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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  Form 10-Q (Mark One) xQUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended May 31, 2004 OR oTRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to . Commission file number 333-49957-01 EaglePicher Holdings, Inc. A Delaware Corporation
I.R.S. Employer Identification No. 13-3989553
 3402 East University Drive, Phoenix, Arizona 85034 Registrants telephone number, including area code:602-794-9600 Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes x No o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2) Yes o No x 1,000,000 shares of common capital stock, $0.01 par value each, were
outstanding at July 12, 2004




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TABLE OF ADDITIONAL REGISTRANTS STATE OR OTHERJURISDICTION OF
    
    I.R.S. EMPLOYERINCORPORATION OR
    
    IDENTIFICATIONNAME OF REGISTRANT
    
    ORGANIZATION
    
    NUMBEREaglePicher Incorporated
    
    Ohio
    
    31-0268670Carpenter Enterprises, Inc.
    
    Michigan
    
    38-2752092Daisy Parts, Inc.
    
    Michigan
    
    38-1406772Eagle-Picher Far East, Inc.
    
    Delaware
    
    31-1235685EaglePicher Filtration & Minerals, Inc.
    
    Nevada
    
    31-1188662EaglePicher Technologies, LLC
    
    Delaware
    
    31-1587660EaglePicher Automotive, Inc.
    
    Michigan
    
    38-0946293EaglePicher Pharmaceutical Services, LLC
    
    Delaware
    
    74-3071334
 2




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TABLE OF CONTENTS PageNumberPART I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Condensed Consolidated Balance Sheets
    
    
    4Condensed Consolidated Statements of Income (Loss)
    
    
    5Condensed Consolidated Statements of Cash Flows
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    35Item 4. Controls and Procedures
    
    
    35PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    36Item 6. Exhibits and Reports on Form 8-K
    
    
    36Signatures
    
    
    37Exhibit Index
    
    
    46EX-31.1EX-31.2EX-32.1EX-32.2
  DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS Certain of the matters discussed in this report may constitute
forward-looking statements. Forward-looking statements can be identified by
the use of forward-looking words such as believes, expects, may, will,
should, seeks, approximately, intends, plans, estimates or
anticipates or the negative of these terms or other comparable words, or by
discussions of strategy, plans or intentions. Statements in this report which
are not historical facts are forward-looking statements. Without limiting the
generality of the preceding statement, all statements in this report concerning
or relating to estimated and projected earnings, margins, costs, expenditures,
cash flows, growth rates and financial results are forward-looking statements.
In addition, we, through our senior management, from time to time make
forward-looking public statements concerning our expected future operations and
performance and other developments. Such forward-looking statements are
necessarily estimates reflecting our judgment based upon current information
and involve a number of risks and uncertainties. Other factors may affect the
accuracy of these forward-looking statements and our actual results may differ
materially from the results anticipated in these forward-looking statements. 3




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PART I. FINANCIAL INFORMATION 
 Item 1. Financial Statements. EaglePicher Holdings, Inc. 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 November 30, 2003 and May 31, 2004
(unaudited) (in thousands of dollars)
 2003
    
    2004ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    67,320
    
    
    $
    34,168Receivables, net
    
    
    23,895
    
    
    
    32,422Retained interest in EaglePicher Funding Corporation, net
    
    
    63,335
    
    
    
    50,202Costs and estimated earnings in excess of billings
    
    
    28,433
    
    
    
    39,697Inventories
    
    
    51,532
    
    
    
    60,475Assets of discontinued operations
    
    
    16,842
    
    
    
    Prepaid expenses and other assets
    
    
    10,394
    
    
    
    10,359Deferred income taxes
    
    
    8,526
    
    
    
    8,526270,277
    
    
    
    235,849Property, Plant and Equipment, net
    
    
    150,814
    
    
    
    152,251Goodwill
    
    
    152,040
    
    
    
    161,676Prepaid Pension
    
    
    56,891
    
    
    
    56,981Other Assets, net
    
    
    33,516
    
    
    
    31,371$
    663,538
    
    
    $
    638,128LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current Liabilities:Accounts payable
    
    $
    88,542
    
    
    $
    77,480Current portion of long-term debt
    
    
    13,300
    
    
    
    12,746Compensation and employee benefits
    
    
    15,701
    
    
    
    11,568Billings in excess of costs and estimated earnings
    
    
    2,098
    
    
    
    1,381Accrued divestiture reserve
    
    
    9,297
    
    
    
    6,464Liabilities of discontinued operations
    
    
    1,994
    
    
    
    480Other accrued liabilities
    
    
    32,760
    
    
    
    30,334163,692
    
    
    
    140,453Long-term Debt, net of current portion
    
    
    408,570
    
    
    
    392,667Postretirement Benefits Other Than Pensions
    
    
    17,418
    
    
    
    17,190Other Long-Term Liabilities
    
    
    9,649
    
    
    
    14,74411.75% Cumulative Redeemable Exchangeable Preferred Stock
    
    
    154,416
    
    
    
    162,754753,745
    
    
    
    727,808Commitments and ContingenciesShareholders Equity (Deficit):Common stock
    
    
    10
    
    
    
    10Additional paid-in capital
    
    
    92,810
    
    
    
    92,810Accumulated deficit
    
    
    (184,543
    )
    
    
    (184,921
    )Accumulated other comprehensive income
    
    
    1,516
    
    
    
    2,421(90,207
    )
    
    
    (89,680
    )$
    663,538
    
    
    $
    638,128
 The accompanying notes are an integral part of these consolidated balance sheets. 4




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EaglePicher Holdings, Inc. 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) Three and Six Months Ended May 31, 2003 and 2004
(unaudited) (in thousands of dollars, except share and per share amounts)
 Three Months Ended May 31,
    
    Six Months Ended May 31,2003
    
    2004
    
    2003
    
    2004Net Sales
    
    $
    171,886
    
    
    $
    186,410
    
    
    $
    333,381
    
    
    $
    350,170Operating Costs and Expenses:Cost of products sold (exclusive of depreciation)
    
    
    130,629
    
    
    
    144,584
    
    
    
    256,482
    
    
    
    271,368Selling and administrative
    
    
    16,093
    
    
    
    17,205
    
    
    
    30,221
    
    
    
    34,074Depreciation and amortization
    
    
    10,826
    
    
    
    10,006
    
    
    
    21,850
    
    
    
    19,883Insurance related gains
    
    
    (5,736
    )
    
    
    
    
    
    
    (5,736
    )
    
    
    Loss from divestitures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,600151,812
    
    
    
    171,795
    
    
    
    302,817
    
    
    
    327,925Operating Income
    
    
    20,074
    
    
    
    14,615
    
    
    
    30,564
    
    
    
    22,245Interest expense
    
    
    (7,742
    )
    
    
    (9,204
    )
    
    
    (15,531
    )
    
    
    (17,810
    )Preferred stock dividends accrued
    
    
    
    
    
    
    (4,169
    )
    
    
    
    
    
    
    (8,338
    )Other income (expense), net
    
    
    (251
    )
    
    
    580
    
    
    
    73
    
    
    
    287Income (Loss) from Continuing Operations Before Taxes
    
    
    12,081
    
    
    
    1,822
    
    
    
    15,106
    
    
    
    (3,616
    )Income taxes
    
    
    1,150
    
    
    
    893
    
    
    
    2,046
    
    
    
    1,266Income (Loss) from Continuing Operations
    
    
    10,931
    
    
    
    929
    
    
    
    13,060
    
    
    
    (4,882
    )Discontinued Operations:Loss from operations of discontinued businesses, net of
zero (benefit) provision for income
taxes
    
    
    (267
    )
    
    
    (126
    )
    
    
    (1,228
    )
    
    
    (53
    )Gain (loss) on disposal of discontinued businesses, net of
$600 benefit from income taxes in 2003 and zero in
2004
    
    
    (2,978
    )
    
    
    4,619
    
    
    
    (2,978
    )
    
    
    4,557Net Income (Loss)
    
    
    7,686
    
    
    
    5,422
    
    
    
    8,854
    
    
    
    (378
    )Preferred stock dividends accreted or accrued
    
    
    (4,169
    )
    
    
    
    
    
    
    (8,106
    )
    
    
    Income (Loss) Applicable to Common Shareholders
    
    $
    3,517
    
    
    $
    5,422
    
    
    $
    748
    
    
    $
    (378
    )Basic and Diluted Net Income (Loss) per Share
Applicable to Common Shareholders:Income (Loss) from Continuing Operations
    
    $
    7.09
    
    
    $
    0.93
    
    
    $
    5.26
    
    
    $
    (4.88
    )Income (loss) from Discontinued Operations
    
    
    (3.40
    )
    
    
    4.49
    
    
    
    (4.47
    )
    
    
    4.50Net Income (Loss)
    
    $
    3.69
    
    
    $
    5.42
    
    
    $
    0.79
    
    
    $
    (0.38
    )Weighted Average Number of Common Shares
    
    
    953,667
    
    
    
    1,000,000
    
    
    
    942,083
    
    
    
    1,000,000
 The accompanying notes are an integral part of these consolidated financial statements. 5




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EaglePicher Holdings, Inc. 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six-Months Ended May 31, 2003 and 2004
(unaudited) (in thousands of dollars)
 2003
    
    2004Cash Flows From Operating Activities:Net income (loss)
    
    $
    8,854
    
    
    $
    (378
    )Adjustments to reconcile net income (loss) to net cash used in operating activities:Depreciation and amortization
    
    
    23,416
    
    
    
    20,959Preferred stock dividends accrued
    
    
    
    
    
    
    8,338Loss (gain) on disposal of discontinued businesses
    
    
    2,978
    
    
    
    (4,557
    )Insurance gain
    
    
    (5,736
    )
    
    
    Deferred income taxes
    
    
    
    
    
    
    500Changes in assets and liabilities:Sale of receivables, net (See Note E)
    
    
    (20,250
    )
    
    
    21,679Receivables and retained interest in
EaglePicher Funding Corporation, net
    
    
    (933
    )
    
    
    (15,970
    )Costs and estimated earnings in
excess of billings and billings in
excess of costs and estimated
earnings, net
    
    
    (3,359
    )
    
    
    (11,981
    )Inventories
    
    
    (2,107
    )
    
    
    (8,802
    )Accounts payable
    
    
    (3,048
    )
    
    
    (11,588
    )Accrued liabilities
    
    
    (12,612
    )
    
    
    (10,759
    )Other, net
    
    
    38
    
    
    
    124Net cash used in operating activities
    
    
    (12,759
    )
    
    
    (12,435
    )Cash Flows From Investing Activities:Proceeds from the sale of property and equipment, and other, net
    
    
    1,155
    
    
    
    130Capital expenditures
    
    
    (8,544
    )
    
    
    (20,765
    )Acquisition of majority interest in EaglePicher Horizon Batteries LLC
(See Note B)
    
    
    
    
    
    
    (3,500
    )Net cash used in investing activities
    
    
    (7,389
    )
    
    
    (24,135
    )Cash Flows From Financing Activities:Reduction of long-term debt
    
    
    (8,463
    )
    
    
    (16,524
    )Net borrowings under revolving credit agreements
    
    
    5,500
    
    
    
    Proceeds from issuance of treasury stock
    
    
    903
    
    
    
    Net cash used in financing activities
    
    
    (2,060
    )
    
    
    (16,524
    )Net cash (used in) provided by discontinued operations
    
    
    (170
    )
    
    
    20,733Effect of Exchange Rates on Cash
    
    
    4,364
    
    
    
    (791
    )Net Decrease in Cash and Cash Equivalents
    
    
    (18,014
    )
    
    
    (33,152
    )Cash and Cash Equivalents, beginning of period
    
    
    31,522
    
    
    
    67,320Cash and Cash Equivalents, end of period
    
    $
    13,508
    
    
    $
    34,168Supplemental Cash Flow Information:Interest paid
    
    $
    18,008
    
    
    $
    19,112Income taxes paid (refunded), net
    
    $
    (4,282
    )
    
    $
    644
 The accompanying notes are an integral part of these consolidated financial statements. 6




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EaglePicher Holdings, Inc. 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) A. BASIS OF REPORTING FOR INTERIM FINANCIAL STATEMENTS Our accompanying unaudited condensed consolidated financial statements
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America have
been omitted pursuant to such rules and regulations, although we believe that
the disclosures are adequate to make the information presented not misleading.
These financial statements should be read in conjunction with our financial
statements and notes thereto for the fiscal year ended November 30, 2003
presented in our Form 10-K, filed with the SEC on February 17, 2004. The financial statements presented herein reflect all adjustments
(consisting of normal and recurring adjustments), which, in our opinion are
necessary to fairly state the results of operations for the three and six month
periods ended May 31, 2003 and 2004. Results of operations for interim periods
are not necessarily indicative of results to be expected for an entire year. Inventories Inventories consisted of the following at November 30, 2003 and May 31,
2004 (in thousands of dollars): 2003
    
    2004Raw materials and supplies
    
    $
    23,445
    
    
    $
    27,737Work-in-process
    
    
    13,729
    
    
    
    17,104Finished goods
    
    
    14,358
    
    
    
    15,634$
    51,532
    
    
    $
    60,475
 Comprehensive Income During the three and six months ended May 31, 2003 and 2004 our
comprehensive income was as follows (in thousands of dollars): Three Months Ended May 31,
    
    Six Months Ended May 31,2003
    
    2004
    
    2003
    
    2004Net income (loss)
    
    $
    7,686
    
    
    $
    5,422
    
    
    $
    8,854
    
    
    $
    (378
    )Gain (Loss) on interest rate swap agreements
    
    
    907
    
    
    
    (361
    )
    
    
    1,452
    
    
    
    670Gain (Loss) on forward foreign currency contracts
    
    
    (1,890
    )
    
    
    48
    
    
    
    (2,537
    )
    
    
    753Change in currency translation adjustment
    
    
    2,755
    
    
    
    (1,153
    )
    
    
    4,364
    
    
    
    (518
    )$
    9,458
    
    
    $
    3,956
    
    
    $
    12,133
    
    
    $
    527
 Revenue Recognition For certain products sold under fixed-price contracts and subcontracts
with various United States Government agencies and aerospace and defense
contractors, we utilize the percentage-of-completion method of accounting.
When we use the percentage-of-completion method, we measure our percent
complete based on total costs incurred to date as compared to our best estimate
of total costs to be incurred. 7




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The following provides information on contracts in progress at November

30, 2003 and May 31, 2004 (in thousands of dollars): 2003
    
    2004Costs incurred on uncompleted contracts
    
    $
    167,091
    
    
    $
    179,940Estimated earnings
    
    
    45,606
    
    
    
    56,161212,697
    
    
    
    236,101Less: billings to date
    
    
    (186,362
    )
    
    
    (197,785
    )$
    26,335
    
    
    $
    38,316Costs and estimated earnings in excess of billings
    
    $
    28,433
    
    
    $
    39,697Billings in excess of costs and estimated earnings
    
    
    (2,098
    )
    
    
    (1,381
    )$
    26,335
    
    
    $
    38,316
 B. GOODWILL EaglePicher Horizon Batteries LLC was a 50% owned venture that we did not
control as of November 30, 2003. Effective December 1, 2003, this venture was
amended and we acquired an incremental 12% interest from our venture partner
for $7.5 million. We paid, for cash flow purposes, the $7.5 million in two
installment payments of $4.0 million in November 2003 and $3.5 million in
December 2003. We also obtained rights to appoint the General Manager and
control three of the five members of the board. We now own 62% of this venture
and control the operating board. Accordingly, we have consolidated this entity
in our financial results beginning with our quarter ended February 29, 2004.
EaglePicher Horizon Batteries LLC manufactures and distributes next generation
woven lead-acid battery technology.We recognized $9.6 million of additional
goodwill related to taking control and consolidating this entity in our
financial statements. C. RECENTLY RELEASED OR ADOPTED ACCOUNTING STANDARDS In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation (FIN) No. 46, Consolidation of Variable Interest Entities 
An Interpretation of Accounting Research Bulletin (ARB) No. 51. This
interpretation was subsequently revised by FIN 46 (Revised 2003) in December
2003. This revised interpretation states that consolidation of variable
interest entities will be required by the primary beneficiary if the entities
do not effectively disperse risks among the parties involved. The requirements
are effective for fiscal years ending after December 15, 2003 for
special-purpose entities and for all other types of entities for periods ending
after March 31, 2004. The adoption of FIN No. 46® did not have a material
impact on our financial condition or results of operations. In March 2004, the Emerging Issues Task Force (EITF) reached a consensus
on EITF No. 03-16, Accounting for Investments in Limited Liability Companies.
This consensus would require that we account for our investment in a start-up
manufacturing company, as described in Note S of our Form 10-K for the year
ended November 30, 2003, filed on February 17, 2004, as an equity method
investment. As of May 31, 2004, we have $1.5 million recorded in our balance
sheet related to this investment. The consensus, if ratified by the FASB,
would be effective for us on September 1, 2004 and would require that we record
a cumulative effect of a change in accounting principle in our fourth quarter
of 2004. We have not yet determined what the impact of EITF 03-16 will have on
our financial condition or results of operations. The EITF is currently considering Issue No. 03-R, The Accounting for
Certain Costs in the Mining Industry, Including Deferred Stripping Costs. The
issue is attempting to address numerous implementation and consistency issues
for the mining industry, including the appropriate accounting for deferred
stripping costs. Any conclusions by the EITF on this issue could result in a
change to our accounting policy on Deferred Stripping and as a result could
have a material impact on our financial condition or results of operations. In December 2003, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 132 (Revised 2003), Employers Disclosures about
Pensions and Other Postretirement Benefits. This standard increases the
existing disclosure requirements by requiring more details about pension plan
assets, benefit obligations, cash flows, benefit costs and related information.
We will be required to segregate plan assets by category, such as debt, equity
and real estate, and to provide certain expected rates of return and other
informational disclosures. We will be required to adopt the disclosure
requirements of SFAS No. 132® when we issue our November 30, 2004 financial
statements, and we have disclosed the various elements of pension and
postretirement benefit costs in interim-period financial statements as required
by this statement in this Form 10-Q (see Note H). 8




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D. DIVESTITURES AND DISCONTINUED OPERATIONS Divestitures We have indemnified buyers of our former divisions and subsidiaries for
certain liabilities related to items such as environmental remediation and
warranty issues on divisions sold in previous years. We had previously
recorded liabilities for these exposures; however, from time to time, as
additional information becomes available, additional amounts need to be
recorded. An analysis of the liabilities related to divestitures is as follows (in
thousands of dollars): Balance at November 30, 2003
    
    $
    9,297Cash paid
    
    
    (5,433
    )Additional charges
    
    
    2,600Balance at May 31, 2004
    
    $
    6,464
 In the first quarter of 2004, we recorded $2.6 million of expense related
to a litigation settlement of a warranty claim related to a division sold
effective December 1999. That payment was made during the second quarter of
2004. Discontinued Operations Effective December 14, 2001, we sold certain of the assets of our former
Construction Equipment Division. We retained the land and buildings of the
Construction Equipment Divisions main facility in Lubbock, Texas and leased
the facility to the buyer for a five year term. We also retained a certain
amount of accounts receivable and raw materials inventory, a portion of which
the buyer failed to purchase. During the second quarter of 2004, we reached an
agreement with the buyer to reimburse us for the remaining inventory and
terminated our lease for the Lubbock, Texas building and land. As such, we
recorded a loss in Gain/(Loss) on Disposal of Discontinued Businesses of $0.4
million, net of a zero tax provision (benefit), to reduce the land and
buildings to their estimated net realizable value. During the second quarter of 2003, we reached an agreement in principle
for the sale of certain assets at our Hillsdale U.K. Automotive operation (a
former component of our Hillsdale Segment) for cash of $1.1 million. The sale
closed on June 11, 2003. In addition, we wound down the remaining operations
of our Hillsdale U.K. Automotive operation during 2003. Accordingly, effective
in the second quarter of 2003, upon receipt of authority from our Board of
Directors, we discontinued the operations of our Hillsdale U.K. Automotive
operation and restated all prior period financial statements. We have included
in Loss from Operations of Discontinued Businesses losses of $0.2 million for
the three months ended May 31, 2003 and $0.4 million for the six months ended
May 31, 2003. In addition, in the second quarter of 2003, we recognized a loss
in Gain/(Loss) on Disposal of Discontinued Businesses of $3.0 million, which is
net of a $0.6 million tax benefit related to this sale. In July 2003, we completed the sale of certain assets of our
Germanium-based business in our Technologies Segment for net cash proceeds of
approximately $14.0 million. These assets related to the production of
Germanium-based products primarily used in the infrared optics and fiber optics
applications and do not include any of our assets that are involved in the
production of Germanium substrates and wafers. We agreed that if the buyer is
required to divest the acquired business due to certain regulatory proceedings
commenced within one year of the sale, then we would reimburse the buyer for
50% of the amount by which the sale price is less than $15.0 million up to a
maximum reimbursement of $4.0 million, and we would receive 50% of any excess
of the sale price over the $15.0 million up to a maximum of $4.0 million. We
believe that the expected present value of being required to make a payment
pursuant to these provisions is immaterial, and therefore, we have not recorded
a liability. During the third quarter of 2003, we discontinued the operations
of our Germanium-based business and restated all prior period financial
statements. We have included in Loss from Operations of Discontinued
Businesses losses of $0.4 million for the three months ended May 31, 2003 and
$1.1 million for the six months ended May 31, 2003. In addition, we recorded a
loss in Gain/(Loss) on Disposal of Discontinued Businesses of $4.1 million
during the three months ended May 31, 2004 and $4.2 million during the six
months ended May 31, 2004, which is net of zero tax provision (benefit),
primarily related to the write-off of an insurance receivable related to an
entity that was supposed to provide a source of Germanium. We had previously
filed an insurance claim to recover the loss of a non-monetary asset covered by
insurance, and management and legal counsel had originally assessed the
recovery of that insurance receivable as probable. In the second quarter of
2004, management and legal counsel no longer consider recovery probable and
therefore we wrote-off the receivable. 9




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In April 2004, we sold our Environmental Science & Technology division
within our Technologies Business Units Specialty Materials Group Segment for
cash of approximately $23.0 million. During the second quarter of 2004, we
discontinued the operations of this business and restated all prior period
financial statements. We have included in Loss from Operations of Discontinued
Businesses income of $0.3 million for the three months ended May 31, 2003 and
$0.2 million for the six months ended May 31, 2003, and losses of $0.1 million
for the three and six month periods ended May 31, 2004. In addition, in the
second quarter of 2004, we recognized a gain in Gain (Loss) on Disposal of
Discontinued Businesses of $9.1 million, which is net of zero tax provision. We do not allocate any general corporate overhead to Loss from Operations
of Discontinued Businesses or Gain (Loss) on Disposal of Discontinued
Businesses. However, in accordance with the provisions of EITF No. 87-24,
Allocation of Interest to Discontinued Operations we do allocate to Loss from
Operations of Discontinued Businesses (i) interest on debt that is to be
assumed by buyers, (ii) interest on debt that is required to be repaid as a
result of the divestiture, and (iii) a portion of our remaining consolidated
interest expense that is not directly attributable to or related to our other
operations. Other consolidated interest expense that is not attributed to our
other operations is allocated based on the ratio of net assets to be sold or
discontinued less debt that is required to be paid as a result of the disposal
transaction to the sum of our total consolidated net assets plus our
consolidated debt other than (a) debt of the discontinued operation that will
be assumed by the buyer, (b) debt that is required to be paid as a result of
the disposal transaction, and (c) debt that can be directly attributed to our
other operations. Interest expense included in Loss from Operations of
Discontinued Businesses was $1.6 million for the three months ended May 31,
2003, $3.2 million during the six months ended May 31, 2003, $0.2 million
during the three months ended May 31, 2004 and $0.9 million during the six
months ended May 31, 2004. We do not allocate any interest expense to the Gain
(Loss) on Disposal of Discontinued Businesses. At May 31, 2004, the remaining balance in Liabilities of Discontinued
Operations was primarily accrued liabilities and pension obligations related to
our Hillsdale U.K. Automotive operation. E. ACCOUNTS RECEIVABLE ASSET-BACKED SECURITIZATION (QUALIFYING SPECIAL
PURPOSE ENTITY) We have an agreement with a major United States financial institution to
sell an interest in certain receivables through an unconsolidated qualifying
special purpose entity, EaglePicher Funding Corporation (EPFC). The size of
this facility is $55.0 million, subject to certain financial covenant
limitations. This agreement provides for the sale of certain receivables to
EPFC, which in turn sells an interest in a revolving pool of receivables to the
financial institution. EPFC has no recourse against us for failure of the
debtors to pay when due. In the third quarter of 2003, we amended this
agreement to extend the receivables program until the earlier of (a) 90 days
prior to the maturity of our Credit Agreement or (b) January 2008. We account for the securitization of these sold receivables in accordance
with SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilitiesa Replacement of FASB Statement No. 125.
Under this guidance, at the time the receivables are sold, the balances are
removed from our financial statements. For purposes of calculating our debt
covenant compliance under our Credit Agreement, we include the outstanding
obligations of EPFC. We continue to service sold receivables and receive a monthly servicing
fee from EPFC of approximately 1% per annum of the receivable pools average
balance. As this servicing fee approximates our cost to service, no servicing
asset or liability has been recorded at November 30, 2003 or May 31, 2004. The
carrying value of our retained interest is recorded at fair value, which is
estimated as its net realizable value due to the short duration of the
receivables transferred to EPFC. The net realizable value considers the
collection period and includes an estimated provision for credit losses and
returns and allowances, which is based on our historical results and probable
future losses. As of November 30, 2003, our retained interest in EPFC was $63.3 million
and the revolving pool of receivables that we serviced totaled $64.9 million.
At November 30, 2003, the outstanding balance of the interest sold to the
financial institution recorded on EPFCs financial statements was zero. During
the three months ended May 31, 2003, we sold $147.0 million of accounts
receivable to EPFC, and during the same period, EPFC collected $140.0 million
of cash that was reinvested in new securitizations. During the six months
ended May 31, 2003, we sold $285.6 million of accounts receivable to EPFC, and
during the same period, EPFC collected $270.9 million of cash that was
reinvested in new securitizations. The effective interest rate as of November
30, 2003 in the securitization was approximately 2.95%. 10




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##### Table of Contents



As of May 31, 2004, our retained interest in EPFC was $50.2 million and
the revolving pool of receivables that we serviced totaled $73.3 million. At
May 31, 2004, the outstanding balance of the interest sold to the financial
institution recorded on EPFCs financial statements was $21.7 million. During
the three months ended May 31, 2004, we sold $149.3 million of accounts
receivable to EPFC, and during the same period, EPFC collected $141.3 million
of cash that was reinvested in new securitizations. During the six months
ended May 31, 2004, we sold $278.7 million of accounts receivable to EPFC, and
during the same period, EPFC collected $256.9 million of cash that was invested
in new securitization. The effective interest rate as of May 31, 2004 in the
securitization was approximately 4.00%. F. LONG TERM DEBT During March 2004, we entered into an amendment with the lenders of our
Credit Agreement. We reduced the interest rate spread on the Term Loan by 50
basis points. The new interest rate, effective April 1, 2004, is at our
option, a rate equal to (i) LIBOR plus 300 basis points or (ii) Alternate Base
Rate (as defined) plus 200 basis points. In addition, as part of entering into
this amendment we were provided certain adjustments to our financial covenant
limitations. We paid the lenders of the Credit Agreement an amendment fee of
0.125%, or $0.3 million. G. 11.75% CUMULATIVE REDEEMABLE EXCHANGEABLE PREFERRED STOCK Effective September 1, 2003, we adopted SFAS No. 150, Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity which requires that certain instruments be classified as liabilities in
our balance sheet. The effect of the adoption was that, as of September 1,
2003, we reclassified the current redemption value plus unpaid dividends of our
preferred stock to long-term liabilities and the accrual of the dividends
subsequent to September 1, 2003 has been recorded as a component of
non-operating expenses in our consolidated statements of income. In accordance
with this statement, the prior period financial statements have not been
reclassified. H. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS Substantially all of our employees are covered by various pension or
profit sharing retirement plans. Our funding policy for defined benefit plans
is to fund amounts on an actuarial basis to provide for current and future
benefits in accordance with the funding guidelines of ERISA. Net periodic
pension and postretirement benefit costs are based on valuations performed by
our actuary as of the beginning of each fiscal year. The components of the
costs are as follows (in thousands of dollars): Three Months
    
    Six MonthsEnded May 31,
    
    Ended May 31,2003
    
    2004
    
    2003
    
    2004Pension BenefitsService cost
    
    $
    970
    
    
    $
    1,013
    
    
    $
    1,940
    
    
    $
    2,026Interest cost
    
    
    3,820
    
    
    
    3,725
    
    
    
    7,640
    
    
    
    7,450Expected return on plan assets
    
    
    (4,942
    )
    
    
    (5,270
    )
    
    
    (9,884
    )
    
    
    (10,540
    )Recognized actuarial loss
    
    
    584
    
    
    
    514
    
    
    
    938
    
    
    
    1,028Net amortization and deferral
    
    
    (27
    )
    
    
    (27
    )
    
    
    (54
    )
    
    
    (54
    )Net periodic pension cost (income)
    
    
    405
    
    
    
    (45
    )
    
    
    580
    
    
    
    (90
    )Special termination benefits
    
    
    100
    
    
    
    
    
    
    
    100
    
    
    
    Total cost of (income from) providing pension
benefits
    
    $
    505
    
    
    $
    (45
    )
    
    $
    680
    
    
    $
    (90
    )
 11




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##### Table of Contents



Three Months
    
    Six MonthsEnded May 31,
    
    Ended May 31,2003
    
    2004
    
    2003
    
    2004Postretirement BenefitsService cost
    
    $
    116
    
    
    $
    12
    
    
    $
    232
    
    
    $
    24Interest cost
    
    
    349
    
    
    
    199
    
    
    
    698
    
    
    
    398Recognized actuarial loss
    
    
    10
    
    
    
    53
    
    
    
    20
    
    
    
    106Net amortization and deferral
    
    
    
    
    
    
    (164
    )
    
    
    
    
    
    
    (328
    )Net periodic postretirement cost
    
    $
    475
    
    
    $
    100
    
    
    $
    950
    
    
    $
    200
 I. LEGAL MATTERS On May 8, 1997, Caradon Doors and Windows, Inc. (Caradon) filed a suit
against us in the United States District Court for the Northern District of
Georgia alleging breach of contract, negligent misrepresentation, and
contributory infringement and seeking contribution and indemnification in the
amount of approximately $20.0 million. This suit arose out of patent
infringement litigation between Caradon and Therma-Tru Corporation extending
over the 1989-1996 time period, the result of which was for Caradon to be held
liable for patent infringement. In June 1997, we filed a motion with the United
States Bankruptcy Court for the Southern District of Ohio, Western Division,
seeking an order that Caradons claims had been discharged by our bankruptcy
and enjoining Caradon from pursuing its lawsuit. On December 24, 1997, the
Bankruptcy Court held that Caradons claims had been discharged and enjoined
Caradon from pursuing its lawsuit. Caradon appealed the Bankruptcy Courts
decision to the United States District Court for the Southern District of Ohio,
and on February 3, 1999, the District Court reversed on the grounds that the
Bankruptcy Court had not done the proper factual analysis and remanded the
matter back to the Bankruptcy Court. The Bankruptcy Court held a hearing on
this matter on September 24 and 25, 2001, and on May 9, 2002 again held that
Caradons claims had been discharged and enjoined Caradon from pursuing the
Caradon Suit. Caradon appealed this decision to the District Court. The
District Court reversed the Bankruptcy Court and ruled that Caradons claim was
not discharged. We have appealed this decision to the U.S. Court of Appeals
for the Sixth Circuit. We intend to contest this suit vigorously and do not
believe that the resolution of this suit will have a material adverse effect on
our financial condition, results of operations or cash flows. In March 2002, a purported class action on behalf of approximately 3,000
homeowners was filed in state court in Colorado against us and a company with a
facility adjacent to our facility in Colorado Springs, Colorado seeking
property damages, testing and remediation costs and punitive damages arising
out of chlorinated solvents and nitrates in the groundwater alleged to arise
out of activities at our facility and the adjacent facility. The case has been
removed to federal court and there has been no decision whether to certify a
class. In September 2002, as amended in May 2003, a trust purportedly the
assignee of approximately 200 property owners filed suit against us and the
same co-defendant in Colorado state court, which was subsequently removed to
Federal District Court in Colorado. This lawsuit seeks unspecified damages to
provide for remediation of the groundwater contamination as well as unspecified
punitive damages. The owner of the adjacent facility, which is upgradient from
our facility, is operating a remediation system aimed at chlorinated solvents
in the groundwater originating from its facility under a compliance order on
consent with the Colorado Department of Public Health and Environment
(CDPHE). We are operating a remediation system for nitrates in the
groundwater originating from our facility, also under a compliance order on
consent with CDPHE. We do not believe that nitrates in groundwater materially
affect any of the properties related to the plaintiffs in these lawsuits.
Neither the United States Environmental Protection Agency nor the CDPHE has
ever required us to undertake a cleanup for chlorinated solvents. In November
2003, we settled the purported class action lawsuit for $0.3 million,
conditioned on the courts certification of the purported class. In November
2003, we also settled the lawsuit brought by the trust, and claims of certain
other individuals, for $0.3 million, conditioned on at least 90% of the 440
individuals covered by the settlement executing releases. In the first quarter
of 2004, more than 90% of the individuals signed releases and this portion of the settlement was finalized. Certification of the class action is still
pending. On December 10, 2003, a purported class action on behalf of approximately
600 members of the Quapaw Tribe of Oklahoma owning or possessing lands within
the Quapaw Reservation was filed in the United States District Court for the
Northern District of Oklahoma against us and six other corporations. The
lawsuit alleges liability for property damage resulting from historical mining
activities prior to 1959. We believe that any possible liability to members of
the Quapaw Tribe was discharged in connection with our bankruptcy
reorganization in 1996. We intend to contest this lawsuit vigorously and do
not believe that the resolution of this suit will have a material adverse
effect on our financial condition, results of operations, or cash flows. 12




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##### Table of Contents



In addition, we do work for the United States Government that is subject
to various risks, including audits by the Department of Defense, and we are
involved in routine litigation, environmental proceedings and claims pending
with respect to matters arising out of the normal course of our business. In
our opinion, the ultimate liability resulting from all claims, individually or
in the aggregate, will not materially affect our financial position, results of
operations or cash flows. J. BUSINESS SEGMENT INFORMATION During the first quarter of 2004, we elected to modify our reportable
business segment information and move from reporting three business segments
(Automotive, Technologies and Filtration and Minerals) to reporting six
business segments (Hillsdale, Wolverine, Power Group, Specialty Materials
Group, Pharmaceutical Services, and Filtration and Minerals), which is
consistent with how our chief operating decision maker reviews the performance
of the businesses. We have restated our prior period segment information to
conform to the new presentation. The Hillsdale Segment produces noise, vibration and harshness (NVH)
dampers for engine crankshafts and drivelines, yokes and flanges, transmission
and engine pumps, automatic transmission filtration products, chassis corners
and knuckle assemblies and other precision machined components. The Wolverine Segment produces rubber-coated materials and gaskets for
automotive and non-automotive applications. Our Power Group Segment develops and commercializes advanced power systems
for defense, aerospace and commercial applications. Our Specialty Materials Group Segment produces boron isotopes primarily
for nuclear radiation containment. Our Pharmaceutical Services Segment provides contract pharmaceutical
services. Our Filtration and Minerals Segment mines, processes and markets
diatomaceous earth and perlite for use as a filtration aid, absorbent,
performance additive and soil amendment. Sales between segments were not material. The following data represents financial information about our reportable
business segments for the three and six month periods ended May 31, 2003 and
2004 (in thousands of dollars). 13




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##### Table of Contents



Three Months Ended May 31,
    
    Six Months Ended May 31,2003
    
    2004
    
    2003
    
    2004Net SalesHillsdale
    
    $
    85,064
    
    
    $
    84,640
    
    
    $
    164,937
    
    
    $
    158,688Wolverine
    
    
    23,189
    
    
    
    28,047
    
    
    
    43,907
    
    
    
    52,154Automotive Business Unit
    
    
    108,253
    
    
    
    112,687
    
    
    
    208,844
    
    
    
    210,842Power Group
    
    
    34,097
    
    
    
    44,284
    
    
    
    66,137
    
    
    
    84,120Specialty Materials Group
    
    
    6,388
    
    
    
    4,822
    
    
    
    14,443
    
    
    
    8,975Pharmaceutical Services
    
    
    3,383
    
    
    
    2,956
    
    
    
    5,286
    
    
    
    5,837Technologies Business Unit
    
    
    43,868
    
    
    
    52,062
    
    
    
    85,866
    
    
    
    98,932Filtration and Minerals Business Unit
    
    
    19,765
    
    
    
    21,661
    
    
    
    38,671
    
    
    
    40,396$
    171,886
    
    
    $
    186,410
    
    
    $
    333,381
    
    
    $
    350,170Operating Income (Loss)Hillsdale
    
    $
    2,501
    
    
    $
    1,348
    
    
    $
    4,579
    
    
    $
    2,087Wolverine
    
    
    3,945
    
    
    
    5,264
    
    
    
    7,334
    
    
    
    8,879Automotive Business Unit
    
    
    6,446
    
    
    
    6,612
    
    
    
    11,913
    
    
    
    10,966Power
Group
    
    
    11,667
    
    
    
    5,786
    
    
    
    16,972
    
    
    
    11,407Specialty Materials Group
    
    
    1,816
    
    
    
    1,347
    
    
    
    4,275
    
    
    
    2,761Pharmaceutical Services
    
    
    301
    
    
    
    517
    
    
    
    (43
    )
    
    
    802Technologies Business Unit
    
    
    13,784
    
    
    
    7,650
    
    
    
    21,204
    
    
    
    14,970Filtration and Minerals Business Unit
    
    
    1,621
    
    
    
    1,877
    
    
    
    1,510
    
    
    
    2,459Corporate/ Intersegment
    
    
    (1,777
    )
    
    
    (1,524
    )
    
    
    (4,063
    )
    
    
    (6,150
    )$
    20,074
    
    
    $
    14,615
    
    
    $
    30,564
    
    
    $
    22,245Depreciation and AmortizationHillsdale
    
    $
    7,232
    
    
    $
    5,924
    
    
    $
    14,568
    
    
    $
    11,733Wolverine
    
    
    1,356
    
    
    
    1,172
    
    
    
    2,705
    
    
    
    2,282Automotive Business Unit
    
    
    8,588
    
    
    
    7,096
    
    
    
    17,273
    
    
    
    14,015Power
Group
    
    
    1,136
    
    
    
    793
    
    
    
    1,949
    
    
    
    1,666Specialty Materials Group
    
    
    251
    
    
    
    181
    
    
    
    508
    
    
    
    363Pharmaceutical Services
    
    
    222
    
    
    
    258
    
    
    
    446
    
    
    
    499Technologies Business Unit
    
    
    1,609
    
    
    
    1,232
    
    
    
    2,903
    
    
    
    2,528Filtration and Minerals Business Unit
    
    
    1,268
    
    
    
    1,171
    
    
    
    2,526
    
    
    
    2,347Corporate
    
    
    (639
    )
    
    
    507
    
    
    
    (852
    )
    
    
    993$
    10,826
    
    
    $
    10,006
    
    
    $
    21,850
    
    
    $
    19,883
 14




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##### Table of Contents



K. SUBSEQUENT EVENT On May 31, 2004, we provided notice to the trustee and the holders of our
Senior Subordinated Notes that we would redeem all remaining outstanding Senior
Subordinated Notes on June 30, 2004, at a redemption price equal to 103.125% of
the principal amount of each such Note, plus accrued and unpaid interest of
$30.99 per $1,000 principal amount. On June 30, 2004, we made this redemption
payment and removed this debt from our balance sheet. As a result, we
reclassified the $9.5 million principal balance of the notes as current portion
of long-term debt in our accompanying balance sheet as of May 31, 2004. In July 2004, we entered into a license agreement with a Lithium-ion
battery manufacturer. Under this agreement, we agreed to pay $4.0 million
immediately and another $4.0 million in December 2004, for the exclusive rights
to manufacture and sell Lithium-ion battery cells using this companys
technology to government markets throughout the world. If we elect not to make
the second $4.0 million payment in December 2004, the license will revert to
only the United States government markets. L. SUBSIDIARY GUARANTORS AND NON-GUARANTORS Our Senior Unsecured Notes were issued by our wholly owned subsidiary,
EaglePicher Incorporated (EPI), and are guaranteed on a full, unconditional,
and joint and several basis by us and certain of our wholly-owned United States
subsidiaries (Subsidiary Guarantors). We have determined that full financial
statements and other disclosures concerning EPI or the Subsidiary Guarantors
would not be material to investors, and such financial statements are not
presented. EPI is subject to restrictions on the payment of dividends under
the terms of both the Credit Agreement and the Senior Unsecured Notes. The
following supplemental condensed combining financial statements present
information regarding EPI, as the Issuer, the Subsidiary Guarantors and
Non-Guarantor Subsidiaries. We only accrue interest income and expense on
intercompany loans once a year in our fourth fiscal quarter. 15




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##### Table of Contents



EAGLEPICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEETS
AS OF NOVEMBER 30, 2003
(in thousands of dollars) GuarantorsEaglePicher
    
    Subsidiary
    
    Non-GuarantorsIssuer
    
    Holdings, Inc.
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    TotalASSETSCurrent Assets:Cash and cash equivalents
    
    $
    52,478
    
    
    $
    1
    
    
    $
    (2,732
    )
    
    $
    17,573
    
    
    $
    
    
    
    $
    67,320Receivables and retained interest, net
    
    
    62,937
    
    
    
    
    
    
    
    2,620
    
    
    
    21,673
    
    
    
    
    
    
    
    87,230Costs and estimated earnings in excess of billings
    
    
    
    
    
    
    
    
    
    
    17,386
    
    
    
    11,047
    
    
    
    
    
    
    
    28,433Intercompany accounts receivable
    
    
    1,764
    
    
    
    
    
    
    
    7,476
    
    
    
    1,852
    
    
    
    (11,092
    )
    
    
    Inventories
    
    
    5,762
    
    
    
    
    
    
    
    36,276
    
    
    
    11,595
    
    
    
    (2,101
    )
    
    
    51,532Assets of discontinued operations
    
    
    
    
    
    
    
    
    
    
    16,494
    
    
    
    348
    
    
    
    
    
    
    
    16,842Prepaid expenses and other assets
    
    
    2,218
    
    
    
    
    
    
    
    4,301
    
    
    
    3,875
    
    
    
    
    
    
    
    10,394Deferred income taxes
    
    
    8,526
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,526133,685
    
    
    
    1
    
    
    
    81,821
    
    
    
    67,963
    
    
    
    (13,193
    )
    
    
    270,277Property, Plant and Equipment, net
    
    
    24,823
    
    
    
    
    
    
    
    102,154
    
    
    
    23,837
    
    
    
    
    
    
    
    150,814Investment in Subsidiaries
    
    
    288,465
    
    
    
    68,121
    
    
    
    30,455
    
    
    
    
    
    
    
    (387,041
    )
    
    
    Goodwill
    
    
    37,339
    
    
    
    
    
    
    
    104,686
    
    
    
    13,154
    
    
    
    (3,139
    )
    
    
    152,040Prepaid Pension
    
    
    56,891
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,891Other Assets, net
    
    
    11,366
    
    
    
    2,472
    
    
    
    23,809
    
    
    
    24,190
    
    
    
    (28,321
    )
    
    
    33,516$
    552,569
    
    
    $
    70,594
    
    
    $
    342,925
    
    
    $
    129,144
    
    
    $
    (431,694
    )
    
    $
    663,538LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current Liabilities:Accounts payable
    
    $
    22,125
    
    
    $
    
    
    
    $
    55,680
    
    
    $
    10,737
    
    
    $
    
    
    
    $
    88,542Intercompany accounts payable
    
    
    
    
    
    
    
    
    
    
    1,840
    
    
    
    9,252
    
    
    
    (11,092
    )
    
    
    Current portion of long-term debt
    
    
    13,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,300Liabilities of discontinued operations
    
    
    
    
    
    
    
    
    
    
    1,038
    
    
    
    956
    
    
    
    
    
    
    
    1,994Other accrued liabilities
    
    
    29,347
    
    
    
    
    
    
    
    22,164
    
    
    
    8,345
    
    
    
    
    
    
    
    59,85664,772
    
    
    
    
    
    
    
    80,722
    
    
    
    29,290
    
    
    
    (11,092
    )
    
    
    163,692Long-term Debt, net of current portion
    
    
    423,295
    
    
    
    
    
    
    
    720
    
    
    
    15,318
    
    
    
    (30,763
    )
    
    
    408,570Postretirement Benefits Other Than Pensions
    
    
    17,418
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,418Other Long-term Liabilities
    
    
    7,651
    
    
    
    
    
    
    
    
    
    
    
    1,998
    
    
    
    
    
    
    
    9,649Preferred Stock
    
    
    
    
    
    
    154,416
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    154,416513,136
    
    
    
    154,416
    
    
    
    81,442
    
    
    
    46,606
    
    
    
    (41,855
    )
    
    
    753,745Intercompany Accounts
    
    
    (216,625
    )
    
    
    10,790
    
    
    
    181,907
    
    
    
    29,234
    
    
    
    (5,306
    )
    
    
    Shareholders Equity (Deficit)
    
    
    256,058
    
    
    
    (94,612
    )
    
    
    79,576
    
    
    
    53,304
    
    
    
    (384,533
    )
    
    
    (90,207
    )$
    552,569
    
    
    $
    70,594
    
    
    $
    342,925
    
    
    $
    129,144
    
    
    $
    (431,694
    )
    
    $
    663,538
 16




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##### Table of Contents



EAGLEPICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEETS
AS OF MAY 31, 2004
(in thousands of dollars) GuarantorsEaglePicher
    
    Subsidiary
    
    Non-GuarantorsIssuer
    
    Holdings, Inc.
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    TotalASSETSCurrent Assets:Cash and cash equivalents
    
    $
    12,520
    
    
    $
    1
    
    
    $
    2,557
    
    
    $
    19,090
    
    
    $
    
    
    
    $
    34,168Receivables and retained interest, net
    
    
    49,794
    
    
    
    
    
    
    
    5,442
    
    
    
    27,388
    
    
    
    
    
    
    
    82,624Costs and estimated earnings in excess of billings
    
    
    
    
    
    
    
    
    
    
    26,994
    
    
    
    12,703
    
    
    
    
    
    
    
    39,697Intercompany accounts receivable
    
    
    2,556
    
    
    
    
    
    
    
    7,616
    
    
    
    804
    
    
    
    (10,976
    )
    
    
    Inventories
    
    
    6,993
    
    
    
    
    
    
    
    40,701
    
    
    
    14,937
    
    
    
    (2,156
    )
    
    
    60,475Prepaid expenses and other assets
    
    
    1,882
    
    
    
    
    
    
    
    4,488
    
    
    
    3,989
    
    
    
    
    
    
    
    10,359Deferred income taxes
    
    
    8,526
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,52682,271
    
    
    
    1
    
    
    
    87,798
    
    
    
    78,911
    
    
    
    (13,132
    )
    
    
    235,849Property, Plant and Equipment, net
    
    
    21,989
    
    
    
    
    
    
    
    103,444
    
    
    
    26,818
    
    
    
    
    
    
    
    152,251Investment in Subsidiaries
    
    
    309,621
    
    
    
    68,121
    
    
    
    22,119
    
    
    
    
    
    
    
    (399,861
    )
    
    
    Goodwill
    
    
    37,339
    
    
    
    
    
    
    
    104,686
    
    
    
    19,651
    
    
    
    
    
    
    
    161,676Prepaid Pension
    
    
    56,981
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,981Other Assets, net
    
    
    13,262
    
    
    
    2,176
    
    
    
    22,934
    
    
    
    24,936
    
    
    
    (31,937
    )
    
    
    31,371$
    521,463
    
    
    $
    70,298
    
    
    $
    340,981
    
    
    $
    150,316
    
    
    $
    (444,930
    )
    
    $
    638,128LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current Liabilities:Accounts payable
    
    $
    17,985
    
    
    $
    
    
    
    $
    47,310
    
    
    $
    12,185
    
    
    $
    
    
    
    $
    77,480Intercompany accounts payable
    
    
    
    
    
    
    
    
    
    
    805
    
    
    
    10,171
    
    
    
    (10,976
    )
    
    
    Current portion of long-term debt
    
    
    12,746
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,746Other accrued liabilities
    
    
    20,434
    
    
    
    
    
    
    
    21,404
    
    
    
    8,389
    
    
    
    
    
    
    
    50,22751,165
    
    
    
    
    
    
    
    69,519
    
    
    
    30,745
    
    
    
    (10,976
    )
    
    
    140,453Long-term Debt, net of current portion
    
    
    407,589
    
    
    
    
    
    
    
    3,973
    
    
    
    14,325
    
    
    
    (33,220
    )
    
    
    392,667Postretirement Benefits Other Than Pensions
    
    
    17,190
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,190Other Long-term Liabilities
    
    
    8,061
    
    
    
    
    
    
    
    
    
    
    
    6,683
    
    
    
    
    
    
    
    14,744Preferred Stock
    
    
    
    
    
    
    162,754
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    162,754484,005
    
    
    
    162,754
    
    
    
    73,492
    
    
    
    51,753
    
    
    
    (44,196
    )
    
    
    727,808Intercompany Accounts
    
    
    (223,287
    )
    
    
    10,790
    
    
    
    174,879
    
    
    
    40,999
    
    
    
    (3,381
    )
    
    
    Shareholders Equity (Deficit)
    
    
    260,745
    
    
    
    (103,246
    )
    
    
    92,610
    
    
    
    57,564
    
    
    
    (397,353
    )
    
    
    (89,680
    )$
    521,463
    
    
    $
    70,298
    
    
    $
    340,981
    
    
    $
    150,316
    
    
    $
    (444,930
    )
    
    $
    638,128
 17




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##### Table of Contents



EAGLEPICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS)
THREE MONTHS ENDED MAY 31, 2003
(in thousands of dollars) GuarantorsEaglePicher
    
    Subsidiary
    
    Non-GuarantorsIssuer
    
    Holdings, Inc.
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    TotalNet Sales:Customers
    
    $
    14,212
    
    
    $
    
    
    
    $
    129,867
    
    
    $
    27,807
    
    
    $
    
    
    
    $
    171,886Intercompany
    
    
    6,340
    
    
    
    
    
    
    
    3,964
    
    
    
    1,027
    
    
    
    (11,331
    )
    
    
    20,552
    
    
    
    
    
    
    
    133,831
    
    
    
    28,834
    
    
    
    (11,331
    )
    
    
    171,886Operating Costs and Expenses:Cost of products sold (exclusive of depreciation)
    
    
    12,564
    
    
    
    
    
    
    
    105,412
    
    
    
    23,503
    
    
    
    (10,850
    )
    
    
    130,629Selling and administrative
    
    
    6,761
    
    
    
    2
    
    
    
    7,543
    
    
    
    1,787
    
    
    
    
    
    
    
    16,093Intercompany charges
    
    
    (1,797
    )
    
    
    
    
    
    
    1,718
    
    
    
    79
    
    
    
    
    
    
    
    Insurance related losses (gains)
    
    
    724
    
    
    
    
    
    
    
    (6,460
    )
    
    
    
    
    
    
    
    
    
    
    (5,736
    )Depreciation and
amortization
    
    
    530
    
    
    
    
    
    
    
    8,900
    
    
    
    1,396
    
    
    
    
    
    
    
    10,82618,782
    
    
    
    2
    
    
    
    117,113
    
    
    
    26,765
    
    
    
    (10,850
    )
    
    
    151,812Operating Income (Loss)
    
    
    1,770
    
    
    
    (2
    )
    
    
    16,718
    
    
    
    2,069
    
    
    
    (481
    )
    
    
    20,074Other Income (Expense):Interest (expense) income
    
    
    (7,742
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,742
    )Other income (expense), net
    
    
    (793
    )
    
    
    
    
    
    
    528
    
    
    
    14
    
    
    
    
    
    
    
    (251
    )Equity in earnings (losses) of
consolidated subsidiaries
    
    
    3,650
    
    
    
    7,688
    
    
    
    663
    
    
    
    
    
    
    
    (12,001
    )
    
    
    Income (Loss) from Continuing Operations Before
Taxes
    
    
    (3,115
    )
    
    
    7,686
    
    
    
    17,909
    
    
    
    2,083
    
    
    
    (12,482
    )
    
    
    12,081Income Taxes
    
    
    208
    
    
    
    
    
    
    
    36
    
    
    
    906
    
    
    
    
    
    
    
    1,150Income (Loss) From Continuing Operations
    
    
    (3,323
    )
    
    
    7,686
    
    
    
    17,873
    
    
    
    1,177
    
    
    
    (12,482
    )
    
    
    10,931Discontinued Operations
    
    
    (434
    )
    
    
    
    
    
    
    (109
    )
    
    
    (2,702
    )
    
    
    
    
    
    
    (3,245
    )Net Income (Loss)
    
    $
    (3,757
    )
    
    $
    7,686
    
    
    $
    17,764
    
    
    $
    (1,525
    )
    
    $
    (12,482
    )
    
    $
    7,686
 18




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##### Table of Contents



EAGLEPICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS)
THREE MONTHS ENDED MAY 31, 2004
(in thousands of dollars) GuarantorsEaglePicher
    
    Subsidiary
    
    Non-GuarantorsIssuer
    
    Holdings, Inc.
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    TotalNet Sales:Customers
    
    $
    17,059
    
    
    $
    
    
    
    $
    133,364
    
    
    $
    35,987
    
    
    $
    
    
    
    $
    186,410Intercompany
    
    
    7,148
    
    
    
    
    
    
    
    4,678
    
    
    
    549
    
    
    
    (12,375
    )
    
    
    24,207
    
    
    
    
    
    
    
    138,042
    
    
    
    36,536
    
    
    
    (12,375
    )
    
    
    186,410Operating Costs and Expenses:Cost of products sold (exclusive of depreciation)
    
    
    15,559
    
    
    
    
    
    
    
    110,775
    
    
    
    30,625
    
    
    
    (12,375
    )
    
    
    144,584Selling and administrative
    
    
    6,537
    
    
    
    
    
    
    
    8,516
    
    
    
    2,152
    
    
    
    
    
    
    
    17,205Intercompany charges
    
    
    (1,820
    )
    
    
    
    
    
    
    1,698
    
    
    
    122
    
    
    
    
    
    
    
    Depreciation and amortization of intangibles
    
    
    1,449
    
    
    
    
    
    
    
    7,474
    
    
    
    1,083
    
    
    
    
    
    
    
    10,00621,725
    
    
    
    
    
    
    
    128,463
    
    
    
    33,982
    
    
    
    (12,375
    )
    
    
    171,795Operating Income (Loss)
    
    
    2,482
    
    
    
    
    
    
    
    9,579
    
    
    
    2,554
    
    
    
    
    
    
    
    14,615Other Income (Expense):Interest (expense) income
    
    
    (8,883
    )
    
    
    (296
    )
    
    
    (25
    )
    
    
    
    
    
    
    
    
    
    
    (9,204
    )Preferred stock dividends accrued
    
    
    
    
    
    
    (4,169
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,169
    )Other income (expense), net
    
    
    381
    
    
    
    (148
    )
    
    
    318
    
    
    
    29
    
    
    
    
    
    
    
    580Equity in earnings (losses) of
consolidated subsidiaries
    
    
    13,907
    
    
    
    4,886
    
    
    
    (7,759
    )
    
    
    
    
    
    
    (11,034
    )
    
    
    Income (Loss) from Continuing
Operations Before Taxes
    
    
    7,887
    
    
    
    273
    
    
    
    2,113
    
    
    
    2,583
    
    
    
    (11,034
    )
    
    
    1,822Income Taxes
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    862
    
    
    
    
    
    
    
    893Income (Loss) from Continuing
Operations
    
    
    7,856
    
    
    
    273
    
    
    
    2,113
    
    
    
    1,721
    
    
    
    (11,034
    )
    
    
    929Discontinued Operations
    
    
    (355
    )
    
    
    
    
    
    
    4,848
    
    
    
    
    
    
    
    
    
    
    
    4,493Net Income (Loss)
    
    $
    7,501
    
    
    $
    273
    
    
    $
    6,961
    
    
    $
    1,721
    
    
    $
    (11,034
    )
    
    $
    5,422
 19




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##### Table of Contents



EAGLEPICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS)
SIX MONTHS ENDED MAY 31, 2003
(in thousands of dollars) GuarantorsEaglePicher
    
    Subsidiary
    
    Non-GuarantorsIssuer
    
    Holdings, Inc.
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    TotalNet Sales:Customers
    
    $
    26,926
    
    
    $
    
    
    
    $
    253,108
    
    
    $
    53,347
    
    
    $
    
    
    
    $
    333,381Intercompany
    
    
    10,856
    
    
    
    
    
    
    
    8,414
    
    
    
    1,341
    
    
    
    (20,611
    )
    
    
    37,782
    
    
    
    
    
    
    
    261,522
    
    
    
    54,688
    
    
    
    (20,611
    )
    
    
    333,381Operating Costs and Expenses:Cost of products sold (exclusive of depreciation)
    
    
    23,649
    
    
    
    
    
    
    
    208,146
    
    
    
    44,816
    
    
    
    (20,129
    )
    
    
    256,482Selling and administrative
    
    
    13,160
    
    
    
    3
    
    
    
    13,687
    
    
    
    3,371
    
    
    
    
    
    
    
    30,221Intercompany charges
    
    
    (3,453
    )
    
    
    
    
    
    
    3,333
    
    
    
    120
    
    
    
    
    
    
    
    Insurance related losses (gains)
    
    
    724
    
    
    
    
    
    
    
    (6,460
    )
    
    
    
    
    
    
    
    
    
    
    (5,736
    )Depreciation and amortization
    
    
    1,477
    
    
    
    
    
    
    
    17,838
    
    
    
    2,535
    
    
    
    
    
    
    
    21,85035,557
    
    
    
    3
    
    
    
    236,544
    
    
    
    50,842
    
    
    
    (20,129
    )
    
    
    302,817Operating Income (Loss)
    
    
    2,225
    
    
    
    (3
    )
    
    
    24,978
    
    
    
    3,846
    
    
    
    (482
    )
    
    
    30,564Other Income (Expense):Interest (expense) income
    
    
    (15,531
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,531
    )Other income (expense), net
    
    
    (738
    )
    
    
    
    
    
    
    948
    
    
    
    (137
    )
    
    
    
    
    
    
    73Equity in earnings (losses) of
consolidated subsidiaries
    
    
    1,471
    
    
    
    8,857
    
    
    
    1,173
    
    
    
    
    
    
    
    (11,501
    )
    
    
    Income (Loss) from Continuing Operations Before
Taxes
    
    
    (12,573
    )
    
    
    8,854
    
    
    
    27,099
    
    
    
    3,709
    
    
    
    (11,983
    )
    
    
    15,106Income Taxes
    
    
    208
    
    
    
    
    
    
    
    46
    
    
    
    1,792
    
    
    
    
    
    
    
    2,046Income (Loss) From Continuing Operations
    
    
    (12,781
    )
    
    
    8,854
    
    
    
    27,053
    
    
    
    1,917
    
    
    
    (11,983
    )
    
    
    13,060Discontinued Operations
    
    
    (434
    )
    
    
    
    
    
    
    (797
    )
    
    
    (2,975
    )
    
    
    
    
    
    
    (4,206
    )Net Income (Loss)
    
    $
    (13,215
    )
    
    $
    8,854
    
    
    $
    26,256
    
    
    $
    (1,058
    )
    
    $
    (11,983
    )
    
    $
    8,854
 20




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##### Table of Contents



EAGLEPICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS)
SIX MONTHS ENDED MAY 31, 2004
(in thousands of dollars) GuarantorsEaglePicher
    
    Subsidiary
    
    Non-GuarantorsIssuer
    
    Holdings, Inc.
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    TotalNet Sales:Customers
    
    $
    30,950
    
    
    $
    
    
    
    $
    250,498
    
    
    $
    68,722
    
    
    $
    
    
    
    $
    350,170Intercompany
    
    
    13,612
    
    
    
    
    
    
    
    8,230
    
    
    
    984
    
    
    
    (22,826
    )
    
    
    44,562
    
    
    
    
    
    
    
    258,728
    
    
    
    69,706
    
    
    
    (22,826
    )
    
    
    350,170Operating Costs and Expenses:Cost of products sold (exclusive of depreciation)
    
    
    29,408
    
    
    
    
    
    
    
    208,563
    
    
    
    56,223
    
    
    
    (22,826
    )
    
    
    271,368Selling and administrative
    
    
    12,610
    
    
    
    
    
    
    
    16,427
    
    
    
    5,037
    
    
    
    
    
    
    
    34,074Intercompany charges
    
    
    (3,480
    )
    
    
    
    
    
    
    3,224
    
    
    
    256
    
    
    
    
    
    
    
    Depreciation and amortization of intangibles
    
    
    2,871
    
    
    
    
    
    
    
    14,826
    
    
    
    2,186
    
    
    
    
    
    
    
    19,883Loss from divestitures
    
    
    2,600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,60044,009
    
    
    
    
    
    
    
    243,040
    
    
    
    63,702
    
    
    
    (22,826
    )
    
    
    327,925Operating Income (Loss)
    
    
    553
    
    
    
    
    
    
    
    15,688
    
    
    
    6,004
    
    
    
    
    
    
    
    22,245Other Income (Expense):Interest (expense) income
    
    
    (17,489
    )
    
    
    (296
    )
    
    
    (25
    )
    
    
    
    
    
    
    
    
    
    
    (17,810
    )Preferred stock dividends accrued
    
    
    
    
    
    
    (8,338
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,338
    )Other income (expense), net
    
    
    (540
    )
    
    
    
    
    
    
    848
    
    
    
    (21
    )
    
    
    
    
    
    
    287Equity in earnings (losses) of
consolidated subsidiaries
    
    
    21,156
    
    
    
    
    
    
    
    (8,336
    )
    
    
    
    
    
    
    (12,820
    )
    
    
    Income (Loss) from ContinuingOperations Before Taxes
    
    
    3,680
    
    
    
    (8,634
    )
    
    
    8,175
    
    
    
    5,983
    
    
    
    (12,820
    )
    
    
    (3,616
    )Income Taxes
    
    
    61
    
    
    
    
    
    
    
    
    
    
    
    1,205
    
    
    
    
    
    
    
    1,266Income (Loss) from Continuing
Operations
    
    
    3,619
    
    
    
    (8,634
    )
    
    
    8,175
    
    
    
    4,778
    
    
    
    (12,820
    )
    
    
    (4,882
    )Discontinued Operations
    
    
    (355
    )
    
    
    
    
    
    
    4,859
    
    
    
    
    
    
    
    
    
    
    
    4,504Net Income (Loss)
    
    $
    3,264
    
    
    $
    (8,634
    )
    
    $
    13,034
    
    
    $
    4,778
    
    
    $
    (12,820
    )
    
    $
    (378
    )
 21




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##### Table of Contents



EAGLEPICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MAY 31, 2003
(in thousands of dollars) GuarantorsEaglePicher
    
    Subsidiary
    
    Non-GuarantorsIssuer
    
    Holdings, Inc.
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    TotalCASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    (13,215
    )
    
    $
    8,854
    
    
    $
    26,256
    
    
    $
    (1,058
    )
    
    $
    (11,983
    )
    
    $
    8,854Adjustments to reconcile net income (loss) to cash provided
by (used in) operating activities:Equity in (earnings) loss of consolidated
subsidiaries
    
    
    (1,471
    )
    
    
    (8,857
    )
    
    
    (1,173
    )
    
    
    
    
    
    
    11,501
    
    
    
    Depreciation and amortization
    
    
    3,043
    
    
    
    
    
    
    
    17,838
    
    
    
    2,535
    
    
    
    
    
    
    
    23,416Provision for discontinued operations
    
    
    434
    
    
    
    
    
    
    
    
    
    
    
    2,544
    
    
    
    
    
    
    
    2,978Insurance related losses (gains)
    
    
    724
    
    
    
    
    
    
    
    (6,460
    )
    
    
    
    
    
    
    
    
    
    
    (5,736
    )Changes in assets and liabilities, net of effect
of non-cash items
    
    
    (16,990
    )
    
    
    (877
    )
    
    
    (24,147
    )
    
    
    (11,375
    )
    
    
    11,118
    
    
    
    (42,271
    )(27,475
    )
    
    
    (880
    )
    
    
    12,314
    
    
    
    (7,354
    )
    
    
    10,636
    
    
    
    (12,759
    )CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (1,199
    )
    
    
    
    
    
    
    (4,103
    )
    
    
    (3,242
    )
    
    
    
    
    
    
    (8,544
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    
    
    
    
    1,155
    
    
    
    
    
    
    
    
    
    
    
    1,155(1,199
    )
    
    
    
    
    
    
    (2,948
    )
    
    
    (3,242
    )
    
    
    
    
    
    
    (7,389
    )CASH FLOWS FROM FINANCING ACTIVITIES:Reduction of long-term debt
    
    
    (8,463
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,463
    )Net borrowings (repayments) under revolving
credit agreements
    
    
    5,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,500Proceeds from issuance of treasury stock
    
    
    903
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    903(2,060
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,060
    )Net cash provided by (used in) discontinued operations
    
    
    
    
    
    
    
    
    
    
    654
    
    
    
    (824
    )
    
    
    
    
    
    
    (170
    )Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,364
    
    
    
    
    
    
    
    4,364Net increase (decrease) in cash and
cash equivalents
    
    
    (30,734
    )
    
    
    (880
    )
    
    
    10,020
    
    
    
    (7,056
    )
    
    
    10,636
    
    
    
    (18,014
    )Intercompany accounts
    
    
    8,560
    
    
    
    880
    
    
    
    (4,642
    )
    
    
    6,658
    
    
    
    (11,456
    )
    
    
    Cash and cash equivalents,
beginning of period
    
    
    27,694
    
    
    
    1
    
    
    
    (4,895
    )
    
    
    7,902
    
    
    
    820
    
    
    
    31,522Cash and cash equivalents,
end of period
    
    $
    5,520
    
    
    $
    1
    
    
    $
    483
    
    
    $
    7,504
    
    
    $
    
    
    
    $
    13,508
 22




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##### Table of Contents



EAGLEPICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MAY 31, 2004
(in thousands of dollars) GuarantorsEaglePicher
    
    Subsidiary
    
    Non-GuarantorsIssuer
    
    Holdings, Inc.
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    TotalCASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    3,264
    
    
    $
    (8,634
    )
    
    $
    13,034
    
    
    $
    4,778
    
    
    $
    (12,820
    )
    
    $
    (378
    )Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:Equity in (earnings) loss of consolidated
subsidiaries
    
    
    (21,156
    )
    
    
    
    
    
    
    8,336
    
    
    
    
    
    
    
    12,820
    
    
    
    Depreciation and amortization
    
    
    3,651
    
    
    
    296
    
    
    
    14,826
    
    
    
    2,186
    
    
    
    
    
    
    
    20,959Preferred stock dividends accrued
    
    
    
    
    
    
    8,338
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,338Gain from disposal of discontinued operations
    
    
    355
    
    
    
    
    
    
    
    (4,912
    )
    
    
    
    
    
    
    
    
    
    
    (4,557
    )Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500
    
    
    
    
    
    
    
    500Changes in assets and liabilities, net of effect
of non-cash items
    
    
    (1,495
    )
    
    
    
    
    
    
    (33,174
    )
    
    
    (2,683
    )
    
    
    55
    
    
    
    (37,297
    )(15,381
    )
    
    
    
    
    
    
    (1,890
    )
    
    
    4,781
    
    
    
    55
    
    
    
    (12,435
    )CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from sales of property and equipment and other
    
    
    
    
    
    
    
    
    
    
    130
    
    
    
    
    
    
    
    
    
    
    
    130Capital expenditures
    
    
    (1,001
    )
    
    
    
    
    
    
    (15,084
    )
    
    
    (4,680
    )
    
    
    
    
    
    
    (20,765
    )Acquisition of majority interest in EaglePicher Horizon Battery LLC
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,500
    )
    
    
    
    
    
    
    (3,500
    )(1,001
    )
    
    
    
    
    
    
    (14,954
    )
    
    
    (8,180
    )
    
    
    
    
    
    
    (24,135
    )CASH FLOWS FROM FINANCING ACTIVITIES:Reduction of long-term debt
    
    
    (16,524
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,524
    )(16,524
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,524
    )Cash provided by discontinued operations
    
    
    
    
    
    
    
    
    
    
    20,733
    
    
    
    
    
    
    
    
    
    
    
    20,733Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (791
    )
    
    
    
    
    
    
    (791
    )Net increase (decrease) in cash and
cash equivalents
    
    
    (32,906
    )
    
    
    
    
    
    
    3,889
    
    
    
    (4,190
    )
    
    
    55
    
    
    
    (33,152
    )Intercompany accounts
    
    
    (7,052
    )
    
    
    
    
    
    
    1,400
    
    
    
    5,707
    
    
    
    (55
    )
    
    
    Cash and cash equivalents,
beginning of period
    
    
    52,478
    
    
    
    1
    
    
    
    (2,732
    )
    
    
    17,573
    
    
    
    
    
    
    
    67,320Cash and cash equivalents,
end of period
    
    $
    12,520
    
    
    $
    1
    
    
    $
    2,557
    
    
    $
    19,090
    
    
    $
    
    
    
    $
    34,168
 23




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations. DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS Certain of the matters discussed in this report may constitute
forward-looking statements. Forward-looking statements can be identified by
the use of forward-looking words such as believes, expects, may, will,
should, seeks, approximately, intends, plans, estimates or
anticipates or the negative of these terms or other comparable words, or by
discussions of strategy, plans or intentions. Statements in this report which
are not historical facts are forward-looking statements. Without limiting the
generality of the preceding statement, all statements in this report concerning
or relating to estimated and projected earnings, margins, costs, expenditures,
cash flows, growth rates and financial results are forward-looking statements.
In addition, we, through our senior management, from time to time make
forward-looking public statements concerning our expected future operations and
performance and other developments. Such forward-looking statements are
necessarily estimates reflecting our judgment based upon current information
and involve a number of risks and uncertainties. Other factors may affect the
accuracy of these forward-looking statements and our actual results may differ
materially from the results anticipated in these forward-looking statements. CRITICAL ACCOUNTING POLICIES We have included a summary of our Critical Accounting Policies in our
annual report on Form 10-K for the year ended November 30, 2003, filed on
February 17, 2004. There have been no material changes to the summary provided
in that report. RESULTS OF OPERATIONS The following summary financial information about our business segment
data is presented to gain a better understanding of the narrative discussion
below about our business segments (in thousands of dollars): Three Months Ended May 31,2003
    
    2004
    
    Variance
    
    %Net SalesHillsdale
    
    $
    85,064
    
    
    $
    84,640
    
    
    $
    (424
    )
    
    
    (0.5
    %)Wolverine
    
    
    23,189
    
    
    
    28,047
    
    
    
    4,858
    
    
    
    20.9
    %Automotive Business Unit
    
    
    108,253
    
    
    
    112,687
    
    
    
    4,434
    
    
    
    4.1
    %Power Group
    
    
    34,097
    
    
    
    44,284
    
    
    
    10,187
    
    
    
    29.9
    %Specialty Materials Group
    
    
    6,388
    
    
    
    4,822
    
    
    
    (1,566
    )
    
    
    (24.5
    %)Pharmaceutical Services
    
    
    3,383
    
    
    
    2,956
    
    
    
    (427
    )
    
    
    (12.6
    %)Technologies Business Unit
    
    
    43,868
    
    

    
    52,062
    
    
    
    8,194
    
    
    
    18.7
    %Filtration and Minerals Business Unit
    
    
    19,765
    
    
    
    21,661
    
    
    
    1,896
    
    
    
    9.6
    %$
    171,886
    
    
    $
    186,410
    
    
    $
    14,524
    
    
    
    8.4
    %Operating Income (Loss)Hillsdale
    
    $
    2,501
    
    
    $
    1,348
    
    
    $
    (1,153
    )
    
    
    (46.1
    %)Wolverine
    
    
    3,945
    
    
    
    5,264
    
    
    
    1,319
    
    
    
    33.4
    %Automotive Business Unit
    
    
    6,446
    
    
    
    6,612
    
    
    
    166
    
    
    
    2.6
    %Power Group
    
    
    11,667
    
    
    
    5,786
    
    
    
    (5,881
    )
    
    
    (50.4
    %)Specialty Materials Group
    
    
    1,816
    
    
    
    1,347
    
    
    
    (469
    )
    
    
    (25.8
    %)Pharmaceutical Services
    
    
    301
    
    
    
    517
    
    
    
    216
    
    
    
    71.8
    %Technologies Business Unit
    
    
    13,784
    
    
    
    7,650
    
    
    
    (6,134
    )
    
    
    (44.5
    %)Filtration and Minerals Business Unit
    
    
    1,621
    
    
    
    1,877
    
    
    
    256
    
    
    
    15.8
    %Corporate/ Intersegment
    
    
    (1,777
    )
    
    
    (1,524
    )
    
    
    253
    
    
    
    14.2
    %$
    20,074
    
    
    $
    14,615
    
    
    $
    (5,459
    )
    
    
    (27.2
    %)
 24




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##### Table of Contents



Six Months Ended May 31,2003
    
    2004
    
    Variance
    
    %Net SalesHillsdale
    
    $
    164,937
    
    
    $
    158,688
    
    
    $
    (6,249
    )
    
    
    (3.8
    %)Wolverine
    
    
    43,907
    
    
    
    52,154
    
    
    
    8,247
    
    
    
    18.8
    %Automotive Business Unit
    
    
    208,844
    
    
    
    210,842
    
    
    
    1,998
    
    
    
    1.0
    %Power Group
    
    
    66,137
    
    
    
    84,120
    
    
    
    17,983
    
    
    
    27.2
    %Specialty Materials Group
    
    
    14,443
    
    
    
    8,975
    
    
    
    (5,468
    )
    
    
    (37.9
    %)Pharmaceutical Services
    
    
    5,286
    
    
    
    5,837
    
    
    
    551
    
    
    
    10.4
    %Technologies Business Unit
    
    
    85,866
    
    
    
    98,932
    

    
    
    13,066
    
    
    
    15.2
    %Filtration and Minerals Business Unit
    
    
    38,671
    
    
    
    40,396
    
    
    
    1,725
    
    
    
    4.5
    %$
    333,381
    
    
    $
    350,170
    
    
    $
    16,789
    
    
    
    5.0
    %Operating Income (Loss)Hillsdale
    
    $
    4,579
    
    
    $
    2,087
    
    
    $
    (2,492
    )
    
    
    (54.4
    %)Wolverine
    
    
    7,334
    
    
    
    8,879
    
    
    
    1,545
    
    
    
    21.1
    %Automotive Business Unit
    
    
    11,913
    
    
    
    10,966
    
    
    
    (947
    )
    
    
    (7.9
    %)Power Group
    
    
    16,972
    
    
    
    11,407
    
    
    
    (5,565
    )
    
    
    (32.8
    %)Specialty Materials Group
    
    
    4,275
    
    
    
    2,761
    
    
    
    (1,514
    )
    
    
    (35.4
    %)Pharmaceutical Services
    
    
    (43
    )
    
    
    802
    
    
    
    845
    
    
    
    N/ATechnologies Business Unit
    
    
    21,204
    
    
    
    14,970
    
    
    
    (6,234
    )
    
    
    (29.4
    %)Filtration and Minerals Business Unit
    
    
    1,510
    
    
    
    2,459
    
    
    
    949
    
    
    
    62.8
    %Corporate/ Intersegment
    
    
    (4,063
    )
    
    
    (6,150
    )
    
    
    (2,087
    )
    
    
    (51.4
    %)$
    30,564
    
    
    $
    22,245
    
    
    $
    (8,319
    )
    
    
    (27.2
    %)
 Hillsdale Segment (Automotive Business Unit) Sales in our Hillsdale Segment decreased $0.4 million, or 0.5%, to $84.5
million in the second quarter of 2004 from $85.1 million in the second quarter
of 2003, and decreased $6.2 million, or 3.8%, to $158.7 million in the first
six months of 2004 from $164.9 million in the first six months of 2003. This
compares to an estimated decrease in North American automotive production
(excluding North American light truck production by foreign manufacturers) of
1.7% in the second quarter of 2004 compared to 2003, and 2.5% in the first six
months of 2004 compared to 2003. The sales decrease in the second quarter of
2004 was comprised of $1.3 million, or 1.5%, of lower selling prices partially
offset by $0.9 million of higher volumes. The sales decrease in the first six
months of 2004 was comprised of $2.5 million, or 1.5%, of lower average selling
prices and $3.7 million of lower volumes. The volume changes were negatively impacted by the continued phase-out of
three specific contracts that reduced first quarter sales by $2.6 million, and
second quarter sales by $0.5 million. The prospective (second half of 2004)
impact on year over year growth for two of these contracts will continue to
diminish as they are largely out of the 2003 sales base. However, on the third
contract, we anticipate year over year reductions of $1.3 million in the third
quarter of 2004 and $4.5 million in the fourth quarter of 2004, attributable to
a Ford transmission pump program terminating production in August 2004. Also,
reductions in North American build levels by Hillsdales largest customer,
Honda, reduced sales by $0.9 million in second quarter 2004 and $3.3 million in
the first six months of 2004, and reduced production for Mitsubishi vehicles
reduced sales by $0.6 million in the second quarter of 2004 and $1.6 million in
the first six months of 2004. These decreases were offset by 2004 sales
increases of (a) a new technology transmission micro-filtration program to Ford
of $1.7 million in the second quarter 2004, and $3.3 million in the first six
months of 2004, (b) an increase in sales of Allison transmission components of
$1.8 million in the second quarter of 2004 and the first six months of 2004,
and (c) the launch of two new General Motors dampers programs for the L4 and L5
engines which increased sales by $0.7 million in the second quarter of 2004 and
$1.4 million in the first six months of 2004. The remainder of the sales
variance is primarily due to the decreases in overall automotive builds. Operating income in our Hillsdale Segment decreased $1.2 million, or
46.1%, to $1.3 million in the second quarter of 2004 from $2.5 million in the
second quarter of 2003, and decreased $2.5 million, or 54.4%, to $2.1 million
in the first six months of 2004 from $4.6 million in the first six months of
2003. During the first six months of 2004, results have been unfavorably
impacted by the transition costs related to the consolidation of some of our
production facilities, 25




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##### Table of Contents



and launch expenses related to our Asian sourcing strategy. These costs
were $1.0 million in the second quarter of 2004 and $1.4 million in the first
six months of 2004. The volume and price impacts discussed above negatively
impacted earnings by $1.1 million in the second quarter of 2004 and $3.4
million for the first six months of 2004. Other favorable/(unfavorable) items
impacting earnings were as follows:  a.
    
    $2.7 million in the second quarter of 2004, and $5.5 million
for the first six months of 2004, of net productivity increases
attributable to material cost reductions, net of scrap surcharges
and related scrap sales, and manufacturing lean cost reduction
activities;b.
    
    ($0.9) million in the second quarter of 2004, and ($1.2)
million in the first six months of 2004 of additional costs to meet
delivery requirements for the increased Allison transmission
component sales, which exceeded our current capacity. This has
resulted in significant expenses for premium labor overtime and for
freight expediting costs. Capacity is currently being installed and
is expected to eliminate this problem by August 2004;c.
    
    ($0.4) million in the second quarter of 2004, and ($0.9)
million in the first six months of 2004 of productivity and
machining inefficiencies primarily related to the launch of a
Visteon program. New equipment is being installed and is expected to
eliminate this problem by November 2004; andd.
    
    ($0.8) million in the second quarter of 2004, and ($1.6)
million in the first six months of 2004 due to health care
inflation, increased pension costs and higher labor costs due to
normal labor rate increases. The North American automotive market remains a highly competitive market
that is subject to potentially significant volume changes. We expect these
competitive pressures to continue and possibly intensify. There are
indications that our customers are consolidating their supplier base,
increasing international sourcing and intensifying pressure for price
reductions. We have been and will continue to respond to these pressures by
(a) continually improving productivity through Lean manufacturing, six sigma,
and increased sourcing from lower cost international suppliers, (b) improving
our technology positions, including designing products to be manufactured at a
lower cost, and (c) achieving cost reductions from our existing supplier base. Steel cost increases have been imposed by suppliers due to market
conditions in the steel industry. While Hillsdale has been able to
substantially mitigate the impact of these increases to date through
negotiations with both suppliers and customers, there is no assurance it will
be able to continue to do so in the future. Wolverine Segment (Automotive Business Unit) Sales in our Wolverine Segment increased $4.9 million, or 20.9%, to $28.1
million in the second quarter of 2004 from $23.2 million in the second quarter
of 2003, and increased $8.2 million, or 18.8%, to $52.2 million in the first
six months of 2004 from $44.0 million in the first six months of 2003.
Excluding the impact of favorable foreign currency (approximately 40% of
Wolverines sales are in Europe), sales increased 17.5% in the second quarter
of 2004 and 13.8% in the first six months of 2004. The sales increases were due
entirely to volume gains, as pricing was flat in both the second quarter of
2004 and the first six months of 2004. The volume increases are primarily
related to new brake programs in Europe and new engine gasket programs in the
United States. Sales mix has been somewhat negative as the engine gasket sales
have lower margins associated with the expensive stainless steel commonly
utilized in this product offering. Operating income in our Wolverine Segment increased $1.4 million, or
33.4%, to $5.3 million in the second quarter of 2004 from $3.9 million in the
second quarter of 2003, and increased $1.6 million, or 21.1%, to $8.9 million
in the first six months of 2004 from $7.3 million in the first six months of
2003. The significantly higher earnings in the second quarter were primarily
attributable to the 17.5% higher volumes and favorable foreign currency. In the
second quarter of 2004, the impact of productivity and improved cost
absorption, due to higher production levels, was largely offset by the
approximate $0.7 million increase in steel prices. In addition to increased
steel costs, Wolverine is experiencing periodic difficulty in procuring
adequate sources of specific required steel grades, which is resulting in
adjustments to production schedules and decreased manufacturing efficiency. If
the ability to procure appropriate steel grades does not improve, or if it
deteriorates in the future, Wolverines ability to meet customer demands in a
timely manner may be jeopardized and operating efficiency will continue to
suffer. The increase in operating income during the first six months of 2004 was
primarily due to higher sales volume and favorable foreign currency, partially
offset by some significant cost increases in specific areas. These cost
increases include: 26




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a.
    
    $0.7 million in increased steel costs in the second quarter;b.
    
    $0.5 million of costs incurred in the first quarter to close
our high cost Inkster, Michigan manufacturing line;c.
    
    $0.6 million of increased costs incurred in the first quarter
primarily due to the closure of Wolverines primary manufacturing
facility for three days due to weather conditions; andd.
    
    $0.8 million in increased manufacturing labor and healthcare
costs. Power Group Segment (Technologies Business Unit) Sales in our Power Group Segment increased $10.2 million, or 29.9%, to
$44.3 million in the second quarter of 2004 from $34.1 million in the second
quarter of 2003, and increased $18.0 million, or 27.2%, to $84.1 million in the
first six months of 2004 from $66.1 million in the first six months of 2003.
These increases were primarily due to higher volumes. During the second quarter of 2004, our defense and space battery sales
increased $9.0 million and we shipped $1.2 million of EaglePicher Horizon
Batteries, a new product introduced in 2004. This new product utilizes a next
generation woven lead-acid technology that has been well received in the
marketplace. Our defense market sales included increases of $4.2 million in
missile battery sales, $0.3 million in medical device applications, $1.6
million in batteries for mobile communications equipment, and $1.6 million, or
76%, in customer funded product development contracts. The increase in
customer funded product development contracts is particularly important as they
represent a foundation for future production awards. Sales of space batteries
increased $1.3 million during the period. During the first six months of 2004, our defense and space battery sales
increased $15.8 million and we shipped $2.2 million of EaglePicher Horizon
Batteries. The increased defense volumes included $4.2 million in missile
battery sales, $0.7 million in medical device applications, $4.0 million in
sales of batteries for mobile communications equipment, and $4.1 million, or
107%, in customer funded product development contracts. Sales of space
batteries increased $2.8 million during the first six months of 2004 primarily
as a result of increased demand from both military and commercial customers. Operating income in our Power Group Segment decreased $5.9 million, or
50.4%, to $5.8 million in the second quarter of 2004 from $11.7 million in the
second quarter of 2003, and decreased $5.6 million, or 32.8%, to $11.4 million
in the first six months of 2004 from $17.0 million in the first six months of
2003. These decreases are primarily due to a $6.5 million insurance gain
recorded in the second quarter of 2003. We are also investing resources to
support future growth in our commercial battery business, including EaglePicher
Horizon batteries, and increasing defense production capacity that is
negatively impacting results in 2004. The decreases in the second quarter of 2004 are primarily due to the
following favorable/ (unfavorable) items:  a.
    
    ($6.5) million decrease due to an insurance gain recorded in
the second quarter of 2003;b.
    
    $1.7 million increase in margin on additional sales volumes;c.
    
    $0.6 million related to favorable pricing;d.
    
    ($1.0) million related to infrastructure expenses to support
the launch of new products, primarily in our commercial battery
business; ande.
    
    ($0.7) million increase in selling, general and
administrative for advertising expenses to support the increased
volume. Productivity initiatives, primarily related to improved supply chain
management and automation of production process, during the second quarter of
2004 were essentially offset by a reduced margin booking rate, under long-term
contract accounting, on a specific defense contract primarily due to additional
cost and short-term production inefficiencies related to an accelerated
increase in production volumes and capacity. The decreases in the first six months of 2004 are primarily due to the
following favorable/ (unfavorable) items:  a.
    
    ($6.5) million decrease due to an insurance gain recorded in
the second quarter of 2003;b.
    
    $3.1 million increase in margin on additional sales volume;c.
    
    $1.5 million increase due to productivity initiatives,
primarily related to improved supply chain management and automation
of production processes; 27




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d.
    
    $0.6 million related to favorable pricing;e.
    
    ($2.0) million related to infrastructure expenses to support
the launch of new products, primarily in our commercial battery
business; andf.
    
    ($2.3) million increase in selling, general and
administrative expenses for advertising to support increased volume. Specialty Materials Group Segment (Technologies Business Unit) Sales in our Specialty Materials Group Segment decreased $1.6 million, or
24.5%, to $4.8 million in the second quarter of 2004 from $6.4 million in the
second quarter of 2003, and decreased $5.4 million, or 37.9%, to $9.0 million
in the first six months of 2004 from $14.4 million in the first six months of
2003. These sales decreases were primarily due to exiting certain product
lines in 2003 ($1.1 million in the second quarter of 2003 and $2.0 million in
the first six months of 2003) and the timing of shipment in our enriched Boron
business to nuclear power plant customers. We expect the timing of the
shipments to nuclear power plant customers to recover in 2005. In April 2004, we sold our Environmental Science & Technology division
within our Technologies Business Units Specialty Materials Group Segment for
cash, net of expenses, of approximately $22.0 million. We have accounted for
this sale as a Discontinued Operation and therefore restated our 2003 and 2004
financial results to exclude this divisions operating results from our income
from continuing operations. Operating income in our Specialty Materials Group Segment decreased $0.5
million, or 25.8%, to $1.3 million in the second quarter of 2004 from $1.8
million in the second quarter of 2003, and decreased $1.5 million, or 35.4%, to
$2.8 million in the first six months of 2004 from $4.3 million in the first six
months of 2003. The reduced operating income in both periods is primarily the
result of lower volumes and the exiting of certain product lines ($0.3 million
in the second quarter of 2003 and $0.6 million in the first six months of
2003). Pharmaceutical Services Segment (Technologies Business Unit) Sales in our Pharmaceutical Services Segment decreased $0.4 million, or
12.6%, to $3.0 million in the second quarter of 2004 from $3.4 million in the
second quarter of 2003, and increased $0.5 million, or 10.4%, to $5.8 million
in the first six months of 2004 from $5.3 million in the first six months of
2003. The decrease in the second quarter of 2004 was due to a one time catch
up in sales in 2003 arising from a fire at one of the facilities in an earlier
period that disrupted production, and the increase in the first six months of
2004 is primarily related to price increases. Operating income in our Pharmaceutical Services Segment increased $0.3
million, or 71.8%, to $0.5 million in the second quarter of 2004 from $0.3
million in the second quarter of 2003, and increased $0.8 million from
breakeven in the first six months of 2003 to income of $0.8 million in the
first six months of 2004. These improved operating results are primarily the
result of favorable sales mix and price increases. Filtration and Minerals Segment (and Business Unit) Sales in our Filtration and Minerals Segment increased $1.9 million, or
9.6%, to $21.7 million in the second quarter of 2004 from $19.8 million in the
second quarter of 2003, and increased $1.7 million, or 4.5%, to $40.4 million
in the first six months of 2004 from $38.7 million in the first six months of
2003. These sales increases are primarily related to increased volumes in the
United States as the impact of lower pricing in Europe is offset by favorable
foreign currency. The sales increases are primarily related to increased sales
in our targeted filtration and additives market. Operating income in our Filtration and Minerals Segment increased $0.3
million, or 15.8%, to $1.9 million in the second quarter of 2004 from $1.6
million in the second quarter of 2003, and increased $1.0 million, or 62.8%, to
$2.5 million in the first six months of 2004 from $1.5 million in the first six
months of 2003. This increase in the second quarter of 2004 was primarily
related to $1.7 million of increased margins due to higher sales volumes
partially offset by $1.4 million of higher ore mining and fuel costs. This
increase in the first six months of 2004 was primarily related to improved
margins of $2.1 million related to higher sales volumes and favorable foreign
currency, partially offset by $1.2 million of higher ore mining and fuel costs. 28




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Company Discussion Net Sales.Net sales increased $14.5 million, or 8.4%, to $186.4 million
in the second quarter of 2004 from $171.9 million in the second quarter of
2003, and increased $16.8 million, or 5.0%, to $350.2 million in the first six
months of 2004 from $333.4 million in the first six months of 2003. The sales increase in the second quarter of 2004 was primarily driven by a
$10.2 million, or 29.9%, increase in our Technologies Business Units Power
Group Segment related to higher volumes and improved pricing in our defense and
space businesses, as well as additional shipments of our EaglePicher Horizon
Batteries that resulted in revenue of $1.2 million. In addition, the increase
was driven by a $4.9 million, or 20.9%, increase in our Automotive Business
Units Wolverine Segment primarily due to a 17.5% volume increase. The sales
increase in the first six months of 2004 was primarily driven by an $18.0
million, or 27.2%, increase in our Technologies Business Units Power Group
Segment related to higher volumes and improved pricing in our defense and space
businesses, as well as shipments of our EaglePicher Horizon Batteries that
resulted in revenue of $2.2 million. In addition, the increase was driven by
an $8.2 million, or 18.8%, increase in our Automotive Business Units Wolverine
Segment, primarily due to a 13.8% volume increase. These increases were
partially offset by a $6.2 million, or 3.8%, decrease in our Automotives
Business Units Hillsdale Segment, due to reduced pricing and the phase-out of
three specific programs, and a $5.4 million, or 37.9% decrease in our
Technologies Business Units Specialty Materials Group Segment. See above for a
more detailed discussion of the individual segments results. Cost of Products Sold (exclusive of depreciation). Costs of products sold
increased $14.0 million, or 10.7%, to $144.6 million in the second quarter of
2004 from $130.6 million in the second quarter of 2003, and increased $14.9
million, or 5.8%, to $271.4 million in the first six months of 2004 from $256.5
million in the first six months of 2003. Our gross margin increased $0.6
million to $41.8 million in the second quarter of 2004 from $41.2 million in
the second quarter of 2003, and the gross margin percentage decreased 1.6
points to 22.4% from 24.0%. Our gross margin increased $1.9 million to $78.8
million in the first six months of 2004 from $76.9 million in the first six
months of 2003, and the gross margin percentage decreased 0.6 points to 22.5%
from 23.1%. The deterioration of these margin rates are primarily the result
of increased steel costs and plant closure costs in our Wolverine Segment,
increased commodity costs in our Filtration and Minerals Segment, lower average
selling prices, plant restructuring and China sourcing start-up costs in our
Hillsdale Segment, and the reduced margin booking rate on a specific long-term
defense contract in our Technologies Business Units Power Group Segment
primarily due to additional cost and short-term production inefficiencies
related to an accelerated increase in production volumes and capacity. Selling and Administrative.Selling and administrative expense increased
$1.1 million, or 6.9%, to $17.2 million in the second quarter of 2004 from
$16.1 million in the second quarter of 2003, and increased $3.9 million, or
12.7%, to $34.1 million in the first six months of 2004 from $30.2 million in
the first six months of 2003. These increases are primarily due to expenses,
such as selling and management infrastructure costs, to support growth
initiatives in our Power Group Segment, including the operations of our newly
consolidated (as of December 1, 2003) 62% owned venture, EaglePicher Horizon
Batteries, as well as costs to support global sourcing initiatives, primarily
in China, in our Hillsdale Segment. Depreciation and Amortization. Depreciation and amortization decreased
$0.7 million, or 7.6%, to $10.0 million in the second quarter of 2004 from
$10.7 million in the second quarter of 2003, and decreased $2.0 million, or
9.0%, to $19.9 million in the first six months of 2004 from $21.9 million in
the first six months of 2003. This decrease was primarily related to certain
assets whose depreciation was completed in 2003. Insurance Related Gains. In the second quarter of 2003, we recorded a
$5.7 million gain primarily related to the settlement of a claim with our
insurance carrier over the coverage on a fire during 2002 at our Seneca,
Missouri non-operating facility. Loss from Divestitures.All amounts recorded in loss from divestitures
expense relate to operations that were sold or that were divested prior to
November 30, 2003. During 2004, we recorded a $2.6 million charge related to
the litigation settlement of a warranty claim related to a division sold
effective December 1999. We paid this settlement in the second quarter of
2004. 29




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Operating Income. Operating income decreased $5.5 million, or 27.2%, to
$14.6 million in the second quarter of 2004 from $20.1 million in the second
quarter of 2003, and decreased $8.3 million, or 27.2%, to $22.2 million in the
first six months of 2004 from $30.5 million in the first six months of 2003.
These changes were primarily the result of the following favorable/
(unfavorable) items (in million of dollars): Second
    
    First SixQuarter of
    
    Months of2004
    
    2004a. Gross margin dollars
    
    $
    0.6
    
    
    $
    1.9b. Selling and administrative expenses
    
    
    (1.1
    )
    
    
    (3.9
    )c. Depreciation and amortization
    
    
    0.7
    
    
    
    2.0d. Insurance related gains in
2003
    
    
    (5.7
    )
    
    
    (5.7
    )e. Loss from divestitures in 2004
    
    
    
    
    
    
    (2.6
    )$
    (5.5
    )
    
    $
    (8.3
    )
 See above for a discussion of the variances in each of these line items. Interest Expense.Interest expense was $9.2 million in the second quarter
of 2004 and $7.7 million in the second quarter of 2003 (not including $0.2
million in the second quarter of 2004 and $1.6 million in the second quarter of
2003 which was allocated to discontinued operations). Interest expense was
$17.8 million in the first six months of 2004 and $15.5 million in the first
six months of 2003 (not including $0.9 million in the first six months of 2004
and $3.2 million in the first six months of 2003 which was allocated to
discontinued operations). Including interest allocation to discontinued
operations, our year over year interest expense is basically flat. Preferred Stock Dividends Accrued.Effective September 1, 2003, we adopted
SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity which requires that certain
instruments be classified as liabilities in our balance sheet. The effect of
the adoption was that, as of September 1, 2003, we reclassified the current
redemption value plus unpaid dividends on our redeemable preferred stock to
long-term liabilities and the accrual of dividends payable subsequent to
September 1, 2003 has been recorded as a component of non-operating expenses in
our consolidated statements of income (loss). In accordance with this
statement, the prior period financial statements have not been reclassified. Income Tax Provision.Income tax provision was $0.9 million in the second
quarter of 2004 compared to $1.2 million in the second quarter of 2003, and
$1.3 million in the first six months of 2004 compared to $2.0 million in the
first six months of 2003. These provisions relate to the allocation of income
and loss between the United States and foreign jurisdictions and primarily
represent the estimated tax that will be due in certain jurisdictions where no
tax benefit can be assured from utilizing previous losses. There is no U.S.
Federal or state net tax benefit or provision recorded during 2003 and 2004. Discontinued Operations.During the second quarter of 2003, we accounted
for our Automotive Business Units Hillsdale U.K. operation as a discontinued
operation. During the third quarter of 2003, we accounted for the sale of
certain assets of our Germanium-based business in our Technologies Business
Unit as a discontinued operation. During the second quarter of 2004, we
accounted for the sale of our Scientific Products & Technology business in our
Technologies Business Unit as a discontinued operation. Accordingly, we have
restated our prior period financial statements to conform to the discontinued
operations presentation. Net Income (Loss).Our net income decreased $2.3 million, or 29.5%, to
$5.4 million in the second quarter of 2004 from $7.7 million in the second
quarter of 2003. Our net income (loss) decreased $9.2 million to a net loss of
$0.4 million in the first six months of 2004 from net income of $8.9 million in
the first six months of 2003. These declines are the result of the items
discussed above. LIQUIDITY AND CAPITAL RESOURCES Our cash flows from operations and availability under our credit
facilities are considered adequate to fund our short-term and long-term capital
needs. As of May 31, 2004, we had $122.3 million unused under our various
credit facilities. However, due to various financial covenant limitations
under our Credit Agreement measured at the end of each quarter, on May 31,
2004, we could only incur an additional $61.7 million of indebtedness. 30




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At May 31, 2004, we were in compliance with all of our debt covenants. We
expect to remain in compliance with our debt covenants throughout fiscal year
2004. Cash Flows All references herein to years are to the six-months ended May 31 unless
otherwise indicated. Operating Activities.Operating activities used $12.4 million in cash
during 2004 compared to $12.8 million in 2003. In 2003, cash flows from
operating activities were impacted by our net income of $8.9 million and
non-cash charges of $23.4 million from depreciation and amortization, $3.0
million from loss on the disposal of a discontinued businesses, partially
offset by a non-cash gain of $5.7 from insurance resulting in cash sources of
$29.6 million compared to a 2004 amount of $24.8 million. The 2004 amount of
$24.8 million is comprised of our net loss of $0.4 million, and non-cash
charges of $21.0 million from depreciation and amortization, $8.3 million from
preferred stock dividends accruals, $0.5 million from deferred tax provision,
partially offset by a non-cash gain of $4.6 million from discontinued
operations. The operating cash flow for 2003 was also decreased by $42.4 million due
to changes in certain assets and liabilities, resulting in net cash used in
operating activities of $12.8 million. This $42.4 million decrease was
primarily due to a $20.3 million reduction of beneficial interests issued by
our accounts receivable asset-backed securitization, EaglePicher Funding
Corporation, and a $12.6 million decrease in accrued liabilities, primarily
related to payments on restructuring and legal matters which were expenses in
2002. The remaining decreases were the result of increases of production in
our Power Groups Segment on long-term defense contracts where costs are
incurred before shipments or milestone billings are made and collected, as well
as increases in inventories and decreases in accounts payable. The operating cash flow for 2004 was also decreased by $37.2 million due
to changes in certain assets and liabilities, resulting in net cash used in
operating activities of $12.4 million. This was primarily due to:  a.
    
    $21.7 million source of cash as a result of the issuance of
beneficial interests by our accounts receivable asset-backed
securitization, EaglePicher Funding Corporation.b.
    
    $11.6 million decrease in accounts payable primarily related
to changes in payment terms with three specific vendors, largely due
to changed market conditions in the steel market.c.
    
    $8.8 million increase in inventories primarily related to an
inventory build in our Hillsdale Segment to support plant and
sourcing restructurings, and increases in our Wolverine Segment and
Power Group Segment to support their sales growth.d.
    
    $16.0 million increase in receivables primarily due to (a)
the funding of working capital in our newly controlled venture,
EaglePicher Horizon Batteries and (b) increases in days sales
outstanding in the second quarter of 2004 compared to the fourth
quarter of 2003.e.
    
    $12.0 million increase in production on long-term defense
contracts where costs are incurred before shipments or milestone
billings are made and collected. This was primarily driven by (a)
29.9% increase in our Power Group Segments revenues in the second
quarter of 2004, and (b) recently incurred production bottlenecks in
the later stages of certain defense contracts which have resulted in
the delay of certain shipments to customers. We expect these
bottlenecks to be somewhat eliminated in the second half of 2004.f.
    
    $6.0 million use of cash primarily from the payment of legacy
legal and environmental matters. Investing Activities.Investing activities used $24.1 million of cash
during 2004 compared to $7.4 million in 2003. The 2004 amount primarily
includes $20.8 million for capital expenditures and $3.5 million for the
purchase of a controlling interest in EaglePicher Horizon Batteries LLC. The
2003 amount primarily includes $8.5 million for capital expenditures. We
expect our capital expenditures to be between $35.0 million to $40.0 million in
2004. Financing Activities.Financing activities used $16.5 million of cash
during 2004 compared to $2.1 million during 2003. During 2004, the use of cash
was primarily to pay off one Industrial Revenue Bond and to repay a portion of
our Term Loan from proceeds of the sale of our Environmental Science &
Technology division. During 2003, the use of cash was primarily due to a
reduction in long-term debt, which was partially offset by increases on our
revolving credit agreement. 31




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Discontinued Operations Activities.During 2004, we sold our Environmental
Science & Technology division within our Technologies Business Unit for
approximately $23.0 million, which resulted in approximately $20.7 million of
net cash provided by discontinued operations. Capitalization 2003
    
    2004Credit Agreement:Revolving credit facility
    
    $
    
    
    
    $
    Term loan
    
    
    149,625
    
    
    
    143,181Senior Unsecured Notes, 9.75% interest, due 2013, net of
$1.9 million discount
    
    
    248,040
    
    
    
    248,106Senior Subordinated Notes, 9.375% interest, due 2008
    
    
    9,500
    
    
    
    9,500Industrial Revenue Bond, variable interest (1.12% at May
31, 2004), due in 2005
    
    
    13,600
    
    
    
    3,600Other
    
    
    1,105
    
    
    
    1,026421,870
    
    
    
    405,413Preferred Stock
    
    
    154,416
    
    
    
    162,754Shareholders Deficit
    
    
    (90,207
    )
    
    
    (89,680
    )$
    486,079
    
    
    $
    478,487
 Credit Agreement.We have a syndicated senior secured loan facility
(Credit Agreement) providing an original term loan (Term Loan) of $150.0
million and a $125.0 million revolving credit facility (Facility). The
Facility bears interest, at our option, at a rate equal to (i) LIBOR plus 350
basis points or (ii) an Alternate Base Rate (ABR) (which is equal to the
highest of (a) the agents prime rate, (b) the Federal funds effective rate
plus 50 basis points, or (c) the base CD rate plus 100 basis points) plus 250
basis points. The Term Loan bears interest, at our option, at a rate equal to
(i) LIBOR plus 300 basis points or (ii) the ABR plus 200 basis points.
Interest is generally payable quarterly on the Facility and Term Loan. We are
permitted to enter into interest rate swap agreements to manage our variable
interest rate exposure. However, as of May 31, 2004, we had no interest rate
swaps outstanding. The Credit Agreement also contains certain fees. There are
fees for letters of credit equal to 3.5% per annum for all issued letters of
credit, and there is a commitment fee on the Facility equal to 0.5% per annum
of the unused portion of the Facility. If we meet certain financial benchmarks, the interest rate spreads on the
Facility, the commitment fees and the fees for letters of credit may be
reduced. The Term Loan will mature upon the earlier of (i) August 7, 2009 or (ii)
180 days prior to the mandatory redemption of our 11.75% Cumulative Redeemable
Exchangeable Preferred Stock (Preferred Stock) if more than $5.0 million of
its aggregate liquidation preference remains outstanding. The Facility will
mature upon the earlier of (i) August 7, 2008 or (ii) 180 days prior to the
mandatory redemption of our Preferred Stock if more than $5.0 million of its
aggregate liquidation preference remains outstanding. Our Preferred Stock is
scheduled for mandatory redemption on March 1, 2008. At May 31, 2004, we had $27.3 million in outstanding letters of credit
under the Facility, which together with borrowings of zero, made our available
borrowing capacity of $97.7 million. However, due to various financial
covenant limitations under our Credit Agreement measured at the end of each
quarter, on May 31, 2004, we could only incur an additional $61.7 million of
indebtedness. The Credit Agreement is secured by our capital stock, the capital stock of
substantially all of our domestic United States subsidiaries, a certain portion
of the capital stock of our foreign subsidiaries, and substantially all other
assets of our United States subsidiaries. Additionally, the Credit Agreement
is guaranteed by us and certain of our United States subsidiaries. The Credit Agreement contains covenants that restrict our ability to
declare dividends or redeem capital stock, incur additional debt or liens,
alter existing debt agreements, make loans or investments, form or invest in
joint ventures, undergo a change in control or engage in mergers, acquisitions
or asset sales. These covenants also limit the annual amount of capital
expenditures and require us to meet certain minimum financial ratios. For
purposes of determining outstanding debt under our Credit Agreement, we are
required to include the outstanding obligations of EPFC, our off-balance sheet
special purpose entity. We were in compliance with all covenants at May 31,
2004. 32




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In addition to regularly scheduled payments on the Credit Agreement, we
are required to make mandatory prepayments equal to 50.0% of annual excess cash
flow, as defined in the Credit Agreement, beginning with our fiscal year ending
November 30, 2004. The net proceeds from the sale of assets (subject to
certain conditions), the net proceeds of certain new debt issuance, and 50.0%
of the net proceeds of any equity securities issuance are also subject to
mandatory prepayments on the Credit Agreement. Senior Unsecured Notes. In August 2003, we issued $250.0 million 9.75%
Senior Unsecured Notes, due 2013, at a price of 99.2% of par to yield 9.875%.
Accordingly, the net proceeds before issuance costs were $248.0 million. The
discount is being amortized over the life of the Senior Unsecured Notes. The
Senior Unsecured Notes require semi-annual interest payments on September 1 and
March 1, beginning on March 1, 2004. The Senior Unsecured Notes are redeemable
at our option, in whole or in part, any time after September 1, 2008 at set
redemption prices. We are required to offer to purchase the Senior Unsecured
Notes at a set redemption price should there be a change in control. The Senior
Unsecured Notes contain covenants which restrict or limit our ability to
declare or pay dividends, incur additional debt or liens, issue stock, engage
in affiliate transactions, undergo a change in control or sell assets. We were
in compliance with these covenants at May 31, 2004. The Senior Unsecured Notes
are guaranteed by us and certain of our subsidiaries Senior Subordinated Notes.On May 31, 2004, we provided notice to the
trustee and the holders of our Senior Subordinated Notes that we would redeem
all remaining outstanding Senior Subordinated Notes on June 30, 2004, at a
redemption price equal to 103.125% of the principal amount of each such Note,
plus accrued and unpaid interest of $30.99 per $1,000 principal amount. On
June 30, 2004, we made this redemption payment and removed this debt from our
balance sheet. As a result, we reclassified the $9.5 million principal balance
of the notes as current portion of long-term debt in our accompanying balance
sheet as of May 31, 2004. Industrial Revenue Bond. Our industrial revenue bond requires monthly
interest payments at variable interest rates based on the market for similar
issues and is secured by a letter of credit issued under the Facility described
above. Preferred Stock.Our preferred stock increased $8.3 million during the
first six months of 2004 as a result of the accrual of preferred dividends.
Commencing March 1, 2003, dividends on our Preferred Stock became cash payable
at 11.75% per annum of the liquidation preference if and when declared by the
Board of Directors; the first semiannual dividend payment of $8.3 million was
due September 1, 2003. The Credit Agreement and the Senior Unsecured Notes
contain financial covenants that currently prohibit us from paying dividends on
the Preferred Stock. Our Board of Directors did not declare a cash dividend as
of September 1, 2003. If we do not pay cash dividends on the Preferred Stock,
the holders of the Preferred Stock may become entitled to elect a majority of
our Board of Directors. Dakruiter S.A. and Harbourgate B.V., both companies
controlled by Granaria Holdings B.V., our controlling common shareholder, hold
approximately 78% of our Preferred Stock, and therefore Granaria Holdings B.V.
would continue to be able to elect our entire Board of Directors. The election
of a majority of the directors is the only remedy of holders of the Preferred
Stock for a failure to pay cash dividends. Unpaid dividends are cumulative but
do not bear interest. Shareholders Deficit.Our shareholders deficit decreased $0.5 million
during the first six months of 2004 due to our comprehensive income. Accounts Receivable Asset-Backed Securitization (Qualifying Special
Purpose Entity) We have an agreement with a major United States financial institution to
sell an interest in certain receivables through an unconsolidated qualifying
special purpose entity, EaglePicher Funding Corporation (EPFE). The size of
this facility is $55.0 million, subject to certain financial covenant
limitations. This agreement provides for the sale of certain receivables to
EPFC, which in turn sells an interest in a revolving pool of receivables to the
financial institution. EPFC has no recourse against us for failure of the
debtors to pay when due. In the third quarter of 2003, we amended this
agreement to extend the receivables program until the earlier of (a) 90 days
prior to the maturity of our Credit Agreement or (b) January 2008. We account for the securitization of these sold receivables in accordance
with SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilitiesa Replacement of FASB Statement No. 125.
Under this guidance, at the time the receivables are sold, the balances are
removed from our financial statements. For purposes of calculating our debt
covenant compliance under our Credit Agreement, we include the outstanding
obligations of EPFC. 33




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We continue to service sold receivables and receive a monthly servicing
fee from EPFC of approximately 1% per annum of the receivable pools average
balance. As this servicing fee approximates our cost to service, no servicing
asset or liability has been recorded at November 30, 2003 or May 31, 2004. The
carrying value of our retained interest is recorded at fair value, which is
estimated as its net realizable value due to the short duration of the
receivables transferred to EPFC. The net realizable value considers the
collection period and includes an estimated provision for credit losses and
returns and allowances, which is based on our historical results and probable
future losses. As of November 30, 2003, our retained interest in EPFC was $63.3 million
and the revolving pool of receivables that we serviced totaled $64.9 million.
At November 30, 2003, the outstanding balance of the interest sold to the
financial institution recorded on EPFCs financial statements was zero. During
the three months ended May 31, 2003, we sold $147.0 million of accounts
receivable to EPFC, and during the same period, EPFC collected $140.0 million
of cash that was reinvested in new securitizations. During the six months
ended May 31, 2003, we sold $285.6 million of accounts receivable to EPFC, and
during the same period, EPFC collected $270.9 million of cash that was
reinvested in new securitizations. The effective interest rate as of November
30, 2003 in the securitization was approximately 2.95%. As of May 31, 2004, our retained interest in EPFC was $50.2 million and
the revolving pool of receivables that we serviced totaled $73.3 million. At
May 31, 2004, the outstanding balance of the interest sold to the financial
institution recorded on EPFCs financial statements was $21.7 million. During
the three months ended May 31, 2004, we sold $149.3 million of accounts
receivable to EPFC, and during the same period, EPFC collected $141.3 million
of cash that was reinvested in new securitizations. During the six months
ended May 31, 2004, we sold $278.7 million of accounts receivable to EPFC, and
during the same period, EPFC collected $256.9 million of cash that was invested
in new securitization. The effective interest rate as of May 31, 2004 in the
securitization was approximately 4.00%. Credit Agreement and Accounts Receivable Asset-Backed Securitization
Financial Covenants There are three financial covenants contained in our Credit Agreement and
the Accounts Receivable Asset-Backed Securitization, as amended. They are a
leverage ratio (the ratio of total debt, including the obligations of our
Accounts Receivable Asset-Backed Securitization, to Credit Agreement EBITDA),
an interest coverage ratio (the ratio of Credit Agreement EBITDA to interest
expense) and a fixed charge coverage ratio (the ratio of Credit Agreement
EBITDA minus capital expenditures to the sum of interest expense plus scheduled
principal payments plus cash dividends paid plus income taxes paid), all as
defined in the Credit Agreement and the Accounts Receivable Asset-Backed
Securitization, as amended. As of May 31, 2004, we were in compliance with the
covenant calculations described above. Based on our projections for 2004, we expect to remain in compliance with
all covenants. However, any adverse changes in actual results from
projections, along with the contractual tightening of the covenants under the
Credit Agreement and Accounts Receivable Asset-Backed Securitization, may place
us at risk of not being able to comply with all of the covenants in the Credit
Agreement and Accounts Receivable Asset-Backed Securitization. In the event we
cannot comply with the terms of the Credit Agreement and Accounts Receivable
Asset-Backed Securitization as currently written, it would be necessary for us
to obtain a waiver or renegotiate our loan covenants, and there can be no
assurance that such negotiations will be successful. Any agreements to amend
the covenants and/or obtain waivers may likely require us to pay a fee and
increase the interest rates payable under the Credit Agreement and Accounts
Receivable Asset-Backed Securitization. The amount of such fee and increase in
interest rates would be determined in the negotiations of the amendment. Contractual Obligations and Other Commercial Commitments We have included a summary of our Contractual Obligations and Other
Commercial Commitments in our annual report on Form 10-K for the year ended
November 30, 2003, filed on February 17, 2004. There have been no material
changes to the summary provided in that report. Recently Released or Adopted Accounting Standards In January 2003, the FASB issued Interpretation (FIN) No. 46,
Consolidation of Variable Interest Entities  An Interpretation of Accounting
Research Bulletin (ARB) No. 51. This interpretation was subsequently revised
by FIN 46 (Revised 2003) in December 2003. This revised interpretation states
that consolidation of variable interest entities will be required by the
primary beneficiary if the entities do not effectively disperse risks among the
parties involved. The requirements are effective for fiscal years ending after
December 15, 2003 for special-purpose entities and for all other types of
entities for periods ending after March 31, 2004. The adoption of FIN No.
46® did not have a material impact on our financial condition or results of
operations. 34




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In March 2004, the EITF reached a consensus on EITF No. 03-16, Accounting
for Investments in Limited Liability Companies. This consensus would require
that we account for our investment in a start-up manufacturing company, as
described in Note S of our Form 10-K for the year ended November 30, 2003,
filed on February 17, 2004, as an equity method investment. As of May 31,
2004, we have $1.5 million recorded in our balance sheet related to this
investment. The consensus, if ratified by the FASB, would be effective for us
on September 1, 2004 and would require that we record a cumulative effect of a
change in accounting principle in our fourth quarter of 2004. We have not yet
determined what the impact of EITF 03-16 will have on our financial condition
or results of operations. The EITF is currently considering Issue No. 03-R, The Accounting for
Certain Costs in the Mining Industry, Including Deferred Stripping Costs. The
issue is attempting to address numerous implementation and consistency issues
for the mining industry, including the appropriate accounting for deferred
stripping costs. Any conclusions by the EITF on this issue could result in a
change to our accounting policy on Deferred Stripping and as a result could
have a material impact on our financial condition or results of operations. In December 2003, the FASB issued SFAS No. 132 (Revised 2003), Employers
Disclosures about Pensions and Other Postretirement Benefits. This standard
increases the existing disclosure requirements by requiring more details about
pension plan assets, benefit obligations, cash flows, benefit costs and related
information. We will be required to segregate plan assets by category, such as
debt, equity and real estate, and to provide certain expected rates of return
and other informational disclosures. We will be required to adopt the
disclosure requirements of SFAS No. 132® when we issue our November 30, 2004
financial statements, and we have disclosed various elements of pension and
postretirement benefit costs in interim-period financial statements as required
by this statement in this Form 10-Q. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk We have included a summary of our Quantitative and Qualitative Disclosure
About Market Risk in our annual report on Form 10-K for the year ended November
30, 2003, filed on February 17, 2004. There have been no material changes to
the summary provided in that report. 
 Item 4. Controls and Procedures Our management, including our Chief Executive Officer and our Chief
Financial Officer, conducted an evaluation of our disclosure controls and
procedures as of the end of the period covered by this report as required by
the rules of the Securities and Exchange Commission. Based on that evaluation
and as a result of commencing our Sarbanes Oxley Section 404 internal controls
over financial reporting, our Chief Executive Officer and our Chief Financial
Officer have noted that there are significant amounts of manual controls in our
Technologies Business Unit Segment. In addition, this business unit continues
to operate on old information systems which also contribute to an increased
likelihood of problems with internal control weaknesses over financial
reporting. We are in the process of implementing a new enterprise resource
planning (ERP) software application in this business unit, which will require a
comprehensive review of our internal controls over financial reporting. We
expect this ERP to be fully implemented at the time we are required to comply
with the new certifications requirements of Section 404 of the Sarbanes Oxley
Act, which is our fiscal year ending November 30, 2005. Notwithstanding these
observations related to internal controls over financial reporting, our Chief
Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures are effective in ensuring that all material
information required to be filed in this report has been made known to them in
a timely manner. 35




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PART II. OTHER INFORMATION 
 Item 1. Legal Proceedings Please refer to Note I regarding Legal Matters contained in Part I, Item 1
of this report, which is incorporated by reference in this Part II, as its Item
1. 
 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: ExhibitNumber
    
    
    
    Title of Exhibit
    
    Note31.1
    
    
    
    Certification Pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange
Act of 1934, as Amended
    
    *31.2
    
    
    
    Certification Pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange
Act of 1934, as Amended
    
    *32.1
    
    
    
    Certification Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    *32.2
    
    
    
    Certification Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    *
 *Filed herewith (b) Reports on Form 8-K  
    
    Form 8-K, filed April 12, 2004, concerning our press release
dated April 12, 2004 36




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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 the
undersigned thereunto duly authorized. EAGLEPICHER HOLDINGS, INC./s/ Thomas R. PilholskiThomas R. PilholskiSenior Vice President and Chief Financial Officer(Principal Financial Officer)
 DATE: July 12, 2004 37




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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 the
undersigned thereunto duly authorized. EAGLEPICHER INCORPORATED/s/ Thomas R. PilholskiThomas R. Pilholski
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
 DATE: July 12, 2004 38




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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 the
undersigned thereunto duly authorized. CARPENTER ENTERPRISES, INC./s/ Thomas R. PilholskiThomas R. Pilholski
Vice President
(Principal Financial Officer)
 DATE: July 12, 2004 39




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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 the
undersigned thereunto duly authorized. DAISY PARTS, INC./s/ Thomas R. PilholskiThomas R. Pilholski
Vice President
(Principal Financial Officer)
 DATE: July 12, 2004 40




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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 the
undersigned thereunto duly authorized. EAGLE-PICHER FAR EAST, INC./s/ Thomas R. PilholskiThomas R. Pilholski
Vice President
(Principal Financial Officer)
 DATE: July 12, 2004 41




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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 the
undersigned thereunto duly authorized. EAGLEPICHER FILTRATION & MINERALS, INC./s/ Thomas R. PilholskiThomas R. Pilholski
Vice President
(Principal Financial Officer)
 DATE: July 12, 2004 42




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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 the
undersigned thereunto duly authorized. EAGLEPICHER TECHNOLOGIES, LLC/s/ Bradley J. WatersBradley J. Waters
Vice President and Chief Financial Officer
(Principal Financial Officer)
 DATE July 12, 2004 43




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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 the
undersigned thereunto duly authorized. EAGLEPICHER AUTOMOTIVE, INC./s/ Thomas R. PilholskiThomas R. Pilholski
Vice President
(Principal Financial Officer)
 DATE: July 12, 2004 44




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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 the
undersigned thereunto duly authorized. EAGLEPICHER PHARMACEUTICAL SERVICES, LLC/s/ Thomas R. PilholskiThomas R. Pilholski
Vice President
(Principal Financial Officer)
 DATE: July 12, 2004 45




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EXHIBIT INDEX ExhibitNumber
    
    
    
    Title of Exhibit
    
    Note31.1
    
    
    
    Certification Pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange
Act of 1934, as Amended
    
    *31.2
    
    
    
    Certification Pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange
Act of 1934, as Amended
    
    *32.1
    
    
    
    Certification Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    *32.2
    
    
    
    Certification Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    *
 *Filed herewith 46