**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

----

** **

**FORM 10-Q**

 
| **(Mark One)**                                                                                    | ** ** | ** **                                                                                                   |
|---------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------|
| **x**                                                                                             | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
| ** **                                                                                        | ** ** | ** **                                                                                                   |
| **For the Quarterly Period Ended September 30,  2007**                                            |
| ** **                                                                                        | ** ** | ** **                                                                                                   |
| **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**

 

----

 

**SUPERIOR ESSEX INC.**

(Exact name of registrant as specified in its charter)

 

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

 

**770-657-6000**

Registrant’s telephone number, including area code

 

----

 

Indicateby check mark whether the registrant: (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports) and (2) has been subject tosuch filing requirements for the past 90 days. Yes xNo o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act(Check one):

 

Large acceleratedfiler o               Acceleratedfiler x               Non-acceleratedfiler o

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

o Yes xNo

 

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

 

As ofNovember 2, 2007, the registrant had 20,536,415 shares of common stock, $0.01par value, outstanding.

 

 

----

** **

**PART I. FINANCIAL INFORMATION**

 

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

 

•                  Unless the context otherwiserequires, the terms “we,” “us,” “our,” and “registrant,” as well as the term “SuperiorEssex,” refer to Superior Essex Inc. and its subsidiaries on and afterNovember 10, 2003, the effective date of the plan of reorganization ofSuperior TeleCom Inc. and its subsidiaries.

 

•                  “COMEX” refers to Commodity ExchangeInc., a subsidiary of the New York Mercantile Exchange, Inc. that operatesthe principal U.S. copper futures and options trading market.

 

•                  “Essex Group” refers to EssexGroup, Inc., a wholly owned subsidiary of Essex International.

 

•                  “Essex International” refers to EssexInternational Inc., a wholly owned subsidiary of Superior Essex Holding.

 

•                  “Essex Europe” refers to Essex EuropeS.A.S (formerly known as Essex Nexans Europe S.A.S.), and its subsidiaries.

 

•                  “LME” refers to the London MetalExchange, which operates the principal European copper futures and optionstrading market.

 

•                  “Superior Essex Communications”refers to Superior Essex Communications LP.

 

•                  “Superior Essex Holding” refers toSuperior Essex Holding Corp., a wholly owned subsidiary of Superior Essex and the sole limited partner of Superior Essex Communications.

 

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

 

2

----

 

**Forward-Looking Statements**

 

*Certain expectations and projections regarding our futureperformance referenced in this Form 10-Q, in other materials we file withthe SEC or otherwise release to the public, and on our website areforward-looking statements. Senior officers also may make verbal statements toanalysts, investors, regulators, the media and others that are forward-looking.Forward-looking statements involve matters that are not historical facts, suchas statements in “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” and elsewhere regarding our future operations,prospects, product demand, strategies, investments, financial condition(including liquidity and capital resources), economic performance (includinggrowth and earnings), benefits expected as a result of our projected growth,and industry conditions. We have tried, whenever possible, to identify thesestatements using words such as “anticipate,” “assume,” “believe,” “can,” “could,”“estimate,” “expect,” “forecast,” “future,” “goal,” “indicate,” “intend,” “may,”“outlook,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” target,”“will,” “would,” and similar expressions.*

 

*You are cautioned not to place undue reliance on ourforward-looking statements. Our forward-looking statements are not guaranteesof future performance and are based on currently available competitive,financial and economic data, our current expectations and assumptions, and ouroperating plans. While we believe that our expectations for the future arereasonable in view of the currently available information, our expectations aresubject to future events, risks and inherent uncertainties, as well aspotentially inaccurate expectations and assumptions, and there are numerousfactors—many beyond our control—that could cause results to differsignificantly from our expectations. Such events, risks and uncertaintiesinclude, but are not limited to, those set forth under the caption “RiskFactors” in our Annual Report on Form 10-K for the year ended December 31, 2006and in the other documents that we file with the SEC. We note these factors forinvestors as permitted by the Private Securities Litigation Reform Act of 1995.There also may be other factors that we cannot anticipate or that are notdescribed in this Form 10-Q or in our Annual Report on Form 10-K for theyear ended December 31, 2006, generally because we do not perceive them to bematerial, that could cause results to differ significantly from ourexpectations.*

 

*Forward-looking statements are only as of the date they aremade, and we do not undertake any obligation to update these statements toreflect subsequent circumstances or events except as required by federalsecurities laws. You are advised, however, to review any further disclosures wemake on related subjects in our Form 10-Q and Form 8-K reports to theSEC.*

 

3

----

 

**ITEM 1. FINANCIAL STATEMENTS**

 

**SUPERIOR ESSEX INC. ANDSUBSIDIARIES**

 

**CONSOLIDATED BALANCE SHEETS**

 

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

 

**(unaudited)**

 
| ** **                                                                                                                                                                 | ** ** | **September 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                                                                                 | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| Current assets:                                                                                                                                                            |       |                         |       |                        |       |
| Cash and cash  equivalents                                                                                                                                                 |       | $                            | 36,294     |                        | $          | 53,493 |   |
| Accounts  receivable (less allowance for doubtful accounts of $6,661 and $5,652 at  September 30, 2007 and December 31, 2006, respectively)                      |       | 454,042                      |       | 335,620                     |       |
| Inventories, net                                                                                                                                                           |       | 330,125                      |       | 289,334                     |       |
| Other current  assets                                                                                                                                                      |       | 35,295                       |       | 46,878                      |       |
| Total current  assets                                                                                                                                                      |       | 855,756                      |       | 725,325                     |       |
| Property, plant  and equipment, net                                                                                                                                        |       | 311,558                      |       | 258,480                     |       |
| Intangible and  other long-term assets, net                                                                                                                                |       | 44,001                       |       | 43,014                      |       |
| Total assets                                                                                                                                                               |       | $                            | 1,211,315  |                        | $          | 1,026,819 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                             | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| Current  liabilities:                                                                                                                                                      |       |                         |       |                        |       |
| Short-term  borrowings                                                                                                                                                     |       | $                            | 55,334     |                        | $          | 30,176 |   |
| Current portion  of long-term debt                                                                                                                                         |       | 1,317                        |       | 1,192                       |       |
| Accounts payable                                                                                                                                                           |       | 244,653                      |       | 161,106                     |       |
| Accrued expenses                                                                                                                                                           |       | 113,474                      |       | 94,620                      |       |
| Total current  liabilities                                                                                                                                                 |       | 414,778                      |       | 287,094                     |       |
| Long-term debt                                                                                                                                                             |       | 285,397                      |       | 292,675                     |       |
| Other long-term  liabilities                                                                                                                                               |       | 88,411                       |       | 59,396                      |       |
| Total  liabilities                                                                                                                                                         |       | 788,586                      |       | 639,165                     |       |
| Minority  interest in consolidated subsidiaries (note 5)                                                                                                                   |       | 2,556                        |       | 28,666                      |       |
| Commitments and  contingencies (note 11)                                                                                                                                   |       |                         |       |                        |       |
| Stockholders’  equity:                                                                                                                                                |       |                         |       |                        |       |
| Preferred stock,  $.01 par value; 7,000,000 shares authorized, none issued or outstanding                                                                                  |       | —                       |       | —                      |       |
| Common stock,  $.01 par value; 33,000,000 shares authorized; 20,925,109 and 20,691,373  shares issued at September 30, 2007 and December 31, 2006,  respectively |       | 209                          |       | 207                         |       |
| Capital in  excess of par value                                                                                                                                            |       | 283,549                      |       | 271,821                     |       |
| Accumulated  other comprehensive income (loss)                                                                                                                             |       | 8,833                        |       | (961                        | )          |
| Retained  earnings (note 1)                                                                                                                                                |       | 140,368                      |       | 97,306                      |       |
| Treasury stock,  at cost (400,093 shares and 302,843 shares at September 30, 2007 and December  31, 2006, respectively)                                                    |       | (12,786                      | )          | (9,385                      | )          |
| Total  stockholders’ equity                                                                                                                                           |       | 420,173                      |       | 358,988                     |       |
| Total  liabilities and stockholders’ equity                                                                                                                           |       | $                            | 1,211,315  |                        | $          | 1,026,819 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements

 

4

----

 

**SUPERIOR ESSEX INC. ANDSUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF OPERATIONS**

 

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

 

**(unaudited)**

 
| ** **                                        | ** ** | **Three Months Ended  September 30,** | ** ** |
|---------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                        | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| Net sales                                         |       | $                                                    | 781,406    |   | $ | 796,289 |   |
| Cost of goods  sold                               |       | 705,764                                              |       | 723,935 |   |
| Gross profit                                      |       | 75,642                                               |       | 72,354 |   |
| Selling, general  and administrative expenses     |       | (38,875                                              | )          | (37,525 | ) |
| Restructuring  and other charges                  |       | (212                                                 | )          | (117 | ) |
| Asset impairment  charge (note 4)                 |       | —                                               |       | (2,000 | ) |
| Operating income                                  |       | 36,555                                               |       | 32,712 |   |
| Interest expense                                  |       | (8,034                                               | )          | (7,123 | ) |
| Interest income                                   |       | 412                                                  |       | 349 |   |
| Other income,  net                                |       | 410                                                  |       | 170 |   |
| Income before  income taxes and minority interest |       | 29,343                                               |       | 26,108 |   |
| Income tax  expense (note 1)                      |       | (8,993                                               | )          | (10,273 | ) |
| Income before  minority interest                  |       | 20,350                                               |       | 15,835 |   |
| Minority  interest in earnings of subsidiaries    |       | (35                                                  | )          | (1,128 | ) |
| Net income                                        |       | $                                                    | 20,315     |   | $ | 14,707 |   |
|                                              |       |                                                 |       |   |   |
| Net income per  share of common stock:            |       |                                                 |       |   |   |
| Basic                                             |       | $                                                    | 1.00       |   | $ | 0.74 |   |
| Diluted                                           |       | $                                                    | 0.98       |   | $ | 0.72 |   |
| Weighted average  shares outstanding:             |       |                                                 |       |   |   |
| Basic                                             |       | 20,341                                               |       | 19,805 |   |
| Diluted                                           |       | 20,641                                               |       | 20,348 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements

 

5

----

 

**SUPERIOR ESSEX INC. ANDSUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF OPERATIONS**

 

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

 

**(unaudited)**

 
| ** **                                                                | ** ** | **Nine Months Ended  September 30,** | ** ** |
|---------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                | ** ** | **2007**                                            | ** ** | **2006** | ** ** |
| Net sales                                                                 |       | $                                                   | 2,249,474  |   | $ | 2,266,176 |   |
| Cost of goods  sold                                                       |       | 2,038,136                                           |       | 2,048,674 |   |
| Gross profit                                                              |       | 211,338                                             |       | 217,502 |   |
| Selling, general  and administrative expenses                             |       | (112,461                                            | )          | (111,375 | ) |
| Restructuring  and other charges                                          |       | (1,499                                              | )          | (1,095 | ) |
| Asset impairment  charge (note 4)                                         |       | —                                              |       | (2,000 | ) |
| Operating income                                                          |       | 97,378                                              |       | 103,032 |   |
| Interest expense                                                          |       | (23,156                                             | )          | (23,212 | ) |
| Interest income                                                           |       | 2,027                                               |       | 452 |   |
| Gain on sale of  investment (note 5)                                      |       | —                                              |       | 5,788 |   |
| Other income  (expense), net                                              |       | (238                                                | )          | 204 |   |
| Income before  income taxes, minority interest and extraordinary gain     |       | 76,011                                              |       | 86,264 |   |
| Income tax  expense                                                       |       | (27,787                                             | )          | (33,201 | ) |
| Income before  minority interest and extraordinary gain                   |       | 48,224                                              |       | 53,063 |   |
| Minority  interest in earnings of subsidiaries                            |       | (2,392                                              | )          | (3,309 | ) |
| Income before  extraordinary gain                                         |       | 45,832                                              |       | 49,754 |   |
| Extraordinary gain  (net of minority interest of $581 in 2006) - (note 5) |       | 3,539                                               |       | 871 |   |
| Net income                                                                |       | $                                                   | 49,371     |   | $ | 50,625 |   |
| Net income per  share of common stock:                                    |       |                                                |       |   |   |
| Basic:                                                                    |       |                                                |       |   |   |
| Income before  extraordinary gain                                         |       | $                                                   | 2.27       |   | $ | 2.76 |   |
| Extraordinary  gain (note 5)                                              |       | 0.17                                                |       | 0.05 |   |
| Net income                                                                |       | $                                                   | 2.44       |   | $ | 2.81 |   |
| Diluted:                                                                  |       |                                                |       |   |   |
| Income before  extraordinary gain                                         |       | $                                                   | 2.23       |   | $ | 2.68 |   |
| Extraordinary  gain (note 5)                                              |       | 0.17                                                |       | 0.05 |   |
| Net income                                                                |       | $                                                   | 2.40       |   | $ | 2.73 |   |
| Weighted average  shares outstanding:                                     |       |                                                |       |   |   |
| Basic                                                                     |       | 20,249                                              |       | 18,008 |   |
| Diluted                                                                   |       | 20,542                                              |       | 18,524 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements

 

6

----

 

**SUPERIOR ESSEX INC. ANDSUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 

**(in thousands)**

 

**(unaudited)**

 
| ** **                                                                                    | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                                    | ** ** | **2007**                                            | ** ** | **2006** | ** ** |
| Cash flows from  operating activities:                                                        |       |                                                |       |   |   |
| Net income                                                                                    |       | $                                                   | 49,371     |   | $ | 50,625 |   |
| Adjustments to  reconcile net income to net cash provided by (used for) operating activities: |       |                                                |       |   |   |
| Depreciation and  amortization                                                                |       | 23,063                                              |       | 20,836 |   |
| Amortization of  deferred financing costs and discount                                        |       | 1,637                                               |       | 1,634 |   |
| Asset impairment  charge                                                                      |       | —                                              |       | 2,000 |   |
| Gain on sale of  investment (note 5)                                                          |       | —                                              |       | (5,788 | ) |
| Minority interest  in earnings of subsidiaries                                                |       | 2,392                                               |       | 3,309 |   |
| Extraordinary  gain (net of minority interest in 2006)                                        |       | (3,539                                              | )          | (871 | ) |
| Settlement of  derivatives, net                                                               |       | 3,300                                               |       | 2,485 |   |
| Share-based  compensation                                                                     |       | 5,749                                               |       | 5,237 |   |
| Change in assets  and liabilities:                                                            |       |                                                |       |   |   |
| Accounts  receivable, net                                                                     |       | (27,054                                             | )          | (126,965 | ) |
| Inventories, net                                                                              |       | 21,933                                              |       | (45,339 | ) |
| Other current  and non-current assets                                                         |       | 12,487                                              |       | 429 |   |
| Accounts  payable, accrued expenses and other liabilities                                     |       | 2,071                                               |       | 55,374 |   |
| Other, net                                                                                    |       | 720                                                 |       | (369 | ) |
| Cash flows  provided by (used for) operating activities                                       |       | 92,130                                              |       | (37,403 | ) |
| Cash flows from  investing activities:                                                        |       |                                                |       |   |   |
| Capital  expenditures                                                                         |       | (25,391                                             | )          | (26,996 | ) |
| Acquisitions,  net of cash acquired (note 5)                                                  |       | (81,333                                             | )          | (947 | ) |
| Proceeds from  sale of investment (note 5)                                                    |       | —                                              |       | 8,500 |   |
| Other                                                                                         |       | 594                                                 |       | 68 |   |
| Cash flows used  for investing activities                                                     |       | (106,130                                            | )          | (19,375 | ) |
| Cash flows from  financing activities:                                                        |       |                                                |       |   |   |
| Repayments of  senior secured revolving credit facility, net                                  |       | —                                              |       | (13,049 | ) |
| Short-term  borrowings, net                                                                   |       | 9,862                                               |       | 6,665 |   |
| Proceeds from  long-term borrowings                                                           |       | —                                              |       | 7,545 |   |
| Repayments of  long-term debt                                                                 |       | (15,021                                             | )          | (261 | ) |
| Proceeds from  common stock offering                                                          |       | —                                              |       | 80,794 |   |
| Proceeds from  exercise of stock options                                                      |       | 1,697                                               |       | 3,248 |   |
| Excess tax  benefits resulting from exercise of stock options and vesting of stock awards     |       | 2,046                                               |       | 958 |   |
| Cash flows  provided by (used for) financing activities                                       |       | (1,416                                              | )          | 85,900 |   |
| Effect of  exchange rate changes on cash                                                      |       | (1,783                                              | )          | 185 |   |
| Net increase  (decrease) in cash and cash equivalents                                         |       | (17,199                                             | )          | 29,307 |   |
| Cash and cash  equivalents at beginning of period                                             |       | 53,493                                              |       | 8,184 |   |
| Cash and cash  equivalents at end of period                                                   |       | $                                                   | 36,294     |   | $ | 37,491 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements

 

7

----

 

**SUPERIOR ESSEX INC. ANDSUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

**September 30, 2007**

 

**(unaudited)**

 

**1.****                                      General**

 

***Basis of presentation***

 

Theaccompanying balance sheet as of December 31, 2006, which has been derived fromaudited financial statements, and the unaudited consolidated financialstatements as of September 30, 2007 and for the three and nine months endedSeptember 30, 2007 and 2006, have been prepared in accordance with therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, as amended, and, therefore, do not include all disclosures required byaccounting principles generally accepted in the United States for completefinancial statements. However, in the opinion of management, these statementsreflect all adjustments (which consist only of normal recurring adjustments)necessary for a fair statement of the results of operations for the relevantperiods. Results for the nine months ended September 30, 2007 are notnecessarily indicative of the results to be expected for the entire fiscalyear. These financial statements should be read in conjunction with the auditedconsolidated financial statements and notes thereto included in SuperiorEssex Inc.’s Annual Report on Form 10-K for the year endedDecember 31, 2006.

 

TheCompany is a manufacturer and supplier of communications wire and cableproducts to telephone companies, CATV companies, distributors and systemsintegrators, and magnet wire and fabricated insulation materials to majororiginal equipment manufacturers, or OEMs, for use in motors, transformers,generators and electrical controls and, through its distribution operations, tosmaller OEMs and the motor repair industry. The Company also convertscopper cathode to copper rod for internal consumption and for sale to otherwire and cable manufacturers and OEMs. The Company currently operatesmanufacturing facilities in the United States, the United Kingdom, France,Germany, Portugal, Mexico, Canada, Italy and China.

 

***New accounting pronouncements***

 

The Company adopted theprovisions of FASB Interpretation No. 48, *Accountingfor Uncertainty in Income Taxes* (“FIN 48”), on January 1, 2007.FIN 48 prescribes a consistent recognition threshold and measurement attribute,as well as establishes criteria for subsequently recognizing, derecognizing andmeasuring uncertain tax positions for financial statement purposes. As a resultof the implementation of FIN 48, the Company recognized a net increase of $6.6million in the liability for unrecognized tax benefits, which was accounted foras a decrease to the January 1, 2007 balance of retained earnings of $6.3million and a decrease in minority interest in consolidated subsidiaries of$0.3 million. As of the date of adoption and after the impact of recognizingthe increase in liability noted above, the Company’s net liability forunrecognized tax benefits totaled $9.1 million, all of which, if recognized,would affect the annual effective income tax rate.

 

The Company recognizespotential interest and penalties related to unrecognized tax benefits as acomponent of income tax expense. The liability for unrecognized tax benefits of$9.1 million at January 1, 2007 included approximately $2.1 million forpotential interest and penalties associated with uncertain tax positions. Duringthe three and nine months ended September 30, 2007, the Company incurred anincome tax expense charge of $0.3 million and $1.2 million, respectively, foruncertain tax positions and $0.1 million and $0.4 million, respectively, forpotential interest and penalties associated with uncertain tax positions. Tothe extent interest and penalties are not assessed with respect to uncertaintax positions, amounts accrued will be reduced and reflected as a reduction ofthe overall income tax provision.

 

The tax years 2004through 2006 remain open to examination by the major taxing jurisdictions inwhich the Company operates. Certain tax carryforward attributes generated inperiods prior to 2004 may still be subject to adjustment.

 

During the third quarterof 2007, the Company recognized a net tax benefit of $2.4 million related topreviously unrecognized tax benefits primarily as a result of statutes oflimitations closing in certain tax jurisdictions. The Company believes it isreasonably possible that approximately $0.9 million in net unrecognized taxbenefits will be recognized in the next twelve months primarily as a result ofstatutes of limitations closing in certain tax jurisdictions.

 

8

----

 

In September 2006, theFASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”).SFAS No. 157 establishes a common definition for fair value to beapplied to guidance regarding U.S. generally accepted accountingprinciples, requiring use of fair value, establishes a framework for measuringfair value, and expands disclosure about such fair value measurements.SFAS No. 157 is effective for fiscal years beginning afterNovember 15, 2007. The Company is currently assessing the impact, if any,the adoption of SFAS No. 157 will have on its 2008 consolidatedfinancial statements.

 

In February 2007, theFASB issued SFAS No. 159, “The Fair Value Option for Financial Assetsand Financial Liabilities,” (“SFAS No. 159”). SFAS No. 159provides companies with an option to report selected financial assets andliabilities at fair value and to provide additional information that will helpinvestors and other users of financial statements to understand more easily theeffect on earnings of a company’s choice to use fair value. It also requirescompanies to display the fair value of those assets and liabilities for whichthe company has chosen to use fair value on the face of the balance sheet. TheCompany is required to adopt SFAS No. 159 on January 1, 2008 andis currently evaluating the impact, if any, of SFAS No. 159 on itsconsolidated financial statements.

 

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

 

AtSeptember 30, 2007 and December 31, 2006, the components ofinventories were as follows:

 
| ** **      | ** ** | **September 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|-----------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **      | ** ** | **(in thousands)**      | ** ** |
| Raw materials   |       | $                            | 49,180     |                        | $          | 41,786 |   |
| Work in process |       | 93,381                       |       | 75,647                      |       |
| Finished goods  |       | 323,588                      |       | 289,839                     |       |
|            |       | 466,149                      |       | 407,272                     |       |
| LIFO reserve    |       | (136,024                     | )          | (117,938                    | )          |
|            |       | $                            | 330,125    |                        | $          | 289,334 |   |
|                 |            |                              |            |                             |            |  |  |  |  |

 

Inventoriesvalued using the LIFO method amounted to $167.3 million and$125.5 million at September 30, 2007 and December 31, 2006,respectively.

 

**3.****                                      Comprehensiveincome**

 

Thecomponents of comprehensive income for the three and nine months endedSeptember 30, 2007 and 2006 were as follows:

 
| ** **                                                                                                                                                                                | ** ** | **Three Months Ended  September 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                                                                                                                                | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                                                                                                                                                                                | ** ** | **(in thousands)**                              | ** ** |
| Net income                                                                                                                                                                                |       | $                                                    | 20,315     |   | $ | 14,707 |   |
| Foreign currency  translation adjustment, net of income tax of $261 for the three months ended  September 30, 2007                                                                        |       | 6,341                                                |       | 854 |   |
| Reclassification  adjustment for actuarial gains of defined benefit pension plans included in  net income, net of income tax of $2                                                        |       | (3                                                   | )          | — |   |
| Reclassification  adjustment for prior service costs of defined benefit pension plans included  in net income, net of income tax of $7                                                    |       | 12                                                   |       | — |   |
| Unrealized holding  gains on derivatives during the period, net of income tax of $516 and $837  for the three months ended September 30, 2007 and 2006, respectively                 |       | 808                                                  |       | 1,314 |   |
| Reclassification  adjustment for gains on derivatives included in net income, net of income tax  of $619 and $2,611 for the three months ended September 30, 2007 and 2006,  respectively |       | (969                                                 | )          | (4,084 | ) |
| Net unrealized  losses on derivatives                                                                                                                                                     |       | (161                                                 | )          | (2,770 | ) |
| Other                                                                                                                                                                                     |       | —                                               |       | 140 |   |
| Comprehensive  income                                                                                                                                                                     |       | $                                                    | 26,504     |   | $ | 12,931 |   |

 

9

----

 
| ** **                                                                                                                                                                                 | ** ** | **Nine Months Ended  September 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                                                                                                                                 | ** ** | **2007**                                            | ** ** | **2006** | ** ** |
| ** **                                                                                                                                                                                 | ** ** | **(in thousands)**                             | ** ** |
| Net income                                                                                                                                                                                 |       | $                                                   | 49,371     |   | $ | 50,625 |   |
| Foreign currency  translation adjustment, net of income tax of $622 for the nine months ended  September 30, 2007                                                                          |       | 7,758                                               |       | 2,764 |   |
| Reclassification  adjustment for actuarial gains of defined benefit pension plans included in  net income, net of income tax of $6                                                         |       | (9                                                  | )          | — |   |
| Reclassification  adjustment for prior service costs of defined benefit pension plans included  in net income, net of income tax of $21                                                    |       | 36                                                  |       | — |   |
| Unrealized  holding gains on derivatives during the period, net of income tax of $2,967  and $7,194 for the nine months ended September 30, 2007 and 2006,  respectively              |       | 4,636                                               |       | 11,249 |   |
| Reclassification  adjustment for gains on derivatives included in net income, net of income tax  of $1,676 and $6,224 for the nine months ended September 30, 2007 and 2006,  respectively |       | (2,627                                              | )          | (9,734 | ) |
| Net unrealized  gains on derivatives                                                                                                                                                       |       | 2,009                                               |       | 1,515 |   |
| Other                                                                                                                                                                                      |       | —                                              |       | 189 |   |
| Comprehensive  income                                                                                                                                                                      |       | $                                                   | 59,165     |   | $ | 55,093 |   |

 

Thecomponents of accumulated other comprehensive income (loss) atSeptember 30, 2007 and December 31, 2006 were as follows:

 
| ** **                                                                                                                                     | ** ** | **September 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                     | ** ** | **(in thousands)**      | ** ** |
| Foreign currency  translation adjustment, net of tax of $622 at September 30, 2007                                                             |       | $                            | 12,515     |                        | $          | 4,757 |   |
| Actuarial losses  of defined benefit pension plans, net of tax of $3,552 and $3,546 at  September 30, 2007 and December 31, 2006, respectively |       | (4,663                       | )          | (4,654                      | )          |
| Prior service  costs of defined benefit pension plans, net of tax of $265 and $286 at  September 30, 2007 and December 31, 2006, respectively  |       | (466                         | )          | (502                        | )          |
| Unrealized gain  (loss) on derivatives, net of tax of $924 and $367 at September 30, 2007  and December 31, 2006, respectively       |       | 1,447                        |       | (562                        | )          |
|                                                                                                                                           |       | $                            | 8,833      |                        | $          | (961 | ) |

 

**4.****                                      Restructuringand other charges and asset impairments**

 

EssexEurope recorded a restructuring provision of $0.3 million during the ninemonths ended September 30, 2007 related to a workforce reduction at its Vianade Castelo, Portugal manufacturing facility. The majority of the costs relatedto severance payments and related benefits. All amounts are expected to be paidduring 2007. Restructuring and other charges for the nine months endedSeptember 30, 2007 also include the write-off of $0.4 million of deferredbusiness acquisition costs, $0.4 million of facility exit costs related toformer North American magnet wire and distribution segment warehouses and $0.3million of professional fees incurred in connection with the administration ofSuperior TeleCom’s plan of reorganization. During the nine months endedSeptember 30, 2006, Essex Europe recorded a restructuring provision of$0.9 million related to workforce reductions at its U.K. magnet wireoperation. In addition, restructuring and other charges for the nine monthsended September 30, 2006 included $0.3 million of ongoing facility exit costsprimarily related to the closure of an insulation manufacturing facility in ourNorth American magnet wire and distribution segment and $0.3 million ofprofessional fees incurred in connection with the administration of SuperiorTeleCom’s plan of reorganization. These charges were offset by a $0.4 milliongain on the favorable  settlement of an employee related dispute in ourEuropean magnet wire and distribution segment.

 

Duringthe third quarter of 2006 the Company recorded an impairment charge of $2.0million related to an owned warehouse which was closed in the first quarter of2006 and classified as held for sale. The impairment charge was recorded as aresult of ongoing evaluations of current market conditions in the area wherethe property is located. The warehouse was previously operated by the NorthAmerican magnet wire and distribution segment.

 

10

----

 

**5.****                                      Acquisitionsand dispositions**

 

***Invex acquisition***

 

OnJuly 31, 2007, Essex Europe acquired all of the outstanding common stock ofInvex S.p.A. (“Invex”), a leading European magnet wire producer based in Italyfor a cash purchase price of $41.1 million. The Company believes theacquisition will complement its existing European operations and should providenear- and long-term synergy opportunities in the areas of sales andadministration, internal enamel usage, and other logistical, procurement andmanufacturing arrangements. The purchase was financed with cash on hand. Theacquisition was accounted for using the purchase method of accounting and theresults of the acquired operations have been included in the consolidatedresults of operations of the Company from the date of acquisition. The proforma results of operations reflecting the Invex acquisition for the threemonths ended September 30, 2007 and 2006 and the nine months ended September30, 2007 and 2006 have been omitted because the information is not currentlyavailable. Invex is included in the Company’s European magnet wire anddistribution segment. The Company is in the process of finalizing certain assetand liability valuations and therefore the allocation of the purchase price issubject to refinement and adjustment. The preliminary allocation of the Invexpurchase price is summarized as follows (in thousands):

 
| Cash purchase  price                                     |   | $       | 41,108 |   |
|----------------------------------------------------------|--------|---------|--------|--------|
| Acquisition  costs                                       |   | 1,288   |   |
|                                                     |   | $       | 42,396 |   |
| Allocated to:                                            |   |    |   |
| Inventory,  accounts receivable and other current assets |   | 111,387 |   |
| Property, plant  and equipment                           |   | 42,145  |   |
| Current  liabilities                                     |   | (88,216 | )      |
| Long-term debt                                           |   | (7,810  | )      |
| Other long-term  liabilities                             |   | (15,110 | )      |
|                                                     |   | $       | 42,396 |   |

 

***Tianjin acquisition***

 

On July 26, 2007, theCompany acquired Nexans’ 80% ownership interest in a company which ownsand operates a magnet wire facility located in Tianjin, China, for a cashpurchase price of $9.3 million. In addition to complementing its existingmagnet wire manufacturing facility in Suzhou, China, the Company believes thisacquisition provides a significant market presence in the Chinese market forrectangular wires, including continuous transposed cable, or CTC, and relatedproducts used primarily by large transformer manufacturers in high-performancepower generators and transformers. The acquisition was accounted for using thepurchase method of accounting and the results of the acquired operations havebeen included in the consolidated results of operations of the Company from thedate of acquisition. The pro forma results of operations reflecting the Tianjinacquisition are not significant. The Tianjin operations are included in theCompany’s Asia/Pacific magnet wire segment. The Company is in the process offinalizing certain asset and liability valuations and therefore the allocationof the purchase price is subject to refinement and adjustment. The preliminaryallocation of the Tianjin purchase price is summarized as follows (inthousands):

 
| Cash purchase  price                                     |   | $       | 9,320  |   |
|----------------------------------------------------------|--------|---------|--------|--------|
| Acquisition costs                                        |   | 725     |   |
|                                                     |   | $       | 10,045 |   |
| Allocated to:                                            |   |    |   |
| Inventory,  accounts receivable and other current assets |   | 24,531  |   |
| Property, plant  and equipment                           |   | 6,065   |   |
| Other long-term  assets                                  |   | 887     |   |
| Short-term  borrowings                                   |   | (12,534 | )      |
| Current  liabilities                                     |   | (6,390  | )      |
| Minority  interest                                       |   | (2,514  | )      |
|                                                     |   | $       | 10,045 |   |

 

11

----

 

***Essex Europe minority interest acquisition***

 

OnJune 27, 2007, the Company exercised its option to purchase Nexans’ 40%minority interest in Essex Europe for a cash payment of $29.4 million,including acquisition costs of $0.1 million. As a result of the acquisition,the €11.3 million subordinated note payable to Nexans was fully repaid (Seenote 6). The acquisition of the minority interest has been accounted for usingthe purchase method of accounting. The purchase price allocation resulted in anadjustment to the carrying value of recorded assets and liabilities based ontheir relative fair values as of the acquisition date. The preliminaryallocation of the purchase price resulted in unallocated negative goodwill,after elimination of the acquired portion of property, plant and equipment andcertain other long-term assets, of $3.5 million, or $0.17 per diluted share ofcommon stock, which has been reflected as an extraordinary gain in thestatement of operations for the nine months ended September 30, 2007. TheCompany is in the process of finalizing certain asset and liability valuationsand therefore the allocation of the purchase price, including the amount ofunallocated negative goodwill, is subject to refinement and adjustment. Theapplication of the purchase price and the adjustments to the carrying value ofthe assets and liabilities are summarized as follows: 

 
| ** **                             | ** ** | **(in  thousands)** | ** ** |
|----------------------------------------|------------|---------------------|------------|
| Current assets                         |       | $                   | 9,770      |   |
| Property, plant  and equipment         |       | (7,284              | )          |
| Intangible and  other long-term assets |       | 2,347               |       |
| Current  liabilities                   |       | (3,406              | )          |
| Minority  interest                     |       | 31,519              |       |
|                                   |       | 32,946              |       |
| Purchase price                         |       | 29,407              |       |
| Extraordinary  gain                    |       | $                   | 3,539      |   |

 

The following pro forma consolidated results ofoperations have been prepared as if the acquisition of the Essex Europeminority interest had occurred at the beginning of the periods presented. Theextraordinary gain directly attributable to the transaction is included in thepro forma consolidated results of operations for the nine months endedSeptember 30, 2007.

 
| ** **                        | ** ** | **Nine Months Ended September 30,**               | ** ** | **Three Months  Ended  September 30,** | ** ** |
|-----------------------------------|------------|-----------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                        | ** ** | **2007**                                                              | ** ** | **2006**                                         | ** ** | **2006** | ** ** |
| ** **                        | ** ** | **(in thousands, except per share amounts)** | ** ** |
| Net sales                         |       | $                                                                     | 2,249,474  |                                             | $          | 2,266,176 |   | $ | 796,289 |   |
| Income before  extraordinary gain |       | 48,395                                                                |       | 53,572                                           |       | 16,072 |   |
| Net income                        |       | 51,934                                                                |       | 55,024                                           |       | 16,072 |   |
| Net income per  share:            |       |                                                                  |       |                                             |       |   |   |
| Basic                             |       |                                                                  |       |                                             |       |   |   |
| Income before  extraordinary gain |       | 2.39                                                                  |       | 2.97                                             |       | 0.81 |   |
| Net income                        |       | 2.56                                                                  |       | 3.06                                             |       | 0.81 |   |
| Diluted                           |       |                                                                  |       |                                             |       |   |   |
| Income before  extraordinary gain |       | 2.36                                                                  |       | 2.89                                             |       | 0.79 |   |
| Net income                        |       | 2.53                                                                  |       | 2.97                                             |       | 0.79 |   |
|                                   |            |                                                                       |            |                                                  |            |  |  |  |  |  |

 

***Simcoe acquisition***

 

OnApril 27, 2007, the Company acquired certain assets and assumed certainliabilities related to Nexans’ remaining North American magnet wire business inSimcoe, Canada. This acquisition provides the Company with a significant marketpresence in the North American market for rectangular wires, including CTC, andrelated products. The Simcoe acquisition was completed for a cash purchase price,after adjustment, of $12.7 million. The acquisition was accounted for using thepurchase method of accounting and the results of the acquired operations havebeen included in the consolidated results of operations of the Company from thedate of acquisition. The pro forma results of operations reflecting the Simcoeacquisition are not significant. The Simcoe operations are included in theNorth American magnet wire and distribution segment. The Company is in theprocess of finalizing certain asset and liability valuations and therefore theallocation of the purchase price

 

12

----

 

is subject to refinementand adjustment. The preliminary allocation of the Simcoe purchase price issummarized as follows (in thousands):

 
| Cash purchase  price                                       |   | $      | 12,742 |   |
|------------------------------------------------------------|--------|--------|--------|--------|
| Acquisition  costs                                         |   | 863    |   |
|                                                       |   | $      | 13,605 |   |
| Allocated to:                                              |   |   |   |
| Inventory and  other current assets                        |   | 12,063 |   |
| Property, plant  and equipment                             |   | 3,576  |   |
| Other long-term  assets                                    |   | 60     |   |
| Current  liabilities                                       |   | (829   | )      |
| Long-term pension  and post-retirement benefit liabilities |   | (1,265 | )      |
|                                                       |   | $      | 13,605 |   |

 

***SDS acquisition***

 

On January 4, 2006, Essex Europe acquired all ofthe outstanding capital stock of Societe de Distribution et de Services (“SDS”)from Nexans for a cash payment of $1.2 million. SDS is engaged in the businessof distributing magnet wire and related products in France. In connection withthe acquisition, Essex Europe recorded a restructuring reserve of $0.6 millionrelated primarily to workforce reductions and the closure of certain of SDS’sleased warehouse locations. Nexans reduced the purchase price by €0.7 millionfor certain restructuring costs incurred by Essex Europe. The acquisition ofSDS was accounted for as a purchase and the results of operations of SDS havebeen included in the Company’s results of operations from the date ofacquisition. The allocation of the purchase price resulted in unallocatednegative goodwill of $1.5 million which has been reflected as an extraordinarygain (net of minority interest of $0.6 million) in the statement of operationsfor the nine months ended September 30, 2006.

 

***Essex Electric disposition***

 

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

 

**6.****                                      Debt**

 

AtSeptember 30, 2007 and December 31, 2006, short-term borrowings andlong-term debt consist of the following:

 
| ** **                                                                                                                   | ** ** | **September 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                   | ** ** | **(in thousands)**      | ** ** |
| Short-term  borrowings:                                                                                                      |       |                         |       |                        |       |
| Essex Europe  factoring agreement                                                                                            |       | $                            | 32,900     |                        | $          | 27,185 |   |
| Tianjin credit  facility                                                                                                     |       | 13,991                       |       | —                      |       |
| Essex Magnet  Wire (Suzhou) Ltd. credit facilities                                                                           |       | 8,443                        |       | 2,991                       |       |
|                                                                                                                         |       | $                            | 55,334     |                        | $          | 30,176 |   |
| Long-term debt:                                                                                                              |       |                         |       |                        |       |
| 9% senior notes  (net of discount of $4,656 and $5,252 at September 30, 2007 and  December 31, 2006, respectively) |       | $                            | 252,444    |                        | $          | 251,848 |   |
| Series A  redeemable preferred stock of Superior Essex Holding                                                               |       | 5,000                        |       | 5,000                       |       |
| 8.975%  subordinated note of Essex Europe                                                                                    |       | —                       |       | 14,847                      |       |
| Term loan of  Essex Magnet Wire (Suzhou) Ltd.                                                                                |       | 12,784                       |       | 12,270                      |       |
| 3% convertible  bonds of Invex                                                                                               |       | 8,168                        |       | —                      |       |
| Other                                                                                                                        |       | 8,318                        |       | 9,902                       |       |
|                                                                                                                         |       | 286,714                      |       | 293,867                     |       |
| Less current  portion of long-term debt                                                                                      |       | 1,317                        |       | 1,192                       |       |
| Total long-term  debt                                                                                                        |       | $                            | 285,397    |                        | $          | 292,675 |   |

 

13

----

 

SuperiorEssex Communications and Essex Group are borrowers under a $225 million seniorsecured credit facility. Interest on the senior secured credit facility accrueson outstanding borrowings at an annual rate equal to, at the borrowers’ option,LIBOR or a base rate, plus, in each case, an applicable margin, determinedquarterly based on average borrowing availability, ranging from 1.00% to 2.00%for LIBOR loans and  from 0% to 0.75% forbase rate loans. Obligations under the senior secured credit facility aresecured by substantially all domestic assets of the Company and 65% of thevoting stock of certain of the Company’s foreign subsidiaries. Availabilityunder the senior secured credit facility is subject to a borrowing base equalto the lesser of (1) $225 million less outstanding letters of credit and (2) aspecified percentage of eligible accounts receivable and inventory lessspecified reserves. The specified percentages are (i) 85% of the value of theeligible accounts receivable and with respect to inventory the lesser of (a)$110 million or (b) the lesser of (x) 65% of the value of eligible inventoryand (y) 85% multiplied by the net orderly liquidation percentage thenapplicable multiplied by the value of the eligible inventory. Certain of the specifiedreserves that reduce availability are not fixed and may be increased or imposedby the administrative agent for the senior secured credit facility at itsreasonable credit judgment. The borrowers are obligated to pay an unusedcommitment fee of 0.25% per annum on the unused amount of the maximum committedamounts and a fee of 0.125% per annum on the outstanding face amount ofoutstanding letters of credit. No borrowings were outstanding under the seniorsecured credit facility at September 30, 2007 and undrawn availability was$224.2 million.

 

Thesenior secured credit facility contains covenants which may limit SuperiorEssex Communications’ and Essex Group’s and their subsidiaries’ ability to (i)pay dividends, redeem capital stock or make other restricted payments, (ii)sell or dispose of assets, (iii) incur additional indebtedness or permit liensto exist on Company property, (iv) engage in transactions with affiliates and(v) make additional investments or acquisitions. Capital expenditures, distributions,acquisitions and asset dispositions are not limited so long as no event ofdefault exists and the borrowers meet certain availability and liquidityconditions specified in the senior secured credit facility.

 

Inconnection with the Tianjin acquisition (see note 5), the Tianjin companyentered into a new credit agreement to provide up to Chinese RMB 170 million($22.6 million at September 30, 2007) to refinance existing debt and provideworking capital financing. Borrowings under the agreement bear interest at 90%of the basic RMB lending rate published by the Bank of China. The agreementexpires in July 2008.

 

InJuly 2007, Essex Europe entered into a new factoring to replace their existingfactoring agreement. Under the new agreement, as subsequently amended, theamount of advances available to Essex Europe is limited to 85% of assignedreceivables up to a maximum of €90 million ($128 million at September 30,2007). Advances under the new agreement bear interest at the monthly average ofthe European Overnight Index Average rate plus 0.35%. The new factoringagreement expires in July 2010.

 

In the second quarter of 2007 Essex Magnet Wire(Suzhou) Ltd. borrowed RMB 40.0 million ($5.3 million at September 30, 2007)under a short-term working capital loan agreement. The loan bears interest atthe rate of 6.39% and is repayable in two equal installments in April 2008 andMay 2008.

 

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

 

The8.975% subordinated note of Essex Europe was repaid in connection with theacquisition of Nexans’ 40% minority interest in Essex Europe (See note 5).

 

The€6.0 million ($8.5 million at September 30, 2007) convertible bonds of Invexare unsecured and bear interest at the rate of 3% per annum. The bonds arepayable at maturity in January 2010. The bonds are convertible into 6,000,000shares of Invex common stock at maturity provided the bondholders give noticeof exercise during the period from October 1, 2009 to December 20, 2009. Thebonds may be redeemed in whole, but not in part, at any time prior to September30, 2009 at par value plus accrued and unpaid interest. The conversion right isterminated upon early redemption. The Company expects to redeem the bonds priorto September 30, 2009, thus eliminating the conversion right.

 

14

----

 

**7.            Income per share**

 

Thecomputation of basic and diluted net income per share for the three monthsended September 30, 2007 and 2006 and basic and diluted income beforeextraordinary gain per share for the nine months ended September 30, 2007 and2006 is as follows:

 
| ** **                           | ** ** | **Three Months Ended September 30,**              | ** ** |
|--------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                           | ** ** | **2007**                                                              | ** ** | **2006** | ** ** |
| ** **                           | ** ** | **Net  Income**                                                       | ** ** | **Shares** | ** ** | **Per Share  Amount** | ** ** | **Net  Income** | ** ** | **Shares** | ** ** | **Per Share  Amount** | ** ** |
| ** **                           | ** ** | **(in thousands, except per share amounts)** | ** ** |
| Basic net income  per common share   |       | $                                                                     | 20,315     |   | 20,341 |   | $ | 1.00 |   | $ | 14,707 |   | 19,805 |   | $ | 0.74 |   |
| Effect of  dilutive securities:      |       |                                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Restricted stock  awards             |       | —                                                                |       | 159 |   |   |   | — |   | 249 |   |   |   |
| Stock options                        |       | —                                                                |       | 141 |   |   |   | — |   | 294 |   |   |   |
| Diluted net  income per common share |       | $                                                                     | 20,315     |   | 20,641 |   | $ | 0.98 |   | $ | 14,707 |   | 20,348 |   | $ | 0.72 |   |

 
| ** **                                                 | ** ** | **Nine Months Ended September 30,**               | ** ** |
|------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                 | ** ** | **2007**                                                              | ** ** | **2006** | ** ** |
| ** **                                                 | ** ** | **Net  Income**                                                       | ** ** | **Shares** | ** ** | **Per Share  Amount** | ** ** | **Net  Income** | ** ** | **Shares** | ** ** | **Per Share  Amount** | ** ** |
| ** **                                                 | ** ** | **(in thousands, except per share amounts)** | ** ** |
| Basic income per  common share before extraordinary gain   |       | $                                                                     | 45,832     |   | 20,249 |   | $ | 2.27 |   | $ | 49,754 |   | 18,008 |   | $ | 2.76 |   |
| Effect of  dilutive securities:                            |       |                                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Restricted stock  awards                                   |       | —                                                                |       | 123 |   |   |   | — |   | 232 |   |   |   |
| Stock options                                              |       | —                                                                |       | 170 |   |   |   | — |   | 267 |   |   |   |
| Warrants                                                   |       | —                                                                |       | — |   |   |   | — |   | 17 |   |   |   |
| Diluted income  per common share before extraordinary gain |       | $                                                                     | 45,832     |   | 20,542 |   | $ | 2.23 |   | $ | 49,754 |   | 18,524 |   | $ | 2.68 |   |

 

Atotal of 28,429 and 24,195 anti-dilutive weighted average shares with respectto outstanding stock options have been excluded from the computation of dilutedincome per share for the three months ended September 30, 2007 and 2006,respectively. A total of 25,700 and 391,763 anti-dilutive weighted averageshares with respect to outstanding stock options, restricted stock awards andSuperior Essex’s warrant have been excluded from the computation of dilutedincome per share for the nine months ended September 30, 2007 and 2006,respectively. Anti-dilutive weighted average shares for the nine months endedSeptember 30, 2006 include warrants issued in connection with Superior TeleCom’splan of reorganization to purchase 868,421 shares of the Company’s commonstock. The warrants expired unexercised on May 10, 2006. Additionally, 103,950and 163,730 weighted average shares contingently issuable pursuant toperformance awards granted in March 2006 (see note 8) have been excluded fromthe computation of diluted income per share for the three and nine months endedSeptember 30, 2007, respectively, and 193,620 shares have been excluded for thethree and nine months ended September 30, 2006 as the performance conditionshave not been satisfied. A total of 252,322 and 166,722 weighted average sharescontingently issuable pursuant to performance awards granted primarily in April2007 (see note 8) have been excluded from the computation of diluted earningsper share for the three and nine months ended September 30, 2007, respectively,because the performance conditions have not been satisfied.

 

**8.****                                      Stock-basedcompensation plans**

 

In November 2003, the Company adopted the SuperiorEssex Inc. 2003 Stock Incentive Plan (the “2003 Plan”) pursuant to which acommittee of the Company’s board of directors was authorized to grant stockoptions or restricted stock awards to employees, non-employee directors andcertain service providers. The 2003 Plan permitted grants of awards or optionsto purchase up to 1,833,333 shares of authorized but unissued common stock,stock held in treasury or both. Stock options under the 2003 Plan could begranted with an exercise price less than, equal to or greater than the stock’sfair market value at the date of grant. The term of stock options granted underthe 2003 Plan could not exceed 10 years.

 

In May 2005 the shareholders of the Companyapproved the Superior Essex Inc. 2005 Incentive Plan (the “2005 Plan”) pursuantto which a committee of the Company’s board of directors may grant stockoptions, stock appreciation rights, restricted stock, restricted stock units,deferred stock units, performance awards, dividend and interest equivalents andcash-based awards to eligible employees, officers, non-employee directors andconsultants. The 2005 Incentive Plan was

 

15

----

 

subsequently amended and restated in May 2007 to,among other things, increase the number of shares that may be issued by 500,000shares. Stock options can be granted under the 2005 Plan with an exercise priceequal to or greater than the stock’s fair market value at the date of grant.The term of stock options granted may not exceed 10 years. A total of 1,000,000shares of common stock is reserved for issuance under the 2005 Plan, asamended. In addition, unissued awards and any shares underlying currentlyoutstanding options granted under the 2003 Plan which expire unexercised areavailable for issuance under the 2005 Plan as well as certain shares deliveredor withheld to cover the exercise price or income tax withholdings. As a resultof adoption of the 2005 Plan, no further grants or awards may be made pursuantto the 2003 Plan.

 

In March 2006 the Company’s board of directors grantedperformance share awards to certain of the Company’s executive officers underthe 2005 Plan. Under the terms of the award the executives may vest in up to193,620 shares of the Company’s common stock on December 31, 2007 contingentupon meeting specified performance goals with respect to return on net assetsand core business revenues (as defined in the award) for the year endedDecember 31, 2007. In April 2007, the Company’s board of directors grantedperformance share awards to certain of the Company’s officers and key employeesunder the 2005 Plan, as amended. Under the terms of the award the executivesmay vest in up to 265,738 shares of the Company’s common stock on December 31,2009 contingent upon meeting specified performance goals during the three yearperiod ended December 31, 2009. Compensation expense related to the performanceshare awards is based on the grant date fair value of the award and theestimated number of shares that will ultimately vest. Compensation expense forthe three months ended September 30, 2007 decreased by $0.2 million andincreased by $1.1 million for the nine months ended September 30, 2007 as aresult of changes in the estimated number of performance shares that willultimately vest. Compensation expense is subject to future adjustment basedupon changes in expected performance.

 

Total compensation cost related to all stock-basedcompensation plans was $1.7 million and $2.0 million for the three months endedSeptember 30, 2007 and 2006, respectively. Total compensation cost related toall stock-based compensation plans was $5.7 million and $5.2 million for thenine months ended September 30, 2007 and 2006, respectively. As of September30, 2007, there was $8.0 million of unrecognized compensation cost related tothe Company’s stock-based compensation plans which is expected to be recognizedover a weighted average period of 1.9 years.

 

Thefollowing table summarizes stock option activity for the nine months endedSeptember 30, 2007:

 
| ** **                         | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual  Term (in  years)** | ** ** | **Aggregate  Intrinsic  Value (in  thousands)** | ** ** |
|------------------------------------|------------|------------|------------|----------------------------------------|------------|----------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                         | ** ** | ** ** | ** ** | ** **                             | ** ** | ** **                                                           | ** ** | ** **                                           | ** ** |
| Outstanding at  December 31, 2006  |       | 607,764    |       | $                                      | 15.56      |                                                                 |       |                                                 |       |   |
| Granted                            |       | 28,429     |       | 34.97                                  |       |                                                                 |       |                                                 |       |
| Exercised                          |       | (216,330   | )          | 14.53                                  |       |                                                                 |       |                                                 |       |
| Forfeitures                        |       | (5,859     | )          | 20.11                                  |       |                                                                 |       |                                                 |       |
| Outstanding at  September 30, 2007 |       | 414,004    |       | $                                      | 17.36      |                                                                 | 7.2        |                                                 | $          | 8,247 |   |
| Exercisable at  September 30, 2007 |       | 240,235    |       | $                                      | 14.45      |                                                                 | 6.7        |                                                 | $          | 5,484 |   |

 

Options to purchase 28,429 shares and 24,195 shares ofcommon stock with a weighted average Black Scholes fair value per option of$16.54 and $12.26 were granted during the nine months ended September 30, 2007and 2006, respectively. The fair value for options granted during the followingperiods was estimated at the date of grant using the Black Scholes optionpricing model and the following weighted average assumptions:

 
| ** **               | ** ** | **Nine Months  Ended  September 30,** | ** ** |
|--------------------------|------------|-------------------------------------------------|------------|
| ** **               | ** ** | **2007**                                        | ** ** | **2006** | ** ** |
| Volatility               |       | 40                                              | %          | 40 | % |
| Dividend yield           |       | 0                                               | %          | 0 | % |
| Risk-free  interest rate |       | 4.7                                             | %          | 4.9 | % |
| Expected life  (years)   |       | 6.2                                             |       | 6.2 |   |

 

Theexpected volatility is estimated using the historical daily volatility of theCompany’s stock as well as the historical volatilities of publicly-traded stockof certain of the Company’s competitors. The Company has not made any

 

16

----

 

dividend payments on itscommon stock and does not intend to declare cash dividends on its stock in theforeseeable future. The risk-free interest rate is based on U.S. Treasuryyields in effect at the time of grant for the expected term of the stockoptions. The expected term was determined using the “simplified” method, asprescribed by the Securities and Exchange Commission’s Staff AccountingBulletin No. 107.

 

Thefollowing table summarizes the status of the Company’s unvested share awards,including the performance share awards discussed above, for the nine monthsended September 30, 2007:

 
| ** **                                                     | ** ** | **Shares  Outstanding** | ** ** | **Weighted Average  Grant Date  Fair Value** | ** ** |
|----------------------------------------------------------------|------------|-------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                     | ** ** | ** **              | ** ** | ** **                                                  | ** ** |
| Nonvested share  awards outstanding at December 31, 2006  |       | 463,721                 |       | $                                                           | 21.07      |   |
| Granted                                                        |       | 310,774                 |       | 34.91                                                       |       |
| Vested                                                         |       | (102,939                | )          | 14.85                                                       |       |
| Forfeited                                                      |       | (6,934                  | )          | 30.01                                                       |       |
| Nonvested share  awards outstanding at September 30, 2007 |       | 664,622                 |       | $                                                           | 28.43      |   |

 

**9.****                                      Employeebenefits**

 

Thecomponents of net periodic benefit cost of the Company’s defined benefitpension plans for the three and nine months ended September 30, 2007 and2006 are presented below.

 
| ** **                                    | ** ** | **Three Months  Ended  September 30,** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                    | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| ** **                                    | ** ** | **(in thousands)**                          | ** ** |
| **Components  of net periodic benefit cost:** |       |                                             |       |   |   |
| Service cost                                  |       | $                                                | 638        |   | $ | 623 |   |
| Interest cost                                 |       | 2,320                                            |       | 2,012 |   |
| Expected return  on plan assets               |       | (2,667                                           | )          | (2,042 | ) |
| Amortization of  actuarial losses (gains)     |       | (5                                               | )          | 117 |   |
| Amortization of  prior service costs          |       | 18                                               |       | 18 |   |
|                                          |       | $                                                | 304        |   | $ | 728 |   |

 
| ** **                                    | ** ** | **Nine Months  Ended  September 30,** | ** ** |
|-----------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                    | ** ** | **2007**                                        | ** ** | **2006** | ** ** |
| ** **                                    | ** ** | **(in thousands)**                         | ** ** |
| **Components  of net periodic benefit cost:** |       |                                            |       |   |   |
| Service cost                                  |       | $                                               | 2,045      |   | $ | 1,905 |   |
| Interest cost                                 |       | 6,672                                           |       | 6,048 |   |
| Expected return  on plan assets               |       | (7,498                                          | )          | (6,101 | ) |
| Amortization of  actuarial losses (gains)     |       | (15                                             | )          | 347 |   |
| Amortization of  prior service costs          |       | 56                                              |       | 56 |   |
|                                          |       | $                                               | 1,260      |   | $ | 2,255 |   |

 

TheCompany’s cash contributions to the defined benefit plans amounted to$6.8 million and $7.0 million during the nine months endedSeptember 30, 2007 and 2006, respectively. The Company expects to makeadditional cash contributions of $0.4 million for the remainder of 2007.

 

17

----

 

**10.****                               Derivativefinancial instruments**

 

TheCompany uses or has used forward fixed price contracts and derivative financialinstruments to manage commodity price, interest rate and foreign currencyexchange risks. The Company does not hold or issue derivative financialinstruments for investment or trading purposes. The Company is exposed tocredit risk in the event of nonperformance by counterparties for foreignexchange forward contracts, metal forward price contracts and metals futurescontracts but the Company does 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***

 

Thecost of copper, the Company’s most significant raw material, has historicallybeen subject to considerable volatility. To manage the risk associated withsuch volatility, the Company enters into futures contracts to match the metalcomponent of customer product pricing with the cost component of the inventoryshipped. These futures contracts have been designated as cash flow hedges withunrealized gains and losses recorded in other comprehensive income. Gains andlosses are reclassified into earnings, as a component of cost of goods sold,when the hedged sales transactions are reflected in the income statement. Hedgeineffectiveness, which is not significant, is immediately recognized inearnings. The Company’s commodities futures purchase contracts which have beendesignated as cash flow hedges are summarized as follows at September 30,2007:

 
| **Type**   | ** ** | **Notional  Amount**                    | ** ** | **Maturity  Date** | ** ** | **Weighted  Average  Contract Rate** | ** ** | **Fair Value  Gain** | ** ** |
|------------|------------|-----------------------------------------|------------|--------------------|------------|-------------------------------------------|------------|---------------------------|------------|
| ** ** | ** ** | **(in thousands of  pounds)** | ** ** | ** **         | ** ** | ** **                                | ** ** | **(in  thousands)**       | ** ** |
| ** ** | ** ** | ** **                              | ** ** | ** **         | ** ** | ** **                                | ** ** | ** **                | ** ** |
| Copper     |       | 2,950                                   |       | 2007               |       | $                                         | 3.06       |                      | $          | 1,712 |   |
| Copper     |       | 2,125                                   |       | 2008               |       | 3.27                                      |       | 659                       |       |
|       |       |                                    |       |               |       |                                      |       | $                         | 2,371      |   |
|            |            |                                         |            |                    |            |                                           |            |                           |            |  |  |

 

Substantiallyall of the unrealized gains on commodity futures outstanding at September 30,2007 are expected to be reclassified in earnings within the next twelve months.

 

EssexEurope periodically enters into commodity futures contracts to match the coppercomponent of customer product pricing with the cost component of the inventoryshipped. These futures contracts are intended to minimize the risks associatedwith forward product pricing for customers and changing copper prices. Thesecontracts generally have maturities of less than two months and representeconomic hedges but have not been designated as hedges for accounting purposes.Accordingly, gains and losses on these contracts are recorded in income as acomponent of cost of goods sold. Net losses on these contracts were $1.5million and $1.8 million, respectively, for the three and nine months endedSeptember 30, 2007. Net losses on these contracts were $0.2 million for thethree months ended September 30, 2006 and net gains were $3.3 million for thenine months ended September 30, 2006. Essex Europe had no open copper futurespositions at September 30, 2007.

 

TheCompany’s Tianjin subsidiary enters into commodity futures contracts to matchthe copper component of customer product pricing with the cost component of theinventory shipped. These futures contracts are intended to minimize the risksassociated with forward product pricing for customers and changing copperprices. These contracts represent economic hedges but have not been designatedas hedges for accounting purposes. Accordingly, gains and losses on thesecontracts are recorded in income as a component of cost of goods sold.Outstanding commodities futures purchase contracts held by the Tianjinsubsidiary are summarized as follows at September 30, 2007:

 
| **Type**   | ** ** | **Notional  Amount**                    | ** ** | **Maturity  Date** | ** ** | **Weighted  Average  Contract Rate** | ** ** | **Fair Value  Gain** | ** ** |
|------------|------------|-----------------------------------------|------------|--------------------|------------|-------------------------------------------|------------|---------------------------|------------|
| ** ** | ** ** | **(in thousands of  pounds)** | ** ** | ** **         | ** ** | ** **                                | ** ** | **(in  thousands)**       | ** ** |
| ** ** | ** ** | ** **                              | ** ** | ** **         | ** ** | ** **                                | ** ** | ** **                | ** ** |
| Copper     |       | 275                                     |       | 2007               |       | $                                         | 3.39       |                      | $          | 27 |   |
| Copper     |       | 1,047                                   |       | 2008               |       | 3.34                                      |       | 161                       |       |
|       |       |                                    |       |               |       |                                      |       | $                         | 188        |   |
|            |            |                                         |            |                    |            |                                           |            |                           |            |  |  |

 

18

----

 

***Foreign currency exchange risk management***

 

TheCompany engages in the sale and purchase of products which result in accountsreceivable and accounts payable denominated in foreign currencies.Additionally, the Company enters into intercompany loans, some of which are notconsidered long-term investments, among our subsidiaries with differingfunctional currencies. As a result, fluctuations in the value of foreigncurrencies create exposures, which can adversely affect the Company’s resultsof operations. The Company attempts to manage its transactional foreigncurrency exchange risk by economically hedging foreign currency cash flowforecasts arising from the settlement of accounts receivable, accounts payableand intercompany accounts. Where naturally offsetting foreign currencypositions do not occur, the Company hedges certain, but not all, of its foreigncurrency exposures through the use of foreign currency forward exchangecontracts. These contracts generally have maturities of less than two monthsand represent economic hedges but have not been designated as hedges foraccounting purposes. Changes in the fair value of these contracts are reflectedin current earnings.

 

TheCompany is also exposed to foreign currency translation risk resulting from thetranslation of the financial statements of foreign subsidiaries with functionalcurrencies other than the U.S. dollar. The Company’s most significanttranslation exposure is the Euro in relation to the U.S. dollar. The Companyenters into foreign currency put options to hedge against adverse fluctuationsin the results of operations of certain of its foreign subsidiaries resultingfrom foreign currency translation. The put options expire in 2007.

 

Thefollowing table summarizes information about foreign currency relatedderivatives as of September 30, 2007:

 
| **Derivatives**                           | ** ** | **Notional Amount** | ** ** | **Weighted  Average  Contract  Rate** | ** ** | **Fair Value  Gain (Loss)** | ** ** |
|-------------------------------------------|------------|--------------------------|------------|---------------------------------------|------------|---------------------------------------|------------|
| ** **                                | ** ** | **(in thousands)**  | ** ** | ** **                            | ** ** | **(in thousands)**               | ** ** |
| Forward exchange  contracts:              |       |                     |       |                                  |       |                                  |       |   |   |
| U.S. dollars  (sell for Euros)            |       | 4,000                    |       | USD                                   |       | .70                                   |       | $ | — |   |
| U.S. dollars  (buy with Canadian dollars) |       | 11,000                   |       | USD                                   |       | 1.00                                  |       | — |   |
| Canadian dollars  (sell for U.S. dollars) |       | 12,500                   |       | CAD                                   |       | 1.00                                  |       | — |   |
| Euros (buy with  British pounds)          |       | 7,200                    |       | EURO                                  |       | 0.70                                  |       | — |   |
| Euros (sell for  U.S. dollars)            |       | 985                      |       | EURO                                  |       | 1.42                                  |       | — |   |
| British pounds  (sell for Euros)          |       | 800                      |       | GBP                                   |       | 1.43                                  |       | — |   |
| British pounds  (buy with Euros)          |       | 1,300                    |       | GBP                                   |       | 0.70                                  |       | — |   |
| Put options:                              |       |                     |       |                                  |       |                                  |       | — |   |
| Euros (sell for  U.S. dollars)            |       | 2,206                    |       | EURO                                  |       | 1.35                                  |       | — |   |
|                                      |       |                     |       |                                  |       |                                  |       | $ | — |   |

 

**11.****                               Commitmentsand contingencies**

 

The Company is involved in lawsuits, claims,investigations and proceedings, including those described below, consisting ofcommercial, employment, employee benefits, environmental and other matterswhich arise in the ordinary course of business. In accordance with SFASNo. 5, *Accounting for Contingencies*,the Company records a liability when management believes it is both probablethat a liability has been incurred and the amount of loss can be reasonablyestimated. Management believes it has adequate provisions for any such matters.The Company reviews these provisions at least quarterly and adjusts theseprovisions to reflect the impact of negotiations, settlement, rulings, adviceof legal counsel and other information and events pertaining to a particularmatter. Litigation is inherently unpredictable. However, management believes ithas valid defenses with respect to all legal matters against the Company andits subsidiaries and does not believe any such matters, either individually orin the aggregate, will have a material adverse effect on its business,financial condition, liquidity or results of operations.

 

In 2003, Superior TeleCom and Essex Electric Inc. (“EssexElectric”) each filed lawsuits under Section 1 of the Sherman Act againstcertain defendants based on an alleged conspiracy to elevate the prices ofcertain copper products during certain periods from 1993 to 1996. The lawsuitswere consolidated with several other lawsuits involving other plaintiffs laterin 2003 (collectively, the “2003 Copper Action”). On November 10, 2003,Superior Essex acquired the business formerly conducted by Superior TeleCom andits subsidiaries. On June 4, 2007, the parties to the 2003 Copper Action(including all plaintiffs and defendants) entered into a settlement pursuant towhich the 2003 Copper Action was

 

19

----

 

dismissed with prejudice. The terms of the settlementare confidential. A portion of the settlement proceeds (approximately$27,000,000) are being held in escrow by plaintiffs’ counsel (the “EscrowedSettlement Proceeds”). The Company and Essex Electric, now known as Exeon Inc.(“Exeon”), each claim to be entitled to the Escrowed Settlement Proceeds. OnJune 18, 2007, Exeon filed an action for declaratory judgment and relatedrelief against the Company and certain of its subsidiaries in the Supreme Courtof the State of New York, New York County (the “2007 NY Action”). Exeon Inc.v. Superior Essex Inc., Superior Telecommunications Inc., Essex InternationalInc., and Essex Group, Inc., Supreme Court of the State of New York, Countyof New York, Index No. 108413/07. In the 2007 NY Action, Exeon seeks adeclaration that the claims giving rise to the Escrowed Settlement Proceedswere transferred to Exeon in connection with the sale of a portion of theelectrical wire business of the Company’s subsidiary, Essex Group, to Exeon in2002 and that Exeon is entitled to all of the Escrowed Settlement Proceeds. The2007 NY Action also alleges that the Company, by claiming the EscrowedSettlement Proceeds attributable to the electrical wire business, is in breachof the purchase agreement related to the sale of a portion of the Essex Groupelectrical wire business to Exeon and seeks damages in excess of $40 millionresulting from the alleged breach.

 

On June 20, 2007, the Company and Essex Group filedsuit in the Superior Court of Cobb County, Georgia against Essex Electric andthe other defendants named therein (the “2007 Cobb Action”). Superior EssexInc., et al. v. Exeon Inc., et al., Civil Action File No. 07-1-5146-28,Superior Court of Cobb County, Georgia. The 2007 Cobb Action seeks adeclaratory judgment that the Company is entitled to all of the EscrowedSettlement Proceeds. In addition, the 2007 Cobb Action seeks damages as aresult of a breach of the purchase agreement and breaches of fiduciary duty.

 

The Company moved to dismiss or stay the 2007 NYAction pending resolution of the 2007 Cobb Action. That motion remains pendingin New York, and discovery is underway. In the 2007 Cobb Action, the Company’smotion for summary judgment is pending, as is the defendants’ motion todismiss.

 

The Company operates in nine countries in Europe,North America and Asia-Pacific and its international operations have grownsignificantly over the past two years, primarily through its joint venture withNexans in Europe and through acquisitions. The Company is implementing its code of ethics and procedures to assurecompliance with laws throughout its operations. Through its processes to ensure compliance with laws, the Companyrecently identified certain U.S trade control compliance issues.  

 

These issues include isolated sales of products by aforeign subsidiary which were not in compliance with U.S. trade control lawsrelated to Cuba.  Upon discovery oftransactions related to Cuba, the Company undertook a comprehensive review ofits transactions that may involve embargoed countries.  This review is ongoing.  The Company has voluntarily reported thesetransactions related to Cuba to the U.S. Department of Treasury, Office ofForeign Asset Control.

 

In addition, through this review, the Company haslearned that it shipped a coating for its magnet wire products to certain ofits manufacturing operations outside the United States and such shipments weremisclassified under the U.S. export laws. Such shipments occurred on a regular basis without required exportauthorization.  This review isongoing.  The Company has voluntarilyreported such violations to the U.S. Department of Commerce, Bureau of Industryand Security and the Company is applying for licenses for such shipments in thefuture so they may be made in accordance with U.S. export laws.  

 

To the extent the Company violated U.S. exportregulations, fines and other penalties may be imposed.  Because the review is ongoing and thesematters are now pending before the indicated agencies, there can be noassurance that any actual fines and penalties imposed will not have a materialadverse affect on the Company’s business, financial condition, liquidity orresults of operations.

 

Since approximately 1990, Essex International andcertain subsidiaries have been named as defendants in a number of productliability lawsuits brought by electricians, other skilled tradesmen and othersclaiming injury, in a substantial majority of cases, from exposure to asbestosfound in electrical wire products produced many years ago. Litigation againstvarious past insurers of Essex International who had previously refused todefend and indemnify Essex International against these lawsuits was settledduring 1999. Under the settlement, Essex International was reimbursed forsubstantially all of its costs and expenses incurred in the defense of these lawsuits,and the insurers have undertaken to defend, are currently directly defendingand, if it should become necessary, will indemnify Essex International againstthose asbestos lawsuits, subject to the terms and limits of the respectivepolicies. Under the plan of reorganization, certain of the claimants in theseactions will be able to assert claims under applicable insurance coverage andother similar arrangements. Management believes that Essex International’sliability, if any, in these matters will not have a material adverse effecteither individually, or in the aggregate, upon the Company’s business,financial condition, liquidity or results of operations. There can be noassurance, however, that future developments will not alter this conclusion.

 

The Company is subject to federal, foreign, state andlocal environmental laws and regulations in each of the jurisdictions in whichit owns or operates facilities governing, among other things, emissions intothe air, discharges to water, the use, handling and disposal of hazardoussubstances and the investigation and remediation of soil and groundwatercontamination both on-site at past and current facilities and at off-sitedisposal locations. The Company does not believe that compliance with environmentallaws and regulations will have a material effect on its capital expenditures,results of operations or financial position.

 

A liability for environmental remediation and otherenvironmental costs is accrued when it is considered probable and the costs canbe reasonably estimated. The Company has accrued amounts with respect toenvironmental matters that it believes were adequate at September 30,2007. These accruals are not material to the Company’s results of operations,liquidity or financial position.

 

The Company accepts certain customer orders for futuredelivery at fixed prices. As copper is the most significant raw material usedin the manufacturing process, the Company enters into forward fixed-pricepurchase commitments with its suppliers for copper to properly match its costto the value of the copper expected to be billed to customers. AtSeptember 30, 2007, the Company had forward fixed-price copper purchasecommitments for delivery of 37.4 million pounds through December 2008 for$130.4 million. Additionally, at September 30, 2007, the Company hadforward purchase fixed-price commitments for 0.7 million pounds of aluminumthrough August 2008, 172,000 megawatts of electricity through 2010 and480,000 MMBTUs of natural gas through March 2008 amounting to $1.0 million,$12.8 million and $3.7 million, respectively.

 

20

----

 

**12.****                               Relatedparty transactions**

 

Essex Europe has entered into agreements to purchase asignificant portion of its copper rod and pre-drawn copper wire requirementsfrom Nexans. The purchase agreements expire on December 31, 2008 withautomatic one year renewals unless cancelled by either party upon six monthsprior notice in the case of copper rod and twelve months prior notice in the caseof pre-drawn copper wire. Total purchases pursuant to these agreements amountedto $55.9 million and $78.2 million for the three months ended September 30,2007 and 2006, respectively, and $226.9 million and $230.8 million for the ninemonths ended September 30, 2007 and 2006, respectively.

 

The Company sells magnet wire to and provides certaintolling services for its 50% owned joint venture, Femco Magnet Wire Corporation(“Femco”). Net sales to Femco were $7.7 million and $7.0 million for the threemonths ended September 30, 2007 and 2006, respectively, and $19.4 million and$17.3 million for the nine months ended September 30, 2007 and 2006,respectively. The Company’s equity in the loss of Femco was $0.3 million forthe nine months ended September 30, 2007 and the equity in Femco’s earnings forthe nine months ended September 30, 2006 was not significant.

 

**13.****                               Businesssegments**

 

Reportable segments are strategic businesses thatoffer different products and services to different customers. These segmentsare communications cable, North American magnet wire and distribution, Europeanmagnet wire and distribution, Asia/Pacific magnet wire and copper rod. Thecommunications cable segment includes copper and fiber optic outside plant wireand cable for voice and data transmission in telecommunications networks andcopper and fiber optic datacom or premises wire and cable for use within homesand offices for local area networks, Internet connectivity and otherapplications. The North American magnet wire and distribution segmentmanufactures and markets magnet wire and related products to major OEMs for usein motors, transformers and electrical coils and controls primarily in NorthAmerica. The North American magnet wire and distribution segment also distributesmagnet wire and fabricated insulation products manufactured by the Company andrelated accessory products purchased from third parties to small OEMs and motorrepair facilities. The European magnet wire and distribution segment consistsof Essex Europe and manufactures and markets magnet wire used in motors,transformers and electrical coils and controls primarily in Europe. TheEuropean magnet wire and distribution segment also produces enamels that areused both for internal consumption in the production of magnet wire and forsale to third parties. As a result of the Tianjin, China acquisition in July2007 (see note 5) and certain management reporting changes made during thethird quarter of 2007, the Company began reporting a new segment, the Asia/Pacificmagnet wire segment. The Asia/Pacific magnet wire segment includes the Tianjin,China business and the Company’s greenfield manufacturing operations in Suzhou,China. The operations of the Suzhou facility were previously included in theNorth American magnet wire and distribution segment. All prior period segmentinformation has been retrospectively adjusted to reflect the current segmentreporting structure. The copper rod segment includes sales of copper rodproduced by the Company’s North American continuous casting units to externalcustomers. The copper rod segment also produces copper rod for internalprocessing which is recorded by the consuming segment at cost as a component ofcost of goods sold. Corporate and other charges consist primarily of parentcompany and corporate payroll costs, including stock-based compensationcharges, corporate headquarters costs and corporate legal, audit and accountingfees and compliance costs. The components of restructuring and other chargesare discussed in note 4.

 

The Company’s chief operating decision maker evaluatessegment performance based on a number of factors with operating income,excluding corporate and other costs and restructuring and other charges, beingthe most critical. Accordingly, corporate and other costs and restructuring andother charges are not allocated to the Company’s reportable segments.

 

Financial informationwith respect to reportable segments is presented below. Corporate and otheritems shown below are provided to reconcile to the accompanying consolidatedstatements of operations.

 

21

----

 
| ** **                                   | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|----------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                   | ** ** | **2007**                                             | ** ** | **2006**                                            | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                   | ** ** | **(in thousands)**                              | ** ** |
| Net sales:                                   |       |                                                 |       |                                                |       |   |   |   |   |
| Communications  cable                        |       | $                                                    | 213,447    |                                                | $          | 229,527 |   | $ | 665,183 |   | $ | 653,235 |   |
| North American  magnet wire and distribution |       | 300,588                                              |       | 278,074                                             |       | 843,347 |   | 785,951 |   |
| European magnet  wire and distribution       |       | 194,977                                              |       | 160,826                                             |       | 530,911 |   | 473,705 |   |
| Asia/Pacific  magnet wire                    |       | 13,559                                               |       | —                                              |       | 13,966 |   | — |   |
| Copper rod                                   |       | 58,835                                               |       | 127,862                                             |       | 196,067 |   | 353,285 |   |
|                                         |       | $                                                    | 781,406    |                                                | $          | 796,289 |   | $ | 2,249,474 |   | $ | 2,266,176 |   |
| Operating income  (loss):                    |       |                                                 |       |                                                |       |   |   |   |   |
| Communications  cable                        |       | $                                                    | 26,352     |                                                | $          | 26,360 |   | $ | 70,264 |   | $ | 77,167 |   |
| North American  magnet wire and distribution |       | 13,974                                               |       | 10,688                                              |       | 36,307 |   | 33,795 |   |
| European magnet  wire and distribution       |       | 4,667                                                |       | 5,379                                               |       | 16,523 |   | 16,259 |   |
| Asia/Pacific  magnet wire                    |       | (397                                                 | )          | (570                                                | )          | (2,523 | ) | (965 | ) |
| Copper rod                                   |       | (59                                                  | )          | (194                                                | )          | (241 | ) | (77 | ) |
| Corporate and  other                         |       | (7,770                                               | )          | (6,834                                              | )          | (21,453 | ) | (20,052 | ) |
| Restructuring  and other charges             |       | (212                                                 | )          | (2,117                                              | )          | (1,499 | ) | (3,095 | ) |
|                                         |       | $                                                    | 36,555     |                                                | $          | 32,712 |   | $ | 97,378 |   | $ | 103,032 |   |

 
| ** **                                   | ** ** | **September 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|----------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                   | ** ** | **(in thousands)**      | ** ** |
| Total assets:                                |       |                         |       |                        |       |
| Communications  cable                        |       | $                            | 350,441    |                        | $          | 388,892 |   |
| North American  magnet wire and distribution |       | 368,014                      |       | 303,069                     |       |
| European magnet  wire and distribution       |       | 384,881                      |       | 247,337                     |       |
| Asia/Pacific  magnet wire                    |       | 75,213                       |       | 35,976                      |       |
| Copper rod                                   |       | 30,171                       |       | 41,323                      |       |
| Corporate and  other                         |       | 2,595                        |       | 10,222                      |       |
|                                         |       | $                            | 1,211,315  |                        | $          | 1,026,819 |   |

 

22

----

 

**14.****                               Supplementalguarantor information**

 

The 9%senior unsecured notes were issued by Superior Essex Communications and EssexGroup, as joint and several obligors. The notes are jointly and severally,fully and unconditionally guaranteed by the Company and each of its existingand future domestic restricted subsidiaries (as defined in the indenturegoverning the notes). All of the Company’s current domestic subsidiaries, otherthan IP Licensing 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.

 
| ** **                                     | ** ** | **Balance Sheet Information  September 30, 2007** | ** ** |
|------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                     | ** ** | **Parent**                                                            | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                     | ** ** | **(in thousands)**                                               | ** ** |
| **ASSETS**                                     |       |                                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Current assets:                                |       |                                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                     |       | $                                                                     | (85        | ) | $ | 17,165 |   | $ | 83 |   | $ | 19,131 |   | $ | — |   | $ | 36,294 |   |
| Accounts  receivable, net                      |       | —                                                                |       | 219,200 |   | 3,493 |   | 231,349 |   | — |   | 454,042 |   |
| Inventories, net                               |       | —                                                                |       | 179,870 |   | 15,638 |   | 134,617 |   | — |   | 330,125 |   |
| Other current  assets                          |       | 3,680                                                                 |       | 16,378 |   | 642 |   | 14,595 |   | — |   | 35,295 |   |
| Total current  assets                          |       | 3,595                                                                 |       | 432,613 |   | 19,856 |   | 399,692 |   | — |   | 855,756 |   |
| Property, plant  and equipment, net            |       | 891                                                                   |       | 187,994 |   | 13,942 |   | 108,731 |   | — |   | 311,558 |   |
| Intangible and  other long-term assets         |       | 4,422                                                                 |       | 31,907 |   | 12 |   | 13,976 |   | (6,316 | ) | 44,001 |   |
| Investment in  subsidiaries                    |       | 319,227                                                               |       | 145,100 |   | 266,077 |   | — |   | (730,404 | ) | — |   |
| Intercompany  accounts                         |       | 115,117                                                               |       | — |   | 31,919 |   | — |   | (147,036 | ) | — |   |
| Total assets                                   |       | $                                                                     | 443,252    |   | $ | 797,614 |   | $ | 331,806 |   | $ | 522,399 |   | $ | (883,756 | ) | $ | 1,211,315 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY** |       |                                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Current  liabilities:                          |       |                                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Short-term  borrowings                         |       | $                                                                     | —     |   | $ | — |   | $ | — |   | $ | 55,334 |   | — |   | $ | 55,334 |   |
| Current portion  of long-term debt             |       | —                                                                |       | — |   | — |   | 1,317 |   | — |   | 1,317 |   |
| Accounts payable                               |       | 673                                                                   |       | 121,876 |   | 3,790 |   | 118,314 |   | — |   | 244,653 |   |
| Accrued expenses                               |       | 6,882                                                                 |       | 36,973 |   | 340 |   | 75,595 |   | (6,316 | ) | 113,474 |   |
| Total current  liabilities                     |       | 7,555                                                                 |       | 158,849 |   | 4,130 |   | 250,560 |   | (6,316 | ) | 414,778 |   |
| Long term-debt,  less current portion          |       | —                                                                |       | 259,444 |   | 5,000 |   | 20,953 |   | — |   | 285,397 |   |
| Other long-term  liabilities                   |       | 15,524                                                                |       | 38,728 |   | 3,449 |   | 30,710 |   | — |   | 88,411 |   |
| Intercompany  accounts                         |       | —                                                                |       | 16,774 |   | — |   | 130,262 |   | (147,036 | ) | — |   |
| Total liabilities                              |       | 23,079                                                                |       | 473,795 |   | 12,579 |   | 432,485 |   | (153,352 | ) | 788,586 |   |
| Minority interest                              |       | —                                                                |       | — |   | — |   | 2,556 |   | — |   | 2,556 |   |
| Stockholders’  equity                     |       | 420,173                                                               |       | 323,819 |   | 319,227 |   | 87,358 |   | (730,404 | ) | 420,173 |   |
|                                           |       | $                                                                     | 443,252    |   | $ | 797,614 |   | $ | 331,806 |   | $ | 522,399 |   | $ | (883,756 | ) | $ | 1,211,315 |   |

 

23

----

 
| ** **                                      | ** ** | **Balance Sheet Information  December 31, 2006** | ** ** |
|-------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** **                                      | ** ** | **Parent**                                                           | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                      | ** ** | **(in thousands)**                                              | ** ** |
| **ASSETS**                                      |       |                                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Current assets:                                 |       |                                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                      |       | $                                                                    | 94         |   | $ | 44,071 |   | $ | 2 |   | $ | 9,326 |   | $ | — |   | $ | 53,493 |   |
| Accounts  receivable, net                       |       | —                                                               |       | 192,648 |   | 3,979 |   | 138,993 |   | — |   | 335,620 |   |
| Inventories, net                                |       | —                                                               |       | 203,041 |   | 13,344 |   | 72,949 |   | — |   | 289,334 |   |
| Other current  assets                           |       | 9,288                                                                |       | 22,398 |   | 623 |   | 14,569 |   | — |   | 46,878 |   |
| Total current  assets                           |       | 9,382                                                                |       | 462,158 |   | 17,948 |   | 235,837 |   | — |   | 725,325 |   |
| Property, plant  and equipment, net             |       | 497                                                                  |       | 193,398 |   | 15,227 |   | 49,358 |   | — |   | 258,480 |   |
| Intangible and  other long-term assets          |       | 4,014                                                                |       | 34,275 |   | — |   | 8,780 |   | (4,055 | ) | 43,014 |   |
| Investment in  subsidiaries                     |       | 266,174                                                              |       | 102,222 |   | 223,683 |   | — |   | (592,079 | ) | — |   |
| Intercompany  accounts                          |       | 95,378                                                               |       | — |   | 21,378 |   | — |   | (116,756 | ) | — |   |
| Total assets                                    |       | $                                                                    | 375,445    |   | $ | 792,053 |   | $ | 278,236 |   | $ | 293,975 |   | $ | (712,890 | ) | $ | 1,026,819 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**  |       |                                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Current  liabilities:                           |       |                                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Short-term  borrowings                          |       | $                                                                    | —     |   | $ | — |   | $ | — |   | $ | 30,176 |   | $ | — |   | 30,176 |   |
| Current portion  of long-term debt              |       | —                                                               |       | — |   | — |   | 1,192 |   | — |   | 1,192 |   |
| Accounts payable                                |       | 4,537                                                                |       | 82,611 |   | 3,392 |   | 70,566 |   | — |   | 161,106 |   |
| Accrued expenses                                |       | 6,862                                                                |       | 32,127 |   | 220 |   | 55,411 |   | — |   | 94,620 |   |
| Total current  liabilities                      |       | 11,399                                                               |       | 114,738 |   | 3,612 |   | 157,345 |   | — |   | 287,094 |   |
| Long term-debt,  less current portion           |       | —                                                               |       | 258,848 |   | 5,000 |   | 28,827 |   | — |   | 292,675 |   |
| Other long-term  liabilities                    |       | 5,058                                                                |       | 45,760 |   | 3,450 |   | 9,183 |   | (4,055 | ) | 59,396 |   |
| Intercompany  accounts                          |       | —                                                               |       | 101,946 |   | — |   | 14,810 |   | (116,756 | ) | — |   |
| Total liabilities                               |       | 16,457                                                               |       | 521,292 |   | 12,062 |   | 210,165 |   | (120,811 | ) | 639,165 |   |
| Minority interest  in consolidated subsidiaries |       | —                                                               |       | — |   | — |   | 28,666 |   | — |   | 28,666 |   |
| Stockholders’  equity                      |       | 358,988                                                              |       | 270,761 |   | 266,174 |   | 55,144 |   | (592,079 | ) | 358,988 |   |
|                                            |       | $                                                                    | 375,445    |   | $ | 792,053 |   | $ | 278,236 |   | $ | 293,975 |   | $ | (712,890 | ) | $ | 1,026,819 |   |

 

24

----

 
| ** **                                                                                                 | ** ** | **Statement of Operations Information  Three Months Ended September 30, 2007** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                 | ** ** | **Parent**                                                                                                             | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                                                                                 | ** ** | **(in thousands)**                                                                                                | ** ** |
| Net sales                                                                                                  |       | $                                                                                                                      | 7,829      |   | $ | 537,817 |   | $ | 68,403 |   | $ | 251,743 |   | $ | (84,386 | ) | $ | 781,406 |   |
| Cost of goods  sold                                                                                        |       | —                                                                                                                 |       | 484,285 |   | 62,377 |   | 235,659 |   | (76,557 | ) | 705,764 |   |
| Gross profit                                                                                               |       | 7,829                                                                                                                  |       | 53,532 |   | 6,026 |   | 16,084 |   | (7,829 | ) | 75,642 |   |
| Selling, general  and administrative expenses                                                              |       | (7,763                                                                                                                 | )          | (30,112 | ) | (213 | ) | (8,616 | ) | 7,829 |   | (38,875 | ) |
| Restructuring  and other charges                                                                           |       | (80                                                                                                                    | )          | (31 | ) | (101 | ) | — |   | — |   | (212 | ) |
| Operating income                                                                                           |       | (14                                                                                                                    | )          | 23,389 |   | 5,712 |   | 7,468 |   | — |   | 36,555 |   |
| Interest expense                                                                                           |       | —                                                                                                                 |       | (7,350 | ) | (636 | ) | (3,153 | ) | 3,105 |   | (8,034 | ) |
| Interest income                                                                                            |       | 1,620                                                                                                                  |       | 1,011 |   | 788 |   | 98 |   | (3,105 | ) | 412 |   |
| Other income,  net                                                                                         |       | 17                                                                                                                     |       | 88 |   | 23 |   | 282 |   | — |   | 410 |   |
| Income before  income taxes, equity in earnings of subsidiaries, minority interest and  extraordinary gain |       | 1,623                                                                                                                  |       | 17,138 |   | 5,887 |   | 4,695 |   | — |   | 29,343 |   |
| Income tax  benefit (expense)                                                                              |       | 2,684                                                                                                                  |       | (7,216 | ) | (2,163 | ) | (2,298 | ) | — |   | (8,993 | ) |
| Equity in  earnings of subsidiaries                                                                        |       | 16,008                                                                                                                 |       | 6,161 |   | 12,284 |   | — |   | (34,453 | ) | — |   |
| Minority  interest in income of subsidiaries                                                               |       | —                                                                                                                 |       | — |   | — |   | (35 | ) | — |   | (35 | ) |
| Net income                                                                                                 |       | $                                                                                                                      | 20,315     |   | $ | 16,083 |   | $ | 16,008 |   | $ | 2,362 |   | $ | (34,453 | ) | $ | 20,315 |   |

 
| ** **                                                                            | ** ** | **Statement of Operations Information  Three Months Ended September 30, 2006** | ** ** |
|---------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                            | ** ** | **Parent**                                                                                                             | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                                                            | ** ** | **(in thousands)**                                                                                                | ** ** |
| Net sales                                                                             |       | $                                                                                                                      | 6,950      |   | $ | 630,306 |   | $ | 69,193 |   | $ | 166,429 |   | $ | (76,589 | ) | $ | 796,289 |   |
| Cost of goods  sold                                                                   |       | —                                                                                                                 |       | 577,387 |   | 62,959 |   | 153,228 |   | (69,639 | ) | 723,935 |   |
| Gross profit                                                                          |       | 6,950                                                                                                                  |       | 52,919 |   | 6,234 |   | 13,201 |   | (6,950 | ) | 72,354 |   |
| Selling, general  and administrative expenses                                         |       | (6,823                                                                                                                 | )          | (29,455 | ) | (287 | ) | (7,910 | ) | 6,950 |   | (37,525 | ) |
| Restructuring  and other charges                                                      |       | (84                                                                                                                    | )          | (33 | ) | — |   | — |   | — |   | (117 | ) |
| Asset impairment  charge                                                              |       | —                                                                                                                 |       | (2,000 | ) | — |   | — |   | — |   | (2,000 | ) |
| Operating income  (loss)                                                              |       | 43                                                                                                                     |       | 21,431 |   | 5,947 |   | 5,291 |   | — |   | 32,712 |   |
| Interest expense                                                                      |       | (38                                                                                                                    | )          | (6,286 | ) | (119 | ) | (680 | ) | — |   | (7,123 | ) |
| Interest income                                                                       |       | —                                                                                                                 |       | 321 |   | 1 |   | 27 |   | — |   | 349 |   |
| Other income  (expense), net                                                          |       | (5                                                                                                                     | )          | 235 |   | 9 |   | (69 | ) | — |   | 170 |   |
| Income before  income taxes, equity in earnings of subsidiaries and minority interest |       | —                                                                                                                 |       | 15,701 |   | 5,838 |   | 4,569 |   | — |   | 26,108 |   |
| Income tax  expense                                                                   |       | —                                                                                                                 |       | (5,827 | ) | (2,248 | ) | (2,198 | ) | — |   | (10,273 | ) |
| Equity in  earnings of subsidiaries                                                   |       | 14,707                                                                                                                 |       | 4,913 |   | 11,117 |   | — |   | (30,737 | ) | — |   |
| Minority  interest in income of subsidiaries                                          |       | —                                                                                                                 |       | — |   | — |   | (1,128 | ) | — |   | (1,128 | ) |
| Net income                                                                            |       | $                                                                                                                      | 14,707     |   | $ | 14,787 |   | $ | 14,707 |   | $ | 1,243 |   | $ | (30,737 | ) | $ | 14,707 |   |

 

25

----

 
| ** **                                                                                                 | ** ** | **Statement of Operations Information  Nine Months Ended September 30, 2007** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                 | ** ** | **Parent**                                                                                                            | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                                                                                 | ** ** | **(in thousands)**                                                                                               | ** ** |
| Net sales                                                                                                  |       | $                                                                                                                     | 21,688     |   | $ | 1,636,039 |   | $ | 191,392 |   | $ | 625,951 |   | $ | (225,596 | ) | $ | 2,249,474 |   |
| Cost of goods  sold                                                                                        |       | —                                                                                                                |       | 1,483,573 |   | 175,525 |   | 582,946 |   | (203,908 | ) | 2,038,136 |   |
| Gross profit                                                                                               |       | 21,688                                                                                                                |       | 152,466 |   | 15,867 |   | 43,005 |   | (21,688 | ) | 211,338 |   |
| Selling, general  and administrative expenses                                                              |       | (21,432                                                                                                               | )          | (88,436 | ) | (580 | ) | (23,701 | ) | 21,688 |   | (112,461 | ) |
| Restructuring and  other charges                                                                           |       | (281                                                                                                                  | )          | (318 | ) | (101 | ) | (799 | ) | — |   | (1,499 | ) |
| Operating income  (loss)                                                                                   |       | (25                                                                                                                   | )          | 63,712 |   | 15,186 |   | 18,505 |   | — |   | 97,378 |   |
| Interest expense                                                                                           |       | (3                                                                                                                    | )          | (23,954 | ) | (356 | ) | (5,625 | ) | 6,782 |   | (23,156 | ) |
| Interest income                                                                                            |       | 5,297                                                                                                                 |       | 2,634 |   | 788 |   | 90 |   | (6,782 | ) | 2,027 |   |
| Other income  (expense), net                                                                               |       | 28                                                                                                                    |       | (147 | ) | 8 |   | (127 | ) | — |   | (238 | ) |
| Income before  income taxes, equity in earnings of subsidiaries, minority interest and  extraordinary gain |       | 5,297                                                                                                                 |       | 42,245 |   | 15,626 |   | 12,843 |   | — |   | 76,011 |   |
| Income tax  benefit (expense)                                                                              |       | 1,175                                                                                                                 |       | (16,552 | ) | (5,713 | ) | (6,697 | ) | — |   | (27,787 | ) |
| Equity in  earnings of subsidiaries                                                                        |       | 39,360                                                                                                                |       | 13,897 |   | 29,447 |   | — |   | (82,704 | ) | — |   |
| Minority interest  in income of subsidiaries                                                               |       | —                                                                                                                |       | — |   | — |   | (2,392 | ) | — |   | (2,392 | ) |
| Extraordinary  gain                                                                                        |       | 3,539                                                                                                                 |       | 3,539 |   | 3,539 |   | 3,189 |   | (10,267 | ) | 3,539 |   |
| Net income                                                                                                 |       | $                                                                                                                     | 49,371     |   | $ | 43,129 |   | $ | 42,899 |   | $ | 6,943 |   | $ | (92,971 | ) | $ | 49,371 |   |

 

26

----

 
| ** **                                                                                                      | ** ** | **Statement of Operations Information  Nine Months Ended September 30, 2006** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                      | ** ** | **Parent**                                                                                                            | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                                                                                      | ** ** | **(in thousands)**                                                                                               | ** ** |
| Net sales                                                                                                       |       | $                                                                                                                     | 20,313     |   | $ | 1,778,817 |   | $ | 182,367 |   | $ | 490,086 |   | $ | (205,407 | ) | $ | 2,266,176 |   |
| Cost of goods  sold                                                                                             |       | —                                                                                                                |       | 1,616,989 |   | 166,225 |   | 450,554 |   | (185,094 | ) | 2,048,674 |   |
| Gross profit                                                                                                    |       | 20,313                                                                                                                |       | 161,828 |   | 16,142 |   | 39,532 |   | (20,313 | ) | 217,502 |   |
| Selling, general  and administrative expenses                                                                   |       | (20,018                                                                                                               | )          | (87,975 | ) | (788 | ) | (22,907 | ) | 20,313 |   | (111,375 | ) |
| Restructuring and  other charges                                                                                |       | (279                                                                                                                  | )          | (363 | ) | — |   | (453 | ) | — |   | (1,095 | ) |
| Asset impairment  charge                                                                                        |       | —                                                                                                                |       | (2,000 | ) | — |   | — |   | — |   | (2,000 | ) |
| Operating income  (loss)                                                                                        |       | 16                                                                                                                    |       | 71,490 |   | 15,354 |   | 16,172 |   | — |   | 103,032 |   |
| Interest expense                                                                                                |       | (13                                                                                                                   | )          | (21,115 | ) | (356 | ) | (1,728 | ) | — |   | (23,212 | ) |
| Interest income                                                                                                 |       | —                                                                                                                |       | 341 |   | 1 |   | 110 |   | — |   | 452 |   |
| Gain on sale of  investment                                                                                     |       | 5,788                                                                                                                 |       | — |   | — |   | — |   | — |   | 5,788 |   |
| Other income  (expense), net                                                                                    |       | (3                                                                                                                    | )          | 467 |   | 38 |   | (298 | ) | — |   | 204 |   |
| Income before  income taxes, equity in earnings of subsidiaries, minority interest and  extraordinary gain |       | 5,788                                                                                                                 |       | 51,183 |   | 15,037 |   | 14,256 |   | — |   | 86,264 |   |
| Income tax  expense                                                                                             |       | (2,257                                                                                                                | )          | (18,601 | ) | (5,790 | ) | (6,553 | ) | — |   | (33,201 | ) |
| Equity in  earnings of subsidiaries                                                                             |       | 46,223                                                                                                                |       | 13,881 |   | 36,976 |   | — |   | (97,080 | ) | — |   |
| Minority interest  in income of subsidiaries                                                                    |       | —                                                                                                                |       | — |   | — |   | (3,309 | ) | — |   | (3,309 | ) |
| Extraordinary  gain                                                                                             |       | 871                                                                                                                   |       | 871 |   | 871 |   | 871 |   | (2,613 | )  | 871 |   |
| Net income                                                                                                      |       | $                                                                                                                     | 50,625     |   | $ | 47,334 |   | $ | 47,094 |   | $ | 5,265 |   | $ | (99,693 | ) | $ | 50,625 |   |

 

27

----

 
| ** **                                                            | ** ** | **Statement of Cash Flows Information  Nine Months Ended September 30, 2007** | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                            | ** ** | **Parent**                                                                                                                 | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                                            | ** ** | **(in thousands)**                                                                                                    | ** ** |
| Cash flows  provided by (used for) operating activities               |       | $                                                                                                                          | 16,198     |   | $ | 84,216 |   | $ | 9,952 |   | $ | (18,236 | ) | $ | — |   | $ | 92,130 |   |
| Cash flows from  investing activities:                                |       |                                                                                                                       |       |   |   |   |   |   |   |   |   |   |   |
| Capital  expenditures                                                 |       | (529                                                                                                                       | )          | (8,424 | ) | (72 | ) | (16,366 | ) | — |   | (25,391 | ) |
| Acquisitions                                                          |       | —                                                                                                                     |       | — |   | — |   | (81,333 | ) | — |   | (81,333 | ) |
| Investment in  subsidiaries                                           |       | —                                                                                                                     |       | (18,941 | ) | — |   | — |   | 18,941 |   | — |   |
| Dividends  received                                                   |       | —                                                                                                                     |       | 1,295 |   | 237 |   | — |   | (1,532 | ) | — |   |
| Other                                                                 |       | —                                                                                                                     |       | 594 |   | — |   | — |   | — |   | 594 |   |
| Cash flows  provided by (used for) investing activities               |       | (529                                                                                                                       | )          | (25,476 | ) | 165 |   | (97,699 | ) | 17,409 |   | (106,130 | ) |
| Cash flows from  financing activities:                                |       |                                                                                                                       |       |   |   |   |   |   |   |   |   |   |   |
| Short-term  borrowings, net                                           |       | —                                                                                                                     |       | — |   | — |   | 9,862 |   | — |   | 9,862 |   |
| Repayments of  long-term debt                                         |       | —                                                                                                                     |       | — |   | — |   | (15,021 | ) | — |   | (15,021 | ) |
| Proceeds from  exercise of stock options and employee stock purchases |       | 1,697                                                                                                                      |       | — |   | — |   | — |   | — |   | 1,697 |   |
| Capital  contributions                                                |       | —                                                                                                                     |       | — |   | — |   | 17,141 |   | (17,141 | ) | — |   |
| Dividends paid                                                        |       | —                                                                                                                     |       | (237 | ) | (1,295 | ) | — |   | 1,532 |   | — |   |
| Other                                                                 |       | 2,046                                                                                                                      |       | — |   | — |   | — |   | — |   | 2,046 |   |
| Intercompany  accounts                                                |       | (19,591                                                                                                                    | )          | (85,409 | ) | (8,741 | ) | 115,541 |   | (1,800 | ) | — |   |
| Cash flows  provided by (used for) financing activities               |       | (15,848                                                                                                                    | )          | (85,646 | ) | (10,036 | ) | 127,523 |   | (17,409 | ) | (1,416 | ) |
| Effect of  exchange rate changes on cash                              |       | —                                                                                                                     |       | — |   | — |   | (1,783 | ) | — |   | (1,783 | ) |
| Net increase  (decrease) in cash and cash equivalents                 |       | (179                                                                                                                       | )          | (26,906 | ) | 81 |   | 9,805 |   | — |   | (17,199 | ) |
| Cash and cash  equivalents at beginning of period                     |       | 94                                                                                                                         |       | 44,071 |   | 2 |   | 9,326 |   | — |   | 53,493 |   |
| Cash and cash  equivalents at end of period                           |       | $                                                                                                                          | (85        | ) | $ | 17,165 |   | $ | 83 |   | $ | 19,131 |   | $ | — |   | $ | 36,294 |   |

 

28

----

 
| ** **                                                   | ** ** | **Statement of Cash Flows Information  Nine Months Ended September 30, 2006** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                   | ** ** | **Parent**                                                                                                                 | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                                   | ** ** | **(in thousands)**                                                                                                    | ** ** |
| Cash flows  provided by (used for) operating activities      |       | $                                                                                                                          | (1,679     | ) | $ | (39,324 | ) | $ | 5,701 |   | $ | (2,101 | ) | — |   | $ | (37,403 | ) |
| Cash flows from  investing activities:                       |       |                                                                                                                       |       |   |   |   |   |   |   |   |   |   |   |
| Capital  expenditures                                        |       | (69                                                                                                                        | )          | (9,935 | ) | (7 | ) | (16,985 | ) | — |   | (26,996 | ) |
| SDS acquisition,  net of cash acquired                       |       | —                                                                                                                     |       | — |   | — |   | (947 | ) | — |   | (947 | ) |
| Proceeds from  sale of investment                            |       | 8,500                                                                                                                      |       | — |   | — |   | — |   | — |   | 8,500 |   |
| Investment in  subsidiaries                                  |       | —                                                                                                                     |       | (8,900 | ) | — |   | — |   | 8,900 |   | — |   |
| Dividends  received                                          |       | —                                                                                                                     |       | — |   | 238 |   | — |   | (238 | ) | — |   |
| Other                                                        |       | —                                                                                                                     |       | 68 |   | — |   | — |   | — |   | 68 |   |
| Cash flows  provided by (used for) investing activities      |       | 8,431                                                                                                                      |       | (18,767 | ) | 231 |   | (17,932 | ) | 8,662 |   | (19,375 | ) |
| Cash flows from  financing activities:                       |       |                                                                                                                       |       |   |   |   |   |   |   |   |   |   |   |
| Repayments of  senior secured revolving credit facility, net |       | —                                                                                                                     |       | (13,049 | ) | — |   | — |   | — |   | (13,049 | ) |
| Short-term  borrowings, net                                  |       | —                                                                                                                     |       | — |   | — |   | 6,665 |   | — |   | 6,665 |   |
| Proceeds from  long-term borrowings                          |       | —                                                                                                                     |       | — |   | — |   | 7,545 |   | — |   | 7,545 |   |
| Repayments of  long-term debt                                |       | —                                                                                                                     |       | — |   | — |   | (261 | ) | — |   | (261 | ) |
| Proceeds from  common stock offering                         |       | 80,794                                                                                                                     |       | — |   | — |   | — |   | — |   | 80,794 |   |
| Proceeds from  exercise of stock options                     |       | 3,248                                                                                                                      |       | — |   | — |   | — |   | — |   | 3,248 |   |
| Capital  contributions                                       |       | —                                                                                                                     |       | — |   | — |   | 2,225 |   | (2,225 | ) | — |   |
| Dividends paid                                               |       | —                                                                                                                     |       | (238 | ) | — |   | — |   | 238 |   | — |   |
| Other                                                        |       | 958                                                                                                                        |       | — |   | — |   | — |   | — |   | 958 |   |
| Intercompany  accounts                                       |       | (92,213                                                                                                                    | )          | 97,853 |   | (5,957 | ) | 6,992 |   | (6,675 | ) | — |   |
| Cash flows  provided by (used for) financing activities      |       | (7,213                                                                                                                     | )          | 84,566 |   | (5,957 | ) | 23,166 |   | (8,662 | ) | 85,900 |   |
| Effect of  exchange rate changes on cash                     |       | —                                                                                                                     |       | — |   | — |   | 185 |   | — |   | 185 |   |
| Net increase  (decrease) in cash and cash equivalents        |       | (461                                                                                                                       | )          | 26,475 |   | (25 | ) | 3,318 |   | — |   | 29,307 |   |
| Cash and cash  equivalents at beginning of period            |       | 69                                                                                                                         |       | 395 |   | 125 |   | 7,595 |   | — |   | 8,184 |   |
| Cash and cash  equivalents at end of period                  |       | $                                                                                                                          | (392       | ) | $ | 26,870 |   | $ | 100 |   | $ | 10,913 |   | — |   | $ | 37,491 |   |

 

29

----

 

**ITEM 2.****   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

 

**General**

 

Wecurrently manufacture a portfolio of wire and cable products grouped into thefollowing segments: (i) our communications cable segment; (ii) ourNorth American magnet wire and distribution segment; (iii) our Europeanmagnet wire and distribution segment (iv) our Asia/Pacific magnet wire segment,and (iv) our copper rod segment.

 

Industrysegment financial data (including sales and operating income by industrysegment) for the three and nine months ended September 30, 2007 and 2006is included in note 13 to the accompanying condensed consolidatedfinancial statements.

 

**Overview**

** **

Our results for the three and nine months endedSeptember 30, 2007 continued to be impacted by the weakness in the U.S.residential construction market and comparative declines in demand in the NorthAmerican and European manufacturing sectors. These factors had a negativeimpact on product demand for our communications cable, North American magnetwire and distribution, European magnet wire and distribution and copper rodsegments. Our operating income for the three months ended September 30, 2007increased 12% compared to the three months ended September 30, 2006 primarilydue to positive contributions of the Invex, Simcoe and Tianjin acquisitionsdiscussed below and gross margin improvements in our communications cable andNorth American magnet wire and distribution segments which together more thanoffset volume declines in all of our business segments. For the nine monthsended September 30, 2007, our operating profits declined compared to the ninemonths ended September 30, 2006 due primarily to an estimated $20 million oftransitional gross profit gains realized in the second and third quarters of 2006attributable to the significant upward volatility in copper prices experiencedduring the first half of 2006, as well as volume declines (exclusive of theimpact of the acquisitions) in all of our business segments. In addition, weestimate that our communications cable segment experienced a $4.0 millionnegative impact on gross profit in the first quarter of 2007 as a result of anunfavorable match of copper cost to sales prices. This was the result of thecombination of lower than forecasted sales in the fourth quarter of 2006together with the decline in copper prices during the later stages of thefourth quarter of 2006 and the first half of the first quarter of 2007. Weproduced inventory early in the fourth quarter of 2006 at higher copper coststo support forecasted fourth quarter demand. Due to the significantly lowerthan forecasted fourth quarter 2006 demand this inventory was carried over to2007 and matched against lower copper price sales.

 

OnJuly 31, 2007, Essex Europe acquired all of the outstanding common stock ofInvex S.p.A. (“Invex”), a leading European magnet wire producer based in Italyfor a cash purchase price of $41.1 million. We believe the acquisition willcomplement our existing European operations and should provide near- and long-termsynergy opportunities in the areas of sales and administration, internal enamelusage, and other logistical, procurement and manufacturing arrangements. Theacquisition was accounted for using the purchase method of accounting and theresults of the acquired operations have been included in our consolidatedresults of operations from the date of acquisition. Invex is included in ourEuropean magnet wire and distribution segment.

 

On July 26, 2007, we acquiredNexans’ 80% ownership interest in a company which owns and operates a magnetwire facility located in Tianjin, China, for a cash purchase price of $9.3million. In addition to complementing our existing magnet wire manufacturingfacility in Suzhou, China, we believe this acquisition provides a significantmarket presence in the Chinese market for rectangular wires, includingcontinuous transposed cable, or CTC, and related products used primarily bylarge transformer manufacturers in high-performance power generators andtransformers. The acquisition was accounted for using the purchase method ofaccounting and the results of the acquired operations have been included in ourconsolidated results of operations from the date of acquisition. As a result ofthe Tianjin acquisition and certain management reporting changes implementedduring the third quarter of 2007, we began reporting a new segment, theAsia/Pacific magnet wire segment. The Asia/Pacific magnet wire segment includesthe Tianjin, China business and our greenfield manufacturing operations inSuzhou, China. The operations of the Suzhou facility were previously includedin the North American magnet wire and distribution segment. All prior periodsegment information has been retrospectively adjusted to reflect the currentsegment reporting structure.

 

OnApril 27, 2007, we completed the acquisition of Nexans’ magnet wire operationsin Simcoe, Ontario, Canada for a cash purchase price of $12.7 million. Weexpect the acquisition to provide us with a significant market presence in theNorth American market for rectangular wires, including CTC, and relatedproducts. The acquisition was accounted for using the purchase method ofaccounting and the results of the acquired operations have been included in ourconsolidated results

 

30

----

 

of operations from thedate of acquisition. The Simcoe operation is included in our North Americanmagnet wire and distribution segment.

 

**Resultsof Operations**

 

***Non-GAAP Financial Measures***

 

Indiscussing our results of operations below, we present supplemental net salesinformation adjusted to a constant $3.00/lb COMEX cost of copper or theequivalent Euro/kilogram LME value for our European operations, which we referto as copper-adjusted net sales or sales adjusted for a constant cost ofcopper. We also present and discuss copper-adjusted gross profit margin (grossprofit divided by copper-adjusted net sales). Copper-adjusted net sales andcopper-adjusted gross profit margin are financial measures that are notcalculated in accordance with accounting principles generally accepted in theUnited States of America, or non-GAAP financial measures. A non-GAAP financialmeasure is defined as a numerical measure of a company’s financial performance,financial position or cash flows that (i) excludes amounts, or is subjectto adjustments that have the effect of excluding amounts, that are included inthe most directly comparable measure calculated and presented in accordancewith GAAP in the statement of operations, balance sheet or statement of cashflows; or (ii) includes amounts, or is subject to adjustments that havethe effect of including amounts, that are excluded from the comparable measureso calculated and presented. We believe sales adjusted for a constant cost ofcopper and copper-adjusted gross profit margin are useful measures to aid inanalyzing period-to-period net sales and gross profit margins, particularly inperiods of changing copper prices. We also use copper-adjusted sales toevaluate performance for certain executive compensation items. Copper-adjustednet sales has distinct limitations as compared to GAAP net sales. Bycopper-adjusting net sales, in a declining copper cost environment, it may notbe apparent that net sales are declining on an actual basis. Furthermore, bycopper-adjusting gross profit margins in a rising copper cost environment, itmay not be apparent the gross profit margins are declining on an actual basis.Management compensates for these limitations by using the GAAP results inconjunction with copper-adjusted net sales and gross profit margins. Net salesadjusted for a constant cost of copper and copper-adjusted gross profit marginas used by us may not be comparable to similarly titled measures of othercompanies.

 

Inperiods prior to 2007 we presented supplemental copper-adjusted net sales andcopper-adjusted gross profit margin information using a constant $2.00/lb COMEXcost of copper. The 2007 presentation utilizes a constant $3.00/lb COMEX costof copper as management believes this more closely approximates the currentlevel of copper prices. All prior period amounts presented have been restatedto reflect a constant $3.00/lb COMEX cost of copper for our U.S. operations orthe equivalent Euro/kilogram LME cost of copper for our European operations.

 

***Three Months EndedSeptember 30, 2007 Compared to the Three Months Ended September 30,2006***

 

*Net sales*

 

Thefollowing table provides net sales and supplemental copper-adjusted salesinformation for the three months ended September 30, 2007 and 2006:

 
| ** **                                     | ** ** | **Actual**                                           | ** ** | **Copper-adjusted** | ** ** |
|------------------------------------------------|------------|------------------------------------------------------|------------|---------------------|------------|
| ** **                                     | ** ** | **Three Months Ended  September 30,** | ** ** | **%**               | ** ** | **Three Months Ended  September 30,** | ** ** | **%** | ** ** |
| ** **                                     | ** ** | **2007**                                             | ** ** | **2006**            | ** ** | **Change** | ** ** | **2007** | ** ** | **2006** | ** ** | **Change** | ** ** |
| Net sales:                                     |       |                                                 |       |                |       |   |   |   |   |   |   |   |   |
| Communications  cable                          |       | $                                                    | 213,447    |                | $          | 229,527 |   | (7 | )% | $ | 203,321 |   | $ | 224,594 |   | (9 | )% |
| North American  magnet wire and distribution   |       | 300,588                                              |       | 278,074             |       | 8 | % | 278,615 |   | 264,052 |   | 6 | % |
| European magnet  wire and distribution         |       | 194,977                                              |       | 160,826             |       | 21 | % | 183,874 |   | 150,264 |   | 22 | % |
| Asia/Pacific  magnet wire                      |       | 13,559                                               |       | —              |       |   |   | 12,247 |   | — |   |   |   |
| Copper rod                                     |       | 58,835                                               |       | 127,862             |       | (54 | )% | 51,143 |   | 109,162 |   | (53 | )% |
|                                           |       | 781,406                                              |       | 796,289             |       | (2 | )% | 729,200 |   | 748,072 |   | (3 | )% |
| Constant cost of  copper adjustment            |       | —                                               |       | —              |       |   |   | 52,206 |   | 48,217 |   |   |   |
| Total                                          |       | $                                                    | 781,406    |                | $          | 796,289 |   | (2 | )% | $ | 781,406 |   | $ | 796,289 |   | (2 | )% |
| Average daily  COMEX price per pound of copper |       | $                                                    | 3.48       |                | $          | 3.54 |   | (2 | )% |   |   |   |   |   |   |

 

31

----

 

Consolidatedsales for the three months ended September 30, 2007 were$781.4 million, a decrease of 2% as compared to consolidated sales of$796.3 million for the quarter ended September 30, 2006. Salesadjusted for a constant cost of copper decreased 3% for the quarter endedSeptember 30, 2007. Volume declines in all of our business segments werepartially offset by the impact of the Simcoe, Tianjin and Invex acquisitions,which accounted for sales of $81.8 million and copper-adjusted sales of $75.1million for the three months ended September 30, 2007, and, to a lesser extent,the positive effects on our European magnet wire and distribution segment’ssales of the strengthening Euro to U.S. dollar conversion rate.

 

Salesfor our communications cable segment for the September 30, 2007 quarterwere $213.4 million, a decrease of 7%, as compared to sales of$229.5 million for the quarter ended September 30, 2006. Salesadjusted for a constant cost of copper decreased 9%. The copper-adjusteddecrease primarily reflects declines in copper outside plant, or OSP, unitvolume attributable to overall decreases in market-related demand due to theslowdown in new home construction, continued loss of access lines by majortelephone companies and the increased use of fiber optic cable in telephonenetworks.

 

Salesfor our North American magnet wire and distribution segment were$300.6 million for the quarter ended September 30, 2007, an increaseof 8% as compared to the prior year. On a copper-adjusted basis, sales for thequarter ended September 30, 2007 increased 6% from the same quarter in theprior year. Sales and copper-adjusted sales for the three months endedSeptember 30, 2007 include $34.4 million and $31.3 million, respectively,attributable to the Simcoe acquisition. Excluding the effects of the Simcoeacquisition, copper-adjusted sales decreased 6% for the three months endedSeptember 30, 2007 compared to the three months ended September 30, 2006principally due to volume declines resulting from weakness in the heating,ventilation and air conditioning, heavy appliance and other end markets tied toresidential construction activity.

 

Salesfor the European magnet wire and distribution segment were $195.0 million forthe three months ended September 30, 2007 compared to $160.8 million for thethree months ended September 30, 2006, an increase of 21%. On a copper-adjustedbasis, sales increased 22% for the three months ended September 30, 2007compared to the prior year quarter. The sales increase reflects sales andcopper-adjusted sales of $35.9 million and $33.4 million, respectively, for thequarter ended September 30, 2007 resulting from the Invex acquisition and, to alesser extent, the positive effects of the strengthening Euro against the U.S.dollar. These positive factors more than offset volume declines as compared tothe 2006 quarter. Excluding the effects of the Invex acquisition and thestrengthening Euro against the U.S. dollar, copper adjusted sales decreased 7%for the three months ended September 30, 2007 compared to the three monthsended September 30, 2006. The decrease in volume was primarily the result ofreductions in unit volumes due to a planned rationalization of low margincustomers implemented in the first quarter of 2007 together with some softeningin the third quarter of 2007 in overall European industrial and economicactivity.

 

Salesfor the Asia/Pacific magnet wire segment for the three months ended September30, 2007 consist of $11.5 million of revenues from the Tianjin acquisition and$2.1 million related to our greenfield operation in Suzhou, China which beganinitial commercial production in the first quarter of 2007.

 

Copperrod sales for the three months ended September 30, 2007 were$58.8 million compared to $127.9 million for the comparable 2006period. On a copper-adjusted basis, sales for our copper rod segment decreasedby 53% for the three months ended September 30, 2007 compared to the prioryear period. The copper-adjusted decrease in the 2007 quarter reflects aplanned reduction in total copper rod production, including a rationalizationof third-party copper rod sales, as well as reduced demand primarilyattributable to weak construction markets. Copper rod segment sales consistprimarily of external sales of processed copper rod that cannot be used forinternal production. Copper rod volumes fluctuate from period to period due tochanges in internal consumption needs and external market conditions.

 

*Gross profit*

 

Forthe quarter ended September 30, 2007, gross profit was $75.6 million,an increase of $3.3 million, or 5%, as compared to the prior year quarter. Theincrease is primarily due to gross profit contributions of the Simcoe, Invexand Tianjin acquisitions ($5.6 million) and gross margin improvements in ourcommunications cable and North American magnet wire and distribution segments.These positive factors more than offset an estimated $6.6 million oftransitional gross profit gains realized in the third quarter of 2006 asdiscussed above, as well as volume declines (exclusive of the impact of theacquisitions) in all of our business segments.

 

Thegross profit margin in the 2007 quarter was 9.7% compared to 9.1% for the samequarter in 2006. Gross profit margin on a copper-adjusted basis was 10.4% forthe three months ended September 30, 2007 compared to 9.7% for the three

 

32

----

 

months ended September 30,2006. The comparative gross profit margins and copper-adjusted gross profitmargins were significantly impacted by the effect of the comparative salesdecline for the copper rod segment, whose sales generally allow for fixed costrecovery at gross profit margins that are generally break even. Accordingly,the decrease in copper-adjusted sales in the copper rod segment for the threemonths ended September 30, 2007 compared to the three months ended September30, 2006 did not result in a proportionate reduction in gross profit. Thecombined copper-adjusted gross margin for our communications cable, NorthAmerican  and European magnet wire anddistribution segments, which contributed substantially all of our gross profit,was 11.3% for the three months ended September 30, 2007 compared to 11.3% forthe three months ended September 30, 2006. Copper-adjusted gross profit marginsin our communications cable business increased for the 2007 quarter compared tothe prior year quarter despite an estimated $5 million of transitional copperbenefits experienced in the third quarter of 2006 due to the positive impact in2007 of price increases, production cost reduction activities and higher marginpremises product mix. Copper-adjusted gross profit margin for our NorthAmerican magnet wire and distribution business for the three months endedSeptember 30, 2007 increased compared to the prior year quarter due to anumber of factors including manufacturing cost reductions, and improved pricingand product mix. Copper-adjusted gross profit margin for the European magnetwire and distribution segment decreased for the three months ended September30, 2007 compared to the prior year quarter due primarily to the comparativeeffect of transitional copper benefits realized in the third quarter of 2006and unfavorable product mix. Gross profit for the three months ended September30, 2007 for our Asia/Pacific magnet wire segment was negligible as grossprofit contributed by the Tianjin business was substantially offset by negativegross margins incurred in our Suzhou start-up operation.

 

*Selling, general and administrative expenses*

 

Selling,general and administrative expenses (“SG&A expense”) of $38.9 million forthe three month period ended September 30, 2007 increased $1.4 million ascompared to SG&A expense of $37.5 million for the three months endedSeptember 30, 2006 due primarily to the effects of the current yearacquisitions and increased corporate expenses related to legal and professionalfees primarily incurred in connection with the Exeon litigation (see note 11 tothe consolidated financial statements). These increases were partially offsetby decreases in incentive compensation and pension expense.

 

*Restructuring and other charges and asset impairments*

 

Duringthe three months ended September 30, 2007 we recorded restructuring and othercharges of $0.2 million consisting of $0.1 million of facility exit costsrelated to a closure of a North American magnet wire and distribution segmentwarehouse and $0.1 million of professional fees incurred in connection with theadministration of Superior TeleCom’s plan of reorganization. Restructuring andother charges of $0.1 million for the three months ended September 30, 2006consisted primarily of professional fees incurred in connection with theadministration of Superior TeleCom’s plan of reorganization.

 

Duringthe third quarter of 2006 we recorded an impairment charge of $2.0 millionrelated to an owned warehouse which was closed in the first quarter of 2006 andclassified as held for sale. The impairment charge was recorded as a result ofongoing evaluations of current market conditions in the area where the propertyis located. The warehouse was previously operated by the North American magnetwire and distribution segment.

 

*Operating income*

 

Thefollowing table sets forth information regarding our operating income bysegment for the three months ended September 30, 2007 and 2006. We measure oursegment operating performance based primarily on segment operating income, excludingrestructuring and other charges and asset impairments.

 
| ** **                                             | ** ** | **2007**                | ** ** | **2006** | ** ** |
|--------------------------------------------------------|------------|-------------------------|------------|----------|------------|
| ** **                                             | ** ** | **(in thousands)** | ** ** |
| Operating income  (loss)                               |       |                    |       |     |       |
| Communications  cable                                  |       | $                       | 26,352     |     | $          | 26,360 |   |
| North American  magnet wire and distribution           |       | 13,974                  |       | 10,688   |       |
| European magnet  wire and distribution                 |       | 4,667                   |       | 5,379    |       |
| Asia/Pacific  magnet wire                              |       | (397                    | )          | (570     | )          |
| Copper rod                                             |       | (59                     | )          | (194     | )          |
| Corporate and  other                                   |       | (7,770                  | )          | (6,834   | )          |
| Restructuring  and other charges and asset impairments |       | (212                    | )          | (2,117   | )          |
|                                                   |       | $                       | 36,555     |     | $          | 32,712 |   |

 

33

----

 

Operatingincome for the communications cable segment was relatively unchanged for thethree months ended September 30, 2007 compared to the 2006 quarter as grossmargin improvements offset the impact of volume declines and a $0.4 millionincrease in SG&A expenses. Operating income for our North American magnetwire and distribution segment increased $3.3 million due primarily to theimpact of the Simcoe acquisition and a $0.5 million reduction in SG&Aexpenses. Operating income for the European magnet wire and distributionsegment decreased $0.7 million for the three months ended September 30, 2007compared to the three months ended September 30, 2006. The decrease reflectsgross profit decreases attributable to the factors discussed above partiallyoffset by the positive impact of the Invex acquisition and currency exchangerates. The operating loss for the Asia/Pacific magnet wire segment for thethree months ended September 30, 2006 consists of start-up costs incurred inconnection with our Suzhou operation. The operating loss for the three monthsended September 30, 2007 reflects losses incurred by the Suzhou operationprimarily due to negative gross margins realized on initial sales partiallyoffset by the impact of the Tianjin acquisition. The copper rod segment’soperating loss decreased slightly for the three months ended September 30, 2007compared to the prior year quarter due primarily to reduced SG&A expense.Copper rod sales generally allow for fixed cost recovery at gross profitmargins that are generally break even. Corporate and other charges consistprimarily of parent company and corporate payroll costs, including stock-basedcompensation charges, corporate headquarters costs and corporate professionalfees and compliance costs and increased $0.9 million for the three months endedSeptember 30, 2007 compared to the three months ended September 30, 2006primarily due to increased legal and professional fees primarily incurred inconnection with the Exeon litigation (see note 11 to the consolidated financialstatements). Consolidated operating income for the three months ended September30, 2007 included restructuring and other charges of $0.2 million comparedto $0.1 million of such charges in the 2006 quarter, the components ofwhich are discussed above. In addition, we recorded a $2.0 million assetimpairment charge in the 2006 quarter as discussed above.

 

*Interest expense*

 

Interestexpense for the quarter ended September 30, 2007 was $8.0 million comparedto interest expense of $7.1 million for the quarter ended September 30,2006. The increase in interest expense in the 2007 quarter reflects interestexpense associated with borrowings to finance the Invex operation as well asour China operations in Tianjin and Suzhou.

 

*Income tax expense*

 

Oureffective income tax rate for the three months ended September 30, 2007was 31% compared to an effective tax rate of 39% for the three months endedSeptember 30, 2006. Tax expense for the three months ended September 30,2007 is net of a benefit of $2.4 million related to recognition of previouslyunrecognized tax benefits primarily as a result of statutes of limitationsclosing in certain tax jurisdictions. Excluding this benefit, the effective taxrate for the three months ended September 30, 2007 was 39% and exceeds theU.S. statutory rate of 35% due to the effects of state and foreign taxes andvaluation allowances established for net operating losses related to ourSuzhou, China operation.

 

34

----

 

***Nine Months Ended September 30, 2007Compared to the Nine Months Ended September 30, 2006***

 

*Net sales*

 

Thefollowing table provides net sales and supplemental copper-adjusted salesinformation for the nine months ended September 30, 2007 and 2006:

 
| ** **                                     | ** ** | **Actual**                                          | ** ** | **Copper-adjusted** | ** ** |
|------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------|------------|
| ** **                                     | ** ** | **Nine Months Ended  September 30,** | ** ** | **%**               | ** ** | **Nine Months Ended  September 30,** | ** ** | **%** | ** ** |
| ** **                                     | ** ** | **2007**                                            | ** ** | **2006**            | ** ** | **Change** | ** ** | **2007** | ** ** | **2006** | ** ** | **Change** | ** ** |
| Net sales:                                     |       |                                                |       |                |       |   |   |   |   |   |   |   |   |
| Communications  cable                          |       | $                                                   | 665,183    |                | $          | 653,235 |   | 2 | % | $ | 652,262 |   | $ | 713,392 |   | (9 | )% |
| North American  magnet wire and distribution   |       | 843,347                                             |       | 785,951             |       | 7 | % | 818,321 |   | 827,108 |   | (1 | )% |
| European magnet  wire and distribution         |       | 530,911                                             |       | 473,705             |       | 12 | % | 521,572 |   | 487,441 |   | 7 | % |
| Asia/Pacific  magnet wire                      |       | 13,966                                              |       | —              |       |   |   | 12,627 |   | — |   |   |   |
| Copper rod                                     |       | 196,067                                             |       | 353,285             |       | (45 | )% | 188,031 |   | 349,711 |   | (46 | )% |
|                                           |       | 2,249,474                                           |       | 2,266,176           |       | (1 | )% | 2,192,813 |   | 2,377,652 |   | (8 | )% |
| Constant cost of  copper adjustment            |       | —                                              |       | —              |       |   |   | 56,661 |   | (111,476 | ) |   |   |
| Total                                          |       | $                                                   | 2,249,474  |                | $          | 2,266,176 |   | (1 | )% | $ | 2,249,474 |   | $ | 2,266,176 |   | (1 | )% |
| Average daily  COMEX price per pound of copper |       | $                                                   | 3.22       |                | $          | 3.06 |   | 5 | % |   |   |   |   |   |   |

 

Consolidatedsales for the nine months ended September 30, 2007 were $2,249.5 millioncompared to $2,266.2 million for the nine months ended September 30, 2006.Sales for the 2007 period as compared to the 2006 period were significantlyimpacted by the increase in average copper prices. Sales adjusted for aconstant cost of copper decreased 8% for the nine months ended September 30,2007 compared to the nine months ended September 30, 2006. Volume declines inall of our business segments were partially offset by the impact of the Simcoe,Tianjin and Invex acquisitions, which accounted for sales of $103.1 million andcopper-adjusted sales of $94.7 million for the nine months ended September 30,2007, and, to a lesser extent, the positive effects on our European magnet wireand distribution segment’s sales of the strengthening Euro to U.S. dollarconversion rate.

 

Salesfor our communications cable segment for the nine months ended September 30,2007 were $665.2 million, an increase of 2%, as compared to sales of$653.2 million for the nine months ended September 30, 2006. Salesadjusted for a constant cost of copper decreased 9%. The copper-adjusteddecrease primarily reflects declines in copper OSP unit volume attributable tooverall decreases in market-related demand due to the slowdown in new homeconstruction, the absence of hurricane restoration demand as compared to 2006,continued loss of access lines by major telephone companies and the increaseduse of fiber optic cable in telephone networks. The decline in copper-adjustedOSP sales was partially offset by a 12% increase in premise wire product sales.We believe the 2007 increase in our premise product sales reflects an increasein our market share and improved pricing as compared to the nine months endedSeptember 30, 2006.

 

Salesfor our North American magnet wire and distribution segment were$843.3 million for the nine months ended September 30, 2007, an increaseof 7% as compared to the prior year nine-month period. On a copper-adjustedbasis, sales for the nine months ended September 30, 2007 decreased 1% from thesame period in the prior year. Sales for the nine months ended September 30,2007 include sales and copper-adjusted sales of $55.7 million and $51.0million, respectively, attributable to the Simcoe acquisition. Excluding theeffects of the Simcoe acquisition, copper-adjusted sales decreased 7% for thenine months ended September 30, 2007 compared to the nine months endedSeptember 30, 2006 principally due to volume declines resulting from weaknessin the heating, ventilation and air conditioning, heavy appliance and other endmarkets tied to residential construction activity.

 

Salesfor the European magnet wire and distribution segment were $530.9 million forthe nine months ended September 30, 2007 compared to $473.7 million for thenine months ended September 30, 2006, an increase of 12%. On a copper-adjustedbasis, sales increased 7% for the nine months ended September 30, 2007 comparedto the prior year nine-month period. Sales and copper adjusted sales of $35.9million and $33.4 million, respectively, for the nine months ended September30, 2007 resulting from the Invex acquisition and the positive effects of thestrengthening Euro against the U.S.

 

35

----

 

dollar offset volumedeclines as compared to the 2006 nine-month period. Excluding the effects ofthe Invex acquisition and the strengthening Euro against the U.S. dollar,copper adjusted sales decreased 7% for the nine months ended September 30, 2007compared to the nine months ended September 30, 2006. This decrease wasprimarily the result of reductions in unit volumes due to a planned rationalizationof low margin customers implemented in the first quarter of 2007 together withsome softening in the third quarter of 2007 in overall European industrial andeconomic activity.

 

Salesfor the Asia/Pacific magnet wire segment for the nine months ended September30, 2007 consist of $11.5 million of revenues from the Tianjin acquisition and$2.5 million related to our greenfield operation in Suzhou, China which beganinitial commercial production in the first quarter of 2007.

 

Copperrod sales for the nine months ended September 30, 2007 were $196.1 millioncompared to $353.3 million for the comparable 2006 nine-month period. On acopper-adjusted basis, sales for our copper rod segment decreased by 46% forthe nine months ended September 30, 2007 compared to the prior yearnine-month period. The copper-adjusted decrease in the 2007 period reflects aplanned reduction in total copper rod production including a rationalization ofthird-party copper rod sales and an increase in the percentage of copper rodused for internal production, including copper rod used in our acquired SimcoeCanadian operations.

 

*Gross profit*

 

Forthe nine months ended September 30, 2007, gross profit was $211.3 million,a decrease of $6.2 million, or 3%, as compared to the prior year nine-monthperiod. The decrease was primarily due to the estimated $20 million oftransitional gross profit gains realized in the second and third quarters of2006, a $4.0 million negative impact on gross profit for the first quarter of2007 as a result of an unfavorable match of copper cost to sales prices asdiscussed above, and volume declines (excluding the effects of the Simcoe,Invex and Tianjin acquisitions) in all of our business segments. These negativefactors were partially offset by the positive impact of price increases, lowerproduction costs and improved product mix in our communications cable segment,the acquisitions and favorable foreign currency exchange rate translation inour European magnet wire and distribution segment.

 

The grossprofit margin for the nine months ended September 30, 2007 was 9.4% compared to9.6% for the same nine-month period in 2006. Gross profit margin on acopper-adjusted basis was 9.6% for the nine months ended September 30,2007 compared to 9.1% for the nine months ended September 30, 2006. Thecomparative copper-adjusted gross profit margins were significantly impacted bythe effect of the sales decline for the copper rod segment, whose salesgenerally allow for fixed cost recovery at gross profit margins that aregenerally break even. Accordingly, the decrease in copper-adjusted sales in thecopper rod segment for the nine months ended September 30, 2007 compared to thenine months ended September 30, 2006 did not result in a proportionatereduction in gross profit. The combined copper-adjusted gross margin for ourcommunications cable, North American and European magnet wire and distributionsegments, which contribute substantially all of our gross profit, was 10.7% forthe nine months ended September 30, 2007 compared to 10.7% for the nine monthsended September 30, 2006. Copper-adjusted gross profit margins in ourcommunications cable business increased for the nine months ended September 30,2007 compared to the prior year nine-month period due primarily to priceincreases, production cost reduction activities and higher margin premisesproduct mix which more than offset an estimated $14 million of transitionalcopper benefits experienced in the second and third quarters of 2006 as well asthe first quarter 2007 $4.0 million unfavorable copper cost negative impactdiscussed above. Copper-adjusted gross profit margin for our North Americanmagnet wire and distribution business for the nine months endedSeptember 30, 2007 increased compared to the prior year nine-month perioddue to a number of factors, including manufacturing cost reductions, improvedpricing and product mix,****which morethan offset the comparative effect of transitional copper and LIFO costbenefits realized in the second and third quarters of 2006. Copper-adjustedgross profit margin for the European magnet wire and distribution segmentdecreased for the nine months ended September 30, 2007 compared to the ninemonths ended September 30, 2006 due primarily to the comparative effect of transitionalcopper benefits realized in the second and third quarters of 2006 andunfavorable product mix partially offset by the positive impact of the plannedrationalization of low margin customers implemented in the first quarter of2007.

 

*Selling, general and administrative expenses*

 

Selling,general and administrative expenses (“SG&A expense”) of $112.5 million forthe nine months ended September 30, 2007 increased $1.1 million as compared toSG&A expense of $111.4 million for the nine months ended September 30, 2006primarily due to increased legal and professional fees, primarily incurred inconnection with the Exeon litigation (see note 11 to the consolidated financialstatements), and stock-based compensation charges.

 

36

----

 

*Restructuring and other charges and asset impairments*

 

Duringthe nine months ended September 30, 2007, we recorded a restructuring provisionof $0.3 million related to a workforce reduction at our European magnet wireand distribution segment’s Viana de Castelo, Portugal manufacturing facility.The majority of the costs related to severance payments and related benefits.All amounts are expected to be paid during 2007. We also recorded restructuringand other charges of $0.4 million of facility exit costs related to closure offormer North American magnet wire and distribution segment warehouses, $0.4million of deferred business acquisition costs and $0.3 million of professionalfees incurred in connection with the administration of Superior TeleCom’s planof reorganization. During the nine months ended September 30, 2006, EssexEurope recorded a restructuring provision of $0.9 million related toworkforce reductions at its U.K. magnet wire operation. In addition,restructuring and other charges for the nine months ended September 30, 2006included $0.3 million of ongoing facility exit costs primarily related to theclosure of an insulation manufacturing facility in our North American magnetwire and distribution segment and $0.3 million of professional feesincurred in connection with the administration of Superior TeleCom’s plan ofreorganization. These charges were offset by a $0.4 million gain on thefavorable settlement of an employee related dispute in our European magnet wireand distribution segment.

 

Duringthe nine months ended September 30, 2006 we recorded an impairment charge of$2.0 million related to an owned warehouse which was closed in the firstquarter of 2006 and classified as held for sale. The impairment charge wasrecorded as a result of ongoing evaluations of current market conditions in thearea where the property is located. The warehouse was previously operated bythe North American magnet wire and distribution segment.

 

*Operating income*

 

Thefollowing table sets forth information regarding our operating income bysegment for the nine months ended September 30, 2007 and 2006. We measure oursegment operating performance based primarily on segment operating income,excluding restructuring and other charges.

 
| ** **                                             | ** ** | **2007**                | ** ** | **2006** | ** ** |
|--------------------------------------------------------|------------|-------------------------|------------|----------|------------|
| ** **                                             | ** ** | **(in thousands)** | ** ** |
| Operating income  (loss)                               |       |                    |       |     |       |
| Communications  cable                                  |       | $                       | 70,264     |     | $          | 77,167 |   |
| North American  magnet wire and distribution           |       | 36,307                  |       | 33,795   |       |
| European magnet  wire and distribution                 |       | 16,523                  |       | 16,259   |       |
| Asia/Pacific  magnet wire                              |       | (2,523                  | )          | (965     | )          |
| Copper rod                                             |       | (241                    | )          | (77      | )          |
| Corporate and  other                                   |       | (21,453                 | )          | (20,052  | )          |
| Restructuring  and other charges and asset impairments |       | (1,499                  | )          | (3,095   | )          |
|                                                   |       | $                       | 97,378     |     | $          | 103,032 |   |

 

Operatingincome for the communications cable segment decreased $6.9 million for the ninemonths ended September 30, 2007 compared to the 2006 nine-month period due to adecrease in gross profit attributable to the factors discussed above combinedwith an increase in SG&A expense of $1.2 million due primarily to highersales commissions in 2007 associated with increased premise product sales.Operating income for our North American magnet wire and distribution segmentfor the nine months ended September 30, 2007 increased $2.5 million as comparedto the nine months ended September 30, 2006 due primarily to higher grossprofit attributable to improved gross margins and the Simcoe acquisition and a$1.6 million reduction in SG&A expenses primarily resulting from loweremployee compensation and benefit costs. Operating income for the Europeanmagnet wire and distribution segment increased $0.3 million for the nine monthsended September 30, 2007 compared to the nine months ended September 30, 2006due to the positive impact of the Invex acquisition and currency exchangerates. The operating loss for the Asia/Pacific magnet wire segment for the ninemonths ended September 30, 2006 represents start-up costs incurred inconnection with our Suzhou operations. Additional losses incurred by the Suzhouoperation for the nine months ended September 30, 2007 primarily due tonegative gross margins realized on initial sales were partially offset by theTianjin operations. The copper rod segment’s operating loss increased slightlyfor the nine months ended September 30, 2007 compared to the prior yearnine-month period due primarily to lower gross profit resulting from decreasedsales volume partially offset by reduced SG&A expense. Copper rod salesgenerally allow for fixed cost recovery at gross profit margins that aregenerally break even. Corporate and other charges consist primarily of parentcompany and corporate payroll costs, including stock-based compensationcharges, corporate headquarters costs and corporate professional fees andcompliance costs. The increase in corporate and other costs for the nine monthsended September 30, 2007 compared to the nine months ended September 30,2006 is primarily due to increased stock-based compensation and legal andprofessional fees. Consolidated operating

 

37

----

 

income for the ninemonths ended September 30, 2007 included restructuring and other charges andasset impairment charges of $1.5 million compared to $3.1 million ofsuch charges in the 2006 nine-month period, the components of which arediscussed above.

 

*Interest expense, interest income and other income (expense)*

 

Interestexpense for the nine months ended September 30, 2007 was $23.2 millioncompared to interest expense of $23.2 million for the nine months endedSeptember 30, 2006. Decreases in interest expense due to the fact that wehad no borrowings outstanding on our senior secured credit facility during thenine months ended September 30, 2007 were offset  by increases in interest expense onborrowings to finance our greenfield China operation and interest expense onborrowings to finance the Invex and Tianjin operations. Interest incomeincreased $1.5 million for the nine months ended September 30, 2007 compared tothe same period in the prior year due to interest earned on positive cashbalances outstanding during the 2007 nine-month period. Increased cash balancesprimarily reflect the benefit from positive operating cash flow generated inthe second half of 2006 and in the first half of 2007.

 

*Income tax expense*

 

Oureffective income tax rate for the nine months ended September 30, 2007 was37% compared to an effective tax rate of 38% for the nine months endedSeptember 30, 2006. Tax expense for the nine months ended September 30,2007 is net of a benefit of $2.4 million related to recognition of previously unrecognizedtax benefits primarily as a result of statutes of limitations closing incertain tax jurisdictions. Excluding this benefit, the effective tax rate forthe nine months ended September 30, 2007 was 40% and exceeds the U.S.statutory rate of 35% due to the effects of state and foreign taxes andvaluation allowances established for net operating losses related to ourSuzhou, China operation. The increase in the effective tax rate (exclusive ofthe benefit recognized for previously unrecognized tax benefits) for the ninemonths ended September 30, 2007 compared to the nine months ended September 30,2006 is due primarily to valuation allowances established for net operatinglosses related to our Suzhou, China operation.

 

*Extraordinary gains*

 

OnJune 27, 2007, we exercised our option to purchase Nexans’ 40% minorityinterest in Essex Europe for a cash payment of $29.4 million, includingacquisition costs of $0.1 million. The acquisition of the minority interest hasbeen accounted for using the purchase method of accounting. The preliminaryallocation of the purchase price resulted in unallocated negative goodwill of$3.5 million which has been reflected as an extraordinary gain in the statementof operations for the nine months ended September 30, 2007. We are in theprocess of finalizing certain asset and liability valuations and therefore theallocation of the purchase price, including the amount of unallocated negativegoodwill, is subject to refinement and adjustment.

 

On January 4, 2006, Essex Europe acquired all ofthe outstanding capital stock of Societe de Distribution et de Services, orSDS, from Nexans. The acquisition of SDS was accounted for as a purchase. Theallocation of the purchase price resulted in unallocated negative goodwill of$1.5 million which was reflected as an extraordinary gain (net of minorityinterest of $0.6 million) in the statement of operations for the ninemonths ended September 30, 2006.

 

***Other matters***

 

The collective bargaining agreement at our Vincennes,Indiana magnet wire facility, representing approximately 10% of our U.S. workforce, expired on October 1, 2007. The Vincennes facility is one of the Company’sfive magnet wire manufacturing facilities in the United States. Management andunion representatives continue to negotiate to reach a mutually acceptableagreement, but there can be no assurance that these negotiations will besuccessful. A protracted strike or work stoppage could have a material adverseaffect on our operations and financial results.

 

38

----

 

**Liquidityand Capital Resources**

 

***Cash from Operating, Investing andFinancing Activities***

 

Wereported cash provided by operating activities of $92.1 million for thenine months ended September 30, 2007 compared to cash used by operatingactivities of $37.4 million for the nine months ended September 30,2006. Cash provided by operating activities for the nine months endedSeptember 30, 2007 includes a net working capital decrease of$9.4 million compared to a net working capital increase of $116.5 millionfor the nine months ended September 30, 2006. The increase in cash provided byoperating activities for the nine months ended September 30, 2007 compared tothe nine months ended September 30, 2006 is primarily due to the impact ofcopper prices on working capital. Copper prices increased 75% for the thirdquarter of 2006 compared to the fourth quarter of 2005 resulting in anestimated $100 million increase in working capital for the nine months endedSeptember 30, 2006. Conversely, average copper prices for the third quarter of2007 increased only 9% as compared to the fourth quarter of 2006. The effectsof this moderate increase in copper prices was more than offset by a decreasein inventories due to reduced production in response to lower sales volumes,particularly in the communications cable segment, and reduced estimated U.S.income tax payments due primarily to the application of overpayments from 2006.Cash used by investing activities for the nine months ended September 30, 2007includes payments of $95.4 million ($77.2 million net of cash acquired) for theacquisition of Nexans’ 40% minority interest in Essex Europe ($29.4 million),the Simcoe acquisition ($13.6 million), the Invex acquisition ($42.4 million), andthe Tianjin acquisition ($10.0 million), as well as $4.1 million of additionalcontingent consideration paid to Nexans based on the achievement of specifiedlevels of profitability by Essex Europe in 2006. All of these payments werefinanced with cash on hand. Cash provided by financing activities for the ninemonths ended September 30, 2006 amounted to $85.9 million primarily due to$80.8 million of proceeds received from our common stock offering in June andJuly of 2006. Outstanding borrowings under the senior secured revolving creditfacility were fully repaid in the second quarter of 2006 with the proceeds fromthe offering. Cash used for financing activities of $1.4 million for the ninemonths ended September 30, 2007 includes the $15.0 million repayment of EssexEurope’s subordinated note which was accelerated as a result of our acquisitionof Nexans’ minority interest. Repayment of the subordinated note was financedby borrowing under the Essex Europe factoring agreement. Cash from financingactivities for the nine months ended September, 30, 2007 also includes $5.2million of borrowings under our credit facility in China used to financestart-up operations in Suzhou, China.

 

***Liquidity and Capital Resources***

 

Our principal cash requirements generally includefunding of our working capital, interest payments on our senior securedrevolving credit facility and the 9% senior notes, dividend payments on oursubsidiary’s series A preferred stock, interest payments on the EssexEurope factoring agreement, interest payments on the China term and workingcapital loans, redemption of Invex’s €6 million convertible bonds, ongoingcapital expenditures currently estimated at approximately $35 million to $45million annually, and obligations related to our defined benefit pension plans.Copper prices have increased during the first half of 2007 as compared toyear-end 2006. Significant increases in the price of copper and the resultantincrease in accounts receivable and, to a lesser degree, inventory, impact ourworking capital funding requirements.

 

OnJuly 31, 2007, Essex Europe acquired all of the outstanding common stock ofInvex S.p.A., a leading magnet wire producer in Europe based in Italy withsales of €213 million in 2006. The cash purchase price of $41.1 million wasfinanced with cash on hand. Invex currently has outstanding €6 million ($8.5million at September 30, 2007) of convertible bonds. The bonds are unsecuredand bear interest at the rate of 3% per annum. The bonds are payable atmaturity in January 2010. The bonds are convertible into 6,000,000 shares ofInvex common stock at maturity provided the bondholders give notice of exerciseduring the period from October 1, 2009 to December 20, 2009. The bonds may beredeemed in whole, but not in part, at any time prior to September 30, 2009 atpar value plus accrued and unpaid interest. The conversion right is terminatedupon early redemption. We expect to redeem the bonds prior to September 30,2009, thus eliminating the conversion right.

 

Inorder to finance its ongoing increased working capital requirements, EssexEurope entered into a new factoring agreement in July 2007 to replace theirexisting factoring agreement. Under the new agreement, as subsequently amended,the amount of advances available to Essex Europe is limited to 85% of assignedreceivables up to a maximum of €90 million ($128 at September 30, 2007).Advances under the new agreement bear interest at the monthly average of theEuropean Overnight Index Average rate plus 0.35%. The new factoring agreementexpires in July 2010.

 

OnJuly 26, 2007, we acquired Nexans’ 80% ownership interest in a companywhich owns and operates a magnet wire facility located in Tianjin, China, for acash purchase price of $9.3 million. In connection with the acquisition, the

 

39

----

 

Tianjin company entered into a new credit agreement toprovide up to Chinese Yaun Renminbi (“RMB”) 170 million ($22.6 million atSeptember 30, 2007) to refinance existing debt and provide working capitalfinancing. Borrowings under the agreement bear interest at 90% of the basic RMBlending rate published by the Bank of China. The agreement expires in July2008. A total of $14.0 million was drawn and outstanding at September 30, 2007.

 

On April 27, 2007, we acquired certain assets andassumed certain liabilities related to Nexans’ remaining North American magnetwire business in Simcoe, Canada, for a cash purchase price, after adjustment,of $12.7 million funded with cash on hand.

 

In April 2007, we paid $4.1 million of additionalcontingent consideration to Nexans based on the achievement of specified levelsof profitability by Essex Europe in 2006 as provided for in the contributionand formation agreement establishing Essex Europe. In addition, on June 27,2007, pursuant to our call option under the shareholders agreement, we acquiredNexans’ 40% minority interest in Essex Europe for a cash payment of $29.3million. In accordance with its terms, the Essex Europe subordinated notepayable in the amount of $15.0 million was repaid as a result of our purchaseof Nexans’ 40% interest. These transactions were financed by our cash on handand borrowings under Essex Europe’s factoring agreement.

 

In the second quarter of 2007 our subsidiary, EssexMagnet Wire (Suzhou) Ltd. borrowed RMB 40.0 million ($5.3 million at September30, 2007) under a short-term working capital loan agreement. The loan bearsinterest at the rate of 6.39% and is repayable in two equal installments inApril 2008 and May 2008.

 

We believe that cash provided by operations andborrowing availability under our amended and restated senior secured revolvingcredit facility ($224.2 million undrawn and available at September 30,2007), the Essex Europe factoring agreement, and the Tianjin credit facility,together with our cash on hand ($36.3 million at September 30, 2007), willbe sufficient to meet our obligations and fund our working capital requirementsfor the foreseeable future.

 

**NewAccounting Pronouncements**

 

We adopted the provisionsof FASB Interpretation No. 48, *Accountingfor Uncertainty in Income Taxes* (FIN48), on January 1, 2007. FIN 48prescribes a consistent recognition threshold and measurement attribute, aswell as establishes criteria for subsequently recognizing, derecognizing andmeasuring uncertain tax positions for financial statement purposes. As a resultof the implementation of FIN 48, we recognized a net increase of $6.6 millionin the liability for unrecognized tax benefits, which was accounted for as adecrease to the January 1, 2007 balance of retained earnings of $6.3 millionand a decrease in minority interest in consolidated subsidiaries of $0.3million. As of the date of adoption and after the impact of recognizing theincrease in liability noted above, our net liability for unrecognized taxbenefits totaled $9.1 million, all of which, if recognized, would affect theannual effective income tax rate.

 

We recognize potentialinterest and penalties related to unrecognized tax benefits as a component ofincome tax expense. The liability for unrecognized tax benefits of $9.1 millionat January 1, 2007 includes approximately $2.1 million for potential interestand penalties associated with uncertain tax positions. During the nine monthsended September 30, 2007, we incurred an income tax expense charge of $1.2million for uncertain tax positions and $0.4 million for potential interest andpenalties associated with uncertain tax positions. Additionally, during thequarter ended September 30, 2007 we recognized a net of a benefit of $2.4million related to recognition of previously unrecognized tax benefitsprimarily as a result of statutes of limitations closing in certain taxjurisdictions

 

In September 2006, theFASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”).SFAS No. 157 establishes a common definition for fair value to beapplied to guidance regarding U.S. generally accepted accountingprinciples, requiring use of fair value, establishes a framework for measuringfair value, and expands disclosure about such fair value measurements.SFAS No. 157 is effective for fiscal years beginning afterNovember 15, 2007. We are currently assessing the impact the adoption ofSFAS No. 157 will have on our 2008 consolidated financial positionand results of operations.

 

In February 2007, theFASB issued SFAS No. 159, “The Fair Value Option for Financial Assetsand Financial Liabilities,” (“SFAS No. 159”). SFAS No. 159provides companies with an option to report selected financial assets andliabilities at fair value and to provide additional information that will helpinvestors and other users of financial statements to understand more easily theeffect on earnings of a company’s choice to use fair value. It also requirescompanies to display the fair value of those assets and liabilities for whichthe company has chosen to use fair value on the face of the balance

 

40

----

 

sheet. We are required toadopt SFAS No. 159 on January 1, 2008 and are currentlyevaluating the impact, if any, of SFAS No. 159 on our consolidatedfinancial statements.

 

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

 

We useor have used forward fixed price contracts and derivative financial instrumentsto manage commodity price, interest rate and foreign currency exchange risks.We do not hold or issue derivative financial instruments for investment or tradingpurposes. We are exposed to credit risk in the event of nonperformance bycounterparties for foreign exchange forward contracts, metal forward pricecontracts and metals futures contracts but we do not anticipate nonperformanceby any of these counterparties. The amount of such exposure is generallylimited to any unrealized gains within the underlying contracts.

 

***Commodity price risk management***

 

Thecost of copper, our most significant raw material, has historically beensubject to considerable volatility. To manage the risk associated with suchvolatility, we enter into futures contracts to match the metal component ofcustomer product pricing with the cost component of the inventory shipped.These futures contracts have been designated as cash flow hedges withunrealized gains and losses recorded in other comprehensive income. Gains andlosses are reclassified into earnings, as a component of cost of goods sold,when the hedged sales transactions are reflected in the income statement. Hedgeineffectiveness, which is not significant, is immediately recognized inearnings. Our commodities futures purchase contracts which have been designatedas cash flow hedges are summarized as follows at September 30, 2007:

 
| **Type**   | ** ** | **Notional  Amount**                    | ** ** | **Maturity  Date** | ** ** | **Weighted  Average  Settlement Rate** | ** ** | **Fair Value  Gain (Loss)** | ** ** |
|------------|------------|-----------------------------------------|------------|--------------------|------------|---------------------------------------------|------------|---------------------------------------|------------|
| ** ** | ** ** | **(in thousands of  pounds)** | ** ** | ** **         | ** ** | ** **                                  | ** ** | **(in  thousands)**                   | ** ** |
|       |       |                                    |       |               |       |                                        |       |                                  |       |
| Copper     |       | 2,950                                   |       | 2007               |       | $                                           | 3.06       |                                  | $          | 1,712 |   |
| Copper     |       | 2,125                                   |       | 2008               |       | 3.27                                        |       | 659                                   |       |
|       |       |                                    |       |               |       |                                        |       | $                                     | 2,371      |   |
|            |            |                                         |            |                    |            |                                             |            |                                       |            |  |  |

 

Substantiallyall of the unrealized gains on commodity futures outstanding at September 30,2007 are expected to be reclassified in earnings within the next twelve months.

 

Essex Europe periodically enters into commodityfutures contracts to match the copper component of customer product pricingwith the cost component of the inventory shipped. These futures contracts areintended to minimize the risks associated with forward product pricing forcustomers and changing copper prices. These contracts generally have maturitiesof less than two months and represent economic hedges but have not beendesignated as hedges for accounting purposes. Accordingly, gains and losses onthese contracts are recorded in income as a component of cost of goods sold.There were no open copper futures positions held by Essex Europe atSeptember 30, 2007.

 

OurTianjin subsidiary enters into commodity futures contracts to match the coppercomponent of customer product pricing with the cost component of the inventoryshipped. These futures contracts are intended to minimize the risks associatedwith forward product pricing for customers and changing copper prices. Thesecontracts represent economic hedges but have not been designated as hedges foraccounting purposes. Accordingly, gains and losses on these contracts arerecorded in income as a component of cost of goods sold. Outstandingcommodities futures purchase contracts held by our Tianjin subsidiary aresummarized as follows at September 30, 2007:

 
| **Type**   | ** ** | **Notional  Amount**                    | ** ** | **Maturity Date** | ** ** | **Weighted  Average  Contract Rate** | ** ** | **Fair Value  Gain** | ** ** |
|------------|------------|-----------------------------------------|------------|------------------------|------------|-------------------------------------------|------------|---------------------------|------------|
| ** ** | ** ** | **(in thousands of  pounds)** | ** ** | ** **             | ** ** | ** **                                | ** ** | **(in  thousands)**       | ** ** |
| ** ** | ** ** | ** **                              | ** ** | ** **             | ** ** | ** **                                | ** ** | ** **                | ** ** |
| Copper     |       | 275                                     |       | 2007                   |       | $                                         | 3.39       |                      | $          | 27 |   |
| Copper     |       | 1,047                                   |       | 2008                   |       | 3.34                                      |       | 161                       |       |
|       |       |                                    |       |                   |       |                                      |       | $                         | 188        |   |
|            |            |                                         |            |                        |            |                                           |            |                           |            |  |  |

 

41

----

 

***Foreign currency exchange risk management***

 

Weengage in the sale and purchase of products which result in accounts receivableand accounts payable denominated in foreign currencies. Additionally, we enterinto intercompany loans, some of which are not considered long-term investments,among our subsidiaries with differing functional currencies. As a result,fluctuations in the value of foreign currencies create exposures, which canadversely affect our results of operations. We attempt to manage ourtransactional foreign currency exchange risk by economically hedging foreigncurrency cash flow forecasts arising from the settlement of accountsreceivable, accounts payable and intercompany accounts. Where naturallyoffsetting foreign currency positions do not occur, we hedge certain, but notall, of our foreign currency exposures through the use of foreign currencyforward exchange contracts. These contracts generally have maturities of lessthan two months and represent economic hedges but have not been designated ashedges for accounting purposes. Changes in the fair value of these contractsare reflected in current earnings.

 

We arealso exposed to foreign currency translation risk resulting from thetranslation of the financial statements of foreign subsidiaries with functionalcurrencies other than the U.S. dollar. Our most significant translationexposure is the Euro in relation to the U.S. dollar. We enter into foreigncurrency put options to hedge against adverse fluctuations in the results ofoperations of certain of our foreign subsidiaries resulting from foreigncurrency translation. The put options expire in 2007.

 

Thefollowing table summarizes information about foreign currency relatedderivatives as of September 30, 2007.

 
| **Derivatives**                           | ** ** | **Notional Amount** | ** ** | **Weighted  Average  Contract  Rate** | ** ** | **Fair Value  Gain (Loss)** | ** ** |
|-------------------------------------------|------------|--------------------------|------------|---------------------------------------|------------|---------------------------------------|------------|
| ** **                                | ** ** | **(in thousands)**  | ** ** | ** **                            | ** ** | **(in thousands)**               | ** ** |
| Forward exchange  contracts:              |       |                     |       |                                  |       |                                  |       |   |   |
| U.S. dollars  (sell for Euros)            |       | 4,000                    |       | USD                                   |       | 0.70                                  |       | $ | — |   |
| U.S. dollars  (buy with Canadian dollars) |       | 11,000                   |       | USD                                   |       | 1.00                                  |       | — |   |
| Canadian dollars  (sell for U.S. dollars) |       | 12,500                   |       | CAD                                   |       | 1.00                                  |       | — |   |
| Euros (buy with  British pounds)          |       | 7,200                    |       | EURO                                  |       | 0.70                                  |       | — |   |
| Euros (sell for  U.S. dollars)            |       | 985                      |       | EURO                                  |       | 1.42                                  |       | — |   |
| British pounds  (sell for Euros)          |       | 800                      |       | GBP                                   |       | 1.43                                  |       | — |   |
| British pounds  (buy with Euros)          |       | 1,300                    |       | GBP                                   |       | 0.70                                  |       | — |   |
| Put options:                              |       |                     |       |                                  |       |                                  |       |   |   |
| Euros (sell for  U.S. dollars)            |       | 2,206                    |       | EURO                                  |       | 1.35                                  |       | — |   |
|                                      |       |                     |       |                                  |       |                                  |       | $ | — |   |

 

***Purchase Commitments***

 

Weaccept certain customer orders for future delivery at fixed prices. As copperis the most significant raw material used in the manufacturing process, weenter into forward fixed-price purchase commitments with our suppliers forcopper to properly match our cost to the value of the copper expected to bebilled to customers. At September 30, 2007, we had forward fixed pricecopper purchase commitments for delivery of 37.4 million pounds throughDecember 2008 for $130.4 million. Additionally at September 30, 2007, wehad forward purchase fixed price commitments for 0.7 million pounds of aluminumthrough August 2008, 172,000 megawatts of electricity through 2010 and 480,000MMBTUs of natural gas through March 2008 amounting to $1.0 million, $12.8million and $3.7 million, respectively.

 

42

----

 

**ITEM4. CONTROLS AND PROCEDURES**

 

*Evaluationof Controls and Procedures*

 

As ofthe end of the period covered by this Form 10-Q, we carried out anevaluation of the effectiveness of the design and operation of our disclosurecontrols and procedures, as defined in Rule 13a-15(e) under theSecurities Exchange Act of 1934, as amended (“Exchange Act”), under thesupervision and with the participation of our management, including our ChiefExecutive Officer and Chief Financial Officer. Based on that evaluation, theChief Executive Officer and Chief Financial Officer concluded that ourdisclosure controls and procedures were effective in providing reasonableassurance that information required to be disclosed by us in reports filed orsubmitted under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in the SEC’s rules and forms,including reasonable assurance that information required to be disclosed inreports filed or submitted by us under the Exchange Act is accumulated and communicatedto our management, including the Chief Executive Officer and Chief FinancialOfficer, in a manner to allow timely decisions regarding the requireddisclosure. A system of controls, no matter how well designed and operated,cannot provide absolute assurance that the objectives of the system of controlsare met, and no evaluation of controls provides absolute assurance that allcontrol issues and instances of fraud, if any, within a company have beendetected. Notwithstanding the above, our Chief Executive Officer and ChiefFinancial Officer have concluded that our disclosure controls and proceduresare effective at a reasonable assurance level.

 

*Changesin Internal Controls Over Financial Reporting*

 

Therehave been no changes in our internal control over financial reporting thatoccurred during the most recent fiscal quarter that have materially affected,or are reasonably likely to materially affect, our internal control overfinancial reporting.

 

43

----

 

**PART II. OTHER INFORMATION**

 

**ITEM1. LEGAL PROCEEDINGS**

 

In 2003, Superior TeleCom and Essex Electric Inc. (“EssexElectric”) each filed lawsuits under Section 1 of the Sherman Act againstcertain defendants based on an alleged conspiracy to elevate the prices ofcertain copper products during certain periods from 1993 to 1996. The lawsuitswere consolidated with several other lawsuits involving other plaintiffs laterin 2003 (collectively, the “2003 Copper Action”). On November 10, 2003,Superior Essex acquired the business formerly conducted by Superior TeleCom andits subsidiaries. On June 4, 2007, the parties to the 2003 Copper Action(including all plaintiffs and defendants) entered into a settlement pursuant towhich the 2003 Copper Action was dismissed with prejudice. The terms of thesettlement are confidential. A portion of the settlement proceeds(approximately $27,000,000) are being held in escrow by plaintiffs’ counsel(the “Escrowed Settlement Proceeds”). We and Essex Electric, now known as ExeonInc. (“Exeon”), each claim to be entitled to the Escrowed Settlement Proceeds.On June 18, 2007, Exeon filed an action for declaratory judgment and relatedrelief against the Company and certain of its subsidiaries in the Supreme Courtof the State of New York, New York County (the “2007 NY Action”). Exeon Inc.v. Superior Essex Inc., Superior Telecommunications Inc., Essex InternationalInc., and Essex Group, Inc., Supreme Court of the State of New York, Countyof New York, Index No. 108413/07. In the 2007 NY Action, Exeon seeks adeclaration that the claims giving rise to the Escrowed Settlement Proceedswere transferred to Exeon in connection with the sale of a portion of theelectrical wire business of our subsidiary, Essex Group, to Exeon in 2002 andthat Exeon is entitled to all of the Escrowed Settlement Proceeds. The 2007 NYAction also alleges that we, by claiming the Escrowed Settlement Proceedsattributable to the electrical wire business, are in breach of the purchase agreementrelated to the sale of a portion of the Essex Group electrical wire business toExeon and seeks damages in excess of $40 million resulting from the allegedbreach.

 

OnJune 20, 2007, we and Essex Group filed suit in the Superior Court of CobbCounty, Georgia against Essex Electric and the other defendants named therein(the “2007 Cobb Action”). Superior Essex Inc., et al. v. Exeon Inc., et al.,Civil Action File No. 07-1-5146-28, Superior Court of Cobb County, Georgia. The2007 Cobb Action seeks a declaratory judgment that we are entitled to all ofthe Escrowed Settlement Proceeds. In addition, the 2007 Cobb Action seeksdamages as a result of a breach of the purchase agreement and breaches of fiduciaryduty.

 

TheCompany moved to dismiss or stay the 2007 NY Action pending resolution of the2007 Cobb Action.  That motion remains pending in New York, and discoveryis underway.  In the 2007 Cobb Action, the Company’s motion for summaryjudgment is pending, as is the defendants’ motion to dismiss.

 

TheCompany operates in nine countries in Europe, North America and Asia-Pacificand its international operations have grown significantly over the past twoyears, primarily through its joint venture with Nexans in Europe and throughacquisitions.  The Company isimplementing its code of ethics and procedures to assure compliance with lawsthroughout its operations.  Through itsprocesses to ensure compliance with laws, the Company recently identifiedcertain U.S trade control compliance issues. 

 

Theseissues include isolated sales of products by a foreign subsidiary which werenot in compliance with U.S. trade control laws related to Cuba.  Upon discovery of transactions related toCuba, we undertook a comprehensive review of Company transactions that mayinvolve embargoed countries.  This reviewis ongoing.  The Company has voluntarilyreported these transactions related to Cuba to the U.S. Department of Treasury,Office of Foreign Asset Control.

 

In addition, through this review, the Company haslearned that it shipped a coating for its magnet wire products to certain ofits manufacturing operations outside the United States and such shipments weremisclassified under the U.S. export laws. Such shipments occurred on a regular basis without required exportauthorization.  This review is ongoing.  The Company has voluntarily reported suchviolations to the U.S. Department of Commerce, Bureau of Industry and Securityand the Company is applying for licenses for such shipments in the future sothey may be made in accordance with U.S. export laws.  

 

To the extent we violated U.S. export regulations,fines and other penalties may be imposed. Because the review is ongoing and these matters are now pending beforethe indicated agencies, there can be no assurance that any actual fines andpenalties imposed will not have a material adverse affect on our business,financial condition, liquidity or results of operations.

 

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

 

Thefollowing table provides information about our purchases of shares of ourcommon stock during the quarter ended September 30, 2007:

 
| **Period**               | ** ** | **Total Number of  Shares Purchased** | ** ** | **Average Price Paid  per Share** | ** ** | **Total Number of  Shares Purchased as  Part of Publicly  Announced Plans  or Programs** | ** ** | **Maximum Number of  Shares that May Yet  Be Purchased Under  the Plans or Programs** | ** ** |
|--------------------------|------------|------------------------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------|------------|
|                     |       |                                                 |       |                                             |       |                                                                                                                             |       |                                                                                                                                    |       |
| July 2007           |       | —                                               |       | —                                           |       | —                                                                                                                           |       | —                                                                                                                                  |       |
| August 2007  (a)    |       | 8,551                                                |       | $                                                | 32.43      |                                                                                                                             | —     |                                                                                                                                    | —     |   |
| September 2007  (a) |       | 8,889                                                |       | 34.15                                            |       | —                                                                                                                           |       | —                                                                                                                                  |       |
|                          |            |                                                      |            |                                                  |            |                                                                                                                                  |            |                                                                                                                                         |            |  |

 

----

(a)                                  Representsshares withheld from members of management to satisfy minimum statutory taxwithholdings due upon the vesting of restricted stock awards and exercise ofstock options.

 

44

----

 

**ITEM6. EXHIBITS**

** **
| Exhibit    | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 2.1        |       | Disclosure Statement  with respect to First Amended Joint Plan of Reorganization of Superior  TeleCom Inc. and its affiliated debtors and debtors-in-possession (including  the Amended Joint Plan of Reorganization attached as Exhibit A thereto)  (incorporated herein by reference to Exhibit 2(a) to the  Registration Statement on Form 10 (Registration   No. 000-50514) of Superior Essex Inc., as filed with the Securities and  Exchange Commission on December 15, 2003, as amended (the “Superior  Essex Form 10”)).          |
| 2.2        |       | Asset Purchase  Agreement, dated as of March 18, 2004, by and among Superior Essex  Communications LLC, Belden Communications Company and Belden (Canada) Inc.  (incorporated herein by reference to Exhibit 2.1 to the Current Report  on Form 8-K of Superior Essex Inc. dated June 16, 2004)                                                                                                                                                                                                                                                                    |
| 2.3        |       | Contribution and  Formation Agreement dated July 27, 2005 among Superior Essex Inc., Essex  Group, Inc., Nexans, Nexans Participations, Nexans Wires and Lacroix and  Kress GmbH. (incorporated herein by reference to Exhibit 2.3 to the  Quarterly Report on Form 10Q of Superior Essex Inc. for the quarter  ended June 30, 2005)                                                                                                                                                                                                                          |
| 2.4        |       | Side Letter dated  October 21, 2005 by and between Superior Essex Inc., Essex  Group, Inc., SE Holding, C.V., Nexans, Nexans Participations,  Lacroix & Kress GmbH and Nexans Wires (incorporated by reference to  Exhibit 10.2 to the Current Report on Form 8-K of Superior Essex  dated October 21, 2005)                                                                                                                                                                                                                                         |
| 3.1        |       | Amended and Restated  Certificate of Incorporation of Superior Essex Inc. (incorporated herein by  reference to Exhibit 3.1 to the Annual Report on Form 10-K of Superior Essex  Inc. for the year ended December 31, 2006 (the “2006 Superior Essex 10-K”))                                                                                                                                                                                                                                                                                                                 |
| 3.2        |       | Restated By-Laws of  Superior Essex Inc. (incorporated herein by reference to Exhibit 3(b) to the  Superior Essex Form 10).                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.1        |       | Indenture dated as of  April 14, 2004 among Superior Essex Communications LLC and Essex  Group, Inc., as Co-Issuers, the Guarantors named therein and The Bank of  New York Trust Company, N.A., as Trustee (incorporated herein by reference to  Exhibit 10.3 to the Quarterly Report on Form 10-Q of Superior Essex  Inc. for the quarter ended March 31, 2004 (the “Q1 2004  Form 10-Q”)).                                                                                                                                                  |
| 4.2        |       | Form of 9% Senior  Series B Note due 2012 (included in Exhibit 4.1) (incorporated  herein by reference to Exhibit 10.3 to the Q1 2004 Form 10-Q).                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.3        |       | Registration Rights  Agreement, dated as of November 10, 2003, by and among Superior Essex  Inc., the holders of Registrable Common Stock (as defined therein) and the  holders of the Warrants (as defined therein) and such other Persons who may  become a party thereto pursuant to Section 16 or 19(i) thereof  (incorporated herein by reference to Exhibit 10(b) to the Superior  Essex Form 10).                                                                                                                                                 |
| 4.4        |       | Specimen Common Stock  Certificate (incorporated herein by reference to Exhibit 4.11 to the  Superior Essex Form S-3).                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.5        |       | Third Supplemental  Indenture dated September 12, 2005 among Superior Essex Communications  LP, Essex Group, Inc., certain subsidiary guarantors named therein and  The Bank of New York Trust Company, N.A. (incorporated by reference to  Exhibit 10.1 to the Current Report on Form 8-K of Superior Essex  dated September 12, 2005).                                                                                                                                                                                                                      |
| 10.1       |       | Amended and Restated  Loan and Security Agreement, dated April 14, 2006, by and among Superior  Essex Communications LP, as a borrower, Essex Group, Inc., as a  borrower, the financial institutions party thereto, as lenders, General  Electric Capital Corporation, as syndication agent, Banc of America  Securities LLC and GECC Capital Markets, Inc. as co-lead arrangers, and  Bank of America, N.A. as agent (incorporated herein by reference to  Exhibit 10 to the Current Report on Form 8-K of Superior Essex  dated April 14, 2006). |
| 10.2*      |       | Superior Essex Inc.  2003 Stock Incentive Plan (incorporated herein by reference to  Exhibit 10(e) to the Superior Essex Form 10).                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.3*      |       | Amended and Restated  Employment Agreement, dated March 10, 2006, between Superior Essex and  Stephen M. Carter (incorporated herein by reference to Exhibit 10.1 to  the Current Report on Form 8-K of Superior Essex Inc. dated  March 10, 2006).                                                                                                                                                                                                                                                                                                                |
| 10.4*      |       | Amended and Restated  Employment Agreement, dated March 10, 2006, between Superior Essex and  David S. Aldridge (incorporated herein by reference to Exhibit 10.2 to  the Current Report on Form 8-K of Superior Essex Inc. dated  March 10, 2006).                                                                                                                                                                                                                                                                                                                |

 

45

----

 
| Exhibit    | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.5*      |       | Amended and Restated  Employment Agreement, dated March 10, 2006, between Superior Essex and  Justin F. Deedy, Jr. (incorporated herein by reference to  Exhibit 10.3 to the Current Report on Form 8-K of Superior Essex  Inc. dated March 10, 2006).                                                                                                                                                                                  |
| 10.6*      |       | Amended and Restated  Employment Agreement, dated March 10, 2006, between Superior Essex and  H. Patrick Jack (incorporated herein by reference to Exhibit 10.4 to the  Current Report on Form 8-K of Superior Essex Inc. dated March 10,  2006).                                                                                                                                                                                            |
| 10.7*      |       | Amended and Restated  Employment Agreement, dated March 10, 2006, between Superior Essex Inc.  and Barbara L. Blackford (incorporated herein by reference to Exhibit 10.5  to the Current Report on Form 8-K of Superior Essex Inc. dated  March 10, 2006).                                                                                                                                                                             |
| 10.8       |       | 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).                                                                                                                    |
| 10.9       |       | 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”)).                                                                                                   |
| 10.10      |       | 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).                                                                                                                                                                                                                 |
| 10.11      |       | 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”)). |
| 10.12      |       | 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).                                                                                                                                                                                       |
| 10.13      |       | 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).                                                                                                                                                                      |
| 10.14      |       | 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).                                                                                                                    |
| 10.15      |       | 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).                                                                                                                                            |
| 10.16      |       | Agreement for the  Transfer of Receivables among Newco, Nexans, Superior Essex, Nexans Winding  Wires, Lacroix & Kress GmbH and Essex International Ltd., on the one  hand, and Compagnie Generale d’Affacturage SA on the other, dated  October 27, 2005 (incorporated herein by reference to Exhibit 10.1  to the Current Report on Form 8-K of Superior Essex Inc. dated July 11,  2006).                                   |
| 10.17      |       | Amendment No. 1 to  the Transfer of Receivable Agreement between Essex Nexans Europe SAS, Essex  Nexans and Essex Nexans L&K, on the one hand, and Compagnie Generale  d’ Affacturage SA, on the other, dated July 11, 2006 (incorporated  herein by reference to Exhibit 10.2 to the Current Report on  Form 8-K of Superior Essex Inc. dated July 11, 2006).                                                            |
| 10.18      |       | Agreement for the  Assignment of Receivables among Essex Nexans Europe, Essex Nexans, Essex  Nexans L&K GmbH, Essex Nexans UK and Compagnie Generale d’Affacturage,  dated July 10, 2007 (incorporated herein by reference to Exhibit 10.1 to  the Current Report on Form 8-K of Superior Essex Inc. dated  July 10, 2007)                                                                                                               |
| 10.19*     |       | Superior Essex Inc.  Senior Executive Retirement Plan (incorporated herein by reference to  Exhibit 10.27 to the Quarterly Report on Form 10-Q of Superior  Essex Inc. for the quarter ended September 30, 2004)                                                                                                                                                                                                                                  |
| 10.20*     |       | Consulting Agreement,  dated February 1, 2005, between DG Network and Superior Essex Inc.  (incorporated herein by reference to Exhibit 99.1 to the Current Report  on Form 8-K of Superior Essex Inc. dated February 18, 2005)                                                                                                                                                                                                              |

 

46

----

 
| Exhibit    | ** ** | ** **                                                                                                                                                                                                                                                                                                   |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                              |
| 10.21*     |       | Amendment to Consulting  Agreement dated as of July 1, 2005, between DG Network and Superior  Essex Inc. (incorporated herein by reference to the Current Report on  Form 8-K of Superior Essex dated August 1, 2005)                                                                         |
| 10.22*     |       | Amended and Restated  Agreement dated as of February 16, 2007 between the Company, Denys  Gounot and DG Network (incorporated herein by reference to Exhibit 10.1  to the Current Report on Form 8-K of Superior Essex dated  February 16, 2007)                                         |
| 10.23*     |       | 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)                                                                                                         |
| 10.24*     |       | 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)                                                                                                     |
| 10.25*     |       | 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)                                                                                                        |
| 10.26*     |       | 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)                                        |
| 10.27*     |       | 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)                          |
| 10.28*     |       | 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)                                                                                   |
| 10.29*     |       | 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)                                                                                                                |
| 10.30*     |       | 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)                                                                                            |
| 10.31*     |       | Amended and Restated  Executive Bonus Plan approved March 29, 2006 (incorporated herein by  reference to Exhibit 10.2 to the Current Report on Form 8-K of  Superior Essex dated March 29, 2006)                                                                                         |
| 10.32*     |       | Amended and Restated  Executive Bonus Plan approved February 15, 2007 (incorporated herein by  reference to Exhibit 10.31 to the 2006 Superior Essex 10-K)                                                                                                                                              |
| 10.33      |       | 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) |
| 10.34*     |       | 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)                                                                                     |
| 10.35*     |       | 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)                                                                                                      |
| 10.36*     |       | Form of Director  Option Certificate (incorporated herein by reference to Exhibit 99.3 to  the Current Report on Form 8-K of Superior Essex dated October 27,  2005)                                                                                                                     |
| 10.37*     |       | Form of Stock  Option Certificate (incorporated herein by reference to Exhibit 10.1 to  the Current Report on Form 8-K of Superior Essex dated November 9,  2005)                                                                                                                        |
| 10.38*     |       | Form of Restricted  Stock Award Certificate (incorporated herein by reference to  Exhibit 10.2 to the Current Report on Form 8-K of Superior Essex  dated November 9, 2005)                                                                                                              |
| 10.39*     |       | Form of  Performance Contingent Share Award Certificate (incorporated herein by  reference to Exhibit 10.2 to the Current Report on Form 8-K of  Superior Essex dated March 29, 2006)                                                                                                    |
| 10.40      |       | Form of  Indemnification Agreement (incorporated herein by reference to  Exhibit 10.1 to the Current Report on Form 8-K of Superior Essex  dated October 27, 2006)                                                                                                                       |
| 10.41      |       | Amended and Restated  Sublease Agreement dated January 15, 1985, between Stemp Leasing Corp.,  as lessor, and Essex Group, Inc., as lessee. (incorporated herein by  reference to Exhibit 10.40 to the 2006 Superior Essex 10-K)                                                                        |

 

47

----

 
| Exhibit    | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                         |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                    |
| 10.42*     |       | Senior Vice President  Amended and Restated Change of Control Employment Agreement, adopted October  26, 2006 (incorporated herein by reference to Exhibit 10.41 to the 2006  Superior Essex 10-K)                                                                                                                                                                 |
| 10.43*     |       | Superior Essex Inc.  Director Compensation Plan, approved December 5, 2006 (incorporated herein by  reference to Exhibit 10.42 to the 2006 Superior Essex 10-K)                                                                                                                                                                                                    |
| 10.44*     |       | Form of 2007  Performance Contingent Share Award Certificate (incorporated herein by  reference to Exhibit 10.1 to the Current Report on Form 8-K of Superior Essex  dated March 1, 2007)                                                                                                                                                                     |
| 10.45*     |       | Letter agreement, dated  July 31, 2007, between H. Patrick Jack and Superior Essex (incorporated  herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of  Superior Essex dated July 31, 2007)                                                                                                                                                    |
| 10.46*     |       | Employment Agreement,  dated August 13, 2007, between J. David Reed and Superior Essex (incorporated  herein by reference to Exhibit 10.2 to the Current Report on Form 8-K of  Superior Essex dated July 31, 2007)                                                                                                                                                |
| 10.47      |       | Amendment No. 1 to  Agreement for the Assignment of Receivables among Essex Nexans Europe, Essex  Nexans, Essex Nexans L&K GmbH, Essex Nexans UK, Invex S.p.A. and  Compagnie Generale d’Affacturage, dated August 6, 2007 (incorporated herein  by reference to Exhibit 10.1 to the Current Report on Form 8-K of Superior  Essex dated August 6, 2007). |
| 10.48      |       | First Amendment to  Amended and Restated Loan and Security Agreement among Superior Essex  Communications LP, Essex Group, Inc., the financial institutions party  thereto and Bank of America, N.A., dated August 7, 2007 (incorporated herein  by reference to Exhibit 10.2 to the Current Report on Form 8-K of Superior  Essex dated August 6, 2007)           |
| 31.1       |       | Rule 13a-14(a) certification  of the Chief Executive Officer.                                                                                                                                                                                                                                                                                            |
| 31.2       |       | Rule 13a-14(a) certification  of the Chief Financial Officer.                                                                                                                                                                                                                                                                                            |
| 32.1       |       | Certification of the  Chief Executive Officer pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                                                                                             |
| 32.2       |       | Certification of the  Chief Financial Officer pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                                                                                             |

 

----

*                                         Managementcontract or compensatory plan or arrangement.

 

**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|                        |   | Superior Essex Inc. |
|------------------------|--------|---------------------|
|                   |   |                |   |
|                   |   | By:                 | /s/ DAVID S. ALDRIDGE |
| Date: November 9, 2007 |   |                | David S. Aldridge*Executive Vice President, Chief Financial  Officer  and Treasurer*(duly authorized officer and principal financial  officer) |

 

48

----