M ORGAN J OSEPH EQUITY RESEARCH. Superior Essex Inc. Initiating Coverage with a Buy (1) Rating. Investment Highlights DIVERSIFIED INDUSTRIALS

Transcription

1 . M ORGAN J OSEPH Superior Essex Inc. September 16, 2004 OTC: SESX.OB - $13.50 Initiating Coverage with a Buy (1) Rating Key Data EPS FY 12/ A 2004E 2005E Price (9/15/04) $13.50 Q1 NM $0.12A 1 $0.23E 52-Week Range $ $11.10 Q2 NM $0.19A 2 $0.37E Shares Outstanding (mil.) 16.6 mil Q3 NM $0.22E $0.33E Market Capitalization ($ mil.) $224.1 Q4 NM $0.12E $0.22E 3-Mo. Avg. Daily Volume 41,600 Year NM $0.65E $1.15E Institutional Ownership 63% P/E 20.8x 11.7x Fiscal Yearend December Revenue ($ mil.) Debt/Total Capital (6/04) 65% Q1 $249.5 $301.9E $339.9E ROE N/A Q2 $248.8 $357.4E $381.4E Net Debt/LTM EBITDA 5.5x Q3 $247.7 $352.3E $360.3E Book Value/Share (6/04) $10.08 Q4 $242.1 $316.5E $320.9E Price/Book Value 1.3x Year $988.0 $1,328.0E $1,402.5E 1 EPS exclude extraordinary charges of $1.1 million ($0.04 per share). 2 EPS exclude extraordinary charges of $1.8 million ($0.07 per share). NM due to bankruptcy. EQUITY RESEARCH DIVERSIFIED INDUSTRIALS Devlin Lander DLANDER@MORGANJOSEPH.COM Superior Essex Inc. Stock Price Performance $18 $16 $14 $12 $10 Mar-04 Source: Yahoo! Apr-04 May-04 Jun-04 Jul-04 Aug-04 Sep-04 Company Description: Superior Essex Inc., headquartered in Atlanta, Georgia, is a leading manufacturer of wire and cable products, primarily serving the communications cable, magnet wire and related distribution markets. The company supplies its copper and fiber optic communications wire and cable products to telephone companies, distributors and system integrators; and its magnet wire and fabricated insulation products to major original equipment manufacturers (OEM) for use in motors, transformers, generators and electrical controls. The Disclosure section may be found on the last page of this report. The Valuation section may be found on page 3. Investment Highlights We are initiating coverage of Superior Essex Inc. with a Buy (1) rating and a $17 price target. We believe there is greater visibility in both Superior Essex s communications and magnet wire businesses, and we think the company is poised to capitalize on its emergence from bankruptcy, a recent acquisition, its brand name advantage, the breadth of its product offering, and its strong management team. In November 2003, Superior Essex emerged from bankruptcy as a new company with significantly reduced debt and two core businesses, which are poised for growth due to improvements in the overall economy and the elimination of excess manufacturing capacity in the industry. Superior Essex was able to maintain leading market share in both businesses throughout the bankruptcy process. The acquisition of Belden CDT s (BDC - $21.30 NYSE [Rated Hold (2)]) communications assets greatly enhances Superior Essex s position as the largest manufacturer of copper wire and cable used in the local loop portion of the telecommunications infrastructure in North America, with greater than a 60% market share. This acquisition should enable Superior Essex to have the highest capacity utilization in the industry and significantly improve margins. We believe that both the communications and magnet wire markets have bottomed and are beginning to pick up. While we do not expect a rapid recovery, we believe Superior Essex is well-positioned to take advantage of growth opportunities. Superior Essex s shares are trading at 6.6 times enterprise value to our 2005 EBITDA estimate, below its peers. The stock is trading at 11.7 times our 2005 EPS estimate versus its peers, which are trading at 16.3 times consensus estimates. Based on Superior Essex s growth prospects, we believe the company deserves to trade at 15 times our 2005 EPS estimate, or $17 per share.

2 Investment Highlights Market Leader in Core Communications and Magnet Wire Businesses Superior Essex is a leading manufacturer of wire and cable products and has the number-one market share position in both its core communications and magnet wire businesses (which combined accounted for 83% of total revenue in 2003). With the closure of the acquisition of Belden s communications business, Superior Essex now has greater than 60% market share in the copper outside plant ( OSP ) market in North America (versus 40% in 2003). Superior Essex has approximately 30% market share in the magnet wire business and is the largest national distributor of magnet wire and related products. Superior Essex s size allows for economies of scale, broad product offering, and higher customer service levels than its smaller competitors. Significantly Improved Balance Sheet Post Bankruptcy Superior Essex emerged from bankruptcy in November 2003 and completed a common equity registration in January Superior Essex adopted Fresh Start reporting as of November 10, 2003, and the emergence from Chapter 11 resulted in a new reporting entity. Prior to filing for bankruptcy, Superior Telecom had approximately $1.3 billion in debt on its balance sheet. Post bankruptcy, the company had $200 million of debt. As of the end of the second quarter, total debt was $312 million, with the majority of the increase resulting from the Senior Notes offering, which was completed in April As a result of the dramatically improved balance sheet post-bankruptcy, Superior Essex reduced its annual interest payments from approximately $110 million to our estimate of approximately $25 million for In addition, it enabled the company to purchase the assets of Belden, thereby improving internal capacity utilization, in addition to the health of the overall communications wire and cable industry. Communications Acquisition Dramatically Improves Capacity Utilization On June 1, 2004, Superior Essex completed the acquisition of certain of Belden CDT s assets related to the North American copper OSP communications wire and cable business. Superior Essex acquired inventories (valued at approximately $40 million), selected machinery and equipment (valued at $35 million), and certain customer contracts for a total of approximately $87 million (which includes a contingent payment of $10 million to be made nine months after closing, based on customers successfully transitioned). Belden retained the manufacturing facilities and employees along with all associated liabilities and shuttered the manufacturing facility. The acquisition of Belden s communication assets results in a 25% net reduction in the US copper OSP industry capacity and shrinks the playing field from three major manufacturers to two. Belden s divestiture was a much needed step towards improving the overall health of the telecommunications wire and cable industry. The greatly reduced capacity paves the way for improvements in pricing, which suffered as three players competed for a vastly reduced amount of business. In mid-2003, Superior Essex s capacity utilization was in the mid-60% range. Post acquisition, we anticipate this to climb to close to 90%. The acquired business generated approximately $200 million in revenue in 2003 and had an operating loss of approximately $17 million. Of this $200 million, approximately 75% is under contract. While we do not think the contracts are particularly binding, if the regional Bell operating companies (RBOCs) were to sign with a new supplier, it would more than likely be at higher prices. Thus, while we think there will be some rebalancing 2

3 of the business, we anticipate Superior Essex will be able to maintain a majority of the contracted business. Belden s major customers were SBC Communications, Inc. (SBC - $ NYSE) and Verizon Communications (VZ - $ NYSE). This bodes very well for Superior Essex, as it previously had only a small amount of SBC s business. Superior Essex intends to place a portion of the machinery and equipment purchased from Belden in its Hoisington, KS, its Brownwood, TX and its Tarboro, NC facilities to meet the anticipated volume increases. The deployment of equipment into existing facilities is taking place as maintenance schedules allow, and all of the equipment is expected to be transferred by the first quarter Superior Essex stated that it added approximately 200 manufacturing jobs in the second quarter in order to handle the incremental volume. In the June 2004 quarter, Superior Essex generated operating margins of 5.4% in its communications business (which also includes premise wire). We anticipate the absorption of fixed manufacturing and plant administrative expenses will enable Superior Essex to improve its operating margin by the first quarter 2005, despite the seasonal slowdown. The acquisition only affected one month in the second quarter, and while the acquisition affects the entire third quarter, margins will be negatively affected as it will take approximately four months to work off the approximately $40 million of purchased inventory from the Belden CDT acquisition, in addition to onetime installation expenses related to moving equipment. Recent Plant Closures and Cost-Cutting Initiatives Beginning To Yield Efficiencies During 2002, Superior Telecom eliminated 23% of its Communications Group OSP/Datacom square footage capacity by closing two wholly-owned plants, one in Elizabethtown, KY, and the other in Winnipeg, Canada. Additionally, the company closed a 319,000 square foot magnet wire facility in Rockford, IL. Furthermore, in December 2002, Superior Telecom sold its building wire business to Alpine Group Inc., which we think was a positive divestiture, as this segment was not profitable and was a lower-margin business. We anticipate improving margins in both the communications and magnet wire segments as a result of these capacity declines combined with the overall improvements in the economy. Superior Essex initiated a program called Engineering for Growth in the first quarter 2004 in order to evaluate operating efficiency and continue to reduce costs in order to remain the low cost producer of both communications and magnet wire. The company is focusing on systems improvements, supply chain management, and manufacturing productivity. Completed Senior Notes Offering On April 14, 2004, the company completed a $250 million private placement of 9% Senior Notes due Superior Essex used the proceeds to redeem $145 million in 9.5% Senior Notes, and paid down a portion of its $175 million revolving credit facility ($49 million outstanding at the end of 2Q04, down sequentially from $71 million). In addition, it funded the purchase of Belden s communications cable assets for $85 million. As of the end of 2Q04, Superior Essex has $111 million available under its revolver. Valuation We believe it is not relevant to evaluate 2004 P/E multiples or enterprise value to 2004 EBITDA estimates for Superior Essex, as the company will not see the full benefits of the Belden acquisition until The acquisition was completed on June 1, 2004 and initially has one-time costs associated with the transfer and start-up 3

4 Table 1: Comparative Valuation of equipment. In addition, in the second and third quarters of 2004, Superior Essex will not receive the incremental operating leverage from the Belden revenue until the purchased inventory is worked off. By the fourth quarter 2004, we should begin to see how the acquisition will benefit margins; however, because the fourth quarter is typically seasonally very slow, it is not until the second quarter of 2005 that we should really see the potential leverage inherent in the acquisition. Currently, Superior Essex is trading at 20.9 times our 2004 earnings estimate of $0.65 per share, which is not representative of the company s earnings potential. The stock is trading at 11.7 times our 2005 earnings estimate of $1.15 per share, which is below its peers. The comparable group of companies is trading at an average of 25.1 times 2004 consensus earnings estimates and 16.3 times 2005 consensus earnings estimates. We think Superior Essex deserves to trade at approximately 15.0 times our 2005 EPS estimate, or $17, which is a slight discount to its peers. Our EPS estimate of $1.15 in 2005 is a substantial improvement (78%) over our 2004 EPS estimate of $0.65. Our 2005 estimate only assumes operating margins of 4.2% versus the company s peak of just under 10% in 2000; thus, we think the company can continue to grow earnings at a much faster rate than revenue growth. Our 2005 EPS estimate only assumes 1%-2% organic revenue growth. Therefore, any improvements in demand beyond this could dramatically expand operating margins as capacity utilization and pricing improve. Superior Essex is trading at approximately 8.2 times enterprise value to our 2004 EBITDA estimate of $64.2 million. While we believe this EBITDA level is depressed, Superior Essex still trades at a discount to the peer group, which is trading at 11.1 times enterprise value to consensus 2004 EBITDA estimates. Superior Essex is trading at approximately 6.6 times enterprise value to our 2005 EBITDA estimate of $80.0 million. The peer group is trading at 8.5 times enterprise value to consensus 2005 EBITDA estimates. While we believe Superior Essex should trade at a modest discount to some of its peers due to its recent bankruptcy, we believe the company deserves to trade at between 7.0 and 7.5 times 2005 EBITDA of $80.0 million, which implies a $17.00 stock price. We think our EBITDA estimate could be conservative given that in 2000, Superior Essex s EBITDA was more than $200 million. We also believe the stock is attractive on a price to book value basis, as it trades at 1.3 times book value, versus its peers, which trade at an average of 3.6 times. % of P/E Book Net Debt / 9/15 52 Wk 52-Wk Market Enterprise EV/LTM EV/C04E EV/C05E Multiples Price/ Value/ LTM Company Price High High Cap Value EBITDA EBITDA EBITDA 2003A 2004E 2005E Book Share EBITDA Amphenol Corporation APH $ % $2, $3, Commscope CTV $ % $1, $1, NM Encore Wire Corp WIRE $ % $ $ NA NA General Cable BGC $ % $ $ Belden CDT Inc. BDC $ % $ $1, NA Superior Essex SESX $ % $ $ NM Max Median Mean Min Source: First Call and Morgan Joseph & Co. Inc. estimates 4

5 Superior Essex s diversified business model, its strong market share in each of the markets it serves, its experienced management team and its cost-cutting efforts leave the company well positioned for a recovery. In addition, we believe our revenue and EPS estimates could prove to be conservative if demand returns in any meaningful way. In addition, now that Superior Essex has dramatically turned around its core businesses, we think the company can begin to focus on new growth opportunities which take advantage of its blue-chip customer base. Further, we think the company s anticipated NASDAQ listing is a catalyst for the stock. Currently Superior Essex trades on the OTC Bulletin Board because of its inability to meet the NASDAQ requirement of 400 round lot holders after its emergence from bankruptcy. The number of holders has been steadily increasing and currently stands at approximately 350. The company has filed for a listing on the NASDAQ small cap market and expects a NASDAQ listing by the end of the fourth quarter. We believe a NASDAQ listing would raise the stock s profile and increase trading volume by attracting new buyers. Risk Factors Superior Essex s business is cyclical and fluctuates with the economy. Decreases in telecommunications spending, factory spending and technology spending can negatively affect revenue. Superior Essex s products risk losing market share to competing technologies such as optical fiber, wireless, and cable modem. At this time, Superior Essex risks losing market share in the business due to the industry trend toward migration of magnet wire production to China and other low-cost manufacturing regions. Superior Essex s common stock is currently quoted on the OTC Bulletin Board and there is no guarantee that the stock will meet the listing standards in order to list on the NASDAQ National Market or the New York Stock Exchange. The company is now largely owned by its former creditors, with two of its previous creditors owning approximately 30% of the outstanding shares. Company Description Superior Essex is a leading producer of over 30,000 copper, aluminum, fiber optic and composite wire and cable products, primarily for the copper communications cable and magnet wire markets. Superior Essex was formed in order to acquire the business formerly conducted by Superior Telecom, which filed for Chapter 11 bankruptcy protection on March 3, The plan of reorganization became effective on November 10, Superior Telecom was founded in 1954 in Hickory, NC as a manufacturer of plastic insulated, twisted pair, copper conductor telephone wire and cable, and became a public company in The Essex Group was founded in 1930 in Detroit, MI and entered the magnet wire manufacturing business in The Essex group acquired Brownell, a large distributor of magnet wire and electrical motors, in Superior Essex is the result of the combination of Superior Telecom and Essex Brownell in Headquartered in Atlanta, GA, Superior Essex has 16 manufacturing facilities in the United States, the United Kingdom and Mexico. At yearend 2003, there were 2,800 employees. 5

6 Table 2: Acquisitions and Divestitures Acquisitions Purchase Price Date Target Location ($ mil.) Description 9/1995 Brownell US NA Essex acquired distributor of magnet wire and electrical motors 5/1995 Alcatel N.A. Cable Systems/ US/ NA Superior acquired the US and Canadian copper wire Alcatel Canada Wire, Inc. Canada and cable operations. Became the largest North American manufacturer of copper communications wire and cable BICC Phillips's magnet wire business UK NA Essex acquired magnet wire operations 5/1998 Cables of Zion United Works, Ltd. Israel 25 Superior acquired 51% controlling interest (Superior Israel) 11/1998 Essex International US 770 Superior acquired 81% interest 3/1999 Essex International US 167 Superior acquired the remaining 19% interest 6/2004 Belden's North American US 95 Superior Essex purchased selected assets and customer OSP communications assets contracts in the OSP wire and cable business. 9/2004 Nexans Magnet Wire USA US 11 Superior Essex purchased selected inventory and customer contracts in US magnet wire operations. Divestitures Purchase Price Date Acquiror Location ($ mil.) Description 10/1999 Taad Industries, Inc. US 11 Essex divested its insulation products business, Interstate operations and six electrical wire manufacturing plants 12/2002 The Alpine Group, Inc. US 85 Superior divested its electronics building wire operations, DNE Systems, Inc. and 47% of Superior Israel Source: Company reports and SDC Thomson Financial At yearend 2003, Superior Essex s telecommunications business accounted for approximately 34% of revenue, the magnet wire and distribution business accounted for approximately 48%, and the copper rod segment accounted for approximately 17%. We anticipate the telecommunications business will account for approximately 43% of revenue as of the third quarter 2004 due to the inclusion of the Belden acquisition for the full quarter. The top five customers account for approximately one-third of sales, and the top 20 account for over one-half of sales. Bankruptcy On March 3, 2003, Superior Essex filed for bankruptcy due to its inability to meet approximately $110 million in annual interest costs on debt obligations as a result of the dramatic downturn in the communications market, in addition to reduced demand for magnet wire. At yearend 2002, Superior Essex had $1.1 billion in total debt outstanding. Upon filing, Superior Essex obtained approval for a $100 million in debtor-in-possession financing. Superior Essex s Joint Plan of Reorganization became effective on November 10, 2003 and provided for holders of Superior Telecom senior secured debt to receive a combination of 16.5 million shares of common stock of Superior Essex, five million shares of 9.5% preferred stock, and $145 million in new senior debt. Holders of Superior Telecom senior subordinated notes received warrants to purchase up to 868,421 shares of Superior Essex stock at $25 per share until May In addition, $3 million in cash was earmarked for general unsecured claimholders. A new $120 million credit line was also approved to fund specific corporate needs. At the time Superior Essex emerged from bankruptcy in November 2003, the company hired Stephen M. Carter to be the new CEO. Mr. Carter had previously been the President and CEO of Cingular Wireless. Prior to that, he served in various positions with SBC Communications. We believe Mr. Carter's background is wellsuited to the needs of Superior Essex. He has a very broad knowledge of the overall communications industry (both wireline and wireless) and understands Superior Essex s customers needs. In addition, we believe he has the vision to grow the company, having served in the CEO position at much larger companies. Superior Essex has already completed two acquisitions under his direction and we believe the company will continue to make strategic acquisitions in order to strengthen Superior Essex s product depth and breadth. 6

7 Market Overview Cable Industry Analyst estimates the worldwide market for wire and cable products was $65 billion in 2003, having sequentially declined every year since the peak of $74 billion in The market is fairly evenly divided among North America, Europe and Asia. Superior Essex competes in the communications and magnet wire segments, which account for 15%-20% of the total market. Table 3 shows the approximate breakout of the various worldwide wire and cable market segments. Due to the dramatic decrease in RBOC spending which began in the second half of 2001, margins in the telecommunications and data networking markets remain depressed. However, these markets are beginning to rebound, and we believe they will continue to require a higher level of engineering and will continue to offer higher margins. Table 3: 2001 World Cable and Wire Market Sector Data Fiber Optics, 13% Magnet Wire, 9% Building Wire, 29% Electronics and Comms., 26% Pow er, 22% Source: Industry estimates Communications Cable Segment Superior Essex s communications cable segment includes: 1) copper outside plant (OSP) wire and cable; 2) fiber optic OSP and composite cable; and 3) copper and fiber optic premise wire and cable. Having completed the acquisition of Belden s communications assets on June 1, 2004, this segment is expected to represent about 38% of revenue, or approximately $488 million in In 2003, this segment accounted for 34% of revenue. Superior Essex is the largest supplier of copper OSP cables in North America and is the number seven supplier of copper and fiber optic premise products in North America, with approximately 7% market share. Superior Essex sells its communications products to telephone companies, CATV companies, distributors and system integrators. 7

8 Table 4: 2003 Communications Cable Segment Data 2003 % of Total Segment Revenue* Revenue * Major Products End Users Total $340 34% Outside Plant Products (OSP) $285 29% Copper OSP wire and cable Sprint, LECs, and fiber optic OSP and composite cable used for Telephone companies, CATV operators voice and data transmission, trunking and feeder applications, and local exchange wire Premise Products $55 6% Copper and fiber optic premise wire and cable used for homes and offices, central office switching and LAN and WAN Distributors, Campus networks, Corporate IT departments, Systems integrators * Revenues exclude net sales of approx. $202 million related to purchase of Belden's North American Communications assets, and assume combined Superior Essex and Superior Telecom results. Source: Company reports OSP Products. Copper wire and cable are the most extensive mediums for voice and data transmission in the local loop portion of the traditional telecommunications infrastructure. Superior Essex s communication products are primarily used to deliver voice and data to telephony customers with a focus on the last mile. This is the connection from the telephone company s switching center or central office to the customer's premises. Until the recent downturn in the telecommunications market, demand was primarily driven by maintenance spending; infrastructure spending for things such as road widening and new bridges, which generally require new telephone cable, along with the increasing number of access lines; and the rollout of digital subscriber lines (DSL). Superior Essex supplies distribution cable for telephone and data circuits from a telephone company s central office to the subscriber s premises. Distribution cable is made of multiple paired conductors, ranging from two pairs to 4,200 pairs and has various types of jacketing. With the closure of the acquisition of Belden s communication assets, Superior Essex now has greater than 60% market share of the North American copper OSP market. Currently, approximately 76% of Superior Essex s OSP cable and service wire is under contract. The majority of revenue under contract is sold directly to the RBOCs and Sprint. Approximately 17% is to the spot market, which consists primarily of distributors, and 7% is sold internationally. It is estimated that the RBOCs and Sprint comprise 66% of the North American copper OSP market and that the remainder of the market consists of approximately 1,200 smaller independent telephone companies. Superior Essex also supplies fiber optic cable products used principally for trunking and feeder applications in local exchange, cable television (CATV) and metropolitan rings. They can be used in a variety of installations such as aerial, buried and underground conduit and can be configured with two to 288 fibers. Superior Essex sells these cables to Local Exchange Carriers (LECs) (primarily RBOCs) and distributors, in addition to CATV companies and campus networks. The company estimates that it has approximately $30 million, or 15% market share of local loop fiber optic OPS cable products (not including long haul fiber) sold to telephone companies. 8

9 Major customers in the communications division are SBC, Verizon, BellSouth Corporation (BLS - $ NYSE) and Sprint (FON - $ NYSE). The majority of these contracts are long term, usually five years. SBC s OSP contract is up for bid in March 2005 and Verizon is up for bid in the spring of We believe Superior Essex does risk losing some business as contracts come up for renewal, given that some customers may seek to re-balance the supplier mix post the Belden acquisition. However, there are also opportunities for Superior Essex to increase pricing. In addition, there are opportunities to increase market share with certain customers, based on our belief that Superior Essex has an advantage over its competitors as it offers the broadest range of communications products, particularly fiber products. Superior Essex also sells its communications products to large national distributors such as Graybar Electric and Anixter International (AXE - $ NYSE), which supply over 1,200 independent telephone companies. Premise Products. This business represented approximately $55 million in revenue in 2003 (5.6% of total revenue) and consists of four major types of cable: 1) LAN copper twisted pair; 2) LAN fiber optic cable; 3) LAN coaxial cable; and 4) Voicegrade twisted copper pair. Superior Essex estimates it has 7% market share in the $1.1 billion North America copper and fiber optic premise market. This business includes products used within a business premises for the transmission of voice, data, or video generally utilized in computer networks. These products serve as the backbone of computer networks, linking LANs, workstations, and peripheral devices to each other or to telecommunications service wire. Data applications are estimated to account for 85% of new wiring system investment, and voice applications are estimated to account for 15%. Premise products include computer, riser rated and plenum rated wire and cable. Riser cable runs between floors, and plenum cable runs in air spaces, mostly above ceilings in office buildings. Local area network cables run between computers in backbones between servers. Central office products interconnect components within central office switching systems and public branch exchanges. Superior Essex also sells fiber optic premise, which contain from one to 144 fibers and are used for trunking or distribution applications. The premise business sells primarily to national, international and smaller regional distributors who resell to contractors and telcos for installation in industrial, commercial and residential markets. The premise wire and cable market is much more fragmented than the copper OSP market, with approximately 25 manufacturers in North America and 75 worldwide. However, this market has also been consolidating due to the downturn in the market, coupled with higher standards such as Category 6 cable which has pushed some players out of the market. Recent M&A activity includes: Commscope s purchase of Avaya Inc. s (AV - $ NYSE) structured cabling assets; the acquisition of Krone Group by ADC Communications, Inc.; the merger of Belden and CDT; and the merger of Alcatel (ALA - $ NYSE) and Draka Holding NV s fiber optic divisions. Fiber Optic versus Copper Cable. Superior Essex entered the fiber optic OSP cable market in 1999 and has grown its North American market share to 5%, despite a 75% decline in market demand. Although there has been much talk about fiber optic replacing copper cable, we believe Superior Essex is well positioned regardless of whether copper cable prevails or fiber optic becomes the standard, as it currently serves both markets. Fiber optics have been most successful in replacing long haul copper cable. Most of the cable produced by Superior Essex for telecommunications is used for the last mile. While fiber optic cable is being deployed in certain aspects 9

10 of the local loop, to date this deployment has been limited, as the cost to install fiber continues to exceed copper cable. In addition, improvements in copper cabling have enhanced the ability to handle increased bandwidth. Growth Drivers According to industry estimates, over $150 billion has been invested in the current installed base of copper cable and associated switches, connectors and other accessory components. This installed base must be maintained by the LECs. Historically, routine maintenance and repair accounts for approximately 70% of the RBOC s capital expense. However, we believe that today routine maintenance and repair accounts for approximately all of the RBOC s capital expense. Thus, this segment is primarily driven by replacement wire, in addition to demand for broadband applications such as DSL and multiple residential access lines to support fax machines, Internet access and multiple voice lines. The installation of new access lines is partially driven by new home construction and business expansion. The biggest driver of the data networking business is the installation and upgrading of computer networks. In addition, demand is driven by new office building and residential construction. New computer sales and installation are a boost to the business; however, Superior Essex receives a significant portion of its business when existing networks are maintained and modified. Market Trends Demand for outside plant telephone cable started to decline in the third quarter 2001, and experienced negative quarterly year-over-year comparisons until the third quarter In 2002, the RBOCs purchased approximately one-half the amount of copper wire and cable purchased in RBOC spending can be categorized as either maintenance or new project work. Currently, there appears to be little to no spending on new projects. Four of the major telephone operating companies experienced negative access line growth in the local loop in 2001, 2002 and It is estimated that capital spending by the RBOCs in 2004 will remain well below historical levels, but slightly above 2003 levels. However, we continue to believe the RBOCs are spending slightly less than their annual maintenance requirements. We are cautiously optimistic that the telecom segment is beginning to recover, as RBOCs will be forced to increase spending in order to meet these maintenance requirements. Table 5 shows the dramatic declines in the communications portion of US Construction spending beginning in However, the trend seems to have reversed somewhat in 1H04, with a strong pickup in overall construction activity and only a 1.3% year-over-year decline in communications construction versus a 31.3% drop in

11 Table 5: US Construction Spending (Annual % Change) % Change 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% -40.0% 47.6% 8.6% 8.1% 8.9% 3.6% 5.1% 2.1% 4.2% 1.5% -1.3% -7.8% -31.3% H04 Total Construction Communication Source: US Department of Commerce Prior to the acquisition of Belden s North American communications business and the closure of Belden s communications facility, the industry had been operating at approximately 50% capacity utilization, which has had a dramatic negative effect on the profitability of all of the competitors. Superior Essex and General Cable (BGC - $10.57 NYSE [Rated Hold (2)]) were able to lessen the burden somewhat, as they each had multiple plants and were able to decrease capacity by closing some of them. Belden, however, was operating only one large plant with high overhead costs, and had been losing money since the second quarter of The acquisition of Belden s North American communications business has lessened capacity in the industry by approximately 25%, and is beneficial to both Superior Essex and General Cable. We believe that demand in the telecommunications business remains artificially low due to the RBOCs efforts to get regulatory relief. The Federal Communications Commission s rule that requires the dominant RBOCs to allow CLECs and long distance service providers to sell high-speed Internet service (DSL) on the RBOC s existing voice lines has caused many of the RBOCs to dramatically decrease capital spending. The RBOCs are trying to make the point that they are not going to continue to invest if the competition can continue to reap the benefits of their investments. Table 6 below demonstrates the dramatic declines in telecom capital spending beginning in Bellsouth s capital expenditure declined 54% from 2000 to It appears the declines are over and that RBOCs will spend slightly more or equal to 2003 levels. Verizon estimates it will spend approximately $13.0 billion in 2004 versus $11.9 billion in Table 6: Telecom Capital Spending ($ in billions) 2000 * E Bellsouth $7.0 $6.0 $3.8 $3.2 $4.0 Quest SBC Verizon * 2000 Verizon CAPEX does not include capitalized software spending Source: Company reports 11

12 The peak for central office and premise cables was the first quarter This business quickly slowed in the second quarter 2001 due to the dot-com bust and the large declines in IT expenditures. This greatly decreased the need for wires used for hooking up new computers which were no longer necessary as expansion requirements went away. Year-over-year demand for Superior Essex s premise products declined 34% in 2001, 13% in 2002 and 5.3% in The first and second quarters of 2004 showed large year-over-year improvements in this segment of the market, with Superior Essex, General Cable and Belden, all showing yearover-year gains. In the second quarter, Superior Essex s premise business increased 33%. Some of the first quarter improvement was believed to be due to pre-buying related to rising copper prices. However, the increases in the second quarter are believed to be a combination of real demand fueled by improvements in the economy, which have increased overall IT spending, in addition to market share gains. Gartner Dataquest estimates that US spending on IT and telecommunications will increase by 6.4% to $919.3 billion in Magnet Wire and Distribution Segment Magnet wire is copper or aluminum wire, which is coated with enamel and wound into coils and predominately used in electrical motors, controls and switches. The principal end market is motors used in industrial, automotive and other applications. Magnet wire is also used in transformers for power generation by power utilities and for power conversion and electrical controls in industrial applications. Superior Essex manufactures over 2,000 types of magnet wire, ranging in diameter from 46 gauge to four gauge. Currently this segment operates seven magnet wire manufacturing plants and six insulation fabricating plants in North America and the United Kingdom. In 1998, Essex International (which was acquired by Superior Telecom in 1998) acquired BICC s United Kingdom-based magnet wire business, which is the largest producer of magnet wire in the UK. Superior Essex s magnet wire business is unique in that the manufacturing process is vertically integrated. Superior Essex manufactures a substantial portion of its own copper rod from copper cathode and also formulates and produces its own enamel coating, two of the major raw materials used in the manufacture of magnet wire. This enables the company to be more efficient, better manage inventory, and be the low-cost producer in the North American magnet wire business. Superior Essex s magnet wire products are used in industrial, automotive and other motor applications, power transformers and generators, and electrical coils and controls. We expect this segment will represent about 45% of revenue, or approximately $602 million in In 2003, this segment accounted for 48% of revenue. Superior Essex is the largest supplier of magnet wire in North America as measured by revenue and pounds sold, with approximately a 30% market share. Superior Essex sells its magnet wire products to global industrial, power, automotive and appliance OEMs, in addition to small power tool and small appliance OEMs, motor repair shops and distributors. Key customers are: A.O. Smith (AOS - $ NYSE); Bosch AG; Cooper Industries (CBE - $ NYSE); Cummins Power Generation, a division of Cummins, Inc. (CMI - $ NYSE); Delphi Corp. (DPH - $ NYSE); Emerson Electric Co. (EMR - $ NYSE); Honeywell (HON - $ NYSE); and Visteon Corp. (VC - $ NYSE). In 2003, Superior Essex s top-10 magnet wire customers represented approximately 38% of the magnet wire and distribution segment net sales. Approximately 82% of magnet wire sales were pursuant to multi-year supply agreements, with a percentage of each customer s total requirements awarded at a negotiated fixed price, subject to adjustment for the cost of copper. Distribution and Accessory Products. In 1998, Superior Telecom purchased Brownell Essex, which distributes a broad range of magnet wire, insulation and 12

13 complementary electrical accessory products and serves as a one-stop-shop for the motor repair and small OEM markets. Essex Brownell is the largest distributor of magnet wire in North America, distributing approximately 25% of Superior Essex s magnet wire in addition to products from over 400 vendors. Superior Essex is the only magnet wire producer that owns its own distribution business. The distribution business accounted for approximately 42% of the total magnet wire and distribution segment in The distribution operation consists of 23 warehousing and distribution locations. Because the distribution business generates substantially higher margins than direct sales, Superior Essex s magnet wire business has the advantage of being more profitable than its magnet wire peers. Growth Drivers Because the primary end-market for magnet wire is industrial motors, this business stands to benefit greatly from an increase in the industrial economy. Over 75% of sales are to OEMs, which typically sign long-term contracts. The second quarter 2004 was only the second quarter of year-over-year growth the company has experienced since the fourth quarter In addition to improvements in the overall industrial economy, recent industry consolidation has taken capacity out of the market, improving Superior Essex s growth prospects. Table 7: Primary Magnet Wire End Markets* Distribution, 20% Appliances/ Other, 4% Industrial Motors, 46% Automotive, 12% Pow er Generation, 18% * Represents markets served by Superior Essex customer base Source: Company presentation Market Trends The North American magnet wire production business declined by 12% in 2001, and by 7% in 2002, due to the weak industrial economy combined with the shift to lower-cost manufacturing regions such as China. In 2003, the market continued to decline, but now seems to have somewhat stabilized due to the improvements in the overall industrial economy. Table 8 shows the declines in shipments and new orders of durable goods in the US. We believe the increases in new orders that began in 2003, and which were up 12.4% in 1H04, are a good indicator of an improving magnet wire market. 13

14 Table 8: Durable Goods Shipments and New Orders ($ in millions) 2,500,000 2,000,000 $ in millions 1,500,000 1,000, , H04 Shipments New Orders Source: US Department of Commerce Due to the availability of low-cost manufacturing in China and Mexico, many magnet wire customers have begun to shift production away from high-cost manufacturing areas. As a result, many of Superior Essex s competitors have begun to shift manufacturing into low-cost areas. Magnet wire production in China, as a percentage of total output, has increased dramatically in the past few years. China has become the fastest growing wire market in the world, with an 11% five-year CAGR. In 2003, China s share of the global magnet wire market exceeded 25%, up from approximately 17% in In addition to offering a low-cost manufacturing location, internal demand in China for magnet wire has increased dramatically due to growth in autos and other magnet wire end markets. Superior Essex stated on its second-quarter conference call that it expects to announce a strategic partnership with an established magnet wire manufacturer in China during the third quarter. The majority of this manufacturer s end products are exported to both Japan and North America. This partnership would immediately position Superior Essex in the growing Chinese magnet wire market and would enable it to grow with its US customers and give it access to the growing Chinese economy. Superior Essex estimates it will make an approximate $12 million investment in the second half of 2004, which is slated for the expansion of an existing facility. The overcapacity in the industry caused by the slowdown in the industrial economy has improved due to plant closures. In 2002, Superior TeleCom closed its Rockford, Illinois manufacturing facility and shifted manufacturing to its lower-cost facilities in Mexico, Indiana and Tennessee. In addition, Phelps Dodge closed a facility which took out 5% capacity in the overall industry. On September 8, 2004, Superior Essex announced that it has purchased substantially all of the inventory associated with Nexans (NEXS.PA Paris) US magnet wire business for approximately $11 million. In addition, Superior Essex will assume some of Nexans customer contracts, estimated to be worth approximately $43 million annually. While the transaction is relatively small, we view it as positive in that it further reduces capacity in the market and eliminates a competitor. Our estimates assume that Superior Essex is able to keep approximately $30 million of this business. 14

15 In 2002, Superior Essex built a manufacturing facility in Torreon Mexico, which has enabled it to serve major US OEMs from a low-cost location. The Mexico facility also allows Superior Essex to service new market opportunities such as Mexico, Central America and South America. This facility is currently operating close to full capacity utilization and the company is planning to add more capacity in While the magnet wire business has historically been considered a low-margin, lowgrowth business, we think Superior Essex has many advantages over its competitors, which allow it to be the low-cost producer. Because the distribution business generates substantially higher margins than direct sales, Superior Essex s magnet wire business has the advantage of being more profitable than its magnet wire peers. In addition, due to recent consolidation in the North American market, there are far fewer competitors, making the business less price sensitive and thus more attractive. Copper Rod Superior Essex manufactures continuous-cast copper rod products. Prior to the sale of the electrical business, primarily all of the copper rod production was used internally for the electrical, magnet wire and communications businesses. In 2003, this segment had unused capacity due to the sale of the electrical business in December 2002 and the downturn in the communications and magnet wire businesses and thus began actively selling copper rod to third parties. Currently one half of copper rod production is used internally, and the remainder is sold to outside wire and cable manufacturers. In 2003, this segment had revenue of $172 million, or 17% of total revenue. The production that is sold to outside companies is predominately scrap which Superior Essex is unable to use. This segment is a way for Superior Essex to control costs and inventory and is not intended to be a profit center. The business is generally EBITDA breakeven. The company s three copper rod casting units are located near some of the larger magnet wire manufacturing facilities in order to minimize freight costs. Currently, the company produces approximately 50% of its internal copper rod usage. The company believes it has an advantage in producing its own copper rod as it is made to individual specifications and allows the company to control the quality and quantity of copper rod. Rising Cost of Copper The company s profits are generally not substantially affected by movements in the price of metals, primarily aluminum and copper. However, the company s selling prices are affected by metals pricing, which can cause revenue to fluctuate. The price of copper spiked from $0.88 per pound in October of last year to a high of $1.38 per pound in the March/April 2004 time frame, as shown in Table 9. When metals costs change, they are normally passed on to the customer in order to lessen the effect on gross profit. However, because the price of metals rose so quickly, there was a delay in Superior Essex Essex s ability to raise prices, which caused a short-term negative effect on gross margins in the first and second quarters of Copper prices have stabilized recently, and we anticipate Superior Essex s gross margins to improve as a result. 15

16 Table 9: Copper Prices (Spot Per/LB) Copper Prices $1.45 $1.35 $1.25 $1.15 $1.05 $0.95 $0.85 $0.75 $0.65 $0.55 Source: Oct-01 Dec-01 Feb-02 Apr-02 Jun-02 Aug-02 Oct-02 Dec-02 Feb-03 Apr-03 Jun-03 Aug-03 Oct-03 Average Monthly Spot Per/LB Dec-03 Feb-04 Apr-04 Jun-04 Aug-04 Recent Results Fiscal Second Quarter 2004 Superior Essex posted a strong second quarter 2004, which showed significant yearover-year and sequential improvement. Total revenue grew 17% on a copperadjusted basis to $357.4 million over the second quarter of The increase was primarily driven by 12% organic growth, which benefited from volume increases in all business segments, in addition to approximately $15 million ($13.5 million, metal-adjusted) from the Belden asset acquisition, which was completed on June 1, Revenue from the company s core communications and magnet wire businesses of $284.2 million increased 9.3% on a metal-adjusted basis, excluding Belden. EPS in the quarter were $0.19 (excluding one-time charges). EPS in the quarter would have been $0.12 including pretax charges of $1.8 million related to restructuring items. Year-over-year EPS comparisons are not relevant due to the company s recent bankruptcy. Gross margins in the quarter of 9.7% were down 240 basis points from the second quarter 2003 and down 10 basis points sequentially. The decline in gross margin was primarily due to increased copper prices, which does not necessarily have an effect on the dollar amount of gross profit, but does lower the margin. On a copperadjusted basis, the gross margin was 11.2% versus 11.7% in the second quarter Rapidly rising copper prices also negatively affected gross margins as the cost of goods sold rose before Superior Essex was able to obtain price increases from its customers. Copper prices increased from approximately $0.88 per pound in October to a high of $1.38 per pound in the March/April 2004 time frame. Margins were also negatively affected by integration costs related to the Belden acquisition, because the majority of revenue from Belden was from purchased inventory, which was at a higher-cost basis than the company s manufactured inventory. In addition, lower margins reflect lower product pricing due to competitive pressures on contracts which were negotiated in the second half of SG&A was 7.5% of sales versus 8.4% a year ago. EBITDA in the quarter, excluding charges, was $17.5 million, versus $16.7 million (excluding one-time charges) in the 16

17 second quarter On a copper-adjusted basis, EBITDA increased 17% both year over year and sequentially. Operating margins in the quarter were 3.4%, (excluding one-time charges) versus 3.6% in the second quarter 2003 (excluding one-time charges). Margins were slightly lower year over year due to the rapid rise in copper prices and some one-time incremental costs due to the transfer of equipment. Cash flows in the quarter increased by $12 million, excluding the Belden communications asset acquisition. Net working capital increased by $30 million, including $38 million in acquired inventory and approximately $15 million in incremental accounts receivable. Communications Cable Segment Metal-adjusted revenue in the communications cable business increased 27% versus the second quarter Excluding the inclusion of the Belden acquisition for one month of the quarter, revenue increased 12% on a metals-adjusted basis. The increase was across all three product lines, copper OSP cable, fiber optic cable, and premise wire and cable. Management stated the strong results were driven by increased spending by the major telephone companies to support deferred maintenance and growing investment in information technology, in addition to the normal seasonal increase. Total sales of copper OSP cable increased 25% on a metal-adjusted basis and increased 8% excluding the effect of the Belden acquisition. While the telephone exchange cable business has clearly not recovered, it appears to be improving, as this was the second consecutive quarter of year-over-year increases. Sales of premise wire and cable increased 33% on a metal-adjusted basis the second consecutive year-over-year increase in six quarters. Management believes the strength in the premise and fiber optic market was driven by a combination of increased demand and market share gains partially resulting from continued consolidation in the marketplace. Operating margins of 5.4% were down versus 7.4% in the second quarter 2003, primarily due to higher costs associated with accelerated orders by customers in the first quarter 2004 in anticipation of future copper price increases. The EBITDA margin in the quarter was 7.2% (excluding one-time charges). Table 10 shows the dramatic declines in EBITDA margin since 1999 s peak showed an improvement over 2002, and we anticipate further improvement in Table 10: Historical Communications Cable Segment EBITDA Margins EBITDA Margin % 25% 20% 15% 10% 5% 0% Source: Company reports 17

18 Magnet Wire and Distribution This segment reported a 7% year-over-year increase in revenue on a metal-adjusted basis, which was the second consecutive quarter of year-over-year increases. Revenues in this segment had trended downward since the beginning of The company believes the revenue increases are due to overall improved demand, in addition to market share gains. The power generation and transformer segment were particularly strong, driven by demand for backup power generators for commercial and residential use. While the industrial motor segment experienced some recovery of order flow from two of its largest magnet wire customers who had overstocked inventories in the first quarter, the segment has seen little improvement. The distribution portion of the business, Essex Brownell, increased 10% in the quarter due to increased sales of its own products, in addition to increased sales of third-party products. Operating margins in the magnet wire segment were 5.7%, flat with last year. The EBITDA margin in the segment was 7.1% for the quarter (excluding one-time charges). Table 11: Historical Magnet Wire and Distribution Segment EBITDA Margins EBITDA Margin % 16% 14% 12% 10% 8% 6% 4% 2% 0% Source: Company reports Revenue in the copper rod segment was $73.2 million in the quarter, up 29% on a metals-adjusted basis versus the year-ago quarter. The increase in sales is primarily due to the addition of a major new customer in Balance Sheet Total debt as of June 30, 2004 was $312 million, an $83 million increase from last quarter. The increase in total debt stemmed from funding for the Belden acquisition and associated fees. Working capital, excluding $53 million in inventories and accounts receivable from acquisition related revenue, was reduced by $23 million in the quarter. The company ended the quarter with $110 million available on its $175 million revolver and $12.5 million in cash. Total debt-to-capitalization is 65%. Cash from operations for the three months ended June 30, 2004 was $14.8 million. CAPEX for the second quarter was $2.8 million, up $2.2 million versus a year ago. Going forward, the company estimates capital spending will be approximately $10 - $15 million annually, which does not include an estimated $12 million investment in the company s anticipated Chinese joint venture. 18

19 Model Assumptions While Superior Essex does believe some of its communications customers were prebuying in the first quarter in anticipation of rapidly rising copper prices, the company was able to achieve sequential organic revenue growth in the second quarter in both its communications and magnet wire businesses. Third-quarter communications cable segment revenue is typically down slightly sequentially due to normal seasonality. However, due to the inclusion of a full quarter of revenue from the Belden acquisition, we anticipate third-quarter revenue to increase 15% sequentially, and 42.3% year over year (with a large portion of the year-over-year gain due to rising copper prices). We anticipate single-digit year-over-year organic revenue growth in both the communications and magnet wire segments, in addition to an approximate $40 million contribution from Belden. In the fourth quarter, we anticipate the typical seasonal slowdown, with revenue down 23% sequentially in the communications segment and down very slightly in the magnet wire businesses. Based on the assumption that the majority of RBOCs 2004 capital spending is expected to be in line with or slightly above 2003 levels, we assume that spending levels will not contract and that full-year 2004 organic communications revenue should improve relative to We expect revenue in the magnet wire business will continue to increase a few percentage points and that the just completed acquisition of Nexans US magnet wire business will add approximately $9 million in the second half of Our full-year 2004 revenue estimate is $1.33 billion. Copper prices seem to have stabilized at around $1.25. Our estimates are dependent on copper prices remaining at these levels. Superior Essex stated that it anticipates that by the third quarter its price increases will have caught up with current copper pricing. We anticipate gross margin expansion will begin in the third quarter 2004 and will further accelerate in the fourth quarter. However, gross margins will continue to be hindered by the portion of revenue from the Belden acquisition, which will be at much lower margins throughout the quarter as the company works off the remaining $30 million of inventory. We anticipate 10.1% gross margins in the third quarter compared to 9.7% in the second quarter 2004 and 11.3% in the third quarter We anticipate margins will further improve in the fourth quarter to 10.6%, despite the seasonal slowdown. We anticipate SG&A to decline to 6.7% of 2004 revenue versus 8.3% of 2003 revenue due to cost-cutting initiatives and the leverage inherent in the business whereby SG&A costs are expected to increase less rapidly than revenue in We expect operating margins of 3.4% in 2004 versus 2.5% in In 2000, the communications segment had peak operating margins of 14.2% (versus our estimate of approximately 5.0% in 2004) and the magnet wire business had peak operating margins 12.4% (versus our estimate of approximately 5.4%). While we do not anticipate margins getting back to theses levels in the near future, due to dramatically higher copper prices combined with the lagging negative effects of pricing pressure, we believe the company has the ability to significantly improve these margins. Our full-year EBITDA estimate for 2004 is $64.2 million versus $53.6 million in Our EPS estimate for the full year 2004 is $0.65. Given the bankruptcy in 2003, EPS from that year are not relevant. Our 2005 revenue estimate of $1.4 billion assumes that organic growth in the telecom and magnet wire businesses is up only a couple of percentage points versus our 2004 estimate, which we think is conservative. We expect total communications revenue to grow 14% due to the inclusion of the Belden acquisition for the full year and for the magnet wire business to grow 4% (which benefits slightly from the inclusion of the Nexans acquisition for the full year). 19

20 We believe our full-year 2005 EBITDA estimate of $80.0 million could be conservative, as we have only assumed an additional $15.8 million over 2004 levels. We think Superior Essex could earn this $15.8 million difference solely on the acquired Belden revenue as it will benefit for the entire year and at higher margins. Our 2005 EPS estimate of $1.15 represents substantial growth (78%) over our 2004 EPS estimate due to the leverage inherent in Superior Essex s business model. Our 2005 estimate only assumes total revenue growth of 5.6% and assumes operating margins expand 80 basis points year over year. We believe these estimates could be conservative, given the company s past earnings history. Due to the company s highly leveragable assets, we believe that if there is a meaningful recovery in either of the company s markets, earnings could come in above our forecast. We anticipate cash from operations of $6.1 million in 2004 and capital expenditure of $23.3 million, or free cash flow of negative $17.2 million, due to higher inventory and accounts receivable related to the Belden asset purchase, as well as our assumption for 4Q04 of an approximate $12 million investment in a Chinese joint venture. For 2005, we anticipate that free cash flow will be $40.6 million, due to increased EBITDA combined with only a slight increase in interest expense and lower CAPEX. Table 12: Free Cash Flow Estimates Free Cash Flow 2004E 2005E EBITDA 61,411 79,999 Interest paid (25,366) (26,400) Change in working capital (30,000) - Net operating cash flow 6,045 53,599 Cap Ex (23,260) (13,043) Free cash flow (17,215) 40,556 Source: Morgan Joseph & Co. Inc. estimates 20

21 APPENDIX A Management Biographies Stephen M. Carter, 50, became CEO in November 2003 at the time Superior Essex emerged from bankruptcy. From July 2000 to November 2002, Mr. Carter was President and CEO of Cingular Wireless. Mr. Carter also served in various positions with SBC Communications and its predecessor company, Southwestern Bell, including President and CEO of SBC Wireless, President of SBC Strategic and Special Markets and President and CEO of Southwestern Bell Telecom. David S. Aldridge, 49, has been an EVP since March 2004 and CFO and Treasurer since November 10, 2003, a position that he also held at Superior TeleCom from 1996 to November, 2003 as well as being its Chief Restructuring Officer from January 2003 to November 9, In addition, Mr. Aldridge held the position of CFO of The Alpine Group, Inc. from November 1993 to May 2003 and Treasurer of Alpine from January 1994 through April Justin F. Deedy, Jr., 48, has been an EVP and President of the Communications Group since November 10, Mr. Deedy was an EVP of Superior TeleCom and President of Superior TeleCom's communications cable segment from June 1999 to November 9, Prior to this, Mr. Deedy was SVP of Superior TeleCom from July 1996 to June 1999 and President of its wholly owned subsidiary, Superior Telecommunications Inc., from July 1993 to December H. Patrick Jack, 52, has been an EVP since March 2004 and President of Essex Group Inc. since November 10, Mr. Jack was President of Superior TeleCom's magnet wire and distribution segment from August 2002 to November 9, Prior to that, he was a consultant to a successor company of Aristech Chemical Corporation, a chemicals and plastics business, from January 2002 to March 2002, and President and COO of Aristech from 1998 to Monte R. Haymon, 66, has been non-executive Chairman of the Board since January Mr. Haymon was Chairman of the Board from January 2002 until his retirement in December 2003, and President and CEO from 1995 to January 2002, of Sappi Fine Paper North America, a manufacturer of coated and specialty paper products. 21

22 Table 13: Quarterly and Annual Earnings Models ($ in thousands except per share data) E 2005E Q1 Q2 Q3 Q4 FY Q1A Q2A Q3E Q4E FY Q1E Q2E Q3E Q4E FY Revenue: Communications cable $74,984 $93,140 $90,786 $81,300 $340,210 $90,600 $131,026 $150,759 $115,365 $487,750 $125,412 $160,647 $153,774 $117,672 $557,505 Magnet wire and distribution 124, , , , , , , , , , , , , , ,584 Copper rod 50,506 35,609 40,098 45, ,713 64,888 73,172 50,123 50, ,233 59,697 58,538 50,624 50, ,409 Total revenue 249, , , , , , , , ,540 1,328, , , , ,859 1,402,497 Cost of goods sold 223, , , , , , , , ,929 1,194, , , , ,602 1,245,776 Total gross profit 26,089 30,012 28,011 23, ,376 29,600 34,617 35,548 33, ,377 36,665 42,722 41,078 36, ,722 Selling, general and administrative expenses 20,747 20,954 20,706 19,847 82,254 20,891 22,291 22,900 23,646 89,727 23,795 25,857 25,223 23,423 98,298 Total expenses 20,747 20,954 20,706 19,847 82,254 20,891 22,291 22,900 23,646 89,727 23,795 25,857 25,223 23,423 98,298 Operating income 5,342 9,058 7,305 3,417 25,122 8,709 12,326 12,649 9,966 43,649 12,869 16,865 15,855 12,834 58,423 Interest expense (20,672) (2,349) (2,151) (4,200) (29,372) (4,869) (7,111) (6,500) (6,500) (24,980) (6,500) (6,500) (6,500) (6,500) (26,000) Distributions on pfd securities of Superior Trust I (3,870) (1,180) - - (5,050) Other expense (200) 170 (268) (74) (372) (76) (110) (100) (100) (386) (100) (100) (100) (100) (400) Total interest expense (24,742) (3,359) (2,419) (4,274) (34,794) (4,945) (7,221) (6,600) (6,600) (25,366) (6,600) (6,600) (6,600) (6,600) (26,400) Income from ops. before income taxes (19,400) 5,699 4,886 (857) (9,672) 3,764 5,105 6,049 3,366 18,283 6,269 10,265 9,255 6,234 32,023 Provision for income taxes (776) (355) 1,844 1,938 2,420 1,346 7,548 2,508 4,106 3,702 2,494 12,809 Income before extraordinary item (18,624) 5,474 4,692 (859) (9,317) 1,920 3,167 3,629 2,019 10,735 3,762 6,159 5,553 3,741 19,214 Extraordinary item 37,376 (1,086) 9,097 (929,953) (884,566) 551 1, , Net Income including extraordinary items (56,000) 6,560 (4,405) 929, ,249 1,369 2,042 3,629 2,019 9,060 3,762 6,159 5,553 3,741 19,214 Diluted EPS NA NA NA NA ($0.40) $0.12 $0.19 $0.22 $0.12 $0.65 $0.23 $0.37 $0.33 $0.22 $1.15 Year-over-year growth NA NA NA NA NA NA NA NA NA NA 95.0% 93.8% 52.6% 84.9% 78.4% Diluted EPS including extraordinary items NA NA NA NA $37.91 $0.08 $0.12 $0.22 $0.12 $0.54 $0.23 $0.37 $0.33 $0.22 $1.15 Common shares outstanding - basic NA NA NA NA 21,788 16,500 16,516 16,533 16,549 16,524 16,500 16,504 16,521 16,537 16,515 Common shares outstanding - diluted NA NA NA NA 23,088 16,592 16,622 16,650 16,670 16,634 16,670 16,680 16,690 16,700 16,685 Operating income 5,340 9,054 7,305 3,417 25,116 8,709 12,326 12,649 9,966 43,649 12,869 16,865 15,855 12,834 58,423 Depreciation 7,443 7,345 7,288 5,723 27,799 4,828 5,061 5,285 5,381 20,555 5,371 5,377 5,405 5,423 21,576 Other Income/(expense) (199) 173 (268) (74) (368) - - Non-cash comp charges , Excluded P&M / legal / advisory fees EBITDA 13,145 16,722 14,462 9,241 53,570 13,537 17,487 17,933 15,347 64,204 18,240 22,242 21,260 18,257 79,999 Revenue Growth (year over year) Communications Cable (40.1%) (32.7%) (30.1%) (16.2%) (3.2%) 20.8% 40.7% 66.1% 41.9% 43.4% 38.4% 22.6% 2.0% 2.0% 14.3% Magnet wire and distribution (3.3%) (8.9%) (4.4%) 3.5% (3.6%) 18.0% 27.6% 29.7% 31.1% 26.5% 5.8% 5.9% 3.0% 1.0% 3.9% Copper Rod NA NA NA 231.1% % 28.5% 105.5% 25.0% 10.0% 38.7% (8.0%) (20.0%) 1.0% 1.0% (7.9%) Total Revenue 15.5% 6.7% 14.8% 25.1% 15.1% 21.0% 43.6% 42.3% 30.8% 34.4% 12.6% 6.7% 2.3% 1.4% 5.6% Revenue Mix Communications Cable 30.0% 37.4% 36.7% 33.6% 34.4% 30.0% 36.7% 42.8% 36.4% 36.7% 36.9% 42.1% 42.7% 36.7% 39.8% Magnet Wire and Distribution 49.7% 48.2% 47.1% 47.6% 48.2% 48.5% 42.9% 43.0% 47.7% 45.3% 45.5% 42.5% 43.3% 47.6% 44.6% Copper Rod 20.2% 14.3% 16.2% 18.8% 17.4% 21.5% 20.5% 20.0% 12.0% 17.9% 17.6% 15.3% 14.0% 15.8% 15.6% Gross Margin 10.5% 12.1% 11.3% 9.6% 10.9% 9.8% 9.7% 10.1% 10.6% 10.1% 10.8% 11.2% 11.4% 11.3% 11.2% As a % of Revenue SG&A 8.3% 8.4% 8.4% 8.2% 8.3% 6.9% 7.5% 6.5% 7.5% 6.8% 7.0% 6.8% 7.0% 7.3% 7.0% Depreciation & amortization 3.0% 3.0% 2.9% 2.4% 2.8% 1.6% 1.4% 1.5% 1.7% 1.5% 1.6% 1.4% 1.5% 1.7% 1.5% EBITDA Margin 5.3% 6.7% 5.8% 3.8% 5.4% 4.5% 4.9% 5.1% 4.8% 4.8% 5.4% 5.8% 5.9% 5.7% 5.7% Operating Margin 2.1% 3.6% 2.9% 1.4% 2.5% 2.9% 3.4% 3.6% 3.1% 3.3% 3.8% 4.4% 4.4% 4.0% 4.2% Net Margin (7.8%) 2.3% 2.0% (0.4%) (1.0%) 0.0% 0.0% 0.0% 0.0% 1.4% 0.0% 0.0% 0.0% 0.0% 2.3% Tax Rate 4.0% 4.0% 4.0% (0.2%) 3.7% 49.0% 38.0% 40.0% 40.0% 41.3% 40.0% 40.0% 40.0% 40.0% 40.0% Notes: (1) Q103 EPS exclude restructuring and reorganizations charges of $38.9 million (2) Q203 EPS exclude restructuring and reorganizations charges of $1.1 million (3) Q303 EPS exclude restructuring and reorganizations charges of $9.5 million (4) Q403 EPS exclude restructuring and reorganizations charges of $928.2 million (5) Q104 EPS exclude restructuring and acquisition-related charges of $1.1 million ($0.04 per share) (4) Q204 EPS exclude restructuring and acquisition-related charges of $1.8 million ($0.07 per share) Source: Company reports and Morgan Joseph & Co. Inc. estimates 22

23 Table 14: Balance Sheets ($ in thousands) FY2003 1Q04 2Q04 Assets Cash and cash equivalents $10,606 $5,657 $12,512 Receivables, net 100, , ,635 Total inventory 119, , ,864 Other current assets 23,316 18,058 17,379 Total current assets 254, , ,390 Property & equipment, net 223, , ,495 Goodwill - - Other assets 9,005 9,689 41,257 Assets of discontinued operations - - Total assets 486, , ,142 Liabilities and shareholders' equity Accounts payable 35,866 53,052 61,005 Accrued expenses 58,199 50,588 56,568 Short-term debt 42,755 72,503 49,748 Current portion of long-term debt - - Total current liabilities 136, , ,321 Long-term debt, net of current maturities 157, , ,132 Other long-term liabilities 29,213 29,399 28,039 Liabilities of discontinued operations - - Total shareholders' equity 163, , ,650 Total liabilities and shareholders' equity 486, , ,142 Source: Company reports 23

24 Table 15: Principal Properties Operation Location Square Footage Leased/Owned Communications Cable OSP/Premise Brownwood, Texas 415,000 Leased (expires 2018 ) Chester, South Carolina 236,000 Owned Hoisington, Kansas 275,000 Owned Kennesaw, Georgia 39,000 Leased (expires 2007) Tarboro, North Carolina 300,000 Owned Magnet Wire and Distribution Magnet Wire Charlotte, North Carolina 26,000 Leased (expires 2006) Fort Wayne, Indiana 181,000 Owned Franklin, Indiana (a) 35,000 Owned Franklin, Tennessee 289,000 Leased (expires 2008 Huyton Quarry, U.K 146,000 Owned Kendallville, Indiana 88,000 Owned Rockford, Illinois (b) 319,000 Owned Torreon, Mexico 317,000 Owned Vincennes, Indiana 242,000 Owned Fabricated Insulation Athens, Georgia 30,000 Leased (expires 2008) Clifton Park, New York 22,000 Leased (expires 2008) Willowbrook, Illinois 60,000 Leased (expires 2016) Copper Rod Columbia City, Indiana 75,000 Owned Vincennes, Indiana 25,000 Owned Administrative Offices Atlanta, Georgia 48,000 Leased (expires 2009) Fort Wayne, Indiana 295,000 Owned (a) The Franklin, Indiana facility is approximately 70,000 square feet, of which 35,000 square feet is leased to Femco Magnet Wire Corporation, a joint venture with the Furukawa Electric Co., Ltd., Tokyo, Japan. Femco manufactures and markets magnet wire with special emphasis on products required by Japanese manufacturers with production facilities in the United States. (b) The Rockford, Illinois facility was closed in July The company utilizes approximately 80,000 square feet of this facility as a warehouse. Source: Company reports 24

25 This page intentionally left blank. 25

26 This page intentionally left blank. 26

27 This page intentionally left blank. 27

28 Equity Research Team ANALYST TELEPHONE CAROLE CRANMER DIRECTOR OF RESEARCH DEVLIN LANDER VICE PRESIDENT RICHARD S. PAGET, CFA ANALYST RICHARD F. ROSSI MANAGING DIRECTOR KATHLEEN N. STARRS VICE PRESIDENT ASSOCIATE TELEPHONE JACKLYN S. ANDERSON BAHRAM PAHLAVI PRODUCTION COORDINATOR TELEPHONE MEG O CONNOR MOCONNOR@MORGANJOSEPH.COM LOCATIONS TELEPHONE FACSIMILE NEW YORK 600 FIFTH AVENUE, 19TH FLOOR NEW YORK, NY NASHVILLE 150 FOURTH AVENUE NORTH, SUITE NASHVILLE, TN TRADING DEPARTMENT 1173 PITTSFORD-VICTOR ROAD, SUITE PITTSFORD, NY Required Disclosures I, Devlin Lander, the author of this research report, certify that the views expressed in this report accurately reflect my personal views about the subject securities and issuers, and no part of my compensation was, is, or will be directly or indirectly tied to the specific recommendations or views contained in this research report. Research analyst compensation is dependent, in part, upon investment banking revenues received by Morgan Joseph & Co. Inc. Morgan Joseph & Co. Inc. expects to receive or intends to seek compensation for investment banking services from the subject company within the next 3 months. Meaning of Ratings: A) Buy (1) means Reasonable out-performance relative to the market over months. B) Hold (2) means Market-type risk adjusted performance; potential source of funds. C) Sell (3) means Expected to under-perform the market. Of the securities currently subject to research coverage by Morgan Joseph & Co. Inc., the percentage rated as a Buy is 30%; the percentage rated as a Hold is 70%; and the percentage rated as a Sell is 0%. In the previous 12 months, Morgan Joseph & Co. Inc. has provided investment banking services to 36% of the companies we currently rate as Buy ; to 23% of the companies we currently rate as Hold ; and to 0% of the companies we currently rate as Sell. Other Disclosures The information contained herein is based upon sources believed to be reliable but is not guaranteed by us and is not considered to be all inclusive. It is not to be construed as an offer or the solicitation of an offer to sell or buy the securities mentioned herein. Morgan Joseph & Co. Inc., its affiliates, shareholders, officers, staff, and/or members of their families, may have a position in the securities mentioned herein, and, before or after your receipt of this report, may make or recommend purchases and/or sales for their own accounts or for the accounts of other customers of the Firm from time to time in the open market or otherwise. Opinions expressed are our present opinions only and are subject to change without notice. Morgan Joseph & Co. Inc. is under no obligation to provide updates to the opinions or information provided herein. Additional information is available upon request. Copyright 2004 by Morgan Joseph & Co. Inc.