**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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**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 March 31, 2008**                                                                               |
| ** **                                                                                                                            |
| **or**                                                                                                                                |
| ** **                                                                                                                            |
| **o**                                                                                                                                 | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                            |
| **For the  transition period from        to        ** |

 

**Commissionfile number 0-50514**

 

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**SUPERIORESSEX INC.**

(Exact name ofregistrant as specified in its charter)

 

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

 

**770-657-6000**

Registrant’stelephone number, including area code

 

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

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer. See the definitions of “large accelerated filer,” “acceleratedfiler” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 
| Large accelerated filer x | Accelerated filer o | Non-accelerated filer o  (Do not check if smaller reporting company) | Smaller reporting company o |
|------------------------------------------|-------------------------------|--------------------------------------------------------------------------------|--------------------------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).o Yes x No

 

Indicate by check markwhether the registrant has filed all documents and reports required to be filedby Section 12, 13 or 15(d) of the Securities Exchange Act of 1934subsequent to the distribution of securities under a plan confirmed by a court.Yes x No o

 

As of May 5, 2008,the registrant had 19,829,785 shares of common stock, $0.01 par value,outstanding.

 

 

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**PART I.FINANCIAL INFORMATION**

 

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

 

·                  Unless the context otherwise requires, the terms “we,” “us,” “our,” and“registrant,” as well as the term “Superior Essex,” refer to SuperiorEssex Inc. and its subsidiaries on and after November 10, 2003, theeffective date of the plan of reorganization of Superior TeleCom Inc. andits subsidiaries.

 

·                  “COMEX” refers to Commodity Exchange Inc., a subsidiary of the NewYork Mercantile Exchange, Inc. that operates the principal U.S. copperfutures and options trading market.

 

·                  “Essex Group” refers to Essex Group, Inc., a wholly-ownedsubsidiary of Essex International.

 

·                  “Essex International” refers to Essex International Inc., awholly- owned subsidiary of Superior Essex Holding

 

·                  “Essex Europe” refers to Essex Europe S.A.S., a wholly-ownedFrench holding company (formerly known as Essex Nexans Europe S.A.S.)which owns our consolidated operations in Europe.

 

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

 

·                  “SHME” refers to the Shanghai Metal Exchange, which operates the principalAsian copper futures and options trading market.

 

·                  “Superior Essex Communications” refers to Superior EssexCommunications LP, a limited partnership with Superior Essex Holding asthe sole limited partner and SE Communications GP, a wholly-owned subsidiaryof Superior Essex Holding, as the sole general partner.

 

·                  “Superior Essex Holding” refers to Superior Essex Holding Corp., awholly-owned subsidiary of Superior Essex, and the sole limited partner ofSuperior Essex Communications.

 

·                  “Superior TeleCom,” unless the context otherwise requires, refers toSuperior TeleCom Inc. and its subsidiaries and the business carried on bythem prior to November 10, 2003.

 

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**Forward-LookingStatements**

 

*Certain expectationsand projections regarding our future performance referenced in this Form 10-Q,in other materials we file with the SEC or otherwise release to the public, andon our website are forward-looking statements. Senior officers also may makeverbal statements to analysts, investors, regulators, the media and others thatare forward-looking. Forward-looking statements involve matters that are nothistorical facts, such as statements in “Management’s Discussion and Analysisof Financial Condition and Results of Operations” and elsewhere regarding ourfuture operations, prospects, product demand, strategies, investments,financial condition (including liquidity and capital resources), economicperformance (including growth and earnings), benefits expected as a result ofour projected growth, and industry conditions. We have tried, wheneverpossible, to identify these statements 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 arecautioned not to place undue reliance on our forward-looking statements. Ourforward-looking statements are not guarantees of future performance and arebased on currently available competitive, financial and economic data, ourcurrent expectations and assumptions, and our operating plans. While we believethat our expectations for the future are reasonable in view of the currentlyavailable information, our expectations are subject to future events, risks andinherent uncertainties, as well as potentially inaccurate expectations andassumptions, and there are numerous factors—many beyond our control—that couldcause results to differ significantly from our expectations. Such events, risksand uncertainties include, but are not limited to, those set forth under thecaption “Risk Factors” in our Annual Report on Form 10-K for the yearended December 31, 2007 and in the other documents that we file with theSEC. We note these factors for investors as permitted by the Private SecuritiesLitigation Reform Act of 1995. There also may be other factors that we cannotanticipate or that are not described in this Form 10-Q or in our AnnualReport on Form 10-K for the year ended December 31, 2007, generallybecause we do not perceive them to be material, that could cause results todiffer significantly from our expectations.*

 

*Forward-lookingstatements are only as of the date they are made, and we do not undertake anyobligation to update these statements to reflect subsequent circumstances orevents except as required by federal securities laws. You are advised, however,to review any further disclosures we make on related subjects in our Form 10-Qand Form 8-K reports to the SEC.*

 

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**ITEM 1. FINANCIAL STATEMENTS**

 

**SUPERIORESSEX INC. AND SUBSIDIARIES**

 

**CONSOLIDATEDBALANCE SHEETS**

 

**(inthousands, except share data)**

 

**(unaudited)**

 
| ** **                                                                                                                                                             | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                                                                             |       |                     |       |                        |       |
| Current  assets:                                                                                                                                                       |       |                     |       |                        |       |
| Cash  and cash equivalents                                                                                                                                             |       | $                        | 64,894     |                        | $          | 102,677 |   |
| Accounts  receivable (less allowance for doubtful accounts of $7,272 and $6,503 at  March 31, 2008 and December 31, 2007, respectively)                      |       | 467,540                  |       | 403,132                     |       |
| Inventories,  net                                                                                                                                                      |       | 334,716                  |       | 309,985                     |       |
| Other  current assets                                                                                                                                                  |       | 26,031                   |       | 32,102                      |       |
| Total  current assets                                                                                                                                                  |       | 893,181                  |       | 847,896                     |       |
| Property,  plant and equipment, net                                                                                                                                    |       | 327,942                  |       | 323,283                     |       |
| Intangible  and other long-term assets, net                                                                                                                            |       | 45,647                   |       | 44,211                      |       |
| Total  assets                                                                                                                                                          |       | $                        | 1,266,770  |                        | $          | 1,215,390 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                          |       |                     |       |                        |       |
| Current  liabilities:                                                                                                                                                  |       |                     |       |                        |       |
| Short-term  borrowings                                                                                                                                                 |       | $                        | 66,705     |                        | $          | 65,859 |   |
| Current  portion of long-term debt                                                                                                                                     |       | 1,187                    |       | 1,097                       |       |
| Accounts  payable                                                                                                                                                      |       | 278,658                  |       | 245,042                     |       |
| Accrued  expenses                                                                                                                                                      |       | 105,622                  |       | 99,970                      |       |
| Total  current liabilities                                                                                                                                             |       | 452,172                  |       | 411,968                     |       |
| Long-term  debt                                                                                                                                                        |       | 287,723                  |       | 286,229                     |       |
| Other  long-term liabilities                                                                                                                                           |       | 85,063                   |       | 83,934                      |       |
| Total  liabilities                                                                                                                                                     |       | 824,958                  |       | 782,131                     |       |
| Minority  interest in consolidated subsidiary                                                                                                                          |       | 3,060                    |       | 2,706                       |       |
| 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; 21,106,315 and  21,101,554 shares issued at March 31, 2008 and December 31, 2007,  respectively |       | 210                      |       | 209                         |       |
| Capital  in excess of par value                                                                                                                                        |       | 287,199                  |       | 286,242                     |       |
| Accumulated  other comprehensive income                                                                                                                                |       | 24,377                   |       | 12,086                      |       |
| Retained  earnings                                                                                                                                                     |       | 162,114                  |       | 154,673                     |       |
| Treasury  stock, at cost (1,344,807 shares and 791,865 shares at March 31, 2008  and December 31, 2007, respectively)                                        |       | (35,148                  | )          | (22,657                     | )          |
| Total  stockholders’ equity                                                                                                                                       |       | 438,752                  |       | 430,553                     |       |
| Total  liabilities and stockholders’ equity                                                                                                                       |       | $                        | 1,266,770  |                        | $          | 1,215,390 |   |

 

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

 

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**SUPERIORESSEX INC. AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

 

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

 

**(unaudited)**

 
| ** **                                        | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                        | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
| Net  sales                                        |       | $                                                | 757,160    |   | $ | 695,628 |   |
| Cost  of goods sold (note 4)                      |       | 691,114                                          |       | 634,383 |   |
| Gross  profit                                     |       | 66,046                                           |       | 61,245 |   |
| Selling,  general and administrative expenses     |       | (43,648                                          | )          | (35,599 | ) |
| Restructuring  and other charges (note 4)         |       | (2,121                                           | )          | (874 | ) |
| Operating  income                                 |       | 20,277                                           |       | 24,772 |   |
| Interest  expense                                 |       | (8,318                                           | )          | (7,650 | ) |
| Interest  income                                  |       | 594                                              |       | 746 |   |
| Other  expense, net                               |       | (1,152                                           | )          | (751 | ) |
| Income  before income taxes and minority interest |       | 11,401                                           |       | 17,117 |   |
| Income  tax expense                               |       | (3,717                                           | )          | (6,909 | ) |
| Income  before minority interest                  |       | 7,684                                            |       | 10,208 |   |
| Minority  interest in earnings of subsidiaries    |       | (243                                             | )          | (1,050 | ) |
| Net  income                                       |       | $                                                | 7,441      |   | $ | 9,158 |   |
|                                              |       |                                             |       |   |   |
| Net  income per share of common stock:            |       |                                             |       |   |   |
| Basic                                             |       | $                                                | 0.38       |   | $ | 0.45 |   |
| Diluted                                           |       | $                                                | 0.37       |   | $ | 0.45 |   |
| Weighted  average shares outstanding:             |       |                                             |       |   |   |
| Basic                                             |       | 19,757                                           |       | 20,152 |   |
| Diluted                                           |       | 19,929                                           |       | 20,455 |   |

 

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

 

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**SUPERIORESSEX INC. AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

 

**(inthousands)**

 

**(unaudited)**

 
| ** **                                                                                     | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                     | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
| Cash  flows from operating activities:                                                         |       |                                             |       |   |   |
| Net  income                                                                                    |       | $                                                | 7,441      |   | $ | 9,158 |   |
| Adjustments  to reconcile net income to net cash provided by (used for) operating  activities: |       |                                             |       |   |   |
| Depreciation  and amortization (note 4)                                                        |       | 16,615                                           |       | 7,486 |   |
| Amortization  of deferred financing costs and discount                                         |       | 605                                              |       | 568 |   |
| Minority  interest in earnings of subsidiaries                                                 |       | 243                                              |       | 1,050 |   |
| Settlement  of derivatives                                                                     |       | 2,616                                            |       | 3,778 |   |
| Share-based  compensation                                                                      |       | 930                                              |       | 1,988 |   |
| Change  in assets and liabilities:                                                             |       |                                             |       |   |   |
| Accounts  receivable, net                                                                      |       | (50,759                                          | )          | (10,236 | ) |
| Inventories,  net                                                                              |       | (16,867                                          | )          | 5,302 |   |
| Other  current and non-current assets                                                          |       | (1,549                                           | )          | 11,301 |   |
| Accounts  payable, accrued expenses and other liabilities                                      |       | 27,920                                           |       | 23,667 |   |
| Other,  net                                                                                    |       | (190                                             | )          | 199 |   |
| Cash  flows provided by (used for) operating activities                                        |       | (12,995                                          | )          | 54,261 |   |
| Cash  flows from investing activities:                                                         |       |                                             |       |   |   |
| Capital  expenditures                                                                          |       | (12,040                                          | )          | (11,679 | ) |
| Cash  flows used for investing activities                                                      |       | (12,040                                          | )          | (11,679 | ) |
| Cash  flows from financing activities:                                                         |       |                                             |       |   |   |
| Repayments  of short-term borrowings, net                                                      |       | (3,518                                           | )          | (18,223 | ) |
| Proceeds  from exercise of stock options and employee stock purchases                          |       | 28                                               |       | 477 |   |
| Treasury  stock purchases                                                                      |       | (10,869                                          | )          | — |   |
| Excess  tax benefits resulting from stock options and awards                                   |       | —                                           |       | 439 |   |
| Cash  flows used for financing activities                                                      |       | (14,359                                          | )          | (17,307 | ) |
| Effect  of exchange rate changes on cash                                                       |       | 1,611                                            |       | 116 |   |
| Net  increase (decrease) in cash and cash equivalents                                          |       | (37,783                                          | )          | 25,391 |   |
| Cash  and cash equivalents at beginning of period                                              |       | 102,677                                          |       | 53,493 |   |
| Cash  and cash equivalents at end of period                                                    |       | $                                                | 64,894     |   | $ | 78,884 |   |

 

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

 

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**SUPERIORESSEX INC. AND SUBSIDIARIES**

 

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

**March 31,2008**

 

**(unaudited)**

 

**1.****                                     ****General**

 

***Basisof presentation***

 

The accompanying balancesheet as of December 31, 2007, which has been derived from auditedfinancial statements, and the unaudited consolidated financial statements as ofMarch 31, 2008 and for the three months ended March 31, 2008 and2007, have been prepared in accordance with the requirements of Section 13or 15(d) of the Securities Exchange Act of 1934, as amended, and,therefore, do not include all disclosures required by accounting principlesgenerally accepted in the United States for complete financial statements.However, in the opinion of management, these statements reflect all adjustments(which consist only of normal recurring accruals) necessary for a fair presentationof the results of operations for the relevant periods. Results for the threemonths ended March 31, 2008 are not necessarily indicative of the resultsto be expected for the entire fiscal year. These financial statements should beread in conjunction with the audited consolidated financial statements andnotes thereto included in Superior Essex Inc.’s Annual Report on Form 10-Kfor the year ended December 31, 2007.

 

The Company is amanufacturer and supplier of wire and cable products for the communications,energy, automotive, industrial, and commercial/residential end-markets. TheCompany manufactures magnet wire, fabricated insulation products, and copperand fiber optic communications wire and cable products. The Company is also adistributor of magnet wire, insulation, and related products sold to smalleroriginal equipment manufacturers, or OEMs, and motor repair facilities. TheCompany converts copper cathode to copper rod for internal consumption and forsale to other wire and cable manufacturers and OEMs. The Company currentlyoperates manufacturing facilities in the United States, Canada, the UnitedKingdom, France, Germany, Portugal, Italy, Mexico and China.

 

***Incometaxes***

 

Income tax expense forinterim periods is provided based on the Company’s estimated effective tax ratefor the full fiscal year.  The effectivetax rate for the three months ended March 31, 2008 is less than the U.S.statutory rate of 35% due to the favorable effect of lower foreign effectivetax rates and the discrete first quarter 2008 effect of favorable adjustmentsto state effective tax rates which more than offset the negative impact ofstate taxes, valuation allowances provided with respect to operating lossesincurred by one of the Company’s Chinese subsidiaries and liabilities foruncertain tax positions recorded in accordance with FASB Interpretation No. 48(“FIN 48”). The effective tax rate for the three months ended March 31,2007 exceeds the U.S. statutory rate of 35% due to the effects of state andforeign taxes and liabilities for uncertain tax positions recorded inaccordance with FIN 48.

 

***Newaccounting pronouncements***

 

Effective January 1,2008, the Company adopted certain provisions of Statement of FinancialAccounting Standards No. 157, *Fair Value Measurements*(“FAS 157”). FAS 157 establishes a common definition for fair valueto be applied to guidance regarding U.S. generally accepted accountingprinciples requiring use of fair value, establishes a framework for measuringfair value, and expands disclosure about assets and liabilities measured atfair value on a recurring and non-recurring basis in periods subsequent toinitial recognition. FAS 157 establishes a hierarchy for fair valuemeasurements and related disclosures as follows: Level 1 - fair value measurementsbased on quoted prices in active markets for identical assets or liabilities;Level 2 – fair value measurements based upon significant observable market dataother than quoted prices included within Level 1 or significant unobservableinputs that are corroborated by observable market data; and Level 3 – fairvalue measurements based on significant unobservable inputs that are notcorroborated by observable market data.

 

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The following tablesummarizes information about the Company’s assets and liabilities measured atfair value on a recurring basis as of March 31, 2008:

 
| ** **                | ** ** | **Fair Value Measurement Using** | ** ** | ** **       | ** ** |
|---------------------------|------------|-------------------------------------------------|------------|------------------|------------|
| **Description**           | ** ** | **Level 1**                                | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| ** **                | ** ** | ** **                                      | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Copper  futures contracts |       | $                                               | 2,917      |             | $          | 156 |   | $ | — |   | $ | 3,073 |   |
|                           |            |                                                 |            |                  |            |  |  |  |  |  |  |  |  |

 

Level 2 copper futurescontracts consist of Euro denominated contracts. The value of these contractsis derived from converting U.S. dollar quoted LME futures contracts into Eurobased equivalents by applying the publicly traded U.S. dollar to Euro foreignexchange rate. The Company also had non-deliverable forward foreign exchangecontracts outstanding at March 31, 2008 with insignificant fair valuemeasurements using Level 2 inputs (see note 10). The fair value of the foreigncurrency forward exchange contracts is based on dealer quotes of market forwardrates and reflects the amount the Company would receive or pay at theirmaturity dates for contracts involving the same currencies and maturity dates.

 

Application of FAS 157to nonfinancial assets and liabilities measured at fair value on a nonrecurringbasis is effective for fiscal years beginning after November 15, 2008 withearlier application permitted. Nonfinancial assets and liabilities measured atfair value on a nonrecurring basis include intangible and long-lived assetsmeasured at fair value for impairment purposes, asset retirement obligationsinitially measured at fair value, and those assets and liabilities initiallymeasured at fair value in a business combination. The Company has notimplemented FAS 157 for such assets and liabilities.

 

In December 2007,the FASB issued Statement of Financial Accounting Standards (“FAS”) No. 141(revised 2007), *Business Combinations* (“FAS 141(R)”)which replaces FAS No. 141, *Business Combinations*.FAS 141(R) retains the underlying concepts of FAS 141 in thatall business combinations are still required to be accounted for at fair valueunder the acquisition method of accounting but FAS 141(R) changed themethod of applying the acquisition method in a number of significant aspects.Changes prescribed by FAS 141(R) include, but are not limited to,requirements to expense transaction costs and costs to restructure acquiredentities; record earn-outs and other forms of contingent consideration at fairvalue on the acquisition date; record 100% of the net assets acquired even ifless than a 100% controlling interest is acquired; and to recognize any excessof the fair value of net assets acquired over the purchase consideration as again to the acquirer. FAS 141(R) is effective on a prospective basisfor all business combinations for which the acquisition date is on or after thebeginning of the first annual period subsequent to December 15, 2008, withthe exception of the accounting for valuation allowances on deferred taxes andacquired tax contingencies. FAS 141(R) amends FAS 109 such thatadjustments made to valuation allowances on deferred taxes and acquired taxcontingencies associated with acquisitions that closed prior to the effectivedate of FAS 141(R) would also apply the provisions ofFAS 141(R). Early adoption is not allowed. The Company is currentlyevaluating the effects, if any, that FAS 141(R) may have on itsconsolidated financial statements.

 

In December 2007,the FASB issued Statement of Financial Accounting Standards No. 160, *Noncontrolling Interests in Consolidated Financial Statements*(“FAS 160”). FAS 160 amends Accounting Research Bulletin 51, *Consolidated Financial* Statements, to establish accountingand reporting standards for the noncontrolling (minority) interest in asubsidiary and for the deconsolidation of a subsidiary. It clarifies that anoncontrolling interest in a subsidiary is an ownership interest in theconsolidated entity that should be reported as equity in the consolidatedfinancial statements and requires consolidated net income to be reported atamounts that include the amounts attributable to both the parent and thenoncontrolling interest. FAS 160 also clarifies that all of thosetransactions resulting in a change in ownership of a subsidiary are equitytransactions if the parent retains its controlling financial interest in thesubsidiary. FAS 160 requires expanded disclosures in the consolidatedfinancial statements that clearly identify and distinguish between theinterests of the parent’s owners and the interests of the noncontrolling ownersof a subsidiary. FAS 160 is effective for fiscal years, and interimperiods within those fiscal years, beginning on or after December 15,2008. Earlier adoption is prohibited. FAS 160 will be appliedprospectively as of the beginning of the fiscal year in which the Statement isinitially applied, except for the presentation and disclosure requirements. Thepresentation and disclosure requirements will be applied retrospectively forall periods presented. The Company is currently evaluating the effects, if any,that FAS 160 may have on its consolidated financial statements; howeveradoption of FAS 160 will result in the reclassification of the Company’sminority interest in subsidiary to equity.

 

In March 2008, theFASB issued Statement of Financial Accounting Standards No. 161, *Disclosures about Derivative Instruments and Hedging Activities—anamendment of FASB Statement No. 133* (“FAS 161”)*.* FAS 161 requires enhanced disclosures about an entity’sderivative and hedging activities. Entities are required to provide enhanceddisclosures about (a) how and why an entity uses derivative instruments, (b) howderivative instruments and related hedged items are accounted for underStatement No. 133 and its related interpretations, and (c) howderivative instruments and related hedged items affect an entity’s financialposition, financial performance, and cash flows. FAS161 is effective forfinancial statements issued for fiscal years and interim periods beginningafter November 15, 2008, with early application encouraged. FAS 161encourages, but does not require, comparative disclosures for earlier periodsat initial adoption. The Company is currently evaluating the effects that FAS161 will have on its consolidated financial statements.

 

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

 

At March 31, 2008and December 31, 2007, the components of inventories were as follows:

 
| ** **       | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **       | ** ** | **(in thousands)**  | ** ** |
| Raw  materials   |       | $                        | 43,374     |                        | $          | 48,102 |   |
| Work  in process |       | 98,876                   |       | 78,792                      |       |
| Finished  goods  |       | 336,823                  |       | 289,413                     |       |
|             |       | 479,073                  |       | 416,307                     |       |
| LIFO  reserve    |       | (144,357                 | )          | (106,322                    | )          |
|             |       | $                        | 334,716    |                        | $          | 309,985 |   |

 

Inventories valued usingthe LIFO method amounted to $186.1 million and $177.7 million at March 31,2008 and December 31, 2007, respectively.

 

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

 

The components ofcomprehensive income for the three months ended March 31, 2008 and 2007were as follows:

 
| ** **                                                                                                                                                                                          | ** ** | **2008**                | ** ** | **2007** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|----------|------------|
| ** **                                                                                                                                                                                          | ** ** | **(in thousands)** | ** ** |
| Net  income                                                                                                                                                                                         |       | $                       | 7,441      |     | $          | 9,158 |   |
| Foreign  currency translation adjustment, net of income tax of $7 and $321 for the  three months ended March 31, 2008 and 2007, respectively                                                   |       | 10,689                  |       | 380      |       |
| Reclassification  adjustment for actuarial gains of defined benefit plans included in net  income, net of income tax of $2 for the three months ended March 31,  2007                          |       | —                  |       | (3       | )          |
| Reclassification  adjustment for prior service costs of defined benefit plans included in net  income, net of income tax of $7 for the three months ended March 31,  2008 and 2007             |       | 12                      |       | 12       |       |
| Unrealized  holding gains on derivatives during the period, net of income tax of $1,228  and $973 for the three months ended March 31, 2008 and 2007,  respectively                            |       | 1,906                   |       | 1,517    |       |
| Reclassification  adjustment for (gains) losses on derivatives included in net income, net of  income tax of $202 and $(504) for the three months ended March 31, 2008  and 2007, respectively |       | (316                    | )          | 784      |       |
| Net  unrealized gains on derivatives                                                                                                                                                                |       | 1,590                   |       | 2,301    |       |
| Comprehensive  income                                                                                                                                                                               |       | $                       | 19,732     |     | $          | 11,848 |   |

 

The components ofaccumulated other comprehensive income at March 31, 2008 and December 31,2007 were as follows:

 
| ** **                                                                                                                                  | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                  | ** ** | **(in thousands)**  | ** ** |
| Foreign  currency translation adjustment, net of tax of $551 and $544 at  March 31, 2008 and December 31, 2007, respectively      |       | $                        | 26,634     |                        | $          | 15,945 |   |
| Actuarial  losses of defined benefit plans, net of tax of $2,405 at March 31, 2008  and December 31, 2007                         |       | (3,110                   | )          | (3,110                      | )          |
| Prior  service costs of defined benefit plans, net of tax of $248 and $255 at  March 31, 2008 and December 31, 2007, respectively |       | (439                     | )          | (451                        | )          |
| Unrealized  gain (loss) on derivatives, net of tax of $(829) and $197 at March 31,  2008 and December 31, 2007, respectively      |       | 1,292                    |       | (298                        | )          |
|                                                                                                                                        |       | $                        | 24,377     |                        | $          | 12,086 |   |

 

9

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

 

On January 23,2008, the Company announced that it is consolidating and restructuring itsNorth American magnet wire and distribution and copper rod segments’manufacturing facilities. The changes are expected to more efficiently matchproduction capabilities to industry demand levels and to customer requirements.The restructuring involves a phased closure of the magnet wire manufacturingand copper rod continuous casting facilities located in Vincennes, Indiana, andthe relocation of existing production to other North American magnet wire anddistribution facilities. The closures are expected to be completed by the firstquarter of 2009. The Company’s Board of Directors authorized the action on January 16,2008 and the restructuring was communicated to employees on January 23,2008. The total restructuring charges are estimated at $22 million,consisting of non-cash charges of approximately $15 million, principallythrough accelerated depreciation, and cash charges of approximately$3 million relating to employee severance and retention and $4 millionrelating to equipment relocation and facility closure costs associated with therestructuring. The Company expects to incur the majority of these charges in2008. The North American magnet wire and distribution and copper rod segmentrestructuring activities for the three months ended March 31, 2008 aresummarized as follows:

 
| ** **                       | ** ** | **Accelerated  Depreciation** | ** ** | **Employee  Severance** | ** ** | **Employee  Retention** | ** ** | **Equipment  Relocation  and Other  Facility  Exit Costs** | ** ** | **Total**  | ** ** |
|----------------------------------|------------|-------------------------------|------------|-------------------------|------------|-------------------------|------------|----------------------------------------------------------------------|------------|------------|------------|
| ** **                       | ** ** | ** **                    | ** ** | ** **              | ** ** | ** **              | ** ** | ** **                                                           | ** ** | ** ** | ** ** |
| Amounts  charged to expense      |       | $                             | 7,429      |                    | $          | 1,335                   |       | $                                                                    | 237        |       | $          | 430 |   | $ | 9,431 |   |
| Non-cash  charges against assets |       | (7,429                        | )          | —                  |       | —                  |       | —                                                               |       | (7,429     | )          |
| Cash  payments                   |       | —                        |       | (15                     | )          | —                  |       | (430                                                                 | )          | (445       | )          |
| Balance  at March 31, 2008  |       | $                             | —     |                    | $          | 1,320                   |       | $                                                                    | 237        |       | $          | — |   | $ | 1,557 |   |

 

Accelerated depreciationcharges reflect changes in estimated useful lives and residual values forlong-lived assets that will be taken out of service prior to the end of theiroriginal service period and have been reported as a component of cost of goodssold in the accompanying statement of operations. All other charges associatedwith the restructuring have been reported as a component of restructuring andother charges in the accompanying statement of operations. Employee retentioncosts relate to incentives that will be paid to Vincennes’ employees who remainemployed until certain future termination dates and meet specified safety andattendance goals and are accrued over the retention period. Total restructuringcosts of $9.4 million for the three months ended March 31, 2008 include$8.0 million related to the North American magnet wire and distribution segmentand $1.4 million related to the copper rod segment.

 

In March 2008, theCompany announced that Essex Europe had initiated discussions with theappropriate French employee representative bodies for the potential closure ofits magnet wire manufacturing facility in Chauny, France. The Chauny facilityis leased from Nexans through October 2009 and currently has approximately130 employees. Restructuring and other charges for the three months ended March 31,2008 include $0.1 million consisting primarily of professional fees related tothese discussions.

 

Essex Europe recorded arestructuring provision of $0.3 million during the three months ended March 31,2007 related to a workforce reduction at its Viana de Castelo, Portugalmanufacturing facility. The majority of the costs related to severance paymentsand related benefits and were paid during 2007. Restructuring and other chargesfor the three months ended March 31, 2007 also included the write-off of$0.4 million of deferred business acquisition costs and $0.1 million ofprofessional fees incurred in connection with the administration of SuperiorTeleCom’s plan of reorganization.

 

**5.****                                     ****Acquisitions**

 

***Invexacquisition***

 

On July 31, 2007,Essex Europe acquired all of the outstanding common stock of Invex S.p.A.(“Invex”), a leading European magnet wire producer based in Italy for a cashpurchase price of $41.1 million. The Company believes the acquisition willcomplement its existing European operations and should provide near- andlong-term synergy opportunities in the areas of sales and administration,internal enamel usage, and other logistical, procurement and manufacturingarrangements. The purchase was financed with cash on hand. The acquisition wasaccounted for using the purchase method of accounting and the results of theacquired operations have been included in the consolidated results ofoperations of the Company from the date of acquisition. Invex is included inthe Company’s European magnet wire and distribution segment. 

 

10

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The Company is in theprocess of finalizing certain asset and liability valuations and therefore theallocation of the purchase price is subject to refinement and adjustment.

 

***                                               ******Tianjin acquisition***

 

On July 26, 2007,the Company acquired Nexans’ 80% ownership interest in Essex Magnet Wire(Tianjin) Ltd. (formerly known as Nexans Tianjin Magnet Wires andCables Co., Ltd.) which owns and operates a magnet wire facilitylocated in Tianjin, China, for a cash purchase price of $9.3 million. Inaddition to complementing its existing magnet wire manufacturing facility inSuzhou, China, the Company believes this acquisition provides a significantmarket presence in the Chinese market for rectangular wires 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 operations of Essex Magnet Wire (Tianjin) Ltd.are included in the Company’s Asia/Pacific magnet wire segment. The Company isin the process of finalizing certain asset and liability valuations andtherefore the allocation of the purchase price is subject to refinement andadjustment.

 

***EssexEurope minority interest acquisition***

 

On June 27, 2007, asprovided for in the Essex Europe shareholders agreement, the Company exercisedits option to purchase Nexans’ 40% minority interest in Essex Europe for a cashpayment of $29.6 million, including acquisition costs of$0.2 million. The acquisition of the minority interest was accounted forusing the purchase method of accounting.

 

The following pro formaconsolidated results of operations for the three months ended March 31, 2007have been prepared as if the acquisition of the Essex Europe minority interesthad occurred at January 1, 2007. The extraordinary gain directly attributableto the transaction is included in the pro forma consolidated results ofoperations.

 
| Net sales                         |   | $      | 695,628 |   |
|-----------------------------------|--------|--------|---------|--------|
| Income before  extraordinary gain |   | 10,499 |    |
| Net income                        |   | 13,729 |    |
| Net income per  share:            |   |   |    |
| Basic                             |   |   |    |
| Income before  extraordinary gain |   | 0.52   |    |
| Net income                        |   | 0.68   |    |
| Diluted                           |   |   |    |
| Income before  extraordinary gain |   | 0.51   |    |
| Net income                        |   | 0.67   |    |

 

***                                               ******Simcoe acquisition***

 

On April 27, 2007,the Company acquired certain assets and assumed certain liabilities related toNexans’ remaining North American magnet wire business in Simcoe, Canada. Thisacquisition provided the Company with an increased market presence in the NorthAmerican market for magnet wire products used in the transformer and powergeneration end markets. The Simcoe acquisition was completed for a cashpurchase price, after adjustment, of $12.7 million. The acquisition wasaccounted for using the purchase method of accounting and the results of theacquired operations have been included in the consolidated results ofoperations of the Company from the date of acquisition. The Simcoe operationsare included in the North American magnet wire and distribution segment.

 

**6.****                                     ****Debt**

 

At March 31, 2008and December 31, 2007, short-term borrowings and long-term debt consist ofthe following:

 
| ** **                                                                                                               | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                               | ** ** | **(in thousands)**  | ** ** |
| Short-term  borrowings:                                                                                                  |       |                     |       |                        |       |
| Essex  Europe factoring agreement                                                                                        |       | $                        | 49,165     |                        | $          | 46,103 |   |
| Essex  Magnet Wire (Tianjin) Ltd. credit facility                                                                        |       | 11,835                   |       | 14,280                      |       |
| Essex  Magnet Wire (Suzhou) Ltd. credit facilities                                                                       |       | 5,705                    |       | 5,476                       |       |
|                                                                                                                     |       | $                        | 66,705     |                        | $          | 65,859 |   |
| Long-term  debt:                                                                                                         |       |                     |       |                        |       |
| 9% senior  notes (net of discount of $4,235 and $4,446 at March 31, 2008 and  December 31, 2007, respectively) |       | $                        | 252,865    |                        | $          | 252,654 |   |
| Series A  redeemable preferred stock of Superior Essex Holding                                                      |       | 5,000                    |       | 5,000                       |       |
| Term  loan of Essex Magnet Wire (Suzhou) Ltd.                                                                            |       | 13,691                   |       | 13,143                      |       |
| 3%  convertible bonds of Invex                                                                                           |       | 9,167                    |       | 8,432                       |       |
| Other                                                                                                                    |       | 8,187                    |       | 8,097                       |       |
|                                                                                                                     |       | 288,910                  |       | 287,326                     |       |
| Less  current portion of long-term debt                                                                                  |       | 1,187                    |       | 1,097                       |       |
| Total  long-term debt                                                                                                    |       | $                        | 287,723    |                        | $          | 286,229 |   |

 

11

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Superior EssexCommunications 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% for base rate loans. Obligations under thesenior secured credit facility are secured by substantially all domestic assetsof the Company and 65% of the voting stock of certain of the Company’s foreignsubsidiaries. Availability under the senior secured credit facility is subjectto a borrowing base equal to the lesser of (1) $225 million lessoutstanding letters of credit and (2) a specified percentage of eligibleaccounts receivable and inventory less specified reserves. The specifiedpercentages are (i) 85% of the value of the eligible accounts receivableand with respect to inventory the lesser of (a) $110 million or (b) thelesser of (x) 65% of the value of eligible inventory and (y) 85%multiplied by the net orderly liquidation percentage then applicable multipliedby the value of the eligible inventory. Certain of the specified reserves thatreduce availability are not fixed and may be increased or imposed by theadministrative agent for the amended and restated senior secured creditfacility at its reasonable credit judgment. The borrowers are obligated to payan unused commitment fee of 0.25% per annum on the unused amount of the maximumcommitted amounts and a fee of 0.125% per annum on the outstanding face amountof outstanding letters of credit. No borrowings were outstanding under thesenior secured credit facility at March 31, 2008 and undrawn availabilitywas $224.5 million.

 

The senior secured creditfacility contains covenants which may limit Superior Essex Communications’ andEssex Group’s and their subsidiaries’ ability to (i) pay dividends, redeemcapital stock or make other restricted payments, (ii) sell or dispose ofassets, (iii) incur additional indebtedness or permit liens to exist onCompany property, (iv) engage in transactions with affiliates and (v) makeadditional 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.

 

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

 

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

 

The computation of basicand diluted net income per share for the three months ended March 31, 2008and 2007 is as follows:

 
| ** **                           | ** ** | **2008**                                                              | ** ** | **2007**   | ** ** |
|--------------------------------------|------------|-----------------------------------------------------------------------|------------|------------|------------|
| ** **                           | ** ** | **Net  Income**                                                       | ** ** | **Shares** | ** ** | **Per Share  Amount** | ** ** | **Net  Income** | ** ** | **Shares** | ** ** | **Per Share  Amount** | ** ** |
| ** **                           | ** ** | **(in thousands, except per share amounts)** | ** ** |
| Basic  net income per common share   |       | $                                                                     | 7,441      |       | 19,757     |   | $ | 0.38 |   | $ | 9,158 |   | 20,152 |   | $ | 0.45 |   |
| Effect  of dilutive securities:      |       |                                                                  |       |       |       |   |   |   |   |   |   |   |   |
| Restricted  stock awards             |       | —                                                                |       | 82         |       |   |   | — |   | 113 |   |   |   |
| Stock  options                       |       | —                                                                |       | 90         |       |   |   | — |   | 190 |   |   |   |
| Diluted  net income per common share |       | $                                                                     | 7,441      |       | 19,929     |   | $ | 0.37 |   | $ | 9,158 |   | 20,455 |   | $ | 0.45 |   |

 

A total of 333,387 and216,152 anti-dilutive weighted average shares with respect to outstanding stockoptions, restricted stock awards and contingently issuable performance shareawards have been excluded from the computation of diluted income per share forthe three months ended March 31, 2008 and 2007, respectively. Thepotential dilutive effect of the $6 million Invex convertible bonds hasnot been included in the diluted income per share calculations for the threemonths ended March 31, 2008 as the Company intends to settle the debt incash.

 

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

 

In November 2003, the Company adopted theSuperior Essex Inc. 2003 Stock Incentive Plan (the “2003 Plan”) pursuantto which a committee of the Company’s board of directors was authorized togrant stock options or restricted stock awards to employees, non-employeedirectors and certain service providers. The 2003 Plan permitted grants ofawards or options to purchase up to 1,833,333 shares of authorized but unissuedcommon stock, stock held in treasury or both. Stock options under the 2003 Plancould be granted with an exercise price less than, equal to or greater than thestock’s fair market value at the date of grant. The term of stock optionsgranted under the 2003 Plan could not exceed 10 years.

 

12

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In May 2005, the shareholders of the Companyapproved the Superior Essex Inc. 2005 Incentive Plan (the “2005 Plan”)pursuant to which a committee of the Company’s board of directors may grantstock options, stock appreciation rights, restricted stock, restricted stockunits, deferred stock units, performance awards, dividend and interestequivalents and cash-based awards to eligible employees, officers, non-employeedirectors and consultants. Stock options can be granted under the 2005 Planwith an exercise price equal to or greater than the stock’s fair market valueat the date of grant. The term of stock options granted may not exceed10 years. As a result of adoption of the 2005 Plan, no further grants orawards may be made pursuant to the 2003 Plan. In May 2007, theshareholders of the Company approved an amendment to the 2005 Plan to, amongother things, increase the number of shares that may be issued under the Planby 500,000 shares and adjust the share reserve provisions. Immediately afterthe 2007 amendment, and subject to adjustment as provided in the 2005 Plan, theaggregate number of shares of common stock available for issuance under the2005 Plan was (i) 500,000, plus (ii) shares underlying awardsoutstanding under the 2005 Plan as of May 3, 2007, plus (iii) sharesremaining available for issuance under the 2005 Plan as of May 2, 2007,plus (iv) a number of additional shares underlying awards outstandingunder the 2003 Plan that lapse for any reason, plus (v) a number ofadditional shares delivered or withheld on or after May 3, 2007 to coverthe exercise price and/or satisfy tax withholding obligations with respect toawards outstanding under the 2003 Plan.

 

In April 2007 and August 2007, the Companygranted performance share awards to certain of the Company’s officers and keyemployees under the 2005 Plan, as amended. Under the terms of the award theexecutives may vest in up to 275,738 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. In April 2008, the Company grantedperformance shares to certain of the Company’s officers and key employees.Under the terms of the award the executives may vest in up to 515,534 shares ofthe Company’s common stock on December 31, 2010 contingent upon meetingspecified performance goals during the three-year period ended December 31,2010. Compensation expense related to the performance share awards is based onthe grant date fair value of the award and the estimated number of shares thatwill ultimately vest. Compensation expense for the three months ended March 31,2007 included $0.9 million resulting from a change in the estimated number ofperformance shares that will ultimately vest. Compensation expense is subjectto future adjustment based upon changes in expected performance.

 

Total compensation cost related to all stock-basedcompensation plans was $0.9 million and $2.0 million for the three months endedMarch 31, 2008 and 2007, respectively. As of March 31, 2008, therewas $5.6 million of unrecognized compensation cost related to the Company’sstock-based compensation plans which is expected to be recognized over aweighted average period of 1.8 years.

 

Thefollowing table summarizes stock option activity for the three months ended March 31,2008:

 
| ** **                             | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual  Term (in  years)** | ** ** | **Aggregate  Intrinsic  Value (in  thousands)** | ** ** |
|----------------------------------------|------------|------------|------------|----------------------------------------|------------|----------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                             | ** ** | ** ** | ** ** | ** **                             | ** ** | ** **                                                           | ** ** | ** **                                           | ** ** |
| Outstanding at  December 31, 2007 |       | 394,993    |       | $                                      | 17.54      |                                                                 |       |                                                 |       |   |
| Granted                                |       | 2,500      |       | 23.90                                  |       |                                                                 |       |                                                 |       |
| Exercised                              |       | (1,433     | )          | 17.84                                  |       |                                                                 |       |                                                 |       |
| Forfeitures                            |       | —     |       | —                                 |       |                                                                 |       |                                                 |       |
| Outstanding at  March 31, 2008    |       | 396,060    |       | $                                      | 17.58      |                                                                 | 6.7        |                                                 | $          | 4,174 |   |
| Exercisable at  March 31, 2008    |       | 231,178    |       | $                                      | 14.66      |                                                                 | 6.2        |                                                 | $          | 3,110 |   |

 

Options to purchase 2,500 shares of common stock witha weighted average Black Scholes fair value per option of $11.08 were grantedduring the three months ended March 31, 2008. No options were granted duringthe three months ended March 31, 2007. The fair value for options grantedduring the three months ended March 31, 2008 was estimated at the date of grantusing the Black Scholes option pricing model and the following weighted averageassumptions: expected volatility of 43%; dividend yield of 0%; risk-free interestrate of 3.0%; and expected life of 6.25 years. The expected volatility isestimated using the historical daily volatility of the Company’s stock as wellas the historical volatilities of publicly-traded stock of certain of theCompany’s competitors. The Company has not made any 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.

 

13

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Thefollowing table summarizes the status of the Company’s unvested share awards,including the performance share awards discussed above, for the three monthsended March 31, 2008:

 
| ** **                                                      | ** ** | **Shares  Outstanding** | ** ** | **Weighted Average  Grant Date  Fair Value** | ** ** |
|-----------------------------------------------------------------|------------|-------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                      | ** ** | ** **              | ** ** | ** **                                                  | ** ** |
| Nonvested share  awards outstanding at December 31, 2007   |       | 422,555                 |       | $                                                           | 31.66      |   |
| Granted                                                         |       | 1,859                   |       | 23.79                                                       |       |
| Vested                                                          |       | —                  |       | —                                                      |       |
| Forfeited                                                       |       | —                  |       | —                                                      |       |
| Nonvested share  awards outstanding at March 31, 2008      |       | 424,414                 |       | $                                                           | 31.63      |   |
| Nonvested share  awards at March 31, 2008 expected to vest |       | 274,347                 |       | $                                                           | 29.83      |   |

 

**9.****                                      Employeebenefits**

 

Thecomponents of net periodic benefit cost of the Company’s defined benefitpension plans for the three months ended March 31, 2008 and 2007 arepresented below.

 
| ** **                                    | ** ** | **2008**                | ** ** | **2007** | ** ** |
|-----------------------------------------------|------------|-------------------------|------------|----------|------------|
| ** **                                    | ** ** | **(in thousands)** | ** ** |
| **Components  of net periodic benefit cost:** |       |                    |       |     |       |
| Service cost                                  |       | $                       | 660        |     | $          | 677 |   |
| Interest cost                                 |       | 2,494                   |       | 2,102    |       |
| Expected return  on plan assets               |       | (2,731                  | )          | (2,303   | )          |
| Amortization of  actuarial gains              |       | —                  |       | (5       | )          |
| Amortization of  prior service costs          |       | 19                      |       | 19       |       |
|                                          |       | $                       | 442        |     | $          | 490 |   |

 

TheCompany’s cash contributions to the defined benefit plans amounted to $0.5million and $1.6 million during the three months ended March 31, 2008 and2007, respectively. The Company expects to make additional cash contributionsof $4.9 million for the remainder of 2008.

 

In March 2008,the Compensation Committee of the Board of Directors adopted an amended andrestated Senior Executive Retirement Plan (the “Amended and Restated SERP”) toreplace the Company’s existing SERP agreement. The Amended and Restated SERP iseffective April 1, 2008 and provides for, among other things, a reductionin the benefit accrual rate from 2.5% per year in the case of the ChiefExecutive Officer and 2.0% in the case of the Executive Vice Presidents to 1.5%for periods on and after January 1, 2009. In consideration of thisreduction, the Company granted 41,167 restricted stock awards to the affectedofficers on April 1, 2008.

 

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

 

TheCompany, to a limited extent, uses or has used forward fixed price contractsand derivative financial instruments to manage commodity price, interest rateand foreign currency exchange risks. The Company does not hold or issuefinancial instruments for investment or trading purposes. The Company is exposedto credit risk in the event of nonperformance by counterparties for foreignexchange forward contracts, commodity forward price contracts and commodityfutures contracts but the Company does not anticipate nonperformance by any ofthese counterparties. The amount of such exposure is generally limited to anyunrealized gains within the underlying contracts.

 

***Commodityprice 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 copper futures purchase contracts tomatch the metal component of customer product pricing with the copper costcomponent of the inventory shipped. These futures contracts have beendesignated as cash flow hedges with unrealized gains and losses recorded inother comprehensive income. Gains and losses are reclassified into earnings, asa component of cost of goods sold, when the hedged transactions are reflectedin the statement of operations. Hedge ineffectiveness, which is notsignificant, is immediately recognized in

 

14

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earnings. The Company’s copper futures purchase contracts designated ascash flow hedges are summarized as follows at March 31, 2008 and December 31,2007:

 
| **Type**                     | ** ** | **Notional  Amount**                    | ** ** | **Maturity  Date** | ** ** | **Weighted  Average  Contract Rate** | ** ** | **Fair Value  Gain (Loss)** | ** ** |
|------------------------------|------------|-----------------------------------------|------------|--------------------|------------|-------------------------------------------|------------|---------------------------------------|------------|
| ** **                   | ** ** | **(in thousands of  pounds)** | ** ** | ** **         | ** ** | ** **                                | ** ** | **(in  thousands)**                   | ** ** |
| **March 31,  2008:**    |       |                                    |       |               |       |                                      |       |                                  |       |
| Copper                       |       | 3,300                                   |       | 2008               |       | $                                         | 3.18       |                                  | $          | 2,121 |   |
|                         |       |                                    |       |               |       |                                      |       |                                  |       |
| **December 31,  2007:** |       |                                    |       |               |       |                                      |       |                                  |       |
| Copper                       |       | 5,450                                   |       | 2008               |       | 3.14                                      |       | $                                     | (495       | ) |
|                              |            |                                         |            |                    |            |                                           |            |                                       |            |  |  |

 

All ofthe unrealized gains on commodity futures outstanding at March 31, 2008are expected to be reclassified to earnings within the next twelve months.

 

TheCompany also periodically enters into commodity futures contracts whichrepresent economic hedges but have not been designated as hedges for accountingpurposes (“non-designated derivatives”). These futures contracts are intendedto minimize the risks associated with forward product pricing for customers andchanging copper prices. The Company uses copper futures purchase contracts tomatch the copper component of customer product pricing with the copper costcomponent of the inventory shipped. The Company uses copper futures salescontracts to fix a portion of the gross margin related to the copper componentof certain of our products. Gains and losses on these non-designatedderivatives are recorded in income as a component of cost of goods sold. Net gainson non-designated derivatives were $1.4 million for the three months ended March 31,2008. The Company did not enter into any non-designated derivatives during thethree months ended March 31, 2007.

 

TheCompany’s non-designated commodities futures contracts outstanding at March 31,2008 are summarized as follows:

 
| **Type**                     | ** ** | **Notional  Amount**                          | ** ** | **Maturity  Date** | ** ** | **Weighted  Average  Contract Rate** | ** ** | **Fair Value  Gain (Loss)** | ** ** |
|------------------------------|------------|-----------------------------------------------|------------|--------------------|------------|-------------------------------------------|------------|---------------------------------------|------------|
| ** **                   | ** ** | **(in thousands of   pounds)** | ** ** | ** **         | ** ** | ** **                                | ** ** | **(in  thousands)**                   | ** ** |
| **March 31,  2008:**    |       |                                          |       |               |       |                                      |       |                                  |       |
| Copper purchase  contracts   |       | 3,273                                         |       | 2008               |       | $                                         | 3.40       |                                  | $          | 955 |   |
| Copper purchase  contracts   |       | 165                                           |       | 2009               |       | 3.29                                      |       | 65                                    |       |
| Copper sales  contracts      |       | 3,449                                         |       | 2008               |       | 3.80                                      |       | (70                                   | )          |
| Copper sales  contracts      |       | 55                                            |       | 2009               |       | 3.79                                      |       | 2                                     |       |
|                         |       |                                          |       |               |       |                                      |       | $                                     | 952        |   |
| **December 31,  2007:** |       |                                          |       |               |       |                                      |       |                                  |       |
| Copper purchase  contracts   |       | 2,876                                         |       | 2008               |       | 3.07                                      |       | $                                     | (293       | ) |
|                              |            |                                               |            |                    |            |                                           |            |                                       |            |  |  |

 

***Foreigncurrency exchange risk management***

 

The Company engages in the sale and purchase ofproducts which result in accounts receivable and accounts payable denominatedin foreign currencies. Additionally, the Company enters into intercompanyloans, some of which are not considered long-term investments, amongsubsidiaries with differing functional currencies. As a result, fluctuations inthe value of foreign currencies create exposures which can adversely affect theCompany’s results of operations. The Company attempts to manage itstransactional 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, the Company hedges certain,but not all, of its foreign currency exposures through the use ofnon-deliverable foreign currency forward exchange contracts. These contractsgenerally have maturities of less than two months and represent non-designatedderivatives. Changes in the fair value of these contracts, together with gainsand losses on foreign currency transactions, are reflected in current earningsas a component of other income and expense. Net gains recognized on foreigncurrency forward exchange contracts were $1.3 million for the three monthsended March 31, 2008. The Company also recognized $1.9 million of losseson foreign currency transactions during the three months ended March 31,2008.

 

15

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The following table summarizes information aboutforeign currency forward exchange contract derivatives as of March 31,2008 and December 31, 2007. These contracts are generally executed on thelast day of the reporting period and therefore the fair value of contractsoutstanding at March 31, 2008 and December 31, 2007 is notsignificant.

 
| **Derivatives**                    | ** ** | **Notional Amount** | ** ** | **Weighted  Average  Contract Rate** | ** ** |
|------------------------------------|------------|--------------------------|------------|-------------------------------------------|------------|
| ** **                         | ** ** | **(in thousands)**  | ** ** | ** **                                | ** ** |
| **March 31,  2008:**          |       |                     |       |                                      |       |   |   |
| U.S. dollars for  Euros            |       | 3,900                    |       | USD                                       |       | 0.63 |   |
| Canadian dollars  for U.S. dollars |       | 9,700                    |       | USD                                       |       | 1.03 |   |
| Canadian dollars  for U.S. dollars |       | 12,900                   |       | CAD                                       |       | 0.97 |   |
| British pounds  for Euros          |       | 9,000                    |       | EURO                                      |       | 0.79 |   |
| Euros for U.S.  dollars            |       | 2,945                    |       | EURO                                      |       | 1.58 |   |
| British pounds  for Euros          |       | 1,600                    |       | GBP                                       |       | 1.26 |   |
|                               |       |                     |       |                                      |       |   |   |
| **December 31,  2007:**       |       |                     |       |                                      |       |   |   |
| U.S. dollars for  Euros            |       | 4,100                    |       | USD                                       |       | 0.68 |   |
| Canadian dollars  for U.S dollars  |       | 4,000                    |       | USD                                       |       | 0.99 |   |
| Canadian dollars  for U.S. dollars |       | 13,000                   |       | CAD                                       |       | 1.01 |   |
| British pounds  for Euros          |       | 7,000                    |       | EURO                                      |       | 0.74 |   |
| Euros for U.S.  dollars            |       | 1,980                    |       | EURO                                      |       | 1.46 |   |
| British pounds  for Euros          |       | 1,700                    |       | GBP                                       |       | 1.35 |   |

 

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

 

***Legalmatters***

 

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 SFAS No. 5,*Accounting for Contingencies*, theCompany records a liability when management believes it is both probable that aliability has been incurred and the amount of loss can be reasonably estimated.Management believes it has adequate provisions for any such matters. TheCompany reviews these provisions at least quarterly and adjusts theseprovisions to reflect the impact of negotiations, settlements, 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 known 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, Essex Electric Inc.,now known as Exeon Inc. (“Exeon”), and other plaintiffs filed lawsuits (the “2003Copper Action”) under Section 1 of the Sherman Act against certaindefendants based on an alleged conspiracy to elevate the prices of certaincopper products during certain periods from 1993 to 1996. On June 4, 2007,the parties to the 2003 Copper Action (including all plaintiffs and defendants)entered into a settlement pursuant to which the 2003 Copper Action wasdismissed with prejudice. The terms of the settlement are confidential. Aportion of the settlement proceeds (approximately $27,000,000) were held inescrow by plaintiffs’ counsel (the “Escrowed Settlement Proceeds”). The Companyand Exeon, each claimed to be entitled to the Escrowed Settlement Proceeds andfiled claims with respect to the Escrowed Settlement Proceeds and mattersrelated thereto.

 

In April 2008, the Company and Exeon reached anagreement to settle their claims. Under this settlement agreement, the Companyreceived $19.6 million of the Escrowed Settlement Proceeds. Legal fees relatingto the Exeon matter have been expensed as incurred (see note 15).

 

On January 29, 2008, Belden Technologies, Inc.and Belden CDT (Canada) Inc. (“Belden”) filed a Complaint against theCompany and Superior Essex Communications in the United States District Courtfor the District of Delaware, alleging that the Company infringed U.S. PatentNos. 5,424,491; 6,074,503; 6,570,095; 6,596,944; 6,998,537; and 7,179,999.*Belden Technologies, Inc. and Belden CDT(Canada) Inc. v. Superior Essex Inc. and Superior Essex Communications L.P.,*CaseNo. 08-63, U.S. District Court for the District of Delaware. The sixpatents-in-suit are directed to communication cables

 

16

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and related manufacturing processes in the premises products field.Belden completed service of the Complaint and summons upon the Company on April 10,2008. The Company will vigorously defend against the suit.

 

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 acquisitions. TheCompany is implementing its code of ethics and procedures to assure compliancewith laws and regulations throughout its operations. Through its processes toensure compliance with laws and regulations, in 2007 the Company identifiedcertain 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. The Company voluntarily reported these transactions related toCuba to the U.S. Department of Treasury, Office of Foreign Asset Control. Upondiscovery of transactions related to Cuba, the Company undertook acomprehensive review of transactions that may involve embargoed countries. TheCompany has completed that review and has identified no further transactionsthat were not in compliance with U.S. laws related to embargoed countries.

 

In addition, through this review, the Company learnedthat it shipped a coating for its magnet wire products to its manufacturingoperations in Mexico and China and such shipments were misclassified under theU.S. export laws. Such shipments occurred on a regular basis without requiredexport authorization. The Company voluntarily reported such violations to theU.S. Department of Commerce, Bureau of Industry and Security (“BIS”). On January 26,2008, BIS granted licenses for shipments of the coating to the Company’sfacilities in Mexico and China.

 

To the extent the Company violated U.S. exportregulations, fines and other penalties may be imposed. Because these mattersare now pending before the indicated agencies, there can be no assurance thatany actual fines or penalties imposed will not have a material adverse affecton the Company’s business, financial condition, liquidity or results of operations.

 

Since approximately 1990, Essex International andcertain subsidiaries have been named as defendants in a number of productliability lawsuits brought by electricians, other skilled tradesmen and othersclaiming injury, in a substantial majority of cases, from exposure to asbestosfound in electrical wire products produced many years ago. Litigation againstvarious past insurers of Essex International who had previously refused todefend and indemnify Essex International against these lawsuits was settledduring 1999. Under the settlement, Essex International was reimbursed forsubstantially all of its costs and expenses incurred in the defense of theselawsuits, and the insurers have undertaken to defend, are currently directlydefending and, if it should become necessary, will indemnify EssexInternational against those asbestos lawsuits, subject to the terms and limitsof the respective policies. Under the plan of reorganization, certain of theclaimants in these actions will only be able to assert claims against theinsurers under applicable insurance coverage and related arrangements.Management believes that Essex International’s exposure, if any, in thesematters will not have a material adverse effect either individually, or in theaggregate, upon the Company’s business, financial condition, liquidity orresults of operations.

 

***Environmentalmatters***

 

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 withenvironmental laws and regulations will have a material effect on its capitalexpenditures, net income or competitive 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 March 31, 2008.These accruals are not material to the Company’s operations or financialposition.

 

***Purchasecommitments***

 

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 match its cost to thevalue of the copper expected to be billed to customers. At March 31, 2008,the Company had forward fixed-price copper purchase commitments for delivery of31.7 million pounds through June 2009 for $116.5 million.Additionally, at March 31, 2008, the Company had forward purchasefixed-price commitments for

 

17

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0.5 million pounds of aluminum through December 2008, 203,000megawatts of electricity through 2011 and 180,000 MMBTUs of natural gas throughDecember 2008 amounting to $0.7 million, $18.0 million and$1.4 million, respectively.

 

***Other***

 

On November 28, 2007, the Company announced a sharerepurchase program authorized by the Board of Directors to purchase up to$20 million of its outstanding common stock through open market purchasesat times and prices considered attractive. The Company had repurchased 366,118shares for $9.1 million as of December 31, 2007. In January 2008,the Company purchased an additional 495,661 shares for $10.9 million andcompleted its repurchases under the plan. The share repurchases were pursuantto a 10b5-1 trading plan. The Company repurchased a total of 861,779 shares atan average price of $23.21 per share.

 

**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 thecase of pre-drawn copper wire. Total purchases pursuant to these agreementsamounted to $61.2 million and $74.9 million for the three months ended March 31,2008 and 2007, respectively. In December 2007, Nexans provided notice thatthey did not intend to renew the pre-drawn wire agreement under the currentterms and conditions.

 

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 $5.6 million and $6.4 million for the threemonths ended March 31, 2008 and 2007, respectively. The Company’s equityin the loss of Femco was $0.6 million and $0.4 million for the three monthsended March 31, 2008 and 2007, respectively.

 

**13.****                               Businesssegments**

 

The Company manufactures a portfolio of wire and cableproducts for the communications, energy, automotive, industrial, andcommercial/residential end markets grouped into the following reportablesegments: (i) communications cable, (ii) North American magnet wireand distribution, (iii) European magnet wire and distribution, (iv)Asia/Pacificmagnet wire and (v) copper rod. The communications cable segmentmanufactures and markets copper and fiber optic outside plant wire and cablefor voice and data transmission in telecommunications networks and copper andfiber optic datacom or premises wire and cable for use within homes and officesfor local area networks, Internet connectivity and other applications. TheNorth American magnet wire and distribution segment manufactures and marketsmagnet wire and related products to major OEMs for use in motors,transformers and electrical coils and controls primarily in North America. TheNorth American magnet wire and distribution segment also distributes magnetwire and fabricated insulation products manufactured by the Company and relatedaccessory 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 July 2007(see note 5) and certain management reporting changes made during thethird quarter of 2007, the Company began reporting a new segment, theAsia/Pacific magnet wire segment. The Asia/Pacific magnet wire segment includesthe Tianjin, China business and the Company’s 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. The copper rod segment includes sales of copperrod produced by the Company’s North American continuous casting units toexternal customers. 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.

 

18

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

 
| ** **                                       | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                       | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
| ** **                                       | ** ** | **(in thousands)**                          | ** ** |
| Net sales:                                       |       |                                             |       |   |   |
| Communications  cable                            |       | $                                                | 196,476    |   | $ | 215,998 |   |
| North American  magnet wire and distribution     |       | 295,779                                          |       | 246,714 |   |
| European magnet  wire and distribution           |       | 233,959                                          |       | 160,393 |   |
| Asia/Pacific  magnet wire                        |       | 16,684                                           |       | 126 |   |
| Copper rod                                       |       | 14,262                                           |       | 72,397 |   |
|                                             |       | $                                                | 757,160    |   | $ | 695,628 |   |
| Operating income  (loss):                        |       |                                             |       |   |   |
| Communications  cable                            |       | $                                                | 18,914     |   | $ | 18,001 |   |
| North American  magnet wire and distribution (1) |       | 5,798                                            |       | 9,522 |   |
| European magnet  wire and distribution           |       | 6,407                                            |       | 6,055 |   |
| Asia/Pacific  magnet wire                        |       | 419                                              |       | (976 | ) |
| Copper rod (2)                                   |       | (1,309                                           | )          | (46 | ) |
| Corporate and  other                             |       | (7,831                                           | )          | (6,910 | ) |
| Restructuring  and other charges                 |       | (2,121                                           | )          | (874 | ) |
|                                             |       | $                                                | 20,277     |   | $ | 24,772 |   |

 
| ** **                                   | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|----------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                   | ** ** | **(in thousands)**  | ** ** |
| Total assets:                                |       |                     |       |                        |       |
| Communications  cable                        |       | $                        | 370,816    |                        | $          | 377,895 |   |
| North American  magnet wire and distribution |       | 366,881                  |       | 336,231                     |       |
| European magnet  wire and distribution       |       | 433,684                  |       | 405,307                     |       |
| Asia/Pacific  magnet wire                    |       | 82,772                   |       | 74,746                      |       |
| Copper rod                                   |       | 12,407                   |       | 15,560                      |       |
| Corporate and  other                         |       | 210                      |       | 5,651                       |       |
|                                         |       | $                        | 1,266,770  |                        | $          | 1,215,390 |   |

 

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(1)                           Includes$6.1 million of accelerated depreciation charges related to restructuringactivities for the three months ended March 31, 2008 (see note 4).

 

(2)                           Includes$1.3 million of accelerated depreciation charges related to restructuringactivities for the three months ended March 31, 2008 (see note 4).

 

19

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

 

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

 
| ** **                                     | ** ** | **Balance Sheet Information** | ** ** |
|------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                     | ** ** | **March 31, 2008**            | ** ** |
| ** **                                     | ** ** | **Parent**                              | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                     | ** ** | **(in thousands)**                 | ** ** |
| **ASSETS**                                     |       |                                    |       |   |   |   |   |   |   |   |   |   |   |
| Current assets:                                |       |                                    |       |   |   |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                     |       | $                                       | 104        |   | $ | 47,866 |   | $ | 391 |   | $ | 16,533 |   | $ | — |   | $ | 64,894 |   |
| Accounts  receivable, net                      |       | —                                  |       | 222,340 |   | 3,347 |   | 241,853 |   | — |   | 467,540 |   |
| Inventories, net                               |       | —                                  |       | 163,982 |   | 24,812 |   | 145,922 |   | — |   | 334,716 |   |
| Other current  assets                          |       | 1,700                                   |       | 7,797 |   | 588 |   | 18,441 |   | (2,495 | ) | 26,031 |   |
| Total current  assets                          |       | 1,804                                   |       | 441,985 |   | 29,138 |   | 422,749 |   | (2,495 | ) | 893,181 |   |
| Property, plant  and equipment, net            |       | 739                                     |       | 179,501 |   | 15,434 |   | 132,268 |   | — |   | 327,942 |   |
| Intangible and  other long-term assets         |       | 161                                     |       | 28,961 |   | 10 |   | 16,931 |   | (416 | ) | 45,647 |   |
| Investment in  subsidiaries                    |       | 313,725                                 |       | 179,343 |   | 250,348 |   | — |   | (743,416 | ) | — |   |
| Intercompany  accounts                         |       | 137,658                                 |       | — |   | 35,048 |   | — |   | (172,706 | ) | — |   |
| Total assets                                   |       | $                                       | 454,087    |   | $ | 829,790 |   | $ | 329,978 |   | $ | 571,948 |   | $ | (919,033 | ) | $ | 1,266,770 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY** |       |                                    |       |   |   |   |   |   |   |   |   |   |   |
| Current liabilities:                           |       |                                    |       |   |   |   |   |   |   |   |   |   |   |
| Short-term  borrowings                         |       | $                                       | —     |   | $ | — |   | $ | — |   | $ | 66,705 |   | $ | — |   | $ | 66,705 |   |
| Current portion  of long-term debt             |       | —                                  |       | — |   | — |   | 1,187 |   | — |   | 1,187 |   |
| Accounts payable                               |       | 553                                     |       | 141,540 |   | 6,860 |   | 129,705 |   | — |   | 278,658 |   |
| Accrued expenses                               |       | 5,565                                   |       | 32,601 |   | 479 |   | 69,472 |   | (2,495 | ) | 105,622 |   |
| Total current  liabilities                     |       | 6,118                                   |       | 174,141 |   | 7,339 |   | 267,069 |   | (2,495 | ) | 452,172 |   |
| Long term-debt                                 |       | —                                  |       | 259,865 |   | 5,000 |   | 22,858 |   | — |   | 287,723 |   |
| Other long-term  liabilities                   |       | 9,217                                   |       | 39,156 |   | 3,914 |   | 33,192 |   | (416 | ) | 85,063 |   |
| Intercompany  accounts                         |       | —                                  |       | 38,423 |   | — |   | 134,283 |   | (172,706 | ) | — |   |
| Total  liabilities                             |       | 15,335                                  |       | 511,585 |   | 16,253 |   | 457,402 |   | (175,617 | ) | 824,958 |   |
| Minority  interest                             |       | —                                  |       | — |   | — |   | 3,060 |   | — |   | 3,060 |   |
| Stockholders’  equity                     |       | 438,752                                 |       | 318,205 |   | 313,725 |   | 111,486 |   | (743,416 | ) | 438,752 |   |
|                                           |       | $                                       | 454,087    |   | $ | 829,790 |   | $ | 329,978 |   | $ | 571,948 |   | $ | (919,033 | ) | $ | 1,266,770 |   |

 

20

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** **
| ** **                                       | ** ** | **Balance Sheet Information  December 31, 2007** | ** ** |
|--------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** **                                       | ** ** | **Parent**                                                           | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| **ASSETS**                                       |       |                                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Current assets:                                  |       |                                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                       |       | $                                                                    | 180        |   | $ | 79,379 |   | $ | 168 |   | $ | 22,950 |   | $ | — |   | $ | 102,677 |   |
| Accounts  receivable, net                        |       | —                                                               |       | 176,299 |   | 2,815 |   | 224,018 |   | — |   | 403,132 |   |
| Inventories, net                                 |       | —                                                               |       | 164,834 |   | 12,075 |   | 133,076 |   | — |   | 309,985 |   |
| Other current  assets                            |       | 1,808                                                                |       | 8,195 |   | 589 |   | 18,022 |   | 3,488 |   | 32,102 |   |
| Total current  assets                            |       | 1,988                                                                |       | 428,707 |   | 15,647 |   | 398,066 |   | 3,488 |   | 847,896 |   |
| Property, plant  and equipment, net              |       | 901                                                                  |       | 188,571 |   | 13,509 |   | 120,302 |   | — |   | 323,283 |   |
| Intangible and  other long-term assets           |       | 9,150                                                                |       | 30,350 |   | 11 |   | 14,016 |   | (9,316 | ) | 44,211 |   |
| Investment in  subsidiaries                      |       | 298,323                                                              |       | 155,612 |   | 242,711 |   | — |   | (696,646 | ) | — |   |
| Intercompany  accounts                           |       | 142,360                                                              |       | — |   | 40,355 |   | — |   | (182,715 | ) | — |   |
| Total assets                                     |       | $                                                                    | 452,722    |   | $ | 803,240 |   | $ | 312,233 |   | $ | 532,384 |   | $ | (885,189 | ) | $ | 1,215,390 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**   |       |                                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Current  liabilities:                            |       |                                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Short-term  borrowings                           |       | $                                                                    | —     |   | $ | — |   | $ | — |   | $ | 65,859 |   | $ | — |   | $ | 65,859 |   |
| Current portion  of long-term debt               |       | —                                                               |       | — |   | — |   | 1,097 |   | — |   | 1,097 |   |
| Accounts payable                                 |       | 265                                                                  |       | 111,857 |   | 5,219 |   | 127,701 |   | — |   | 245,042 |   |
| Accrued expenses                                 |       | 3,376                                                                |       | 32,846 |   | 78 |   | 60,182 |   | 3,488 |   | 99,970 |   |
| Total current  liabilities                       |       | 3,641                                                                |       | 144,703 |   | 5,297 |   | 254,839 |   | 3,488 |   | 411,968 |   |
| Long term-debt                                   |       | —                                                               |       | 259,654 |   | 5,000 |   | 21,575 |   | — |   | 286,229 |   |
| Other long-term  liabilities                     |       | 18,528                                                               |       | 39,681 |   | 3,613 |   | 31,428 |   | (9,316 | ) | 83,934 |   |
| Intercompany  accounts                           |       | —                                                               |       | 56,552 |   | — |   | 126,163 |   | (182,715 | ) | — |   |
| Total  liabilities                               |       | 22,169                                                               |       | 500,590 |   | 13,910 |   | 434,005 |   | (188,543 | ) | 782,131 |   |
| Minority  interest                               |       | —                                                               |       | — |   | — |   | 2,706 |   | — |   | 2,706 |   |
| Stockholders’  equity                       |       | 430,553                                                              |       | 302,650 |   | 298,323 |   | 95,673 |   | (696,646 | ) | 430,553 |   |
| Total  liabilities and stockholders’ equity |       | $                                                                    | 452,722    |   | $ | 803,240 |   | $ | 312,233 |   | $ | 532,384 |   | $ | (885,189 | ) | 1,215,390 |   |

 

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| ** **                                                                                   | ** ** | **Statement of Operations Information**         | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                                                   | ** ** | **Three Months Ended March 31, 2008** | ** ** |
| ** **                                                                                   | ** ** | **Parent**                                                     | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                                                                   | ** ** | **(in thousands)**                                        | ** ** |
| Net sales                                                                                    |       | $                                                              | 7,680      |   | $ | 473,007 |   | $ | 62,418 |   | $ | 289,532 |   | $ | (75,477 | ) | $ | 757,160 |   |
| Cost of goods  sold                                                                          |       | —                                                         |       | 433,891 |   | 57,401 |   | 267,619 |   | (67,797 | ) | 691,114 |   |
| Gross profit                                                                                 |       | 7,680                                                          |       | 39,116 |   | 5,017 |   | 21,913 |   | (7,680 | ) | 66,046 |   |
| Selling, general  and administrative expenses                                                |       | (7,680                                                         | )          | (30,771 | ) | (180 | ) | (12,697 | ) | 7,680 |   | (43,648 | ) |
| Restructuring  and other charges                                                             |       | —                                                         |       | (1,962 | ) | (40 | ) | (119 | ) | — |   | (2,121 | ) |
| Operating income                                                                             |       | —                                                         |       | 6,383 |   | 4,797 |   | 9,097 |   | — |   | 20,277 |   |
| Interest expense                                                                             |       | —                                                         |       | (7,461 | ) | (119 | ) | (3,268 | ) | 2,530 |   | (8,318 | ) |
| Interest income                                                                              |       | 2,129                                                          |       | 529 |   | 405 |   | 61 |   | (2,530 | ) | 594 |   |
| Other income  (expense), net                                                                 |       | 29                                                             |       | (565 | ) | (30 | ) | (586 | ) | — |   | (1,152 | ) |
| Income (loss)  before income taxes, equity in earnings of subsidiaries and minority interest |       | 2,158                                                          |       | (1,114 | ) | 5,053 |   | 5,304 |   | — |   | 11,401 |   |
| Income tax  expense                                                                          |       | (666                                                           | )          | 219 |   | (1,791 | ) | (1,479 | ) | — |   | (3,717 | ) |
| Equity in  earnings of subsidiaries                                                          |       | 5,949                                                          |       | 6,925 |   | 3,110 |   | — |   | (15,984 | ) | — |   |
| Minority  interest in income of subsidiary                                                   |       | —                                                         |       | — |   | — |   | (243 | ) | — |   | (243 | ) |
| Net income                                                                                   |       | $                                                              | 7,441      |   | $ | 6,030 |   | $ | 6,372 |   | $ | 3,582 |   | $ | (15,984 | ) | $ | 7,441 |   |

 
| ** **                                                                            | ** ** | **Statement of Operations Information**         | ** ** |
|---------------------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                                            | ** ** | **Three Months Ended March 31, 2007** | ** ** |
| ** **                                                                            | ** ** | **Parent**                                                     | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                                                            | ** ** | **(in thousands)**                                        | ** ** |
| Net sales                                                                             |       | $                                                              | 6,937      |   | $ | 529,167 |   | $ | 52,262 |   | $ | 168,812 |   | $ | (61,550 | ) | $ | 695,628 |   |
| Cost of goods  sold                                                                   |       | —                                                         |       | 483,776 |   | 48,793 |   | 156,427 |   | (54,613 | ) | 634,383 |   |
| Gross profit                                                                          |       | 6,937                                                          |       | 45,391 |   | 3,469 |   | 12,385 |   | (6,937 | ) | 61,245 |   |
| Selling, general  and administrative expenses                                         |       | (6,903                                                         | )          | (28,559 | ) | (182 | ) | (6,892 | ) | 6,937 |   | (35,599 | ) |
| Restructuring  and other charges                                                      |       | (80                                                            | )          | (39 | ) | — |   | (755 | ) | — |   | (874 | ) |
| Operating income  (loss)                                                              |       | (46                                                            | )          | 16,793 |   | 3,287 |   | 4,738 |   | — |   | 24,772 |   |
| Interest expense                                                                      |       | (2                                                             | )          | (8,382 | ) | (119 | ) | (905 | ) | 1,758 |   | (7,650 | ) |
| Interest income                                                                       |       | 1,758                                                          |       | 730 |   | — |   | 16 |   | (1,758 | ) | 746 |   |
| Other income  (expense), net                                                          |       | 46                                                             |       | (530 | ) | (11 | ) | (256 | ) | — |   | (751 | ) |
| Income before  income taxes, equity in earnings of subsidiaries and minority interest |       | 1,756                                                          |       | 8,611 |   | 3,157 |   | 3,593 |   | — |   | 17,117 |   |
| Income tax  expense                                                                   |       | (650                                                           | )          | (2,959 | ) | (1,215 | ) | (2,085 | ) | — |   | (6,909 | ) |
| Equity in  earnings of subsidiaries                                                   |       | 8,052                                                          |       | 2,478 |   | 6,110 |   | — |   | (16,640 | ) | — |   |
| Minority  interest in income of subsidiaries                                          |       | —                                                         |       | — |   | — |   | (1,050 | ) | — |   | (1,050 | ) |
| Net income                                                                            |       | $                                                              | 9,158      |   | $ | 8,130 |   | $ | 8,052 |   | $ | 458 |   | $ | (16,640 | ) | $ | 9,158 |   |

 

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| ** **                                                            | ** ** | **Statement of Cash Flows Information**    | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                            | ** ** | **Three Months Ended March 31, 2008** | ** ** |
| ** **                                                            | ** ** | **Parent**                                                     | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                                            | ** ** | **(in thousands)**                                        | ** ** |
| Cash flows  provided by (used for) operating activities               |       | $                                                              | 3,184      |   | $ | (1,739 | ) | $ | (7,248 | ) | $ | (7,192 | ) | $ | — |   | $ | (12,995 | ) |
| Cash flows from investing  activities:                                |       |                                                           |       |   |   |   |   |   |   |   |   |   |   |
| Capital  expenditures                                                 |       | (10                                                            | )          | (3,190 | ) | (1,902 | ) | (6,938 | ) | — |   | (12,040 | ) |
| Investment in  subsidiaries                                           |       | —                                                         |       | (6,000 | ) | — |   | — |   | 6,000 |   | — |   |
| Intercompany  accounts                                                |       | 7,591                                                          |       | — |   | 9,373 |   | — |   | (16,964 | ) | — |   |
| Cash flows  provided by (used for) investing activities               |       | 7,581                                                          |       | (9,190 | ) | 7,471 |   | (6,938 | ) | (10,964 | ) | (12,040 | ) |
| Cash flows from  financing activities:                                |       |                                                           |       |   |   |   |   |   |   |   |   |   |   |
| Repayments of  short-term borrowings, net                             |       | —                                                         |       | — |   | — |   | (3,518 | ) | — |   | (3,518 | ) |
| Proceeds from  exercise of stock options and employee stock purchases |       | 28                                                             |       | — |   | — |   | — |   | — |   | 28 |   |
| Capital  contributions                                                |       | —                                                         |       | — |   | — |   | 1,500 |   | (1,500 | ) | — |   |
| Treasury stock  purchases                                             |       | (10,869                                                        | )          | — |   | — |   | — |   | — |   | (10,869 | ) |
| Intercompany  accounts                                                |       | —                                                         |       | (20,584 | ) | — |   | 8,120 |   | 12,464 |   | — |   |
| Cash flows  provided by (used for) financing activities               |       | (10,841                                                        | )          | (20,584 | ) | — |   | 6,102 |   | 10,964 |   | (14,359 | ) |
| Effect of  exchange rate changes on cash                              |       | —                                                         |       | — |   | — |   | 1,611 |   | — |   | 1,611 |   |
| Net increase  (decrease) in cash and cash equivalents                 |       | (76                                                            | )          | (31,513 | ) | 223 |   | (6,417 | ) | — |   | (37,783 | ) |
| Cash and cash  equivalents at beginning of period                     |       | 180                                                            |       | 79,379 |   | 168 |   | 22,950 |   | — |   | 102,677 |   |
| Cash and cash  equivalents at end of period                           |       | $                                                              | 104        |   | $ | 47,866 |   | $ | 391 |   | $ | 16,533 |   | $ | — |   | $ | 64,894 |   |

 

23

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| ** **                                                            | ** ** | **Statement of Cash Flows Information**    | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                            | ** ** | **Three Months Ended March 31, 2007** | ** ** |
| ** **                                                            | ** ** | **Parent**                                                     | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                                            | ** ** | **(in thousands)**                                        | ** ** |
| Cash flows  provided by operating activities                          |       | $3,009                                                         |       | $29,915 |   | $1,986 |   | $19,351 |   | $— |   | $54,261 |   |
| Cash flows from  investing activities:                                |       |                                                           |       |   |   |   |   |   |   |   |   |   |   |
| Capital  expenditures                                                 |       | (29                                                            | )          | (2,875 | ) | (152 | ) | (8,623 | ) | — |   | (11,679 | ) |
| Intercompany  accounts                                                |       | (4,387                                                         | )          | — |   | (1,719 | ) | — |   | 6,106 |   | — |   |
| Investment in  subsidiaries                                           |       | —                                                         |       | (2,400 | ) | — |   | — |   | 2,400 |   | — |   |
| Cash flows used  for investing activities                             |       | (4,416                                                         | )          | (5,275 | ) | (1,871 | ) | (8,623 | ) | 8,506 |   | (11,679 | ) |
| Cash flows from  financing activities:                                |       |                                                           |       |   |   |   |   |   |   |   |   |   |   |
| Repayments of  short-term borrowings, net                             |       | —                                                         |       | — |   | — |   | (18,223 | ) | — |   | (18,223 | ) |
| Proceeds from  exercise of stock options and employee stock purchases |       | 477                                                            |       | — |   | — |   | — |   | — |   | 477 |   |
| Capital  contributions                                                |       | —                                                         |       | — |   | — |   | 600 |   | (600 | ) | — |   |
| Other                                                                 |       | 439                                                            |       | — |   | — |   | — |   |   |   | 439 |   |
| Intercompany  accounts                                                |       | —                                                         |       | 2,812 |   | — |   | 5,094 |   | (7,906 | ) | — |   |
| Cash flows  provided by (used for) financing activities               |       | 916                                                            |       | 2,812 |   | — |   | (12,529 | ) | (8,506 | ) | (17,307 | ) |
| Effect of  exchange rate changes on cash                              |       | —                                                         |       | — |   | — |   | 116 |   | — |   | 116 |   |
| Net increase  (decrease) in cash and cash equivalents                 |       | (491                                                           | )          | 27,452 |   | 115 |   | (1,685 | ) | — |   | 25,391 |   |
| Cash and cash  equivalents at beginning of period                     |       | 94                                                             |       | 44,071 |   | 2 |   | 9,326 |   | — |   | 53,493 |   |
| Cash and cash  equivalents at end of period                           |       | $(397                                                          | )          | $71,523 |   | $117 |   | $7,641 |   | $— |   | $78,884 |   |

 

**15.****                               Subsequentevent – settlement of litigation**

 

In April 2008, the Company settled its litigationwith Exeon (see note 11). Under the terms of the settlement, the Companyreceived $19.6 million. The Company will recognize a gain in the amount of thesettlement in the second quarter of 2008.

 

24

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| **ITEM 2.** | **MANAGEMENT’S DISCUSSION AND  ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |
|-------------|-------------------------------------------------------------------------------------------------|

 

**General**

 

We currently manufacturea portfolio of wire and cable products for the communications, energy,automotive, industrial, and commercial/residential end-markets grouped into thefollowing segments: (i) communications cable, (ii) North Americanmagnet wire and distribution, (iii) European magnet wire and distribution,(iv) Asia/Pacific magnet wire and (v)  copper rod. As a result of theTianjin acquisition and certain management reporting changes implemented during2007, we began reporting a new segment, the Asia/Pacific magnet wire segment.The Asia/Pacific magnet wire segment includes the Tianjin, China business andour manufacturing operations in Suzhou, China. Prior to the third quarter of2007, the operations of the Suzhou facility were included in the North Americanmagnet wire and distribution segment. All prior period segment information hasbeen retrospectively adjusted to reflect the current segment reportingstructure.

 

Industry segmentfinancial data for the three months ended March 31, 2008 and 2007 isincluded in Note 13 to the accompanying condensed consolidated financialstatements.

 

**Overview**

** **

Our results forthe three months ended March 31, 2008 were significantly impacted byseveral factors. The Invex, Simcoe and Tianjin acquisitions (see note 5 tothe consolidated financial statements) completed in 2007 subsequent to thefirst quarter contributed total sales of $114 million and operating incomeof $6.5 million for the three months ended March 31, 2008. In June 2007,we also acquired Nexans’ 40% minority interest in Essex Europe (see note 5to the consolidated financial statements) thus eliminating the minorityinterest charge against the net income of Essex Europe in subsequent periods.The negative impact on demand for our products experienced in 2007 as a resultof weakness in the U.S. residential construction and housing market and softdemand in North American and European manufacturing sectors has continued into2008, and this trend is expected to continue for the remainder of 2008.Excluding the impact of business acquisitions made in 2007, all of our businesssegments, other than our start-up operation in China, experienced reductions insales volumes for the three months ended March 31, 2008 as compared to theprior year first quarter. Our results for the three months ended March 31,2008 compared to the three months ended March 31, 2007 reflect thefavorable effects of the strengthened Euro to U.S. dollar exchange rate on thetranslation of our European magnet wire and distribution segment operatingresults. The average Euro to U.S. dollar exchange rate used to translate ourEuropean magnet wire and distribution segment operating results increased over14% for the three months ended March 31, 2008 compared to the three monthsended March 31, 2007.

 

Our operatingincome for the three months ended March 31, 2008 decreased $4.5 millioncompared to the three months ended March 31, 2007. This decrease isprimarily attributable to $9.4 million of costs, including $7.4 million ofaccelerated depreciation charged to costs of goods sold, associated with therestructuring of our North American magnet wire and distribution and copper rodsegments announced in January 2008 as discussed further below, offset by$6.5 million in positive contributions from the Invex, Simcoe and Tianjinacquisitions. Gross margin improvements, exclusive of the impacts of therestructuring costs, in our communications cable and North American magnet wireand distribution segments together more than offset the effects of sales volumedeclines.

 

Copper is theprimary raw material we use in the manufacture of our wire and cable products.Over the past three years the price of copper has escalated rapidly and hasbeen subject to significant volatility. We expect continued volatility incopper prices in the future. Although we generally have the ability to adjustprices billed for our products to properly match the copper cost component,rapid and significant fluctuations in copper prices can impact our results.Additionally, changes in copper prices impact our reported sales and grossmargins due to the general pass through of copper costs. The average dailyCOMEX price per pound of copper for the three months ended March 31, 2008increased approximately 30% compared to the prior year first quarter. Weestimate that our sales for three months ended March 31, 2008 increasedapproximately $67 million compared to the three months ended March 31,2007 as a result of increased copper prices.

 

**Results of Operations**

 

***Non-GAAPFinancial Measures***

 

In discussing our resultsof operations below, we present supplemental net sales information adjusted toa constant $3.00/lb COMEX cost of copper for our North American operations (orthe equivalent SHME per kilogram value for our China operations) and €4.90 perkilogram for our European operations, which we refer to as copper-adjusted netsales or 

 

25

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sales adjusted for a constant cost of copper. We also present anddiscuss copper-adjusted gross profit margin (gross profit divided bycopper-adjusted net sales). Copper-adjusted net sales and copper-adjusted grossprofit margin are financial measures that are not calculated in accordance withaccounting principles generally accepted in the United States of America, ornon-GAAP financial measures. A non-GAAP financial measure is defined as anumerical measure of a company’s financial performance, financial position orcash flows that (i) excludes amounts, or is subject to adjustments thathave the effect of excluding amounts, that are included in the most directlycomparable measure calculated and presented in accordance with GAAP in thestatement of operations, balance sheet or statement of cash flows; or (ii) includesamounts, or is subject to adjustments that have the effect of includingamounts, that are excluded from the comparable measure so calculated andpresented. We believe sales adjusted for a constant cost of copper andcopper-adjusted gross profit margin are useful measures to aid in analyzing period-to-periodnet sales and gross profit margins, particularly in periods of changing copperprices. We also use copper-adjusted sales to evaluate performance for certainexecutive compensation programs. Copper-adjusted net sales has distinctlimitations as compared to GAAP net sales. By copper-adjusting net sales, in adeclining copper cost environment, it may not be apparent that net sales aredeclining on an actual basis. Furthermore, by copper-adjusting gross profitmargins in a rising copper cost environment, it may not be apparent that thegross profit margins are declining on an actual basis. Management compensatesfor these limitations by using the GAAP results in conjunction withcopper-adjusted net sales and gross profit margins. Net sales adjusted for aconstant cost of copper and copper-adjusted gross profit margin as used by usmay not be comparable to similarly titled measures of other companies.

 

***Three Months Ended March 31, 2008 Compared to the Three MonthsEnded March 31, 2007***

 

*Net sales*

 

The following tableprovides net sales and supplemental copper-adjusted sales information for thethree months ended March 31, 2008 and 2007:

 
| ** **                                     | ** ** | **Actual**                                       | ** ** | **Copper-adjusted** | ** ** |
|------------------------------------------------|------------|--------------------------------------------------|------------|---------------------|------------|
| ** **                                     | ** ** | **Three Months Ended  March 31,** | ** ** | **%**               | ** ** | **Three Months Ended  March 31,** | ** ** | **%** | ** ** |
| ** **                                     | ** ** | **2008**                                         | ** ** | **2007**            | ** ** | **Change** | ** ** | **2008** | ** ** | **2007** | ** ** | **Change** | ** ** |
| Net sales:                                     |       |                                             |       |                |       |   |   |   |   |   |   |   |   |
| Communications  cable                          |       | $                                                | 196,476    |                | $          | 215,998 |   | (9 | )% | $ | 187,600 |   | $ | 211,913 |   | (11 | )% |
| North American  magnet wire and distribution   |       | 295,779                                          |       | 246,714             |       | 20 | % | 273,795 |   | 260,506 |   | 5 | % |
| European magnet  wire and distribution         |       | 233,959                                          |       | 160,393             |       | 46 | % | 229,141 |   | 160,443 |   | 43 | % |
| Asia/Pacific  magnet wire                      |       | 16,684                                           |       | 126                 |       |   | * | 16,420 |   | 133 |   |   | * |
| Copper rod                                     |       | 14,262                                           |       | 72,397              |       | (80 | )% | 12,371 |   | 80,427 |   | (85 | )% |
|                                           |       | 757,160                                          |       | 695,628             |       | 9 | % | 719,327 |   | 713,422 |   | 1 | % |
| Constant cost of  copper adjustment            |       | —                                           |       | —              |       |   |   | 37,833 |   | (17,794 | ) |   |   |
| Total                                          |       | $                                                | 757,160    |                | $          | 695,628 |   | 9 | % | $ | 757,160 |   | $ | 695,628 |   | 9 | % |
| Average daily  COMEX price per pound of copper |       | $                                                | 3.53       |                | $          | 2.71 |   | 30 | % |   |   |   |   |   |   |

 

*                Comparisons are not meaningful due to theTianjin acquisition in July 2007 and the start-up of operations in Suzhouin 2007.

 

Sales for ourcommunications cable segment for the three months ended March 31, 2008were $196.5 million, a decrease of $19.5 million, or 9%, as comparedto sales of $216.0 million for the three months ended March 31, 2007.We estimate that sales increased approximately $6 million in the 2008quarter due to the pass-through of increased copper prices with the offsettingdecrease of $25.5 million primarily attributable to declines in copper OSPunit volume. The decline in copper OSP unit volume was attributable to overalldecreases in market-related demand as a result of the slowdown in new homeconstruction, continued loss of access lines by major telephone companies andthe increased use of fiber optic cable in telephone networks. Thesemarket-related trends are expected to continue. The decrease in copper-adjusted sales for the three months ended March 31, 2008 compared to thethree months ended March 31, 2007 reflects declines in copper OSP unitvolume discussed above as well as a slight decrease in premise product sales.

 

Sales for ourNorth American magnet wire and distribution segment were $295.8 millionfor the three months ended March 31, 2008, an increase of$49.1 million, or 20%, as compared to sales of $246.7 million for thethree months ended 

 

26

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March 31, 2007. Sales for the three months ended March 31,2008 include $32.9 million attributable to the Simcoe operations acquiredin April 2007 and an estimated $36 million impact from the passthrough of increased copper prices. These increases were partially offset bycomparative volume decreases resulting from weakness in the U.S. heating,ventilation and air conditioning, heavy appliance and other end markets tied toresidential construction activity as well as weakness in the U.S. automotivemarket. On a copper-adjusted basis, sales for the three months ended March 31,2008 increased 5% as sales attributable to the Simcoe acquisition more thanoffset the effects of volume decreases discussed above.

 

Sales for theEuropean magnet wire and distribution segment were $234.0 million for thethree months ended March 31, 2008 compared to $160.4 million for thethree months ended March 31, 2007, an increase of $73.6 million.Sales for the three months ended March 31, 2008 include $71.2 millionattributable to the Invex acquisition and an estimated $23 millionpositive impact from the strengthening of the Euro to U.S. dollar conversionrate during the first quarter of 2008 as compared to the prior year firstquarter. These increases were partially offset by comparative volume decreasesprimarily resulting from reductions in unit demand due to weakness in theEuropean industrial markets and the full effects of a planned rationalizationof low margin customers implemented during the first quarter of 2007. On acopper-adjusted basis, sales increased 43% for the three months ended March 31,2008 compared to the prior year first quarter. Excluding the effects of theInvex acquisition and the strengthening Euro against the U.S. dollar,copper-adjusted sales decreased 13% for the three months ended March 31,2008 compared to the three months ended March 31, 2007 due to the decreasein unit volume as discussed above.

 

Sales for the Asia/Pacificmagnet wire segment for the three months ended March 31, 2008 consist of$9.8 million of revenues from the Tianjin acquisition and$6.9 million related to our operation in Suzhou, China which began initialcommercial production in the first quarter of 2007. We expect volumes at theSuzhou operation to increase in 2008 as prospective customers complete theirproduct qualification processes.

 

Copper rod salesfor the three months ended March 31, 2008 were $14.3 million comparedto $72.4 million for the three months ended March 31, 2007, adecrease of $58.1 million. The decrease in sales primarily reflects a plannedreduction in total copper rod production, including a rationalization ofthird-party copper rod sales, implemented in 2007 and continuing into 2008, andan increase in the percentage of copper rod used for internal production,including copper rod used in our acquired Simcoe Canadian operations. In thefourth quarter of 2007 we reduced the number of our copper rod continuouscasting units in operation from two to one in as part of this plannedrationalization. We believe this will enable us to improve the utilization andefficiency of our copper rod casting operation.

 

*Grossprofit*

 

The gross profitmargin for the three months ended March 31, 2008 was 8.7% compared to 8.8%for the three months ended March 31, 2007. Gross profit margin on acopper-adjusted basis was 9.2% for the three months ended March 31, 2008and 8.6% for the comparable 2007 quarter. Gross profit and gross profit marginsfor the three months ended March 31, 2008 were significantly impacted by$7.4 million of accelerated depreciation recorded in connection with the NorthAmerican magnet wire and distribution and copper rod restructuring. The impactof the accelerated depreciation was to reduce gross margins and copper-adjustedgross margins by 100 basis points. The comparative gross profit margins werealso significantly impacted by the effect of the sales and copper-adjustedsales declines for the copper rod segment, whose sales generally allow forfixed cost recovery at gross profit margins that are generally break even.Accordingly, the decreases in sales and copper-adjusted sales in the copper rodsegment for the three months ended March 31, 2008 compared to the threemonths ended March 31, 2007 did not result in a proportionate reduction ingross profit. The combined copper-adjusted gross margin for our communicationscable, North American and European magnet wire and distribution segments, whichcontribute substantially all of our gross profit, was 9.5%, net of 90 basispoints attributable to restructuring related accelerated depreciation, for thethree months ended March 31, 2008 compared to 9.8% for the three monthsended March 31, 2007. Gross profit for the three months ended March 31,2008 was $66.0 million compared to gross profit of $61.2 million for the threemonths ended March 31, 2007. The increase in gross profit was primarilyattributable to the Invex, Simcoe and Tianjin acquisitions ($10.0 million) aswell as gross profit margin improvements in our communications cable segmentwhich more than offset the negative impact of sales volume declines andrestructuring related accelerated depreciation charges ($7.4 million).

 

Copper-adjustedgross profit margins in our communications cable business increased for thethree months ended March 31, 2008 compared to the prior year first quarterdue primarily to improved copper cost recovery of approximately $2 to $3million and continued benefits from production cost efficiencies.

 

27

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Copper-adjustedgross profit margin for our North American magnet wire and distributionbusiness for the three months ended March 31, 2008, excluding the effectsof restructuring related accelerated depreciation, increased compared to theprior year first quarter due primarily to improved pricing in the distributionmarket and product mix, including the impact of higher margin energy-relatedproducts produced by our Simcoe operation. These positive factors werepartially offset by an estimated $1.1 million of transitional supply chaincosts related to a temporary disruption in the availability of internallyproduced enamel wire coating.

 

Copper-adjustedgross profit margin for the European magnet wire and distribution segmentdecreased slightly for the three months ended March 31, 2008 compared tothe three months ended March 31, 2007 due primarily to unfavorable productmix.

 

Our Asia/Pacificmagnet wire segment reported gross profit of $1.3 million for the threemonths ended March 31, 2008 attributable to the Tianjin business as wecontinue to incur negative gross margins in our Suzhou start-up operation.Additionally, the gross margin for the Asia/Pacific magnet wire business forthe three months ended March 31, 2008 includes $1.1 million of unrealizedgains on outstanding non-designated copper futures purchase contracts whichserve as economic hedges of future customer sale commitments.

 

Our copper rodsegment reported a negative gross profit of $1.1 million for the three monthsended March 31, 2008 compared to break-even margins in the prior yearfirst quarter due to the effect of restructuring related accelerateddepreciation of $1.3 million.

 

*Selling,general and administrative expenses*

 

Selling, generaland administrative expenses (“SG&A expense”) of $43.6 million for thethree months ended March 31, 2008 increased $8.0 million as comparedto SG&A expense of $35.6 million for the three months ended March 31,2007 primarily due to SG&A expense of the acquired entities($3.5 million), the effects of the strengthened Euro to U.S. dollarexchange rate which increased reported SG&A expense of our Europeanoperations ($1.1 million), increased employee compensation, and benefitsand hiring related costs ($1.6 million), accelerated depreciation related toour headquarters office relocation as discussed below ($0.2 million) and thecomparative effect of a $0.6 million European bad debt recovery in the firstquarter of 2007.

 

*Restructuringand other charges*

 

On January 23, 2008,the Company announced that it is consolidating and restructuring its NorthAmerican magnet wire and distribution and copper rod segments’ manufacturingfacilities. The changes are expected to more efficiently match productioncapabilities to industry demand levels and to customer requirements. Therestructuring involves a phased closure of the magnet wire manufacturing andcopper rod continuous casting facilities located in Vincennes, Indiana, and therelocation of existing production to other North American magnet wire anddistribution facilities. The closures are expected to be completed by the firstquarter of 2009. Our Board of Directors authorized the action on January 16,2008 and the restructuring was communicated to employees on January 23,2008. The total restructuring charges are estimated at $22 million,consisting of non-cash charges of approximately $15 million, principallythrough accelerated depreciation, and cash charges of approximately$3 million relating to employee severance and retention and $4 millionrelating to equipment relocation and facility closure costs associated with therestructuring. We expect to incur the majority of these charges in 2008. Duringthe three months ended March 31, 2008, restructuring and other chargesinclude $1.6 million of severance and retention costs and $0.4 million ofequipment relocation and other closure costs.

 

In March 2008, weannounced that Essex Europe had initiated discussions with the appropriateFrench employee representative bodies for the potential closure of its magnetwire manufacturing facility in Chauny, France. The Chauny facility is leasedfrom Nexans through October 2009 and currently has approximately 130employees. Restructuring and other charges for the three months ended March 31,2008 include $0.1 million consisting primarily of professional fees related tothese discussions. If our discussions with the French employee representativesultimately result in the closure of the Chauny facility, we anticipate we willincur cash costs with respect to employee severance and related benefits.

 

In January 2008, weexecuted an eleven year lease for a new corporate and communications cableheadquarters building which we plan to occupy in the third quarter of 2008. Thenew lease provides for various incentives which will be deferred and amortizedover the term of the new lease. As a result of the relocation, we expect toincur accelerated 

 

28

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depreciation charges related to leasehold improvements in our currentoffice of $0.5 million and lease termination costs of approximately $1 million.

 

During the three monthsended March 31, 2007 we recorded a restructuring provision of $0.3 millionrelated to a workforce reduction at our European magnet wire and distributionsegment’s Viana de Castelo, Portugal manufacturing facility. The majority ofthe costs related to severance payments and related benefits. All amounts werepaid during 2007. Restructuring and other charges for the three months ended March 31,2007 also includes the write-off of $0.4 million of deferred businessacquisition costs and $0.1 million of professional fees incurred in connectionwith the administration of Superior TeleCom’s plan of reorganization.

 

*Operatingincome*

 

The following table setsforth information regarding our operating income by segment for the threemonths ended March 31, 2008 and 2007. We measure our segment operatingperformance based primarily on segment operating income, excludingrestructuring and other charges.

 
| ** **                                       | ** ** | **2008**                | ** ** | **2007** | ** ** |
|--------------------------------------------------|------------|-------------------------|------------|----------|------------|
| ** **                                       | ** ** | **(in thousands)** | ** ** |
| Operating income (loss)                          |       |                    |       |     |       |
| Communications  cable                            |       | $                       | 18,914     |     | $          | 18,001 |   |
| North American  magnet wire and distribution (1) |       | 5,798                   |       | 9,522    |       |
| European magnet  wire and distribution           |       | 6,407                   |       | 6,055    |       |
| Asia/Pacific magnet  wire                        |       | 419                     |       | (976     | )          |
| Copper rod (2)                                   |       | (1,309                  | )          | (46      | )          |
| Corporate and  other                             |       | (7,831                  | )          | (6,910   | )          |
| Restructuring  and other charges                 |       | (2,121                  | )          | (874     | )          |
|                                             |       | $                       | 20,277     |     | $          | 24,772 |   |

 

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(1)                           Includes $6.1 million of accelerateddepreciation charges related to restructuring activities for the three monthsended March 31, 2008.

 

(2)                           Includes $1.3 million of accelerateddepreciation charges related to restructuring activities for the three monthsended March 31, 2008.

 

Operating income for thecommunications cable segment increased $0.9 million for the three months ended March 31,2008 compared to the 2007 first quarter. Communications cable segment grossprofit increases resulting from improved gross margins more than offset anincrease in SG&A expense of $0.4 million due primarily to higher salariesand benefits and accelerated depreciation of leasehold improvements related tothe headquarters office relocation discussed above.

 

Operating incomefor our North American magnet wire and distribution segment for the threemonths ended March 31, 2008 decreased $3.7 million as compared to thethree months ended March 31, 2007 due primarily to restructuring relatedaccelerated depreciation ($6.1 million) and increased SG&A expensesprimarily resulting from increased employee compensation, benefits and hiringrelated costs ($0.9 million). These negative factors were partially offset byoperating income contributed by the Simcoe operation ($2.0 million) andimproved gross margins, exclusive of accelerated depreciation charges.

 

Operating incomefor the European magnet wire and distribution segment increased$0.4 million for the three months ended March 31, 2008 compared tothe three months ended March 31, 2007 as operating income improvementsattributable to the Invex acquisition ($2.7 million) and currency exchangerates ($0.9 million) were largely offset by reduced gross profit resulting fromvolume and gross margin declines.

 

The Asia/Pacificmagnet wire segment reported operating income of $0.4 million for the threemonths ended March 31, 2008 compared to an operating loss of $1.0 millionfor the three months ended March 31, 2007. The improvement in 2007 isattributable to the Tianjin operation which had operating income of $1.8 forthe three months ended March 31, 2008. The Tianjin operating income wasoffset by operating losses incurred in connection with our Suzhou operationsdue to unabsorbed production costs and the resulting negative gross marginsrealized on initial sales.

 

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The copper rodsegment’s operating loss for the three months ended March 31, 2008reflects $1.3 million of restructuring related accelerated depreciation. Copperrod sales generally allow for fixed cost recovery at gross profit margins thatare generally break even.

 

Corporate andother charges consist primarily of parent company and corporate payroll costs,including stock-based compensation charges, corporate headquarters costs andcorporate professional fees and compliance costs. The increase in corporate andother costs for the three months ended March 31, 2008 compared to thethree months ended March 31, 2007 is primarily due to increased legal feesassociated with the Exeon litigation discussed below and other professionalfees as well as accelerated depreciation of corporate leasehold improvements inconnection with the planned relocation of our headquarters as discussed above.

 

Consolidatedoperating income for the three months ended March 31, 2008 includedrestructuring and other charges of $2.1 million compared to$0.9 million of such charges for the three months ended March 31,2007, the components of which are discussed above.

 

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

 

Interest expense for thequarter ended March 31, 2008 was $8.3 million compared to interestexpense of $7.6 million for the quarter ended March 31, 2007. Theincrease in interest expense is due to interest on borrowings to finance ourSuzhou and the acquired Invex and Tianjin operations. Other expense for thethree months ended March 31, 2008 and 2007 includes losses of $0.6 millionand $0.4 million, respectively, related to our 50% owned joint venture, FemcoMagnet Wire Corporation, an equity-method investee. Other expense for the threemonths ended March 31, 2008 and 2007 also includes net foreign exchangelosses of $0.6 million and $0.3 million, respectively.

 

*Incometax expense*

 

Our effective income taxrate for the three months ended March 31, 2008 was 33% compared to aneffective tax rate of 40% for the three months ended March 31, 2007. Thedecrease in the effective rate is primarily due to lower effective rates incertain foreign jurisdictions and the discrete first quarter 2008 effect offavorable adjustments to state effective tax rates. The effective tax rate forthe three months ended March 31, 2008 is less than the U.S. statutory rateof 35% due to the lower foreign effective tax rates and the discrete firstquarter 2008 item discussed above which more than offset the negative impact ofstate taxes, valuation allowances provided with respect to operating lossesincurred by our Suzhou operation and liabilities for uncertain tax positionsrecorded in accordance with FASB Interpretation No. 48 (“FIN 48”).

 

**Other Matters – Settlement ofLitigation**

 

In 2003, SuperiorTeleCom, Essex Electric Inc., now know as Exeon Inc. (“Exeon”), and otherplaintiffs filed lawsuits (the “2003 Copper Action”) under Section 1 ofthe Sherman Act against certain defendants based on an alleged conspiracy toelevate the prices of certain copper products during certain periods from 1993to 1996. On June 4, 2007, the parties to the 2003 Copper Action (includingall plaintiffs and defendants) entered into a settlement pursuant to which the2003 Copper Action was dismissed with prejudice. The terms of the settlementare confidential. A portion of the settlement proceeds (approximately$27,000,000) were held in escrow by plaintiffs’ counsel (the “EscrowedSettlement Proceeds”). The Company and Exeon each claimed to be entitled to theEscrowed Settlement Proceeds and filed claims with respect to the EscrowedSettlement Proceeds and matters related thereto.

 

In April 2008,the Company and Exeon reached an agreement to settle their claims. Under thissettlement agreement, the Company received $19.6 million of the EscrowedSettlement Proceeds. The Company expects to recognize a gain on the settlementof litigation in the amount of the settlement during the second quarter of2008.

 

**Liquidity and Capital Resources**

 

***Cashfrom Operating, Investing and Financing Activities***

 

We reported cash used byoperating activities of $13.0 million for the three months ended March 31,2008 compared to cash provided by operating activities of $54.3 millionfor the three months ended March 31, 2007. Cash used by operating activitiesfor the three months ended March 31, 2008 included a net working capitalincrease of $41.3 million compared to a net working capital decrease of$30.0 million for the three months ended March 31, 2007. We havehistorically experienced a 

 

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first quarter seasonal increase in our working capital resulting fromincreased production, inventory stocking levels and related sales attributableto historically higher customer demand levels in March through October. Inaddition, the increase in working capital for the three months ended March 31,2008 reflects the increase in the average cost of copper in our working capitalaccounts as compared to December 31, 2007. Average copper prices haveincreased 8% in the first quarter of 2008 as compared to the fourth quarter of2007. Conversely, first quarter seasonal increases in working capitalexperienced in 2007 were more than offset by a decrease in the average cost ofcopper in our working capital accounts at March 31, 2007 as compared to December 31,2006. Cash used for financing activities for the three months ended March 31,2008 amounted to $14.4 million due primarily to $10.9 of cash used for openmarket purchases of our common stock as we completed our stock repurchaseprogram announced in December 2007. Cash used for financing activities of$17.3 million for the three months ended March 31, 2007 includes netrepayments of $18.2 million of Essex Europe short-term borrowings due topositive operating cash flow, including a reduction in working capital.

 

***Liquidityand Capital Resources***

 

Our principal cash requirements generally include funding of ourworking capital, interest payments on our senior secured revolving creditfacility and the 9% senior notes and other outstanding debt, dividend paymentson our subsidiary’s series A preferred stock, principal payments on theChina term and working capital loans, redemption of Invex’s €6 millionconvertible bonds, capital expenditures currently estimated at approximately$60 to $70 million for 2008, severance and other benefit payments inconnection with the announced closure of our Vincennes, Indiana facility,obligations related to our defined benefit pension plans and any costsassociated with the potential closure of our Chauny, France facility.Additionally, in January of 2008 we completed our previously announcedstock repurchase program. We purchased a total of 861,779 shares of our commonstock for an aggregate purchase price of $20 million, $9.1 million ofwhich was expended in 2007. Average copper prices have increased 8% in thefirst quarter of 2008 as compared to the fourth quarter of 2007. Significantincreases in the price of copper and the resultant increase in accountsreceivable and, to a lesser degree, inventory, impacts our working capitalfunding requirements

 

We believe thatour cash on hand ($64.9 million at March 31, 2008), together withcash provided by operations and borrowing availability under our amended andrestated senior secured revolving credit facility ($224.5 million undrawnand available at March 31, 2008), the Essex Europe factoring agreement andthe Tianjin credit facility will be sufficient to meet our obligations and fundour working capital requirements for the foreseeable future. In addition, in May 2008we received cash proceeds of $19.6 million related to the settlement of ourlitigation with Exeon.

 

**New Accounting Pronouncements**

 

Effective January 1,2008, we adopted certain provisions of Statement of Financial Accounting StandardsNo. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157establishes a common definition for fair value to be applied to guidanceregarding U.S. generally accepted accounting principles requiring use of fairvalue, establishes a framework for measuring fair value, and expands disclosureabout assets and liabilities measured at fair value on a recurring andnon-recurring basis in periods subsequent to initial recognition. SFAS No. 157establishes a hierarchy for fair value measurements and related disclosures asfollows: Level 1 - fair value measurements based on quoted prices in activemarkets for identical assets or liabilities; Level 2 – fair value measurementsbased upon significant observable market data other than quoted prices includedwithin Level 1or significant unobservable inputs that are corroborated byobservable market data; and Level 3 – fair value measurements based onsignificant unobservable inputs that are not corroborated by observable marketdata. Application of SFAS No. 157 to nonfinancial assets and liabilitiesmeasured at fair value on a nonrecurring basis is effective for fiscal yearsbeginning after November 15, 2008 with earlier application permitted. Wehave not implemented SFAS No. 157 for such assets and liabilities. Seenote 1 to the accompanying consolidated financial statements.

 

In December 2007,the FASB issued Statement of Financial Accounting Standards (“FAS”) No. 141(revised 2007), *Business Combinations* (“FAS 141(R)”)which replaces FAS No.141, *Business Combinations*.FAS 141(R) retains the underlying concepts of FAS 141 in thatall business combinations are still required to be accounted for at fair valueunder the acquisition method of accounting but FAS 141(R) changed themethod of applying the acquisition method in a number of significant aspects.Changes prescribed by FAS 141(R) include, but are not limited to,requirements to expense transaction costs and costs to restructure acquiredentities; record earn-outs and other forms of contingent consideration at fairvalue on the acquisition date; record 100% of the net assets acquired even ifless than a 100% controlling interest is acquired; and to recognize any excessof the fair value of net assets acquired over the purchase consideration as again to the acquirer. FAS 141(R) is effective on a prospective basisfor all business combinations for which the acquisition date is on or after thebeginning of the first annual period subsequent to December 15, 2008, withthe exception of the accounting for valuation 

 

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allowances on deferred taxes and acquired taxcontingencies. FAS 141(R) amends FAS 109 such that adjustmentsmade to valuation allowances on deferred taxes and acquired tax contingenciesassociated with acquisitions that closed prior to the effective date ofFAS 141(R) would also apply the provisions of FAS 141(R). Earlyadoption is not allowed. We are currently evaluating the effects, if any, thatFAS 141(R) may have on our consolidated financial statements.

 

In December 2007,the FASB issued Statement of Financial Accounting Standards No. 160, *Noncontrolling Interests in Consolidated Financial Statements*(“FAS 160”). FAS 160 amends Accounting Research Bulletin 51, *Consolidated Financial* Statements, to establish accountingand reporting standards for the noncontrolling (minority) interest in asubsidiary and for the deconsolidation of a subsidiary. It clarifies that anoncontrolling interest in a subsidiary is an ownership interest in theconsolidated entity that should be reported as equity in the consolidatedfinancial statements and requires consolidated net income to be reported atamounts that include the amounts attributable to both the parent and thenoncontrolling interest. FAS 160 also clarifies that all of thosetransactions resulting in a change in ownership of a subsidiary are equitytransactions if the parent retains its controlling financial interest in thesubsidiary. FAS 160 requires expanded disclosures in the consolidatedfinancial statements that clearly identify and distinguish between theinterests of the parent’s owners and the interests of the noncontrolling ownersof a subsidiary. FAS 160 is effective for fiscal years, and interimperiods within those fiscal years, beginning on or after December 15,2008. Earlier adoption is prohibited. FAS 160 will be appliedprospectively as of the beginning of the fiscal year in which the Statement isinitially applied, except for the presentation and disclosure requirements. Thepresentation and disclosure requirements will be applied retrospectively forall periods presented. We are currently evaluating the effects, if any, thatFAS 160 may have on our consolidated financial statements; howeveradoption of FAS 160 will result in the reclassification of the Company’sminority interest in subsidiary to equity.

 

In March 2008, theFASB issued Statement of Financial Accounting Standards No. 161, *Disclosures about Derivative Instruments and Hedging Activities—anamendment of FASB Statement No. 133* (“FAS 161”). FAS 161 requiresenhanced disclosures about an entity’s derivative and hedging activities.Entities are required to provide enhanced disclosures about (a) how and why anentity uses derivative instruments, (b) how derivative instruments and related hedgeditems are accounted for under Statement No. 133 and its relatedinterpretations, and (c) how derivative instruments and related hedged itemsaffect an entity’s financial position, financial performance, and cash flows.FAS161 is effective for financial statements issued for fiscal years andinterim periods beginning after November 15, 2008, with early applicationencouraged. FAS 161 encourages, but does not require, comparative disclosuresfor earlier periods at initial adoption. We are currently evaluating theeffects that FAS 161 will have on our consolidated financial statements.

 

**ITEM 3. QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

We, to a limited extent,use or 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 financial instruments for investment or tradingpurposes. We are exposed to credit risk in the event of nonperformance bycounterparties for foreign exchange forward contracts, commodity forward pricecontracts and commodity futures contracts but we do not anticipatenonperformance by any of these counterparties. The amount of such exposure isgenerally limited to any unrealized gains within the underlying contracts.

 

***Commodityprice risk management***

 

The cost of copper, ourmost significant raw material, has historically been subject to considerablevolatility. To manage the risk associated with such volatility, we enter intocopper futures purchase contracts to match the metal component of customerproduct pricing with the copper cost component of the inventory shipped. Thesefutures contracts have been designated as cash flow hedges with unrealizedgains and losses recorded in other comprehensive income. Gains and losses arereclassified into earnings, as a component of cost of goods sold, when thehedged transactions are reflected in the statement of operations. Hedgeineffectiveness, which is not significant, is immediately recognized inearnings. Our copper futures purchase contracts designated as cash flow hedgesare summarized as follows at March 31, 2008 and December 31, 2007:

 
| **Type**                    | ** ** | **Notional  Amount**                    | ** ** | **Maturity  Date** | ** ** | **Weighted  Average  Contract Rate** | ** ** | **Fair Value  Gain (Loss)** | ** ** |
|-----------------------------|------------|-----------------------------------------|------------|--------------------|------------|-------------------------------------------|------------|---------------------------------------|------------|
| ** **                  | ** ** | **(in thousands of  pounds)** | ** ** | ** **         | ** ** | ** **                                | ** ** | **(in  thousands)**                   | ** ** |
| **March 31, 2008:**    | ** ** | ** **                              | ** ** | ** **         | ** ** | ** **                                | ** ** | ** **                            | ** ** |
| Copper                      |       | 3,300                                   |       | 2008               |       | $                                         | 3.18       |                                  | $          | 2,121 |   |
|                        |       |                                    |       |               |       |                                      |       |                                  |       |
| **December 31, 2007:** | ** ** | ** **                              | ** ** | ** **         | ** ** | ** **                                | ** ** | ** **                            | ** ** |
| Copper                      |       | 5,450                                   |       | 2008               |       | 3.14                                      |       | $                                     | (495       | ) |
|                             |            |                                         |            |                    |            |                                           |            |                                       |            |  |  |

 

All of the unrealizedgains on commodity futures outstanding at March 31, 2008 are expected tobe reclassified to earnings within the next twelve months.

 

We also periodicallyenter into commodity futures contracts which represent economic hedges but havenot been designated as hedges for accounting purposes (“non-designatedderivatives”). These futures contracts are intended to 

 

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minimize the risks associated with forward product pricing forcustomers and changing copper prices. We use copper futures purchase contractsto match the copper component of customer product pricing with the copper costcomponent of the inventory shipped. We use copper futures sales contracts tofix a portion of the gross margin related to the copper component of certain ofour products. Gains and losses on these non-designated derivatives are recordedin income as a component of cost of goods sold. Our non-designated commoditiesfutures contracts outstanding at March 31, 2008 and December 31, 2007are summarized as follows:

 
| **Type**                    | ** ** | **Notional  Amount**                    | ** ** | **Maturity  Date** | ** ** | **Weighted  Average  Contract Rate** | ** ** | **Fair Value  Gain (Loss)** | ** ** |
|-----------------------------|------------|-----------------------------------------|------------|--------------------|------------|-------------------------------------------|------------|---------------------------------------|------------|
| ** **                  | ** ** | **(in thousands of  pounds)** | ** ** | ** **         | ** ** | ** **                                | ** ** | **(in  thousands)**                   | ** ** |
| **March 31, 2008:**    | ** ** | ** **                              | ** ** | ** **         | ** ** | ** **                                | ** ** | ** **                            | ** ** |
| Copper purchase  contracts  |       | 3,273                                   |       | 2008               |       | $                                         | 3.40       |                                  | $          | 955 |   |
| Copper purchase  contracts  |       | 165                                     |       | 2009               |       | 3.29                                      |       | 65                                    |       |
| Copper sales  contracts     |       | 3,449                                   |       | 2008               |       | 3.80                                      |       | (70                                   | )          |
| Copper sales  contracts     |       | 55                                      |       | 2009               |       | 3.79                                      |       | 2                                     |       |
|                        |       |                                    |       |               |       |                                      |       | $                                     | 952        |   |
| **December 31, 2007:** | ** ** | ** **                              | ** ** | ** **         | ** ** | ** **                                | ** ** | ** **                            | ** ** |
| Copper purchase  contracts  |       | 2,876                                   |       | 2008               |       | 3.07                                      |       | $                                     | (293       | ) |
|                             |            |                                         |            |                    |            |                                           |            |                                       |            |  |  |

 

***Foreigncurrency exchange risk management***

 

We engage in thesale and purchase of products which result in accounts receivable and accountspayable denominated in foreign currencies. Additionally, we enter intointercompany loans, some of which are not considered long-term investments,among 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 non-deliverableforeign currency forward exchange contracts. These contracts generally havematurities of less than two months and represent non-designated derivatives.Changes in the fair value of these contracts, together with gains and losses onforeign currency transactions, are reflected in current earnings as a componentof other income and expense.

 

The followingtable summarizes information about foreign currency forward exchange contractderivatives as of March 31, 2008 and December 31, 2007. Thesecontracts are generally executed on the last day of the reporting period andtherefore the fair value of contracts outstanding at March 31, 2008 and December 31,2007 is not significant.

 
| **Derivatives**                    | ** ** | **Notional Amount** | ** ** | **Weighted  Average  Contract Rate** | ** ** |
|------------------------------------|------------|---------------------|------------|--------------------------------------|------------|
|                               |       | **(in thousands)**  |       |                                 |       |
| **March 31, 2008:**           |       |                |       |                                 |       |   |   |
| U.S. dollars for  Euros            |       | 3,900               |       | USD                                  |       | 0.63 |   |
| Canadian dollars  for U.S. dollars |       | 9,700               |       | USD                                  |       | 1.03 |   |
| Canadian dollars  for U.S. dollars |       | 12,900              |       | CAD                                  |       | 0.97 |   |
| British pounds  for Euros          |       | 9,000               |       | EURO                                 |       | 0.79 |   |
| Euros for U.S.  dollars            |       | 2,945               |       | EURO                                 |       | 1.58 |   |
| British pounds  for Euros          |       | 1,600               |       | GBP                                  |       | 1.26 |   |
|                               |       |                |       |                                 |       |   |   |
| **December 31, 2007:**        |       |                |       |                                 |       |   |   |
| U.S. dollars for  Euros            |       | 4,100               |       | USD                                  |       | 0.68 |   |
| Canadian dollars  for U.S. dollars |       | 4,000               |       | USD                                  |       | 0.99 |   |
| Canadian dollars  for U.S. dollars |       | 13,000              |       | CAD                                  |       | 1.01 |   |
| British pounds  for Euros          |       | 7,000               |       | EURO                                 |       | 0.74 |   |
| Euros for U.S.  dollars            |       | 1,980               |       | EURO                                 |       | 1.46 |   |
| British pounds  for Euros          |       | 1,700               |       | GBP                                  |       | 1.35 |   |

 

 

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***PurchaseCommitments***

 

We accept certaincustomer orders for future delivery at fixed prices. As copper is the mostsignificant raw material used in the manufacturing process, we enter intoforward fixed-price purchase commitments with our suppliers for copper to matchour cost to the value of the copper expected to be billed to customers. At March 31,2008, we had forward fixed price copper purchase commitments for delivery of31.7 million pounds through June 2009 for $116.5 million.Additionally at March 31, 2008, we had forward purchase fixed pricecommitments for 0.5 million pounds of aluminum through December 2008,203,000 megawatts of electricity through 2011 and 180,000 MMBTUs of natural gasthrough December 2008 amounting to $0.7 million, $18.0 millionand $1.4 million, respectively.

 

**ITEM 4. CONTROLS AND PROCEDURES**

 

*Disclosure Controls andProcedures*

 

As of the end of theperiod covered by this Form 10-Q, we carried out an evaluation of theeffectiveness of the design and operation of our disclosure controls and procedures,as defined in Rule 13a-15(e) under the Securities Exchange Act of1934, as amended (“Exchange Act”), under the supervision and with theparticipation of our management, including our Chief Executive Officer andChief Financial Officer. Based on that evaluation, the Chief Executive Officerand Chief Financial Officer concluded that our disclosure controls andprocedures were effective in providing reasonable assurance that informationrequired to be disclosed by us in reports filed or submitted under the ExchangeAct is recorded, processed, summarized and reported within the time periodsspecified in the SEC’s rules and forms, including reasonable assurancethat information required to be disclosed in reports filed or submitted by usunder the Exchange Act is accumulated and communicated to our management,including the Chief Executive Officer and Chief Financial Officer, in a mannerto allow timely decisions regarding the required disclosure. A system ofcontrols, no matter how well designed and operated, cannot provide absoluteassurance that the objectives of the system of controls are met, and noevaluation of controls provides absolute assurance that all control issues andinstances of fraud, if any, within a company have been detected. Notwithstandingthe above, our Chief Executive Officer and Chief Financial Officer haveconcluded that our disclosure controls and procedures are effective at areasonable assurance level as of March 31, 2008.

 

*Changes in Internal Controls OverFinancial Reporting*

 

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

 

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**PART II.OTHER INFORMATION**

 

**ITEM 1. LEGAL PROCEEDINGS**

 

On January 29,2008, Belden Technologies, Inc. and Belden CDT (Canada) Inc. (“Belden”)filed a Complaint against the Company and Superior Essex Communications in theUnited States District Court for the District of Delaware, alleging that theCompany infringed U.S. Patent Nos. 5,424,491; 6,074,503; 6,570,095;6,596,944; 6,998,537; and 7,179,999. *Belden Technologies, Inc.and Belden CDT (Canada) Inc. v. Superior Essex Inc. and Superior EssexCommunications L.P.,*Case No. 08-63, U.S. District Court forthe District of Delaware. The six patents-in-suit are directed to communicationcables and related manufacturing processes in the premises products field. Beldencompleted service of the Complaint and summons upon the Company on April 10,2008. The Company will vigorously defend against the suit.

 

In 2003, SuperiorTeleCom and Essex Electric Inc., now known as Exeon Inc. (“Exeon”), eachfiled lawsuits (the “2003 Copper Action”) under Section 1 of the ShermanAct against certain defendants based on an alleged conspiracy to elevate theprices of certain copper products during certain periods from 1993 to 1996. On June 4,2007, the parties to the 2003 Copper Action (including all plaintiffs anddefendants) entered into a settlement pursuant to which the 2003 Copper Actionwas dismissed with prejudice. The terms of the settlement are confidential. Aportion of the settlement proceeds (approximately $27,000,000) were held inescrow by plaintiffs’ counsel (the “Escrowed Settlement Proceeds”). The Companyand Exeon each claimed to be entitled to the Escrowed Settlement Proceeds andfiled claims with respect to the Escrowed Settlement Proceeds and mattersthereto.

 

In April 2008,the Company and Exeon reached an agreement to settle their claims. Under thissettlement agreement, the Company received $19.6 million of the EscrowedSettlement Proceeds.

 

**ITEM 2. UNREGISTERED SALES OFEQUITY SECURITIES AND USE OF PROCEEDS**

 

The following tableprovides information about our purchases of shares of our common stock duringthe quarter ended March 31, 2008:

 
| **Period**         | ** ** | **Total Number of  Shares Purchased** | ** ** | **Average Price Paid  per Share** | ** ** | **Total Number of  Shares Purchased as  Part of Publicly  Announced Plans  or Programs (b)** | ** ** | **Maximum Number of  Shares that May Yet  Be Purchased Under  the Plans or Programs** | ** ** |
|--------------------|------------|------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------|------------|
|               |       |                                                 |       |                                             |       |                                                                                                                                 |       |                                                                                                                                    |       |
| January 2008  |       | 495,661                                              |       | 21.93                                            |       | 495,661                                                                                                                              |       | —                                                                                                                                  |       |
| February 2008 |       | —                                               |       | —                                           |       | —                                                                                                                               |       | —                                                                                                                                  |       |
| March 2008(a) |       | 57,281                                               |       | 28.31                                            |       | —                                                                                                                               |       | —                                                                                                                                  |       |

 

(a)                                  Represents shares withheld from membersof management to satisfy minimum statutory tax withholdings due as a result ofthe vesting of performance share awards.

 

(b)                                 On November 28, 2007, we announced ashare repurchase program authorized by our Board of Directors to purchase up to$20 million of our outstanding common stock through open market purchaseat times and prices considered attractive. The share repurchases were madepursuant to a 10b5-1 trading plan and were completed in January 2008. Wepurchased a total of 861,779 shares at an average purchase price of $23.21 pershare.

 

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**ITEM 6. EXHIBITS**

 
| **Exhibit   Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|---------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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 3.1 to the Current Report on Form 8-K of Superior Essex  Inc. dated March 12, 2008).                                                                                                                                                                                                                                                 |
| 4.1                       |       | Indenture dated as of  April 14, 2004 among Superior Essex Communications LLC and Essex  Group, Inc., as Co-Issuers, the Guarantors named therein and The Bank of  New York Trust Company, N.A., as Trustee (incorporated herein by reference to  Exhibit 10.3 to the Quarterly Report on Form 10-Q of Superior  Essex Inc. for the quarter ended March 31, 2004 (the “Q1 2004  Form 10-Q”)). |
| 4.2                       |       | Form of 9% Senior  Series B Note due 2012 (included in Exhibit 4.1) (incorporated  herein by reference to Exhibit 10.3 to the Q1 2004 Form 10-Q).                                                                                                                                                                                                                                                                      |
| 4.3                       |       | Registration Rights  Agreement, dated as of November 10, 2003, by and among Superior  Essex Inc., the holders of Registrable Common Stock (as defined therein)  and the holders of the Warrants (as defined therein) and such other Persons  who may become a party thereto pursuant to Section 16 or  19(i) thereof (incorporated herein by reference to  Exhibit 10(b) to the Superior Essex Form 10).     |
| 4.4                       |       | Specimen Common Stock  Certificate (incorporated herein by reference to Exhibit 4.11 to the  Superior Essex Form S-3).                                                                                                                                                                                                                                                                                                                |
| 4.5                       |       | Third Supplemental  Indenture dated September 12, 2005 among Superior Essex  Communications LP, Essex Group, Inc., certain subsidiary guarantors  named therein and The Bank of New York Trust Company, N.A. (incorporated by  reference to Exhibit 10.1 to the Current Report on Form 8-K of  Superior Essex dated September 12, 2005).                                                                          |

 

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| 10.1*  |   | Amended and Restated  Agreement dated February 25, 2008, between Denys Gounot, DG Network and  Superior Essex Inc. (incorporated herein by reference to Exhibit 48  to the Annual Report on Form 10-K of Superior Essex Inc. for the year  ended December 31, 2007) |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.2*  |   | Amended and Restated  Employment Agreement dated March 19, 2008 between Stephen M. Carter and  Superior Essex (incorporated herein by reference to Exhibit 10.1 to the  Current Report on Form 8-K of Superior Essex dated March 19, 2008)                               |
| 10.3*  |   | Amended and Restated  Employment Agreement dated March 19, 2008 between David S. Aldridge and  Superior Essex (incorporated herein by reference to Exhibit 10.2 to the  Current Report on Form 8-K of Superior Essex dated March 19, 2008)                               |
| 10.4*  |   | Amended and Restated  Employment Agreement dated March 19, 2008 between Barbara L. Blackford  and Superior Essex (incorporated herein by reference to Exhibit 10.3 to  the Current Report on Form 8-K of Superior Essex dated March 19,  2008)                           |
| 10.5*  |   | Amended and Restated  Employment Agreement dated March 19, 2008 between Justin F.  Deedy, Jr. and Superior Essex (incorporated herein by reference to  Exhibit 10.4 to the Current Report on Form 8-K of Superior Essex  dated March 19, 2008)                      |
| 10.6*  |   | Amended and Restated  Employment Agreement dated March 19, 2008 between H. Patrick Jack and  Superior Essex (incorporated herein by reference to Exhibit 10.5 to the  Current Report on Form 8-K of Superior Essex dated March 19, 2008)                                 |
| 10.7*  |   | Amended and Restated  Employment Agreement dated March 19, 2008 between J. David Reed and  Superior Essex (incorporated herein by reference to Exhibit 10.6 to the  Current Report on Form 8-K of Superior Essex dated March 19, 2008)                                   |
| 10.8*  |   | Amended and Restated  Senior Executive Retirement Plan (incorporated herein by reference to  Exhibit 10.7 to the Current Report on Form 8-K of Superior Essex  dated March 19, 2008)                                                                                          |
| 10.9*  |   | Long-Term Incentive  Plan (incorporated herein by reference to Exhibit 10.9 to the Current  Report on Form 8-K of Superior Essex dated March 19, 2008)                                                                                                                        |
| 10.10* |   | Amended and Restated  Executive Bonus Plan                                                                                                                                                                                                                                                   |
| 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.                                                                                                                                                                                                       |

 

*                                         Management contract or compensatory planor arrangement.

 

**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|                   | Superior Essex Inc. |
|------------------------|---------------------|
|                   |                |   |
|                   | By:                 | /s/ DAVID S. ALDRIDGE |
| Date: May 9, 2008 |                | David S. Aldridge*Executive Vice President, Chief Financial Officer  and Treasurer*(duly authorized officer and principal financial  officer) |

 

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