**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q**

 
| **(Mark One)**                                                                                                                                                                              | ** **                                                                                                    |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------|
| **ý**                                                                                                                                                                                  | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**  |
| ** **                                                                                                                                                                                  |
| **For the Quarterly Period Ended March 31,  2006**                                                                                                                                          |
| ** **                                                                                                                                                                                  |
| **or**                                                                                                                                                                                      |
| ** **                                                                                                                                                                                  |
| **o**                                                                                                                                                                                       | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                                                                  |
| **For the transition period from              to            ** |

 

**Commission file number 0-50514**

 

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**SUPERIOR ESSEX INC.**

(Exact name of registrant as specified in itscharter)

 

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

 

**770-657-6000**

Registrant’s telephone number, including areacode

 

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

 

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

Large accelerated filer o               Acceleratedfiler ý               Non-acceleratedfiler o

 

Indicate by check mark whether the registrantis a shell company (as defined in Rule 12b-2 of the Exchange Act).o Yes ýNo

 

Indicate by check mark whether the registrant has filed all documentsand reports required to be filed by Section 12, 13 or 15(d) of theSecurities Exchange Act of 1934 subsequent to the distribution of securitiesunder a plan confirmed by a court. Yes ý  No o

 

As of May 2, 2006, the registrant had 17,394,287 shares of commonstock, $0.01 par value, outstanding.

 

 

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**PART I. FINANCIAL INFORMATION**

 

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

 

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

 

•**                 **“SuperiorTeleCom,” unless the context otherwise requires, refers to SuperiorTeleCom Inc. and its subsidiaries and the business carried on by themprior to November 10, 2003.

 

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

 

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

 

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

 

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

 

•**                 **“Essex Nexans” refers to our 60% ownedcorporate joint venture, Essex Nexans Europe S.A.S.

 

1

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**Forward-Looking Statements**

 

ThisForm 10-Q contains “forward-looking statements” within the meaning ofSection 27A of the Securities Act of 1933, as amended, andSection 21E of the Securities Exchange Act of 1934, as amended, or theExchange Act. These forward-looking statements are based on currentexpectations, estimates and forecasts about us, our future performance, theindustries in which we operate and our liquidity. In addition, other writtenand oral statements that constitute forward-looking statements may be made byus or on our behalf. Such forward-looking statements include statementsregarding expected financial results and other planned events, including, butnot limited to, anticipated liquidity and capital expenditures. Words such as “anticipate,”“assume,” “believe,” “estimate,” “expect,” “intend,” “plan,” “seek,” “target,” “goal,”variations of such words and similar expressions are intended to identify suchforward-looking statements. These statements are not guarantees of futureperformance and involve certain risks, uncertainties and assumptions that aredifficult to predict. Therefore, actual future events or results may differmaterially from these statements. These risks and uncertainties include theimpact of the following:

 

•       General economic, business and industryconditions;

 

•       Spending reductions by the telecommunicationsindustry;

 

•       Competition, including from other wire andcable manufacturers and other alternative sources and technologies;

 

•       Increases or decreases in sales due tocontract losses or gains as expirations, renewals and rebidding efforts occur;

 

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

 

•       Market acceptance of new products andcontinuing product demand;

 

•       Production and timing of customer orders;

 

•       The migration of magnet wire demand to Chinaand other countries;

 

•       Fluctuations in the supply, availability andpricing of copper and other principal raw materials, natural gas, fuel andfreight;

 

•       Our significant level of indebtedness anddebt covenant requirements;

 

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

 

•       Our ability to sustain the benefits of ouracquisition of assets from Belden Inc. and Nexans Magnet WireUSA Inc.;

 

•       Our ability to integrate the operations ofour European magnet wire joint venture with Nexans and attain the expectedbenefits of the transaction and to identify, finance and integrate otheracquisitions;

 

•       Our ability to successfully construct andoperate a magnet wire facility in China;

 

•       Changes in short-term interest rates andforeign exchange rates;

 

•       A deterioration in our labor relations;

 

•       The volatility of the market price of ourcommon stock; and

 

•       Other risks and uncertainties, includingthose included under the caption “Risk factors” in our Annual Report on Form10K for the year ended December 31, 2005.

 

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

 

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**ITEM 1. FINANCIAL STATEMENTS**

 

**SUPERIOR ESSEX INC. AND SUBSIDIARIES**

 

**CONSOLIDATED BALANCE SHEETS**

 

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

 

**(unaudited)**

** **
| ** **                                                                                                                                                            | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                                                                            |       |                     |       |                        |       |
| Current assets:                                                                                                                                                       |       |                     |       |                        |       |
| Cash and cash equivalents                                                                                                                                             |       | $                        | 7,314      |                        | $          | 8,184 |   |
| Accounts receivable (less allowance for  doubtful accounts of $6,293 and $5,151 at March 31, 2006 and  December 31, 2005, respectively)                     |       | 339,458                  |       | 259,615                     |       |
| Inventories, net                                                                                                                                                      |       | 263,834                  |       | 238,355                     |       |
| Other current assets                                                                                                                                                  |       | 36,029                   |       | 35,385                      |       |
| Total current assets                                                                                                                                                  |       | 646,635                  |       | 541,539                     |       |
| Property, plant and equipment, net                                                                                                                                    |       | 240,577                  |       | 240,732                     |       |
| Intangible and other long-term assets, net                                                                                                                            |       | 40,420                   |       | 45,921                      |       |
| Total assets                                                                                                                                                          |       | $                        | 927,632    |                        | $          | 828,192 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                        |       |                     |       |                        |       |
| Current liabilities:                                                                                                                                                  |       |                     |       |                        |       |
| Short-term borrowings                                                                                                                                                 |       | $                        | 14,809     |                        | $          | 34,119 |   |
| Current portion of long-term debt                                                                                                                                     |       | 507                      |       | 499                         |       |
| Accounts payable                                                                                                                                                      |       | 174,403                  |       | 143,931                     |       |
| Accrued expenses                                                                                                                                                      |       | 93,140                   |       | 92,426                      |       |
| Total current liabilities                                                                                                                                             |       | 282,859                  |       | 270,975                     |       |
| Long-term debt                                                                                                                                                        |       | 346,690                  |       | 279,226                     |       |
| Other long-term liabilities, primarily  pension obligations                                                                                                           |       | 50,923                   |       | 51,516                      |       |
| Total liabilities                                                                                                                                                     |       | 680,472                  |       | 601,717                     |       |
| Minority interest in consolidated  subsidiaries                                                                                                                       |       | 21,726                   |       | 20,822                      |       |
| Stockholders’ equity:                                                                                                                                            |       |                     |       |                        |       |
| Preferred stock, $.01 par value; 7,000,000  shares authorized, none issued or outstanding                                                                             |       | —                   |       | —                      |       |
| Common stock, $.01 par value; 33,000,000  shares authorized; 17,406,319 and 17,294,848 shares issued at March 31,  2006 and December 31, 2005, respectively |       | 174                      |       | 173                         |       |
| Capital in excess of par value (note 1)                                                                                                                               |       | 174,780                  |       | 175,928                     |       |
| Accumulated other comprehensive loss                                                                                                                                  |       | (1,154                   | )          | (4,361                      | )          |
| Retained earnings                                                                                                                                                     |       | 53,056                   |       | 39,957                      |       |
| Equity-based unearned compensation (note 1)                                                                                                                           |       | —                   |       | (4,920                      | )          |
| Treasury stock, at cost (78,304 shares and  66,793 shares at March 31, 2006 and December 31, 2005, respectively)                                                      |       | (1,422                   | )          | (1,124                      | )          |
| Total stockholders’ equity                                                                                                                                       |       | 225,434                  |       | 205,653                     |       |
| Total liabilities and stockholders’ equity                                                                                                                       |       | $                        | 927,632    |                        | $          | 828,192 |   |

 

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

 

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**SUPERIOR ESSEX INC. AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF OPERATIONS**

 

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

 

**(unaudited)**

 
| ** **                                                            | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                            | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| Net sales                                                             |       | $                                                | 651,694    |   | $ | 403,288 |   |
| Cost of goods sold                                                    |       | 593,245                                          |       | 361,367 |   |
| Gross profit                                                          |       | 58,449                                           |       | 41,921 |   |
| Selling, general and administrative  expenses                         |       | (35,612                                          | )          | (25,473 | ) |
| Restructuring and other charges                                       |       | (781                                             | )          | (452 | ) |
| Asset impairment charge (note 4)                                      |       | —                                           |       | (2,306 | ) |
| Gain on sale of product line (note 5)                                 |       | —                                           |       | 10,355 |   |
| Operating income                                                      |       | 22,056                                           |       | 24,045 |   |
| Interest expense                                                      |       | (8,078                                           | )          | (7,073 | ) |
| Gain on sale of investment (note 5)                                   |       | 5,788                                            |       | — |   |
| Other income, net                                                     |       | 198                                              |       | 115 |   |
| Income before income taxes, minority  interest and extraordinary gain |       | 19,964                                           |       | 17,087 |   |
| Income tax expense                                                    |       | (7,703                                           | )          | (7,106 | ) |
| Income before minority interest and  extraordinary gain               |       | 12,261                                           |       | 9,981 |   |
| Minority interest in earnings of  subsidiaries                        |       | (33                                              | )          | — |   |
| Income before extraordinary gain                                      |       | 12,228                                           |       | 9,981 |   |
| Extraordinary gain (net of minority  interest of $581)- (note 5)      |       | 871                                              |       | — |   |
| Net income                                                            |       | 13,099                                           |       | $ | 9,981 |   |
| Net income per share of common stock:                                 |       |                                             |       |   |   |
| Basic:                                                                |       |                                             |       |   |   |
| Income before extraordinary gain                                      |       | $                                                | 0.73       |   | $ | 0.60 |   |
| Extraordinary gain                                                    |       | 0.05                                             |       | — |   |
| Net income                                                            |       | $                                                | 0.78       |   | $ | 0.60 |   |
| Diluted:                                                              |       |                                             |       |   |   |
| Income before extraordinary gain                                      |       | $                                                | 0.71       |   | $ | 0.59 |   |
| Extraordinary gain                                                    |       | 0.05                                             |       | — |   |
| Net income                                                            |       | $                                                | 0.76       |   | $ | .059 |   |
| Weighted average shares outstanding:                                  |       |                                             |       |   |   |
| Basic                                                                 |       | 16,760                                           |       | 16,584 |   |
| Diluted                                                               |       | 17,200                                           |       | 16,889 |   |

 

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

 

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**SUPERIOR ESSEX INC. AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 

**(in thousands)**

 

**(unaudited)**

 
| ** **                                                                                | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| Cash flows from operating activities:                                                     |       |                                             |       |   |   |
| Net income                                                                                |       | $                                                | 13,099     |   | $ | 9,981 |   |
| Adjustments to reconcile net income to net  cash used for operating activities:           |       |                                             |       |   |   |
| Depreciation and amortization                                                             |       | 6,662                                            |       | 5,768 |   |
| Amortization of deferred financing costs  and discount                                    |       | 610                                              |       | 488 |   |
| Asset impairment charges (note 4)                                                         |       | —                                           |       | 2,306 |   |
| Gain on sale of investment (note 5)                                                       |       | (5,788                                           | )          | — |   |
| Gain on sale of product line (note 5)                                                     |       | —                                           |       | (10,355 | ) |
| Minority interest in earnings of subsidiary                                               |       | 33                                               |       | — |   |
| Extraordinary gain (net of minority  interest)                                            |       | (871                                             | )          | — |   |
| Settlement of derivatives                                                                 |       | 4,348                                            |       | 149 |   |
| Change in operating assets and liabilities:                                               |       |                                             |       |   |   |
| Accounts receivable, net                                                                  |       | (77,124                                          | )          | (37,858 | ) |
| Inventories, net                                                                          |       | (22,823                                          | )          | (28,539 | ) |
| Other current and non-current assets                                                      |       | 660                                              |       | 2,137 |   |
| Accounts payable, accrued expenses and  other liabilities                                 |       | 30,800                                           |       | 18,139 |   |
| Other, net                                                                                |       | 1,207                                            |       | 578 |   |
| Cash flows used for operating activities                                                  |       | (49,187                                          | )          | (37,206 | ) |
| Cash flows from investing activities:                                                     |       |                                             |       |   |   |
| Capital expenditures                                                                      |       | (7,889                                           | )          | (3,149 | ) |
| SDS acquisition, net of cash acquired (note  5)                                           |       | (947                                             | )          | — |   |
| Proceeds from sale of investment (note 5)                                                 |       | 8,500                                            |       | — |   |
| Belden asset acquisition contingent payment                                               |       | —                                           |       | (10,000 | ) |
| Proceeds from sale of product line (note 5)                                               |       | —                                           |       | 11,563 |   |
| Other                                                                                     |       | —                                           |       | 2 |   |
| Cash flows used for investing activities                                                  |       | (336                                             | )          | (1,584 | ) |
| Cash flows from financing activities:                                                     |       |                                             |       |   |   |
| Borrowings under senior secured revolving  credit facility, net                           |       | 53,948                                           |       | 22,032 |   |
| Payments on Essex Nexans short-term  borrowings, net                                      |       | (6,597                                           | )          | — |   |
| Proceeds from exercise of stock options                                                   |       | 992                                              |       | 545 |   |
| Excess tax benefits resulting from exercise  of stock options and vesting of stock awards |       | 218                                              |       | — |   |
| Cash flows provided by financing activities                                               |       | 48,561                                           |       | 22,577 |   |
| Effect of exchange rate changes on cash                                                   |       | 92                                               |       | (59 | ) |
| Net decrease in cash and cash equivalents                                                 |       | (870                                             | )          | (16,272 | ) |
| Cash and cash equivalents at beginning of  period                                         |       | 8,184                                            |       | 18,312 |   |
| Cash and cash equivalents at end of period                                                |       | $                                                | 7,314      |   | $ | 2,040 |   |
| Supplemental disclosures:                                                                 |       |                                             |       |   |   |
| Cash paid for interest                                                                    |       | $                                                | 1,448      |   | $ | 761 |   |
| Cash paid for income taxes, net                                                           |       | $                                                | 9,484      |   | $ | 3,459 |   |

 

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

 

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**SUPERIOR ESSEX INC. AND SUBSIDIARIES**

 

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS**

 

**March 31, 2006**

 

**(unaudited)**

 

**1.             General**

 

***Basis ofpresentation***

 

The accompanying unaudited consolidated financial statements have beenprepared in 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 three months endedMarch 31, 2006 are not necessarily indicative of the results to be expectedfor the entire fiscal year. These financial statements should be read inconjunction with the audited consolidated financial statements and notesthereto included in Superior Essex Inc.’s Annual Report on Form 10-Kfor the year ended December 31, 2005.

 

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

 

***Stock-BasedCompensation Plans***

 

Effective January 1, 2006 the Company adopted Statement of FinancialAccounting Standards (“SFAS”) No. 123(R), *Share-Based Payment.*SFAS No. 123(R) requires all entities to recognize compensation expense in anamount equal to the fair value of share-based payments (e.g. stock options and unvestedstock awards) granted to employees. SFAS No. 123(R) also requires recognitionof compensation expense based on the grant date fair value for the unvestedportion of outstanding options and awards granted prior to the adoption date. Priorto the adoption of SFAS No. 123(R) the Company applied the intrinsic-valuebased method of accounting prescribed by Accounting Principles Board (“APB”)Opinion No. 25, *Accounting for StockIssued to Employees*, and related interpretations including FASBInterpretation No. 44, *Accounting forCertain Transactions involving Stock Compensation, an interpretation of APBOpinion No. 25*, issued in March 2000, to account for stock-basedcompensation plans. Under this method, compensation expense was recorded onlyif the market price of the underlying stock on the date of grant exceeded theexercise price. The Company adopted SFAS No. 123(R) using the modifiedprospective method and accordingly, results from prior periods have not beenrestated. The adoption of FAS 123(R) resulted in a decrease in income beforeincome taxes, minority interest and extraordinary gain, net income and netincome per diluted common share of $0.2 million, $0.1 million and $0.01,respectively, for the three months ended March 31, 2006. Additionally, as aresult of the initial adoption of FAS 123(R), contra-equity balances forunearned stock-based compensation of $4.9 million were reclassified to capitalin excess of par value and accrued liabilities of $1.3 million related tounexercised stock options were credited to capital in excess of par value. Compensationexpense attributable to all stock-based compensation plans is recognized on astraight-line basis over the related vesting period. The Company’s policy is toissue authorized but unissued shares to satisfy stock option exercises.

 

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SFAS No. 123, *Accounting forStock-Based Compensation*, established accounting and disclosurerequirements using a fair-value based method of accounting for stock-based employeecompensation plans for periods prior to the adoption of SFAS 123(R). As allowedby SFAS No. 123, prior to 2006 the Company elected to continue to applythe intrinsic-value based method of accounting described above, and adoptedonly the disclosure requirements of SFAS No. 123. The following tableillustrates the effect on net income if the fair-value based method had beenapplied to all outstanding awards for the three months ended March 31, 2005 (inthousands except per share data):

 
| Net income, as reported                                                                                                      |   | $      | 9,981  |   |
|------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| Add stock-based employee compensation  expense included in reported net income, net of tax                                   |   | 379    |   |
| Deduct total stock-based employee  compensation expense determined under fair-value based method for all awards,  net of tax |   | (492   | )      |
| Pro forma net income                                                                                                         |   | $      | 9,868  |   |
| Net income per share:                                                                                                        |   |   |   |
| As reported:                                                                                                                 |   |   |   |
| Basic                                                                                                                        |   | $      | 0.60   |   |
| Diluted                                                                                                                      |   | 0.59   |   |
| Pro forma:                                                                                                                   |   |   |   |
| Basic                                                                                                                        |   | 0.60   |   |
| Diluted                                                                                                                      |   | 0.59   |   |

 

**2.             Inventories,net**

 

At March 31, 2006 and December 31, 2005, the components ofinventories were as follows:

 
| ** **      | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|-----------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **      | ** ** | **(in thousands)**  | ** ** |
| Raw materials   |       | $                        | 33,368     |                        | $          | 32,530 |   |
| Work in process |       | 70,013                   |       | 56,304                      |       |
| Finished goods  |       | 232,152                  |       | 207,280                     |       |
|            |       | 335,533                  |       | 296,114                     |       |
| LIFO reserve    |       | (71,699                  | )          | (57,759                     | )          |
|            |       | $                        | 263,834    |                        | $          | 238,355 |   |

 

Inventories valued using the LIFO method amounted to $125.4 millionand $119.7 million at March 31, 2006 and December 31, 2005,respectively.

 

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**3.             Comprehensiveincome**

 

The components of comprehensive income for the three months endedMarch 31, 2006 and 2005 were as follows:

 
| ** **                                                                                                                                                                              | ** ** | **2006**                | ** ** | **2005** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|----------|------------|
| ** **                                                                                                                                                                              | ** ** | **(in thousands)** | ** ** |
| Net income                                                                                                                                                                              |       | $                       | 13,099     |     | $          | 9,981 |   |
| Foreign currency translation adjustment                                                                                                                                                 |       | 499                     |       | (274     | )          |
| Unrealized holding gains on derivatives  during the period, net of income tax of $2,627 and $504 for the three months  ended March 31, 2006 and 2005, respectively                 |       | 4,102                   |       | 799      |       |
| Less reclassification adjustment for gains  on derivatives included in net income, net of income tax of $930 and $415 for  the three months ended March 31, 2006 and 2005, respectively |       | (1,453                  | )          | (650     | )          |
| Net unrealized gains on derivatives                                                                                                                                                     |       | 2,649                   |       | 149      |       |
| Other                                                                                                                                                                                   |       | 59                      |       | 47       |       |
| Comprehensive income                                                                                                                                                                    |       | $                       | 16,306     |     | $          | 9,903 |   |

 

The components of accumulated other comprehensive loss atMarch 31, 2006 and December 31, 2005 were as follows:

 
| ** **                                                                                                                                 | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                 | ** ** | **(in thousands)**  | ** ** |
| Foreign currency translation adjustment                                                                                                    |       | $                        | 869        |                        | $          | 370 |   |
| Unrealized gain on derivatives, net of  deferred tax of $3,762 and $2,065 at March 31, 2006 and December 31,  2005, respectively |       | 5,880                    |       | 3,231                       |       |
| Additional minimum pension liability, net  of deferred tax of $5,090 at March 31, 2006 and December 31, 2005                     |       | (7,965                   | )          | (7,965                      | )          |
| Other                                                                                                                                      |       | 62                       |       | 3                           |       |
|                                                                                                                                       |       | $                        | (1,154     | )                           | $          | (4,361 | ) |

 

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

 

Essex Nexans recorded a restructuring reserve of $0.9 million duringthe first quarter of 2006 with respect to planned workforce reductions at oneof its manufacturing facilities in Germany. The reserve was recorded as part ofthe continued refinement of the initial purchase price allocation to the assetsand liabilities acquired in the Essex Nexans acquisition (see Note 5) and didnot impact operating results. Essex Nexans also recorded a restructuringreserve of $1.0 million as part of the initial purchase price allocation in connectionwith the acquisition of SDS (see Note 5). In the first quarter of 2006, EssexNexans recorded a provision of $0.7 million which was charged to operations relatedto workforce reductions at the Company’s U.K. magnet wire operations. Allrestructuring activities are expected to be completed in 2006. A summary of thechanges in the restructuring reserves for the three months ended March 31, 2006is as follows (in thousands):

 
| ** **                      | ** ** | **Germany**             | ** ** | **SDS** | ** ** | **U.K.** | ** ** | **Total** | ** ** |
|---------------------------------|------------|-------------------------|------------|---------|------------|----------|------------|-----------|------------|
| ** **                      | ** ** | **(in thousands)** | ** ** |
| Balance at December 31, 2005    |       | $                       | —     |    | $          | —   |       | $         | 134        |   | $ | 134 |   |
| Essex Nexans transaction        |       | 911                     |       | —  |       | —   |       | 911       |       |
| SDS acquisition                 |       | —                  |       | 989     |       | —   |       | 989       |       |
| Increases charged to operations |       | —                  |       | —  |       | 663      |       | 663       |       |
| Payments                        |       | (225                    | )          |    |       | (136     | )          | (361      | )          |
| Foreign currency effects        |       | 8                       |       | 19      |       | 4        |       | 31        |       |
| Balance at March 31, 2006       |       | $                       | 694        |    | $          | 1,008    |       | $         | 665        |   | $ | 2,367 |   |

 

In addition to the amounts above, restructuring and other charges forthe three months ended March 31, 2006 included $0.1 million related primarilyto professional fees incurred in connection with the administration of SuperiorTeleCom’s plan of

 

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reorganization. Restructuring and other charges for the three monthsended March 31, 2005 consisted of $0.4 million of facility exit costsrelated to closure of an insulation manufacturing facility in Athens, Georgiaand $0.1 million of professional fees related to the administration of theplan of reorganization. The facility exit costs primarily consisted of futurelease payments net of estimated sublease rentals.

 

During the three months ended March 31, 2005 the Company recordedan impairment charge of $2.3 million related to property, plant andequipment of the Company’s U.K. subsidiary. The Company evaluated the long-livedassets of its U.K. subsidiary for impairment as of March 31, 2005 afterconsideration of the continued deterioration in the European magnet wire marketin the first quarter of 2005, the loss of a major customer in 2005 andnegotiated reductions in the value ascribed to the U.K. net assets inconnection with the Essex Nexans acquisition (see Note 5). The impairmenttest was based on probability weighted estimated cash flows associated withsuch assets. The fair value of the assets was based on appraised valuedetermined primarily by comparison to prices for similar assets. The U.K.operation is included in the European magnet wire and distribution segment.

 

**5.             Acquisitionsand dispositions**

 

***Essex Nexansacquisition***

*** ***

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

 

The Agreement providesfor the Company to pay additional contingent cash consideration to Nexans of upto $3.6 million (€3.0 million) if Essex Nexans achieves certainspecified levels of Adjusted EBITDA (as defined in the Agreement) for the yearended December 31, 2006. The preliminary fair value of the net assetsacquired exceeded the purchase price and therefore the full amount of thecontingent payment was accrued by the Company as of October 21, 2005.

 

In connection with thetransaction, Essex Nexans entered into agreements to purchase a significantportion of its copper rod and pre-drawn copper wire requirements from Nexans.The purchase agreements expire on December 31, 2008 with automatic oneyear renewals unless cancelled by either party upon six months prior notice inthe case of copper rod and twelve months prior notice in the case of drawn copperwire. Total purchases pursuant to these agreements amounted to $59.0 millionfor the three months ended March 31, 2006.

 

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

 

***SDS acquisition***

 

On January 4, 2006, Essex Nexans acquired all ofthe outstanding capital stock of Societe de Distribution et de Services (“SDS”)from Nexans for a cash payment of $1.2 million. SDS is engaged in the businessof distributing magnet wire and related products in France. The assets acquiredand liabilities assumed in the SDS acquisition and the pro forma results ofoperations reflecting the SDS acquisition are not significant. In connectionwith the acquisition, Essex Nexans recorded a restructuring reserve of $1.0 millionrelated primarily to workforce reductions and the closure of certain of SDS’sleased warehouse locations. Nexans has agreed to reduce the purchase price forthe restructuring costs incurred by Essex Nexans up to a maximum of $1.2million. The acquisition of SDS was accounted for as a purchase and the resultsof operations of SDS have been included in the Company’s results of operationsfrom the date of acquisition. The preliminary allocation of the acquisitioncost resulted in unallocated negative goodwill of $1.5 million which has beenreflected as an extraordinary gain (net of minority interest of $0.6 million) inthe statement of operations for the three months ended March 31, 2006. TheCompany is in the process of finalizing certain asset and liability valuationsand therefore the allocation of the acquisition cost, including the amount ofunallocated negative goodwill, is subject to refinement and adjustment.

 

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***Essex Electricdisposition***

 

In January2006 the Company sold its investment in the common stock of Essex Electric Inc.together with its warrant to purchase additional shares of Essex Electric Inc.to The Alpine Group, Inc. for a cash payment of $8.5 million. As a result ofthe transaction the Company recognized a pre-tax gain of $5.8 million.Following the sale the Company no longer has any equity interest in EssexElectric Inc.

 

***US Seal disposition***

 

On March 4, 2005, the Company sold accounts receivable andinventory totaling approximately $1.2 million together with relatedtrademarks and service names constituting the business conducted by the Companyunder the US Seal trade name for a net total purchase price of$11.6 million. A gain of $10.4 million was recognized on the sale. Inconnection with the sale, the Company also signed a non-exclusive distributionagreement to act as a distributor for certain of the US Seal products for a periodof five years. The Company believes the expected revenues under thedistribution agreement represent a significant continuation of the direct cashflows of the disposed US Seal product line and accordingly, the disposition isnot reported as a discontinued operation in accordance with SFAS No. 144, *Accounting for the Impairment and Disposal ofLong-Lived Assets* and EITF Issue No. 03-13. The US Seal productline is included in the North American magnet wire and distribution segment.

 

**6.             Debt**

 

At March 31, 2006 and December 31, 2005, short-termborrowings and long-term debt consist of the following:

 
| ** **                                                                                                              | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                              | ** ** | **(in thousands)**  | ** ** |
| Short-term borrowings:                                                                                                  |       |                     |       |                        |       |
| Senior secured revolving credit facility                                                                                |       | $                        | —     |                        | $          | 13,049 |   |
| Essex Nexans factoring agreement                                                                                        |       | 14,809                   |       | 21,070                      |       |
|                                                                                                                    |       | $                        | 14,809     |                        | $          | 34,119 |   |
| Long-term debt:                                                                                                         |       |                     |       |                        |       |
| Short-term borrowings refinanced - senior  secured revolving credit facility                                            |       | $                        | 66,995     |                        | —     |   |
| 9% senior notes (net of discount of $5,811  and $5,987 at March 31, 2006 and December 31, 2005, respectively) |       | 251,289                  |       | 251,113                     |       |
| Series A redeemable preferred stock                                                                                     |       | 5,000                    |       | 5,000                       |       |
| 8.975% subordinated note of Essex Nexans                                                                                |       | 13,646                   |       | 13,416                      |       |
| Other                                                                                                                   |       | 10,267                   |       | 10,196                      |       |
|                                                                                                                    |       | 347,197                  |       | 279,725                     |       |
| Less current portion of long-term debt                                                                                  |       | 507                      |       | 499                         |       |
| Total long-term debt                                                                                                    |       | $                        | 346,690    |                        | $          | 279,226 |   |

 

On April 14, 2006, Superior Essex Communications and Essex Group, asborrowers, entered into an amendment and restatement of their existing seniorsecured revolving credit facility. The amended and restated senior securedrevolving credit facility, among other things:

 

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

 

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

 

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

 

•              providedgreater flexibility with respect to certain restrictive covenants.

 

Interest on the amended and restated senior secured credit facilityaccrues on outstanding borrowings at an annual rate equal to, at the borrowers’option, LIBOR or a base rate, plus, in each case, an applicable margin asdiscussed above. Obligations under the amended and restated senior securedcredit facility are secured by substantially all domestic assets of the Companyand 65% of the voting stock of the Company’s foreign subsidiaries other thanEssex Nexans. Availability under the amended and restated senior secured creditfacility is subject to a borrowing base equal to the lesser of (1) $225 millionless outstanding letters of credit

 

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and (2) a specified percentage of eligible accounts receivable andinventory less specified reserves. The specified percentages are (i) 85% of thevalue of the eligible accounts receivable and with respect to inventory thelesser of (a) $110 million or (b) the lesser of (x) 65% of the value ofeligible inventory and (y) 85% multiplied by the net orderly liquidationpercentage then applicable multiplied by the value of the eligible inventory. Certainof the specified reserves that reduce availability are not fixed and may be increasedor imposed by the administrative agent for the amended and restated seniorsecured credit facility at its reasonable credit judgment. The borrowers areobligated to pay an unused commitment fee of 0.25% per annum on the unusedamount of the maximum committed amounts and a fee of 0.125% per annum on theoutstanding face amount of outstanding letters of credit. Undrawn availabilityunder the amended and restated senior secured credit facility on a pro formabasis would have been $155.9 million as of March 31, 2006. Based on the termsof the amended and restated senior secured credit facility and the provisionsof Statement of Financial Accounting Standards No. 6, *Classificationof Short-Term Obligations Expected to Be Refinanced*, the balance ofthe senior secured credit facility has been reclassified as long-term debt asof March 31, 2006.

 

The amended and restated 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 or makeother 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 or acquisitions.Capital expenditures, distributions and asset dispositions are not limited solong as no event of default exists and the borrowers meet certain availabilityand liquidity conditions specified in the amended and restated senior securedcredit facility.

 

The indenture governing the 9% senior notes contains covenants whichrestrict the ability of the Company and certain of its subsidiaries to, amongother things: incur additional debt and issue preferred stock; make certaindistributions, investments and other restricted payments; create certain liens;enter into transactions with affiliates; and merge, consolidate or sellsubstantially all of the Company’s assets.

 

**7.             Incomeper share**

 

The computation of basic and diluted income before extraordinary gain pershare for the three months ended March 31, 2006 and 2005 is as follows:

 
| ** **                                                 | ** ** | **2006**                                                              | ** ** | **2005**   | ** ** |
|------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|------------|------------|
| ** **                                                 | ** ** | **Net  Income**                                                       | ** ** | **Shares** | ** ** | **Per Share  Amount** | ** ** | **Net  Income** | ** ** | **Shares** | ** ** | **Per Share  Amount** | ** ** |
| ** **                                                 | ** ** | **(in thousands, except per share amounts)** | ** ** |
| Basic income per common share before extraordinary  gain   |       | $                                                                     | 12,228     |       | 16,760     |   | $ | 0.73 |   | $ | 9,981 |   | 16,584 |   | $ | 0.60 |   |
| Effect of dilutive securities                              |       |                                                                  |       |       |       |   |   |   |   |   |   |   |   |
| Restricted stock awards                                    |       | —                                                                |       | 213        |       |   |   | — |   | 130 |   |   |   |
| Stock options                                              |       | —                                                                |       | 227        |       |   |   | — |   | 175 |   |   |   |
| Diluted income per common share before  extraordinary gain |       | $                                                                     | 12,228     |       | 17,200     |   | $ | 0.71 |   | $ | 9,981 |   | 16,889 |   | $ | 0.59 |   |

 

A total of 1,127,430 and 868,421 anti-dilutive weighted average shareswith respect to outstanding stock options, restricted stock awards and SuperiorEssex’s warrant have been excluded from the computation of diluted income pershare for the three months ended March 31, 2006 and 2005, respectively.

 

**8.             Stock-basedcompensation plans**

 

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

 

In May 2005 theshareholders of the Company approved the Superior Essex Inc. 2005 IncentivePlan (the “2005 Plan”) pursuant to which a committee of the Company’s board ofdirectors may grant stock options, stock appreciation rights, restricted stock,restricted stock units, deferred stock units, performance awards, dividend and

 

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interestequivalents and cash-based awards to eligible employees, officers, non-employeedirectors and consultants. Stock options can be granted under the 2005 Planwith an exercise price equal to or greater than the stock’s fair market valueat the date of grant. The term of stock options granted may not exceed10 years. A total of 500,000 shares of common stock are reserved forissuance under the 2005 Plan. In addition, unissued awards and any sharesunderlying currently outstanding options granted under the 2003 Plan whichexpire unexercised are available for issuance under the 2005 Plan. As a resultof adoption of the 2005 Plan, no further grants or awards may be made pursuantto the 2003 Plan.

 

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

 

Total compensation costrelated to all stock-based compensation plans was $1.3 million and $0.6 millionfor the three months ended March 31, 2006 and 2005, respectively. The totalincome tax benefit recognized with respect to all stock-based compensationplans was $0.5 million and $0.2 million for the three months ended March 31,2006 and 2005, respectively. As ofMarch 31, 2006, there was $9.6 million of unrecognized compensation costrelated to the Company’s stock-based compensation plans which is expected to berecognized over a weighted average period of 2.0 years.

 

The following table summarizes stock option activity for the threemonths ended March 31, 2006:

 
| ** **                       | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual  Term (in  years)** | ** ** | **Aggregate  Intrinsic  Value (in  thousands)** | ** ** |
|----------------------------------|------------|------------|------------|----------------------------------------|------------|----------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                       | ** ** | ** ** | ** ** | ** **                             | ** ** | ** **                                                           | ** ** | ** **                                           | ** ** |
| Outstanding at December 31, 2005 |       | 1,059,000  |       | $                                      | 14.24      |                                                                 |       |                                                 |       |   |
| Granted                          |       | —     |       | —                                 |       |                                                                 |       |                                                 |       |
| Exercised                        |       | (76,200    | )          | 13.02                                  |       |                                                                 |       |                                                 |       |
| Forfeitures                      |       | (250       | )          | 18.14                                  |       |                                                                 |       |                                                 |       |
| Outstanding at March 31, 2006    |       | 982,550    |       | $                                      | 14.33      |                                                                 | 8.2        |                                                 | $          | 10,917 |   |
| Exercisable at March 31, 2006    |       | 388,355    |       | $                                      | 12.42      |                                                                 | 7.9        |                                                 | $          | 5,055 |   |

 

The total intrinsic value of options exercised during the three monthsended March 31, 2006 and 2005 was $0.9 million and $0.4 million, respectively.The Company’s policy is to issue authorized but unissued shares upon theexercise of options.

 

The following table summarizes the status of the Company’s unvestedshare awards, including the performance share awards discussed above, for thethree months ended March 31, 2006:

 
| ** **                                                    | ** ** | **Shares  Outstanding** | ** ** | **Weighted Average  Grant Date  Fair Value** | ** ** |
|---------------------------------------------------------------|------------|-------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                    | ** ** | ** **              | ** ** | ** **                                                  | ** ** |
| Nonvested share awards outstanding at  December 31, 2005 |       | 498,750                 |       | $                                                           | 13.39      |   |
| Granted                                                       |       | 228,891                 |       | 25.37                                                       |       |
| Vested                                                        |       | (37,847                 | )          | 16.92                                                       |       |
| Forfeited                                                     |       | —                  |       |                                                        |       |
| Nonvested share awards outstanding at  March 31, 2006    |       | 689,794                 |       | 17.17                                                       |       |
|                                                               |            |                         |            |                                                             |            |  |

 

The total fair value of share awards vestingduring the three months ended March 31, 2006 was $0.9 million. No share awardsvested during the three months ended March 31, 2005.

 

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**9.             Employeebenefits**

 

The components of net periodic benefit cost of the Company’s definedbenefit pension plans for the three months ended March 31, 2006 and 2005are presented below.

 
| ** **                                                   | ** ** | **2006**                | ** ** | **2005** | ** ** |
|--------------------------------------------------------------|------------|-------------------------|------------|----------|------------|
| ** **                                                   | ** ** | **(in thousands)** | ** ** |
| **Components of net periodic benefit cost:**                 |       |                    |       |     |       |
| Service cost                                                 |       | $                       | 625        |     | $          | 406 |   |
| Interest cost                                                |       | 1,951                   |       | 1,627    |       |
| Expected return on plan assets                               |       | (2,035                  | )          | (1,591   | )          |
| Amortization of prior service costs and  unrecognized losses |       | 48                      |       | 19       |       |
|                                                         |       | $                       | 589        |     | $          | 461 |   |

 

The Company’s cash contributions to the defined benefit plans amountedto $0.9 million and $0.7 million during the three months endedMarch 31, 2006 and 2005, respectively. The Company expects to makeadditional cash contributions of $7.7 million for the remainder of 2006.

 

**10.          Derivativefinancial instruments**

 

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

 

***Commodity price riskmanagement***

 

The costs of copper, the Company’s most significant raw material, andaluminum have historically been subject to considerable volatility. To managethe risk associated with such volatility, the Company enters into futurescontracts to match the metal component of customer product pricing with thecost component of the inventory shipped. These futures contracts have beendesignated as cash flow hedges with unrealized gains and losses recorded inother comprehensive income. Gains and losses are reclassified into earnings, asa component of cost of goods sold, when the hedged sales transactions arereflected in the income statement. Hedge ineffectiveness, which is notsignificant, is immediately recognized in earnings. The Company’s commoditiesfutures purchase contracts are summarized as follows at March 31, 2006:

 
| **Type**   | ** ** | **Notional  Amount**               | ** ** | **Maturity  Date** | ** ** | **Weighted  Average  Settlement Rate** | ** ** | **Fair Value  Gain (Loss)** | ** ** |
|------------|------------|------------------------------------|------------|--------------------|------------|---------------------------------------------|------------|---------------------------------------|------------|
| ** ** | ** ** | **(in thousands of  pounds)** | ** ** | ** **         | ** ** | ** **                                  | ** ** | **(in  thousands)**                   | ** ** |
|       |       |                               |       |               |       |                                        |       |                                  |       |
| Copper     |       | 9,850                              |       | 2006               |       | $                                           | 2.43       |                                  | $          | 8,097 |   |
| Copper     |       | 2,100                              |       | 2007               |       | 2.33                                        |       | 1,546                                 |       |
|       |       |                               |       |               |       |                                        |       | $                                     | 9,643      |   |
|            |            |                                    |            |                    |            |                                             |            |                                       |            |  |  |

 

Approximately $8.1 million of unrealized gains on commodity futuresoutstanding at March 31, 2006 are expected to be reclassified in earningswithin the next twelve months.

 

Essex Nexans enters into commodity futures contracts to match thecopper component of customer product pricing with the cost component of theinventory shipped. The futures contracts are intended to minimize the risksassociated with forward product pricing for customers and changing copperprices. These contracts generally have maturities of less than two months andrepresent economic hedges but have not been designated as hedges for accountingpurposes. Accordingly, gains and losses on these contracts are recorded inincome as a component of cost of goods sold. Essex Nexans had no open copperfutures positions at March 31, 2006.

 

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***Interest rate riskmanagement***

 

In order to limit the Company’s exposure to rising interest rates withrespect to borrowings under its variable rate senior secured revolving creditfacility, the Company has entered into interest rate cap agreements. Thefollowing interest rate cap agreements were outstanding as of March 31,2006:

 
| **Type**          | ** ** | **Notional  Amount**    | ** ** | **Interest Rate** | ** **   | **Cap Rate** | ** ** | **Expiration Date** | ** **    | **Fair Value**     | ** ** |
|-------------------|------------|-------------------------|------------|------------------------|--------------|-------------------|------------|--------------------------|---------------|-------------------------|------------|
| ** **        | ** ** | **(in thousands)** | ** ** | ** **             | ** **   | ** **        | ** ** | ** **               | ** **    | **(in thousands)** | ** ** |
|              |       |                    |       |                   |         |              |       |                     |          |                    |       |
| Interest rate cap |       | $                       | 30,000     |                   | 30-day LIBOR |              | 7.0        | %                        | December 2006 |                    | $          | — |   |
| Interest rate cap |       | 15,000                  |       | 30-day LIBOR           |         | 5.0               | %          | April 2007               |          | 37                      |       |
| Interest rate cap |       | 12,500                  |       | 30-day LIBOR           |         | 5.0               | %          | May 2006                 |          | —                  |       |
|                   |            |                         |            |                        |              |                   |            |                          |               |                         |            |  |  |

 

***Foreign currencyexchange risk management***

 

The Company engages, to a limited extent, in the sale of products whichresult in accounts receivable denominated in foreign currencies. The Companyenters into foreign currency forward exchange contracts to hedge againstfluctuations in the value of these receivables. Changes in the fair value ofthese contracts are reflected in current earnings. At March 31, 2006, theCompany had outstanding foreign currency forward exchange contracts to exchange6.5 million Canadian dollars for $5.6 million in April 2006. Thefair value of the forward exchange contracts was insignificant atMarch 31, 2006. Additionally, the Company has entered into foreigncurrency forward exchange contracts to purchase 8.0 million Chinese Yuan for $1.0million at various dates through August 2006. These contracts represent aneconomic hedge of a portion of expected capital expenditures to be made inconnection with construction of the Company’s manufacturing facility in China.Changes in the fair value of these contracts are reflected in current earnings.The fair value of these contracts was insignificant at March 31, 2006.

 

**11.          Commitmentsand contingencies**

 

The Company is involvedin lawsuits, 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 for Contingencies,” the Company records aliability when management believes it is both probable that a liability hasbeen incurred and the amount of loss can be reasonably estimated. Managementbelieves it has adequate provisions for any such matters. The Company reviewsthese provisions at least quarterly and adjust these provisions to reflect theimpact of negotiations, settlement, rulings, advice of legal counsel and otherinformation and events pertaining to a particular matter. Litigation isinherently unpredictable. However, management believes it has valid defenseswith respect to all legal matters against the Company and its subsidiaries anddoes not believe any such matters, either individually or in the aggregate,will have a material adverse effect on its business, financial condition,liquidity or results of operations.

 

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

 

On January 18, 2002, United TechnologiesCorporation, or United Technologies, brought a third party claim against EssexInternational in a civil action in Massachusetts. United Technologies had beensued by an insurer for, among other things, approximately $3.1 million incompensatory damages for retrospective premiums for 1999, 2000 and 2001relating to certain events that allegedly occurred while Essex Group was asubsidiary of United Technologies. United Technologies’ third party complaintagainst Essex International contended, among other things, that EssexInternational had agreed, in the stock purchase agreement datedJanuary 15, 1998, to pay such premiums and sought a

 

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declaratoryjudgment, contribution and indemnification for any such retrospective premiumsthat United Technologies might have to pay the insurer. On January 13,2003, the court granted the insurer’s motion for summary judgment againstUnited Technologies and Essex International’s motion to dismiss with prejudiceUnited Technologies’ claim against it. United Technologies thereafter indicatedan intention to appeal the ruling dismissing the action against EssexInternational. However, before Essex International’s time to respond, onMarch 3, 2003, Superior TeleCom and certain of its U.S. subsidiaries filedvoluntary petitions for relief under Chapter 11 of the United States BankruptcyCode in the Unites States Bankruptcy Court for the District of Delaware. TheUnited Technologies proceedings were stayed by the filing of Superior TeleCom’sbankruptcy proceedings. United Technologies and the insurer filed proofs ofclaim in connection with Superior TeleCom’s bankruptcy. Management believesthat these claims have been addressed in the bankruptcy claims resolutionprocess and will not have a material adverse effect either individually, or inthe aggregate, on the Company’s business, financial condition, liquidity orresults of operations. There can be no assurance that future developments willnot alter this conclusion.

 

The Company’s operations are subject to environmentallaws and regulations in each of the jurisdictions in which it owns or operatesfacilities governing, among other things, emissions into the air, discharges towater, the use, handling and disposal of hazardous substances and theinvestigation and remediation of soil and groundwater contamination bothon-site at past and current facilities and at off-site disposal locations.On-site contamination at certain of the Company’s facilities is the result ofhistoric activities, including certain activities attributable to SuperiorTeleCom’s (or one of its subsidiaries) and the Company’s operations and thoseoccurring prior to the use of a facility by Superior TeleCom or the Company.Off-site liability includes clean-up responsibilities and response costsincurred by others at various sites, under federal or state statutes, for whichSuperior TeleCom (or one of its subsidiaries) has been identified by the UnitedStates Environmental Protection Agency, or state environmental agency, as aPotentially Responsible Party (“PRP”), or the equivalent. Management believesall such matters related to previously owned facilities, off-site disposallocations or fines existing at the time of filing have been addressed in thebankruptcy claims resolution process.

 

A liability for environmental remediation and otherenvironmental costs is accrued when it is considered probable and the costs canbe reasonably estimated. The Company has accrued amounts with respect toenvironmental matters that management believes were adequate at March 31, 2006.These accruals are not material to the Company’s operations or financialposition.

 

The Company accepts certain customer orders for futuredelivery at fixed prices. As copper is the most significant raw material usedin the manufacturing process, the Company enters into forward purchase fixedprice commitments for copper to properly match its cost to the value of thecopper to be billed to the customers. At March 31, 2006, the Company hadforward fixed price copper purchase commitments for delivery through March 2007for $79.1 million. Additionally at March 31, 2006, the Company hasforward purchase fixed price commitments for aluminum and natural gas amountingto $2.9 million and $8.2 million, respectively.

 

**12.          Businesssegments**

 

Reportable segments arestrategic businesses that offer different products and services to differentcustomers. These segments are communications cable, North American magnet wireand distribution (formerly magnet wire and distribution), European magnet wireand distribution and copper rod. The communications cable segment includescopper and fiber optic outside plant wire and cable for voice and datatransmission in telecommunications networks and copper and fiber optic datacomor premises wire and cable for use within homes and offices for local area networks,Internet connectivity and other applications. The North American magnet wireand distribution segment manufactures and markets magnet wire and relatedproducts to major OEMs for use in motors, transformers and electrical coils andcontrols primarily in North America. The North American magnet wire anddistribution segment also distributes magnet wire and fabricated insulationproducts manufactured by the Company and related accessory products purchasedfrom third parties to small OEMs and motor repair facilities. The Europeanmagnet wire and distribution segment consists of Essex Nexans and manufacturesand markets magnet wire for use in motors, transformers and electrical coilsand controls primarily in Europe. EssexNexans also produces enamels that are used both for internal consumption in theproduction of magnet wire and for sale to third parties. Prior to theformation of Essex Nexans the Company’s U.K. magnet wire operations wereincluded in the North American magnet wire and distribution segment. TheCompany’s U.K. magnet wire operations are currently reported with the Europeanmagnet wire and distribution segment and, accordingly, all prior period segmentinformation has been restated to reflect the current segment reportingstructure. The copper rod segment includes sales of copper rod produced by theCompany’s North American continuous casting units to external customers. Thecopper rod segment also produces copper rod for

 

15

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internalprocessing which is recorded by the consuming segment at cost as a component ofcost of goods sold. Corporate and other charges consist primarily of parentcompany and executive payroll costs, including stock-based compensationcharges, corporate headquarters costs and corporate professional fees andcompliance costs. The components of restructuring and other charges and assetimpairments are discussed in Note 4.

 

The Company’s chief operating decision maker evaluates segmentperformance based on a number of factors with operating income, excludingcorporate and other costs, restructuring and other charges and assetimpairments, being the most critical. Accordingly, corporate and other costs,restructuring and other charges, asset impairments and gain on sale of productline are not allocated to the Company’s reportable segments.

 

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

 
| ** **                                             | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                             | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| ** **                                             | ** ** | **(in thousands)**                          | ** ** |
| Net sales:                                             |       |                                             |       |   |   |
| Communications cable                                   |       | $                                                | 186,573    |   | $ | 151,964 |   |
| North American magnet wire and distribution            |       | 233,537                                          |       | 175,690 |   |
| European magnet wire and distribution                  |       | 138,609                                          |       | 8,850 |   |
| Copper rod                                             |       | 92,975                                           |       | 66,784 |   |
|                                                   |       | $                                                | 651,694    |   | $ | 403,288 |   |
| Operating income (loss)                                |       |                                             |       |   |   |
| Communications cable                                   |       | $                                                | 18,353     |   | $ | 11,704 |   |
| North American magnet wire and distribution            |       | 9,266                                            |       | 10,342 |   |
| European magnet wire and distribution                  |       | 1,784                                            |       | (658 | ) |
| Copper rod                                             |       | (138                                             | )          | 249 |   |
| Corporate and other                                    |       | (6,428                                           | )          | (5,189 | ) |
| Gain on sale of product line                           |       | —                                           |       | 10,355 |   |
| Restructuring and other charges and asset  impairments |       | (781                                             | )          | (2,758 | ) |
|                                                   |       | $                                                | 22,056     |   | $ | 24,045 |   |

 
| ** **                                  | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|---------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                  | ** ** | **(in thousands)**  | ** ** |
| Total assets:                               |       |                     |       |                        |       |
| Communications cable                        |       | $                        | 337,174    |                        | $          | 309,301 |   |
| North American magnet wire and distribution |       | 331,378                  |       | 290,701                     |       |
| European magnet wire and distribution       |       | 210,087                  |       | 182,533                     |       |
| Copper rod                                  |       | 45,514                   |       | 39,450                      |       |
| Corporate and other                         |       | 3,479                    |       | 6,207                       |       |
|                                        |       | $                        | 927,632    |                        | $          | 828,192 |   |

 

16

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**13.          Supplementalguarantor information**

 

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

 
| ** **                                      | ** ** | **March 31, 2006** | ** ** |
|-------------------------------------------------|------------|------------------------------|------------|
| ** **                                      | ** ** | **Parent**                   | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                      | ** ** | **(in thousands)**      | ** ** |
| **ASSETS**                                      |       |                         |       |   |   |   |   |   |   |   |   |   |   |
| Current assets:                                 |       |                         |       |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                       |       | $                            | (402       | ) | $ | 402 |   | $ | 46 |   | $ | 7,268 |   | — |   | $ | 7,314 |   |
| Accounts receivable, net                        |       | —                       |       | 222,006 |   | 3,511 |   | 113,941 |   | — |   | 339,458 |   |
| Inventories, net                                |       | —                       |       | 182,684 |   | 16,534 |   | 64,616 |   | — |   | 263,834 |   |
| Other current assets                            |       | 2,668                        |       | 17,733 |   | 370 |   | 15,258 |   | — |   | 36,029 |   |
| Total current assets                            |       | 2,266                        |       | 422,825 |   | 20,461 |   | 201,083 |   | — |   | 646,635 |   |
| Property, plant and equipment, net              |       | 600                          |       | 198,875 |   | 16,603 |   | 24,499 |   | — |   | 240,577 |   |
| Intangible and other long-term assets           |       | 8,798                        |       | 36,010 |   | 2 |   | 3,795 |   | (8,185 | ) | 40,420 |   |
| Investment in subsidiaries                      |       | 223,573                      |       | 76,989 |   | 192,333 |   | — |   | (492,895 | ) | — |   |
| Intercompany accounts                           |       | 12,875                       |       | — |   | 4,685 |   | — |   | (17,560 | ) | — |   |
| Total assets                                    |       | $                            | 248,112    |   | $ | 734,699 |   | $ | 234,084 |   | $ | 229,377 |   | $ | (518,640 | ) | $ | 927,632 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**   |       |                         |       |   |   |   |   |   |   |   |   |   |   |
| Current liabilities:                            |       |                         |       |   |   |   |   |   |   |   |   |   |   |
| Short-term borrowings                           |       | $                            | —     |   | $ | — |   | $ | — |   | $ | 14,809 |   | — |   | $ | 14,809 |   |
| Current portion of long-term debt               |       | —                       |       | — |   | — |   | 507 |   | — |   | 507 |   |
| Accounts payable                                |       | 4,670                        |       | 99,727 |   | 1,911 |   | 68,095 |   | — |   | 174,403 |   |
| Accrued expenses                                |       | 15,289                       |       | 33,554 |   | 220 |   | 45,131 |   | (1,054 | ) | 93,140 |   |
| Total current liabilities                       |       | 19,959                       |       | 133,281 |   | 2,131 |   | 128,542 |   | (1,054 | ) | 282,859 |   |
| Long term-debt, less current portion            |       | —                       |       | 325,284 |   | 5,000 |   | 16,406 |   | — |   | 346,690 |   |
| Other long-term liabilities                     |       | 2,719                        |       | 42,296 |   | 3,380 |   | 9,659 |   | (7,131 | ) | 50,923 |   |
| Intercompany accounts                           |       | —                       |       | 5,443 |   | — |   | 12,117 |   | (17,560 | ) | — |   |
| Total liabilities                               |       | 22,678                       |       | 506,304 |   | 10,511 |   | 166,724 |   | (25,745 | ) | 680,472 |   |
| Minority interest in consolidated  subsidiaries |       | —                       |       | — |   | — |   | 21,726 |   | — |   | 21,726 |   |
| Stockholders’ equity                       |       | 225,434                      |       | 228,395 |   | 223,573 |   | 40,927 |   | (492,895 | ) | 225,434 |   |
|                                            |       | $                            | 248,112    |   | $ | 734,699 |   | $ | 234,084 |   | $ | 229,377 |   | $ | (518,640 | ) | $ | 927,632 |   |

 

17

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

 

18

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| ** **                                                                                                | ** ** | **Three Months Ended March 31, 2006** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                                                                | ** ** | **Parent**                                                     | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                                                                                | ** ** | **(in thousands)**                                        | ** ** |
| Net sales                                                                                                 |       | $                                                              | 6,495      |   | $ | 509,558 |   | $ | 46,257 |   | $ | 143,090 |   | $ | (53,706 | ) | $ | 651,694 |   |
| Cost of goods sold                                                                                        |       | —                                                         |       | 464,360 |   | 42,518 |   | 133,578 |   | (47,211 | ) | 593,245 |   |
| Gross profit                                                                                              |       | 6,495                                                          |       | 45,198 |   | 3,739 |   | 9,512 |   | (6,495 | ) | 58,449 |   |
| Selling, general and administrative  expenses                                                             |       | (6,422                                                         | )          | (27,875 | ) | (243 | ) | (7,567 | ) | 6,495 |   | (35,612 | ) |
| Restructuring and other charges                                                                           |       | (84                                                            | )          | (39 | ) | — |   | (658 | ) | — |   | (781 | ) |
| Operating income (loss)                                                                                   |       | (11                                                            | )          | 17,284 |   | 3,496 |   | 1,287 |   | — |   | 22,056 |   |
| Interest expense                                                                                          |       | 9                                                              |       | (7,443 | ) | (119 | ) | (525 | ) | — |   | (8,078 | ) |
| Gain on sale of investment                                                                                |       | 5,788                                                          |       | — |   | — |   | — |   |   |   | 5,788 |   |
| Other income, net                                                                                         |       | 2                                                              |       | 33 |   | — |   | 163 |   | — |   | 198 |   |
| Income before income taxes, equity in  earnings of subsidiaries, minority interest and extraordinary item |       | 5,788                                                          |       | 9,874 |   | 3,377 |   | 925 |   | — |   | 19,964 |   |
| Income tax expense                                                                                        |       | (2,257                                                         | )          | (3,304 | ) | (1,300 | ) | (842 | ) | — |   | (7,703 | ) |
| Equity in earnings of subsidiaries                                                                        |       | 9,568                                                          |       | 3,079 |   | 7,491 |   | — |   | (20,138 | ) | — |   |
| Minority interest in income of subsidiaries                                                               |       | —                                                         |       | — |   | — |   | (33 | ) | — |   | (33 | ) |
| Extraordinary gain                                                                                        |       | —                                                         |       | — |   | — |   | 871 |   | — |   | 871 |   |
| Net income                                                                                                |       | $                                                              | 13,099     |   | $ | 9,649 |   | $ | 9,568 |   | $ | 921 |   | $ | (20,138 | ) | $ | 13,099 |   |

 
| ** **                                                                       | ** ** | **Three Months Ended March 31, 2005** | ** ** |
|----------------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                                       | ** ** | **Parent**                                                     | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                                                       | ** ** | **(in thousands)**                                        | ** ** |
| Net sales                                                                        |       | $                                                              | 5,275      |   | $ | 400,020 |   | $ | 31,800 |   | $ | 12,881 |   | $ | (46,688 | ) | $ | 403,288 |   |
| Cost of goods sold                                                               |       | —                                                         |       | 358,367 |   | 31,828 |   | 12,585 |   | (41,413 | ) | 361,367 |   |
| Gross profit                                                                     |       | 5,275                                                          |       | 41,653 |   | (28 | ) | 296 |   | (5,275 | ) | 41,921 |   |
| Selling, general and administrative  expenses                                    |       | (5,178                                                         | )          | (24,886 | ) | (249 | ) | (435 | ) | 5,275 |   | (25,473 | ) |
| Restructuring and other charges                                                  |       | (97                                                            | )          | (355 | ) | — |   | — |   | — |   | (452 | ) |
| Asset impairment charge                                                          |       | —                                                         |       | — |   | — |   | (2,306 | ) | — |   | (2,306 | ) |
| Gain on sale of product line                                                     |       | —                                                         |       | 10,355 |   | — |   | — |   | — |   | 10,355 |   |
| Operating income (loss)                                                          |       | —                                                         |       | 26,767 |   | (277 | ) | (2,445 | ) | — |   | 24,045 |   |
| Interest expense                                                                 |       | —                                                         |       | (6,990 | ) | (78 | ) | (5 | ) | — |   | (7,073 | ) |
| Other income, net                                                                |       | —                                                         |       | 94 |   | 21 |   | — |   | — |   | 115 |   |
| Income (loss) before income taxes and  equity in earnings (loss) of subsidiaries |       | —                                                         |       | 19,871 |   | (334 | ) | (2,450 | ) | — |   | 17,087 |   |
| Benefit (provision) for income taxes                                             |       | —                                                         |       | (7,075 | ) | 129 |   | (160 | ) | — |   | (7,106 | ) |
| Equity in earnings (loss) of subsidiaries                                        |       | 9,981                                                          |       | (2,736 | ) | 10,186 |   | — |   | (17,431 | ) | — |   |
| Net income (loss)                                                                |       | $                                                              | 9,981      |   | $ | 10,060 |   | $ | 9,981 |   | $ | (2,610 | ) | $ | (17,431 | ) | $ | 9,981 |   |

 

19

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| ** **                                                      | ** ** | **Three Months Ended March 31, 2006** | ** ** |
|-----------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                      | ** ** | **Parent**                                                     | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                                      | ** ** | **(in thousands)**                                        | ** ** |
| Cash flows provided by (used for) operating  activities         |       | $                                                              | (7,304     | ) | $ | (47,405 | ) | $ | (2,240 | ) | $ | 7,762 |   | — |   | $ | (49,187 | ) |
| Cash flows from investing activities:                           |       |                                                           |       |   |   |   |   |   |   |   |   |   |   |
| Capital expenditures                                            |       | (34                                                            | )          | (3,680 | ) | — |   | (4,175 | ) | — |   | (7,889 | ) |
| SDS acquisition, net of cash acquired                           |       | —                                                         |       | — |   | — |   | (947 | ) | — |   | (947 | ) |
| Proceeds from sale of investment                                |       | 8,500                                                          |       | — |   | — |   | — |   | — |   | 8,500 |   |
| Investment in subsidiaries                                      |       | —                                                         |       | (2,000 | ) | — |   | — |   | 2,000 |   | — |   |
| Cash flows provided by (used for) investing  activities         |       | 8,466                                                          |       | (5,680 | ) | — |   | (5,122 | ) | 2,000 |   | (336 | ) |
| Cash flows from financing activities:                           |       |                                                           |       |   |   |   |   |   |   |   |   |   |   |
| Borrowings under senior secured revolving  credit facility, net |       | —                                                         |       | 53,948 |   | — |   | — |   | — |   | 53,948 |   |
| Repayment of Essex Nexans short-term  borrowings, net           |       | —                                                         |       | — |   | — |   | (6,597 | ) | — |   | (6,597 | ) |
| Proceeds from exercise of stock options                         |       | 992                                                            |       | — |   | — |   | — |   | — |   | 992 |   |
| Capital contributions                                           |       | —                                                         |       | — |   | — |   | 500 |   | (500 | ) | — |   |
| Other                                                           |       | 218                                                            |       | — |   | — |   | — |   | — |   | 218 |   |
| Intercompany accounts                                           |       | (2,843                                                         | )          | (856 | ) | 2,161 |   | 3,038 |   | (1,500 | ) | — |   |
| Cash flows provided by (used for) financing  activities         |       | (1,633                                                         | )          | 53,092 |   | 2,161 |   | (3,059 | ) | (2,000 | ) | 48,561 |   |
| Effect of exchange rate changes on cash                         |       | —                                                         |       | — |   | — |   | 92 |   | — |   | 92 |   |
| Net increase (decrease) in cash and cash  equivalents           |       | (471                                                           | )          | 7 |   | (79 | ) | (327 | ) | — |   | (870 | ) |
| Cash and cash equivalents at beginning of  period               |       | 69                                                             |       | 395 |   | 125 |   | 7,595 |   | — |   | 8,184 |   |
| Cash and cash equivalents at end of period                      |       | $                                                              | (402       | ) | $ | 402 |   | $ | 46 |   | $ | 7,268 |   | — |   | $ | 7,314 |   |

 

20

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| ** **                                              | ** ** | **Three Months Ended March 31, 2005** | ** ** |
|---------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                              | ** ** | **Parent**                                                     | ** ** | **Issuers** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                              | ** ** | **(in thousands)**                                        | ** ** |
| Cash flows provided by (used for) operating  activities |       | $                                                              | (974       | ) | $ | (36,665 | ) | $ | (2,547 | ) | $ | 2,980 |   | — |   | $ | (37,206 | ) |
| Cash flows from investing activities:                   |       |                                                           |       |   |   |   |   |   |   |   |   |   |   |
| Capital expenditures                                    |       | (15                                                            | )          | (1,941 | ) | (927 | ) | (266 | ) | — |   | (3,149 | ) |
| Belden asset acquisition contingent payment             |       | —                                                         |       | (10,000 | ) | — |   | — |   | — |   | (10,000 | ) |
| Proceeds from sale of product line                      |       | —                                                         |       | 11,563 |   | — |   | — |   | — |   | 11,563 |   |
| Other                                                   |       | —                                                         |       | 2 |   | — |   | — |   | — |   | 2 |   |
| Cash flows used for investing activities                |       | (15                                                            | )          | (376 | ) | (927 | ) | (266 | ) | — |   | (1,584 | ) |
| Cash flows from financing activities:                   |       |                                                           |       |   |   |   |   |   |   |   |   |   |   |
| Short-term borrowings (repayments), net                 |       | —                                                         |       | 22,802 |   | — |   | (770 | ) | — |   | 22,032 |   |
| Proceeds from exercise of stock options                 |       | 545                                                            |       | — |   | — |   | — |   | — |   | 545 |   |
| Intercompany accounts                                   |       | 338                                                            |       | (3,078 | ) | 3,433 |   | (693 | ) | — |   | — |   |
| Cash flows provided by (used for) financing  activities |       | 883                                                            |       | 19,724 |   | 3,433 |   | (1,463 | ) | — |   | 22,577 |   |
| Effect of exchange rate changes on cash                 |       | —                                                         |       | (246 | ) | — |   | 187 |   | — |   | (59 | ) |
| Net increase (decrease) in cash and cash  equivalents   |       | (106                                                           | )          | (17,563 | ) | (41 | ) | 1,438 |   | — |   | (16,272 | ) |
| Cash and cash equivalents at beginning of  period       |       | 106                                                            |       | 18,097 |   | 43 |   | 66 |   | — |   | 18,312 |   |
| Cash and cash equivalents at end of period              |       | $                                                              | —     |   | $ | 534 |   | $ | 2 |   | $ | 1,504 |   | — |   | $ | 2,040 |   |

 

21

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

 

**General**

 

We currently manufacture a portfolio of wire and cable products groupedinto the following segments: (i) our communications cable segment;(ii) our North American magnet wire and distribution segment (formerlymagnet wire and distribution); (iii) our European magnet wire and distributionsegment and (iv) our copper rod segment. Our communications cable segmentincludes copper and fiber optic outside plant wire and cable for voice and datatransmission in telecommunications networks and copper and fiber optic datacom andpremises wire and cable for use within homes and offices for local areanetworks, internet connectivity and other applications. Our North Americanmagnet wire and distribution segment manufactures and markets magnet wire andrelated products to major OEMs for use in motors, transformers and electricalcoils and controls primarily in North America. Our North American magnet wireand distribution segment also distributes magnet wire and fabricated insulationproducts manufactured by us and related accessory products purchased from thirdparties to small OEMs and motor repair facilities. Our European magnet wire anddistribution segment consists of the operations of the joint venture formed in2005 in connection with the acquisition of Nexans’ European magnet wire businessas discussed below. Our European magnet wire and distribution segmentmanufactures and markets magnet wire for use in motors, transformers andelectrical coils and controls primarily in Europe as well as enamels that are used both for internalconsumption in the production of magnet wire and for sale to third parties. Priorto the formation of Essex Nexans our U.K. magnet wire operations were includedin the North American magnet wire and distribution segment. Our former U.K.magnet wire operations are currently reported within the European magnet wireand distribution segment and, accordingly, all prior period segment informationhas been restated to reflect the current segment reporting structure. Ourcopper rod segment includes sales of copper rod produced by our North Americancontinuous casting units to external customers. Our copper rod segment alsoproduces copper rod for internal processing which is recorded by the consumingsegment at cost as a component of cost of goods sold.

 

Industry segment financial data (including sales and operating incomeby industry segment) for the three months ended March 31, 2006 and 2005 isincluded in Note 12 to the accompanying condensed consolidated financialstatements.

 

**OperatingEnvironment**

 

Copper is the principalraw material we use in the manufacture of our wire and cable products. Foreigneconomies have been consuming an increasing proportion of worldwide copperproduction resulting in a reduction of copper stock levels held in COMEX andLME warehouses and sold through merchants. These macro-economic and other factorshave contributed to extremely high and volatile prices and periodic shortagesof supply of copper. Although we have not experienced any shortages duringrecent years that have had a significant impact on our operations, no assurancecan be given that we will be able to procure adequate supplies of copper andcopper rod to meet our future production needs. Furthermore, supply shortagesor disruptions may cause us to procure our copper rod from less cost effectivesources and may have a negative impact on our margins. While the current highcopper prices have not had a meaningful impact on demand to date, our endmarket customers have never experienced copper costs at current levels andthere can be no assurance that continued high copper prices will not have anegative impact on demand for our products.

 

Other raw materials weuse in the manufacture of our products include aluminum, steel, optical fibers,plastics, such as polyethylene and polyvinyl chloride and various chemicals andchemical compounds used in the production of enamels. Additionally, natural gasis a key energy source used in the manufacture of magnet wire. The naturaldisasters that hit the Gulf Coast region of the United States in 2005 had asignificant effect on natural gas supply and on raw material producers locatedin the region or those which rely on oil and gas or raw materials produced inthe region. In 2005 certain of our raw material suppliers declared forcemajeure and instituted significant surcharges for energy and other costs. Crudeoil prices have continued to increase reaching record levels in 2006. Theincreased cost of oil and natural gas has resulted in increased production andfreight costs and shortages in the availability of shipping resources.

 

To date, we have notexperienced raw material supply shortages which have significantly impacted ourservice levels, and we do not currently anticipate any significant impact onour service levels. However, as suppliers continue to struggle with theaftermath of the Gulf Coast storms and other factors discussed above, noassurance can be given that we will be able to procure adequate supplies of rawmaterials, including alternative supplies, to meet our future

 

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needs.Furthermore, significantly higher prices for natural gas, raw materials andfreight did and may continue to have a negative impact on our margins.

 

**Essex Nexans Acquisitions**

 

On October 21, 2005,we acquired Nexans’ magnet wire operations in Europe through formation of acorporate joint venture, Essex Nexans, a French holding company, combining ourU.K. magnet wire business and Nexans’ European magnet wire and enamelbusinesses. We own 60% of the joint venture and Nexans has a 40% minorityownership. We believe the acquisition will enhance our ability to serve ourglobal customer base, provide synergies with respect to our U.K. magnet wirebusiness and increase our geographic diversification. The acquired operationsare included in our results of operation from the date of acquisition. See Note5 to the accompanying condensed consolidated financial statements.

 

**Impact of Copper Price Fluctuations onOperating Results and Liquidity**

 

Fluctuations in the price of copper affect per unit product pricing andrelated revenues. Historically, fluctuations in the cost of copper have not hada material impact on profitability, as, in certain cases, we have the abilityto adjust prices billed for our products to properly match the copper costcomponent of inventory shipped. In our communications cable segment theseadjustments include, among others, certain contractual arrangements under whichproduct prices are adjusted quarterly based on an average of previous periods’copper indices. To further minimize the risk of fluctuations in the price ofcopper in our communications segment, we forward price copper purchases withour suppliers based on forecasted demand. To the extent that forecasted demanddiffers significantly from actual demand, however, changes in the price ofcopper may have a negative impact on our operating profit. Rapid increases incopper prices can impact profitability in the short term based upon the timingof product price adjustments to match the increased copper costs. Increases incopper prices can also impact our working capital. See “Liquidity and CapitalResources” below.

 

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

 

**Results of Operations—ThreeMonth Period Ended March 31, 2006 Compared to the Three Month Period EndedMarch 31, 2005**

 

Average copper prices for the three months ended March 31, 2006increased 53% as compared to the three months ended March 31, 2005. Due tothe impact of this increase on reported sales, the following table providessupplemental sales information adjusted to a constant $2.00/lb COMEX cost ofcopper to aid in a comparison of period-to-period revenues by segment.

 
| ** **                                     | ** ** | **Actual**                                       | ** ** | **Copper-adjusted** | ** ** |
|------------------------------------------------|------------|--------------------------------------------------|------------|---------------------|------------|
| ** **                                     | ** ** | **Three Months Ended  March 31,** | ** ** | **%**               | ** ** | **Three Months Ended  March 31,** | ** ** | **%** | ** ** |
| ** **                                     | ** ** | **2006**                                         | ** ** | **2005**            | ** ** | **Change** | ** ** | **2006** | ** ** | **2005** | ** ** | **Change** | ** ** |
| Net sales:                                     |       |                                             |       |                |       |   |   |   |   |   |   |   |   |
| Communications cable                           |       | $                                                | 186,573    |                | $          | 151,964 |   | 23 | % | $ | 187,885 |   | 176,233 |   | 7 | % |
| North American magnet wire and distribution    |       | 233,537                                          |       | 175,690             |       | 33 | % | 228,645 |   | 208,498 |   | 10 | % |
| European magnet wire and distribution          |       | 138,609                                          |       | 8,850               |       |   | * | 130,537 |   | 10,871 |   |   | * |
| Copper rod                                     |       | 92,975                                           |       | 66,784              |       | 39 | % | 83,335 |   | 89,290 |   | (7 | )% |
|                                           |       | 651,694                                          |       | 403,288             |       | 62 | % | 630,402 |   | 484,892 |   | 30 | % |
| Constant cost of copper adjustment             |       | —                                           |       | —              |       |   |   | 21,292 |   | (81,604 | ) |   |   |
| Total                                          |       | $                                                | 651,694    |                | $          | 403,288 |   | 62 | % | $ | 651,694 |   | $ | 403,288 |   | 62 | % |
| Average daily COMEX price per pound of  copper |       | $                                                | 2.25       |                | $          | 1.47 |   | 53 | % |   |   |   |   |   |   |
|                                                |            |                                                  |            |                     |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

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* Not meaningful

 

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Consolidated sales for the three months ended March 31, 2006 were$651.7 million, an increase of 62% as compared to consolidated sales of$403.3 million for the quarter ended March 31, 2005. Sales for the2006 quarter were significantly impacted by the increase in copper prices andthe effects of the Essex Nexans acquisition. Sales adjusted for a constant costof copper increased 30% for the quarter ended March 31, 2006. Sales in ourEuropean magnet wire and distribution segment attributable to the entitiesacquired in the Essex Nexans acquisition amounted to $121.1 million ($119.1million on a copper-adjusted basis) for the three months ended March 31, 2006.Consolidated net sales and sales adjusted for a constant cost of copperincreased 30% and 25%, respectively, as a result of the Essex Nexansacquisition. The remaining 5% increase in consolidated sales adjusted for aconstant cost of copper is due to organic growth in both the communicationscable and North American magnet wire and distribution segments.

 

Sales for our communications cable segment for the March 31, 2006quarter were $186.6 million, an increase of 23%, as compared to sales of$152.0 million for the quarter ended March 31, 2005. Sales adjustedfor a constant cost of copper increased 7%. The copper-adjusted increase primarilyreflects price increases, including cost-based pass through price adjustmentswith respect to our contract and distribution customers, implemented subsequentto the first quarter of 2005 as well as volume increases in copper and fiberoptic premise products. Copper OSP volume for the 2006 quarter decreasedslightly compared with the prior year as hurricane related increases essentiallyoffset other market-related declines. We believe the increase in demand for ourcopper and fiber optic premise products is supported by growing investment ininformation technology, including new and upgraded computer systems andassociated wiring and an increase in our market share. Additionally, theoverall demand for OSP fiber products has increased as a result of increaseduse by certain RBOCs of fiber optic cable further downstream in their networks.

 

Sales for our North American magnet wire and distribution segment were$233.5 million for the quarter ended March 31, 2006, an increase of33% as compared to the prior year. On a copper-adjusted basis, sales for thequarter increased 10% from the same quarter in the prior year. The copper-adjustedincrease results primarily from market share gains at certain major customersas well as strengthening in our transformer and generator end-markets,including continued demand due to hurricane-related replacement and newproduction.

 

Sales for the European magnet wire and distribution segment were $138.6million for the three months ended March 31, 2006 compared to $8.9 million forthe three months ended March 31, 2005, an increase of $129.7 million. On acopper-adjusted basis, sales increased $119.7 million for the three monthsended March 31, 2006 compared to the prior year quarter. Sales for the 2006quarter include $121.1 million ($119.1 million on a copper-adjusted basis)related to the entities acquired in the Essex Nexans acquisition in October2005.

 

Copper rod sales for the three months ended March 31, 2006 were$93.0 million compared to $66.8 million for the comparable 2005 period.On a copper-adjusted basis, sales for our copper rod segment decreased by 7%for the three months ended March 31, 2006 compared to the prior yearperiod. The copper-adjusted decrease in the 2006 quarter reflects the loss of amajor customer. Copper rod segment sales consist primarily of external sales ofprocessed copper rod that cannot be used for internal production and allow forfixed cost recovery at gross profit margins that are generally break even.Copper rod volumes fluctuate from period to period due to changes in internalconsumption needs and external market conditions.

 

For the quarter ended March 31, 2006, gross profit was $58.4 million,an increase of 39% as compared to the prior year quarter primarily due to grossprofit margin improvements in our communications cable segment and gross profitof $9.0 million attributable to the entities acquired in the Essex Nexansacquisition. The gross profit margin in the 2006 quarter was 9.0% compared to10.4% for the same quarter in 2005. The decrease in gross profit margin primarilyreflects the effect of increased copper prices. Gross profit margin on a copper-adjustedbasis was 9.3% for the three months ended March 31, 2006 compared to 8.6%for the three months ended March 31, 2005. Copper-adjusted gross profitmargins in our communications cable business increased for the 2006 quartercompared to the prior year quarter due to price increases implemented duringthe later portion of 2005, production cost reduction activities, and gainsrelated to copper procurement. Copper-adjusted gross profit margin for our NorthAmerican magnet wire and distribution business for the three months endedMarch 31, 2006 decreased slightly compared to the prior year quarter asprice surcharges and increased throughput did not fully offset the effects ofinflationary non-copper cost increases related primarily to higher natural gasprices, freight costs and non-copper raw materials. Gross profit margin for theNorth American magnet wire and distribution segment was also negativelyimpacted in the first quarter of 2006 due to changes in product mix, inparticular increased sales of lower margin aluminum products representing, tosome degree,

 

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substitution for copper in response to the increase in copper prices,and proportionately lower sales in the higher margin distribution business.

 

Selling, general and administrative expenses (“SG&A expense”) forthe three month period ended March 31, 2006 were $35.6 million as comparedto SG&A expense of $25.5 million for the three months endedMarch 31, 2005. SG&A expense for the three months ended March 31, 2006included $6.6 million attributable to the entities acquired in the Essex Nexansacquisition. The remaining increase of $3.5 million is attributable to a numberof factors including normal salary and benefit increases ($0.9 million), corporatestock-based compensation and supplemental executive retirement plan charges ($0.8),professional fees ($0.4 million), product development and informationsystem implementation costs ($0.3 million) and the impact of increased salesvolume and related sales costs and commissions in our communications cablesegment.

 

During the three months ended March 31, 2005 we recorded animpairment charge of $2.3 million related to property, plant and equipmentof our U.K. subsidiary. We evaluated the long-lived assets of our U.K.subsidiary for impairment as of March 31, 2005 after consideration of thecontinued deterioration in the European magnet wire market in the first quarterof 2005, the loss of a major customer in 2005 and negotiated reductions in thevalue ascribed to the U.K. net assets in connection with the Essex Nexans acquisition.The impairment test was based on probability weighted estimated cash flowsassociated with such assets. The fair value of the assets was based onappraised value determined primarily by comparison to prices for similarassets. The U.K. operation is included in the European magnet wire anddistribution segment.

 

In the first quarter of 2006, Essex Nexans recorded a provision of $0.7million related to workforce reductions at its U.K. magnet wire operation(formerly included in the North American magnet wire and distribution segment).In addition, restructuring and other charges for the three months ended March31, 2006 included $0.1 million related primarily to professional fees incurredin connection with the administration of Superior TeleCom’s plan ofreorganization. Restructuring and other charges for the three months endedMarch 31, 2005 consisted of $0.4 million of facility exit costsrelated to closure of an insulation manufacturing facility in Athens, Georgiaand $0.1 million of professional fees related to the administration ofplan of reorganization. The facility exit costs primarily consisted of futurelease payments net of estimated sublease rentals.

 

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

 

The following table sets forth information regarding our operatingincome by segment for the three months ended March 31, 2006 and 2005. Wemeasure our segment operating performance based primarily on segment operatingincome, excluding restructuring and other charges and asset impairments.

 
| ** **                                             | ** ** | **2006**                | ** ** | **2005** | ** ** |
|--------------------------------------------------------|------------|-------------------------|------------|----------|------------|
| ** **                                             | ** ** | **(in thousands)** | ** ** |
| Operating income (loss)                                |       |                    |       |     |       |
| Communications cable                                   |       | $                       | 18,353     |     | $          | 11,704 |   |
| North American magnet wire and distribution            |       | 9,266                   |       | 10,342   |       |
| European magnet wire and distribution                  |       | 1,784                   |       | (658     | )          |
| Copper rod                                             |       | (138                    | )          | 249      |       |
| Corporate and other                                    |       | (6,428                  | )          | (5,189   | )          |
| Gain on sale of product line                           |       | —                  |       | 10,355   |       |
| Restructuring and other charges and asset  impairments |       | (781                    | )          | (2,758   | )          |
|                                                   |       | $                       | 22,056     |     | $          | 24,045 |   |

 

Operating income for the communications cable segment increased $6.6million for the three months ended March 31, 2006 compared to the 2005 quarterdue to increased gross profit primarily attributable to improvements in grossmargin percentage as discussed above. Communications cable gross profitincreases were partially offset by an increase in SG&A expense of $0.7million due primarily to higher sales costs and commissions in 2006 associatedwith increased sales and normal compensation and benefits increases. Operatingincome for our North American magnet wire and distribution segment decreased$1.1 million due primarily to higher SG&A expense of $1.2 millioncomprised principally of start-up expenses related to our greenfield facilityin China ($0.3 million), information systems implementation costs ($0.3million) and higher employee benefit related costs. The operating loss for our

 

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European magnet wire and distribution segment for the three monthsended March 31, 2005 reflects the results of our U.K. magnet wire business whichsustained negative gross margins for the three months ended March 31, 2005 dueto reduced sales volumes and pricing. Operating income for the three monthsended March 31, 2006 includes $2.4 million attributable to the entitiesacquired in the Essex Nexans acquisition. Operating income for the Europeanmagnet wire and distribution segment for the three months ended March 31, 2006 wasnegatively impacted by bad debt expense of $1.0 million related to thebankruptcy of a major customer. The copper rod segment’s operating income wasrelatively unchanged for the three months ended March 31, 2006 compared to theprior year as copper rod sales allow for fixed cost recovery at gross profitmargins that are generally break even. Corporate and other charges consistprimarily of parent company and executive payroll costs, including stock-basedcompensation charges, corporate headquarters costs and corporate professionalfees and compliance costs. The increase in corporate and other costs for the threemonths ended March 31, 2006 compared to the three months ended March 31,2005 is primarily due to increased compensation and benefits costs related tosalary increases, stock-based compensation and additional corporate personnel.Consolidated operating income for the three months ended March 31, 2005  included restructuring and other charges andasset impairment charges of $2.8 million compared to $0.8 million ofsuch charges in the 2006 quarter, the components of which are discussed above.Additionally consolidated operating income for three months ended March 31,2005 included a gain of $10.4 million on the sale of a product line asdiscussed above.

 

Interest expense for the quarter ended March 31, 2006 was $8.1 millioncompared to interest expense of $7.1 million for the quarter endedMarch 31, 2005. The increase in interest expense in the 2006 quarterreflects an increase in interest rates on our senior secured revolving creditfacility due to increases in the base borrowing rates tied to short-terminterest rates as well as increased borrowings outstanding to finance increasedworking capital resulting from higher copper prices. Interest expense for thequarter ended March 31, 2006 also included interest of $0.5 million related toborrowings by Essex Nexans.

 

Our effective income tax rate for the three months ended March 31,2006 was 39% compared to an effective tax rate of 42% for the three monthsended March 31, 2005. The effective tax rate for the three months endedMarch 31, 2006 exceeds the U.S. statutory rate of 35% due to the effectsof state and foreign taxes. The effective rate decreased for the three monthsended March 31, 2006 compared to the same period in the prior year dueprimarily to a greater proportion of earnings attributable to legal entitieswith lower effective tax rates.

 

On January 4,2006, Essex Nexans acquired all of the outstanding capital stock of Societe deDistribution et de Services (“SDS”) from Nexans. The acquisition of SDS wasaccounted for as a purchase. The preliminary allocation of the acquisition costresulted in unallocated negative goodwill of $1.5 million which has beenreflected as an extraordinary gain (net of minority interest of $0.6 million)in the statement of operations for the three months ended March 31, 2006.

 

**Liquidity and Capital Resources**

 

***Cash from OperatingActivities***

 

We reported cash used by operating activities of $49.2 million forthe three months ended March 31, 2006 compared to cash used by operatingactivities of $37.2 million for the three months ended March 31, 2005.Cash used by operating activities for the three months ended March 31,2006 and 2005 includes net working capital increases of $68.5 million and$46.1, respectively, which reflect normal seasonal build in accounts receivableand inventory and the impact of substantially higher copper costs. The firstquarter seasonal increase in our working capital results from increasedproduction, inventory stocking levels and related sales attributable tohistorically higher customer demand levels in March through October.Conversely, our sales volumes are generally lower in our fourth and early firstquarters due primarily to cold weather related reduction in demand from ourcommunications cable segment customers and the impact of year end holidayrelated plant shutdowns of major OEM customers of our North American andEuropean magnet wire and distribution segments.

 

***Capital Resources***

 

The 9% senior notes were issued jointly by Superior EssexCommunications and Essex Group in an aggregate principal amount of $257.1 milliondue in April 2012, with interest payable semi-annually in cash onApril 15 and October 15 of each year. The 9% senior notes were issuedat an original issue discount of $7.1 million. The proceeds from theoffering were also used to pay fees and expenses of the offering and fund theBelden Asset Acquisition. The 9% senior notes are fully and unconditionallyguaranteed by us and each of our existing and future domestic restrictedsubsidiaries. We may redeem some or all of the 9% senior notes at any time onor after April 15, 2008 at the following redemption prices (expressed aspercentages of the principal amount thereof) if redeemed during the twelve-monthperiod commencing on April 15 of the year set forth below:

 

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

 

We may also redeem up to 40% of the aggregate principal amount of the9% senior notes at a redemption price of 109% of the principal amount thereofusing the proceeds of one or more equity offerings completed beforeApril 15, 2007. Additionally, upon the occurrence of specific kinds ofchanges in control or asset sales as specified in the indenture governing the9% senior notes, holders of the 9% senior notes will have the right to requireus to purchase all or a portion of the outstanding 9% senior notes at apurchase price equal to 101% of the principal amount thereof plus accruedinterest.

 

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

 

Holders of the series A preferred stock issued by our subsidiary,Superior Essex Holding, are entitled to receive cumulative cash dividends at arate of 91/2% per annum per share, payable semi-annually.The series A preferred stock ranks junior to all other classes ofpreferred stock of Superior Essex Holding. The series A preferred stock ismandatorily redeemable in November 2013 at $1 per share plus accrued andunpaid dividends. The series A preferred stock contains certain othermandatory and optional redemption provisions. Each share of series Apreferred stock shall have one vote with respect to all matters submitted tostockholders for a vote, provided however, that holders of the series Apreferred stock shall not be entitled to vote generally for directors.

 

On April 14, 2006, Superior Essex Communications and Essex Group, asborrowers, entered into an amendment and restatement of their existing seniorsecured revolving credit facility. The amended and restated senior securedrevolving credit facility, among other things:

 

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

 

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

 

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

 

•              providedgreater flexibility with respect to certain restrictive covenants.

 

Interest on the amended and restated senior secured credit facilityaccrues on outstanding borrowings at an annual rate equal to, at the borrowers’option, LIBOR or a base rate, plus, in each case, an applicable margin asdiscussed above. Obligations under the amended and restated senior securedcredit facility are secured by substantially all domestic assets of the Companyand 65% of the voting stock of the Company’s foreign subsidiaries other thanEssex Nexans. Availability under the amended and restated senior secured creditfacility is subject to a borrowing base equal to the lesser of (1) $225 millionless outstanding letters of credit and (2) a specified percentage of eligibleaccounts receivable and inventory less specified reserves. The specifiedpercentages are (i) 85% of the value of the eligible accounts receivable andwith respect to inventory the lesser of (a) $110 million or (b) the lesser of(x) 65% of the value of eligible inventory and (y) 85% multiplied by the 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. Undrawn availability under the amended and restated senior securedcredit facility on a pro forma basis would have been $155.9 million as of March31, 2006.

 

The amended and restated 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 or makeother restricted payments, (ii) sell or dispose of assets, (iii) incuradditional indebtedness or permit liens to exist on Company property, (iv)engage in transactions with affiliates and (v) make additional investments oracquisitions. Capital expenditures, distributions and asset dispositions are notlimited so long as no event of default exists and the borrowers meet certainavailability and liquidity conditions specified in the amended and restatedsenior secured credit facility.

 

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Essex Nexans has afactoring agreement with a third-party French financial institution (the “Factor”)pursuant to which Essex Nexans may assign its eligible accounts receivable tothe Factor. Essex Nexans can request advances in anticipation of customercollections on the assigned receivables. Interest is payable on the netoutstanding advances at the European Overnight Index Average rate plus .47% perannum (3.1% at March 31, 2006). The amount of advances available to EssexNexans is limited to 90% (80% if EBITDA is less than zero for any year, equityof the joint venture is 10% or less of total assets or social charges exceed 5%of sales) of assigned receivables up to a maximum of $42.3 million (€35million). Borrowings of $14.8 million were outstanding under the factoringagreement as of March 31, 2006 and undrawn availability under theagreement was $27.5 million. The factoring agreement expires inOctober 2008. The factoring agreement may be terminated by the Factor ifNexans ceases to own 38% to 42% of Essex Nexans. Neither Superior Essex nor anyof its domestic subsidiaries are guarantors under the factoring agreement.

 

In connection with the Essex Nexans acquisition, EssexNexans entered into a subordinated note payable to Nexans in the amount of$13.6 million (€11.3 million). The subordinated note payable is unsecured andbears interest at 8.975% per annum payable quarterly. A total of $4.5 millionin principal is due September 30, 2009 and the remainder maturesSeptember 30, 2010. The maturity of the subordinated note will beaccelerated if we exercise our option to purchase Nexans’ minority interest inEssex Nexans. The subordinated note is not guaranteed by Superior Essex or anyof its domestic subsidiaries.

 

Essex Nexans has been designated an unrestrictedsubsidiary under our 9% senior note indenture and is not considered asubsidiary for purposes of our amended and restated senior secured creditfacility. As a result, creditors of Essex Nexans may not have recourse to anyassets of Superior Essex or our other subsidiaries, and Essex Nexans has noresponsibility for debts or obligations incurred by Superior Essex or our othersubsidiaries. Transactions with Essex Nexans, including capital contributions,are generally subject to the same restrictions as transactions with unrelatedthird parties, except that those transactions must also satisfy affiliatetransaction tests. Further, operating profit from Essex Nexans is not generallyincluded in determining whether financial tests for indenture and senior creditfacility purposes have been satisfied, such as debt incurrence or restrictedinvestment tests, unless cash from those operating profits is transferred tous.

 

***Liquidity***

 

Our principal cashrequirements generally include funding of our working capital, interestpayments on our senior secured revolving credit facility and the 9% Notes,dividend payments on our series A preferred stock, interest payments onthe Essex Nexans factoring agreement and subordinated note, capitalexpenditures currently estimated at approximately $15 million to$25 million annually (excluding investments in China discussed below), theNexans contingent payment and obligations related to our defined benefitpension plans. We are currently constructing a greenfield manufacturingfacility near Shanghai which we expect to complete in late 2006. Our total remainingcapital investment in 2006 for this initial phase of construction is expectedto be approximately $20 to $22 million. Furthermore, we anticipateincurring approximately $1.5 to $2.0 million of start-up expenses related toChina in the second and third quarters of 2006. The COMEX price of copper, ourprincipal raw material, has increased to $3.42 per pound as of May 2, 2006compared to $2.49 per pound at March 31, 2006 and $2.16 per pound at December31, 2005. Significant increases in the price of copper and the resultantincrease in accounts receivable and, to a lesser degree, inventory, impact ourworking capital funding requirements. As discussed above, we have amended oursenior secured revolving credit facility to increase our borrowing capacity inlight of rising and volatile copper costs.

 

The shareholdersagreement governing the Essex Nexans joint venture provides that Nexans willhave the right to require us to purchase its 40% interest in Essex Nexans at aprice equal to Nexans’ initial allocated equity value plus 40% of (i) thecumulative net income (adjusted for certain items as specified in theshareholders agreement) of Essex Nexans, and (ii) any post-closing capitalcontributions minus any post-closing distributions, but only if Adjusted EBITDAof Essex Nexans exceeds $16.6 million (€14.0 million) in 2008, 2009 or 2010.The put right is exercisable for one year following the completion of auditedfinancial statements demonstrating that the Adjusted EBITDA threshold was metduring 2008, 2009 or 2010. At our option, the put price may be paid in cash byus or Essex Nexans or by issuance of our common stock (or a combinationthereof). If we elect to pay the put price in our common stock, the portion ofthe put price payable in our common stock is subject to certain limitationsspecified in the shareholders agreement, including a general limit of 7.5% ofour outstanding common stock, with any excess put price payable in cash.Furthermore, the portion of the put price paid in our common stock will beincreased by 5% (or 15% if certain conditions are not met with regard to theregistration of such shares).

 

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We believe that cashprovided by operations, together with borrowing availability under our amendedand restated senior secured revolving credit facility together with our cash onhand ($7.3 million at March 31, 2006) and the Essex Nexans factoringagreement will be sufficient to meet our obligations and fund our workingcapital requirements for the foreseeable future.

 

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

 

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

 

***Commodity price riskmanagement***

 

The costs of copper, our most significant raw material, and aluminumhave historically been subject to considerable volatility. To manage the riskassociated with such volatility, we enter into futures contracts to match themetal component of customer product pricing with the cost component of theinventory shipped. These futures contracts have been designated as cash flowhedges with unrealized gains and losses recorded in other comprehensive income.Gains and losses are reclassified into earnings, as a component of cost ofgoods sold, when the hedged sales transactions are reflected in the incomestatement. Hedge ineffectiveness, which is not significant, is immediatelyrecognized in earnings. Our commodities futures purchase contracts aresummarized as follows at March 31, 2006:

 
| **Type**   | ** ** | **Notional  Amount**                    | ** ** | **Maturity  Date** | ** ** | **Weighted  Average  Settlement Rate** | ** ** | **Fair Value  Gain (Loss)** | ** ** |
|------------|------------|-----------------------------------------|------------|--------------------|------------|---------------------------------------------|------------|---------------------------------------|------------|
| ** ** | ** ** | **(in thousands of  pounds)** | ** ** | ** **         | ** ** | ** **                                  | ** ** | **(in  thousands)**                   | ** ** |
|       |       |                                    |       |               |       |                                        |       |                                  |       |
| Copper     |       | 9,850                                   |       | 2006               |       | $                                           | 2.43       |                                  | $          | 8,097 |   |
| Copper     |       | 2,100                                   |       | 2007               |       | 2.33                                        |       | 1,546                                 |       |
|       |       |                                    |       |               |       |                                        |       | $                                     | 9,643      |   |
|            |            |                                         |            |                    |            |                                             |            |                                       |            |  |  |

 

Approximately $8.1 million of unrealized gains on commodity futuresoutstanding at March 31, 2006 are expected to be reclassified in earningswithin the next twelve months.

 

Essex Nexans enters intocommodity futures contracts to match the copper component of customer productpricing with the cost component of the inventory shipped. The futures contractsare intended to minimize the risks associated with forward product pricing forcustomers and changing copper prices. These contracts generally have maturitiesof less than two months and represent economic hedges but have not beendesignated as hedges for accounting purposes. Accordingly, gains and losses onthese contracts are recorded in income as a component of cost of goods sold. Therewere no open copper futures positions held by Essex Nexans at March 31,2006.

 

29

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***Interest rate riskmanagement***

 

In order to limit our exposure to rising interest rates with respect toborrowings under our variable rate senior secured revolving credit facility, wehave entered into interest rate cap agreements. The following interest rate capagreements were outstanding as of March 31, 2006:

 
| **Type**          | ** ** | **Notional  Amount**    | ** ** | **Interest Rate** | ** **   | **Cap Rate** | ** ** | **Expiration Date** | ** **    | **Fair Value**     | ** ** |
|-------------------|------------|-------------------------|------------|------------------------|--------------|-------------------|------------|--------------------------|---------------|-------------------------|------------|
| ** **        | ** ** | **(in thousands)** | ** ** | ** **             | ** **   | ** **        | ** ** | ** **               | ** **    | **(in thousands)** | ** ** |
|              |       |                    |       |                   |         |              |       |                     |          |                    |       |
| Interest rate cap |       | $                       | 30,000     |                   | 30-day LIBOR |              | 7.0        | %                        | December 2006 |                    | $          | — |   |
| Interest rate cap |       | 15,000                  |       | 30-day LIBOR           |         | 5.0               | %          | April 2007               |          | 37                      |       |
| Interest rate cap |       | 12,500                  |       | 30-day LIBOR           |         | 5.0               | %          | May 2006                 |          | —                  |       |
|                   |            |                         |            |                        |              |                   |            |                          |               |                         |            |  |  |

 

***Foreign currencyexchange risk management***

 

We engage, to a limited extent, in the sale of products which result inaccounts receivable denominated in foreign currencies. We enter into foreigncurrency forward exchange contracts to hedge against fluctuations in the valueof these receivables. Changes in the fair value of these contracts arereflected in current earnings. At March 31, 2006, we had outstanding foreigncurrency forward exchange contracts to exchange 6.5 million Canadiandollars for $5.6 million in April 2006. The fair value of the forwardexchange contracts was insignificant at March 31, 2006. Additionally, wehave entered into foreign currency forward exchange contracts to purchase 8.0million Chinese Yuan for $1.0 million at various dates throughAugust 2006. These contracts represent an economic hedge of a portion ofexpected capital expenditures to be made in connection with construction of ourmanufacturing facility in China. Changes in the fair value of these contractsare reflected in current earnings. The fair value of these contracts wasinsignificant at March 31, 2006.

 

**ITEM 4. CONTROLS AND PROCEDURES**

 

*Evaluation of Controls and Procedures*

 

As of the end of the period covered by this Quarterly Report onForm 10-Q, we carried out an evaluation of the effectiveness of the designand operation of our disclosure controls and procedures, including internalcontrols over financial reporting, under the supervision and with theparticipation of our management, including our Chief Executive Officer andChief Financial Officer. Based on that evaluation, the Chief Executive Officerand Chief Financial Officer concluded that our disclosure controls and procedureshave been designed and are being operated in a manner that provides reasonableassurance that the information required to be disclosed by us in reports filedunder the Securities Exchange Act of 1934, as amended, is recorded, processed,summarized and reported within the time periods specified in the SEC’s rulesand forms. Further, the Chief Executive Officer and Chief Financial Officerconcluded that our disclosure controls and procedures have been designed toensure that information required to be disclosed in reports filed by us underthe Securities Exchange Act of 1934, as amended, 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.

 

*Changes in Internal Controls Over FinancialReporting*

 

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

 

30

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**PART II. OTHER INFORMATION**

 

**ITEM 2. UNREGISTERED SALES OF EQUITYSECURITIES AND USE OF PROCEEDS**

 

The following table provides information about our purchases of equitysecurities that are registered pursuant to Section 12 of the Exchange Actduring the quarter ended March 31, 2006:

 
| **Period**             | ** ** | **Total Number of  Shares Purchased** | ** ** | **Average Price Paid  per Share** | ** ** | **Total Number of  Shares Purchased as  Part of Publicly  Announced Plans  or Programs** | ** ** | **Maximum Number of  Shares that May Yet  Be Purchased Under  the Plans or Programs** | ** ** |
|------------------------|------------|------------------------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------|------------|
| January 2006      |       | —                                               |       | —                                           |       | —                                                                                                                           |       | —                                                                                                                                  |       |
| February 2006 (a) |       | 9,467                                                |       | $                                                | 26.16      |                                                                                                                             | —     |                                                                                                                                    | —     |   |
| March 2006(a)     |       | 2,044                                                |       | 24.68                                            |       | —                                                                                                                           |       | —                                                                                                                                  |       |
|                        |            |                                                      |            |                                                  |            |                                                                                                                                  |            |                                                                                                                                         |            |  |

 

----

(a)                                  Represents shareswithheld from members of management to satisfy minimum statutory taxwithholdings due upon the vesting of restricted stock awards.

 

31

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**ITEM 6. EXHIBITS**

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

 

32

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| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1                |       | Amended and  Restated Loan and Security Agreement, dated April 14, 2006, by and among  Superior Essex Communications LP, as a borrower, Essex Group, Inc., as a  borrower, the financial institutions party thereto, as lenders, General  Electric Capital Corporation, as syndication agent, Banc of America  Securities LLC and GECC Capital Markets, Inc. as co-lead arrangers, and Bank  of America, N.A. as agent (incorporated herein by reference to  Exhibit 10 to the Current Report on Form 8-K of Superior Essex  dated April 14, 2006). |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.2                |       | Warrant  Agreement, dated as of November 10, 2003, between Superior Essex Inc.  and American Stock Transfer & Trust Company, as warrant agent  (incorporated herein by reference to Exhibit 10(d) to the Superior  Essex Form 10).                                                                                                                                                                                                                                                                                                                   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.3                |       | Superior  Essex Inc. 2003 Stock Incentive Plan (incorporated herein by reference to  Exhibit 10(e) to the Superior Essex Form 10).                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.4*               |       | Amended and  Restated Employment Agreement, dated March 10, 2006, between Superior  Essex and Stephen M. Carter (incorporated herein by reference to  Exhibit 10.1 to the Current Report on Form 8-K of Superior Essex  Inc. dated March 10, 2006).                                                                                                                                                                                                                                                                                                           |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.5*               |       | Amended and  Restated Employment Agreement, dated March 10, 2006, between Superior  Essex and David S. Aldridge (incorporated herein by reference to  Exhibit 10.2 to the Current Report on Form 8-K of Superior Essex  Inc. dated March 10, 2006).                                                                                                                                                                                                                                                                                                           |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.6*               |       | Amended and  Restated Employment Agreement, dated March 10, 2006, between Superior  Essex and Justin F. Deedy, Jr. (incorporated herein by reference to  Exhibit 10.3 to the Current Report on Form 8-K of Superior Essex  Inc. dated March 10, 2006).                                                                                                                                                                                                                                                                                                   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.7*               |       | Amended and  Restated Employment Agreement, dated March 10, 2006, between Superior  Essex and H. Patrick Jack (incorporated herein by reference to  Exhibit 10.4 to the Current Report on Form 8-K of Superior Essex  Inc. dated March 10, 2006).                                                                                                                                                                                                                                                                                                             |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.8*               |       | Amended and  Restated Employment Agreement, dated March 10, 2005, between Superior  Essex Inc. and  Barbara L. Blackford (incorporated herein by reference to Exhibit 10.5  to the Current Report on Form 8-K of Superior Essex Inc. dated  March 10, 2006).                                                                                                                                                                                                                                                                                                  |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.9*               |       | Separation  Agreement, dated November 5, 2003, between Superior Essex Inc. and  Stephen C. Knup (incorporated herein by reference to  Exhibit 10(j) to the Superior Essex Form 10).                                                                                                                                                                                                                                                                                                                                                                           |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.10               |       | Lease  Agreement, dated as of December 16, 1993, by and between ALP (TX) QRS  11-28, Inc. and Superior TeleTec Transmission Products, Inc.  (incorporated herein by reference to Exhibit (i) to the Quarterly  Report on Form 10-Q of The Alpine Group, Inc. for the quarter ended  January 31, 1994).                                                                                                                                                                                                                                    |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.11               |       | First Amendment  to Lease Agreement, dated as of May 10, 1995, by and between ALP (TX)  QRS 11-28, Inc. and Superior TeleTec Inc. (incorporated herein by  reference to Exhibit 10(o) to the Annual Report on Form 10-K  of The Alpine Group, Inc. for the year ended April 30, 1995 (the  “1995 Alpine 10-K”)).                                                                                                                                                                                                                     |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.12               |       | Second  Amendment to Lease Agreement, dated as of July 21, 1995, by and between  ALP (TX) QRS 11-28, Inc. and Superior Telecommunications Inc.  (incorporated herein by reference to Exhibit 10(x) to the 1995  Alpine 10-K).                                                                                                                                                                                                                                                                                                                                 |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.13               |       | Third  Amendment to Lease Agreement, dated as of October 2, 1996, by and  between ALP (TX) QRS 11-28, Inc. and Superior Telecommunications Inc.  (incorporated herein by reference to Exhibit 10.8 to the Registration  Statement on Form S-1 (Registration No. 333-09933) of Superior  TeleCom Inc., as filed with the Securities and Exchange Commission on  August 9, 1996, as amended (the “Superior TeleCom S-1”)).                                                                                                                  |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.14               |       | First  Amendment to Guaranty and Surety Agreement, dated as of October 2, 1996,  among Superior TeleCom Inc., The Alpine Group, Inc. and ALP (TX) QRS 11-  28, Inc. (incorporated herein by reference to Exhibit 10.12 to the  Superior TeleCom S-1).                                                                                                                                                                                                                                                                                                         |

 

33

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

 

34

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| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                              |
|---------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.31               |       | Shareholders  Agreement dated October 21, 2005 by and between Superior Essex Inc., SE  Holding, C.V., Nexans, Nexans Participations and Essex Nexans SAS  (incorporated herein by reference to Exhibit 10.1 to the Current Report  on  Form 8-K of Superior Essex dated October 21,2005) |
|                |       |                                                                                                                                                                                                                                                                                                         |
| 10.32*              |       | Superior  Essex Inc. 2005 Amended and Restated Director Compensation Plan (incorporated  herein by reference to Exhibit 99.1 to the Current Report on  Form 8-K of Superior Essex dated October 27, 2005)                                                                                     |
|                |       |                                                                                                                                                                                                                                                                                                         |
| 10.33*              |       | Form of  Director Restricted Stock Unit Certificate (incorporated herein by reference  to Exhibit 99.2 to the Current Report on Form 8-K of Superior Essex  dated October 27, 2005)                                                                                                      |
|                |       |                                                                                                                                                                                                                                                                                                         |
| 10.34*              |       | Form of  Director Option Certificate (incorporated herein by reference to  Exhibit 99.3 to the Current Report on Form 8-K of Superior Essex  dated October 27, 2005)                                                                                                                     |
|                |       |                                                                                                                                                                                                                                                                                                         |
| 10.35*              |       | Form of  Stock Option Certificate (incorporated herein by reference to  Exhibit 10.1 to the Current Report on Form 8-K of Superior Essex  dated November 9, 2005)                                                                                                                        |
|                |       |                                                                                                                                                                                                                                                                                                         |
| 10.36*              |       | Form of  Restricted Stock Award Certificate (incorporated herein by reference to  Exhibit 10.2 to the Current Report on Form 8-K of Superior Essex  dated November 9, 2005)                                                                                                              |
|                |       |                                                                                                                                                                                                                                                                                                         |
| 10.37*              |       | Form of  Performance — Contingent Share Award Certificate (incorporated herein by  reference to Exhibit 10.2 to the Current Report on Form 8-K of  Superior Essex dated March 29, 2006)                                                                                                  |
|                |       |                                                                                                                                                                                                                                                                                                         |
| 10.38               |       | Consulting  Agreement dated as of January 18, 2006 between the Company and DG  Network (incorporated herein by reference to Exhibit 10.1 to the Current  Report on Form 8-K of Superior Essex dated January 13, 2006)                                                                    |
|                |       |                                                                                                                                                                                                                                                                                                         |
| 10.39*              |       | Agreement  dated as of January 18, 2006 between the Company and Denys Gounot  (incorporated herein by reference to Exhibit 10.2 to the Current Report  on Form 8-K of Superior Essex dated January 13, 2006)                                                                             |
|                |       |                                                                                                                                                                                                                                                                                                         |
| 31.1                |       | Certification  of the Company’s Chief Executive Officer pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                           |
|                |       |                                                                                                                                                                                                                                                                                                         |
| 31.2                |       | Certification  of the Company’s Chief Financial Officer pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                           |
|                |       |                                                                                                                                                                                                                                                                                                         |
| 32.1                |       | Certification  of the Company’s Chief Executive Officer pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                                                                                                                           |
|                |       |                                                                                                                                                                                                                                                                                                         |
| 32.2                |       | Certification  of the Company’s Chief Financial Officer pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                                                                                                                           |

 

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*              Management contract or compensatory plan orarrangement.

 

**SIGNATURES**

 

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

 
|              | Superior Essex Inc. |
|-------------------|---------------------|
|              |                |   |
|              | By:                 | /s/ DAVID S. ALDRIDGE |
| Date: May 9, 2006 |                | David S. Aldridge*Executive Vice President, Chief Financial  Officer  and Treasurer*(duly authorized officer and principal financial  and accounting officer) |

 

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