 2004 was estimated at the date of grant using theBlack-Scholes option-pricing model with the following weighted-averageassumptions: dividend yield of 0%; expected volatility of 41%, risk-freeinterest rate of 2.5%, and expected life of three years.

 

The following table summarizes stock option activity for the ninemonths ended September 30, 2005:

 
| ** **                             | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
|----------------------------------------|------------|------------|------------|---------------------------------------|------------|
| Outstanding at December 31, 2004  |       | 888,750    |       | $                                     | 10.52      |   |
| Granted                                |       | 222,650    |       | 17.84                                 |       |
| Exercised                              |       | (82,500    | )          | 10.14                                 |       |
| Cancelled                              |       | (3,350     | )          | 10.00                                 |       |
| Outstanding at September 30, 2005 |       | 1,025,550  |       | 12.14                                 |       |
|                                        |            |            |            |                                       |            |  |

 

***Income Taxes***

** **

During thethird quarter of 2005, the Company filed an election with the Internal RevenueService to elect to treat its U.K. subsidiary as a “flow through” entity forU.S. income purposes.  This election iscommonly referred to as a “check-the-box election”. As a result of thiselection, the Company expects to recognize a capital loss related to its U.K.subsidiary on its 2005 U.S. consolidated income tax return.  Accordingly, income tax expense for the threeand nine months ended September 30, 2005 reflects a benefit of approximately$2.0 million attributable to this capital loss.

 

The Company is routinely audited by federal, state and foreign taxingauthorities.  The outcome of these audits may result in the Company beingassessed taxes in addition to amounts previously paid.  Additionally, theCompany is subject to claims filed by various taxing authorities in connectionwith Superior TeleCom’s bankruptcy. Accordingly, the Company records aliability for the 

 

9

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expected outcome of such potentialassessments and claims.  These liabilities are determined based upon theCompany’s best estimate of assessments or claims by the Internal RevenueService (“IRS”) or other taxing authorities resulting from existing taxexposures and claims and are adjusted, from time to time, based upon changingfacts and circumstances. During the third quarter of 2005, theCompany reached a settlement with state taxing authorities with respect tocertain pre-petition claims primarily resulting from state income tax audits ofSuperior TeleCom. As a result of the settlement, the Company recognized anon-cash net tax benefit of $4.1 million (net of Federal income tax of $2.1million) in the third quarter of 2005. In addition the Company settled certainbankruptcy claims with the IRS resulting in a tax benefit of $0.4 millionduring the third quarter of 2005.

 

***Recent AccountingPronouncements***

 

In December 2004, the FASB issued Statement 123 (revised 2004), *“Share-Based Payment”,* a revision ofStatement 123, *“Accounting for Stock BasedCompensation.”* Statement 123(R) supercedes APB Opinion No. 25and requires all entities to recognize compensation expense in an amount equalto the fair value of share-based payments (e.g. stock options and restrictedstock awards) granted to employees. Statement 123(R) is effective for fiscalyears beginning after June 15, 2005. The Company intends to apply thestandard on a modified prospective method. Under this method, all awardsgranted after the date of adoption must be accounted for under the provisionsof Statement 123(R). In addition, compensation expense must be recognized forthe unvested portion of previously granted awards and options that remainoutstanding at the date of adoption. The Company will adopt Statement 123(R)effective January 1, 2006 and expects to recognize incremental non-cashcompensation expense related to currently outstanding options and awards ofapproximately $1.2 million, $0.6 million and $0.5 million in 2006, 2007 and2008, respectively.

** **

**2.****                 Inventories**

 

At September 30, 2005 and December 31, 2004, the componentsof inventories were as follows:

 
| ** **      | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|-----------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **      | ** ** | **(in thousands)**           | ** ** |
| Raw materials   |       | $                            | 23,277     |                        | $          | 16,034 |   |
| Work in process |       | 32,582                       |       | 31,509                      |       |
| Finished goods  |       | 144,509                      |       | 135,489                     |       |
|            |       | 200,368                      |       | 183,032                     |       |
| LIFO reserve    |       | (36,837                      | )          | (22,163                     | )          |
|            |       | $                            | 163,531    |                        | $          | 160,869 |   |

 

Inventories valued using the LIFO method amounted to $71.7 million and$78.8 million at September 30, 2005 and December 31, 2004,respectively.

 

**3.****                 Comprehensiveincome**

 

The components of comprehensive income for the three and nine monthsended September 30, 2005 and 2004 were as follows:

 
| ** **                                                                                                                                                | ** ** | **Three Months Ended  September 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                                                | ** ** | **2005**                                   | ** ** | **2004** | ** ** |
| ** **                                                                                                                                                | ** ** | **(in thousands)**                         | ** ** |
| Net income                                                                                                                                                |       | $                                          | 11,862     |   | $ | 3,543 |   |
| Foreign currency translation adjustment                                                                                                                   |       | (466                                       | )          | 169 |   |
| Change in unrealized gains on derivatives,  net of income tax of $349 and $575 for the three months ended  September 30, 2005 and 2004, respectively |       | 545                                        |       | 899 |   |
| Other                                                                                                                                                     |       | (4                                         | )          | 5 |   |
| Comprehensive income                                                                                                                                      |       | $                                          | 11,937     |   | $ | 4,616 |   |

 

10

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| ** **                                                                                                                                             | ** ** | **Nine Months Ended  September 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                                                                             | ** ** | **2005**                                  | ** ** | **2004** | ** ** |
| ** **                                                                                                                                             | ** ** | **(in thousands)**                        | ** ** |
| Net income                                                                                                                                             |       | $                                         | 28,877     |   | $ | 6,939 |   |
| Foreign currency translation adjustment                                                                                                                |       | (1,150                                    | )          | 116 |   |
| Change in unrealized gains on derivatives,  net of income tax of $2 and $565 for the nine months ended September 30,  2005 and 2004, respectively |       | 12                                        |       | 892 |   |
| Other                                                                                                                                                  |       | (21                                       | )          | 70 |   |
| Comprehensive income                                                                                                                                   |       | $                                         | 27,718     |   | $ | 8,017 |   |

 

The components of accumulated other comprehensive income (loss) atSeptember 30, 2005 and December 31, 2004 were as follows:

 
| ** **                                                                                                                                   | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                   | ** ** | **(in thousands)**           | ** ** |
| Foreign currency translation adjustment                                                                                                      |       | $                            | 1,178      |                        | $          | 2,328 |   |
| Unrealized gain on derivatives, net of  income tax of $1,246 and $1,244 at September 30, 2005 and  December 31, 2004, respectively |       | 1,953                        |       | 1,941                       |       |
| Additional minimum pension liability, net of  income tax of $2,679 at September 30, 2005 and December 31, 2004                     |       | (4,190                       | )          | (4,190                      | )          |
| Other                                                                                                                                        |       | (5                           | )          | 16                          |       |
|                                                                                                                                         |       | $                            | (1,064     | )                           | $          | 95 |   |

 

**4.****                 Restructuring andother charges and asset impairments**

 

In the first quarter of 2005, the Company recorded an impairment chargeof $2.3 million related to property, plant and equipment of the Company’sU.K. subsidiary. The Company evaluated the long-lived assets of its U.K.subsidiary for impairment as of March 31, 2005 after consideration of thecontinued deterioration in the European magnet wire market in the first quarterof 2005, the loss of a major customer in 2005 and negotiated reductions in thevalue ascribed to the U.K. net assets in connection with the Nexans transaction(see note 13). The impairment test was based on probability weightedestimated cash flows associated with such assets. The fair value of the assetswas based on appraised value determined primarily by comparison to prices forsimilar assets. The U.K. operation is included in the magnet wire and distributionsegment.

 

Restructuring and other charges for the nine months endedSeptember 30, 2005 consisted of $0.5 million of facility exit costsprimarily related to closure of an insulation manufacturing facility in Athens,Georgia and $0.2 million of professional fees related to theimplementation and administration of Superior TeleCom’s plan of reorganization.The facility exit costs primarily consisted of future lease payments net ofestimated sublease rentals. Restructuring and other charges for the nine monthsended September 30, 2004 were $1.5 million consisting primarily ofprofessional fees related to implementation of the plan of reorganization andemployee retention and severance payments under plans established by SuperiorTeleCom in connection with its bankruptcy proceedings.

 

**5.****                 Assetacquisitions and dispositions**

 

***Belden AssetAcquisition***

 

On June 1, 2004, Superior Essex Communications acquired certainassets from operating subsidiaries of Belden Inc. (“Belden”) related totheir North American copper outside plant (“OSP”) communications wire and cablebusiness (the “Belden Asset Acquisition”). Under the terms of the assetpurchase agreement, Superior Essex Communications acquired certain inventories,selected machinery and equipment and certain customer contracts related to aportion of Belden’s communications business for total consideration of$83.1 million including a payment of $10 million which was made inMarch 2005. The equipment acquired from Belden is being deployed in thecommunications cable segment. Belden retained its manufacturing facilities andemployees together with all of the associated liabilities, including, amongothers, accounts payable, any employee-related obligations, plant shutdowncosts and environmental obligations.

 

11

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***Nexans AssetAcquisition***

 

On September 7, 2004, Essex Group acquired certain assets fromNexans Magnet Wire USA Inc., a wholly-owned subsidiary of Nexans. Underthe terms of the purchase agreement, Essex Group acquired substantially allinventory associated with Nexans’ U.S. magnet wire operations and assumedcertain U.S. customer contractual arrangements. The Company used the assetsacquired in its magnet wire and distribution business. The total purchase pricefor the acquisition was $11.6 million.

 

***US Seal Disposition***

 

On March 4, 2005, the Company sold accounts receivable andinventory totaling approximately $1.2 million together with relatedtrademarks and service names constituting business conducted by the Companyunder the US Seal trade name for a net total purchase price of$11.6 million. A gain of $10.4 million was recognized on the sale.Total sales with respect to the US Seal product line were approximately$5.2 million in 2004. In connection with the sale, the Company also signeda non-exclusive distribution agreement to act as a distributor for certain ofthe US Seal products for a period of five years. The Company believes theexpected revenues under the distribution agreement represent a significant continuationof the direct cash flows of the disposed US Seal product line and accordingly,the disposition is not reported as a discontinued operation in accordance withSFAS No. 144, *Accounting for theImpairment and Disposal of Long-Lived Assets* and EITF IssueNo. 03-13. The US Seal product line is included in the magnet wireand distribution segment.

 

**6.****                 Debt**

 

At September 30, 2005 and December 31, 2004, short-termborrowings and long-term debt consist of the following:

 
| ** **                                                                                                                   | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                   | ** ** | **(in thousands)**           | ** ** |
| Short-term borrowings:                                                                                                       |       |                         |       |                        |       |
| Senior secured revolving credit facility                                                                                     |       | $                            | —     |                        | $          | 30,000 |   |
| Other                                                                                                                        |       | —                       |       | 785                         |       |
|                                                                                                                         |       | $                            | —     |                        | $          | 30,785 |   |
| Long-term debt:                                                                                                              |       |                         |       |                        |       |
| 9% senior notes (net of discount of $6,161  and $6,656 at September 30, 2005 and December 31, 2004,  respectively) |       | $                            | 250,939    |                        | $          | 250,444 |   |
| Series A redeemable preferred stock                                                                                     |       | 5,000                        |       | 5,000                       |       |
| Other                                                                                                                        |       | 7,000                        |       | 7,000                       |       |
| Total long-term debt                                                                                                         |       | $                            | 262,939    |                        | $          | 262,444 |   |

 

On July 15, 2005, the senior secured revolving credit facility wasamended. The amendment, among other things, increased the amount of permittedconsigned inventory from $30 million to $50 million and expanded thelocations at which consigned inventory may be included in the determination ofthe borrowing base for revolving loans to Canada (other than in the Province ofQuebec, Canada) in addition to the United States. The amendment exempts up to$25 million of the total $50 million of permitted consigned inventoryfrom the requirement for filing a financing statement under the PersonalProperty Security Act (as in effect in any Province of Canada other than theProvince of Quebec) or the UCC. The amendment also recognizes the creation ofvarious entities to facilitate Essex Group’s investment in a China magnet wirefacility and related operations in an amount up to $30 million as a ForeignVenture Investment (as defined in the credit agreement). The senior securedrevolving credit facility was further amended in October 2005 to permit thetransactions contemplated in connection with the acquisition of Nexans’European magnet wire and enamel businesses and authorize the investment of upto $30.0 million in the joint venture (see note 13). Undrawn availability(after considering outstanding letters of credit of $2.1 million) atSeptember 30, 2005 amounted to $172.9 million.

 

The indenture governing the 9% senior notes was amended on September12, 2005 to allow for the transactions contemplated in connection with theNexans acquisition (see note 13). The Company paid $1.6 million to thenoteholders on October 24, 2005 in connection with the amendment.

 

Under the terms of the senior secured revolving credit facility,Superior Essex Communications and Essex Group Inc. may not declare or makeany distributions to the Company except for the payment of certain corporateexpenses, income taxes and certain other specified costs. The indenturegoverning the 9% senior notes contains covenants which restrict the ability ofthe Company and certain of its subsidiaries to, among other things: incuradditional debt and issue preferred stock; make certain distributions, 

 

12

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investments and otherrestricted payments; create certain liens; enter into transactions withaffiliates; and merge, consolidate or sell substantially all of the Company’sassets.

 

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

 

The computation of basic and diluted net income per share for the threeand nine months ended September 30, 2005 and 2004 is as follows:

 
| ** **                          | ** ** | **Three Months Ended September 30,**    | ** ** |
|-------------------------------------|------------|----------------------------------------------|------------|
| ** **                          | ** ** | **2005**                                     | ** ** | **2004** | ** ** |
| ** **                          | ** ** | **Net  Income**                              | ** ** | **Shares** | ** ** | **Per Share  Amount** | ** ** | **Net  Income** | ** ** | **Shares** | ** ** | **Per Share  Amount** | ** ** |
| ** **                          | ** ** | **(in thousands, except per share amounts)** | ** ** |
| Basic net income per common share   |       | $                                            | 11,862     |   | 16,673 |   | $ | 0.71 |   | $ | 3,543 |   | 16,532 |   | $ | 0.21 |   |
| Effect of dilutive securities       |       |                                         |       |   |   |   |   |   |   |   |   |   |   |
| Restricted stock awards             |       | —                                       |       | 152 |   |   |   | — |   | 78 |   |   |   |
| Stock options                       |       | —                                       |       | 206 |   |   |   | — |   | 35 |   |   |   |
| Diluted net income per common share |       | $                                            | 11,862     |   | 17,031 |   | $ | 0.70 |   | $ | 3,543 |   | 16,645 |   | $ | 0.21 |   |

 

A total of 868,421 and 1,254,519 anti-dilutive weighted average shareswith respect to outstanding stock options, restricted stock awards and SuperiorEssex’s warrant have been excluded from the computation of diluted income pershare for the three months ended September 30, 2005 and 2004,respectively.

 
| ** **                          | ** ** | **Nine Months Ended September 30,**     | ** ** |
|-------------------------------------|------------|----------------------------------------------|------------|
| ** **                          | ** ** | **2005**                                     | ** ** | **2004** | ** ** |
| ** **                          | ** ** | **Net  Income**                              | ** ** | **Shares** | ** ** | **Per Share  Amount** | ** ** | **Net  Income** | ** ** | **Shares** | ** ** | **Per Share  Amount** | ** ** |
| ** **                          | ** ** | **(in thousands, except per share amounts)** | ** ** |
| Basic net income per common share   |       | $                                            | 28,877     |   | 16,634 |   | $ | 1.74 |   | $ | 6,939 |   | 16,516 |   | $ | 0.42 |   |
| Effect of dilutive securities       |       |                                         |       |   |   |   |   |   |   |   |   |   |   |
| Restricted stock awards             |       | —                                       |       | 141 |   |   |   | — |   | 81 |   |   |   |
| Stock options                       |       | —                                       |       | 179 |   |   |   | — |   | 23 |   |   |   |
| Diluted net income per common share |       | $                                            | 28,877     |   | 16,954 |   | $ | 1.70 |   | $ | 6,939 |   | 16,620 |   | $ | 0.42 |   |
|                                     |            |                                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

A total of 942,638 and 1,169,605 anti-dilutive weighted average shareswith respect to outstanding stock options, restricted stock awards and SuperiorEssex’s warrant have been excluded from the computation of diluted income pershare for the nine months ended September 30, 2005 and 2004, respectively.

 

13

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**8.****                 Employee benefits**

 

The components of net periodic benefit cost of the Company’s definedbenefit pension plans for the three and nine months ended September 30,2005 and 2004 are presented below.

 
| ** **                                    | ** ** | **Three Months Ended  September 30,** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                    | ** ** | **2005**                                   | ** ** | **2004** | ** ** |
| ** **                                    | ** ** | **(in thousands)**                         | ** ** |
| **Components  of net periodic benefit cost:** |       |                                       |       |   |   |
| Service cost                                  |       | $                                          | 694        |   | $ | 310 |   |
| Interest cost                                 |       | 1,835                                      |       | 1,577 |   |
| Expected return on plan assets                |       | (1,926                                     | )          | (1,527 | ) |
| Amortization of prior service costs           |       | 22                                         |       | — |   |
|                                          |       | $                                          | 625        |   | $ | 360 |   |
|                                          |       |                                       |       |   |   |
| ** **                                    | ** ** | **Nine Months Ended  September 30,**  | ** ** |
| ** **                                    | ** ** | **2005**                                   | ** ** | **2004** | ** ** |
| ** **                                    | ** ** | **(in thousands)**                         | ** ** |
| **Components  of net periodic benefit cost:** |       |                                       |       |   |   |
| Service cost                                  |       | $                                          | 1,762      |   | $ | 522 |   |
| Interest cost                                 |       | 5,477                                      |       | 4,713 |   |
| Expected return on plan assets                |       | (5,779                                     | )          | (4,605 | ) |
| Amortization of prior service costs           |       | 60                                         |       | — |   |
|                                          |       | $                                          | 1,520      |   | $ | 630 |   |

 

The Company’s cash contributions to the defined benefit plans amountedto $3.2 and $11.2 million during the nine months ended September 30, 2005and 2004, respectively. The Company expects to make additional cashcontributions of $1.1 million for the remainder of 2005.

 

**9.****                 Derivativefinancial instruments**

 

The Company, to a limited extent, uses or has used forward fixed pricecontracts and derivative financial instruments to manage commodity price,interest rate and foreign currency exchange risks. The Company does not hold orissue financial instruments for investment or trading purposes. The Company isexposed to credit risk in the event of nonperformance by counterparties forinterest rate caps, foreign exchange forward contracts, metal forward pricecontracts and metals futures contracts but the Company does not anticipatenonperformance by any of these counterparties. The amount of such exposure isgenerally limited to any unrealized gains within the underlying contracts.

 

***Commodity price riskmanagement***

 

The costs of copper, the Company’s most significant raw material, andaluminum have historically been subject to considerable volatility. To managethe risk associated with such volatility, the Company enters into futurescontracts to match the metal component of customer product pricing with thecost component of the inventory shipped. These futures contracts have beendesignated as cash flow hedges with unrealized gains and losses recorded inother comprehensive income. Gains and losses are reclassified into earnings, asa component of cost of goods sold, when the hedged sales transactions arereflected in the income statement. Hedge ineffectiveness, which is notsignificant, is immediately recognized in earnings. The Company’s commoditiesfutures purchase contracts are summarized as follows at September 30,2005:

 

14

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| **Type**   | ** ** | **Notional  Amount**          | ** ** | **Maturity  Date** | ** ** | **Weighted  Average  Settlement Rate** | ** ** | **Fair Value  Gain (Loss)** | ** ** |
|------------|------------|-------------------------------|------------|--------------------|------------|----------------------------------------|------------|-----------------------------|------------|
| ** ** | ** ** | **(in thousands of  pounds)** | ** ** | ** **         | ** ** | ** **                             | ** ** | **(in  thousands)**         | ** ** |
|       |       |                          |       |               |       |                                   |       |                        |       |
| Copper     |       | 2,325                         |       | 2005               |       | $                                 | 1.75       |                        | $          | 1,383 |   |
| Copper     |       | 8,025                         |       | 2006               |       | 1.58                                   |       |                        | 1,804      |   |
| Copper     |       | 450                           |       | 2007               |       | 1.42                                   |       | 12                          |       |
|       |       |                          |       |               |       |                                   |       | $                           | 3,199      |   |
|            |            |                               |            |                    |            |                                        |            |                             |            |  |  |

 

***Interest rate riskmanagement***

 

In order to limit the Company’s exposure to rising interest rates withrespect to borrowings under its variable rate senior secured revolving creditfacility, the Company has entered into interest rate cap agreements. Changes inthe fair value of these contracts are reflected in current earnings. Thefollowing interest rate cap agreements were outstanding as ofSeptember 30, 2005:

 
| **Type**          | ** ** | **Notional  Amount** | ** ** | **Interest Rate** | ** **   | **Cap Rate** | ** ** | **Expiration Date** | ** **         | **Fair Value**     | ** ** |
|-------------------|------------|----------------------|------------|-------------------|--------------|--------------|------------|---------------------|--------------------|--------------------|------------|
| ** **        | ** ** | **(in thousands)**   | ** ** | ** **        | ** **   | ** **   | ** ** | ** **          | ** **         | **(in thousands)** | ** ** |
|              |       |                 |       |              |         |         |       |                |               |               |       |
| Interest rate cap |       | $                    | 30,000     |              | 30-day LIBOR |         | 1.75       | %                   | December 2005 |               | $          | 163 |   |
| Interest rate cap |       | 15,000               |       | 30-day LIBOR      |         | 5.0          | %          | April 2007     |               | 20                 |       |
| Interest rate cap |       | 12,500               |       | 30-day LIBOR      |         | 5.0          | %          | May 2006       |               | —             |       |
| Interest rate cap |       | 30,000               |       | 3-month LIBOR     |         | 5.0          | %          | December 2005  |               | —             |       |
|                   |            |                      |            |                   |              |              |            |                     |                    |                    |            |  |  |

 

***Foreign currencyexchange risk management***

 

The Company engages, to a limited extent, in the sale of products whichresult in accounts receivable denominated in foreign currencies. The Companyenters into foreign currency forward exchange contracts to hedge againstfluctuations in the value of these receivables. Changes in the fair value ofthese contracts are reflected in current earnings. At September 30, 2005,the Company had outstanding foreign currency forward exchange contracts toexchange 6.5 million Canadian dollars for $5.5 million in October 2005. Thefair value of the forward exchange contracts was approximately $0.1 million atSeptember 30, 2005.

 

On September 30, 2005, the Company entered a forward purchase contractto purchase 10.0 million euros on October 20, 2005 at an exchange rate of 1.205in connection with the acquisition of Nexans’ magnet wire operations in Europe(see note 13). The fair value of the forward purchase contracts wasinsignificant at September 30, 2005. Changes in the fair value of thiscontract are reported in current earnings.

 

**10.****          Commitments andcontingencies**

 

The Company is subject to lawsuits incidental to its business. In theopinion of management, based on its examination of such matters and discussionswith counsel, the ultimate resolution of all pending or threatened litigation,claims and assessments will not have a material adverse effect upon the Company’sfinancial position, liquidity or results of operations.

 

The Company’s operations are subject to environmental laws andregulations 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.

 

In addition, many of the sites for which Essex International and itssubsidiaries had been named as a PRP are covered by an indemnity from UnitedTechnologies Corporation provided in connection with the February 1988sale of Essex Group by United Technologies to Essex International. Pursuant tothe indemnity, United Technologies agreed to indemnify Essex International against

 

15

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losses incurred under anyenvironmental protection and pollution control laws or resulting from, or inconnection with, damage or pollution to the environment arising from events,operations or activities of Essex Group prior to February 29, 1988, orfrom conditions or circumstances existing at or prior to February 29,1988. To be covered by the indemnity, the condition, event or circumstance musthave been known to United Technologies prior to the date of sale(February 29, 1988), and United Technologies must have received notice ofthe indemnity claim prior to February 28, 1993. The sites covered by thisindemnity historically have been handled directly by United Technologies andrequired payments generally have been made directly by United Technologies.Most of these sites are mature sites where allocations of liability have beensettled and remediation is well underway or has been completed.

 

United Technologies also provided an additional environmentalindemnity, referred to as the “basket indemnity.” This indemnity relates toliabilities arising from environmental events, conditions or circumstancesexisting at or prior to February 29, 1988 of which United Technologiesreceived notice prior to February 28, 1993. As to such liabilities, EssexInternational is responsible for the first $4.0 million incurred.Thereafter, United Technologies has agreed to indemnify Essex Internationalfully for any liabilities in excess of $4.0 million. Essex Internationalhas not incurred any liabilities covered by this indemnity.

 

None of the sites or matters mentioned above involves the imposition ofsanctions, fines or administrative penalties on the Company.

 

The Company believes that any other environmental matters orproceedings in which it is involved have been addressed in the bankruptcyclaims resolution process, are subject to indemnification, or will not have amaterial adverse effect either individually, or in the aggregate, upon itsbusiness, financial condition, liquidity or results of operations. There can beno assurance that future developments will not alter this conclusion.

 

On June 3, 2005, the Indiana Department of Environmental Management (“IDEM”)issued a Notice of Violation alleging air quality permitting violations at theCompany’s magnet wire facility in Vincennes, Indiana.  The Company settled the matter in October2005 for an insignicant amount. 

 

Since approximately 1990, Essex International and certain subsidiarieshave been named as defendants in a number of product liability lawsuits broughtby electricians, other skilled tradesmen and others claiming injury, in asubstantial majority of cases, from exposure to asbestos found in electricalwire products produced many years ago. Litigation against various past insurersof Essex International who had previously refused to defend and indemnify EssexInternational against these lawsuits was settled during 1999. Under thesettlement, Essex International was reimbursed for substantially all of itscosts and expenses incurred in the defense of these lawsuits, and the insurershave undertaken to defend, are currently directly defending and, if it shouldbecome necessary, will indemnify Essex International against those asbestoslawsuits, subject to the terms and limits of the respective policies. Under theplan of reorganization, certain of the claimants in these actions will be ableto assert claims under applicable insurance coverage and other similararrangements. The Company believes that Essex International’s liability, ifany, in these matters will not have a material adverse effect eitherindividually, or in the aggregate, upon its business, financial condition,liquidity or results of operations. There can be no assurance, however, thatfuture developments will not alter this conclusion.

 

On January 18, 2002, United Technologies brought a third partyclaim against Essex International in a civil action in Massachusetts. UnitedTechnologies had been sued by an insurer for, among other things, approximately$3.1 million in compensatory damages for retrospective premiums for 1999,2000 and 2001 relating to certain events that allegedly occurred while EssexGroup was a subsidiary of United Technologies. United Technologies’ third partycomplaint against Essex International contended, among other things, that EssexInternational had agreed, in the stock purchase agreement datedJanuary 15, 1998, to pay such premiums and sought a declaratory judgment,contribution and indemnification for any such retrospective premiums thatUnited Technologies might have to pay the insurer. On January 13, 2003,the court granted the insurer’s motion for summary judgment against UnitedTechnologies and Essex International’s motion to dismiss with prejudice UnitedTechnologies’ claim against it. United Technologies thereafter indicated anintention to appeal the ruling dismissing the action against EssexInternational. However, before Essex International’s time to respond, thoseproceedings were stayed by the filing of Superior TeleCom’s bankruptcyproceedings. United Technologies and the insurer filed proofs of claim inconnection with Superior TeleCom’s bankruptcy. The Company believes that theseclaims have been addressed in the bankruptcy claims resolution process and willnot have a material adverse effect either individually, or in the aggregate,upon its business, financial condition, liquidity or results of operations.There can be no assurance that future developments will not alter thisconclusion.

 

The Company accepts certain customer orders for future delivery atfixed prices. As copper is the most significant raw material used in themanufacturing process, the Company enters into forward purchase fixed pricecommitments for copper to properly match its cost to the value of the copper tobe billed to these customers. At September 30, 2005, the Company hadforward fixed price copper purchase commitments for delivery throughSeptember 2006 for $32.9 million and forward fixed price aluminum purchasecommitments for delivery through December 2006 for $1.3 million. Additionallyat September 30, 2005, the Company has forward 

 

16

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purchase fixed pricecommitments for natural gas for delivery in 2005 and 2006 amounting to $1.9million.

 

**11.****          Business segments**

 

The Company’s reportable segments are communications cable, magnet wireand distribution and copper rod. The communications cable segment manufacturescommunications wire and cable products sold to telephone companies, CATVcompanies, distributors and systems integrators, principally in North America.The magnet wire and distribution segment manufactures and supplies magnet wire,fabricated insulation and accessory products for motors, transformers andelectrical controls sold primarily to original equipment manufacturers. Thecopper rod segment includes sales of copper rod produced by the Company’scontinuous casting units to external customers. Copper rod produced forinternal use is recorded by the consuming segment at cost as a component ofcost of goods sold.

 

The Company evaluates segment performance based on a number of factors,with operating income, excluding restructuring and other charges and assetimpairments, being the most critical.

 

Financial information with respect to reportable segments is presentedbelow. Corporate and other items shown below are provided to reconcile to theaccompanying consolidated statements of operations.

 
| ** **                                             | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|--------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                             | ** ** | **2005**                                   | ** ** | **2004**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                             | ** ** | **(in thousands)**                         | ** ** |
| Net sales:                                             |       |                                       |       |                                      |       |   |   |   |   |
| Communications cable                                   |       | $                                          | 177,636    |                                      | $          | 157,793 |   | $ | 507,212 |   | $ | 379,419 |   |
| Magnet wire and distribution                           |       | 188,672                                    |       | 153,507                                   |       | 556,321 |   | 453,023 |   |
| Copper rod                                             |       | 72,812                                     |       | 70,906                                    |       | 208,821 |   | 208,966 |   |
|                                                   |       | $                                          | 439,120    |                                      | $          | 382,206 |   | $ | 1,272,354 |   | $ | 1,041,408 |   |
| Operating income (loss):                               |       |                                       |       |                                      |       |   |   |   |   |
| Communications cable                                   |       | $                                          | 14,692     |                                      | $          | 9,688 |   | $ | 41,306 |   | $ | 19,629 |   |
| Magnet wire and distribution                           |       | 6,938                                      |       | 7,223                                     |       | 25,843 |   | 23,194 |   |
| Copper rod                                             |       | (109                                       | )          | 34                                        |       | (7 | )  | 853 |   |
| Corporate and other                                    |       | (4,625                                     | )          | (3,922                                    | )          | (14,118 | ) | (10,618 | ) |
| Gain on sale of product line                           |       | —                                     |       | —                                    |       | 10,355 |   | — |   |
| Restructuring and other charges and asset  impairments |       | (89                                        | )          | (47                                       | )          | (3,027 | ) | (1,533 | ) |
|                                                   |       | $                                          | 16,807     |                                      | $          | 12,976 |   | $ | 60,352 |   | $ | 31,525 |   |

 
| ** **                   | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------------------------|------------|------------------------------|------------|------------------------|------------|
| ** **                   | ** ** | **(in thousands)**           | ** ** |
| Total assets:                |       |                         |       |                   |       |
| Communications cable         |       | $                            | 307,689    |                   | $          | 294,109 |   |
| Magnet wire and distribution |       | 301,123                      |       | 290,542                |       |
| Copper rod                   |       | 27,192                       |       | 38,625                 |       |
| Corporate and other          |       | 9,139                        |       | 7,695                  |       |
|                         |       | $                            | 645,143    |                   | $          | 630,971 |   |

 

17

----

 

**12.****          Supplemental guarantorinformation**

 

The 9% senior unsecured notes were issued by Superior EssexCommunications and Essex Group, as joint and several obligors. The notes arejointly and severally guaranteed by the Company and each of its existing andfuture domestic restricted subsidiaries (as defined in the indenture governingthe notes). All of the Company’s current domestic subsidiaries, other than IPLicensing LLP, are restricted subsidiaries. The following consolidatinginformation presents information about the Company (the “Parent”), the issuers,guarantor subsidiaries and non-guarantor subsidiaries. Investments insubsidiaries are presented on the equity method. Intercompany transactions areeliminated in consolidation.

 
| ** **                                     | ** ** | **September 30, 2005** | ** ** |
|------------------------------------------------|------------|-----------------------------|------------|
| ** **                                     | ** ** | **Parent**                  | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                     | ** ** | **(in thousands)**          | ** ** |
| **ASSETS**                                     |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Current assets:                                |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                      |       | $                           | (841       | ) | $ | 4,902 |   | $ | 134 |   | $ | 2,217 |   | $ | — |   | $ | 6,412 |   |
| Accounts receivable, net                       |       | —                      |       | 167,571 |   | 4,844 |   | 5,989 |   | — |   | 178,404 |   |
| Inventories, net                               |       | —                      |       | 149,238 |   | 10,879 |   | 3,414 |   | — |   | 163,531 |   |
| Other current assets                           |       | 3,015                       |       | 13,622 |   | 116 |   | 2,338 |   | — |   | 19,091 |   |
| Total current assets                           |       | 2,174                       |       | 335,333 |   | 15,973 |   | 13,958 |   | — |   | 367,438 |   |
| Property, plant and equipment, net             |       | 427                         |       | 204,733 |   | 17,545 |   | 12,113 |   | — |   | 234,818 |   |
| Intangible and other long-term assets          |       | 12,340                      |       | 39,026 |   | 2 |   | 2 |   | (8,483 | ) | 42,887 |   |
| Investment in subsidiaries                     |       | 213,585                     |       | 37,917 |   | 186,213 |   | — |   | (437,715 | ) | — |   |
| Intercompany accounts                          |       | 2,878                       |       | 13,266 |   | 1,073 |   | — |   | (17,217 | ) | — |   |
| Total assets                                   |       | $                           | 231,404    |   | $ | 630,275 |   | $ | 220,806 |   | $ | 26,073 |   | $ | (463,415 | ) | $ | 645,143 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY** |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Current liabilities:                           |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Short-term borrowings                          |       | —                      |       | — |   | — |   | — |   | $ | — |   | $ | — |   |
| Accounts payable                               |       | 3,588                       |       | 76,162 |   | 1,725 |   | 1,868 |   | — |   | 83,343 |   |
| Accrued expenses                               |       | 11,579                      |       | 35,791 |   | 112 |   | (47 | )  | — |   | 47,435 |   |
| Total current liabilities                      |       | 15,167                      |       | 111,953 |   | 1,837 |   | 1,821 |   | — |   | 130,778 |   |
| Long term-debt, less current portion           |       | —                      |       | 257,939 |   | 5,000 |   | — |   | — |   | 262,939 |   |
| Other long-term liabilities                    |       | 11,329                      |       | 41,899 |   | 385 |   | 1,388 |   | (8,483 | ) | 46,518 |   |
| Intercompany accounts                          |       | —                      |       | — |   | — |   | 17,217 |   | (17,217 | ) | — |   |
| Total liabilities                              |       | 26,496                      |       | 411,791 |   | 7,222 |   | 20,426 |   | (25,700 | ) | 440,235 |   |
| Stockholders’ equity                      |       | 204,908                     |       | 218,484 |   | 213,584 |   | 5,647 |   | (437,715 | ) | 204,908 |   |
|                                           |       | $                           | 231,404    |   | $ | 630,275 |   | $ | 220,806 |   | $ | 26,073 |   | $ | (463,415 | ) | $ | 645,143 |   |

 

18

----

 
| ** **                                     | ** ** | **December 31, 2004** | ** ** |
|------------------------------------------------|------------|----------------------------|------------|
| ** **                                     | ** ** | **Parent**                 | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                     | ** ** | **(in thousands)**         | ** ** |
| **ASSETS**                                     |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Current assets:                                |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                      |       | $                          | 106        |   | $ | 18,097 |   | $ | 43 |   | $ | 66 |   | — |   | $ | 18,312 |   |
| Accounts receivable, net                       |       | —                     |       | 134,433 |   | 2,086 |   | 8,435 |   | — |   | 144,954 |   |
| Inventories, net                               |       | —                     |       | 148,918 |   | 9,054 |   | 2,897 |   | — |   | 160,869 |   |
| Other current assets                           |       | 2,323                      |       | 21,029 |   | 44 |   | 2,452 |   | — |   | 25,848 |   |
| Total current assets                           |       | 2,429                      |       | 322,477 |   | 11,227 |   | 13,850 |   | — |   | 349,983 |   |
| Property, plant and equipment, net             |       | 249                        |       | 206,433 |   | 17,844 |   | 14,693 |   | — |   | 239,219 |   |
| Intangible and other long-term assets          |       | 10,243                     |       | 42,091 |   | 2 |   | — |   | (10,567 | ) | 41,769 |   |
| Investment in subsidiaries                     |       | 185,844                    |       | 36,508 |   | 164,433 |   | — |   | (386,785 | ) | — |   |
| Intercompany accounts                          |       | 2,916                      |       | 13,803 |   | — |   | — |   | (16,719 | ) | — |   |
| Total assets                                   |       | $                          | 201,681    |   | $ | 621,312 |   | $ | 193,506 |   | $ | 28,543 |   | $ | (414,071 | ) | $ | 630,971 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY** |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Current liabilities:                           |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Short-term borrowings                          |       | $                          | —     |   | $ | 30,000 |   | $ | — |   | $ | 785 |   | — |   | $ | 30,785 |   |
| Accounts payable                               |       | 3,860                      |       | 59,416 |   | 2,232 |   | 647 |   | — |   | 66,155 |   |
| Accrued expenses                               |       | 22,698                     |       | 34,164 |   | 158 |   | 486 |   | — |   | 57,506 |   |
| Total current liabilities                      |       | 26,558                     |       | 123,580 |   | 2,390 |   | 1,918 |   | — |   | 154,446 |   |
| Long term-debt, less current portion           |       | —                     |       | 257,444 |   | 5,000 |   | — |   | — |   | 262,444 |   |
| Other long-term liabilities                    |       | 925                        |       | 49,549 |   | — |   | (24 | ) | (10,567 | ) | 39,883 |   |
| Intercompany accounts                          |       | —                     |       | — |   | 272 |   | 16,447 |   | (16,719 | ) | — |   |
| Total liabilities                              |       | 27,483                     |       | 430,573 |   | 7,662 |   | 18,341 |   | (27,286 | ) | 456,773 |   |
| Stockholders’ equity                      |       | 174,198                    |       | 190,739 |   | 185,844 |   | 10,202 |   | (386,785 | ) | 174,198 |   |
|                                           |       | $                          | 201,681    |   | $ | 621,312 |   | $ | 193,506 |   | $ | 28,543 |   | $ | (414,071 | ) | $ | 630,971 |   |

 

 

19

----

 
| ** **                                                                       | ** ** | **Three Months Ended September 30, 2005** | ** ** |
|----------------------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                       | ** ** | **Parent**                                     | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                                                       | ** ** | **(in thousands)**                             | ** ** |
| Net sales                                                                        |       | $                                              | 4,759      |   | $ | 430,013 |   | $ | 43,187 |   | $ | 12,343 |   | $ | (51,182 | ) | $ | 439,120 |   |
| Cost of goods sold                                                               |       | —                                         |       | 395,478 |   | 35,121 |   | 12,067 |   | (46,424 | ) | 396,242 |   |
| Gross profit                                                                     |       | 4,759                                          |       | 34,535 |   | 8,066 |   | 276 |   | (4,758 | ) | 42,878 |   |
| Selling, general and administrative  expenses                                    |       | (4,614                                         | )          | (25,432 | ) | (251 | ) | (443 | ) | 4,758 |   | (25,982 | ) |
| Restructuring and other charges                                                  |       | (74                                            | )          | (15 | ) | — |   | — |   | — |   | (89 | ) |
| Operating income (loss)                                                          |       | 71                                             |       | 9,088 |   | 7,815 |   | (167 | ) | — |   | 16,807 |   |
| Interest expense                                                                 |       | —                                         |       | (6,856 | ) | (119 | ) | (12 | ) | — |   | (6,987 | ) |
| Other income (expense), net                                                      |       | (71                                            | )     | (250 | )  | 18 |   | (54 | )  | — |   | (357 | ) |
| Income (loss) before income taxes and  equity in earnings (loss) of subsidiaries |       | —                                         |       | 1,982 |   | 7,714 |   | (233 | ) | — |   | 9,463 |   |
| Benefit (provision) for income taxes                                             |       | —                                         |       | 5,681 |   | (2,970 | )  | (312 | ) | — |   | 2,399 |   |
| Equity in earnings of subsidiaries                                               |       | 11,862                                         |       | 4,279 |   | 7,118 |   | — |   | (23,259 | ) | — |   |
| Net income (loss)                                                                |       | $                                              | 11,862     |   | $ | 11,942 |   | $ | 11,862 |   | $ | (545 | ) | $ | (23,259 | ) | $ | 11,862 |   |

 
| ** **                                                                       | ** ** | **Three Months Ended September 30, 2004** | ** ** |
|----------------------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                       | ** ** | **Parent**                                     | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                                                       | ** ** | **(in thousands)**                             | ** ** |
| Net sales                                                                        |       | $                                              | 4,289      |   | $ | 372,888 |   | $ | 22,658 |   | $ | 12,873 |   | $ | (30,502 | ) |   | 382,206 |   |
| Cost of goods sold                                                               |       | —                                         |       | 336,170 |   | 22,341 |   | 12,847 |   | (26,213 | ) | 345,145 |   |
| Gross profit                                                                     |       | 4,289                                          |       | 36,718 |   | 317 |   | 26 |   | (4,289 | ) | 37,061 |   |
| Selling, general and administrative  expenses                                    |       | (3,911                                         | )          | (23,842 | ) | (72 | ) | (502 | ) | 4,289 |   | (24,038 | ) |
| Restructuring and other charges                                                  |       | —                                         |       | (47 | ) | — |   | — |   | — |   | (47 | ) |
| Operating income (loss)                                                          |       | 378                                            |       | 12,829 |   | 245 |   | (476 | ) | — |   | 12,976 |   |
| Interest expense                                                                 |       | (394                                           | )     | (6,771 | ) | (118 | ) | (6 | ) | — |   | (7,289 | ) |
| Other income, net                                                                |       | 16                                             |       | 313 |   | 20 |   | 51 |   | — |   | 400 |   |
| Income (loss) before income taxes and  equity in earnings (loss) of subsidiaries |       | —                                         |       | 6,371 |   | 147 |   | (431 | ) | — |   | 6,087 |   |
| Provision for income taxes                                                       |       | —                                         |       | (2,471 | ) | (57 | ) | (16 | )  | — |   | (2,544 | ) |
| Equity in earnings (loss) of subsidiaries                                        |       | 3,543                                          |       | (277 | )  | 3,453 |   | — |   | (6,719 | ) | — |   |
| Net income (loss)                                                                |       | $                                              | 3,543      |   | $ | 3,623 |   | $ | 3,543 |   | $ | (447 | ) | $ | (6,719 | ) | $ | 3,543 |   |

 

20

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| ** **                                                                       | ** ** | **Nine Months Ended September 30, 2005** | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                       | ** ** | **Parent**                                    | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                                                       | ** ** | **(in thousands)**                            | ** ** |
| Net sales                                                                        |       | $                                             | 14,396     |   | $ | 1,257,797 |   | $ | 108,736 |   | $ | 38,212 |   | (146,787 | ) | $ | 1,272,354 |   |
| Cost of goods sold                                                               |       | —                                        |       | 1,137,503 |   | 100,614 |   | 37,460 |   | (132,392 | ) | 1,143,185 |   |
| Gross profit                                                                     |       | 14,396                                        |       | 120,294 |   | 8,122 |   | 752 |   | (14,395 | ) | 129,169 |   |
| Selling, general and administrative  expenses                                    |       | (14,085                                       | )          | (74,158 | ) | (775 | ) | (1,522 | ) | 14,395 |   | (76,145 | ) |
| Restructuring and other charges                                                  |       | (242                                          | )          | (479 | ) | — |   | — |   | — |   | (721 | ) |
| Asset impairment charge                                                          |       | —                                        |       | — |   | — |   | (2,306 | ) | — |   | (2,306 | ) |
| Gain on sale of product line                                                     |       | —                                        |       | 10,355 |   | — |   | — |   | — |   | 10,355 |   |
| Operating income (loss)                                                          |       | 69                                            |       | 56,012 |   | 7,347 |   | (3,076 | ) | — |   | 60,352 |   |
| Interest expense                                                                 |       | —                                        |       | (21,168 | ) | (278 | ) | (23 | ) | — |   | (21,469 | ) |
| Other income (expense), net                                                      |       | (69                                           | )     | (73 | )  | 35 |   | (54 | ) | — |   | (161 | ) |
| Income (loss) before income taxes and  equity in earnings (loss) of subsidiaries |       | —                                        |       | 34,771 |   | 7,104 |   | (3,153 | ) | — |   | 38,722 |   |
| Provision for income taxes                                                       |       | —                                        |       | (6,188 | ) | (2,732 | )  | (925 | ) | — |   | (9,845 | ) |
| Equity in earnings of subsidiaries                                               |       | 28,877                                        |       | 532 |   | 24,505 |   | — |   | (53,914 | ) | — |   |
| Net income (loss)                                                                |       | $                                             | 28,877     |   | $ | 29,115 |   | $ | 28,877 |   | $ | (4,078 | ) | $ | (53,914 | ) | $ | 28,877 |   |
|                                                                                  |            |                                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                                       | ** ** | **Nine Months Ended September 30, 2004** | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                       | ** ** | **Parent**                                    | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                                                       | ** ** | **(in thousands)**                            | ** ** |
| Net sales                                                                        |       | $                                             | 12,877     |   | $ | 1,013,003 |   | $ | 66,552 |   | $ | 40,302 |   | $ | (91,326 | ) | $ | 1,041,408 |   |
| Cost of goods sold                                                               |       | —                                        |       | 914,460 |   | 65,581 |   | 39,538 |   | (78,449 | ) | 941,130 |   |
| Gross profit                                                                     |       | 12,877                                        |       | 98,543 |   | 971 |   | 764 |   | (12,877 | ) | 100,278 |   |
| Selling, general and administrative  expenses                                    |       | (10,586                                       | )          | (67,771 | ) | (254 | ) | (1,486 | ) | 12,877 |   | (67,220 | ) |
| Restructuring and other charges                                                  |       | (1,057                                        | )          | (476 | ) | — |   | — |   | — |   | (1,533 | ) |
| Operating income (loss)                                                          |       | 1,234                                         |       | 30,296 |   | 717 |   | (722 | ) | — |   | 31,525 |   |
| Interest expense                                                                 |       | (847                                          | )          | (18,038 | ) | (357 | ) | (27 | ) | — |   | (19,269 | ) |
| Other income (expense), net                                                      |       | (387                                          | )          | 247 |   | 15 |   | (68 | ) | — |   | (193 | ) |
| Income (loss) before income taxes and  equity in earnings (loss) of subsidiaries |       | —                                        |       | 12,505 |   | 375 |   | (817 | ) | — |   | 12,063 |   |
| Provision for income taxes                                                       |       | —                                        |       | (4,932 | ) | (145 | ) | (47 | ) | — |   | (5,124 | ) |
| Equity in earnings (loss) of subsidiaries                                        |       | 6,939                                         |       | (393 | ) | 6,709 |   | — |   | (13,255 | ) | — |   |
| Net income (loss)                                                                |       | $                                             | 6,939      |   | $ | 7,180 |   | $ | 6,939 |   | $ | (864 | ) | $ | (13,255 | ) | $ | 6,939 |   |

 

21

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| ** **                                              | ** ** | **Nine Months Ended September 30, 2005** | ** ** |
|---------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                              | ** ** | **Parent**                                    | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                              | ** ** | **(in thousands)**                            | ** ** |
| Cash flows provided by operating activities             |       | $                                             | 843        |   | $ | 29,228 |   | $ | 764 |   | $ | 1,362 |   | $ | — |   | $ | 32,197 |   |
| Cash flows from investing activities:                   |       |                                          |       |   |   |   |   |   |   |   |   |   |   |
| Capital expenditures                                    |       | (248                                          | )          | (11,421 | ) | (916 | ) | (470 | ) | — |   | (13,055 | ) |
| Belden asset acquisition contingent payment             |       | —                                        |       | (10,000 | ) | — |   | — |   | — |   | (10,000 | ) |
| Proceeds from sale of product line                      |       | —                                        |       | 11,563 |   | — |   | — |   | — |   | 11,563 |   |
| Capitalized Nexans’ acquisition costs              |       | (2,438                                        | )          | — |   | — |   | — |   | — |   | (2,438 | ) |
| Other                                                   |       | 22                                            |       | 34 |   | — |   | — |   | — |   | 56 |   |
| Investment in subsidiaries                              |       | —                                        |       | (1,800 | ) | — |   | — |   | 1,800 |   | — |   |
| Dividends received                                      |       | —                                        |       | — |   | 238 |   | — |   | (238 | ) | — |   |
| Cash flows used for investing activities                |       | (2,664                                        | )          | (11,624 | ) | (678 | ) | (470 | ) | 1,562 |   | (13,874 | ) |
| Cash flows from financing activities:                   |       |                                          |       |   |   |   |   |   |   |   |   |   |   |
| Short-term borrowings (repayments), net                 |       | —                                        |       | (30,000 | )  | — |   | (785 | ) | — |   | (30,785 | ) |
| Proceeds from exercise of stock options                 |       | 836                                           |       | — |   | — |   | — |   | — |   | 836 |   |
| Capital contributions                                   |       | —                                        |       | — |   | — |   | 1,800 |   | (1,800 | ) | — |   |
| Dividends paid                                          |       | —                                        |       | (238 | ) | — |   | — |   | 238 |   | — |   |
| Intercompany accounts                                   |       | 38                                            |       | 537 |   | 5 |   | (580 | ) | — |   | — |   |
| Cash flows provided by (used for) financing  activities |       | 874                                           |       | (29,701 | )  | 5 |   | 435 |   | (1,562 | ) | (29,949 | ) |
| Effect of exchange rate changes on cash                 |       | —                                        |       | (1,098 | ) | — |   | 824 |   | — |   | (274 | ) |
| Net increase (decrease) in cash and cash  equivalents   |       | (947                                          | )          | (13,195 | ) | 91 |   | 2,151 |   | — |   | (11,900 | ) |
| Cash and cash equivalents at beginning of  period       |       | 106                                           |       | 18,097 |   | 43 |   | 66 |   | — |   | 18,312 |   |
| Cash and cash equivalents at end of period              |       | $                                             | (841       | ) | $ | 4,902 |   | $ | 134 |   | $ | 2,217 |   | $ | — |   | $ | 6,412 |   |

 

22

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| ** **                                              | ** ** | **Nine Months Ended September 30, 2004** | ** ** |
|---------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                              | ** ** | **Parent**                                    | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                              | ** ** | **(in thousands)**                            | ** ** |
| Cash flows used for operating activities                |       | $                                             | (216       | ) | $ | (16,967 | ) | $ | (3,635 | ) | $ | (1,721 | ) | $ | — |   | $ | (22,539 | ) |
| Cash flows from investing activities:                   |       |                                          |       |   |   |   |   |   |   |   |   |   |   |
| Capital expenditures                                    |       | (140                                          | )          | (8,809 | ) | (495 | )  | (15 | ) | — |   | (9,459 | ) |
| Asset acquisitions                                      |       | —                                        |       | (90,698 | ) | — |   | — |   | — |   | (90,698 | ) |
| Other                                                   |       | 3                                             |       | 2,464 |   | — |   | — |   | (2,341 | ) | 126 |   |
| Cash flows used for investing activities                |       | (137                                          | )     | (97,043 | ) | (495 | )  | (15 | ) | (2,341 | ) | (100,031 | ) |
| Cash flows from financing activities:                   |       |                                          |       |   |   |   |   |   |   |   |   |   |   |
| Short-term borrowings, net                              |       | —                                        |       | 15,626 |   | — |   | 112 |   | — |   | 15,738 |   |
| Debt issuance costs                                     |       | —                                        |       | (4,583 | ) | — |   | — |   | — |   | (4,583 | ) |
| Long-term borrowings                                    |       | —                                        |       | 250,004 |   | — |   | — |   | — |   | 250,004 |   |
| Repayment of long-term borrowings                       |       | —                                        |       | (145,000 | ) | — |   | — |   | — |   | (145,000 | ) |
| Other                                                   |       | —                                        |       | — |   | — |   | (2,341 | ) | 2,341 |   | — |   |
| Intercompany accounts                                   |       | 292                                           |       | (5,154 | ) | 3,939 |   | 923 |   | — |   | — |   |
| Cash flows provided by (used for) financing  activities |       | 292                                           |       | 110,893 |   | 3,939 |   | (1,306 | )  | 2,341 |   | 116,159 |   |
| Effect of exchange rate changes on cash                 |       | —                                        |       | 116 |   | — |   | (235 | ) | — |   | (119 | ) |
| Net decrease in cash and cash equivalents               |       | (61                                           | )     | (3,001 | )  | (191 | ) | (3,277 | ) | — |   | (6,530 | ) |
| Cash and cash equivalents at beginning of  period       |       | —                                        |       | 6,544 |   | 300 |   | 3,762 |   | — |   | 10,606 |   |
| Cash and cash equivalents at end of period              |       | $                                             | (61        | )  | $ | 3,543 |   | $ | 109 |   | $ | 485 |   | $ | — |   | $ | 4,076 |   |

 

**13.****          Subsequent Event**

 

On October 21, 2005, the Company acquired majority control of Nexans’magnet wire operations in Europe through formation of a corporate joint venturecombining the Company’s U.K. magnet wire business and Nexans’ European magnetwire and enamel businesses. The Company owns 60% of the joint venture andNexans has a 40% minority ownership. In accordance with the Contribution andFormation Agreement (the “Agreement”) governing the transaction, the followingtransactions were consummated at or prior to the October 21, 2005 closing:

 

•                     TheCompany and Nexans formed Essex Nexans Europe S.A.S, a French holding company (“EssexNexans Europe”)

 

•                     TheCompany contributed net cash of  €14.8million and the common stock of its U.K. magnet wire subsidiary for equity ofEssex Nexans Europe.

 

•                     EssexNexans Europe entered into a €35.0 million financing arrangement with a 3rdparty financial institution, €20.0 million of which was drawn down at closingto partially fund the purchase of Nexans’ magnet wire and enamel business.

 

•                     EssexNexans Europe purchased Nexans’ European magnet wire and enamel businesses fora net €34.8 million in cash, issuance of an €11.3 million subordinated note in favor of Nexans and a 40% equityinterest in Essex Nexans Europe.

 

The Agreement provides for certain post-closing adjustments based onthe final net book values of the aquired net assets. If the net book value ofNexans’ contribution is more than €64 million but less than €65 million, basedon the final net book values of acquired net assets as of the closing date, theCompany shall pay in cash to Nexans 60% of such excess.  If the net book value of Nexans’ contributionis more than €65 million but less than or equal to €71 million, then EssexNexans Europe shall pay an additional amount to Nexans equal to 100% of suchexcess. If the net book value of Nexans’ contributions is more than €71million, Nexans will also receive a promissory note issued by a subsidiary ofEssex Nexans Europe of up to €2 million payable at the end of one year, 

 

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subject to meeting certainliquidity conditions.  There are similaradjustment provisions with respect to the net book value of the contributionsof the Company. 

 

The Agreement provides for the Company to pay additional contingentcash consideration to Nexans of up to €3.0 million if Essex Nexans Europeachieves certain specified levels of Adjusted EBITDA (as defined in theAgreement) for the year ended December 31, 2006.

 

At any time following the one-year anniversary of the closing of thetransaction, the Company will have the option to purchase Nexans’ 40% interestin Essex Nexans Europe at a price equal to Nexans’ initial allocated equityvalue plus 40% of (i) the cumulative net income (adjusted for certainitems as specified in the shareholders agreement between the Company, Nexansand Essex Nexans Europe) of Essex Nexans Europe, and (ii) any post-closingcapital contributions minus any post-closing distributions. The call price maybe increased by up to €2.0 million if Essex Nexans Europe achieves at least€9.0 million of Adjusted EBITDA for the year ended December 31, 2006.  Furthermore, if the Company exercises thecall option on or after September 30, 2008, the call price may beincreased by up to €10 million provided Essex Nexans Europe achieves certainspecified levels of EBITDA in 2008, 2009 or 2010. The call price is payableonly in cash.

 

Nexans will have the right to require the Company to purchase its 40%interest in Essex Nexans Europe at the call price, but only if Adjusted EBITDAof Essex Nexans Europe exceeds €14.0 million in 2008, 2009 or 2010. 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 the Company’s option, the put price may be paid in cashby the Company or Essex Nexans Europe or by issuance of the Company’s commonstock (or a combination thereof). If the Company elects to pay the put price inCompany common stock, the portion of the put price payable in common stock ofthe Company is subject to certain limitations specified in the shareholdersagreement, including a general limit of 7.5% of the outstanding common stock ofthe Company, with any excess put price payable in cash. Furthermore, theportion of the put price paid in common stock of the Company will be increasedby 5% (or 15% if certain conditions are not met with regard to the registrationof such shares).

 

The subordinated note will bear interest at 8.975% per annum payablequarterly. A total of €3.8 million in principal is due September 30, 2009and the remainder matures September 30, 2010. The maturity of thesubordinated note will be accelerated if the Company exercises its call option.

 

The transaction will be accounted for as a purchase of the Nexansmagnet wire and enamel businesses and a partial sale of the Company's U.K.subsidiary. The Company may recognize a non-cash loss in the fourth quarter of2005 related to the partial sale to the extent that the value of the Company'sU.K. subsidiary is less than the book value of the portion sold. The Companybelieves the acquisition will enhance its ability to serve its global customerbase, provide synergies with respect to its U.K. magnet wire business andincrease its geographic diversification.

 

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

 

**General**

 

Superior Essex Inc., a Delaware holding company, and its operatingsubsidiaries were formed in 2003 to acquire and conduct the business formerlyconducted by Superior TeleCom Inc. and its subsidiaries.

 

We manufacture a portfolio of wire and cable products grouped into thefollowing primary industry segments: (i) our communications cable segment;(ii) our magnet wire and distribution segment; and (iii) our copperrod segment. Our communications cable segment manufactures communications wireand cable products sold to telephone companies, CATV companies, distributorsand systems integrators, principally in North America. Our magnet wire anddistribution segment manufactures and supplies magnet wire, fabricatedinsulation and accessory products for motors, transformers and electricalcontrols sold primarily to original equipment manufacturers, or OEMs. Ourcopper rod segment includes sales of copper rod produced by our continuouscasting units to external customers.

 

Industry segment financial data (including sales and operating incomeby industry segment) for the three and nine month periods endedSeptember 30, 2005 and 2004 is included in Note 11 to theaccompanying condensed consolidated financial statements.

 

**Operating Environment**

 

The principal raw materials we use in the manufacture of our wire andcable products are copper, aluminum, steel, optical fibers, plastics, such aspolyethylene and polyvinyl chloride (“PVC”) and various chemicals and chemicalcompounds used in the production of enamels and varnishes. The availability andcost of raw material and other inputs required for the manufacture of wire andcable products present significant challenges in the current environment.

 

Foreign economies have been consuming anincreasing proportion of worldwide copper production resulting in a reductionof copper stock levels held in COMEX and LME warehouses and sold throughmerchants. These macro-economic factors have been exacerbated by thelabor issues and bankruptcy of Asarco, a major U.S. copper producer, during thethird quarter of 2005 as well as disruptions in supply at one other North Ameriancopper producer. The resulting disruption in copper supply in the U.S. hascontributed to extremely high and volatile prices and shortages of supply ofcopper.  Although we have not experienced any shortages duringrecent years or the quarter that have had a significant impact on ouroperations, no assurance can be given that we will be able to procure adequatesupplies of copper and copper rod to meet our future production needs.Furthermore, supply shortages or disruptions may cause us to procure our copperrod from less cost effective sources and may have a negative impact on ourmargins.

 

The natural disasters that have hit the Gulf Coast region of the UnitedStates are having a significant effect on natural gas supply and on rawmaterial producers located in the region or those which rely on oil and gas orraw materials produced in the region. Most polyethylene and PVC suppliers have declared force majeure andinstituted significant surcharges for energy and other costs  In addition, the increased cost of oil andnatural gas has resulted in increased production and freight costs andshortages in the availability of shipping resources.

 

During the third quarter of 2005 and to date, we have not experiencedsupply shortages for raw materials which have significantly impacted ourservice levels, and we do not currently anticipate any significant impact onour service levels. However, as suppliers continue to struggle with theaftermath of the Gulf Coast storms and other factors discussed above, no assurancecan be given that we will be able to procure adequate supplies of rawmaterials, including alternative supplies, to meet our future needs.Furthermore, significantly higher prices for natural gas, raw materials andfreight may have a negative impact on our margins.

 

**Asset Acquisitions**

 

***Belden AssetAcquisition***

 

On June 1, 2004, Superior Essex Communications acquired certainassets from operating subsidiaries of Belden Inc. (“Belden”) related totheir North American copper OSP communications wire and cable business (the “BeldenAsset Acquisition”). Under the terms of the asset purchase agreement, SuperiorEssex Communications acquired certain inventories, selected machinery andequipment and certain customer contracts related to a portion of Belden’s communicationscable business for total consideration of $83.1 million including acontingent payment of $10 million made in March 2005. The equipmentacquired from Belden is being 

 

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deployed in the communicationscable segment. Belden retained its manufacturing facilities and employeestogether with all of the associated liabilities, including, among others,accounts payable, any employee-related obligations, plant shutdown costs andenvironmental obligations.

 

***Nexans AssetAcquisition***

 

On September 7, 2004, Essex Group acquired certain assets fromNexans Magnet Wire USA Inc., a wholly-owned subsidiary of Nexans. Underthe terms of the purchase agreement, Essex Group acquired substantially allinventory associated with Nexans’ U.S. magnet wire operations and assumedcertain U.S. customer contractual arrangements. The Company used the assetsacquired in its magnet wire and distribution business. The total purchase pricefor the acquisition was $11.6 million.

 

**Impact of Copper Price Fluctuations onOperating Results**

 

Copper is the principal raw material used in our wire and cable productmanufacturing. Fluctuations in the price of copper affect per unit productpricing and related revenues. Historically the cost of copper has not had amaterial impact on profitability, as, in most cases, we have the ability toadjust prices billed for our products to properly match the copper costcomponent of inventory shipped. In our communications cable segment theseadjustments include, among others, certain contractual arrangements under whichproduct prices are adjusted quarterly based on an average of previous periods’copper indices. Beginning in the fourth quarter of 2003 and continuing through2005, copper prices have escalated rapidly. The average daily COMEX price perpound for copper was $1.70 and $1.29 per pound for the three months endedSeptember 30, 2005 and 2004, respectively, and $1.57 and $1.25 per pound,respectively for the nine months ended September 30, 2005 and 2004. Rapidincreases in copper prices can impact profitability in the short term basedupon the timing of product price adjustments to match the increased coppercosts. Increases in copper prices can also impact our working capital. See “Liquidityand Capital Resources” below. The significant increase in copper prices in 2005may negatively impact customer demand for the remainder of 2005 as certaincustomers more quickly reach their annual capital expenditure budgets.

 

**Results ofOperations—Three Month Period Ended September 30, 2005 Compared to theThree Month Period Ended September 30, 2004**

 

Average copper prices for the three months ended September 30,2005 increased 32% as compared to the three months ended September 30,2004. Due to the impact of this increase on reported sales, the following tableprovides supplemental sales information adjusted to a constant $1.00/lb COMEXcost of copper to aid in a comparison of period-to-period revenues by segment.

 
| ** **                         | ** ** | **Actual**                                 | ** ** | **Copper-adjusted** | ** ** |
|------------------------------------|------------|--------------------------------------------|------------|---------------------|------------|
| ** **                         | ** ** | **Three Months Ended  September 30,** | ** ** | **%**               | ** ** | **Three Months Ended  September 30,** | ** ** | **%** | ** ** |
| ** **                         | ** ** | **2005**                                   | ** ** | **2004**            | ** ** | **Change** | ** ** | **2005** | ** ** | **2004** | ** ** | **Change** | ** ** |
| Net sales:                         |       |                                       |       |                |       |   |   |   |   |   |   |   |   |
| Communications cable               |       | $                                          | 177,636    |                | $          | 157,793 |   | 13 | % | $ | 155,551 |   | $ | 148,505 |   | 5 | % |
| Magnet wire and distribution       |       | 188,672                                    |       | 153,507             |       | 23 | % | 154,651 |   | 142,678 |   | 8 | % |
| Copper rod                         |       | 72,812                                     |       | 70,906              |       | 3 | % | 44,492 |   | 56,116 |   | (21 | )% |
|                               |       | 439,120                                    |       | 382,206             |       | 15 | % | 354,694 |   | 347,299 |   | 2 | % |
| Constant cost of copper adjustment |       | —                                     |       | —              |       | — |   | 84,426 |   | 34,907 |   | — |   |
| Total                              |       | $                                          | 439,120    |                | $          | 382,206 |   | 15 | % | $ | 439,120 |   | $ | 382,206 |   | 15 | % |

 

Consolidated sales for the three months ended September 30, 2005were $439.1 million, an increase of 15% as compared to consolidated salesof $382.2 million for the quarter ended September 30, 2004. Sales forthe 2005 quarter were significantly impacted by the increase in copper prices.Sales adjusted for a constant cost of copper increased 2% for the quarter endedSeptember 30, 2005 compared to the prior year period reflectingincremental sales attributable to organic growth in both the communicationscable and magnet wire and distribution segments offset by decreased salesvolumes in the copper rod segment.

 

Sales for our communications cable segment for the September 30,2005 quarter were $177.6 million, an increase of 13%, as compared to sales of$157.8 million for the quarter ended September 30, 2004. Sales adjustedfor a constant cost of copper increased 5%. The copper-adjusted increaseprimarily reflects an approximately 25% growth in sales of fiber optic andpremises wire and cable products. We believe the increase in demand for ourcopper and fiber optic premise products is supported by growing investment ininformation technology, including new and upgraded computer systems andassociated wiring and an increase in our market share. Additionally, theoverall demand for OSP fiber products has increased as a result of increaseddeployment by certain regional bell operating companies (“RBOCs”) of fiberoptic cable further downstream in their networks.

 

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Sales for our magnet wire and distribution segment were$188.7 million for the quarter ended September 30 2005, an increaseof 23% as compared to the prior year. On a copper-adjusted basis, sales for thequarter increased 8% from the same quarter in the prior year. Thecopper-adjusted increase includes incremental sales from theSeptember 2004 Nexans asset acquisition. In addition, the 2005 quartersales increase reflects copper-adjusted growth resulting from market sharegains at certain targeted customers. We also implemented price surcharges inthe fourth quarter of 2004 and the end of the first  quarter of 2005 to recover energy, fuel andraw material cost increases. These gains were offset to some extent bydecreased volumes in our U.K. magnet wire subsidiary. We have implementedfurther price surcharges in the fourth quarter of 2005.

 

Copper rod sales for the three months ended September 30, 2005were $72.8 million compared to $70.9 million for the comparable 2004period. On a copper-adjusted basis, sales for our copper rod segment decreasedby 21% for the three months ended September 30, 2005 compared to the prior yearperiod. The copper-adjusted decrease in the 2005 quarter reflects reduceddemand from certain automotive related customers as well as increased internaluse by our communications cable segment due to the shutdown of one of itscopper rod suppliers. Copper rod segment sales consist primarily of externalsales of processed copper rod that is not used for internal production andallow for fixed cost recovery at gross profit margins that are generally breakeven. Copper rod volumes fluctuate from period to period due to changes ininternal consumption needs and external market conditions. One of the copperrod segment’s major customers recently filed for bankruptcy and another majorcustomer recently announced its pending acquisition by another copper rodproducer. Both customers have continued to purchase rod under the terms oftheir existing contract. There can be no assurance, however, that thesecustomers will continue to purchase copper rod from us and the loss of eithercustomer could have a negative impact on future external sales of copper rod.

 

For the quarter ended September 30, 2005, gross profit was $42.9 million,an increase of 16% as compared to the prior year quarter primarily attributableto increased volume in our communications cable and magnet wire anddistribution segments and gross profit margin improvements in ourcommunications cable segment. The gross profit margin in the 2005 quarter was9.8% compared to 9.7% for same quarter in 2004. The slight increase in grossprofit margin reflects improved capacity utilization due to increased volumesoffset somewhat by the effects of increased copper prices on sales. Grossprofit margin on a copper-adjusted basis (computed as gross profit divided bycopper-adjusted sales) was 12.1% for the three months ended September 30,2005 compared to 10.7% for the three months ended September 30, 2004. Copper-adjustedgross profit margins in our communications cable business increased for the2005 quarter compared to the prior year quarter due to improved fixed costabsorption as a result of increased sales and related production volumes.Additionally, margins in the 2004 quarter were negatively impacted byintegration costs incurred in connection with the Belden Asset Acquisition aswell as lower margins recognized on sales of inventory purchased from thirdparties. Copper-adjusted gross profit margin for our magnet wire anddistribution business for the three months ended September 30, 2005decreased compared to the prior year quarter as increased throughput and priorprice surcharges did not fully offset the effects of certain non-copper costincreases including higher natural gas prices, freight costs and copperproducer premiums. Margins in the magnet wire and distribution segment werealso negatively impacted by lower sales volumes and pricing experienced by ourU.K. subsidiary.

 

Selling, general and administrative expenses (“SG&A expense”) forthe three month period ended September 30, 2005 were $26.0 million, anincrease of 8% as compared to SG&A expense of $24.0 million for the threemonths ended September 30, 2004. The increase is attributable to theimpact of increased sales volume and related sales costs and commissions in ourcommunications cable segment, new information systems implementation costsincurred by our magnet wire and distribution segment and bad debts associatedwith the bankruptcy filing by a customer of our magnet wire and distributionand copper rod segments.

 

We had operating income of $16.8 million for the quarter endedSeptember 30, 2005, compared to $13.0 million for the same period in 2004.The comparative improvement in operating income for the current year wasprincipally attributable to increased sales volumes and related gross profit aswell as improvements in gross profit margin in our communications cablesegment.

 

Interest expense for the quarter ended September 30, 2005 was $7.0million compared to interest expense of $7.3 million for the quarter endedSeptember 30, 2004. The decrease in interest expense in 2005 primarilyreflects a decrease in borrowings outstanding under our senior securedrevolving credit facility offset by increases in the base borrowing rate. 

 

We recorded a net tax benefit of $2.4 million for the three monthsended September 30, 2005. The tax benefit for the quarter includes a $4.1million non-cash net benefit attributable to a settlement with state taxingauthorities with respect to certain pre-petition claims primarily resultingfrom state income tax audits of Superior TeleCom and a $0.4 million benefit dueto settlement of certain bankruptcy claims with the IRS. In addition, during the thirdquarter of 2005 the Company filed an election with the Internal Revenue Serviceto elect to treat its U.K. subsidiary as a “flow through” entity for U.S.income purposes.  This election iscommonly referred to as a “check-the-box election”. As a result of thiselection, the Company expects to recognize a capital loss on its 2005 U.S.consolidated income tax return. Accordingly, income tax expense for the three months ended September 30,2005 reflects a benefit of 

 

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approximately $2.0 million attributable tothis capital loss. Our effective tax rate for the three months ended September30, 2005 excluding these benefits was 44% compared to aneffective tax rate of 42% for the three months ended September 30, 2004.These effective tax rates exceed the U.S. statutory rate of 35% due to theeffects of state taxes and a valuation allowance established with respect tooperating losses incurred by our U.K. subsidiary.

 

**Results ofOperations—Nine Month Period Ended September 30, 2005 Compared to the NineMonth Period Ended September 30, 2004**

 

Average copper prices for the nine months ended September 30, 2005increased 25% as compared to the nine months ended September 30, 2004. Dueto the impact of this increase on reported sales, the following table providessupplemental sales information adjusted to a constant $1.00/lb COMEX cost ofcopper to aid in a comparison of period-to-period revenues by segment.

 
| ** **                         | ** ** | **Actual**                                | ** ** | **Copper-adjusted** | ** ** |
|------------------------------------|------------|-------------------------------------------|------------|---------------------|------------|
| ** **                         | ** ** | **Nine Months Ended  September 30,** | ** ** | **%**               | ** ** | **Nine Months Ended  September 30,** | ** ** | **%** | ** ** |
| ** **                         | ** ** | **2005**                                  | ** ** | **2004**            | ** ** | **Change** | ** ** | **2005** | ** ** | **2004** | ** ** | **Change** | ** ** |
| Net sales:                         |       |                                      |       |                |       |   |   |   |   |   |   |   |   |
| Communications cable               |       | $                                         | 507,212    |                | $          | 379,419 |   | 34 | % | $ | 451,173 |   | $ | 367,780 |   | 23 | % |
| Magnet wire and distribution       |       | 556,321                                   |       | 453,023             |       | 23 | % | 471,796 |   | 425,306 |   | 11 | % |
| Copper rod                         |       | 208,821                                   |       | 208,966             |       | — | % | 138,378 |   | 169,234 |   | (18 | )% |
|                               |       | 1,272,354                                 |       | 1,041,408           |       | 22 | % | 1,061,347 |   | 962,320 |   | 10 | % |
| Constant cost of copper adjustment |       | —                                    |       | —              |       | — |   | 211,007 |   | 79,088 |   | — |   |
| Total                              |       | $                                         | 1,272,354  |                | $          | 1,041,408 |   | 22 | % | $ | 1,272,354 |   | $ | 1,041,408 |   | 22 | % |

 

Consolidated sales for the nine months ended September 30, 2005were $1,272.4 million, an increase of 22% as compared to consolidated sales of$1,041.4 million for the nine months ended September 30, 2004. Sales forthe 2005 period were significantly impacted by the increase in copper prices.Sales adjusted for a constant cost of copper increased 10% for the nine monthsended September 30, 2005 compared to the prior year period reflectingincremental sales attributable to the 2004 Belden and Nexans asset acquisitionsas well as organic growth in both the communications cable and magnet wire anddistribution segments.

 

Sales for our communications cable segment for the nine months endedSeptember 30, 2005 were $507.2 million, an increase of 34%, as compared tosales of $379.4 million for the nine months ended September 30, 2004.Sales adjusted for a constant cost of copper increased 23%. The copper-adjustedincrease primarily reflects the incremental sales from customer contractsacquired in the June 2004 Belden asset acquisition as well as growth insales of fiber optic and premises wire and cable products.

 

Sales for our magnet wire and distribution segment were $556.3 millionfor the nine months ended September 30, 2005, an increase of 23% ascompared to the prior year. On a copper-adjusted basis, sales for the ninemonths ended September 30, 2005 increased 11% from the same period in theprior year. The copper-adjusted increase includes incremental sales from theSeptember 2004 Nexans asset acquisition. In addition, the 2005 salesincrease reflects copper-adjusted growth resulting from market share gains atcertain targeted customers. These gains were offset to some extent by decreasesin sales volume and pricing in our U.K. magnet wire subsidiary.

 

Copper rod sales for the nine months ended September 30, 2005 were$208.8 million compared to $209.0 million for the comparable 2004 period. On acopper-adjusted basis, sales for our copper rod segment decreased by 18% forthe nine months ended September 30, 2005 compared to the prior yearperiod. The copper-adjusted decrease in the 2005 period reflects reduced demandfrom certain automotive related customers as well as increased internal use byour communications cable segment due to the shutdown of one of its copper rodsuppliers during the third quarter of 2005. Copper rod segment sales consistprimarily of external sales of processed copper rod that is not be used forinternal production and allow for fixed cost recovery at gross profit marginsthat are generally break even.

 

For the nine months ended September 30, 2005, gross profit was$129.2 million, an increase of 29% as compared to the prior year periodprimarily attributable to increased volume in our communications cable andmagnet wire and distribution segments and gross profit margin improvements inour communications cable segment. The gross profit margin for the nine monthsended September 30, 2005 was 10.2% compared to 9.6% for same period in2004. The increase in gross profit margin reflects improved capacityutilization due to increased volumes offset somewhat by the effects ofincreased copper prices on sales. Gross profit margin on a copper-adjustedbasis (computed as gross profit divided by copper-adjusted sales) was 12.2% forthe nine months ended September 30, 2005 compared to 10.4% for the ninemonths ended September 30, 2004. Copper-adjusted gross profit margins inour 

 

 

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communications cable businessincreased for the 2005 period compared to the prior year period due to improvedfixed cost absorption as a result of increased sales and related productionvolumes. Additionally, margins in the second half of 2004 were negativelyimpacted by integration costs incurred in connection with the Belden AssetAcquisition. Copper-adjusted gross profit margin for our magnet wire anddistribution business for the nine months ended September 30, 2005decreased slightly compared to the prior year period as increased throughputand price surcharges did not fully offset the effects of non-copper costincreases including higher natural gas prices, freight costs and copperproducer premiums. Margins in the magnet wire and distribution segment werealso negatively impacted by lower sales volumes and pricing experienced by ourU.K. subsidiary and changes in product mix with proportionately lower salesthrough our higher margin distribution business, including the effects of thesale of the US Seal product line in the first quarter of 2005.

 

SG&A expense for the nine month period ended September 30,2005 was $76.1 million, an increase of 13% as compared to SG&A expense of$67.2 million for the nine months ended September 30, 2004. The increaseis attributable to a number of factors including corporate stock-basedcompensation and supplemental executive retirement plan charges, professionalfees and costs related to compliance with Section 404 of theSarbanes-Oxley Act, amortization charges related to intangible assets acquiredin the Belden and Nexans asset acquisitions and the impact of increased salesvolume and related sales costs and commissions in our communications cablesegment.

 

During the first quarter of 2005 we recorded an impairment charge of$2.3 million related to property, plant and equipment of our U.K.subsidiary. We evaluated the long-lived assets of our U.K. subsidiary forimpairment as of March 31, 2005 after consideration of the continueddeterioration in the European magnet wire market in the first quarter of 2005,the loss of a major customer in 2005 and negotiated reductions in the valueascribed to the U.K. net assets in connection with the Nexans transactiondiscussed below. The impairment test was based on probability weightedestimated cash flows associated with such assets. The fair value of the assetswas based on appraised value determined primarily by comparison to prices forsimilar assets. The U.K. operation is included in the magnet wire anddistribution segment.

 

Restructuring and other charges for the nine months endedSeptember 30, 2005 consisted of $0.5 million of facility exit costsprimarily related to closure of an insulation manufacturing facility in Athens,Georgia and $0.2 million of professional fees related to theimplementation of Superior TeleCom’s plan of reorganization. The facility exitcosts primarily consisted of future lease payments net of estimated subleaserentals. Restructuring and other charges for the nine months endedSeptember 30, 2004 were $1.5 million consisting primarily of professionalfees related to implementation of the plan of reorganization and employeeretention and severance payments under plans established by Superior TeleCom inconnection with its bankruptcy proceedings.

 

In March 2005, we sold accounts receivable and inventory totalingapproximately $1.2 million together with related trademarks and servicenames constituting business conducted by us under the US Seal trade name for atotal purchase price of $11.6 million. A gain of $10.4 million wasrecognized on the sale. Total sales with respect to the US Seal product linewere approximately $5.2 million for the year ended December 31, 2004.In connection with the sale, we also signed a non-exclusive distributionagreement to act as a distributor for certain of the US Seal products for aperiod of five years. We believe the expected revenues under the distributionagreement represent a significant continuation of the direct cash flows of thedisposed US Seal product line. The US Seal product line is included in themagnet wire and distribution segment.

 

We had operating income of $60.4 million for the nine months endedSeptember 30, 2005, compared to $31.5 million for the same period in 2004.The comparative improvement in operating income for the current year wasprincipally attributable to increased sales volumes and related improvements ingross profit and gross profit margin and the gain on the sale of the US Sealproduct line partially offset by an increase in SG & A expense andasset impairment charges.

 

Interest expense for the nine months ended September 30, 2005 was$21.5 million compared to interest expense of $19.3 million for the nine monthsended September 30, 2004. The increase in interest expense in 2005reflects increased borrowings outstanding primarily attributable to our seniornotes issued in April 2004 to finance the Belden Asset Acquisition as wellas increases in the base borrowing rates under our senior secured revolvingcredit facility.

 

Our effective income tax rate for the nine months endedSeptember 30, 2005 was 25% compared to an effective tax rate of 42% forthe nine months ended September 30, 2004. Tax expense for the nine monthsended September 30, 2005 is net of a $4.1 million non-cash net benefitattributable to a settlement with state taxing authorities with respect tocertain pre-petition claims primarily resulting from state income tax audits ofSuperior TeleCom and a $0.4 million benefit due to settlement of certainbankruptcy claims with the IRS. In addition, during the third quarter of 2005 the Companyfiled an election with the Internal Revenue Service to elect to treat its U.K.subsidiary as a “flow through” entity for U.S. income purposes.  This election is commonly referred to as a “check-the-boxelection”. As a result of this election, the Company expects to recognize acapital loss on its 2005 U.S. consolidated income tax 

 

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return. Accordingly, income tax expense for the nine months ended Septemberreflects a benefit of approximately $2.0 million attributable to this capitalloss. These benefits accounted for a reduction of 17% in the effective tax ratefor the nine months ended September 30, 2005. Our effective tax rate for thenine months ended September 30, 2005 excluding these benefits was 42% comparedto an effective tax rate of 42% for the nine months ended September 30,2004. These effective tax rates exceed the U.S. statutory rate of 35% due tothe effects of state taxes and a valuation allowance established with respectto operating losses incurred by our U.K. subsidiary.

 

**Other Matters**

 

On October 21, 2005, we acquired majority control of Nexans’ magnetwire operations in Europe through formation of a corporate joint venturecombining our U.K. magnet wire business and Nexans’ European magnet wire andenamel businesses. We own 60% of the joint venture and Nexans has a 40%minority ownership. We believe the acquisition will enhance our ability toserve our global customer base, provide synergies with respect to our U.K.magnet wire business and increase our geographic diversification. Additionalinformation regarding the transaction is included in note 13 to theaccompanying condensed consolidated financial statements.

 

**Liquidity and Capital Resources**

 

***Cash from OperatingActivities***

 

We reported cash provided by operating activities of $32.2 million forthe nine months ended September 30, 2005 compared to cash used byoperating activities of $22.5 million for the nine months endedSeptember 30, 2004. Cash used by operations for the 2004 quarter includesapproximately $12.3 million we paid during 2004 of previously accruedreorganization costs consisting primarily of professional fees related toimplementation of the plan of reorganization and employee retention andseverance payments under plans established by Superior TeleCom in connectionwith its bankruptcy. The improvement in cash provided by operating activitiesresults primarily from improved net income. Cash from operating activities for the nine months endedSeptember 30, 2005 and 2004 includes net increases in operating assets andliablities of $9.5 million and $36.0 million, respectively, which reflectnormal seasonal build in accounts receivable and inventory and the impact ofsubstantially higher copper costs. The seasonal increase in our working capitalresults from increased production, inventory stocking levels and related salesattributable to historically higher customer demand levels inMarch through October. Conversely, our sales volumes are generally lowerin our fourth and early first quarters due primarily to cold weather relatedreduction in demand from our communications cable segment customers and theimpact of year end holiday related plant shutdowns of major OEM customers ofour magnet wire and distribution segment. During the 2005 period, theseseasonal increases were offset somewhat by decreases in accounts receivabledays outstanding, planned inventory reductions in our magnet wire anddistribution segment in the third quarter of 2005 and an expansion of copper-basedaccounts payable. Cash used for 2005 investing activities includes a payment of$10 million with respect to the Belden Asset Acquisition as well as$11.6 million of proceeds received in connection with our sale of the USSeal product line. The improved cash provided by operations in 2005 resulted ina $30.0 million reduction in borrowings under our senior secured revolvingcredit facility. There were no amounts outstanding under this facility atSeptember 30, 2005.

 

***Capital Resources***

 

Our senior notes were initially issued jointly by Superior EssexCommunications and Essex Group in an aggregate principal amount of$145 million due in November 2008, with interest payablesemi-annually in cash at a rate of 9 1⁄2 %. On April 29, 2004 weredeemed the senior notes with the proceeds from a Rule 144A privateplacement offering of $257.1 million of 9% unsecured senior notes (the “9%Notes”), completed on April 14, 2004. Interest on the 9% Notes is payableApril 15 and October 15 of each year beginning on October 15,2004. The 9% Notes were issued at an original issue discount of$7.1 million. The proceeds from the offering were also used to pay feesand expenses of the offering and fund the Belden Asset Acquisition. InOctober 2004, we completed an exchange offering whereby the 9% Notes wereexchanged for an equal amount of registered notes with substantially identicalterms.

 

30

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The 9% Notes were issued by Superior Essex Communications and EssexGroup and are fully and unconditionally guaranteed by us and each of ourexisting and future domestic restricted subsidiaries. We may redeem some or allof the 9% Notes at any time on or after April 15, 2008 at the followingredemption prices (expressed as percentages of the principal amount thereof) ifredeemed during the twelve-month period commencing on April 15 of the yearset forth below:

 
| **Year:**      | ** ** | **Percentage** | ** ** |
|----------------|------------|----------------|------------|
| 2008           |       | 104.50         | %          |
| 2009           |       | 102.25         | %          |
| 2010 and after |       | 100.00         | %          |

 

We may also redeem up to 40% of the aggregate principal amount of the9% Notes at a redemption price of 109% of the principal amount thereof usingthe proceeds of one or more equity offerings completed before April 15,2007. Additionally, upon the occurrence of specific kinds of changes in controlas specified in the indenture governing the 9% Notes, holders of the 9% Noteswill have the right to require us to purchase all or a portion of theoutstanding 9% Notes at a purchase price equal to 101% of the principal amountthereof plus accrued interest.

 

The indenture governing the 9% Notes contains covenants which restrictour ability and the ability of certain of our subsidiaries to, among otherthings: incur additional debt and issue preferred stock; make certaindistributions, investments and other restricted payments; create certain liens;enter into transactions with affiliates; and merge, consolidate or sellsubstantially all of our assets.

 

Holders of the series A preferred stock issued by our subsidiary,Superior Essex Holding, are entitled to receive cumulative cash dividends at arate of 9 1⁄2 % per annum per share, payable semi-annually. Theseries A preferred stock ranks junior to all other classes of preferredstock of Superior Essex Holding. The series A preferred stock ismandatorily redeemable in November 2013 at $1 per share plus accrued andunpaid dividends. The series A preferred stock contains certain othermandatory and optional redemption provisions. Each share of series Apreferred stock shall have one vote with respect to all matters submitted tostockholders for a vote, provided however, that holders of the series Apreferred stock shall not be entitled to vote generally for directors.

 

Superior Essex Communications and Essex Group are borrowers under a$175 million senior secured revolving credit facility with a$25 million sublimit for letters of credit. Superior Essex, Superior EssexHolding and our domestic subsidiaries have fully guaranteed the senior securedrevolving credit facility. Interest accrues on outstanding borrowings at anannual rate equal to, at our option, LIBOR or a base rate, plus, in each case,an applicable margin, determined quarterly based on average borrowingavailability, ranging from 1.75% to 2.75% for LIBOR loans and 0.25% to 1.25%for base rate loans. The applicable margin in effect for the third quarter of2005 was 1.75% for LIBOR loans and 0.25% for base rate loans. Obligations underthe senior secured revolving credit facility are secured by substantially allof our tangible and intangible assets. Availability under the senior securedrevolving credit facility is subject to a borrowing base equal to the lesser of(1) $175 million less outstanding letters of credit and (2) aspecified percentage of eligible accounts receivable and inventory less specifiedreserves. The specified percentages of eligible accounts receivable andeligible inventory are each subject to decrease in the reasonable creditjudgment of the administrative agent. Currently, the applicable percentages are(i) 85% of eligible receivables and (ii) with respect to eligibleinventory the lesser of (a) $70 million or (b) the lesser of(x) 65% of the value of the eligible inventory and (y) 85% multipliedby the net orderly liquidation value percentage then applicable to our inventorymultiplied by the value of the eligible inventory. The specified reserves thatreduce availability are not fixed and may be imposed by the administrativeagent of the revolving credit facility in its reasonable credit judgment.Current reserves include a rent reserve related to property on which collateralis located. On July 15, 2005, the senior secured revolving credit facilitywas amended. The amendment, among other things, increased the amount ofpermitted consigned inventory from $30 million to $50 million andexpanded the locations at which consigned inventory may be included in thedetermination of the borrowing base for revolving loans to Canada (other thanin the Province of Quebec, Canada) in addition to the United States. Theamendment exempts up to $25 million of the total $50 million ofpermitted consigned inventory from the requirement for filing a financingstatement under the Personal Property Security Act (as in effect in anyProvince of Canada other than the Province of Quebec) or the UCC.The seniorsecured revolving credit facility was further amended in October 2005 to permitthe transactions contemplated in connection with the acquisition of Nexans’European magnet wire and enamel businesses and authorize the investment of upto $30.0 million in the joint venture (see note 13 to the consolidatedfinancial statements)

 

Under the senior secured revolving credit facility, if availabilityunder the revolving credit line falls below $15 million for any period oftwo consecutive days, the borrowers will be required to maintain a ratio of 1.1to 1 of (a) the sum of the consolidated EBITDA of the borrowers minusspecified distributions of the borrowers relating to capital expenditures,foreign investments, tax distributions and pension contributions of the borrowersto (b) all principal and cash interest payments on specified debt of theborrowers. The senior secured revolving credit facility also contains covenantsthat limit our and our subsidiaries’ ability to (i) pay 

 

31

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dividends, redeem capital stockor make other restricted payments, (ii) sell or dispose of assets,(iii) incur additional indebtedness or permit liens to exist on ourproperty, (iv) engage in transactions with affiliates and (v) make additionalinvestments or acquisitions. Under the terms of the senior secured revolvingcredit facility, Superior Essex Communications and Essex Group may not declareor make any distributions to Superior Essex except for distributions made forthe payment of certain corporate operating expenses, income taxes and certainother specified costs. We are currently obligated to pay an unused commitmentfee of 0.375% per annum on the unused amount of the maximum committed amountand a fee of 0.125% per annum on the outstanding face amount of outstandingletters of credit. No amounts were outstanding under the senior securedrevolving credit facility as of September 30, 2005. Undrawn availability (afterconsidering outstanding letters of credit of $2.1 million) on such date amountedto $172.9 million. The senior secured revolving credit facility matures inNovember 2007, however in accordance with Emerging Issues Task Force Issue95-22, *Balance Sheet Classification ofBorrowings Outstanding under Revolving Credit Agreements That Include Both aSubjective Acceleration Clause and a Lock-Box Arrangement*,borrowings under our senior secured revolving credit facility have beenclassified as a current liability.

 

***Liquidity***

 

Our principal cash requirements generally include interest payments onour senior secured revolving credit facility and the 9% Notes, dividendpayments on our series A preferred stock, capital expenditures currentlyestimated at approximately $15 million to $20 million annually (notincluding the China and Nexans European joint venture investments discussedbelow) and obligations related to our defined benefit pension plans. Inaddition, the average price of copper, our principal raw material, hasincreased approximately 21% for the nine months ended September 30, 2005compared to the year ended December 31, 2004. Significant increases in theprice of copper and the resultant increase in accounts receivable and, to alesser degree, inventory impacts our working capital funding requirements.

 

In February 2005 we announced plans to construct a wholly-ownedgreenfield manufacturing facility near Shanghai in China. Total investment forthe initial phase of construction is expected to be approximately $20 to$25 million to be expended in 2005 and 2006.

 

As discussed above, with respect to the Nexans European joint venturetransaction, our initial cash investment is expected to be €15 million to €16million based on the actual net assets of the Nexans business acquired at theclosing date. We may also be required to pay additional contingent cashconsideration to Nexans of up to €3.0 million if the joint venture achievescertain specified levels of Adjusted EBITDA (as defined in the definitiveagreement) for the year ended December 31, 2006. The terms of thetransaction also contain put and call options with respect to Nexans’ 40%minority interest in the joint venture as discussed in note 13 to theaccompanying consolidated financial statements. Other than the €3.0 millioncontingent purchase price and the Nexans put right, there are no additionalmandatory capital contributions to the joint venture. Operations of the jointventure are expected to be financed through cash flow from its operations and a€35.0 million financing arrangement with a 3rd party financialinstitution entered into by the joint venture. We, Essex Group, or any of ourother subsidiaries are not guarantors under the financing arrangement or underany other debt agreement of the joint venture.

 

We believe that cash provided by operations, together with borrowing availabilityunder our senior secured revolving credit facility ($172.9 million atSeptember 30, 2005) together with our cash on hand will be sufficient tomeet our obligations and fund our working capital requirements for theforeseeable future.

 

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

 

We, to a limited extent, use or have used forward fixed price contractsand derivative financial instruments to manage commodity price, interest rateand foreign currency exchange risks. We do not hold or issue financialinstruments for investment or trading purposes. We are exposed to credit riskin the event of nonperformance by counterparties for interest rate caps, foreignexchange forward contracts, metal forward price contracts and metals futurescontracts but we do not anticipate nonperformance by any of thesecounterparties. The amount of such exposure is generally limited to anyunrealized gains within the underlying contracts.

 

**Commodity price risk management**

 

The costs of copper, our most significant raw material, and aluminumhave historically been subject to considerable volatility. To manage the riskassociated with such volatility, we enter into futures contracts to match themetal component of customer product pricing with the cost component of theinventory shipped. These futures contracts have been designated as cash flowhedges with unrealized gains and losses recorded in other comprehensive income.Gains and losses are reclassified into earnings, as a component of cost ofgoods sold, when the hedged sales transactions are reflected in the incomestatement. Hedge ineffectiveness, 

 

32

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which is not significant, isimmediately recognized in earnings. Our commodities futures purchase contractsare summarized as follows at September 30, 2005:

 
| **Type**   | ** ** | **Notional  Amount**          | ** ** | **Maturity Date** | ** ** | **Weighted Average  Settlement Rate** | ** ** | **Fair Value  Gain (Loss)** | ** ** |
|------------|------------|-------------------------------|------------|-------------------|------------|---------------------------------------|------------|-----------------------------|------------|
| ** ** | ** ** | **(in thousands of  pounds)** | ** ** | ** **        | ** ** | ** **                            | ** ** | **(in thousands)**          | ** ** |
|       |       |                          |       |              |       |                                  |       |                        |       |
| Copper     |       | 2,325                         |       | 2005              |       | 1.75                                  |       | $                           | 1,383      |   |
| Copper     |       | 8,025                         |       | 2006              |       | 1.58                                  |       |                        | 1,804      |   |
| Copper     |       | 450                           |       | 2007              |       | 1.42                                  |       | 12                          |       |
|       |       |                          |       |              |       |                                  |       | $                           | 3,199      |   |

 

**Interest rate risk management**

 

In order to limit our exposure to rising interest rates with respect toborrowings under its variable rate senior secured revolving credit facility, wehave entered into interest rate cap agreements. Changes in the fair value ofthese contracts are reflected in current earnings. The following interest ratecap agreements were outstanding as of September 30, 2005:

 
| **Type**          | ** ** | **Notional  Amount** | ** ** | **Interest Rate** | ** **   | **Cap Rate** | ** ** | **Expiration Date** | ** **         | **Fair Value**     | ** ** |
|-------------------|------------|----------------------|------------|-------------------|--------------|--------------|------------|---------------------|--------------------|--------------------|------------|
| ** **        | ** ** | **(in thousands)**   | ** ** | ** **        | ** **   | ** **   | ** ** | ** **          | ** **         | **(in thousands)** | ** ** |
|              |       |                 |       |              |         |         |       |                |               |               |       |
| Interest rate cap |       | $                    | 30,000     |              | 30-day LIBOR |         | 1.75       | %                   | December 2005 |               | $          | 163 |   |
| Interest rate cap |       | 15,000               |       | 30-day LIBOR      |         | 5.0          | %          | April 2007     |               | 20                 |       |
| Interest rate cap |       | 12,500               |       | 30-day LIBOR      |         | 5.0          | %          | May 2006       |               | —             |       |
| Interest rate cap |       | 30,000               |       | 3-month LIBOR     |         | 5.0          | %          | December 2005  |               | —             |       |
|                   |            |                      |            |                   |              |              |            |                     |                    |                    |            |  |  |

 

**Foreign currency exchange risk management**

 

We engage, to a limited extent, in the sale of products which result inaccounts receivable denominated in foreign currencies. We enter into foreigncurrency forward exchange contracts to hedge against fluctuations in the valueof these receivables. Changes in the fair value of these contracts arereflected in current earnings. At September 30, 2005, the Company hadoutstanding foreign currency forward exchange contracts to exchange 6.5 millionCanadian dollars for $5.5 million in October 2005. The fair value of theforward exchange contracts was approximately $0.1 million at September 30,2005.

 

On September 30, 2005, the Company entered a forward purchase contractto purchase 10.0 million euros on October 20, 2005 at an exchange rate of 1.205in connection with the acquisition of Nexans’ magnet wire operations in Europe.The fair value of the forward purchase contracts was insignificant atSeptember 30, 2005. Changes in the fair value of this contract arereported in current earnings.

 

**ITEM 4. CONTROLS AND PROCEDURES**

 

*Evaluation of Controls and Procedures*

 

As of the end of the period covered by this Quarterly Report onForm 10-Q, we carried out an evaluation of the effectiveness of thedesign and operation of our disclosure controls and procedures, includinginternal controls over financial reporting, under the supervision and with theparticipation of our management, including our Chief Executive Officer andChief Financial Officer. Based on that evaluation, the Chief Executive Officerand Chief Financial Officer concluded that our disclosure controls andprocedures have been designed and are being operated in a manner that providesreasonable assurance that the information required to be disclosed by us inreports filed under the Securities Exchange Act of 1934, as amended, isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms. Further, the Chief Executive Officer andChief Financial Officer concluded that our disclosure controls and procedureshave been designed to ensure that information required to be disclosed in reportsfiled by us under the Securities Exchange Act of 1934, as amended, isaccumulated and communicated to our management, including the Chief ExecutiveOfficer and Chief Financial Officer, in a manner to allow timely decisionsregarding the required disclosure. A system of controls, no matter how welldesigned and operated, cannot provide absolute assurance that the objectives ofthe system of controls are met, and no evaluation of controls provides absoluteassurance that all control issues and instances of fraud, if any, within acompany have been detected. Notwithstanding the above, our Chief ExecutiveOfficer and Chief Financial Officer have concluded that our

 

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disclosure controls andprocedures are effective at a reasonable assurance level.

 

*Changes in Internal Controls Over FinancialReporting*

 

There have been no changes in our internal control over financialreporting that occurred during the most recent fiscal quarter that havematerially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

 

 

**PART II. OTHER INFORMATION**

 

 

**ITEM 6. 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                 |       | Escrow  Agreement dated April 14, 2004, between Superior Essex Communications  LLC and Essex Group Inc. as the issuers and The Bank of New York Trust  Company, N.A. as escrow agent (incorporated herein by reference to  Exhibit 10.4 to the Q1 2004 Form 10-Q).                                                                                                                                                                                                                                                                                            |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.4                 |       | Registration  Rights Agreement dated April 14, 2004 by and among Superior Essex  Communications LLC, Essex Group, Inc., the Guarantors named therein,  J.P. Morgan Securities Inc., Lehman Brothers Inc., UBS Securities LLC,  Wachovia Capital Markets, LLC and Fleet Securities, Inc. (incorporated  herein by reference to Exhibit 10.5 to the Q1 2004 Form 10-Q).                                                                                                                                                                               |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.5                 |       | 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).                                                                                                                                       |

 

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| 4.6    |   | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.7    |   | Specimen  Common Stock Certificate (incorporated herein by reference to  Exhibit 4.11 to the Superior Essex Form S-3).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.8    |   | 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).                                                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.1   |   | Credit  Agreement, dated November 10, 2003, by and among Superior Essex  Communications LLC, as a borrower, Essex Group, Inc., as a borrower, the  financial institutions party thereto, as lenders, Fleet Capital Corporation,  as collateral and administrative agent for the lenders, General Electric  Capital Corporation, as syndication agent, Fleet Securities, Inc. and  GECC Capital Markets Group, Inc., as co-lead arrangers (incorporated  herein by reference to Exhibit 10(a) to the Superior Essex  Form 10).                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.2   |   | First  Amendment to Credit Agreement, dated February 20, 2004, by and among  Superior Essex Communications LLC, as a borrower, Essex Group Inc., as a  borrower, the financial institutions party thereto, as lenders, Fleet Capital  Corporation, as collateral and administrative agent for the lenders, General  Electric Capital Corporation, as syndication agent, Fleet  Securities, Inc. and GECC Capital Markets Group, Inc., as co-lead  arrangers (incorporated herein by reference to Exhibit 10(b) to the  Annual Report on Form 10-K of Superior Essex Inc. for the year  ended December 31, 2003 (the “2003 Form 10-K”)). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.3   |   | Second  Amendment to Credit Agreement, dated March 18, 2004, by and among  Superior Essex Communications LLC, as a borrower, Essex Group Inc., as a  borrower, the financial institutions party thereto, as lenders, Fleet Capital  Corporation, as collateral and administrative agent for the lenders, General  Electric Capital Corporation, as syndication agent, Fleet  Securities, Inc. and GECC Capital Markets Group, Inc., as co-lead  arrangers (incorporated herein by reference to Exhibit 10(c) to the  2003 Form 10-K).                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.4   |   | Third  Amendment to Credit Agreement, dated April 2, 2004, by and among  Superior Essex Communications LLC, as a borrower, Essex Group Inc., as a  borrower, the financial institutions party thereto, as lenders, Fleet Capital  Corporation, a collateral and administrative agent for the lenders, General  Electric Capital Corporation, as syndication agent for the lenders  (incorporated herein by reference to Exhibit 10.1 to the Q1 2004  Form 10-Q).                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.5   |   | Fourth  Amendment to Credit Agreement, dated April 30, 2004, by and among  Superior Essex Communications LLC, as a borrower, Essex Group Inc., as a  borrower, the financial institutions party thereto, as lenders, Fleet Capital  Corporation, as collateral and administrative agent for the lenders, General  Electric Capital Corporation, as syndication agent for the lenders  (incorporated herein by reference to Exhibit 10.2 to the Q1 2004  Form 10-Q).                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.6   |   | Fifth  Amendment to Credit Agreement, dated June 16, 2004, by and among  Superior Essex Communications LLC, as a borrower, Essex Group Inc., as a  borrower, the financial institutions party thereto, as lenders, Fleet Capital  Corporation, as collateral and administrative agent for the lenders, General  Electric Capital Corporation, as syndication agent for the lenders  (incorporated herein by reference to Exhibit 10.1 to the Quarterly  Report on Form 10-Q of Superior Essex Inc. for the quarter ended  June 30, 2004).                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.7   |   | Sixth  Amendment to Credit Agreement, dated March 11, 2005, by and among  Superior Essex Communications LP, as a borrower, Essex Group Inc., as a  borrower, the financial institutions party thereto, as lenders, Fleet Capital  Corporation, as collateral and administrative agent for the lenders, General  Electric Capital Corporation, as syndication agent for the lenders  (incorporated herein by reference to Exhibit 10.27 to the Annual Report  on Form 10-K of Superior Essex Inc. for the year ended  December 31, 2004).                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.8   |   | Seventh  amendment to Credit Agreement, dated June 27, 2005, by and among  Superior Essex Communications L.P, as a borrower, Essex Group Inc., as a  borrower, the financial institutions party thereto, as lenders, Fleet Capital  Corporation, as collateral and administrative agent for the lenders, and  General Electric Capital Corporation, as syndication agent for the lenders  (incorporated by reference to Exhibit 99.1 to the Current Report on  Form 8-K of Superior Essex dated July 15, 2005).                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.9   |   | Eighth  Amendment to Credit Agreement, dated October 20, 2005, by and among  Superior Essex Communications L.P, as a borrower, Essex Group Inc., as a borrower,  the financial institutions party thereto, as lenders, Fleet Capital  Corporation, as collateral and administrative agent for the lenders, and  General Electric Capital Corporation, as                                                                                                                                                                                                                                                                                                                             |

 

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|   |   | syndication  agent for the lenders (incorporated herein by reference to Exhibit 10.1  to the Current Report on Form 8-K of Superior Essex dated  October 20, 2005).                                                                                                                                                                                                                                                                               |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.10  |   | 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).                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.11  |   | Superior  Essex Inc. 2003 Stock Incentive Plan (incorporated herein by reference to  Exhibit 10(e) to the Superior Essex Form 10).                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.12  |   | Employment  Agreement, dated November 10, 2003, between Superior Essex and Stephen  M. Carter (incorporated herein by reference to Exhibit 10(f) to the  Superior Essex Form 10).                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.13  |   | Employment  Agreement, dated March 15, 2004, between SEI and David S. Aldridge  (incorporated herein by reference to Exhibit 10(i) to the 2003  Form 10- K).                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.14  |   | Employment  Agreement, dated March 15, 2004, between SEI and Justin F.  Deedy, Jr. (incorporated herein by reference to Exhibit 10(j) to  the 2003 Form 10- K).                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.15  |   | Employment  Agreement, dated March 5, 2004, between SEI and H. Patrick Jack  (incorporated herein by reference to Exhibit 10(k) to the 2003  Form 10-K).                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.16  |   | Letter  Agreement, dated February 26, 2004, between Superior Essex Inc. and  Barbara L. Blackford (incorporated herein by reference to Exhibit 10.6  to the Q1 2004 Form 10-Q).                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.17  |   | 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).                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.18  |   | 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).                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.19  |   | 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”)).                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.20  |   | 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).                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.21  |   | 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”)). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.22  |   | 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).                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.23  |   | 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”)).                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.24  |   | 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).                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.25  |   | 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).                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.26  |   | 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).                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.27  |   | 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)                                                                                                                                                                                                                                  |

 

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| 10.28  |   | 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)                                    |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                    |
| 10.29  |   | 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 Supeior Essex dated August 1, 2005)                                                                    |
|   |   |                                                                                                                                                                                                                                                                                    |
| 10.30  |   | 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)                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                    |
| 10.31  |   | 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)                                                                                |
|   |   |                                                                                                                                                                                                                                                                                    |
| 10.32  |   | 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)                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                    |
| 10.33  |   | 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)                   |
|   |   |                                                                                                                                                                                                                                                                                    |
| 10.34  |   | 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)     |
|   |   |                                                                                                                                                                                                                                                                                    |
| 10.35  |   | 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)                                                              |
|   |   |                                                                                                                                                                                                                                                                                    |
| 10.36  |   | 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)                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                    |
| 10.37  |   | 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)                                                                       |
|   |   |                                                                                                                                                                                                                                                                                    |
| 10.38  |   | 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) |
|   |   |                                                                                                                                                                                                                                                                                    |
| 10.39  |   | 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)                                                                               |
|   |   |                                                                                                                                                                                                                                                                                    |
| 10.40  |   | 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)                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                    |
| 10.41  |   | 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)                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                    |
| 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.                                                                                                      |

 

37

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**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 
|                        | Superior Essex Inc. |
|-----------------------------|---------------------|
|                        |                |   |
| Date: November 9, 2005 | By:                 | /s/ DAVID S. ALDRIDGE |
|                        |                | David S. Aldridge |
|                        |                | *Executive Vice President, Chief Financial  Officer  and Treasurer*  |
|                        |                | (duly authorized officer and principal financial  and accounting officer) |

 

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