**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**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  June 30, 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        ** |
|                                                                                                                                       |            |                                                                                                                    |  |

 

**Commission file number 0-50514**

 

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**SUPERIOR ESSEX INC.**

(Exact name of registrant as specified in itscharter)

 
| **Delaware**                                                     | ** ** | **20-0282396**                       |
|------------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of incorporation or 

organization) |       | (I.R.S. Employer Identification No.) |
|                                                             |       |                                 |
| **150 Interstate North Parkway Atlanta, Georgia**                | ** ** | **30339**                            |
| (Address of principal executive offices)                         |       | (Zip code)                           |

 

**770-657-6000**

Registrant’s telephone number, including areacode

 

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

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See the definitions of “large accelerated filer,”“accelerated filer” and “smaller reporting company” in Rule 12b-2 of theExchange 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 mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).o Yes x No

 

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

 

As of July 30, 2008, the registrant had19,901,782 shares of common stock, $0.01 par value, outstanding.

 

 

 

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**PART I. FINANCIALINFORMATION**

 

Inthis Quarterly Report on Form 10-Q, the following terms have the meaningsindicated below:

 

·      Unless the context otherwiserequires, the terms “we,” “us,” “our,” and “registrant,” as well as the term“Superior Essex,” refer to Superior Essex Inc. and its subsidiaries on andafter November 10, 2003, the effective date of the plan of reorganizationof Superior TeleCom Inc. and its subsidiaries.

 

·      “COMEX” refers to CommodityExchange Inc., a subsidiary of the New York Mercantile Exchange, Inc.that operates the principal U.S. copper futures and options trading market.

 

·      “Essex Group” refers toEssex Group, Inc., a wholly-owned subsidiary of Essex International.

 

·      “Essex Group Canada” refersto Essex Group Canada Inc., a wholly-owned Canadian subsidiary of EssexGroup.

 

·      “Essex International” refersto Essex International Inc., a wholly- owned subsidiary of Superior EssexHolding

 

·      “Essex Europe” refers toEssex Europe S.A.S., a wholly-owned French holding company (formerly knownas Essex Nexans Europe S.A.S.) which owns our consolidated operations inEurope.

 

·      “LME” refers to the LondonMetal Exchange, which operates the principal European copper futures and optionstrading market.

 

·      “SHME” refers to theShanghai Metal Exchange, which operates the principal Asian copper futures andoptions trading market.

 

·      “Superior EssexCommunications” refers to Superior Essex Communications LP, a limitedpartnership with Superior Essex Holding as the sole limited partner and SECommunications GP, a wholly-owned subsidiary of Superior Essex Holding, asthe sole general partner.

 

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

 

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

 

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**Forward-Looking Statements**

 

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

 

*You are cautioned not to place undue reliance onour forward-looking statements. Our forward-looking statements are notguarantees of future performance and are based on currently availablecompetitive, financial and economic data, our current expectations andassumptions, and our operating plans. While we believe that our expectationsfor the future are reasonable in view of the currently available information,our expectations are subject to future events, risks and inherentuncertainties, as well as potentially inaccurate expectations and assumptions,and there are numerous factors—many beyond our control—that could cause resultsto differ significantly from our expectations. Such events, risks anduncertainties include, but are not limited to, those set forth under the caption“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31,2007 and in the other documents that we file with the SEC. We note thesefactors for investors as permitted by the Private Securities Litigation ReformAct of 1995. There also may be other factors that we cannot anticipate or thatare not described in this Form 10-Q or in our Annual Report on Form 10-Kfor the year ended December 31, 2007, generally because we do not perceivethem to be material, that could cause results to differ significantly from ourexpectations.*

 

*Forward-looking statements are only as of the datethey are made, and we do not undertake any obligation to update thesestatements to reflect subsequent circumstances or events except as required byfederal securities laws. You are advised, however, to review any furtherdisclosures we make on related subjects in our Form 10-Q and Form 8-Kreports to the SEC.*

 

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**ITEM 1. FINANCIAL STATEMENTS**

 

**SUPERIOR ESSEX INC. ANDSUBSIDIARIES**

 

**CONSOLIDATED BALANCE SHEETS**

 

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

 

**(unaudited)**

 
| ** **                                                                                                                                                           | ** ** | **June 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                                                                           |       |                    |       |                        |       |
| Current assets:                                                                                                                                                      |       |                    |       |                        |       |
| Cash and cash equivalents                                                                                                                                            |       | $                       | 79,462     |                        | $          | 102,677 |   |
| Accounts receivable (less  allowance for doubtful accounts of $6,467 and $6,503 at June 30, 2008  and December 31, 2007, respectively)                     |       | 498,581                 |       | 403,132                     |       |
| Inventories, net                                                                                                                                                     |       | 320,830                 |       | 309,985                     |       |
| Other current assets                                                                                                                                                 |       | 27,308                  |       | 32,102                      |       |
| Total current assets                                                                                                                                                 |       | 926,181                 |       | 847,896                     |       |
| Property, plant and  equipment, net                                                                                                                                  |       | 334,895                 |       | 323,283                     |       |
| Intangible and other  long-term assets, net                                                                                                                          |       | 48,611                  |       | 44,211                      |       |
| Total assets                                                                                                                                                         |       | $                       | 1,309,687  |                        | $          | 1,215,390 |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                       |       |                    |       |                        |       |
| Current liabilities:                                                                                                                                                 |       |                    |       |                        |       |
| Short-term borrowings                                                                                                                                                |       | $                       | 78,569     |                        | $          | 65,859 |   |
| Current portion of  long-term debt                                                                                                                                   |       | 932                     |       | 1,097                       |       |
| Accounts payable                                                                                                                                                     |       | 271,587                 |       | 245,042                     |       |
| Accrued expenses                                                                                                                                                     |       | 121,177                 |       | 99,970                      |       |
| Total current liabilities                                                                                                                                            |       | 472,265                 |       | 411,968                     |       |
| Long-term debt                                                                                                                                                       |       | 288,301                 |       | 286,229                     |       |
| Other long-term  liabilities                                                                                                                                         |       | 85,765                  |       | 83,934                      |       |
| Total liabilities                                                                                                                                                    |       | 846,331                 |       | 782,131                     |       |
| Minority interest in  consolidated subsidiary                                                                                                                        |       | 3,134                   |       | 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; 21,250,651 and 21,101,554 shares issued  at June 30, 2008 and December 31, 2007, respectively |       | 212                     |       | 209                         |       |
| Capital in excess of par  value                                                                                                                                      |       | 289,887                 |       | 286,242                     |       |
| Accumulated other  comprehensive income                                                                                                                              |       | 23,868                  |       | 12,086                      |       |
| Retained earnings                                                                                                                                                    |       | 181,529                 |       | 154,673                     |       |
| Treasury stock, at cost  (1,349,108 shares and 791,865 shares at June 30, 2008 and December 31,  2007, respectively)                                       |       | (35,274                 | )          | (22,657                     | )          |
| Total stockholders’ equity                                                                                                                                      |       | 460,222                 |       | 430,553                     |       |
| Total liabilities and  stockholders’ equity                                                                                                                     |       | $                       | 1,309,687  |                        | $          | 1,215,390 |   |

 

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

 

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**SUPERIOR ESSEX INC. ANDSUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OFOPERATIONS**

 

**(in thousands, except per sharedata)**

 

**(unaudited)**

** **
| ** **                                                            | ** ** | **Three Months Ended  June 30,** | ** ** |
|-----------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                            | ** ** | **2008**                                        | ** ** | **2007** | ** ** |
| Net sales                                                             |       | $                                               | 831,853    |   | $ | 772,440 |   |
| Cost of goods  sold                                                   |       | 754,899                                         |       | 697,989 |   |
| Gross profit                                                          |       | 76,954                                          |       | 74,451 |   |
| Selling, general  and administrative expenses                         |       | (40,452                                         | )          | (37,987 | ) |
| Restructuring  and other charges                                      |       | (18,562                                         | )          | (413 | ) |
| Income from  settlement of litigation (note 11)                       |       | 19,584                                          |       | — |   |
| Operating income                                                      |       | 37,524                                          |       | 36,051 |   |
| Interest expense                                                      |       | (8,552                                          | )          | (7,472 | ) |
| Interest income                                                       |       | 316                                             |       | 869 |   |
| Other income  (expense), net                                          |       | (16                                             | )          | 103 |   |
| Income before income taxes, minority interest and  extraordinary gain |       | 29,272                                          |       | 29,551 |   |
| Income tax  expense                                                   |       | (9,854                                          | )          | (11,885 | ) |
| Income before minority interest and extraordinary  gain               |       | 19,418                                          |       | 17,666 |   |
| Minority  interest in earnings of subsidiaries                        |       | (3                                              | )          | (1,307 | ) |
| Income before extraordinary gain                                      |       | 19,415                                          |       | 16,359 |   |
| Extraordinary  gain (note 5)                                          |       | —                                          |       | 3,539 |   |
| Net income                                                            |       | $                                               | 19,415     |   | $ | 19,898 |   |
|                                                                  |       |                                            |       |   |   |
| Net income per  share of common stock:                                |       |                                            |       |   |   |
| Basic:                                                                |       |                                            |       |   |   |
| Income before extraordinary gain                                      |       | $                                               | 0.99       |   | $ | 0.81 |   |
| Extraordinary gain (note 5)                                           |       | —                                          |       | 0.17 |   |
| Net income                                                            |       | $                                               | 0.99       |   | $ | 0.98 |   |
| Diluted:                                                              |       |                                            |       |   |   |
| Income before extraordinary gain                                      |       | $                                               | 0.98       |   | $ | 0.80 |   |
| Extraordinary gain (note 5)                                           |       | —                                          |       | 0.17 |   |
| Net income                                                            |       | $                                               | 0.98       |   | $ | 0.97 |   |
| Weighted average  shares outstanding:                                 |       |                                            |       |   |   |
| Basic                                                                 |       | 19,696                                          |       | 20,253 |   |
| Diluted                                                               |       | 19,909                                          |       | 20,527 |   |

 

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

 

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| ** **                                                            | ** ** | **Six Months Ended  June 30,** | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                            | ** ** | **2008**                                      | ** ** | **2007** | ** ** |
| Net sales                                                             |       | $                                             | 1,589,013  |   | $ | 1,468,068 |   |
| Cost of goods  sold                                                   |       | 1,446,013                                     |       | 1,332,372 |   |
| Gross profit                                                          |       | 143,000                                       |       | 135,696 |   |
| Selling, general  and administrative expenses                         |       | (84,100                                       | )          | (73,586 | ) |
| Restructuring  and other charges                                      |       | (20,683                                       | )          | (1,287 | ) |
| Income from  settlement of litigation (note 11)                       |       | 19,584                                        |       | — |   |
| Operating income                                                      |       | 57,801                                        |       | 60,823 |   |
| Interest expense                                                      |       | (16,870                                       | )          | (15,122 | ) |
| Interest income                                                       |       | 910                                           |       | 1,615 |   |
| Other expense,  net                                                   |       | (1,168                                        | )          | (648 | ) |
| Income before income taxes, minority interest and  extraordinary gain |       | 40,673                                        |       | 46,668 |   |
| Income tax  expense                                                   |       | (13,571                                       | )          | (18,794 | ) |
| Income before minority interest and extraordinary  gain               |       | 27,102                                        |       | 27,874 |   |
| Minority  interest in earnings of subsidiaries                        |       | (246                                          | )          | (2,357 | ) |
| Income before extraordinary gain                                      |       | 26,856                                        |       | 25,517 |   |
| Extraordinary  gain - (note 5)                                        |       | —                                        |       | 3,539 |   |
| Net income                                                            |       | $                                             | 26,856     |   | $ | 29,056 |   |
| Net income per  share of common stock:                                |       |                                          |       |   |   |
| Basic:                                                                |       |                                          |       |   |   |
| Income before extraordinary gain                                      |       | $                                             | 1.36       |   | $ | 1.26 |   |
| Extraordinary gain (note 5)                                           |       | —                                        |       | 0.18 |   |
| Net income                                                            |       | $                                             | 1.36       |   | $ | 1.44 |   |
| Diluted:                                                              |       |                                          |       |   |   |
| Income before extraordinary gain                                      |       | $                                             | 1.35       |   | $ | 1.25 |   |
| Extraordinary gain (note 5)                                           |       | —                                        |       | 0.17 |   |
| Net income                                                            |       | $                                             | 1.35       |   | $ | 1.42 |   |
| Weighted average  shares outstanding:                                 |       |                                          |       |   |   |
| Basic                                                                 |       | 19,729                                        |       | 20,203 |   |
| Diluted                                                               |       | 19,921                                        |       | 20,491 |   |

 

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

 

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**SUPERIOR ESSEX INC. ANDSUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF CASHFLOWS**

 

**(in thousands)**

 

**(unaudited)**

 
| ** **                                                                         | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                         | ** ** | **2008**                                      | ** ** | **2007** | ** ** |
| Cash flows from operating  activities:                                             |       |                                          |       |   |   |
| Net income                                                                         |       | $                                             | 26,856     |   | $ | 29,056 |   |
| Adjustments to reconcile  net income to net cash provided by operating activities: |       |                                          |       |   |   |
| Depreciation and  amortization (note 4)                                            |       | 30,088                                        |       | 15,030 |   |
| Amortization of deferred  financing costs and discount                             |       | 1,217                                         |       | 1,061 |   |
| Minority interest in  earnings of subsidiaries                                     |       | 246                                           |       | 2,357 |   |
| Extraordinary gain                                                                 |       | —                                        |       | (3,539 | ) |
| Settlement of derivatives                                                          |       | 1,948                                         |       | 3,564 |   |
| Share-based compensation                                                           |       | 1,808                                         |       | 4,016 |   |
| Change in assets and  liabilities:                                                 |       |                                          |       |   |   |
| Accounts receivable, net                                                           |       | (80,494                                       | )          | (58,638 | ) |
| Inventories, net                                                                   |       | (2,441                                        | )          | 28,169 |   |
| Other current and  non-current assets                                              |       | (2,366                                        | )          | 16,350 |   |
| Accounts payable, accrued  expenses and other liabilities                          |       | 33,247                                        |       | 38,619 |   |
| Other, net                                                                         |       | (306                                          | )          | 795 |   |
| Cash flows provided by  operating activities                                       |       | 9,803                                         |       | 76,840 |   |
| Cash flows from investing  activities:                                             |       |                                          |       |   |   |
| Capital expenditures                                                               |       | (30,050                                       | )          | (18,351 | ) |
| Acquisitions, net of cash  acquired (note 5)                                       |       | (2,965                                        | )          | (48,334 | ) |
| Other                                                                              |       | 32                                            |       | 26 |   |
| Cash flows used for  investing activities                                          |       | (32,983                                       | )          | (66,659 | ) |
| Cash flows from financing  activities:                                             |       |                                          |       |   |   |
| Short-term borrowings, net                                                         |       | 7,616                                         |       | 6,551 |   |
| Repayments of long-term  debt                                                      |       | (250                                          | )          | (15,021 | ) |
| Proceeds from exercise of  stock options and employee stock purchases              |       | 1,278                                         |       | 2,413 |   |
| Treasury stock purchases                                                           |       | (10,869                                       | )          | — |   |
| Excess tax benefits  resulting from stock options and awards                       |       | 562                                           |       | 1,737 |   |
| Cash flows used for  financing activities                                          |       | (1,663                                        | )          | (4,320 | ) |
| Effect of exchange rate  changes on cash                                           |       | 1,628                                         |       | (611 | ) |
| Net increase (decrease) in  cash and cash equivalents                              |       | (23,215                                       | )          | 5,250 |   |
| Cash and cash equivalents  at beginning of period                                  |       | 102,677                                       |       | 53,493 |   |
| Cash and cash equivalents  at end of period                                        |       | $                                             | 79,462     |   | $ | 58,743 |   |

 

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

 

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**SUPERIOR ESSEX INC. ANDSUBSIDIARIES**

 

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

 

**June 30, 2008**

 

**(unaudited)**

 

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

 

***Basis of presentation***

 

The accompanying balance sheet as of December 31,2007, which has been derived from audited financial statements, and theunaudited consolidated financial statements as of June 30, 2008 and forthe three and six months ended June 30, 2008 and 2007, have been preparedin accordance with the requirements of Section 13 or 15(d) of theSecurities Exchange Act of 1934, as amended, and, therefore, do not include alldisclosures required by accounting principles generally accepted in the UnitedStates for complete financial statements. However, in the opinion ofmanagement, these statements reflect all adjustments (which consist only ofnormal recurring accruals) necessary for a fair presentation of the results ofoperations for the relevant periods. Results for the six months ended June 30,2008 are not necessarily indicative of the results to be expected for theentire fiscal year. These financial statements should be read in conjunctionwith the audited consolidated financial statements and notes thereto includedin Superior Essex Inc.’s Annual Report on Form 10-K for the yearended December 31, 2007.

 

The Company is a manufacturer and supplier of wireand cable products for the communications, energy, automotive, industrial, andcommercial/residential end-markets. The Company manufactures magnet wire,fabricated insulation products, and copper and fiber optic communications wireand cable products. The Company is also a distributor of magnet wire,insulation, and related products sold to smaller original equipmentmanufacturers, or OEMs, and motor repair facilities. The Company convertscopper cathode to copper rod for internal consumption and for sale to otherwire and cable manufacturers and OEMs. The Company currently operatesmanufacturing facilities in the United States, Canada, the United Kingdom,France, Germany, Portugal, Italy, Mexico and China.

 

***Tender offer and merger***

 

On June 11, 2008, the Company entered into anAgreement and Plan of Merger (the “Agreement”) with LS Cable Ltd. (“LS Cable”),a Korean company. Under the terms of the agreement, Cyprus Acquisition MergerSub Inc. (“Cyprus”), an indirect wholly-owned subsidiary of LS Cable, made acash tender offer to purchase all of the outstanding shares of Superior Essexcommon stock for $45.00 per share. On August 4, 2008, Cyprus completed thetender offer and acquired approximately 92% of the outstanding common stock ofSuperior Essex Inc. In accordance with the terms of the Agreement, LS Cable willmerge Cyprus with and into Superior Essex Inc. and all remaining Superior EssexInc. common shares will be cancelled in exchange for the right to receive acash payment of $45 per share. Upon completion of the merger Superior EssexInc. will be an indirect subsidiary of LS Cable.

 

***Income taxes***

 

Income tax expense for interim periods is providedbased on the Company’s estimated effective tax rate for the full fiscal year.The effective tax rate for the three and six months ended June 30, 2008 isless than the U.S. statutory rate of 35% due to the favorable effect of lowerforeign effective tax rates and the discrete effects of favorable adjustmentsto state effective tax rates and research and development tax credits which more than offset thenegative impact of state taxes, valuation allowances provided with respect tooperating losses incurred by one of the Company’s Chinese subsidiaries andliabilities for uncertain tax positions recorded in accordance with FASBInterpretation No. 48 (“FIN 48”). The effective tax rate for the three andsix months ended June 30, 2007 exceeds the U.S. statutory rate of 35% dueto the effects of state and foreign taxes and liabilities for uncertain tax positionsrecorded in accordance with FIN 48.

 

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***New accounting pronouncements***

 

Effective January 1, 2008, the Companyadopted certain provisions of Statement of Financial Accounting 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 valuemeasurements based on quoted prices in active markets for identical assets orliabilities; Level 2 – fair value measurements based upon significantobservable market data other than quoted prices included within Level 1 orsignificant unobservable inputs that are corroborated by observable marketdata; and Level 3 – fair value measurements based on significant unobservableinputs that are not corroborated by observable market data.

 

The following table summarizes informationabout the Company’s assets and liabilities measured at fair value on arecurring basis as of June 30, 2008:

 
| ** **               | ** ** | **Fair Value Measurement Using** | ** ** | ** **       | ** ** |
|--------------------------|------------|-------------------------------------------------|------------|------------------|------------|
| **Description**          | ** ** | **Level 1**                                | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| ** **               | ** ** | ** **                                      | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Copper futures contracts |       | $                                               | 1,573      |             | $          | 532 |   | $ | — |   | $ | 2,105 |   |
|                          |            |                                                 |            |                  |            |  |  |  |  |  |  |  |  |

 

Level 2 copper futures contracts consist ofEuro denominated contracts. The value of these contracts is derived fromconverting U.S. dollar quoted LME futures contracts into Euro based equivalentsby applying the publicly traded U.S. dollar to Euro foreign exchange rate. TheCompany also had non-deliverable forward foreign exchange contracts outstandingat June 30, 2008 with insignificant fair value measurements using Level 2inputs (see note 10). The fair value of the foreign currency forward exchangecontracts is based on dealer quotes of market forward rates and reflects theamount the Company would receive or pay at their maturity dates for contractsinvolving the same currencies and maturity dates.

 

Application of FAS 157 to nonfinancialassets and liabilities measured at fair value on a nonrecurring basis iseffective for fiscal years beginning after November 15, 2008 with earlierapplication permitted. Nonfinancial assets and liabilities measured at fairvalue on a nonrecurring basis include intangible and long-lived assets measuredat fair value for impairment purposes, asset retirement obligations initiallymeasured at fair value, and those assets and liabilities initially measured atfair value in a business combination. The Company has not implementedFAS 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, *BusinessCombinations*. FAS 141(R) retains the underlying conceptsof FAS 141 in that all business combinations are still required to be accountedfor at fair value under the acquisition method of accounting but FAS 141(R) changedthe method of applying the acquisition method in a number of significantaspects. Changes prescribed by FAS 141(R) include, but are notlimited to, requirements to expense transaction costs and costs to restructureacquired entities; record earn-outs and other forms of contingent considerationat fair value on the acquisition date; record 100% of the net assets acquiredeven if less than a 100% controlling interest is acquired; and to recognize anyexcess of the fair value of net assets acquired over the purchase considerationas a gain to the acquirer. FAS 141(R) is effective on a prospectivebasis for all business combinations for which the acquisition date is on or afterthe beginning of the first annual period subsequent to December 15, 2008,with the exception of the accounting for valuation allowances on deferred taxesand acquired tax contingencies. FAS 141(R) amends FAS 109 suchthat adjustments made to valuation allowances on deferred taxes and acquiredtax contingencies associated with acquisitions that closed prior to theeffective date 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 a noncontrollinginterest in a subsidiary is an ownership interest in the consolidated entitythat should be reported as equity in the consolidated financial statements andrequires consolidated net income to be reported at amounts that include theamounts attributable to both the parent and the noncontrolling interest.FAS 160 also clarifies that all of those transactions resulting in achange in ownership of a subsidiary are equity transactions if the parentretains its controlling financial interest in the subsidiary. FAS 160requires expanded disclosures in the consolidated financial statements thatclearly identify and distinguish between the interests of the parent’s ownersand the interests of the noncontrolling owners of a subsidiary. FAS 160 iseffective for fiscal years, and interim 

 

9

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periods within those fiscal years, beginningon or after December 15, 2008. Earlier adoption is prohibited.FAS 160 will be applied prospectively as of the beginning of the fiscalyear in which the Statement is initially applied, except for the presentationand disclosure requirements. The presentation and disclosure requirements willbe applied retrospectively for all periods presented. The Company is currentlyevaluating the effects, if any, that FAS 160 may have on its consolidatedfinancial statements; however adoption of FAS 160 will result in thereclassification of the Company’s minority interest in subsidiary to equity.

 

In March 2008, the FASB issued Statement of Financial AccountingStandards No. 161, *Disclosures aboutDerivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133*(“FAS 161”)*.* FAS 161 requires enhanced disclosuresabout an entity’s derivative and hedging activities. Entities are required toprovide enhanced disclosures about (a) how and why an entity usesderivative 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 hedgeditems affect an entity’s financial position, financial performance, and cashflows. 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. The Company is currently evaluatingthe effects that FAS 161 will have on its consolidated financial statements.

 

In April 2008 the FASB issued FASB Staff Position No. 142-3, *Determination of the Useful Life of Intangible Assets* (“FSP142-3”). FSP 142-3 amends the factors that should be considered in developingrenewal or extension assumptions used to determine the useful life of arecognized intangible asset under FASB Statement No. 142, *Goodwill andOther Intangible Assets.* The intent of FSP 142-3 is to improve theconsistency between the useful life of a recognized intangible asset under Statement142 and the period of expected cash flows used to measure the fair value of theasset under FASB Statement No. 141 (revised 2007), *BusinessCombinations,* and other U.S. generally accepted accountingprinciples. FSP 142-3 is effective for financial statements issued for fiscalyears beginning after December 15, 2008. Early adoption is prohibited. TheCompany is currently evaluating the effects, if any, that FSP 142-3 will haveon its consolidated financial statements.

 

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

 

At June 30, 2008 and December 31,2007, the components of inventories were as follows:

 
| ** **      | ** ** | **June 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|-----------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **      | ** ** | **(in thousands)** | ** ** |
| Raw materials   |       | $                       | 41,111     |                        | $          | 48,102 |   |
| Work in process |       | 91,238                  |       | 78,792                      |       |
| Finished goods  |       | 326,933                 |       | 289,413                     |       |
|            |       | 459,282                 |       | 416,307                     |       |
| LIFO reserve    |       | (138,452                | )          | (106,322                    | )          |
|            |       | $                       | 320,830    |                        | $          | 309,985 |   |

 

Inventories valued using the LIFO methodamounted to $176.9 million and $177.7 million at June 30, 2008 and December 31,2007, respectively. During the three months ended June 30, 2008, certaininventory quantities were reduced resulting in the liquidation of LIFOinventory quantities carried at lower costs prevailing in prior years. Theeffect was to increase net income by $3.2 million.

 

10

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**3.****                                      Comprehensiveincome**

 

The components of comprehensive income forthe three and six months ended June 30, 2008 and 2007 were as follows:

 
| ** **                                                                                                                                                                                                              | ** ** | **Three Months Ended  June 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                                                                                                                                                              | ** ** | **2008**                                        | ** ** | **2007** | ** ** |
| ** **                                                                                                                                                                                                              | ** ** | **(in thousands)**                         | ** ** |
| Net income                                                                                                                                                                                                              |       | $                                               | 19,415     |   | $ | 19,898 |   |
| Foreign currency translation adjustment,  net of income tax of $10 and $40 for the three months ended June 30,  2008 and 2007, respectively                                                                        |       | 680                                             |       | 1,037 |   |
| Actuarial loss on defined benefit plans net  of income tax of $411 for the three months ended June 30, 2008                                                                                                        |       | (732                                            | )          | — |   |
| Reclassification adjustment for actuarial  losses (gains) of defined benefit plans included in net income, net of income  tax of $(2) and $2 for the three months ended June 30, 2008 and  2007, respectively |       | 4                                               |       | (3 | ) |
| Prior service costs of defined benefit  plans, net of tax of $38 for the three months ended June 30, 2008                                                                                                          |       | (67                                             | )          |   |   |
| Reclassification adjustment for prior  service costs of defined benefit plans included in net income, net of income  tax of $8 and $7 for the three months ended June 30, 2008 and 2007,  respectively             |       | 13                                              |       | 12 |   |
| Unrealized holding gains on derivatives  during the period, net of income tax of $268 and $1,478 for the three months  ended June 30, 2008 and 2007, respectively                                                  |       | 418                                             |       | 2,311 |   |
| Reclassification adjustment for gains on  derivatives included in net income, net of income tax of $529 and $1,561 for  the three months ended June 30, 2008 and 2007, respectively                                |       | (825                                            | )          | (2,442 | ) |
| Comprehensive income                                                                                                                                                                                                    |       | $                                               | 18,906     |   | $ | 20,813 |   |

 
| ** **                                                                                                                                                                                                            | ** ** | **Six Months Ended  June 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                                                                                                                                            | ** ** | **2008**                                      | ** ** | **2007** | ** ** |
| ** **                                                                                                                                                                                                            | ** ** | **(in thousands)**                       | ** ** |
| Net income                                                                                                                                                                                                            |       | $                                             | 28,656     |   | $ | 29,056 |   |
| Foreign currency translation adjustment,  net of income tax of $17 and $361 for the six months ended June 30, 2008  and 2007, respectively                                                                       |       | 11,368                                        |       | 1,417 |   |
| Actuarial loss on defined benefit plans net  of income tax of $411 for the six months ended June 30, 2008                                                                                                        |       | (732                                          | )          | — |   |
| Reclassification adjustment for actuarial  losses (gains) of defined benefit plans included in net income, net of income  tax of $(2) and $4 for the six months ended June 30, 2008 and 2007,  respectively |       | 4                                             |       | (6 | ) |
| Prior service costs of defined benefit  plans, net of tax of $38 for the six months ended June 30, 2008                                                                                                          |       | (67                                           | )          |   |   |
| Reclassification adjustment for prior  service costs of defined benefit plans included in net income, net of income  tax of $15 and $14 for the six months ended June 30, 2008 and 2007,  respectively           |       | 26                                            |       | 24 |   |
| Unrealized holding gains on derivatives  during the period, net of income tax of $1,496 and $2,451 for the six months  ended June 30, 2008 and 2007, respectively                                                |       | 2,324                                         |       | 3,828 |   |
| Reclassification adjustment for gains on  derivatives included in net income, net of income tax of $731 and $1,057 for  the six months ended June 30, 2008 and 2007, respectively                                |       | (1,141                                        | )          | (1,658 | ) |
| Comprehensive income                                                                                                                                                                                                  |       | $                                             | 40,438     |   | $ | 32,661 |   |

 

11

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The components of accumulated othercomprehensive income at June 30, 2008 and December 31, 2007 were asfollows:

 
| ** **                                                                                                                                  | ** ** | **June 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                  | ** ** | **(in thousands)** | ** ** |
| Foreign currency translation adjustment,  net of tax of $561 and $544 at June 30, 2008 and December 31, 2007,  respectively       |       | $                       | 27,313     |                        | $          | 15,945 |   |
| Actuarial losses of defined benefit plans,  net of tax of $2,814 and $2,405 at June 30, 2008 and December 31,  2007, respectively |       | (3,838                  | )          | (3,110                      | )          |
| Prior service costs of defined benefit  plans, net of tax of $278 and $255 at June 30, 2008 and  December 31, 2007, respectively  |       | (492                    | )          | (451                        | )          |
| Unrealized gain (loss) on derivatives, net  of tax of $(568) and $197 at June 30, 2008 and December 31, 2007,  respectively       |       | 885                     |       | (298                        | )          |
|                                                                                                                                        |       | $                       | 23,868     |                        | $          | 12,086 |   |

 

**4.****                                      Restructuringand other charges**

 

***North American magnet wire and copper rod restructuring***

 

On January 23,2008, the Company announced that it is consolidating and restructuring itsNorth American 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. 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 six months ended June 30, 2008 aresummarized as follows:

 
| ** **                      | ** ** | **Accelerated  Depreciation** | ** ** | **Employee  Severance** | ** ** | **Employee  Retention** | ** ** | **Equipment  Relocation  and Other  Facility  Exit Costs** | ** ** | **Total**  | ** ** |
|---------------------------------|------------|-------------------------------|------------|-------------------------|------------|-------------------------|------------|----------------------------------------------------------------------|------------|------------|------------|
| ** **                      | ** ** | ** **                    | ** ** | ** **              | ** ** | ** **              | ** ** | ** **                                                           | ** ** | ** ** | ** ** |
| Amounts charged to expense      |       | $                             | 10,316     |                    | $          | 2,306                   |       | $                                                                    | 48         |       | $          | 1,679 |   | $ | 14,349 |   |
| Non-cash charges against assets |       | (10,316                       | )          | —                  |       | —                  |       | —                                                               |       | (10,316    | )          |
| Cash payments                   |       | —                        |       | (435                    | )          | —                  |       | (1,598                                                               | )          | (2,033     | )          |
| Balance at June 30, 2008   |       | $                             | —     |                    | $          | 1,871                   |       | $                                                                    | 48         |       | $          | 81 |   | $ | 2,000 |   |

 

Accelerated depreciation charges reflectchanges in estimated useful lives and residual values for long-lived assetsthat will be taken out of service prior to the end of their original serviceperiod and have been reported as a component of cost of goods sold in theaccompanying statement of operations. All other charges associated with theNorth American magnet wire and copper rod restructuring have been reported as acomponent of restructuring and other charges in the accompanying statement ofoperations. Employee retention costs relate to incentives that will be paid toVincennes’ employees who remain employed until certain future termination datesand meet specified safety and attendance goals and are accrued over theretention period. Total restructuring costs of $14.3 million for the six monthsended June 30, 2008 include $12.4 million related to the North Americanmagnet wire and distribution segment and $1.9 million related to the copper rodsegment.

 

***European magnet wirerestructuring***

 

In March 2008, the Company announcedthat Essex Europe had initiated discussions with the appropriate Frenchemployee representative bodies for the potential closure of its magnet wiremanufacturing facility in Chauny, France. Discussions with the local employeerepresentative bodies were completed during the second quarter of 2008 and on June 30,2008, the Company authorized the closure of the Chauny facility. The Chaunyfacility is leased from Nexans through 

 

12

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October 2009 and currently has approximately 130 employees. Thechanges are expected to more efficiently match the Company’s productioncapabilities to industry demand levels and to customer requirements. During thethree months ended June 30, 2008, Essex Europe also recorded arestructuring provision of $2.8 million related to the consolidation of certainof its administrative and production support functions in Germany. The totalestimated cost of these restructurings is approximately $22 million, whichprimarily consists of (i) cash charges of approximately $18.7 millionrelating to employee severance and related benefits and approximately $3.7million related to equipment relocation and disposal and other costs associatedwith the restructuring, (ii) non-cash charges of approximately $1.3million, principally through accelerated depreciation, and (iii) non-cashgains of $1.7 million attributable to employee benefit plan curtailments. TheCompany expects to incur the majority of these charges in 2008 and the firsthalf of 2009. Restructuring and other charges for the six months ended June 30,2008 related to the European magnet wire restructuring are summarized asfollows:

 
| ** **                                  | ** ** | **Accelerated  Depreciation** | ** ** | **Employee  Severance  And Related  Benefits** | ** ** | **Employee  Benefit Plan  Curtailment  Gains** | ** ** | **Equipment  Relocation  and Other  Facility  Exit Costs** | ** ** | **Total**  | ** ** |
|---------------------------------------------|------------|-------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|----------------------------------------------------------------------|------------|------------|------------|
| ** **                                  | ** ** | ** **                    | ** ** | ** **                                          | ** ** | ** **                                          | ** ** | ** **                                                           | ** ** | ** ** | ** ** |
| Amounts charged to expense                  |       | $                             | 1,246      |                                                | $          | 15,112                                              |       | $                                                                    | (1,711     | )          | $          | 448 |   | $ | 15,095 |   |
| Non-cash charges against assets/liabilities |       | (1,246                        | )          | —                                              |       | 1,711                                               |       | —                                                               |       | 465        |       |
| Cash payments                               |       | —                        |       | (107                                                | )          | —                                              |       | (448                                                                 | )          | (555       | )          |
| Balance at June 30, 2008               |       | $                             | —     |                                                | $          | 15,005                                              |       | $                                                                    | —     |       | $          | — |   | $ | 15,005 |   |

 

Accelerated depreciation charges reflectchanges in estimated useful lives and residual values for long-lived assetsthat will be taken out of service prior to the end of their original serviceperiod and have been reported as a component of cost of goods sold in theaccompanying statement of operations. All other charges associated with theEuropean magnet wire restructurings have been reported as a component ofrestructuring and other charges in the accompanying statement of operations.

 

***Other***

 

In addition to the North American magnetwire, copper rod and European magnet wire restructurings discussed above,restructuring and other charges for the six months ended June 30, 2008also include $2.5 million of professional fees and costs associated with the LSCable transaction (see note 1), $0.2 million of professional fees incurred inconnection with the Chauny restructuring and the write-off of $0.2 million ofdeferred business acquisition costs.

 

Essex Europe recorded a restructuringprovision of $0.3 million during the six months ended June 30, 2007related 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 six months ended June 30, 2007 also included the write-off of $0.4million of deferred business acquisition costs, $0.3 million of facility exitcosts primarily related to the closure of an insulation manufacturing facilityin our North American magnet wire and distribution segment and $0.2 million ofprofessional fees incurred in connection with the administration of SuperiorTeleCom’s plan of reorganization.

 

**5.****                                      Acquisitions**

 

***A.E.V. acquisition***

 

In April 2008,Essex Europe acquired certain assets A.E.V. Limited, a United Kingdom baseddistributor of magnet wire enamels and related products, for a total purchaseprice of $3.0 million. The purchased assets consisted primarily of customer andsupplier lists, existing customer and supplier contracts, minor rewinding equipmentand racking and a limited amount of inventory. The acquisition was accountedfor using the purchase method of accounting and the results of the acquiredoperations have been included in the consolidated results of operations of theCompany from the date of acquisition. The acquired operations are included inthe Company’s European magnet wire and distribution segment.

 

13

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***Invex acquisition***

 

On July 31, 2007, Essex Europe acquiredall of the outstanding common stock of Invex S.p.A. (“Invex”), a leadingEuropean magnet wire producer based in Italy for a cash purchase price of$41.1 million. The Company believes the acquisition will complement itsexisting European operations and should provide near- and long-term synergyopportunities in the areas of sales and administration, internal enamel usage,and other logistical, procurement and manufacturing arrangements. The purchasewas financed with cash on hand. 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. Invex is included in the Company’s European magnet wireand distribution segment.

 

***                Tianjinacquisition***

 

On July 26, 2007, the Company acquiredNexans’ 80% ownership interest in Essex Magnet Wire (Tianjin) Ltd.(formerly known as Nexans Tianjin Magnet Wires and Cables Co., Ltd.)which owns and operates a magnet wire facility located in Tianjin, China, for acash purchase price of $9.3 million. In addition to complementing itsexisting magnet wire manufacturing facility in Suzhou, China, the Companybelieves this acquisition provides a significant market presence in the Chinesemarket for rectangular wires and related products used primarily by largetransformer manufacturers in high-performance power generators andtransformers. The acquisition was accounted for using the purchase method ofaccounting and the results of the acquired operations have been included in theconsolidated results of operations of the Company from the date of acquisition.The operations of Essex Magnet Wire (Tianjin) Ltd. are included in theCompany’s Asia/Pacific magnet wire segment.

 

***Essex Europe minority interestacquisition***

 

On June 27, 2007, as provided for in theEssex Europe shareholders agreement, the Company exercised its option topurchase Nexans’ 40% minority interest in Essex Europe for a cash payment of$29.6 million, including acquisition costs of $0.2 million. Theacquisition of the minority interest was accounted for using the purchasemethod of accounting.

 

The following pro forma consolidated resultsof operations for the six months ended June 30, 2007 have been prepared asif the acquisition of the Essex Europe minority interest had occurred at January 1,2007. The extraordinary gain directly attributable to the transaction isincluded in the pro forma consolidated results of operations.

 
| Net sales                        |   | $      | 1,468,068 |   |
|----------------------------------|--------|--------|-----------|--------|
| Income before extraordinary gain |   | 28,317 |      |
| Net income                       |   | 31,856 |      |
| Net income per share:            |   |   |      |
| Basic                            |   |   |      |
| Income before extraordinary gain |   | 1.40   |      |
| Net income                       |   | 1.58   |      |
| Diluted                          |   |   |      |
| Income before extraordinary gain |   | 1.38   |      |
| Net income                       |   | 1.55   |      |

 

***Simcoe acquisition***

 

On April 27, 2007, the Company acquiredcertain assets and assumed certain liabilities related to Nexans’ remainingNorth American magnet wire business in Simcoe, Canada. This acquisitionprovided the Company with an increased market presence in the North Americanmarket for magnet wire products used in the transformer and power generationend markets. The Simcoe acquisition was completed for a cash purchase price,after adjustment, of $12.7 million. The acquisition was accounted forusing the purchase method of accounting and the results of the acquiredoperations have been included in the consolidated results of operations of theCompany from the date of acquisition. The Simcoe operations are included in theNorth American magnet wire and distribution segment.

 

14

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**6.****                                      Debt**

 

At June 30, 2008 and December 31,2007, short-term borrowings and long-term debt consist of the following:

 
| ** **                                                                                                             | ** ** | **June 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                                                                             | ** ** | **(in thousands)** | ** ** |
| Short-term borrowings:                                                                                                 |       |                    |       |                        |       |
| Essex Europe factoring agreement                                                                                       |       | $                       | 59,806     |                        | $          | 46,103 |   |
| Essex Magnet Wire (Tianjin) Ltd. credit  facility                                                                      |       | 18,763                  |       | 14,280                      |       |
| Essex Magnet Wire (Suzhou) Ltd. credit  facilities                                                                     |       | —                  |       | 5,476                       |       |
|                                                                                                                   |       | $                       | 78,569     |                        | $          | 65,859 |   |
| Long-term debt:                                                                                                        |       |                    |       |                        |       |
| 9% senior notes (net of discount of $4,014  and $4,446 at June 30, 2008 and December 31, 2007, respectively) |       | $                       | 253,086    |                        | $          | 252,654 |   |
| Series A redeemable preferred stock of  Superior Essex Holding                                                    |       | 5,000                   |       | 5,000                       |       |
| Term loan of Essex Magnet Wire (Suzhou)  Ltd.                                                                          |       | 13,996                  |       | 13,143                      |       |
| 3% convertible bonds of Invex                                                                                          |       | 9,219                   |       | 8,432                       |       |
| Other                                                                                                                  |       | 7,932                   |       | 8,097                       |       |
|                                                                                                                   |       | 289,233                 |       | 287,326                     |       |
| Less current portion of long-term debt                                                                                 |       | 932                     |       | 1,097                       |       |
| Total long-term debt                                                                                                   |       | $                       | 288,301    |                        | $          | 286,229 |   |

 

Superior Essex Communications and Essex Groupare borrowers under a $225 million senior secured credit facility. Interest onthe senior secured credit facility accrues on outstanding borrowings at anannual rate equal to, at the borrowers’ option, LIBOR or a base rate, plus, ineach case, an applicable margin, determined quarterly based on averageborrowing availability, ranging from 1.00% to 2.00% for LIBOR loans and from 0%to 0.75% for base rate loans. Obligations under the senior secured creditfacility are secured by substantially all domestic assets of the Company and65% of the voting stock of certain of the Company’s foreign subsidiaries.Availability under the senior secured credit facility is subject to a borrowingbase equal to the lesser of (1) $225 million less outstanding letters ofcredit and (2) a specified percentage of eligible accounts receivable andinventory less specified reserves. The specified percentages are (i) 85%of the value of the eligible accounts receivable and with respect to inventorythe lesser of (a) $110 million or (b) the lesser of (x) 65% ofthe value of eligible inventory and (y) 85% multiplied by the net orderlyliquidation percentage then applicable multiplied by the value of the eligibleinventory. Certain of the specified reserves that reduce availability are notfixed and may be increased or imposed by the administrative agent for theamended and restated senior secured credit facility at its reasonable creditjudgment. The borrowers are obligated to pay an unused commitment fee of 0.25%per annum on the unused amount of the maximum committed amounts and a fee of0.125% per annum on the outstanding face amount of outstanding letters ofcredit. No borrowings were outstanding under the senior secured credit facilityat June 30, 2008 and undrawn availability was $224.5 million.

 

The senior secured credit facility containscovenants which may limit Superior Essex Communications’ and Essex Group’s andtheir subsidiaries’ ability to (i) pay dividends, redeem capital stock ormake other restricted payments, (ii) sell or dispose of assets, (iii) incuradditional indebtedness or permit liens to exist on Company property, (iv) engagein transactions with affiliates and (v) make additional investments oracquisitions. Capital expenditures, distributions, acquisitions and assetdispositions are not limited so long as no event of default exists and theborrowers meet certain availability and liquidity conditions specified in thesenior secured credit facility.

 

The indenture governing the 9% senior notescontains covenants which restrict the ability of the Company and certain of itssubsidiaries to, among other things: incur additional debt and issue preferredstock; make certain distributions, investments and other restricted payments;create certain liens; enter into transactions with affiliates; and merge, consolidateor sell substantially all of the Company’s assets.

 

Subsequent to June 30, 2008, the Companyamended and restated its senior secured credit facility and redeemed the 9%senior notes and Series A preferred stock of Superior Essex Holding. Seenote 15.

 

15

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**7.****                                      Incomeper share**

 

The computation of basic and diluted incomebefore extraordinary gain per share for the three and six months ended June 30,2008 and 2007 is as follows:

 
| ** **                                                 | ** ** | **Three Months Ended June 30,**                   | ** ** |
|------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                 | ** ** | **2008**                                                              | ** ** | **2007** | ** ** |
| ** **                                                 | ** ** | **Net  Income**                                                       | ** ** | **Shares** | ** ** | **Per Share  Amount** | ** ** | **Net  Income** | ** ** | **Shares** | ** ** | **Per Share  Amount** | ** ** |
| ** **                                                 | ** ** | **(in thousands, except per share amounts)** | ** ** |
| Basic income before extraordinary gain per  common share   |       | $                                                                     | 19,415     |   | 19,696 |   | $ | 0.99 |   | $ | 16,359 |   | 20,253 |   | $ | 0.81 |   |
| Effect of dilutive securities:                             |       |                                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Restricted stock awards                                    |       | —                                                                |       | 81 |   |   |   | — |   | 96 |   |   |   |
| Performance share awards                                   |       | —                                                                |       | 8 |   |   |   | — |   | — |   |   |   |
| Stock options                                              |       | —                                                                |       | 124 |   |   |   | — |   | 178 |   |   |   |
| Diluted income before extraordinary gain  per common share |       | $                                                                     | 19,415     |   | 19,909 |   | $ | 0.98 |   | $ | 16,359 |   | 20,527 |   | $ | 0.80 |   |

 
| ** **                                                 | ** ** | **Six Months Ended June 30,**                     | ** ** |
|------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                 | ** ** | **2008**                                                              | ** ** | **2007** | ** ** |
| ** **                                                 | ** ** | **Net  Income**                                                       | ** ** | **Shares** | ** ** | **Per Share  Amount** | ** ** | **Net  Income** | ** ** | **Shares** | ** ** | **Per Share  Amount** | ** ** |
| ** **                                                 | ** ** | **(in thousands, except per share amounts)** | ** ** |
| Basic income before extraordinary gain per  common share   |       | $                                                                     | 26,856     |   | 19,729 |   | $ | 1.36 |   | $ | 25,517 |   | 20,203 |   | $ | 1.26 |   |
| Effect of dilutive securities:                             |       |                                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Restricted stock awards                                    |       | —                                                                |       | 81 |   |   |   | — |   | 104 |   |   |   |
| Performance share awards                                   |       | —                                                                |       | 4 |   |   |   | — |   | — |   |   |   |
| Stock options                                              |       | —                                                                |       | 107 |   |   |   | — |   | 184 |   |   |   |
| Diluted income before extraordinary gain  per common share |       | $                                                                     | 26,856     |   | 19,921 |   | $ | 1.35 |   | $ | 25,517 |   | 20,491 |   | $ | 1.25 |   |

 

A total of 835,873 and 219,758 anti-dilutiveweighted average shares with respect to outstanding stock options, restrictedstock awards and contingently issuable performance share awards have beenexcluded from the computation of diluted income per share for the three monthsended June 30, 2008 and 2007, respectively. A total of 584,630 and 121,145anti-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 six months ended June 30, 2008 and 2007, respectively. The potentialdilutive effect of the $6 million Invex convertible bonds has not beenincluded in the diluted income per share calculations for the three and sixmonths ended June 30, 2008 as the Company intends to settle the debt incash.

 

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

 

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 stock units,deferred stock units, performance awards, dividend and interest equivalents andcash-based awards to eligible employees, officers, non-employee directors andconsultants. Stock options can be granted under the 2005 Plan with an exerciseprice equal to or greater than the stock’s fair market value at the date ofgrant. The term of stock options granted may not exceed 10 years. As aresult of adoption of the 2005 Plan, no further grants or awards may be made 

 

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pursuant to the 2003Plan. In May 2007 and 2008, the shareholders of the Company approvedamendments to the 2005 Plan to, among other things, increase the number ofshares that may be issued under the Plan by 1,000,000 shares and adjust theshare reserve provisions. Immediately after the 2008 amendment, and subject toadjustment as provided in the 2005 Plan, the aggregate number of shares ofcommon stock available for issuance under the 2005 Plan was (i) 500,000,plus (ii) shares underlying awards outstanding under the 2005 Plan as of May 6,2008, plus (iii) shares remaining available for issuance under the 2005Plan as of May 5, 2008, plus (iv) a number of additional sharesunderlying awards outstanding under the 2003 Plan that lapse for any reason,plus (v) a number of additional shares delivered or withheld on or after May 3,2007 to cover the exercise price and/or satisfy tax withholding obligationswith respect to awards 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 and six months ended June 30,2007 increased by $0.4 million and $1.3 million, respectively, as a result ofchanges in the estimated number of performance shares that will ultimatelyvest. Compensation expense is subject to future adjustment based upon changesin expected performance.

 

Total compensation cost related to all stock-basedcompensation plans was $0.8 million and $2.0 million for the three months endedJune 30, 2008 and 2007, respectively. Total compensation cost related toall stock-based compensation plans was $1.7 million and $4.0 million for thesix months ended June 30, 2008 and 2007, respectively. As of June 30,2008, there was $7.3 million of unrecognized compensation cost related to theCompany’s stock-based compensation plans which is expected to be recognizedover a weighted average period of 2.3 years.

 

The following table summarizes stock optionactivity for the six months ended June 30, 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                               |       | 40,652     |       | 28.76                                  |       |                                                                 |       |                                                 |       |
| Exercised                             |       | (79,404    | )          | 16.06                                  |       |                                                                 |       |                                                 |       |
| Forfeitures                           |       | (5,974     | )          | 16.39                                  |       |                                                                 |       |                                                 |       |
| Outstanding at June 30, 2008     |       | 350,267    |       | $                                      | 19.20      |                                                                 | 6.9        |                                                 | $          | 8,907 |   |
| Exercisable at June 30, 2008     |       | 210,641    |       | $                                      | 15.86      |                                                                 | 6.2        |                                                 | $          | 6,061 |   |

 

Options to purchase 40,652 shares and 28,429 shares ofcommon stock with a weighted average Black Scholes fair value per option of$13.08 and $16.54 were granted during the six months ended June 30, 2008and 2007, respectively. The fair value for options granted during the sixmonths ended June 30, 2008 and 2007 was estimated at the date of grantusing the Black Scholes option pricing model and the following weighted averageassumptions:

 
| ** **              | ** ** | **Six Months Ended   June 30,** | ** ** |
|-------------------------|------------|-----------------------------------------------------|------------|
| ** **              | ** ** | **2008**                                            | ** ** | **2007** | ** ** |
| Volatility              |       | 43                                                  | %          | 40 | % |
| Dividend yield          |       | 0                                                   | %          | 0 | % |
| Risk-free interest rate |       | 2.9                                                 | %          | 4.7 | % |
| Expected life (years)   |       | 6.2                                                 |       | 6.2 |   |

 

The expected volatility is estimated using thehistorical daily volatility of the Company’s stock as well as the historicalvolatilities of publicly-traded stock of certain of the Company’s competitors.The Company has not made any dividend payments on its common stock and does notintend to declare cash dividends on its stock in the foreseeable future. Therisk-free interest rate is based on U.S. Treasury yields in effect at the timeof grant for the expected term of the stock 

 

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options. The expectedterm was determined using the “simplified” method, as prescribed by theSecurities and Exchange Commission’s Staff Accounting Bulletin No. 107.

 

The following table summarizes the status ofthe Company’s unvested share awards, including the performance share awardsdiscussed above, for the six months ended June 30, 2008:

 
| ** **                                                     | ** ** | **Shares  Outstanding** | ** ** | **Weighted Average  Grant Date  Fair Value** | ** ** |
|----------------------------------------------------------------|------------|-------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                     | ** ** | ** **              | ** ** | ** **                                                  | ** ** |
| Nonvested share awards outstanding at  December 31, 2007  |       | 422,555                 |       | $                                                           | 31.66      |   |
| Granted                                                        |       | 574,383                 |       | 29.06                                                       |       |
| Vested                                                         |       | (38,556                 | )          | 28.09                                                       |       |
| Forfeited                                                      |       | (1,768                  | )          | 29.94                                                       |       |
| Nonvested share awards outstanding at  June 30, 2008      |       | 956,614                 |       | $                                                           | 30.25      |   |
| Nonvested share awards at June 30,  2008 expected to vest |       | 307,322                 |       | $                                                           | 29.60      |   |

 

Concurrent withthe completion of the tender offer and purchase of the Company’s shares by LSCable (see note 1), all outstanding and unexercised options, whether or notvested, were vested and cancelled and converted to the right to receive a cashpayment from the Company equal to the excess, if any, of $45 over the exerciseprice per share of the option. In addition, all outstanding unvested restrictedstock awards, performance share awards and restricted stock units were vestedand cancelled and converted to the right to receive a cash payment of $45 pershare. Outstanding performance share awards were deemed vested at targetperformance levels. Upon completion of the merger, all of the Company’s stockplans will be terminated.

 

**9.****                                      Employeebenefits**

 

The components of net periodic benefit costof the Company’s defined benefit pension plans for the three and six monthsended June 30, 2008 and 2007 are presented below.

 
| ** **                                   | ** ** | **Three Months Ended June 30,** | ** ** |
|----------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                   | ** ** | **2008**                                            | ** ** | **2007** | ** ** |
| ** **                                   | ** ** | **(in thousands)**                             | ** ** |
| **Components of net periodic benefit cost:** |       |                                                |       |   |   |
| Service cost                                 |       | $                                                   | 787        |   | $ | 730 |   |
| Interest cost                                |       | 2,524                                               |       | 2,250 |   |
| Expected return on plan assets               |       | (2,728                                              | )          | (2,528 | ) |
| Amortization of actuarial losses (gains)     |       | 6                                                   |       | (5 | ) |
| Amortization of prior service costs          |       | 22                                                  |       | 19 |   |
| Curtailment gain                             |       | 1,011                                               |       | — |   |
|                                         |       | $                                                   | 1,622      |   | $ | 466 |   |

 
| ** **                                    | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                    | ** ** | **2008**                                          | ** ** | **2007** | ** ** |
| ** **                                    | ** ** | **(in thousands)**                           | ** ** |
| **Components  of net periodic benefit cost:** |       |                                              |       |   |   |
| Service cost                                  |       | $                                                 | 1,447      |   | $ | 1,407 |   |
| Interest cost                                 |       | 5,018                                             |       | 4,352 |   |
| Expected return on plan assets                |       | (5,459                                            | )          | (4,831 | ) |
| Amortization of actuarial losses (gains)      |       | 6                                                 |       | (10 | ) |
| Amortization of prior service costs           |       | 41                                                |       | 38 |   |
| Curtailment gain                              |       | 1,011                                             |       | — |   |
|                                          |       | $                                                 | 2,064      |   | $ | 956 |   |

 

The Company recognized a curtailment gain of$1.0 million with respect to its French defined benefit plan in connection withthe closure of its manufacturing facility in Chauny, France (see note 4).

 

The Company’s cash contributions to thedefined benefit plans amounted to $2.0 million and $3.5 million during the 

 

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six months ended June 30, 2008 and 2007, respectively. The Companyexpects to make additional cash contributions of $2.4 million for the remainderof 2008.

 

In March 2008, the CompensationCommittee of the Board of Directors adopted an amended and restated SeniorExecutive Retirement Plan (the “Amended and Restated SERP”) to replace theCompany’s existing SERP agreement. The Amended and Restated SERP is effective April 1,2008 and provides for, among other things, a reduction in the benefit accrualrate from 2.5% per year in the case of the Chief Executive Officer and 2.0% inthe case of the Executive Vice Presidents to 1.5% for periods on and after January 1,2009. In consideration of this reduction, the Company granted 41,167 restrictedstock awards to the affected officers on April 1, 2008. In connection withthe amendments to the SERP, the Company remeasured the SERP benefit obligationas of April 1, 2008. The effect of the remeasurement was to increase thebenefit obligation by $1.2 million.

 

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

 

The Company, to a limited extent, uses or hasused forward fixed price contracts and derivative financial instruments tomanage commodity price, interest rate and foreign currency exchange risks. TheCompany does not hold or issue financial instruments for investment or tradingpurposes. The Company is exposed to credit risk in the event of nonperformanceby counterparties for foreign exchange forward contracts, commodity forwardprice contracts and commodity futures contracts but the Company does notanticipate nonperformance by any of these counterparties. The amount of suchexposure is generally limited to any unrealized gains within the underlyingcontracts.

 

***Commodity price risk management***

 

The cost of copper, the Company’s mostsignificant raw material, has historically been subject to considerablevolatility. To manage the risk associated with such volatility, the Companyenters into copper futures purchase contracts to match the metal component ofcustomer product pricing with the copper cost component of the inventoryshipped. These futures contracts have been designated as cash flow hedges withunrealized gains and losses recorded in other comprehensive income. Gains andlosses are reclassified into earnings, as a component of cost of goods sold,when the hedged transactions are reflected in the statement of operations.Hedge ineffectiveness, which is not significant, is immediately recognized inearnings. The Company’s copper futures purchase contracts designated as cashflow hedges are summarized as follows at June 30, 2008 and December 31,2007:

 
| **Type**                    | ** ** | **Notional  Amount**                | ** ** | **Maturity  Date** | ** ** | **Weighted  Average  Contract Rate** | ** ** | **Fair Value  Gain (Loss)** | ** ** |
|-----------------------------|------------|-------------------------------------|------------|--------------------|------------|-------------------------------------------|------------|---------------------------------------|------------|
| ** **                  | ** ** | **(in thousands  of  pounds)** | ** ** | ** **         | ** ** | ** **                                | ** ** | **(in  thousands)**                   | ** ** |
| **June 30, 2008:**     |       |                                |       |               |       |                                      |       |                                  |       |
| Copper                      |       | 5,853                               |       | 2008               |       | $                                         | 3.60       |                                  | $          | 1,598 |   |
| Copper                      |       | 2,133                               |       | 2009               |       | 3.69                                      |       | 268                                   |       |
|                        |       | 7,986                               |       |               |       |                                      |       | $                                     | 1,866      |   |
|                        |       |                                |       |               |       |                                      |       |                                  |       |
| **December 31, 2007:** |       |                                |       |               |       |                                      |       |                                  |       |
| Copper                      |       | 5,450                               |       | 2008               |       | 3.14                                      |       | $                                     | (495       | ) |
|                             |            |                                     |            |                    |            |                                           |            |                                       |            |  |  |

 

All of the unrealized gains on commodityfutures outstanding at June 30, 2008 are expected to be reclassified toearnings within the next twelve months.

 

The Company also periodically enters intocommodity futures contracts which represent economic hedges but have not beendesignated as hedges for accounting purposes (“non-designated derivatives”).These futures contracts are intended to minimize the risks associated withforward product pricing for customers and changing copper prices. The Companyuses copper futures purchase contracts to match the copper component ofcustomer product pricing with the copper cost component of the inventoryshipped. The Company uses copper futures sales contracts to fix a portion ofthe gross margin related to the copper component of certain of our products.Gains and losses on these non-designated derivatives are recorded in income asa component of cost of goods sold. Net gains (losses) on non-designatedderivatives were $(1.0) million and $0.6 million, respectively, for the threeand six months ended June 30, 2008. The Company did not enter into anynon-designated derivatives during the six months ended June 30, 2007.

 

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The Company’s non-designated commoditiesfutures contracts outstanding at June 30, 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)**                   | ** ** |
| **June 30, 2008:**     |       |                                    |       |               |       |                                      |       |                                  |       |
| Copper purchase contracts   |       | 4,207                                   |       | 2008               |       | $                                         | 3.60       |                                  | $          | 205 |   |
| Copper purchase contracts   |       | 220                                     |       | 2009               |       | 3.35                                      |       | 81                                    |       |
| Copper sales contracts      |       | 1,543                                   |       | 2008               |       | 3.85                                      |       | (47                                   | )          |
| Copper sales contracts      |       | 110                                     |       | 2009               |       | 3.85                                      |       | —                                |       |
|                        |       | 6,080                                   |       |               |       |                                      |       | $                                     | 239        |   |
| **December 31, 2007:** |       |                                    |       |               |       |                                      |       |                                  |       |
| Copper purchase contracts   |       | 2,876                                   |       | 2008               |       | 3.07                                      |       | $                                     | (293       | ) |
|                             |            |                                         |            |                    |            |                                           |            |                                       |            |  |  |

 

***Foreign currency exchange risk management***

 

The Companyengages in the sale and purchase of products which result in accountsreceivable and accounts payable denominated in foreign currencies.Additionally, the Company enters into intercompany loans, some of which are notconsidered long-term investments, among subsidiaries with differing functionalcurrencies. As a result, fluctuations in the value of foreign currencies createexposures which can adversely affect the Company’s results of operations. TheCompany attempts to manage its transactional foreign currency exchange risk byeconomically hedging foreign currency cash flow forecasts arising from thesettlement of accounts receivable, accounts payable and intercompany accounts.Where naturally offsetting foreign currency positions do not occur, the Companyhedges certain, but not all, of its foreign currency exposures through the useof non-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 (losses) recognized onforeign currency forward exchange contracts were $(0.4) million and $0.9million for the three and six months ended June 30, 2008, respectively.The Company also recognized gains of $0.3 million on foreign currencytransactions during the three months ended June 30, 2008 and losses of$1.6 million on foreign currency transactions during the six months ended June 30,2008.

 

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The following tablesummarizes information about foreign currency forward exchange contractderivatives as of June 30, 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 June 30, 2008 and December 31,2007 is not significant.

 
| **Derivatives**                   | ** ** | **Notional Amount** | ** ** | **Weighted  Average  Contract Rate** | ** ** |
|-----------------------------------|------------|--------------------------|------------|-------------------------------------------|------------|
| ** **                        | ** ** | **(in thousands)**  | ** ** | ** **                                | ** ** |
| **June 30, 2008:**           |       |                     |       |                                      |       |   |   |
| U.S. dollars for Euros            |       | 5,200                    |       | USD                                       |       | 0.64 |   |
| Canadian dollars for U.S. dollars |       | 1,500                    |       | USD                                       |       | 1.02 |   |
| Canadian dollars for U.S. dollars |       | 15,000                   |       | CAD                                       |       | 0.98 |   |
| British pounds for Euros          |       | 10,700                   |       | EURO                                      |       | 0.79 |   |
| Euros for U.S. dollars            |       | 3,924                    |       | EURO                                      |       | 1.57 |   |
| British pounds for Euros          |       | 3,000                    |       | 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**

 

***Legal matters***

 

The Company is involved inlawsuits, claims, investigations and proceedings, including those describedbelow, consisting of commercial, employment, employee benefits, environmentaland other matters which arise in the ordinary course of business. In accordancewith SFAS No. 5, *Accounting forContingencies*, the Company records a liability when managementbelieves it is both probable that a liability has been incurred and the amountof loss can be reasonably estimated. Management believes it has adequateprovisions for any such matters. The Company reviews these provisions at leastquarterly and adjusts these provisions to reflect the impact of negotiations,settlements, rulings, advice of legal counsel and other information and eventspertaining to a particular matter. Litigation is inherently unpredictable.However, management believes it has valid defenses with respect to all legalmatters against the Company and its subsidiaries and does not believe any knownmatters, either individually or in the aggregate, will have a material adverseeffect on its business, financial condition, liquidity or results ofoperations.

 

In 2003, Superior TeleCom,Essex Electric Inc., now known 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 tothe Escrowed Settlement Proceeds and filed claims with respect to the EscrowedSettlement Proceeds and matters related thereto.

 

In April 2008, theCompany and Exeon reached an agreement to settle their claims. Under thissettlement agreement, the Company received $19.6 million of the EscrowedSettlement Proceeds. Legal fees relating to the Exeon matter have been expensedas incurred. The settlement has been reflected as a gain in the accompanyingconsolidated statements of operations for the three and six months ended June 30,2008.

 

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 

 

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

 

The Company operates in ninecountries in Europe, North America and Asia-Pacific and its internationaloperations have grown significantly over the past two years, primarily throughacquisitions. The Company is implementing its code of ethics and procedures toassure compliance with laws and regulations throughout its operations. Throughits processes to ensure compliance with laws and regulations, in 2007 theCompany identified certain U.S trade control compliance issues.

 

These issues includeisolated sales of products by a foreign subsidiary which were not in compliancewith U.S. trade control laws related to Cuba. The Company voluntarily reportedthese transactions related to Cuba to the U.S. Department of Treasury, Officeof Foreign Asset Control. Upon discovery of transactions related to Cuba, theCompany undertook a comprehensive review of transactions that may involveembargoed countries. The Company has completed that review and has identifiedno further transactions that were not in compliance with U.S. laws related toembargoed countries.

 

In addition, through thisreview, the Company learned that it shipped a coating for its magnet wireproducts to its manufacturing operations in Mexico and China and such shipmentswere misclassified under the U.S. export laws. Such shipments occurred on aregular basis without required export authorization. The Company voluntarilyreported such violations to the U.S. Department of Commerce, Bureau of Industryand Security (“BIS”). On January 26, 2008, BIS granted licenses forshipments of the coating to the Company’s facilities in Mexico and China.

 

To the extent the Companyviolated U.S. export regulations, fines and other penalties may be imposed.Because these matters are now pending before the indicated agencies, there canbe no assurance that any actual fines or penalties imposed will not have amaterial adverse affect on the Company’s business, financial condition,liquidity or results of operations.

 

Since approximately 1990,Essex International and certain subsidiaries have been named as defendants in anumber of product liability lawsuits brought by electricians, other skilledtradesmen and others claiming injury, in a substantial majority of cases, fromexposure to asbestos found in electrical wire products produced many years ago.Litigation against various past insurers of Essex International who hadpreviously refused to defend and indemnify Essex International against theselawsuits was settled during 1999. Under the settlement, Essex International wasreimbursed for substantially all of its costs and expenses incurred in thedefense of these lawsuits, and the insurers have undertaken to defend, arecurrently directly defending and, if it should become necessary, will indemnifyEssex International against those asbestos lawsuits, subject to the terms andlimits of the respective policies. Under the plan of reorganization, certain ofthe claimants 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.

 

***Environmental matters***

 

The Company is subject tofederal, foreign, state and local environmental laws and regulations in each ofthe jurisdictions in which it owns or operates facilities governing, amongother things, emissions into the air, discharges to water, the use, handlingand disposal of hazardous substances and the investigation and remediation ofsoil and groundwater contamination both on-site at past and current facilitiesand at off-site disposal locations. The Company does not believe thatcompliance with environmental laws and regulations will have a material effecton its capital expenditures, net income or competitive position.

 

A liability forenvironmental remediation and other environmental costs is accrued when it isconsidered probable and the costs can be reasonably estimated. The Company hasaccrued amounts with respect to environmental matters that it believes wereadequate at June 30, 2008. These accruals are not material to theCompany’s operations or financial position.

 

***Purchase commitments***

 

The Company accepts certaincustomer orders for future delivery at fixed prices. As copper is the mostsignificant raw material used in the manufacturing process, the Company entersinto forward fixed-price purchase commitments with its suppliers for copper tomatch its cost to the value of the copper expected to be billed to customers.At June 30, 2008, the Company had forward fixed-price copper purchasecommitments for delivery of 29.6 million pounds through April 2009for $109.1 million. Additionally, at June 30, 2008, the Company hadforward purchase fixed-price commitments for 0.4 million 

 

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pounds of aluminum through December 2008,227,000 megawatts of electricity through 2011 and 120,000 MMBTUs of natural gasthrough December 2008 amounting to $0.6 million, $21.2 million and$1.0 million, respectively.

 

***Other***

 

On November 28, 2007,the Company announced a share repurchase program authorized by the Board ofDirectors to purchase up to $20 million of its outstanding common stockthrough open market purchases at times and prices considered attractive. TheCompany had repurchased 366,118 shares for $9.1 million as of December 31,2007. In January 2008, the Company purchased an additional 495,661 sharesfor $10.9 million and completed its repurchases under the plan. The sharerepurchases were pursuant to a 10b5-1 trading plan. The Company repurchased atotal of 861,779 shares at an average price of $23.21 per share.

 

In connection with the execution of the Agreementwith LS Cable (see note 1), the Company entered into amended and restatedemployment agreements with its chief executive officer and certain of itsexecutive vice presidents. The amended and restated employment agreements willbecome effective upon completion of the tender offer for a term of two yearswith automatic one-year renewals unless cancelled by either party upon 90 daysprior written notice. As an inducement to each of the executives to remainemployed by the Company, and in lieu of cash severance in the event of atermination of employment by the Company without cause or resignation by theexecutives for good reason during the initial term of the employmentagreements, the amended and restated employment agreements provide for anaggregate signing bonus of $6.3 million payable on the later of January 2,2009 or the third business day following the completion of the tender offer. Inaddition, the amended and restated employment agreements provide for anaggregate retention bonus of $2.1 million payable 18 months after completion ofthe tender offer, subject to the executive’s continued employment through thepayment date.

 

**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 $52.6 million and $96.2 million for the three months ended June 30,2008 and 2007, respectively, and $113.8 million and $171.1 million for the sixmonths ended June 30, 2008 and 2007, respectively. In December 2007,Nexans provided notice that they did not intend to renew the pre-drawn wireagreement under the current terms 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 $5.3 million and $5.4 million for the threemonths ended June 30, 2008 and 2007, respectively, and $11.0 million and$11.7 million for the six months ended June 30, 2008 and 2007,respectively. The Company’s equity in the loss of Femco was $0.5 million and$0.3 million for the six months ended June  30, 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 the thirdquarter of 2007, the Company began reporting a new segment, the Asia/Pacificmagnet wire segment. The Asia/Pacific magnet wire segment includes the Tianjin,China business and the Company’s 

 

23

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manufacturing operationsin Suzhou, China. The operations of the Suzhou facility were previouslyincluded in the North American magnet wire and distribution segment. All priorperiod segment information has been retrospectively adjusted to reflect thecurrent segment reporting structure. The copper rod segment includes sales ofcopper rod produced by the Company’s North American continuous casting units toexternal customers. The copper rod segment also produces copper rod forinternal processing which is recorded by the consuming segment at cost as acomponent of cost of goods sold. Corporate and other charges consist primarilyof parent company and corporate payroll costs, including stock-basedcompensation charges, corporate headquarters costs and corporate legal, auditand accounting fees and compliance costs. The components of restructuring andother charges are discussed in note 4.

 

The Company’s chief operating decision maker evaluatessegment performance based on a number of factors with operating income, excludingcorporate and other costs and restructuring and other charges, being the mostcritical. Accordingly, corporate and other costs and restructuring and othercharges are not allocated to the Company’s reportable segments.

 

Financial information with respect to reportablesegments is presented below. Corporate and other items shown below are providedto reconcile to the accompanying consolidated statements of operations.

 
| ** **                                      | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                      | ** ** | **2008**                                        | ** ** | **2007**                                      | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                      | ** ** | **(in thousands)**                         | ** ** |
| Net sales:                                      |       |                                            |       |                                          |       |   |   |   |   |
| Communications cable                            |       | $                                               | 213,741    |                                          | $          | 235,738 |   | $ | 410,217 |   | $ | 451,736 |   |
| North American magnet wire and distribution     |       | 312,834                                         |       | 296,045                                       |       | 608,613 |   | 542,759 |   |
| European magnet wire and distribution           |       | 268,066                                         |       | 175,541                                       |       | 502,025 |   | 335,934 |   |
| Asia/Pacific magnet wire                        |       | 25,030                                          |       | 281                                           |       | 41,714 |   | 407 |   |
| Copper rod                                      |       | 12,182                                          |       | 64,835                                        |       | 26,444 |   | 137,232 |   |
|                                            |       | $                                               | 831,853    |                                          | $          | 772,440 |   | $ | 1,589,013 |   | $ | 1,468,068 |   |
| Operating income (loss):                        |       |                                            |       |                                          |       |   |   |   |   |
| Communications cable                            |       | $                                               | 21,229     |                                          | $          | 25,911 |   | $ | 40,143 |   | $ | 43,912 |   |
| North American magnet wire and distribution (1) |       | 13,171                                          |       | 12,813                                        |       | 18,969 |   | 22,335 |   |
| European magnet wire and distribution (2)       |       | 7,410                                           |       | 5,801                                         |       | 13,817 |   | 11,856 |   |
| Asia/Pacific magnet wire                        |       | (451                                            | )          | (1,152                                        | )          | (32 | ) | (2,128 | ) |
| Copper rod (3)                                  |       | 1,290                                           |       | (136                                          | )          | (19 | ) | (182 | ) |
| Corporate and other                             |       | (6,147                                          | )          | (6,773                                        | )          | (13,978 | ) | (13,683 | ) |
| Income from settlement of litigation            |       | 19,584                                          |       | —                                        |       | 19,584 |   | — |   |
| Restructuring and other charges                 |       | (18,562                                         | )          | (413                                          | )          | (20,683 | ) | (1,287 | ) |
|                                            |       | $                                               | 37,524     |                                          | $          | 36,051 |   | $ | 57,801 |   | $ | 60,823 |   |

 
| ** **                                  | ** ** | **June 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|---------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                  | ** ** | **(in thousands)** | ** ** |
| Total assets:                               |       |                    |       |                        |       |
| Communications cable                        |       | $                       | 382,720    |                        | $          | 377,895 |   |
| North American magnet wire and distribution |       | 349,944                 |       | 336,231                     |       |
| European magnet wire and distribution       |       | 465,152                 |       | 405,307                     |       |
| Asia/Pacific magnet wire                    |       | 91,106                  |       | 74,746                      |       |
| Copper rod                                  |       | 11,802                  |       | 15,560                      |       |
| Corporate and other                         |       | 8,963                   |       | 5,651                       |       |
|                                        |       | $                       | 1,309,687  |                        | $          | 1,215,390 |   |

 

----

(1)         Includes $2.9million and $9.0 million of accelerated depreciation charges related to restructuringactivities for the three and six months ended June, 2008, respectively (seenote 4).

(2)         Includes $1.2million of accelerated depreciation charges related to restructuring activitiesfor the three and six months ended June 30, 2008, respectively (see note4).

(3)         Includes $1.3million of accelerated depreciation charges related to restructuring activitiesfor the three and six months ended June 30, 2008 (see note 4).

 

24

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

 

The 9% senior unsecured notes were issued bySuperior Essex Communications and Essex Group, as joint and several obligors.The notes are fully and unconditionally guaranteed by the Company and each ofits existing and future domestic restricted subsidiaries (as defined in theindenture governing the notes). All of the Company’s current domesticsubsidiaries, other than IP Licensing LLP, are restricted subsidiaries. Thefollowing consolidating information presents information about the Company (the“Parent”), the issuers, guarantor subsidiaries and non-guarantor subsidiaries.Investments in subsidiaries are presented on the equity method. Intercompanytransactions are eliminated in consolidation.

 

**Balance Sheet Information**

**June 30, 2008**

** **
| ** **                                    | ** ** | **Parent**              | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|-----------------------------------------------|------------|-------------------------|------------|-------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|-----------|------------|
| ** **                                    | ** ** | **(in thousands)** | ** ** |
| **ASSETS**                                    |       |                    |       |        |       |                        |       |                              |       |             |       |      |       |
| Current assets:                               |       |                    |       |        |       |                        |       |                              |       |             |       |      |       |
| Cash and cash equivalents                     |       | $                       | 7,720      |        | $          | 55,425                      |       | $                                 | 393        |             | $          | 15,924    |       | $ | — |   | $ | 79,462 |   |
| Accounts receivable, net                      |       | —                  |       | 226,379     |       | 3,210                       |       | 268,992                           |       | —           |       | 498,581   |       |
| Inventories, net                              |       | —                  |       | 161,691     |       | 19,706                      |       | 139,433                           |       | —           |       | 320,830   |       |
| Other current assets                          |       | 1,570                   |       | 6,973       |       | 593                         |       | 20,575                            |       | (2,403           | )          | 27,308    |       |
| Total current assets                          |       | 9,290                   |       | 450,468     |       | 23,902                      |       | 444,924                           |       | (2,403           | )          | 926,181   |       |
| Property, plant and equipment, net            |       | 2,011                   |       | 174,280     |       | 17,986                      |       | 140,618                           |       | —           |       | 334,895   |       |
| Intangible and other long-term assets         |       | 12,469                  |       | 28,176      |       | 11                          |       | 20,829                            |       | (12,874          | )          | 48,611    |       |
| Investment in subsidiaries                    |       | 319,503                 |       | 181,484     |       | 250,191                     |       | —                            |       | (751,178         | )          | —    |       |
| Intercompany accounts                         |       | 153,986                 |       | —      |       | 42,695                      |       | —                            |       | (196,681         | )          | —    |       |
| Total assets                                  |       | $                       | 497,259    |        | $          | 834,408                     |       | $                                 | 334,785    |             | $          | 606,371   |       | $ | (963,136 | ) | $ | 1,309,687 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY** |       |                    |       |        |       |                        |       |                              |       |             |       |      |       |
| Current liabilities:                          |       |                    |       |        |       |                        |       |                              |       |             |       |      |       |
| Short-term borrowings                         |       | $                       | —     |        | $          | —                      |       | $                                 | —     |             | $          | 78,569    |       | $ | — |   | $ | 78,569 |   |
| Current portion of long-term debt             |       | —                  |       | —      |       | —                      |       | 932                               |       | —           |       | 932       |       |
| Accounts payable                              |       | 1,079                   |       | 123,230     |       | 5,973                       |       | 141,305                           |       | —           |       | 271,587   |       |
| Accrued expenses                              |       | 11,280                  |       | 28,058      |       | 395                         |       | 83,847                            |       | (2,403           | )          | 121,177   |       |
| Total current liabilities                     |       | 12,359                  |       | 151,288     |       | 6,368                       |       | 304,653                           |       | (2,403           | )          | 472,265   |       |
| Long term-debt                                |       | —                  |       | 260,086     |       | 5,000                       |       | 23,215                            |       | —           |       | 288,301   |       |
| Other long-term liabilities                   |       | 24,678                  |       | 37,817      |       | 3,914                       |       | 32,230                            |       | (12,874          | )          | 85,765    |       |
| Intercompany accounts                         |       | —                  |       | 61,442      |       | —                      |       | 135,239                           |       | (196,681         | )          | —    |       |
| Total liabilities                             |       | 37,037                  |       | 510,633     |       | 15,282                      |       | 495,337                           |       | (211,958         | )          | 846,331   |       |
| Minority interest                             |       | —                  |       | —      |       | —                      |       | 3,134                             |       | —           |       | 3,134     |       |
| Stockholders’ equity                     |       | 460,222                 |       | 323,775     |       | 319,503                     |       | 107,900                           |       | (751,178         | )          | 460,222   |       |
|                                          |       | $                       | 497,259    |        | $          | 834,408                     |       | $                                 | 334,785    |             | $          | 606,371   |       | $ | (963,136 | ) | $ | 1,309,687 |   |

 

25

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**Balance Sheet InformationDecember 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 |   |

 

26

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**Statement of Operations Information**

**Three Months Ended June 30, 2008**

 
| ** **                                                                                   | ** ** | **Parent**              | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-------------------------|------------|-------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|-----------|------------|
| ** **                                                                                   | ** ** | **(in thousands)** | ** ** |
| Net sales                                                                                    |       | $                       | 6,148      |        | $          | 506,061                     |       | $                                 | 83,375     |             | $          | 334,665   |       | $ | (98,396 | ) | $ | 831,853 |   |
| Cost of goods sold                                                                           |       | —                  |       | 456,858     |       | 77,822                      |       | 312,467                           |       | (92,248          | )          | 754,899   |       |
| Gross profit                                                                                 |       | 6,148                   |       | 49,203      |       | 5,553                       |       | 22,198                            |       | (6,148           | )          | 76,954    |       |
| Selling, general and administrative expenses                                                 |       | (6,148                  | )          | (27,478     | )          | (182                        | )          | (12,792                           | )          | 6,148            |       | (40,452   | )          |
| Restructuring and other charges                                                              |       | (2,656                  | )          | (1,568      | )          | (439                        | )          | (13,899                           | )          | —           |       | (18,562   | )          |
| Income from settlement of litigation                                                         |       | 19,584                  |       | —      |       | —                      |       | —                            |       | —           |       | 19,584    |       |
| Operating income (loss)                                                                      |       | 16,928                  |       | 20,157      |       | 4,932                       |       | (4,493                            | )          | —           |       | 37,524    |       |
| Interest expense                                                                             |       | —                  |       | (7,200      | )          | (119                        | )          | (3,872                            | )          | 2,639            |       | (8,552    | )          |
| Interest income                                                                              |       | 2,186                   |       | 192         |       | 510                         |       | 67                                |       | (2,639           | )          | 316       |       |
| Other income (expense), net                                                                  |       | 1                       |       | 19          |       | 7                           |       | (43                               | )          | —           |       | (16       | )          |
| Income (loss) before income taxes, equity in earnings of subsidiaries  and minority interest |       | 19,115                  |       | 13,168      |       | 5,330                       |       | (8,341                            | )          | —           |       | 29,272    |       |
| Income tax benefit (expense)                                                                 |       | (5,115                  | )          | (5,254      | )          | (1,857                      | )          | 2,372                             |       | —           |       | (9,854    | )          |
| Equity in earnings of subsidiaries                                                           |       | 5,415                   |       | (2,420      | )          | 1,519                       |       | —                            |       | (4,514           | )          | —    |       |
| Minority interest in income of subsidiary                                                    |       | —                  |       | —      |       | —                      |       | (3                                | )          | —           |       | (3        | )          |
| Net income (loss)                                                                            |       | $                       | 19,415     |        | $          | 5,494                       |       | $                                 | 4,992      |             | $          | (5,972    | )          | $ | (4,514 | ) | $ | 19,415 |   |

 

27

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**Statement of Operations Information**

**Three Months Ended June 30, 2007**

 
| ** **                                                                                                | ** ** | **Parent**              | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|-----------|------------|
| ** **                                                                                                | ** ** | **(in thousands)** | ** ** |
| Net sales                                                                                                 |       | $                       | 6,922      |        | $          | 569,055                     |       | $                                 | 70,727     |             | $          | 205,396   |       | $ | (79,660 | ) | $ | 772,440 |   |
| Cost of goods sold                                                                                        |       | —                  |       | 515,512     |       | 64,355                      |       | 190,860                           |       | (72,738          | )          | 697,989   |       |
| Gross profit                                                                                              |       | 6,922                   |       | 53,543      |       | 6,372                       |       | 14,536                            |       | (6,922           | )          | 74,451    |       |
| Selling, general and administrative expenses                                                              |       | (6,766                  | )          | (29,765     | )          | (185                        | )          | (8,193                            | )          | 6,922            |       | (37,987   | )          |
| Restructuring and other charges                                                                           |       | (121                    | )          | (248        | )          | —                      |       | (44                               | )          | —           |       | (413      | )          |
| Operating income                                                                                          |       | 35                      |       | 23,530      |       | 6,187                       |       | 6,299                             |       | —           |       | 36,051    |       |
| Interest expense                                                                                          |       | (1                      | )          | (8,222      | )          | (119                        | )          | (1,591                            | )          | 2,461            |       | (7,472    | )          |
| Interest income                                                                                           |       | 1,919                   |       | 893         |       | 518                         |       | —                            |       | (2,461           | )          | 869       |       |
| Other income, net                                                                                         |       | (35                     | )          | 295         |       | (4                          | )          | (153                              | )          | —           |       | 103       |       |
| Income before income taxes, equity in earnings of subsidiaries,  minority interest and extraordinary gain |       | 1,918                   |       | 16,496      |       | 6,582                       |       | 4,555                             |       | —           |       | 29,551    |       |
| Income tax expense                                                                                        |       | (859                    | )          | (6,377      | )          | (2,335                      | )          | (2,314                            | )          | —           |       | (11,885   | )          |
| Equity in earnings of subsidiaries                                                                        |       | 15,300                  |       | 5,258       |       | 11,053                      |       | —                            |       | (31,611          | )          | —    |       |
| Minority interest in income of subsidiaries                                                               |       | —                  |       | —      |       | —                      |       | (1,307                            | )          | —           |       | (1,307    | )          |
| Extraordinary gain                                                                                        |       | 3,539                   |       | 3,539       |       | 3,539                       |       | 3,189                             |       | (10,267          | )     | 3,539     |       |
| Net income                                                                                                |       | $                       | 19,898     |        | $          | 18,916                      |       | $                                 | 18,839     |             | $          | 4,123     |       | $ | (41,878 | ) | $ | 19,898 |   |

 

28

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**Statement of Operations Information**

**Six Months Ended June 30, 2008**

 
| ** **                                                                                   | ** ** | **Parent**              | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-------------------------|------------|-------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|-----------|------------|
| ** **                                                                                   | ** ** | **(in thousands)** | ** ** |
| Net sales                                                                                    |       | $                       | 13,828     |        | $          | 979,068                     |       | $                                 | 145,793    |             | $          | 624,197   |       | $ | (173,873 | ) | $ | 1,589,013 |   |
| Cost of goods sold                                                                           |       | —                  |       | 890,749     |       | 135,223                     |       | 580,086                           |       | (160,045         | )          | 1,446,013 |       |
| Gross profit                                                                                 |       | 13,828                  |       | 88,319      |       | 10,570                      |       | 44,111                            |       | (13,828          | )          | 143,000   |       |
| Selling, general and administrative expenses                                                 |       | (13,828                 | )          | (58,249     | )          | (362                        | )          | (25,489                           | )          | 13,828           |       | (84,100   | )          |
| Restructuring and other charges                                                              |       | (2,656                  | )          | (3,530      | )          | (479                        | )          | (14,018                           | )          | —           |       | (20,683   | )          |
| Income from settlement of litigation                                                         |       | 19,584                  |       | —      |       | —                      |       | —                            |       | —           |       | 19,584    |       |
| Operating income                                                                             |       | 16,928                  |       | 26,540      |       | 9,729                       |       | 4,604                             |       | —           |       | 57,801    |       |
| Interest expense                                                                             |       | —                  |       | (14,661     | )          | (238                        | )          | (7,140                            | )          | 5,169            |       | (16,870   | )          |
| Interest income                                                                              |       | 4,315                   |       | 721         |       | 915                         |       | 128                               |       | (5,169           | )          | 910       |       |
| Other income (expense), net                                                                  |       | 30                      |       | (546        | )          | (23                         | )          | (629                              | )          | —           |       | (1,168    | )          |
| Income (loss) before income taxes, equity in earnings of subsidiaries  and minority interest |       | 21,273                  |       | 12,054      |       | 10,383                      |       | (3,037                            | )          | —           |       | 40,673    |       |
| Income tax benefit (expense)                                                                 |       | (5,781                  | )          | (5,035      | )          | (3,648                      | )          | 893                               |       | —           |       | (13,571   | )          |
| Equity in earnings of subsidiaries                                                           |       | 11,364                  |       | 4,505       |       | 4,629                       |       | —                            |       | (20,498          | )          | —    |       |
| Minority interest in income of subsidiary                                                    |       | —                  |       | —      |       | —                      |       | (246                              | )          | —           |       | (246      | )          |
| Net income (loss)                                                                            |       | $                       | 26,856     |        | $          | 11,524                      |       | $                                 | 11,364     |             | $          | (2,390    | )          | $ | (20,498 | ) | $ | 26,856 |   |

 

29

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**Statement of Operations Information**

**Six Months Ended June 30, 2007**

 
| ** **                                                                                                | ** ** | **Parent**              | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|-----------|------------|
| ** **                                                                                                | ** ** | **(in thousands)** | ** ** |
| Net sales                                                                                                 |       | $                       | 13,859     |        | $          | 1,098,222                   |       | $                               | 122,989    |             | $          | 374,208   |       | $ | (141,210 | ) | $ | 1,468,068 |   |
| Cost of goods sold                                                                                        |       | —                  |       | 999,288     |       | 113,148                     |       | 347,287                         |       | (127,351         | )          | 1,332,372 |       |
| Gross profit                                                                                              |       | 13,859                  |       | 98,934      |       | 9,841                       |       | 26,921                          |       | (13,859          | )          | 135,696   |       |
| Selling, general and administrative expenses                                                              |       | (13,669                 | )          | (58,324     | )          | (367                        | )          | (15,085                         | )          | 13,859           |       | (73,586   | )          |
| Restructuring and other charges                                                                           |       | (201                    | )          | (287        | )          | —                      |       | (799                            | )          | —           |       | (1,287    | )          |
| Operating income (loss)                                                                                   |       | (11                     | )          | 40,323      |       | 9,474                       |       | 11,037                          |       | —           |       | 60,823    |       |
| Interest expense                                                                                          |       | (3                      | )          | (16,604     | )          | (238                        | )          | (2,480                          | )          | 4,203            |       | (15,122   | )          |
| Interest income                                                                                           |       | 3,677                   |       | 1,623       |       | 518                         |       | —                          |       | (4,203           | )          | 1,615     |       |
| Other income (expense), net                                                                               |       | 11                      |       | (235        | )          | (15                         | )          | (409                            | )          | —           |       | (648      | )          |
| Income before income taxes, equity in earnings of subsidiaries,  minority interest and extraordinary gain |       | 3,674                   |       | 25,107      |       | 9,739                       |       | 8,148                           |       | —           |       | 46,668    |       |
| Income tax expense                                                                                        |       | (1,509                  | )          | (9,336      | )          | (3,550                      | )          | (4,399                          | )          | —           |       | (18,794   | )          |
| Equity in earnings of subsidiaries                                                                        |       | 23,352                  |       | 7,736       |       | 17,163                      |       | —                          |       | (48,251          | )          | —    |       |
| Minority interest in income of subsidiaries                                                               |       | —                  |       | —      |       | —                      |       | (2,357                          | )          | —           |       | (2,357    | )          |
| Extraordinary gain                                                                                        |       | 3,539                   |       | 3,539       |       | 3,539                       |       | 3,189                           |       | (10,267          | )     | 3,539     |       |
| Net income                                                                                                |       | $                       | 29,056     |        | $          | 27,046                      |       | $                               | 26,891     |             | $          | 4,581     |       | $ | (58,518 | ) | $ | 29,056 |   |

 

30

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**Statement of Cash Flows Information**

**Six Months Ended June 30, 2008**

 
| ** **                                                            | ** ** | **Parent**              | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|-----------------------------------------------------------------------|------------|-------------------------|------------|-------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|-----------|------------|
| ** **                                                            | ** ** | **(in thousands)** | ** ** |
| Cash flows provided by (used for) operating  activities               |       | $                       | 26,080     |        | $          | (8,887                      | )          | $                                 | 774        |             | $          | (8,164    | )          | $ | — |   | $ | 9,803 |   |
| Cash flows from investing activities:                                 |       |                    |       |        |       |                        |       |                              |       |             |       |      |       |
| Capital expenditures                                                  |       | (672                    | )          | (7,867      | )          | (4,416                      | )          | (17,095                           | )          | —           |       | (30,050   | )          |
| Acquisitions, net of cash acquired                                    |       | —                  |       | —      |       | —                      |       | (2,965                            | )          | —           |       | (2,965    | )          |
| Investment in subsidiaries                                            |       | —                  |       | (12,000     | )          | —                      |       | —                            |       | 12,000           |       | —    |       |
| Dividends received                                                    |       | —                  |       | —      |       | 238                         |       | —                            |       | (238             | )          | —    |       |
| Other                                                                 |       | —                  |       | 32          |       | —                      |       | —                            |       | —           |       | 32        |       |
| Intercompany accounts                                                 |       | (8,839                  | )          | —      |       | 3,629                       |       | —                            |       | 5,210            |       | —    |       |
| Cash flows used for investing activities                              |       | (9,511                  | )          | (19,835     | )          | (549                        | )          | (20,060                           | )          | 16,972           |       | (32,983   | )          |
| Cash flows from financing activities:                                 |       |                    |       |        |       |                        |       |                              |       |             |       |      |       |
| Short-term borrowings, net                                            |       | —                  |       | —      |       | —                      |       | 7,616                             |       | —           |       | 7,616     |       |
| Repayments of long-term debt                                          |       | —                  |       | —      |       | —                      |       | (250                              | )          | —           |       | (250      | )          |
| Proceeds from exercise of stock options and  employee stock purchases |       | 1,278                   |       | —      |       | —                      |       | —                            |       | —           |       | 1,278     |       |
| Capital contributions                                                 |       | —                  |       | —      |       | —                      |       | 3,000                             |       | (3,000           | )          | —    |       |
| Treasury stock purchases                                              |       | (10,869                 | )          | —      |       | —                      |       | —                            |       | —           |       | (10,869   | )          |
| Dividends paid                                                        |       | —                  |       | (238        | )          | —                      |       | —                            |       | 238              |       | —    |       |
| Other                                                                 |       | 562                     |       | —      |       | —                      |       | —                            |       | —           |       | 562       |       |
| Intercompany accounts                                                 |       | —                  |       | 5,006       |       | —                      |       | 9,204                             |       | (14,210          | )          | —    |       |
| Cash flows provided by (used for) financing  activities               |       | (9,029                  | )          | 4,768       |       | —                      |       | 19,570                            |       | (16,972          | )          | (1,663    | )          |
| Effect of exchange rate changes on cash                               |       | —                  |       | —      |       | —                      |       | 1,628                             |       | —           |       | 1,628     |       |
| Net increase (decrease) in cash and cash  equivalents                 |       | 7,540                   |       | (23,954     | )          | 225                         |       | (7,026                            | )          | —           |       | (23,215   | )          |
| Cash and cash equivalents at beginning of  period                     |       | 180                     |       | 79,379      |       | 168                         |       | 22,950                            |       | —           |       | 102,677   |       |
| Cash and cash equivalents at end of period                            |       | $                       | 7,720      |        | $          | 55,425                      |       | $                                 | 393        |             | $          | 15,924    |       | $ | — |   | $ | 79,462 |   |

 

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**Statement of Cash Flows Information**

**Six Months Ended June 30, 2007**

** **
| ** **                                                            | ** ** | ** **              | ** ** | ** **  | ** ** | ** **       | ** ** | **Non-**         | ** ** | ** **       | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------|------------|-------------------------|------------|-------------|------------|------------------|------------|------------------|------------|------------------|------------|------------|------------|
| ** **                                                            | ** ** | ** **              | ** ** | ** **  | ** ** | **Guarantor**    | ** ** | **Guarantor**    | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                                                            | ** ** | **Parent**              | ** ** | **Issuers** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
| ** **                                                            | ** ** | **(in thousands)** | ** ** |
| Cash flows provided by operating (used for)  activities               |       | $                       | 10,242     |        | $          | 65,258           |       | $                | 7,273      |             | $          | (5,933     | )          | $ | — |   | $ | 76,840 |   |
| Cash flows from investing activities:                                 |       |                    |       |        |       |             |       |             |       |             |       |       |       |
| Capital expenditures                                                  |       | (210                    | )          | (6,818      | )          | (88              | )          | (11,235          | )          | —           |       | (18,351    | )          |
| Acquisitions                                                          |       | (1,059                  | )          | —      |       | —           |       | (47,275          | )          | —           |       | (48,334    | )          |
| Investment in subsidiaries                                            |       | —                  |       | (9,000      | )          | —           |       | —           |       | 9,000            |       | —     |       |
| Dividends received                                                    |       | —                  |       | 1,295       |       | 237              |       | —           |       | (1,532           | )          | —     |       |
| Intercompany accounts                                                 |       | (13,144                 | )          | —      |       | (6,080           | )          |             |       | 19,224           |       | —     |       |
| Other                                                                 |       | —                  |       | 26          |       | —           |       | —           |       | —           |       | 26         |       |
| Cash flows provided by (used for) investing  activities               |       | (14,413                 | )          | (14,497     | )          | (5,931           | )          | (58,510          | )          | 26,692           |       | (66,659    | )          |
| Cash flows from financing activities:                                 |       |                    |       |        |       |             |       |             |       |             |       |       |       |
| Short-term borrowings, net                                            |       | —                  |       | —      |       | —           |       | 6,551            |       | —           |       | 6,551      |       |
| Repayments of long-term debt                                          |       | —                  |       | —      |       | —           |       | (15,021          | )          | —           |       | (15,021    | )          |
| Proceeds from exercise of stock options and  employee stock purchases |       | 2,413                   |       | —      |       | —           |       | —           |       | —           |       | 2,413      |       |
| Capital contributions                                                 |       | —                  |       | —      |       | —           |       | 7,200            |       | (7,200           | )          | —     |       |
| Dividends paid                                                        |       | —                  |       | (237        | )          | (1,295           | )          | —           |       | 1,532            |       | —     |       |
| Other                                                                 |       | 1,737                   |       | —      |       | —           |       | —           |       | —           |       | 1,737      |       |
| Intercompany accounts                                                 |       | —                  |       | (44,260     | )          | —           |       | 65,284           |       | (21,024          | )          | —     |       |
| Cash flows provided by (used for) financing  activities               |       | 4,150                   |       | (44,497     | )          | (1,295           | )          | 64,014           |       | (26,692          | )          | (4,320     | )          |
| Effect of exchange rate changes on cash                               |       | —                  |       | —      |       | —           |       | (611             | )          | —           |       | (611       | )          |
| Net increase (decrease) in cash and cash  equivalents                 |       | (21                     | )          | 6,264       |       | 47               |       | (1,040           | )          | —           |       | 5,250      |       |
| Cash and cash equivalents at beginning of  period                     |       | 94                      |       | 44,071      |       | 2                |       | 9,326            |       | —           |       | 53,493     |       |
| Cash and cash equivalents at end of period                            |       | $                       | 73         |        | $          | 50,335           |       | $                | 49         |             | $          | 8,286      |       | $ | — |   | $ | 58,743 |   |

 

**15.****                               Subsequentevent**

 

### **Subsequent to June 30, 2008, the Company wasacquired by LS Cable (see note 1). In connection with the acquisition, SuperiorEssex Communications, Essex Group and Essex Group Canada, as borrowers, enteredinto a second amended and restated loan agreement (the “loan agreement”) andrelated security agreements, guaranties and other agreements with a syndicate offinancial institutions. This loan agreement amends and supplements theCompany’s existing senior secured credit facility.**

 

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The amended andrestated loan agreement provides for senior secured asset-backed revolvingcredit facilities (the “new senior secured revolving credit facilities”) in anaggregate principal amount up to $350 million, consisting a U.S. revolverfacility of up to $330 million that may be borrowed by Superior EssexCommunications and Essex Group, and a Canadian revolver facility of up to theU.S. dollar equivalent of $20 million that may be borrowed by Essex GroupCanada in either U.S. dollars or Canadian dollars. The principal amountoutstanding of the loans under the new senior secured revolving creditfacilities will be due and payable in full August, 2013.

 

Borrowings under the new senior secured credit facilities bear interest at a perannum rate equal to an applicable margin plus, at the applicable borrower’soption, either (1) if the loans are made in U.S. dollars, (a) theadjusted LIBOR rate or (b) a U.S. base rate determined by reference to thegreater of (i) the U.S. prime rate and (ii) the federal funds rateplus 0.50% or, (2) if the loans are made in Canadian dollars, (a) theaverage rate applicable to Canadian dollar bankers’ acceptances, (b) theCanadian prime rate or (c) the Canadian base rate.

 

The initialapplicable margin for borrowings under the senior secured term loan facilitieswill be 0.50% with respect to U.S. base rate or Canadian base rate borrowings,1.00% with respect to Canadian prime rate borrowings and 2.25% with respect toLIBOR and Canadian BA rate borrowings. The initial applicable margin forborrowings under the senior secured revolving credit facilities will be 0.25%with respect to U.S. base rate or Canadian base rate borrowings, 0.75% withrespect to Canadian prime rate borrowings and 2.00% with respect to LIBOR andCanadian BA rate borrowings. The applicable margin under the new senior securedcredit facilities may be adjusted based upon the average aggregate amount ofavailability under the new senior secured revolving credit facilities, subjectto decrease if the Company, exclusive of its European Chinese subsidiaries, maintainsa total leverage ratio below a predetermined threshold.

 

The loan agreementrequires the borrowers to prepay any outstanding revolver loans with certainextraordinary receipts, such as tax refunds, indemnity payments, pensionreversions and certain insurance proceeds. The borrowers may voluntarily prepayoutstanding loans under the new senior secured credit facilities at any timewithout premium or penalty, other than customary “breakage” costs with respectto LIBOR loans.

 

All obligationsunder the new senior secured credit facilities are unconditionally guaranteedby the Company and, subject to certain agreed-upon exceptions, each of theCompany’s existing and future direct and indirect wholly-owned domesticsubsidiaries.  All of the obligationsunder the new senior secured credit facilities are secured, subject topermitted liens and other agreed upon exceptions, by the Company’s equityinterests in the borrowers, and by substantially all of the assets of theborrowers and certain of the Company’s other subsidiaries (which pledges are,in the case of any foreign subsidiary, limited to 100% of the non-voting stock(if any) and 65% of the voting stock of such foreign subsidiary).

 

The new seniorsecured credit facilities contain a number of covenants that, among otherthings and subject to certain agreed-upon exceptions, restrict the ability ofthe borrowers and their subsidiaries to:

 

·                  incur additional debt;

 

·                  make distributions to the Company and its direct orindirect parent companies, or redeem, repurchase or retire certain debt priorto scheduled maturity;

 

·                  make investments, loans, capital expenditures andacquisitions;

 

·                  pay dividends or other amounts to the borrowers fromtheir subsidiaries;

 

·                  engage in transactions with affiliates of theborrowers;

 

·                  sell assets;

 

·                  consolidate, merge, amalgamate, liquidate or wind up;

 

·                  enter in hedging agreements other than ordinary courseof business hedges; and

 

·                  create liens.

 

The amended andrestated loan agreement provides that at any time that availability under thenew senior secured revolving credit facilities falls below certainpredetermined thresholds, the borrowers are required to comply with a covenantspecifying a minimum ratio of consolidated EBITDA to the aggregate outstandingprincipal and interest payments on certain debt (subject, in each case, tocertain customary exclusions). Failure to comply with such financialmaintenance ratio would constitute an event of default.

 

33

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The amended and restatedloan agreement governing the  new seniorsecured credit facilities also contains certain customary affirmative covenantsand events of default.

 

A total of $275 million wasborrowed under the amended and restated credit facility upon closing. Theborrowed funds, together with cash on hand and intercompany loans andinvestments from LS Cable was used to (i) defease and redeem theoutstanding 9% senior notes at 104.5% of par plus accrued interest ($277million), (ii) redeem the outstanding Series A preferred stock ofSuperior Essex Holding at par plus accrued interest, (iii) pay transactioncosts of approximately $31 million and (iv) fund payments of approximately$36 million with respect to outstanding options and stock awards (see note 8).

 

In connection with themerger and acquisition, Cyprus issued 172,660 shares of Series A votingredeemable convertible preferred stock (the “new series A preferred stock).Proceeds from the issuance of the new Series A preferred stock amounted to$172.7 million and were used by Cyprus to purchase outstanding shares of ourcommon stock pursuant to the Agreement and Plan of Merger. The new Series Apreferred stock will be a security of the Company upon completion of the mergerof Cyprus with and into Superior Essex Inc.

 

Holders of the new Series Apreferred stock are entitled to receive cumulative cash dividends payablesemi-annually in an amount equal to the greater of (i) $17.50 per shareand (ii) the aggregate per share amount of dividends or otherdistributions on the common stock of Superior Essex Inc. The new Series Apreferred stock has a liquidation preference of $1,000 per share plusaccumulated and unpaid dividends. Each share of new Series A preferredstock is automatically convertible 6 1⁄2 years from the date of issue, or earlierat the option of the holder, into one share of common stock of Superior EssexInc. Each share of new Series A preferred stock shall have one vote withrespect to all matters voted on by holders of the common stock of SuperiorEssex Inc. The new Series A preferred stock is subject to redemption, inwhole but not in part, at the option of the holder at a price equal to (i) theliquidation preference plus assumed dividends calculated thereon at 7% perannum compounded annually, less (ii) dividends paid prior to the date ofredemption plus assumed dividends thereon calculated at 7% per annum compoundedannually from the date of such payment to the date of redemption.

 

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

 

**General**

 

We currently manufacture a portfolio of wire and cable products for thecommunications, energy, automotive, industrial, and commercial/residentialend-markets grouped into the following segments: (i) communications cable,(ii) North American magnet wire and distribution, (iii) Europeanmagnet wire and distribution, (iv) Asia/Pacific magnet wire and (v) copper rod. As a result of the Tianjin acquisition and certain managementreporting changes implemented during 2007, we began reporting a new segment,the Asia/Pacific magnet wire segment. The Asia/Pacific magnet wire segmentincludes the Tianjin, China business and our manufacturing operations inSuzhou, China. Prior to the third quarter of 2007, the operations of the Suzhoufacility were included in the North American magnet wire and distributionsegment. All prior period segment information has been retrospectively adjustedto reflect the current segment reporting structure.

 

Industry segment financial data for the three and six months ended June 30,2008 and 2007 is included in Note 13 to the accompanying condensedconsolidated financial statements.

 

**Overview**

** **

Our results for the three and six monthsended June 30, 2008 were significantly impacted by several factors. TheInvex, Simcoe and Tianjin acquisitions (see note 5 to the consolidatedfinancial statements) completed in the second and third quarters of 2007contributed incremental sales of $108 million and $222 million and operatingincome of $3.7 million and $10.2 million for the three six months ended June 30,2008, respectively. In June 2007, we also acquired Nexans’ 40% minorityinterest in Essex Europe (see note 5 to the consolidated financialstatements) thus eliminating the minority interest charge against the netincome of Essex Europe in subsequent periods. The negative impact on demand forour products experienced in 2007 as a result of weakness in the U.S.residential construction and housing market and soft demand in North Americanand European manufacturing sectors has continued into 2008, and this trend isexpected to continue for the remainder of 2008. Excluding the impact ofbusiness acquisitions made in 2007, all of our business segments, other thanour start-up operation in China, experienced reductions in sales volumes forthe three and six months ended June 30, 2008 as compared to the priorcomparable periods. Our results for the three and six months ended June 30,2008 compared to the three and six months ended June 30, 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 16%for the three months ended June 30, 2008 compared to the three monthsended June 30, 2007 and 15% for the six months ended June 30, 2008compared to the six months ended June 30, 2007.

 

Our operating income for the three monthsended June 30, 2008 increased $1.5 million compared to the three monthsended June 30, 2007 and decreased $3.0 million for the six months ended June 30,2008 compared to the six months ended June 30, 2007. Operating income in2008 was significantly impacted by the Invex, Simcoe and Tianjin acquisitionswhich contributed incremental operating income of $3.7 million and $10.2million for the three and six months ended June 30, 2008, respectively, ascompared to the respective 2007 periods. These positive contributions wereoffset by accelerated depreciation of $4.1 million and $11.5 charged to costsof goods sold for the three and six months ended June 30, 2008,respectively, associated with the 2008 restructuring of our European and NorthAmerican magnet wire and distribution segments and copper rod segment asdiscussed further below. Gross margin improvements, exclusive of the impacts ofthe restructuring costs, in our communications cable and North American magnetwire and distribution segments together partially offset the effects of salesvolume declines in 2008. Restructuring and other costs of $20.7 million for thesix months ended June 30, 2008 were substantially offset by a $19.6million gain recognized from the settlement of the Exeon litigation in April 2008.

 

Copper is the primary raw material we use inthe manufacture of our wire and cable products. Over the past three years theprice of copper has escalated rapidly and has been subject to significantvolatility. We expect continued volatility in copper prices in the future.Although we generally have the ability to adjust prices billed for our productsto properly match the copper cost component, rapid and significant fluctuationsin copper prices can impact our results. Additionally, changes in copper pricesimpact our reported sales and gross margins due to the general pass through ofcopper costs. The average daily COMEX price per pound of copper for the threeand six months ended June 30, 2008 increased approximately 10% and 19%respectively, as compared to the three and six months ended June 30, 2007.We estimate that our sales for the three and six 

 

35

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months ended June 30,2008 increased approximately $49 million and $116 million compared to the threeand six months ended June 30, 2007 as a result of increased copper prices.

 

**Tender Offer and Merger**

 

On June 11, 2008, the Company enteredinto an Agreement and Plan of Merger (the “Agreement”) with LS Cable Ltd. (“LS Cable”),a Korean company. Under the terms of the agreement, Cyprus Acquisition MergerSub Inc. (“Cyprus”), an indirect wholly-owned subsidiary of LS Cable, made acash tender offer to purchase all of the outstanding shares of Superior Essexcommon stock for $45.00 per share. On August 4, 2008, Cyprus completed thetender offer and acquired approximately 92% of the outstanding common stock ofSuperior Essex Inc. In accordance with the terms of the Agreement, LS Cable willmerge Cyprus with and into Superior Essex Inc. and all remaining Superior EssexInc. common shares will be cancelled in exchange for the right to receive acash payment of $45 per share. Upon completion of the merger Superior EssexInc. will be an indirect subsidiary of LS Cable.

 

**Results of Operations**

 

***Non-GAAP Financial Measures***

 

In discussing our results of operations below, we present supplementalnet sales information adjusted to a constant $3.00/lb COMEX cost of copper forour North American operations (or the equivalent SHME per kilogram value forour China operations) and €4.90 per kilogram for our European operations, whichwe refer to as copper-adjusted net sales or sales adjusted for a constant costof copper. We also present and discuss copper-adjusted gross profit margin(gross profit divided by copper-adjusted net sales). Copper-adjusted net salesand copper-adjusted gross profit margin are financial measures that are notcalculated in accordance with accounting principles generally accepted in theUnited States of America, or non-GAAP financial measures. A non-GAAP financialmeasure is defined as a numerical measure of a company’s financial performance,financial position or cash flows that (i) excludes amounts, or is subjectto adjustments that have the effect of excluding amounts, that are included inthe most directly comparable measure calculated and presented in accordancewith GAAP in the statement of operations, balance sheet or statement of cashflows; or (ii) includes amounts, or is subject to adjustments that havethe effect of including amounts, that are excluded from the comparable measureso calculated and presented. We believe sales adjusted for a constant cost ofcopper and copper-adjusted gross profit margin are useful measures to aid inanalyzing period-to-period net sales and gross profit margins, particularly inperiods of changing copper prices. We also use copper-adjusted sales toevaluate performance for certain executive compensation programs.Copper-adjusted net sales has distinct limitations as compared to GAAP netsales. By copper-adjusting net sales, in a declining copper cost environment,it may not be apparent that net sales are declining on an actual basis.Furthermore, by copper-adjusting gross profit margins in a rising copper costenvironment, it may not be apparent that the gross profit margins are decliningon an actual basis. Management compensates for these limitations by using theGAAP results in conjunction with copper-adjusted net sales and gross profitmargins. Net sales adjusted for a constant cost of copper and copper-adjustedgross profit margin as used by us may not be comparable to similarly titledmeasures of other companies.

 

36

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***Three Months Ended June 30,2008 Compared to the Three Months Ended June 30, 2007***

 

*Net sales*

 

The following table provides net sales and supplemental copper-adjustedsales information for the three months ended June 30, 2008 and 2007:

 
| ** **                                     | ** ** | **Actual**                                      | ** ** | **Copper-adjusted** | ** ** |
|------------------------------------------------|------------|-------------------------------------------------|------------|---------------------|------------|
| ** **                                     | ** ** | **Three Months Ended  June 30,** | ** ** | **%**               | ** ** | **Three Months Ended  June 30,** | ** ** | **%** | ** ** |
| ** **                                     | ** ** | **2008**                                        | ** ** | **2007**            | ** ** | **Change** | ** ** | **2008** | ** ** | **2007** | ** ** | **Change** | ** ** |
| Net sales:                                     |       |                                            |       |                |       |   |   |   |   |   |   |   |   |
| Communications cable                           |       | $                                               | 213,741    |                | $          | 235,738 |   | (9 | )% | $ | 199,122 |   | $ | 237,028 |   | (16 | )% |
| North American magnet wire and distribution    |       | 312,834                                         |       | 296,045             |       | 6 | % | 273,456 |   | 279,200 |   | (2 | )% |
| European magnet wire and distribution          |       | 268,066                                         |       | 175,541             |       | 53 | % | 249,589 |   | 161,316 |   | 55 | % |
| Asia/Pacific magnet wire                       |       | 25,030                                          |       | 281                 |       | — | * | 22,877 |   | 247 |   | — | * |
| Copper rod                                     |       | 12,182                                          |       | 64,835              |       | (81 | )% | 9,668 |   | 56,461 |   | (83 | )% |
|                                           |       | 831,853                                         |       | 772,440             |       | 8 | % | 754,712 |   | 734,252 |   | 3 | % |
| Constant cost of copper adjustment             |       | —                                          |       | —              |       |   |   | 77,141 |   | 38,188 |   |   |   |
| Total                                          |       | $                                               | 831,853    |                | $          | 772,440 |   | 8 | % | $ | 831,853 |   | $ | 772,440 |   | 8 | % |
| Average daily COMEX price per pound of  copper |       | $                                               | 3.80       |                | $          | 3.46 |   | 10 | % |   |   |   |   |   |   |

 

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*                Comparisons arenot meaningful due to the Tianjin acquisition in July 2007 and thestart-up of operations in Suzhou in 2007.

 

Sales for our communications cable segment for the three months ended June 30,2008 were $213.7 million, a decrease of $22.0 million, or 9%, as compared tosales of $235.7 million for the three months ended June 30, 2007. Weestimate that sales increased approximately $20 million in the 2008 quarter dueto the pass-through of increased copper prices with the offsetting decrease of$42.0 million primarily attributable to declines in copper OSP unit volume. Thedecline in copper OSP unit volume was attributable to overall decreases inmarket-related demand as a result of the slowdown in new home construction,continued loss of access lines by major telephone companies and the increaseduse of fiber optic cable in telephone networks. These market-related trends areexpected to continue. The decrease in copper-adjusted sales for the threemonths ended June 30, 2008 compared to the three months ended June 30,2007 reflects declines in copper OSP unit volume discussed above as well as adecrease in premise product sales.

 

Sales for our North American magnet wire anddistribution segment were $312.8 million for the three months ended June 30,2008, an increase of $16.8 million, or 6%, as compared to sales of $296.0million for the three months ended June 30, 2007. Sales for the threemonths ended June 30, 2008 include estimated incremental sales ofapproximately $11 million attributable to the Simcoe operations acquired inlate April 2007 and an estimated $26 million impact from the pass throughof 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 June 30,2008 decreased 2% as sales attributable to the Simcoe acquisition were morethan offset by the effects of volume decreases discussed above.

 

Sales for the European magnet wire anddistribution segment were $268.1 million for the three months ended June 30,2008 compared to $175.5 million for the three months ended June 30, 2007,an increase of $92.6 million. Sales for the three months ended June 30,2008 include $82.4 million attributable to the Invex acquisition and anestimated $28 million positive impact from the strengthening of the Euro to U.S.dollar conversion rate during the second quarter of 2008 as compared to theprior year second quarter. These increases were partially offset by comparativevolume decreases primarily resulting from reductions in unit demand due toweakness in the European end markets. On a copper-adjusted basis, salesincreased 55% for the three months ended June 30, 2008 compared to theprior year second quarter. Excluding the effects of the Invex acquisition 

 

37

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and the strengtheningEuro against the U.S. dollar, copper-adjusted sales decreased 9% for the threemonths ended June 30, 2008 compared to the three months ended June 30,2007 due to the decrease in unit volume as discussed above.

 

Sales for the Asia/Pacific magnet wiresegment for the three months ended June 30, 2008 consist of $15.2 millionof revenues from the Tianjin acquisition and $9.8 million related to ouroperation in Suzhou, China which began initial commercial production in thefirst quarter of 2007. We expect volumes at the Suzhou operation to increaseduring the remainder of 2008 as prospective customers complete their productqualification processes.

 

Copper rod sales for the three months ended June 30,2008 were $12.2 million compared to $64.8 million for the three months ended June 30,2007, a decrease of $52.6 million. The decrease in sales primarily reflects aplanned reduction in total copper rod production, including a rationalizationof third-party copper rod sales, implemented in 2007 and continuing into 2008,and an increase in the percentage of copper rod used for internal production.In the fourth quarter of 2007 we reduced the number of our copper rodcontinuous casting units in operation from two to one in as part of thisplanned rationalization. We believe this will enable us to improve theutilization and efficiency of our copper rod casting operation.

 

*Gross profit*

 

The gross profit margin for the three monthsended June 30, 2008 was 9.3% compared to 9.6% for the three months ended June 30,2007. Gross profit margin on a copper-adjusted basis was 10.2% for the threemonths ended June 30, 2008 and 10.1% for the comparable 2007 quarter.Gross profit and gross profit margins for the three months ended June 30,2008 were impacted by $4.1 million of accelerated depreciation recorded inconnection with the North American magnet wire and distribution and copper rodrestructuring which reduced consolidated gross margins and copper-adjustedgross margins by 50 basis points. This negative impact was substantially offsetby an estimated $5.0 gross profit benefit in the three months ended June 30,2008 from the liquidation of LIFO inventory quantities carried at lower costsprevailing in prior years. The comparative gross profit margins weresignificantly impacted by the effect of the 2008 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 June 30, 2008 compared to the threemonths ended June 30, 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 10.5% for the threemonths ended June 30, 2008 compared to 11.1% for the three months ended June 30,2007. Gross profit for the three months ended June 30, 2008 was $77.0million compared to gross profit of $74.5 million for the three months ended June 30,2007. The increase in gross profit was primarily attributable to the Invex,Simcoe and Tianjin acquisitions ($7.3 million) as well as gross profit marginimprovements in our communications cable segment which more than offset thenegative impact of sales volume declines and a decrease in gross profit marginfor our European magnet wire and distribution segment.

 

Copper-adjusted gross profit margins in ourcommunications cable business increased for the three months ended June 30,2008 compared to the prior year first quarter due primarily to production costefficiencies and product mix.

 

Copper-adjusted gross profit margins for ourNorth American magnet wire and distribution business for the three months endedJune 30, 2008 were essentially unchanged from the three months ended June 30,2007. The positive benefits of LIFO liquidation ($3.6 million) and improvedproduct mix were substantially offset by higher energy costs and lower costabsorption due to reduced sales volumes

 

Copper-adjusted gross profit margin for theEuropean magnet wire and distribution segment decreased slightly for the threemonths ended June 30, 2008 compared to the three months ended June 30,2007 due primarily to unfavorable product mix**.**

 

Our Asia/Pacific magnet wire segment reportedgross profit of $0.5 million for the three months ended June 30, 2008attributable to the Tianjin business as we continue to incur negative grossmargins in our Suzhou start-up operation.

 

*Selling, general and administrative expenses*

 

Selling, general and administrative expenses(“SG&A expense”) of $40.4 million for the three months ended June 30,2008 increased $2.4 million as compared to SG&A expense of $38.0 millionfor the three months ended June 30, 2007 primarily due to SG&A expenseof the acquired entities ($3.6 million) and the effects of thestrengthened Euro to U.S. dollar 

 

38

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exchange ratewhich increased reported SG&A expense of our European operations($1.2 million), offset by decreases in stock-based compensation ($1.2million) and the recovery of a prior period bad debt ($0.9 million).

 

*Restructuring and other charges*

 

OnJanuary 23, 2008, the Company announced that it is consolidatingand restructuring its North American magnet wire and distribution and copperrod segments’ manufacturing facilities. The changes are expected to moreefficiently match production capabilities to industry demand levels and tocustomer requirements. The restructuring involves a phased closure of themagnet wire manufacturing and copper rod continuous casting facilities locatedin Vincennes, Indiana, and the relocation of existing production to other NorthAmerican magnet wire and distribution facilities. The closures are expected tobe completed by the first quarter of 2009. Our Board of Directors authorizedthe action on January 16, 2008 and the restructuring was communicated to employeeson January 23, 2008. The total restructuring charges are estimated at$22 million, consisting of non-cash charges of approximately$15 million, principally through accelerated depreciation, and cashcharges of approximately $3 million relating to employee severance andretention and $4 million relating to equipment relocation and facility closurecosts associated with the restructuring. We expect to incur the majority ofthese charges in 2008. During the three months ended June 30, 2008,restructuring and other charges include $0.8 million of severance and retentioncosts and $1.2 million of equipment relocation and other closure costs relatedto the North American magnet wire and distribution and copper rod segmentrestructurings.

 

In March 2008, the Company announced that Essex Europe hadinitiated discussions with the appropriate French employee representativebodies for the potential closure of its magnet wire manufacturing facility inChauny, France. Discussions with the local employee representative bodies werecompleted during the second quarter of 2008 and on June 30, 2008, theCompany authorized the closure of the Chauny facility. The Chauny facility isleased from Nexans through October 2009 and currently has approximately130 employees. The changes are expected to more efficiently match the Company’sproduction capabilities to industry demand levels and to customer requirements.During the three months ended June 30, 2008, Essex Europe also recorded arestructuring provision of $2.8 million related to the consolidation of certainof its administrative and production support functions in Germany. The totalestimated cost of these restructurings is approximately $22 million, whichprimarily consists of (i) cash charges of approximately $18.7 millionrelating to employee severance and related benefits and approximately $3.7million related to equipment relocation and disposal and other costs associatedwith the restructuring, (ii) non-cash charges of approximately $1.3million, principally through accelerated depreciation, and (iii) non-cashgains of $1.7 million attributable to employee benefit plan curtailments. TheCompany expects to incur the majority of these charges in 2008 and the firsthalf of 2009. During the three months ended June 30, 2008, restructuringand other charges include $15.1 million of severance and related terminationbenefits, $0.4 million of equipment relocation and other closure costs andemployee benefit plan curtailment gains of $1.7 million due to the attributableto the European magnet wire and distribution restructuring.

 

In addition to the North American magnetwire, copper rod and European magnet wire restructurings discussed above,restructuring and other charges for the three months ended June 30, 2008also include $2.5 million of professional fees and costs associated with the LSCable transaction, $0.1 million of professional fees incurred in connectionwith the Chauny restructuring and the write-off of $0.2 million of deferredbusiness acquisition costs.

 

InJanuary 2008, we executed an eleven year lease for a new corporate andcommunications cable headquarters building which we plan to occupy in the thirdquarter of 2008. The new lease provides for various incentives which will bedeferred and amortized over the term of the new lease. As a result of therelocation, we expect to incur accelerated depreciation charges related toleasehold improvements in our current office of $0.5 million and leasetermination costs of approximately $1 million.

 

During thethree months ended June 30, 2007 we recorded  restructuring and other charges of $0.4million consisting of $0.3 million of ongoing facility exit costs related to aformer North American magnet wire and distribution segment warehouse and $0.1million of professional fees incurred in connection with the administration ofSuperior TeleCom’s plan of reorganization.

 

*Operating income*

 

The following table sets forth information regarding our operatingincome by segment for the three months ended June 30, 2008 and 2007. Wemeasure our segment operating performance based primarily on segment operatingincome, excluding restructuring and other charges.

 

39

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| ** **                                       | ** ** | **2008**                | ** ** | **2007** | ** ** |
|--------------------------------------------------|------------|-------------------------|------------|----------|------------|
| ** **                                       | ** ** | **(in thousands)** | ** ** |
| Operating income (loss)                          |       |                    |       |     |       |
| Communications cable                             |       | $                       | 21,229     |     | $          | 25,911 |   |
| North American magnet wire and distribution  (1) |       | 13,171                  |       | 12,813   |       |
| European magnet wire and distribution (2)        |       | 7,410                   |       | 5,801    |       |
| Asia/Pacific magnet wire                         |       | (451                    | )          | (1,152   | )          |
| Copper rod                                       |       | 1,290                   |       | (136     | )          |
| Corporate and other                              |       | (6,147                  | )          | (6,773   | )          |
| Income from settlement of litigation             |       | 19,584                  |       | —   |       |
| Restructuring and other charges                  |       | (18,562                 | )          | (413     | )          |
|                                             |       | $                       | 37,524     |     | $          | 36,051 |   |

 

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(1)                           Includes$2.9 million of accelerated depreciation charges related to restructuringactivities for the three months ended June 30, 2008.

 

(2)                           Includes$1.2 million of accelerated depreciation charges related to restructuringactivities for the three months ended June 30, 2008.

 

Operating income for the communications cable segment decreased $4.7million for the three months ended June 30, 2008 compared to the 2007 secondquarter primarily due to a decrease in gross profit. Communications cablesegment gross profit increases resulting from improved gross margins were morethan offset by the impact of reduced sales volumes.

 

Operating income for our North Americanmagnet wire and distribution segment for the three months ended June 30,2008 increased $0.4 million as compared to the three months ended June 30,2007 due primarily to reduced SG&A expenses due to reduced hiring andrelocation costs and environmental remediation costs incurred during the threemonths ended June 30, 2007 related to one of our former manufacturingsites.

 

Operating income for the European magnet wireand distribution segment increased $1.6 million for the three months ended June 30,2008 compared to the three months ended June 30, 2007 as operating incomeimprovements attributable to the Invex acquisition ($2.8 million) and currencyexchange rates ($0.9 million) were largely offset by reduced gross profitresulting from volume and gross margin declines.

 

The Asia/Pacific magnet wire segment reportedan operating loss of $0.5 million for the three months ended June 30, 2008compared to an operating loss of $1.2 million for the three months ended June 30,2007. The improvement in 2007 is attributable to the Tianjin operation whichhad operating income of $0.6 for the three months ended June 30, 2008. TheTianjin operating income was offset by operating losses incurred in connectionwith our Suzhou operations due to unabsorbed production costs and the resultingnegative gross margins realized on initial sales.

 

The copper rod segments reported operatingincome of $1.3 million for the three months ended June 30, 2008 comparedto an operating loss of $0.1 million for the three months ended June 30,2007. The 2008 operating income primarily results from a decrease in SG&Aexpense attributable to a $0.8 million bad debt recovery. Copper rod salesgenerally allow for fixed cost recovery at gross profit margins that are generallybreak even.

 

Corporate and other charges consist primarily of parent company andcorporate payroll costs, including stock-based compensation charges, corporateheadquarters costs and corporate professional fees and compliance costs. Thedecrease in corporate and other costs for the three months ended June 30,2008 compared to the three months ended June 30, 2007 is primarily due toa decrease in incentive-based compensation , including stock-basedcompensation, partially offset by increased legal fees associated with theExeon litigation and other professional fees.

 

Consolidated operatingincome for the three months ended June 30, 2008 included restructuring andother charges of $18.6 million compared to $0.4 million of such charges for thethree months ended June 30, 2007, the components of which are discussedabove. In addition, during the three months ended June 30, 2008, wesettled our litigation with Exeon. Under the settlement agreement, we received$19.6 million in cash which has been reflected as a gain during the threemonths ended June 30, 2008 (see note 11 to the consolidated condensedfinancial statements).

 

40

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

 

Interestexpense for the quarter ended June 30, 2008 was $8.6 million compared tointerest expense of $7.5 million for the quarter ended June 30,2007. The increase in interest expense is due to interest on borrowings tofinance our Suzhou and the acquired Invex and Tianjin operations**.** Other expense for the three months ended June 30,2008 and 2007 includes income of $0.1 million and $0.1 million, respectively,related to our 50% owned joint venture, Femco Magnet Wire Corporation, anequity-method investee. Other expense for the three months ended June 30,2008 also includes net foreignexchange losses of $0.1 million. Foreign exchange gains for the three monthsended June 30, 2007 were not significant.

 

*Income tax expense*

 

Oureffective income tax rate for the three months ended June 30, 2008 was 34%compared to an effective tax rate of 40% for the three months ended June 30,2007. The decrease in the effective rate is primarily due to lower effectiverates in certain foreign jurisdictions, the discrete effect of favorableadjustments to research and development tax credits. The effective tax rate forthe three months ended June 30, 2008 is less than the U.S. statutory rateof 35% due to the lower foreign effective tax rates and the discrete second quarter2008 item discussed above which more than offset the negative impact of statetaxes, 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”).

 

***Six Months Ended June 30,2008 Compared to the Six Months Ended June 30, 2007***

 

*Net sales*

 

The following table provides net sales and supplemental copper-adjustedsales information for the six months ended June 30, 2008 and 2007:

 
| ** **                                     | ** ** | **Actual**                                    | ** ** | **Copper-adjusted** | ** ** |
|------------------------------------------------|------------|-----------------------------------------------|------------|---------------------|------------|
| ** **                                     | ** ** | **Six Months Ended  June 30,** | ** ** | **%**               | ** ** | **Six Months Ended  June 30,** | ** ** | **%** | ** ** |
| ** **                                     | ** ** | **2008**                                      | ** ** | **2007**            | ** ** | **Change** | ** ** | **2008** | ** ** | **2007** | ** ** | **Change** | ** ** |
| Net sales:                                     |       |                                          |       |                |       |   |   |   |   |   |   |   |   |
| Communications cable                           |       | $                                             | 410,217    |                | $          | 451,736 |   | (9 | )% | $ | 386,722 |   | $ | 448,941 |   | (14 | )% |
| North American magnet wire and distribution    |       | 608,613                                       |       | 542,759             |       | 12 | % | 547,251 |   | 539,706 |   | 1 | % |
| European magnet wire and distribution          |       | 502,025                                       |       | 335,934             |       | 49 | % | 478,730 |   | 321,759 |   | 49 | % |
| Asia/Pacific magnet wire                       |       | 41,714                                        |       | 407                 |       | — | * | 39,370 |   | 380 |   | — | * |
| Copper rod                                     |       | 26,444                                        |       | 137,232             |       | (81 | )% | 22,039 |   | 136,888 |   | (84 | )% |
|                                           |       | 1,589,013                                     |       | 1,468,068           |       | 8 | % | 1,474,112 |   | 1,447,674 |   | 2 | % |
| Constant cost of copper adjustment             |       | —                                        |       | —              |       |   |   | 114,901 |   | 20,394 |   |   |   |
| Total                                          |       | $                                             | 1,589,013  |                | $          | 1,468,068 |   | 8 | % | $ | 1,589,013 |   | $ | 1,468,068 |   | 8 | % |
| Average daily COMEX price per pound of  copper |       | $                                             | 3.69       |                | $          | 3.09 |   | 19 | % |   |   |   |   |   |   |

 

*      Comparisonsare not meaningful due to the Tianjin acquisition in July 2007 and thestart-up of operations in Suzhou in 2007.

 

Sales for our communications cable segment for the six months ended June 30,2008 were $410.2 million, a decrease of $41.5 million, or 9%, as compared tosales of $451.7 million for the six months ended June 30, 2007. Weestimate that sales increased approximately $26 million in the 2008 period dueto the pass-through of increased copper prices with the offsetting decrease of$67.5 million primarily attributable to declines in copper OSP unit volume. Thedecline in copper OSP unit volume was attributable to overall decreases inmarket-related demand as a result of the slowdown in new home construction,continued loss of access lines by major telephone companies and the increaseduse of fiber optic cable in telephone networks. The decrease in copper-adjusted sales for the six months ended June 30, 2008 compared to the six 

 

41

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months ended June 30, 2007reflects declines in copper OSP unit volume discussed above as well as adecrease in premise product sales.

 

Sales for our North American magnet wire anddistribution segment were $608.6 million for the six months ended June 30,2008, an increase of $65.8 million, or 12%, as compared to sales of $542.8million for the six months ended June 30, 2007. Sales for the six monthsended June 30, 2008 include estimated incremental sales of approximately$44 million attributable to the Simcoe operations acquired in April 2007and an estimated $62 million impact from the pass through of increased copperprices. These increases were partially offset by comparative volume decreasesresulting from weakness in the U.S. heating, ventilation and air conditioning,heavy appliance and other end markets tied to residential construction activityas well as weakness in the U.S. automotive market. On a copper-adjusted basis,sales for the six months ended June 30, 2008 increased 1% as salesattributable to the Simcoe acquisition more than offset the effects of volumedecreases discussed above.

 

Sales for the European magnet wire and distribution segment were $502.0million for the six months ended June 30, 2008 compared to $335.9 millionfor the six months ended June 30, 2007, an increase of $166.1 million.Sales for the six months ended June 30, 2008 include $152.7 millionattributable to the Invex acquisition and an estimated $51 million positiveimpact from the strengthening of the Euro to U.S. dollar conversion rate duringthe first six months of 2008 as compared to the prior year first six months.These increases were partially offset by comparative volume decreases primarilyresulting from reductions in unit demand due to weakness in the European endmarkets and the full effects of a planned rationalization of low margincustomers implemented during the first quarter of 2007. On a copper-adjustedbasis, sales increased 49% for the six months ended June 30, 2008 comparedto the prior year first six months. Excluding the effects of the Invexacquisition and the strengthening Euro against the U.S. dollar, copper-adjustedsales decreased 10% for the six months ended June 30, 2008 compared to thesix months ended June 30, 2007 due to the decrease in unit volume asdiscussed above.

 

Sales for the Asia/Pacific magnet wire segment for the six months endedJune 30, 2008 consist of $25.0 million of revenues from the Tianjin acquisitionand $16.7 million related to our operation in Suzhou, China which began initialcommercial production in the first quarter of 2007.

 

Copper rod sales for the six months ended June 30, 2008 were $26.4million compared to $137.2 million for the six months ended June 30, 2007,a decrease of $110.8 million. The decrease in sales primarily reflects aplanned reduction in total copper rod production, including a rationalizationof third-party copper rod sales, implemented in 2007 and continuing into 2008, andan increase in the percentage of copper rod used for internal production.

 

*Gross profit*

 

The gross profit margin for the six months ended June 30, 2008 was9.0% compared to 9.2% for the six months ended June 30, 2007. Gross profitmargin on a copper-adjusted basis was 9.7% for the six months ended June 30,2008 and 9.4% for the comparable 2007 period. Gross profit and gross profitmargins for the six months ended June 30, 2008 were significantly impactedby $11.5 million of accelerated depreciation recorded in connection with theEuropean and North American magnet wire and distribution and copper rodsegments restructurings. The impact of the accelerated depreciation was toreduce consolidated gross margins and copper-adjusted gross margins by 70 basispoints and 80 basis points, respectively. This negative impact was partiallyoffset by an estimated $5.0 benefit in the six months ended June 30, 2008from the liquidation of LIFO inventory quantities carried at lower costsprevailing in prior years. The comparative gross profit margins were alsosignificantly impacted by the effect of the sales and copper-adjusted salesdeclines for the copper rod segment, whose sales generally allow for fixed costrecovery at gross profit margins that are generally break even. Accordingly,the decreases in sales and copper-adjusted sales in the copper rod segment forthe six months ended June 30, 2008 compared to the six months ended June 30,2007 did not result in a proportionate reduction in gross profit. The combinedcopper-adjusted gross margin for our communications cable, North American andEuropean magnet wire and distribution segments, which contribute substantiallyall of our gross profit, was 10.0%, net of 60 basis points attributable torestructuring related accelerated depreciation, for the six months ended June 30,2008 compared to 10.4% for the six months ended June 30, 2007. Grossprofit for the six months ended June 30, 2008 was $143.0 million comparedto gross profit of $135.7 million for the six months ended June 30, 2007.The increase in gross profit was primarily attributable to the Invex, Simcoeand Tianjin acquisitions ($17.2 million) as well as gross profit margin improvementsin our communications cable segment which more than offset the negative impactof sales volume declines and restructuring related accelerated depreciationcharges ($11.5 million).

 

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Copper-adjustedgross profit margins in our communications cable business increased for the sixmonths ended June 30, 2008 compared to the prior year first quarter dueprimarily to improved copper cost recovery of approximately $2 to $3 million inthe first quarter of 2008 and continued benefits from production costefficiencies.

 

Copper-adjustedgross profit margin for our North American magnet wire and distributionbusiness for the six months ended June 30, 2008, excluding the effects ofrestructuring related accelerated depreciation, increased compared to the prioryear first quarter due primarily to improved pricing in the distribution marketand product mix, including the impact of higher margin energy-related productsproduced by our Simcoe operation, and LIFO liquidation benefits of $3.6million. These positive factors were partially offset by an estimated $1.1million of transitional supply chain costs related to a temporary disruption inthe availability of internally produced enamel wire coating during the firstquarter of 2008 as well as higher energy costs and lower cost absorption due toreduced sales volumes.

 

Copper-adjustedgross profit margin for the European magnet wire and distribution segmentdecreased for the six months ended June 30, 2008 compared to the sixmonths ended June 30, 2007 due primarily to unfavorable product mix.

 

Our Asia/Pacificmagnet wire segment reported gross profit of $1.7 million for the six monthsended June 30, 2008 attributable to the Tianjin business as we continue toincur negative gross margins in our Suzhou start-up operation. Additionally,gross profit for the Asia/Pacific magnet wire business for the six months endedJune 30, 2008 includes $1.3 million of gains on non-designated copperfutures purchase contracts which serve as economic hedges of future customersale commitments.

 

Our copper rodsegment reported a negative gross profit of $0.4 million for the six monthsended June 30, 2008 compared to approximate break-even margins in theprior year comparable six-month period due to the effect of restructuringrelated accelerated depreciation of $1.3 million.

 

*Selling,general and administrative expenses*

 

Selling, general and administrative expenses (“SG&A expense”) of$84.1 million for the six months ended June 30, 2008 increased $10.5million as compared to SG&A expense of $73.6 million for the six monthsended June 30, 2007 primarily due to SG&A expense of the acquiredentities ($7.0 million), the effects of the strengthened Euro to U.S. dollarexchange rate which increased reported SG&A expense of our Europeanoperations ($2.3 million) and increased legal fees associated with the Exeon litigation and otherprofessional fees ($0.5 million).

 

*Restructuringand other charges*

 

Restructuringand other charges for the six months ended June 30, 2008 include $2.4million of severance and retention costs and $1.7 million of equipment relocation and otherclosure costs attributable to the North American magnet wire and distributionand copper rod segment restructurings discussed above. Restructuringand other charges for the six months ended June 30, 2008 include $15.1million of severance and related termination benefits, $0.4 million ofequipment relocation and other closure costs and employee benefit plancurtailment gains of $1.7 million due to the attributable to the Europeanmagnet wire and distribution restructuring discussed above.

 

Inaddition to the North American magnet wire, copper rod and European magnet wirerestructurings, restructuring and other charges for the six months endedJune 30, 2008 also include $2.5 million of professional fees and costsassociated with the LS Cable transaction, $0.1 million of professional feesincurred in connection with the Chauny restructuring and the write-off of $0.2million of deferred business acquisition costs.

 

Duringthe six months ended June 30, 2007 we recorded a restructuring provisionof $0.3 million related to a workforce reduction at our European magnet wireand distribution segment’s Viana de Castelo, Portugal manufacturing facility.The majority of the costs related to severance payments and related benefits.All amounts are expected to be paid during 2007. We also recorded restructuringand other charges of $0.3 million of ongoing facility exit costs related to a formerNorth American magnet wire and distribution segment warehouse, $0.4 million ofdeferred business acquisition costs and and $0.2 million of professional feesincurred in connection with the administration of Superior TeleCom’s plan ofreorganization.

 

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*Operating income*

 

Thefollowing table sets forth information regarding our operating income bysegment for the six months ended June 30, 2008 and 2007. We measure oursegment operating performance based primarily on segment operating income,excluding restructuring and other charges.

 
| ** **                                      | ** ** | **2008**                | ** ** | **2007** | ** ** |
|-------------------------------------------------|------------|-------------------------|------------|----------|------------|
| ** **                                      | ** ** | **(in thousands)** | ** ** |
| Operating income (loss)                         |       |                    |       |     |       |
| Communications cable                            |       | $                       | 40,143     |     | $          | 43,912 |   |
| North American magnet wire and distribution (1) |       | 18,969                  |       | 22,335   |       |
| European magnet wire and distribution (2)       |       | 13,817                  |       | 11,856   |       |
| Asia/Pacific magnet wire                        |       | (32                     | )          | (2,128   | )          |
| Copper rod (3)                                  |       | (19                     | )          | (182     | )          |
| Corporate and other                             |       | (13,978                 | )          | (13,683  | )          |
| Income from settlement of litigation            |       | 19,584                  |       | —   |       |
| Restructuring and other charges                 |       | (20,683                 | )          | (1,287   | )          |
|                                            |       | $                       | 57,801     |     | $          | 60,823 |   |

 

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(1)          Includes $9.0 million ofaccelerated depreciation charges related to restructuring activities for thesix months ended June 30, 2008.

 

(2)          Includes $1.2 million ofaccelerated depreciation charges related to restructuring activities for thesix months ended June 30, 2008.

 

(3)          Includes $1.3 million ofaccelerated depreciation charges related to restructuring activities for thesix months ended June 30, 2008.

 

Operatingincome for the communications cable segment decreased $3.8 million for the sixmonths ended June 30, 2008 compared to the same 2007 six-month period.Communications cable segment gross profit increases resulting from improvedgross margins were more than offset by the effects of sales volume decreasesand an increase in SG&A expense of $0.4 million due primarily to highersalaries and benefits.

 

Operating income for our North American magnet wire and distributionsegment for the six months ended June 30, 2008 decreased $3.3 millionas compared to the six months ended June 30, 2007 due primarily torestructuring related accelerated depreciation ($9.0 million) and increasedSG&A expenses primarily resulting from increased employee compensation,benefits and hiring related costs ($0.8 million). These negative factors werepartially offset by operating income contributed by the Simcoe operation ($2.3million) and improved gross margins (including LIFO liquidation benefits of$3.6 million), exclusive of accelerated depreciation charges.

 

Operating income for the European magnet wire and distribution segmentincreased $1.9 million for the six months ended June 30, 2008compared to the six months ended June 30, 2007 as operating incomeimprovements attributable to the Invex acquisition ($5.4 million) and currencyexchange rates ($1.8 million) were largely offset by reduced gross profitresulting from volume and gross margin declines.

 

The Asia/Pacific magnet wire segment reported a minimal operating lossfor the six months ended June 30, 2008 compared to an operating loss of$2.1 million for the six months ended June 30, 2007. The improvement in2007 is attributable to the Tianjin operation which had operating income of$2.3 million for the six months ended June 30, 2008. The Tianjin operatingincome was offset by operating losses incurred in connection with our Suzhouoperations due to unabsorbed production costs and the resulting negative grossmargins realized on initial sales.

 

The copper rod segment’s operating loss for the six months endedJune 30, 2008 reflects $1.3 million of restructuring related accelerateddepreciation net of a benefit of $0.8 million from recovery of a prior bad debtwrite-off. Copper rod sales generally allow for fixed cost recovery at grossprofit margins that aregenerally 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 

 

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corporate and other costsfor the six months ended June 30, 2008 compared to the six months endedJune 30, 2007 is primarily due to increased legal fees associated with theExeon litigation and other professional fees partially offset by a decrease inincentive-based compensation, including stock-based compensation expenses.

 

Consolidatedoperating income for the six months ended June 30, 2008 includedrestructuring and other charges of $20.7 million compared to$1.3 million of such charges for the six months ended June 30, 2007,the components of which are discussed above. In addition, in April 2008, we settled ourlitigation with Exeon. Under the settlement agreement, we received $19.6million in cash which has been reflected as a gain during the six months endedJune 30, 2008 (see note 11 to the consolidated condensed financialstatements).

 

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

 

Interest expense for thesix months ended June 30, 2008 was $16.9 million compared to interestexpense of $15.1 million for the six months ended June 30, 2007. Theincrease in interest expense is due to interest on borrowings to finance ourSuzhou and the acquired Invex and Tianjin operations. Other expense for the sixmonths ended June 30, 2008 and 2007 includes losses of $0.5 million and$0.3 million, respectively, related to our 50% owned joint venture, FemcoMagnet Wire Corporation, an equity-method investee. Other expense for the sixmonths ended June 30, 2008 and 2007 also includes net foreign exchangelosses of $0.7 million and $0.3 million, respectively.

 

*Incometax expense*

 

Oureffective income tax rate for the six months ended June 30, 2008 was 33%compared to an effective tax rate of 40% for the six months ended June 30,2007. The decrease in the effective rate is primarily due to lower effectiverates in certain foreign jurisdictions, the discrete effects of favorableadjustments to state effective tax rates and research and development tax credits. The effectivetax rate for the six months ended June 30, 2008 is less than the U.S.statutory rate of 35% due to the lower foreign effective tax rates and thediscrete items 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”).

 

**Liquidity and Capital Resources**

 

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

 

Wereported cash provided by operating activities of $9.8 million for the sixmonths ended June 30, 2008 compared to cash provided by operatingactivities of $76.8 million for the six months ended June 30, 2007. Cashprovided by operating activities for the six months ended June 30, 2008was positively impacted by cash proceeds of $19.6 million received during thesecond quarter of 2008 upon settlement of the Exeon litigation. Cash providedby operating activities for the six months ended June 30, 2008 included anet working capital increase of $52.1 million compared to a net workingcapital decrease of $24.5 million for the six months ended June 30, 2007.We have historically experienced a first and second quarter seasonal increasein our working capital resulting from increased production, inventory stockinglevels and related sales attributable to historically higher customer demandlevels in March through October. Normal seasonal increases in accounts receivableexperienced in the first six months of 2007, however, were more than offset bya decrease in inventories due to reduced production in response to lower salesvolumes, particularly in the communications cable segment. The increase inworking capital for the six months ended June 30, 2008 also reflects theincrease in the average cost of copper in our working capital accounts ascompared to December 31, 2007. Average copper prices have increased 17% inthe second quarter of 2008 as compared to the fourth quarter of 2007. Cash usedby investing activities for the six months ended June 30, 2008 includescapital expenditures of $30.0 million compared to $18.4 million for the sixmonths ended June 30, 2007. The increased capital expenditures primarilyreflect capital expenditures by our European magnet wire and distributionsegment as production lines are modified and updated in preparation for thetransfer of production from the closed plant in Chauny, France. Cash used byinvesting activities for the six months ended June 30, 2007 includespayments of $29.4 to acquire Nexans’ 40% minority interest in Essex Europe,$13.6 million related to the Simcoe acquisition and $4.1 million of additionalcontingent consideration paid to Nexans based on the achievement of specifiedlevels of profitability by Essex Europe in 2006. Cash used by financingactivities for the six months ended June 30, 2008 includes $10.9 millionexpended for open market purchases of our common stock pursuant to our stockrepurchase program announced in December 2007. Cash used for financingactivities of $4.3 million for the six months ended June 30, 2007 includesthe $15.0 million repayment of Essex Europe’s subordinated note which wasaccelerated as a result of our acquisition of Nexans’ minority interest.Repayment of the subordinated note was financed by borrowing under the EssexEurope factoring agreement.

 

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***CapitalResources***

 

*SeniorSecured Credit Facilities*

 

Subsequent toJune 30, 2008, the Company was acquired by LS Cable (see note 1 to theconsolidated condensed financial statements). In connection with theacquisition, Superior Essex Communications, Essex Group and Essex Group Canada,as borrowers, entered into a second amended and restated loan agreement (the“loan agreement”) and related security agreements, guaranties and otheragreements with a syndicate of financial institutions. This loan agreementamends and supplements our existing senior secured credit facility.

 

The amended andrestated loan agreement provides for senior secured asset-backed revolvingcredit facilities (the “new senior secured revolving credit facilities”) in anaggregate principal amount up to $350 million, consisting a U.S. revolverfacility of up to $330 million that may be borrowed by Superior EssexCommunications and Essex Group, and a Canadian revolver facility of up to theU.S. dollar equivalent of $20 million that may be borrowed by Essex GroupCanada in either U.S. dollars or Canadian dollars. The principal amountoutstanding of the loans under the new senior secured revolving creditfacilities will be due and payable in full August, 2013.

 

Borrowingsunder the new senior secured credit facilitiesbear interest at a per annum rate equal to an applicable margin plus, at theapplicable borrower’s option, either (1) if the loans are made in U.S.dollars, (a) the adjusted LIBOR rate or (b) a U.S. base ratedetermined by reference to the greater of (i) the U.S. prime rate and(ii) the federal funds rate plus 0.50% or, (2) if the loans are madein Canadian dollars, (a) the average rate applicable to Canadian dollarbankers acceptances, (b) the Canadian prime rate or (c) the Canadianbase rate.

 

The initialapplicable margin for borrowings under the senior secured term loan facilitieswill be 0.50% with respect to U.S. base rate or Canadian base rate borrowings,1.00% with respect to Canadian prime rate borrowings and 2.25% with respect toLIBOR and Canadian BA rate borrowings. The initial applicable margin forborrowings under the senior secured revolving credit facilities will be 0.25%with respect to U.S. base rate or Canadian base rate borrowings, 0.75% withrespect to Canadian prime rate borrowings and 2.00% with respect to LIBOR andCanadian BA rate borrowings. The applicable margin under the new senior securedcredit facilities may be adjusted based upon the average aggregate amount ofavailability under the new senior secured revolving credit facilities, subjectto decrease if the Company, exclusive of its European and Chinese subsidiaries,maintains a total leverage ratio below a predetermined threshold.

 

The loan agreementrequires the borrowers to prepay any outstanding revolver loans with certainextraordinary receipts, such as tax refunds, indemnity payments, pensionreversions and certain insurance proceeds. The borrowers may voluntarily prepayoutstanding loans under the new senior secured credit facilities at any timewithout premium or penalty, other than customary ‘‘breakage’’ costs withrespect to LIBOR loans.

 

All obligationsunder the new senior secured credit facilities are unconditionally guaranteedby us and, subject to certain agreed-upon exceptions, each of our existing andfuture direct and indirect wholly-owned domestic subsidiaries. All of our obligationsunder the new senior secured credit facilities are secured, subject topermitted liens and other agreed upon exceptions, by our equity interests inthe borrowers, and by substantially all of the assets of the borrowers andcertain of our other subsidiaries (which pledges are, in the case of anyforeign subsidiary, limited to 100% of the non-voting stock (if any) and 65% ofthe voting stock of such foreign subsidiary).

 

The new seniorsecured credit facilities contain a number of covenants that, among otherthings and subject to certain agreed-upon exceptions, restrict the ability ofthe borrowers and their subsidiaries to:

 

·                  incur additional debt;

 

·                  make distributions to us and our direct or indirectparent companies, or redeem, repurchase or retire certain debt prior toscheduled maturity;

 

·                  make investments, loans, capital expenditures andacquisitions;

 

·                  pay dividends or other amounts to the borrowers fromtheir subsidiaries;

 

·                  engage in transactions with  affiliates of the borrowers;

 

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·                  sell assets;

 

·                  consolidate, merge, amalgamate, liquidate or wind up;

 

·                  enter in hedging agreements other than ordinary courseof business hedges; and

 

·                  create liens.

 

The amended andrestated loan agreement provides that at any time that availability under thenew senior secured revolving credit facilities falls below certainpredetermined thresholds, the borrowers are required to comply with a covenantspecifying a minimum ratio of consolidated EBITDA to the aggregate outstandingprincipal and interest payments on certain debt (subject, in each case, tocertain customary exclusions). Failure to comply with such financialmaintenance ratio would constitute an event of default.

 

The amended andrestated loan agreement governing our new senior secured credit facilities alsocontains certain customary affirmative covenants and events of default.

 

*PreferredStock*

 

In connection withthe acquisition of the Company by LS Cable, Cyprus issued 172,660 shares ofSeries A voting redeemable convertible preferred stock (the “new Series Apreferred stock). Proceeds from the issuance of the new Series A preferredstock amounted to $172.7 million and were used by Cyprus to purchaseoutstanding shares of our common stock pursuant to the Agreement and Plan ofMerger. The new Series A preferred stock will be a security of the Companyupon completion of the merger of Cyprus with and into Superior Essex Inc.

 

Holders of the newSeries A preferred stock are entitled to receive cumulative cash dividendspayable semi-annually in an amount equal to the greater of (i) $17.50 pershare and (ii) the aggregate per share amount of dividends or otherdistributions on the common stock of Superior Essex Inc. The new Series Apreferred stock has a liquidation preference of $1,000 per share plusaccumulated and unpaid dividends. Each share of new Series A preferredstock is automatically convertible 6 1⁄2 years from the date of issue, or earlierat the option of the holder, into one share of common stock of Superior EssexInc. Each share of new Series A preferred stock shall have one vote withrespect to all matters voted on by holders of the common stock of SuperiorEssex Inc. The new Series A preferred stock is subject to redemption, inwhole but not in part, at the option of the holder at a price equal to(i) the liquidation preference plus assumed dividends calculated thereonat 7% per annum compounded annually, less (ii) dividends paid prior to thedate of redemption plus assumed dividends thereon calculated at 7% per annumcompounded annually from the date of such payment to the date of redemption.

 

***Liquidity***

 

A total of $275million was borrowed under the new senior secured credit facilities inconnection with the closing of the acquisition. The borrowed funds, togetherwith cash on hand and intercompany loans and investments from LS Cable wereused to (i) defease and redeem all of the outstanding 9% senior notes at104.5% of par plus accrued interest ($277 million), (ii) redeem theoutstanding Series A preferred stock of Superior Essex Holding at par plusaccrued interest, (iii) pay transaction costs of approximately $31 millionand (iv) fund payments of approximately $36 million with respect tooutstanding options and stock awards (see note 8 to the consolidated condensedfinancial statements).

 

Our principal cash requirements generally include funding of ourworking capital, interest payments on the new senior secured credit facilities,dividends payments on the new Series A preferred stock, principal andinterest payments on the China term and working capital loans, redemption ofInvex’s €6 million convertible bonds, capital expenditures currentlyestimated at approximately $60 to $70 million for 2008, severance andother benefit payments in connection with the closure of our Vincennes, Indianafacility and Chauny, France facility and obligations related to our definedbenefit pension plans. In addition, significant increases in the price ofcopper and the resultant increase in accounts receivable and, to a lesserdegree, inventory, impacts our working capital funding requirements. Average copperprices have increased 17% in the second quarter of 2008 as compared to thefourth quarter of 2007.

 

We believe that our cash on hand, together with cash provided byoperations and borrowing availability under our new senior secured creditfacilities, the Essex Europe factoring agreement and the Tianjin creditfacility will be sufficient to meet our obligations and fund our workingcapital requirements for the foreseeable future.

 

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**New Accounting Pronouncements**

 

Effective January 1,2008, we adopted certain provisions of Statement of Financial AccountingStandards No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFASNo. 157 establishes 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. SFASNo. 157 establishes a hierarchy for fair value measurements and relateddisclosures as follows: Level 1 - fair value measurements based on quotedprices in active markets for identical assets or liabilities; Level 2 – fairvalue measurements based upon significant observable market data other thanquoted prices included within Level 1or significant unobservable inputs thatare corroborated by observable market data; and Level 3 – fair valuemeasurements based on significant unobservable inputs that are not corroboratedby observable market data. Application of SFAS No. 157 to nonfinancialassets and liabilities measured at fair value on a nonrecurring basis iseffective for fiscal years beginning after November 15, 2008 with earlierapplication permitted. We have not implemented SFAS No. 157 for suchassets and liabilities. See note 1 to the accompanying consolidated financialstatements.

 

InDecember 2007, the FASB issued Statement of Financial Accounting Standards(“FAS”) No. 141 (revised 2007), *Business Combinations*(“FAS 141(R)”) which replaces FAS No.141, *BusinessCombinations*. FAS 141(R) retains the underlying conceptsof FAS 141 in that all business combinations are still required to beaccounted for at fair value under the acquisition method of accounting butFAS 141(R) changed the method of applying the acquisition method in anumber of significant aspects. Changes prescribed byFAS 141(R) include, but are not limited to, requirements to expensetransaction costs and costs to restructure acquired entities; record earn-outsand other forms of contingent consideration at fair value on the acquisitiondate; record 100% of the net assets acquired even if less than a 100%controlling interest is acquired; and to recognize any excess of the fair valueof net assets acquired over the purchase consideration as a gain to theacquirer. FAS 141(R) is effective on a prospective basis for allbusiness 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. We are currently evaluating theeffects, if any, that FAS 141(R) may have on our consolidatedfinancial statements.

 

In December 2007, the FASB issued Statement of FinancialAccounting Standards No. 160, *Noncontrolling Interestsin Consolidated Financial Statements* (“FAS 160”). FAS 160amends Accounting Research Bulletin 51, *Consolidated Financial*Statements, to establish accounting and reporting standards for thenoncontrolling (minority) interest in a subsidiary and for the deconsolidationof a subsidiary. It clarifies that a noncontrolling interest in a subsidiary isan ownership interest in the consolidated entity that should be reported asequity in the consolidated financial statements and requires consolidated netincome to be reported at amounts that include the amounts attributable to boththe parent and the noncontrolling interest. FAS 160 also clarifies thatall of those transactions resulting in a change in ownership of a subsidiaryare equity transactions if the parent retains its controlling financialinterest in the subsidiary. FAS 160 requires expanded disclosures in theconsolidated financial statements that clearly identify and distinguish betweenthe interests of the parent’s owners and the interests of the noncontrollingowners of 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, the FASB issued Statement of Financial AccountingStandards No. 161, *Disclosures aboutDerivative Instruments and Hedging Activities—an amendment of FASB StatementNo. 133* (“FAS 161”). FAS 161 requires enhanced disclosuresabout an entity’s derivative and hedging activities. Entities are required toprovide enhanced disclosures about (a) how and why an entity usesderivative 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 hedgeditems affect an entity’s financial position, financial performance, and cashflows. 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.

 

In April 2008 the FASBissued FASB Staff Position No.142-3, *Determinationof the Useful Life of Intangible Assets*(“FSP 142-3”). FSP 142-3amends the factors that should be considered in developing renewal or extension assumptions used todetermine the useful life of a recognized intangible asset under FASB Statement No. 142, *Goodwill and Other IntangibleAssets*.**The intent of FSP 142-3 is toimprove the consistency between the useful life of a recognized intangible asset under Statement 142 and the period of expected cash flows used tomeasure the fair value of the**asset under FASB Statement No. 141 (revised 2007), *Business Combinations,*and other U.S. generally accepted accounting principles. FSP 142-3 is effective for financialstatements issued for fiscal years beginning after December 15, 2005. Early adoption is prohibited. The Company is currentlyevaluating the effects, if any, that FSP 142-3 will have on its consolidated financial statements.

 

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**ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

We,to a limited extent, use or have used forward fixed price contracts andderivative financial instruments to manage commodity price, interest rate andforeign currency exchange risks. We do not hold or issue financial instrumentsfor investment or trading purposes. We are exposed to credit risk in the eventof nonperformance by counterparties for foreign exchange forward contracts,commodity forward price contracts and commodity futures contracts but we do notanticipate nonperformance by any of these counterparties. The amount of suchexposure is generally limited to any unrealized gains within the underlyingcontracts.

 

***Commodity price risk management***

 

Thecost of copper, our most significant raw material, has historically beensubject to considerable volatility. To manage the risk associated with such volatility,we enter into copper futures purchase contracts to match the metal component ofcustomer product pricing with the copper cost component of the inventoryshipped. These futures contracts have been designated as cash flow hedges withunrealized gains and losses recorded in other comprehensive income. Gains andlosses are reclassified into earnings, as a component of cost of goods sold,when the hedged transactions are reflected in the statement of operations.Hedge ineffectiveness, which is not significant, is immediately recognized inearnings. Our copper futures purchase contracts designated as cash flow hedgesare summarized as follows at June 30, 2008 and December 31, 2007:

 
| **Type**                    | ** ** | **Notional  Amount**                    | ** ** | **Maturity  Date** | ** ** | **Weighted  Average  Contract Rate** | ** ** | **Fair Value  Gain (Loss)** | ** ** |
|-----------------------------|------------|-----------------------------------------|------------|--------------------|------------|-------------------------------------------|------------|---------------------------------------|------------|
| ** **                  | ** ** | **(in thousands of  pounds)** | ** ** | ** **         | ** ** | ** **                                | ** ** | **(in  thousands)**                   | ** ** |
| **June 30, 2008:**     | ** ** | ** **                              | ** ** | ** **         | ** ** | ** **                                | ** ** | ** **                            | ** ** |
| Copper                      |       | 5,853                                   |       | 2008               |       | $                                         | 3.60       |                                  | $          | 1,598 |   |
| Copper                      |       | 2,133                                   |       | 2009               |       | 3.69                                      |       | 268                                   |       |
|                        |       | 7,986                                   |       |               |       |                                      |       | 1,866                                 |       |
| **December 31, 2007:** | ** ** | ** **                              | ** ** | ** **         | ** ** | ** **                                | ** ** | ** **                            | ** ** |
| Copper                      |       | 5,450                                   |       | 2008               |       | 3.14                                      |       | $                                     | (495       | ) |
|                             |            |                                         |            |                    |            |                                           |            |                                       |            |  |  |

 

Allof the unrealized gains on commodity futures outstanding at June 30, 2008are expected to be reclassified to earnings within the next twelve months.

 

Wealso periodically enter into commodity futures contracts which represent economichedges but have not been designated as hedges for accounting purposes(“non-designated derivatives”). These futures contracts are intended tominimize the risks associated with forward product pricing for customers andchanging copper prices. We use copper futures purchase contracts to match thecopper component of customer product pricing with the copper cost component ofthe inventory shipped. We use copper futures sales contracts to fix a portionof the gross margin related to the copper component of certain of our products.Gains and losses on these non-designated derivatives are recorded in income asa component of cost of goods sold. Our non-designated commodities futurescontracts outstanding at June 30, 2008 and December 31, 2007 aresummarized as follows:

 
| **Type**                    | ** ** | **Notional  Amount**                    | ** ** | **Maturity  Date** | ** ** | **Weighted  Average  Contract Rate** | ** ** | **Fair Value  Gain (Loss)** | ** ** |
|-----------------------------|------------|-----------------------------------------|------------|--------------------|------------|-------------------------------------------|------------|---------------------------------------|------------|
| ** **                  | ** ** | **(in thousands of  pounds)** | ** ** | ** **         | ** ** | ** **                                | ** ** | **(in  thousands)**                   | ** ** |
| **June 30, 2008:**     | ** ** | ** **                              | ** ** | ** **         | ** ** | ** **                                | ** ** | ** **                            | ** ** |
| Copper purchase contracts   |       | 4,207                                   |       | 2008               |       | $                                         | 3.60       |                                  | $          | 205 |   |
| Copper purchase contracts   |       | 220                                     |       | 2009               |       | 3.35                                      |       | 81                                    |       |
| Copper sales contracts      |       | 1,543                                   |       | 2008               |       | 3.85                                      |       | (47                                   | )          |
| Copper sales contracts      |       | 110                                     |       | 2009               |       | 3.85                                      |       | —                                |       |
|                        |       | 6,080                                   |       |               |       |                                      |       | $                                     | 239        |   |
| **December 31, 2007:** | ** ** | ** **                              | ** ** | ** **         | ** ** | ** **                                | ** ** | ** **                            | ** ** |
| Copper purchase contracts   |       | 2,876                                   |       | 2008               |       | 3.07                                      |       | $                                     | (293       | ) |
|                             |            |                                         |            |                    |            |                                           |            |                                       |            |  |  |

 

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***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 June 30, 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 June 30, 2008 andDecember 31, 2007 is not significant.

 
| ** **                        | ** ** | ** **               | ** ** | **Weighted **              | ** ** |
|-----------------------------------|------------|--------------------------|------------|---------------------------------|------------|
| **Derivatives**                   | ** ** | **Notional Amount** | ** ** | **Average  Contract Rate** | ** ** |
| ** **                        | ** ** | **(in thousands)**  | ** ** | ** **                      | ** ** |
| **June 30, 2008:**           |       |                     |       |                            |       |   |   |
| U.S. dollars for Euros            |       | 5,200                    |       | USD                             |       | 0.64 |   |
| Canadian dollars for U.S. dollars |       | 1,500                    |       | USD                             |       | 1.02 |   |
| Canadian dollars for U.S. dollars |       | 15,000                   |       | CAD                             |       | 0.98 |   |
| British pounds for Euros          |       | 10,700                   |       | EURO                            |       | 0.79 |   |
| Euros for U.S. dollars            |       | 3,924                    |       | EURO                            |       | 1.57 |   |
| British pounds for Euros          |       | 3,000                    |       | 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 |   |

 

***Purchase Commitments***

 

We accept certain customer orders for future delivery at fixed prices.As copper is the most significant raw material used in the manufacturingprocess, we enter into forward fixed-price purchase commitments with oursuppliers for copper to match our cost to the value of the copper expected tobe billed to customers. At June 30, 2008, we had forward fixed pricecopper purchase commitments for delivery of 29.6 million pounds throughApril 2009 for $109.1 million. Additionally at June 30, 2008, we hadforward purchase fixed price commitments for 0.4 million pounds of aluminumthrough December 2008, 227,000 megawatts of electricity through 2011 and120,000 MMBTUs of natural gas through December 2008 amounting to $0.6million, $21.2 million and $1.0 million, respectively.

 

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**ITEM 4.CONTROLS AND PROCEDURES**

 

*DisclosureControls and Procedures*

 

Asof the end of the period covered by this Form 10-Q, we carried out anevaluation of the effectiveness of the design and operation of our disclosurecontrols and procedures, as defined in Rule 13a-15(e) under theSecurities Exchange Act of 1934, as amended (“Exchange Act”), under thesupervision and with the participation of our management, including our ChiefExecutive Officer and Chief Financial Officer. Based on that evaluation, theChief Executive Officer and Chief Financial Officer concluded that ourdisclosure controls and procedures were effective in providing reasonableassurance that information required to be disclosed by us in reports filed orsubmitted under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in the SEC’s rules and forms,including reasonable assurance that information required to be disclosed inreports filed or submitted by us under the Exchange Act is accumulated andcommunicated to our management, including the Chief Executive Officer and ChiefFinancial Officer, in a manner to allow timely decisions regarding the requireddisclosure. A system of controls, no matter how well designed and operated,cannot provide absolute assurance that the objectives of the system of controlsare met, and no evaluation of controls provides absolute assurance that allcontrol issues and instances of fraud, if any, within a company have beendetected. Notwithstanding the above, our Chief Executive Officer and ChiefFinancial Officer have concluded that our disclosure controls and proceduresare effective at a reasonable assurance level as of June 30, 2008.

 

*Changesin Internal Controls Over Financial Reporting*

 

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

 

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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 andSuperior Essex Communications in the United States District Court for theDistrict 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 and related manufacturingprocesses in the premises products field. Belden completed service of theComplaint and summons upon the Company on April 10, 2008. The Company willvigorously defend against the suit.

 

In 2003, Superior TeleCom and Essex Electric Inc., now known asExeon Inc. (“Exeon”), each filed lawsuits (the “2003 Copper Action”) underSection 1 of the Sherman Act against certain defendants based on analleged conspiracy to elevate the prices of certain copper products duringcertain periods from 1993 to 1996. On June 4, 2007, the parties to the2003 Copper Action (including all plaintiffs and defendants) entered into asettlement pursuant to which the 2003 Copper Action was dismissed withprejudice. The terms of the settlement are confidential. A portion of thesettlement proceeds (approximately $27,000,000) were held in escrow byplaintiffs’ counsel (the “Escrowed Settlement Proceeds”). The Company and Exeoneach claimed to be entitled to the Escrowed Settlement Proceeds and filedclaims with respect to the Escrowed Settlement Proceeds and matters thereto.

 

In April 2008, the Company and Exeon reached an agreement tosettle their claims. Under this settlement agreement, the Company received$19.6 million of the Escrowed Settlement Proceeds.

 

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

 

Thefollowing table provides information about our purchases of shares of ourcommon stock during the quarter ended June 30, 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** | ** ** | **Maximum Number of  Shares that May Yet  Be Purchased Under  the Plans or Programs** | ** ** |
|-------------------|------------|------------------------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------|------------|
|              |       |                                                 |       |                                             |       |                                                                                                                             |       |                                                                                                                                    |       |
| April 2008   |       | 4,301                                                |       | $                                                | 29.32      |                                                                                                                             | —     |                                                                                                                                    | —     |   |
| May 2008     |       | —                                               |       | —                                           |       | —                                                                                                                           |       | —                                                                                                                                  |       |
| June 2008(a) |       | —                                               |       | —                                           |       | —                                                                                                                           |       | —                                                                                                                                  |       |
|                   |            |                                                      |            |                                                  |            |                                                                                                                                  |            |                                                                                                                                         |            |  |

 

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(a)                                  Represents shares withheldfrom members of management to satisfy minimum statutory tax withholdings due asa result of the vesting restricted stock awards.

 

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**ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

Thefollowing matters were submitted to a vote of security holders at the Company’sannual meeting of shareowners held on May 6, 2008:

 
| ** **                                                                                                  | ** ** | **Votes Cast** | ** ** | ** **  | ** ** | ** **  | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|-------------|------------|-------------|------------|
| ** **                                                                                                  | ** ** | **For**             | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Broker Non-Votes** | ** ** |
| Election of Class II directors:                                                                        |       |                |       |        |       |        |       |   |   |
| Stephanie W. Bergeron                                                                                       |       | 12,602,657          |       | 5,221,258   |       | 154,820     |       | — |   |
| Thomas H. Johnson                                                                                           |       | 16,654,176          |       | 1,169,740   |       | 154,820     |       | — |   |
| Perry J. Lewis                                                                                              |       | 16,967,282          |       | 850,382     |       | 161,074     |       | — |   |
| Company proposals to:                                                                                       |       |                |       |        |       |        |       |   |   |
| Authorize amendments to the Superior Essex Inc. 2005 Incentive Plan                                         |       | 15,115,543          |       | 1,140,706   |       | 244,932     |       | 1,477,557 |   |
| Ratification of appointment of PricewaterhouseCoopers LLP as independent  registered public accounting firm |       | 17,284,342          |       | 542,393     |       | 152,002     |       | — |   |

 

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**ITEM 6.EXHIBITS**

 
| **Exhibit  Number**   | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|-----------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    2.1 |       | Agreement  and Plan of Merger, dated as of June 11, 2008, by and between LS Cable  Ltd. and Superior Essex Inc. (incorporated herein by reference to  Exhibit 2.1 to the Current Report on Form 8-K of Superior Essex  Inc. dated June 13, 2008).                                                                                                                                                                           |
|    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).                                                                          |
|  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 (incorporated herein by reference to  Exhibit 10.10 to the Quarterly Report on Form 10-Q of Superior  Essex Inc. for the quarter ended March 31, 2008)                                                                                                                                                                                                                                |
| 10.11*                |       | Amended  and Restated Employment Agreement dated June 11, 2008 between Stephen M.  Carter and Superior Essex Inc. (incorporated herein by reference to  Exhibit 10.1 to the Current Report on Form 8-K of Superior Essex  dated June 13, 2008)                                                                                                                                                                              |

 

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| 10.12*      |   | Amended  and Restated Employment Agreement dated June 11, 2008 between David S.  Aldridge and Superior Essex Inc. (incorporated herein by reference to  Exhibit 10.2 to the Current Report on Form 8-K of Superior Essex  dated June 13, 2008)         |
|-------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.13*      |   | Amended  and Restated Employment Agreement dated June 11, 2008 between Justin F.  Deedy, Jr. and Superior Essex Inc. (incorporated herein by reference to  Exhibit 10.3 to the Current Report on Form 8-K of Superior Essex  dated June 13, 2008) |
| 10.14*      |   | Amended  and Restated Employment Agreement dated June 11, 2008 between Barbara L.  Blackford and Superior Essex Inc. (incorporated herein by reference to  Exhibit 10.3 to the Current Report on Form 8-K of Superior Essex  dated June 13, 2008)      |
|  10.16 |   | Amended  director compensation schedule, effective July 1, 2008, to the Director  Compensation Plan approved December 5, 2006.                                                                                                                                             |
|   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.                                                                                                                                                                                     |

 

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*                Management contract orcompensatory plan or arrangement.

 

**SIGNATURES**

 

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

 
|                       | Superior  Essex Inc. |
|----------------------------|----------------------|
|                       |                 |
|                       | By:                  | /s/  DAVID S. ALDRIDGE |
|                       |                 | David  S. Aldridge |
|                       |                 | *Executive  Vice President, Chief Financial Officer* |
|                       |                 | *and  Treasurer* |
|                       |                 | (duly  authorized officer and principal financial |
| Date:  August 7, 2008 |                 | officer) |

 

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