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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  Form 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended August 31, 2004 OR o TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from ________ to __________. Commission file number 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 October 12, 2004 1




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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
    
    
    36Item 4. Controls and Procedures
    
    
    36PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    37Item 6. Exhibits and Reports on Form 8-K
    
    
    37Signatures
    
    
    38Exhibit Index
    
    
    47EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This Form 10-Q contains statements that, to the extent that they are not
recitations of historical fact, constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, section
21E of the Securities Exchange Act of 1934. Such forward-looking information
involves risks and uncertainties that could cause actual results to differ
materially from those expressed in any such forward-looking statements. These
risks and uncertainties include, but are not limited to: our ability to
maintain existing relationships with customers, demand for our products, our
ability to successfully implement productivity improvements and/or cost
reduction initiatives, including the performance of automated equipment,
accuracy of our estimates to complete contracts on a percentage of completion
method of accounting, our ability to source raw materials and components from
overseas suppliers, accuracy of our reserves for losses, our ability to
consolidate manufacturing plants, our ability to develop, market and sell new
products, our ability to obtain raw materials especially certain grades of
steel and natural gas on an economic basis, increased government regulation or
changing regulatory policies resulting in higher costs and/or restricting
output, increased price competition, currency fluctuations, general economic
conditions, acquisitions and divestitures, technological developments and
changes in the competitive environment in which we operate, as well as factors
discussed in our filings with the U.S. Securities and Exchange Commission. We
undertake no duty to update the forward-looking statements in this Form 10-Q
and you should not view the statements made as accurate beyond the date of this
Form 10-Q. 3




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PART I. FINANCIAL INFORMATION 
 Item 1. Financial Statements. EaglePicher Holdings, Inc. 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 November 30, 2003 and August 31, 2004
 (unaudited) (in thousands of dollars)
 2003
    
    2004ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    67,320
    
    
    $
    14,298Receivables, net
    
    
    23,895
    
    
    
    32,594Retained interest in EaglePicher Funding Corporation, net
    
    
    63,335
    
    
    
    48,007Costs and estimated earnings in excess of billings
    
    
    28,433
    
    
    
    44,980Inventories
    
    
    51,532
    
    
    
    66,360Assets of discontinued operations
    
    
    16,842
    
    
    
    Prepaid expenses and other assets
    
    
    10,394
    
    
    
    13,066Deferred income taxes
    
    
    8,526
    
    
    
    8,526270,277
    
    
    
    227,831Property, Plant and Equipment, net
    
    
    150,814
    
    
    
    156,746Goodwill
    
    
    152,040
    
    
    
    161,677Prepaid Pension
    
    
    58,891
    

    
    
    59,277Other Assets, net
    
    
    33,516
    
    
    
    40,689$
    665,538
    
    
    $
    646,220LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current Liabilities:Accounts payable
    
    $
    88,542
    
    
    $
    87,164Current portion of long-term debt
    
    
    13,300
    
    
    
    3,246Compensation and employee benefits
    
    
    15,701
    
    
    
    12,137Billings in excess of costs and estimated earnings
    
    
    2,098
    
    
    
    1,862Accrued divestiture reserve
    
    
    9,297
    
    
    
    5,302Liabilities of discontinued operations
    
    
    1,994
    
    
    
    413Other accrued liabilities
    
    
    32,760
    
    
    
    39,355163,692
    
    
    
    149,479Long-term Debt, net of current portion
    
    
    408,570
    
    
    
    392,388Postretirement Benefits Other Than Pensions
    
    
    17,418
    
    
    
    16,874Deferred Income
Taxes
    
    
    486
    
    
    
    2,927Other Long-Term Liabilities
    
    
    11,163
    
    
    
    14,11111.75% Cumulative Redeemable Exchangeable Preferred Stock
    
    
    154,416
    
    
    
    166,921755,745
    
    
    
    742,700Commitments and ContingenciesShareholders Equity (Deficit):Common stock
    
    
    10
    
    
    
    10Additional paid-in capital
    
    
    92,810
    
    
    
    92,810Accumulated deficit
    
    
    (184,543
    )
    
    
    (192,269
    )Accumulated other comprehensive income
    
    
    1,516
    
    
    
    2,969(90,207
    )
    
    
    (96,480
    )$
    665,538
    
    
    $
    646,220
 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 Nine Months Ended August 31, 2003 and 2004
 (unaudited) (in thousands of dollars, except share and per share amounts)
 Three Months Ended August 31,
    
    Nine Months Ended August 31,2003
    
    2004
    
    2003
    
    2004Net Sales
    
    $
    163,011
    
    
    $
    179,056
    
    
    $
    496,392
    
    
    $
    529,226Operating Costs and Expenses:Cost of products sold (exclusive of
depreciation)
    
    
    124,758
    
    
    
    145,368
    
    
    
    381,240
    
    
    
    416,736Selling and
administrative
    
    
    15,615
    
    
    
    15,847
    
    
    
    45,836
    
    
    
    49,921Depreciation and amortization
    
    
    12,678
    
    
    
    9,867
    
    
    
    34,528
    
    
    
    29,750Insurance related losses
(gains)
    
    
    (2,774
    )
    
    
    405
    
    
    
    (8,510
    )
    
    
    405Loss from
divestitures
    
    
    
    
    
    
    609
    
    
    
    
    
    
    
    3,209150,277
    
    
    
    172,096
    
    
    
    453,094
    
    
    
    500,021Operating Income
    
    
    12,734
    
    
    
    6,960
    
    
    
    43,298
    
    
    
    29,205Interest
expense
    
    
    (8,629
    )
    
    
    (9,131
    )
    
    
    (24,160
    )
    
    
    (26,941
    )Preferred stock dividends
accrued
    
    
    
    
    
    
    (4,167
    )
    
    
    
    
    
    
    (12,505
    )Write-off of deferred financing
costs
    
    
    (6,327
    )
    
    
    (492
    )
    
    
    (6,327
    )
    
    
    (492
    )Other income (expense),
net
    
    
    (600
    )
    
    
    520
    
    
    
    (527
    )
    
    
    807Income (Loss) from Continuing Operations BeforeTaxes
    
    
    (2,822
    )
    
    
    (6,310
    )
    
    
    12,284
    
    
    
    (9,926
    )Income
taxes
    
    
    804
    
    
    
    1,540
    
    
    
    2,850
    
    
    
    2,806Income (Loss) from Continuing Operations
    
    
    (3,626
    )
    
    
    (7,850
    )
    
    
    9,434
    
    
    
    (12,732
    )Discontinued Operations:Loss from
operations of
discontinued
businesses, net of
zero (benefit)
provision for
income
taxes
    
    
    (333
    )
    
    
    
    
    
    
    (1,561
    )
    
    
    (53
    )Gain (loss) on
disposal of
discontinued
businesses, net of
$600 benefit from
income taxes in
first nine months
of 2003 and zero in
2004
    
    
    (267
    )
    
    
    502
    
    
    
    (3,245
    )
    
    
    5,059Net Income (Loss)
    
    
    (4,226
    )
    
    
    (7,348
    )
    
    
    4,628
    
    
    
    (7,726
    )Preferred stock
dividends accreted
or accrued
    
    
    (4,168
    )
    
    
    
    
    
    
    (12,274
    )
    
    
    Loss Applicable to Common
Shareholders
    
    $
    (8,394
    )
    
    $
    (7,348
    )
    
    $
    (7,646
    )
    
    $
    (7,726
    )Basic and Diluted Net Income (Loss) per Share
Applicable to Common Shareholders:Continuing
Operations
    
    $
    (7.79
    )
    
    $
    (7.85
    )
    
    $
    (2.95
    )
    
    $
    (12.73
    )Discontinued
Operations
    
    
    (0.60
    )
    
    
    0.50
    
    
    
    (5.00
    )
    
    
    5.00$
    (8.39
    )
    
    $
    (7.35
    )
    
    $
    (7.95
    )
    
    $
    (7.73
    )Weighted Average Number of Common Shares
    
    
    1,000,000
    
    
    
    1,000,000
    
    
    
    961,389
    
    
    
    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
 Nine-Months Ended August 31, 2003 and 2004
 (unaudited) (in thousands of dollars)
 2003
    
    2004Cash Flows From Operating Activities:Net income (loss)
    
    $
    4,628
    
    
    $
    (7,726
    )Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:Depreciation and amortization
    
    
    36,814
    
    
    
    31,280Preferred stock dividends accrued
    
    
    
    
    
    
    12,505Loss (gain) on disposal of discontinued businesses
    
    
    3,245
    
    
    
    (5,059
    )Insurance (gain) loss
    
    
    (3,312
    )
    
    
    405Loss from divestitures
    
    
    
    
    
    
    609Deferred income taxes
    
    
    
    
    
    
    1,951Write-off of deferred financing costs
    
    
    6,327
    
    
    
    492Changes in assets and liabilities:Sale of receivables, net (See Note F)
    
    
    (46,475
    )
    
    
    21,066Receivables and retained interest in
EaglePicher Funding Corporation, net
    
    
    3,458
    
    
    
    (13,334
    )Costs and estimated earnings in
excess of billings and billings
in excess of costs and estimated
earnings, net
    
    
    (8,124
    )
    
    
    (16,783
    )Inventories
    
    
    (5,016
    )

    
    
    (14,687
    )Insurance claim receivable
    
    
    (5,198
    )
    
    
    Accounts payable
    
    
    (22,677
    )
    
    
    (1,904
    )Accrued liabilities
    
    
    (20,678
    )
    
    
    (2,331
    )Other, net
    
    
    1,099
    
    
    
    (5,847
    )Net cash provided by (used in) operating activities
    
    
    (55,909
    )
    
    
    637Cash Flows From Investing Activities:Proceeds from the sale of property and equipment, and other, net
    
    
    1,068
    
    
    
    474Capital expenditures
    
    
    (10,630
    )
    
    
    (34,333
    )Kokam investment, license and other costs (see Note C)
    
    
    
    
    
    
    (10,951
    )Acquisition of majority interest in EaglePicher Horizon Batteries LLC
(See Note B)
    
    
    
    
    
    
    (3,500
    )Net cash used in investing activities
    
    
    (9,562
    )
    
    
    (48,310
    )Cash Flows From Financing Activities:Reduction of long-term debt
    
    
    (16,925
    )
    
    
    (26,337
    )Net repayments under revolving credit agreements

    
    
    (121,500
    )
    
    
    Proceeds from issuance of treasury stock
    
    
    903
    
    
    
    Redemption of senior subordinated notes
    
    
    (209,500
    )
    
    
    Proceeds from issuance of unsecured notes and credit facility
    
    
    398,000
    
    
    
    Payment of deferred financing costs
    
    
    (9,708
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    41,270
    
    
    
    (26,337
    )Net cash provided by discontinued operations
    
    
    13,936
    
    
    
    21,099Effect of Exchange Rates on Cash
    
    
    2,724
    
    
    
    (111
    )Net Decrease in Cash and Cash Equivalents
    
    
    (7,541
    )
    
    
    (53,022
    )Cash and Cash Equivalents, beginning of period
    
    
    31,522
    
    
    
    67,320Cash and Cash Equivalents, end of period
    
    $
    23,981
    
    
    $
    14,298Supplemental Cash Flow Information:Interest paid
    
    $
    28,246
    
    
    $
    21,125Income taxes paid (refunded), net
    
    $
    3,859
    
    
    $
    (13
    )
 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 nine
month periods ended August 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 August 31,
2004 (in thousands of dollars): 2003
    
    2004Raw materials and supplies
    
    $
    23,445
    
    
    $
    31,658Work-in-process
    
    
    13,729
    
    
    
    18,219Finished goods
    
    
    14,358
    
    
    
    16,483$
    51,532
    
    
    $
    66,360
 Comprehensive Income (Loss) During the three and nine months ended August 31, 2003 and 2004 our
comprehensive income (loss) was as follows (in thousands of dollars): Three Months Ended August
    
    Nine Months Ended31,
    
    August 31,2003
    
    2004
    
    2003
    
    2004Net income
(loss)
    
    $
    (4,226
    )
    
    $
    (7,348
    )
    
    $
    4,628
    
    
    $
    (7,726
    )Gain on interest
rate swap
agreements
    
    
    1,172
    
    
    
    
    
    
    
    2,624
    
    
    
    670Gain (loss) on
forward foreign
currency
contracts
    
    
    2,321
    
    
    
    (136
    )
    
    
    (216
    )
    
    
    617Change in currency
translation
adjustment
    
    
    (1,640
    )
    
    
    684
    
    
    
    2,724
    
    
    
    166$
    (2,373
    )
    
    $
    (6,800
    )
    
    $
    9,760
    
    
    $
    (6,273
    )
 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 August 31, 2004 (in thousands of dollars): 2003
    
    2004Costs incurred on uncompleted contracts
    
    $
    167,091
    
    
    $
    208,689Estimated earnings
    
    
    45,606
    
    
    
    65,725212,697
    
    
    
    274,414Less: billings to date
    
    
    (186,362
    )
    
    
    (231,296
    )$
    26,335
    
    
    $
    43,118Costs and estimated earnings in excess of billings
    
    $
    28,433
    
    
    $
    44,980Billings in excess of costs and estimated earnings
    
    
    (2,098
    )
    
    
    (1,862
    )$
    26,335
    
    
    $
    43,118
 Reclassifications During 2004, we reclassified amounts in our 2003 financial statements
to conform to our 2004 presentation. 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 the financial results of our Power Group Segment 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. OTHER ASSETS During the second quarter of 2004, we signed a share purchase agreement to
buy 51% of the equity securities of Kokam Engineering Ltd. (Kokam) from its
majority shareholder. We expect to close this share purchase in December 2004,
and accordingly, we expect to consolidate Kokam in our first quarter of 2005
(February 28, 2005) financial statements. Kokam is a lithium-ion battery
manufacturer based in Seoul, South Korea. Under the provisions of this
agreement, we paid $1.0 million in July 2004 as a good-faith non-refundable fee
toward the total purchase price of approximately $5.7 million (this amount is
payable in South Korean Won and therefore subject to foreign exchange) for the
shares. In addition, the purchase price provides for an earn-out arrangement
where the seller will receive ten times 1% of EBITDA (as defined in the share
purchase agreement) for the first five years after closing with a maximum
amount payable of approximately $14.8 million (this amount is payable in South
Korean Won and therefore subject to foreign exchange). In addition, we signed
a license agreement with Kokam. Under the provisions of the license agreement,
we paid $4.0 million in July 2004 and will pay another $4.0 million in December
2004 (at closing of the investment), for the exclusive rights to manufacture
and sell all of Kokams products and to utilize all of Kokams technology to
sell into 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
United States government markets. Finally, during the third quarter of 2004
and the fourth quarter of 2004, we purchased an additional 13.6% of Kokam for
$4.7 million. The investments in the stock ownership and the license have been
included in Other Assets in the accompanying August 31, 2004 financial
statements. D. 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 8




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FIN No. 46(R) 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 August 31, 2004, we have $1.7 million recorded in our
balance sheet related to this investment. The consensus will be effective for
us on September 1, 2004 and will 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 has issued Issue No. 04-6, Accounting for Stripping Costs
Incurred during Production in the Mining Industry. The issue is attempting to
address numerous implementation and consistency issues for the mining industry,
including the appropriate accounting for deferred stripping costs. Any
consensus reached by the EITF on this issue could result in a change to our
accounting policy on Deferred Stripping and as a result may 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(R) 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 I). E. 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
    
    
    (7,204
    )Additional charges
    
    
    3,209Balance at August 31, 2004
    
    $
    5,302
 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. In addition, during the third quarter of 2004, we recorded $0.6 million
of additional charges primarily related to environmental and workers
compensation reserves. 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 9




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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 a loss of $0.4 million for
the nine months ended August 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, and during the third quarter of 2003, we recognized an increase
of $0.8 million to that Loss on Disposal of Discontinued Businesses due to
various shutdown costs. In July 2003, we completed the sale of certain assets of our
Germanium-based business in our Technologies Business Unit 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. 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 $0.2 million for
the three months ended August 31, 2003 and $1.3 million for the nine months
ended August 31, 2003. In addition, during the third quarter of 2003, we
recorded in Gain/(Loss) on Disposal of Discontinued Businesses a gain of $0.5
million, net of $0 tax provision (benefit). During the second quarter of 2004,
we recorded a loss in Gain/(Loss) on Disposal of Discontinued Businesses of
$4.1 million, 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 considered recovery probable and
therefore we wrote-off the receivable. 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 Gain (Loss) from Operations of
Discontinued Businesses losses of $0.1 million for the three months ended
August 31, 2003, income of $0.1 million for the nine months ended August 31,
2003, and losses of $0.1 million for the nine month period ended August 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, and during the third quarter of 2004, we recognized an
increase of $0.5 million to that Gain on Disposal of Discontinued Businesses. 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 $0.9 million for the three months ended August 31,
2003, $4.1 million during the nine months ended August 31, 2003 and $0.9
million during the nine months ended August 31, 2004. We do not allocate any
interest expense to the Gain (Loss) on Disposal of Discontinued Businesses. At August 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. 10




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F. 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 August 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 August 31, 2003, we sold $132.4 million of accounts
receivable to EPFC, and during the same period, EPFC collected $135.0 million
of cash that was reinvested in new securitizations. During the nine months
ended August 31, 2003, we sold $418.0 million of accounts receivable to EPFC,
and during the same period, EPFC collected $405.9 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 August 31, 2004, our retained interest in EPFC was $48.0 million and
the revolving pool of receivables that we serviced totaled $71.2 million. At
August 31, 2004, the outstanding balance of the interest sold to the financial
institution recorded on EPFCs financial statements was $21.1 million. During
the three months ended August 31, 2004, we sold $130.4 million of accounts
receivable to EPFC, and during the same period, EPFC collected $130.3 million
of cash that was reinvested in new securitizations. During the nine months
ended August 31, 2004, we sold $409.1 million of accounts receivable to EPFC,
and during the same period, EPFC collected $387.2 million of cash that was
invested in new securitization. The effective interest rate as of August 31,
2004 in the securitization was approximately 3.58%. G. LONG TERM DEBT During the third quarter of 2003, we wrote-off $6.3 million of deferred
financing costs in connection with the retirement of our former senior secured
credit facility and the redemption of approximately 95% of our senior
subordinated notes. In addition, in the third quarter of 2004, we wrote-off
$0.5 million of costs in connection with retiring the remaining 5% of our
senior subordinated notes. 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. During 2004, we paid-off one of our Industrial Revenue Bonds for $10.0
million. 11




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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 $9.5 million debt from our balance sheet. H. 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. During 2004,
$12.5 million of dividends have been accrued. In accordance with this
statement, the prior period financial statements have not been reclassified. I. 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 December 1 of each fiscal year. The components of the costs
are as follows (in thousands of dollars): Three Months
    
    Nine MonthsEnded August 31,
    
    Ended August 31,2003
    
    2004
    
    2003
    
    2004Pension BenefitsService
cost
    
    $
    970
    
    
    $
    1,091
    
    
    $
    2,910
    
    
    $
    3,117Interest
cost
    
    
    3,820
    
    
    
    3,787
    
    
    
    11,460
    
    
    
    11,237Expected return on plan
assets
    
    
    (4,942
    )
    
    
    (5,437
    )
    
    
    (14,826
    )
    
    
    (15,977
    )Recognized actuarial
loss
    
    
    584
    
    
    
    503
    
    
    
    1,522
    
    
    
    1,531Net amortization and
deferral
    
    
    (27
    )
    
    
    (27
    )
    
    
    (81
    )
    
    
    (81
    )Net periodic pension cost
(income)
    
    
    405
    
    
    
    (83
    )
    
    
    985
    
    
    
    (173
    )Special termination
benefits
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    Effect of the SERP
termination
    
    
    (1,553
    )
    
    
    
    
    
    
    (1,553
    )
    
    
    Total income from providing pension
benefits
    
    $
    (1,148
    )
    
    $
    (83
    )
    
    $
    (468
    )
    
    $
    (173
    )
 Three Months
    
    Nine MonthsEnded August 31,
    
    Ended August 31,2003
    
    2004
    
    2003
    
    2004Postretirement BenefitsService
cost
    
    $
    11
    
    
    $
    29
    
    
    $
    243
    
    
    $
    53Interest
cost
    
    
    193
    
    
    
    76
    
    
    
    891
    
    
    
    474Recognized actuarial
loss
    
    
    61
    
    
    
    84
    
    
    
    81
    
    
    
    190Net amortization and
deferral
    
    
    (159
    )
    
    
    (351
    )
    
    
    (159
    )
    
    
    (679
    )Net periodic
postretirement cost
(income)
    
    $
    106
    
    
    $
    (162
    )
    
    $
    1,056
    
    
    $
    38
 12




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##### Table of Contents



As discussed in our Form 10-K for the year ended November 20, 2003, we are
continuing to monitor the funded status of our pension plans. Based on the
decline this year in benchmark interest rates used to calculate pension
liabilities, and the current pension asset values, it is likely that as of
November 30, 2004, when we remeasure our pension obligations, we will need to
write-off substantially all of our prepaid pension asset which was $59.3
million as of August 31, 2004, and record an additional minimum pension
liability for the unfunded amount by a non-cash charge to other comprehensive
income (OCI), resulting in an increased deficit in our shareholders equity.
Any write-off of our prepaid pension asset will not have any impact on our
covenant compliance. J. LEGAL MATTERS In the third quarter of 2003, we recorded a $2.8 million gain related to a
final settlement with our insurance carrier on a fire that occurred during the
third quarter of 2001. In addition, 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. In addition, during the third quarter of
2004, we settled a lawsuit related to assets which were destroyed in the fire
for which a settlement gain was recorded in 2003. 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. In October 2004, the court certified a
settlement class and the class action settlement became final. 13




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##### Table of Contents



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. 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. K. 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 nine month periods ended August 31, 2003
and 2004 (in thousands of dollars). 14




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##### Table of Contents



Three Months Ended
    
    Nine Months EndedAugust 31,
    
    August 31,2003
    
    2004
    
    2003
    
    2004Net SalesHillsdale
    
    $
    74,660
    
    
    $
    76,050
    
    
    $
    239,597
    
    
    $
    234,738Wolverine
    
    
    22,957
    
    
    
    27,345
    
    
    
    66,864
    
    
    
    79,499Automotive Business
Unit
    
    
    97,617
    
    
    
    103,395
    
    
    
    306,461
    
    
    
    314,237Power
Group
    
    
    38,047
    
    
    
    45,847
    
    
    
    104,187
    
    
    
    129,967Specialty Materials
Group
    
    
    6,553
    
    
    
    5,599
    
    
    
    20,996
    
    
    
    14,574Pharmaceutical Services
    
    
    1,407
    
    
    
    3,172
    
    
    
    6,690
    
    
    
    9,009Technologies Business
Unit
    
    
    46,007
    
    
    
    54,618
    
    
    
    131,873
    
    
    
    153,550Filtration and Minerals
Business Unit
    
    
    19,387
    
    
    
    21,043
    
    
    
    58,058
    
    
    
    61,439$
    163,011
    
    
    $
    179,056
    
    
    $
    496,392
    
    
    $
    529,226Operating Income (Loss)Hillsdale
    
    $
    605
    
    
    $
    (1,299
    )
    
    $
    5,184
    
    
    $
    788Wolverine
    
    
    3,647
    
    
    
    3,246
    
    
    
    10,981
    
    
    
    12,125Automotive Business
Unit
    
    
    4,252
    
    
    
    1,947
    
    
    
    16,165
    
    
    
    12,913Power
Group
    
    
    3,386
    
    
    
    4,025
    
    
    
    20,358
    
    
    
    15,432Specialty Materials
Group
    
    
    (312
    )
    
    
    1,487
    
    
    
    3,963
    
    
    
    4,248Pharmaceutical
Services
    
    
    2,674
    
    
    
    144
    
    
    
    2,631
    
    
    
    946Technologies Business
Unit
    
    
    5,748
    
    
    
    5,656
    
    
    
    26,952
    
    
    
    20,626Filtration and Minerals
Business Unit
    
    
    1,929
    
    
    
    1,149
    
    
    
    3,439
    
    
    
    3,608Corporate/
Intersegment
    
    
    805
    
    
    
    (1,792
    )
    
    
    (3,258
    )
    
    
    (7,942
    )$
    12,734
    
    
    $
    6,960
    
    
    $
    43,298
    
    
    $
    29,205Depreciation and AmortizationHillsdale
    
    $
    6,912
    
    
    $
    5,901
    
    
    $
    21,480
    
    
    $
    17,634Wolverine
    
    
    1,347
    
    
    
    1,133
    
    
    
    4,052
    
    
    
    3,415Automotive Business
Unit
    
    
    8,259
    
    
    
    7,034
    
    
    
    25,532
    
    
    
    21,049Power
Group
    
    
    1,121
    
    
    
    1,076
    
    
    
    3,070
    
    
    
    2,742Specialty Materials
Group
    
    
    2,386
    
    
    
    174
    
    
    
    2,894
    
    
    
    537Pharmaceutical
Services
    
    
    205
    
    
    
    250
    
    
    
    651
    
    
    
    749Technologies Business
Unit
    
    
    3,712
    
    
    
    1,500
    
    
    
    6,615
    
    
    
    4,028Filtration and Minerals
Business Unit
    
    
    1,276
    
    
    
    969
    
    
    
    3,802
    
    
    
    3,316Corporate, net of
allocations
    
    
    (569
    )
    
    
    364
    
    
    
    (1,421
    )
    
    
    1,357$
    12,678
    
    
    $
    9,867
    
    
    $
    34,528
    
    
    $
    29,750
 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
    
    
    58,891
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,891Other Assets,
net
    
    
    11,366
    
    
    
    2,472
    
    
    
    23,809
    
    
    
    24,190
    
    
    
    (28,321
    )
    
    
    33,516$
    554,569
    
    
    $
    70,594
    
    
    $
    342,925
    
    
    $
    129,144
    
    
    $
    (431,694
    )
    
    $
    665,538LIABILITIES 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
    
    
    9,651
    
    
    
    
    
    
    
    
    
    
    
    1,998
    
    
    
    
    
    
    
    11,649Preferred Stock
    
    
    
    
    
    
    154,416
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    154,416515,136
    
    
    
    154,416
    
    
    
    81,442
    
    
    
    46,606
    
    
    
    (41,855
    )
    
    
    755,745Intercompany 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
    )$
    554,569
    
    
    $
    70,594
    
    
    $
    342,925
    
    
    $
    129,144
    
    
    $
    (431,694
    )
    
    $
    665,538
 16




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##### Table of Contents



EAGLEPICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEETS
AS OF AUGUST 31, 2004
(in thousands of dollars) GuarantorsEaglePicher
    
    Subsidiary
    
    Non-GuarantorsIssuer
    
    Holdings, Inc.
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    TotalASSETSCurrent Assets:Cash and cash equivalents
    
    $
    6,027
    
    
    $
    1
    
    
    $
    869
    
    
    $
    7,401
    
    
    $
    
    
    
    $
    14,298Receivables and retained interest, net
    
    
    48,759
    
    
    
    
    
    
    
    4,672
    
    
    
    27,170
    
    
    
    
    
    
    
    80,601Costs and estimated earnings in excess of billings
    
    
    
    
    
    
    
    
    
    
    30,569
    
    
    
    14,411
    
    
    
    
    
    
    
    44,980Intercompany accounts receivable
    
    
    3,926
    
    
    
    
    
    
    
    9,645
    
    
    
    1,514
    
    
    
    (15,085
    )
    
    
    Inventories
    
    
    7,619
    
    
    
    
    
    
    
    43,798
    
    
    
    18,411
    
    
    
    (3,468
    )
    
    
    66,360Prepaid expenses and other assets
    
    
    2,329
    
    
    
    
    
    
    
    4,739
    
    
    
    5,998
    
    
    
    
    
    
    
    13,066Deferred income taxes
    
    
    8,526
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,52677,186
    
    
    
    1
    
    
    
    94,292
    
    
    
    74,905
    
    
    
    (18,553
    )
    
    
    227,831Property, Plant and Equipment, net
    
    
    21,198
    
    
    
    
    
    
    
    105,409
    
    
    
    30,139
    
    
    
    
    
    
    
    156,746Investment in Subsidiaries
    
    
    321,301
    
    
    
    74,717
    
    
    
    28,793
    
    
    
    
    
    
    
    (424,811
    )
    
    
    Goodwill
    
    
    37,339
    
    
    
    
    
    
    
    104,687
    
    
    
    19,651
    
    
    
    
    
    
    
    161,677Prepaid Pension
    
    
    59,277
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59,277Other Assets, net
    
    
    23,861
    
    
    
    2,028
    
    
    
    22,855
    
    
    
    35,110
    
    
    
    (43,165
    )
    
    
    40,689$
    540,162
    
    
    $
    76,746
    
    
    $
    356,036
    
    
    $
    159,805
    
    
    $
    (486,529
    )
    
    $
    646,220LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current Liabilities:Accounts payable
    
    $
    19,561
    
    
    $
    
    
    
    $
    53,265
    
    
    $
    14,338
    
    
    $
    
    
    
    $
    87,164Intercompany accounts payable
    
    
    
    
    
    
    
    
    
    
    1,513
    
    
    
    13,572
    
    
    
    (15,085
    )
    
    
    Current portion of long-term debt
    
    
    3,246
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,246Other accrued liabilities
    
    
    26,301
    
    
    
    
    
    
    
    22,778
    
    
    
    9,990
    
    
    
    
    
    
    
    59,06949,108
    
    
    
    
    
    
    
    77,556
    
    
    
    37,900
    
    
    
    (15,085
    )
    
    
    149,479Long-term Debt, net of current portion
    
    
    417,707
    
    
    
    
    
    
    
    4,165
    
    
    
    15,178
    
    
    
    (44,662
    )
    
    
    392,388Postretirement Benefits Other Than Pensions
    
    
    16,874
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,874Other Long-term Liabilities
    
    
    8,931
    
    
    
    
    
    
    
    
    
    
    
    8,107
    
    
    
    
    
    
    
    17,038Preferred Stock
    
    
    
    
    
    
    166,921
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    166,921492,620
    
    
    
    166,921
    
    
    
    81,721
    
    
    
    61,185
    
    
    
    (59,747
    )
    
    
    742,700Intercompany Accounts
    
    
    (216,399
    )
    
    
    10,794
    
    
    
    166,200
    
    
    
    42,515
    
    
    
    (3,110
    )
    
    
    Shareholders Equity (Deficit)
    
    
    263,941
    
    
    
    (100,969
    )
    
    
    108,115
    
    
    
    56,105
    
    
    
    (423,672
    )
    
    
    (96,480
    )$
    540,162
    
    
    $
    76,746
    
    
    $
    356,036
    
    
    $
    159,805
    
    
    $
    (486,529
    )
    
    $
    646,220
 17




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##### Table of Contents



EAGLEPICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS)
THREE MONTHS ENDED AUGUST 31, 2003
(in thousands of dollars) GuarantorsEaglePicher
    
    Subsidiary
    
    Non-GuarantorsIssuer
    
    Holdings, Inc.
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    TotalNet Sales:Customers
    
    $
    13,680
    
    
    $
    
    
    
    $
    117,848
    
    
    $
    31,483
    
    
    $
    
    
    
    $
    163,011Intercompany
    
    
    4,495
    
    
    
    
    
    
    
    4,242
    
    
    
    754
    
    
    
    (9,491
    )
    
    
    18,175
    
    
    
    
    
    
    
    122,090
    
    
    
    32,237
    
    
    
    (9,491
    )
    
    
    163,011Operating Costs and Expenses:Cost of products sold (exclusive of depreciation)
    
    
    11,139
    
    
    
    
    
    
    
    97,725
    
    
    
    25,867
    
    
    
    (9,973
    )
    
    
    124,758Selling and administrative
    
    
    4,829
    
    
    
    1
    
    
    
    9,141
    
    
    
    1,644
    
    
    
    
    
    
    
    15,615Intercompany charges
    
    
    (1,516
    )
    
    
    
    
    
    
    1,463
    
    
    
    53
    
    
    
    
    
    
    
    Insurance related losses (gains)
    
    
    
    
    
    
    
    
    
    
    (2,774
    )
    
    
    
    
    
    
    
    
    
    
    (2,774
    )Depreciation and
amortization
    
    
    617
    
    
    
    
    
    
    
    10,640
    
    
    
    1,421
    
    
    
    
    
    
    
    12,67815,069
    
    
    
    1
    
    
    
    116,195
    
    
    
    28,985
    
    
    
    (9,973
    )
    
    
    150,277Operating Income (Loss)
    
    
    3,106
    
    
    
    (1
    )
    
    
    5,895
    
    
    
    3,252
    
    
    
    482
    
    
    
    12,734Other Income (Expense):Interest (expense) income
    
    
    (8,579
    )
    
    
    (50
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,629
    )Other income (expense), net
    
    
    (881
    )
    
    
    
    
    
    
    116
    
    
    
    165
    
    
    
    
    
    
    
    (600
    )Write-off of deferred financing fees
    
    
    (6,327
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,327
    )Equity in earnings (losses) of
consolidated subsidiaries
    
    
    32,575
    
    
    
    (4,175
    )
    
    
    3,787
    
    
    
    (134
    )
    
    
    (32,053
    )
    
    
    Income (Loss) from Continuing Operations Before Taxes
    
    
    19,894
    
    
    
    (4,226
    )
    
    
    9,798
    
    
    
    3,283
    
    
    
    (31,571
    )
    
    
    (2,822
    )Income Taxes
    
    
    (191
    )
    
    
    
    
    
    
    
    
    
    
    (613
    )
    
    
    
    
    
    
    (804
    )Income (Loss) From Continuing Operations
    
    
    19,703
    
    
    
    (4,226
    )
    
    
    9,798
    
    
    
    2,670
    
    
    
    (31,571
    )
    
    
    (3,626
    )Discontinued Operations
    
    
    
    
    
    
    
    
    
    
    151
    
    
    
    (751
    )
    
    
    
    
    
    
    (600
    )Net Income (Loss)
    
    $
    19,703
    
    
    $
    (4,226
    )
    
    $
    9,949
    
    
    $
    1,919
    
    
    $
    (31,571
    )
    
    $
    (4,226
    )
 18




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##### Table of Contents



EAGLEPICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS)
THREE MONTHS ENDED AUGUST 31, 2004
(in thousands of dollars) GuarantorsEaglePicher
    
    Subsidiary
    
    Non-GuarantorsIssuer
    
    Holdings, Inc.
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    TotalNet Sales:Customers
    
    $
    16,489
    
    
    $
    
    
    
    $
    123,293
    
    
    $
    39,274
    
    
    $
    
    
    
    $
    179,056Intercompany
    
    
    7,787
    
    
    
    
    
    
    
    4,920
    
    
    
    782
    
    
    
    (13,489
    )
    
    $
    24,276
    
    
    
    
    
    
    
    128,213
    
    
    
    40,056
    
    
    
    (13,489
    )
    
    
    179,056Operating Costs and Expenses:Cost of products sold (exclusive of depreciation)
    
    
    16,707
    
    
    
    
    
    
    
    105,186
    
    
    
    35,593
    
    
    
    (12,118
    )
    
    
    145,368Selling and administrative
    
    
    6,293
    
    
    
    
    
    
    
    6,553
    
    
    
    3,001
    
    
    
    
    
    
    
    15,847Intercompany charges
    
    
    (1,689
    )
    
    
    
    
    
    
    1,585
    
    
    
    104
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    1,305
    
    
    
    
    
    
    
    7,436
    
    
    
    1,126
    
    
    
    
    
    
    
    9,867Insurance related loss
    
    
    
    
    
    
    
    
    
    
    405
    
    
    
    
    
    
    
    
    
    
    
    405Loss from divestitures
    
    
    609
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60923,225
    
    
    
    
    
    
    
    121,165
    
    
    
    39,824
    
    
    
    (12,118
    )
    
    
    172,096Operating Income (Loss)
    
    
    1,051
    
    
    
    
    
    
    
    7,048
    
    
    
    232
    
    
    
    (1,371
    )
    
    
    6,960Other Income (Expense):Interest (expense) income
    
    
    (9,832
    )
    
    
    (149
    )
    
    
    850
    
    
    
    
    
    
    
    
    
    
    
    (9,131
    )Preferred stock dividends accrued
    
    
    
    
    
    
    (4,167
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,167
    )Other income (expense), net
    
    
    354
    
    
    
    (3
    )
    
    
    431
    
    
    
    (262
    )
    
    
    
    
    
    
    520Write off of Deferred financing costs
    
    
    (492
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (492
    )Equity in earnings (losses) of
consolidated subsidiaries
    
    
    11,682
    
    
    
    6,598
    
    
    
    6,676
    
    
    
    
    
    
    
    (24,956
    )
    
    
    Income (Loss) from Continuing
Operations Before Taxes
    
    
    2,763
    
    
    
    2,279
    
    
    
    15,005
    
    
    
    (30
    )
    
    
    (26,327
    )
    
    
    (6,310
    )Income Taxes
    
    
    (571
    )
    
    
    
    
    
    
    
    
    
    
    2,111
    
    
    
    
    
    
    
    1,540Income (Loss) from Continuing Operations
    
    
    3,334
    
    
    
    2,279
    
    
    
    15,005
    
    
    
    (2,141
    )
    
    
    (26,327
    )
    
    
    (7,850
    )Discontinued Operations
    
    
    
    
    
    
    
    
    
    
    502
    
    
    
    
    
    
    
    
    
    
    
    502Net Income (Loss)
    
    $
    3,334
    
    
    $
    2,279
    
    
    $
    15,507
    
    
    $
    (2,141
    )
    
    $
    (26,327
    )
    
    $
    (7,348
    )
 19




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##### Table of Contents



EAGLEPICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS)
NINE MONTHS ENDED AUGUST 31, 2003
(in thousands of dollars) GuarantorsEaglePicher
    
    Subsidiary
    
    Non-GuarantorsIssuer
    
    Holdings, Inc.
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    TotalNet Sales:Customers
    
    $
    40,606
    
    
    $
    
    
    
    $
    370,956
    
    
    $
    84,830
    
    
    $
    
    
    
    $
    496,392Intercompany
    
    
    15,351
    
    
    
    
    
    
    
    12,656
    
    
    
    2,095
    
    
    
    (30,102
    )
    
    
    55,957
    
    
    
    
    
    
    
    383,612
    
    
    
    86,925
    
    
    
    (30,102
    )
    
    
    496,392Operating Costs and Expenses:Cost of products sold (exclusive of depreciation)
    
    
    34,788
    
    
    
    
    
    
    
    305,871
    
    
    
    70,683
    
    
    
    (30,102
    )
    
    
    381,240Selling and administrative
    
    
    17,989
    
    
    
    4
    
    
    
    22,828
    
    
    
    5,015
    
    
    
    
    
    
    
    45,836Intercompany charges
    
    
    (4,969
    )
    
    
    
    
    
    
    4,796
    
    
    
    173
    
    
    
    
    
    
    
    Insurance related losses (gains)
    
    
    724
    
    
    
    
    
    
    
    (9,234
    )
    
    
    
    
    
    
    
    
    
    
    (8,510
    )Depreciation and amortization
    
    
    2,094
    
    
    
    
    
    
    
    28,478
    
    
    
    3,956
    
    
    
    
    
    
    
    34,52850,626
    
    
    
    4
    
    
    
    352,739
    
    
    
    79,827
    
    
    
    (30,102
    )
    
    
    453,094Operating Income (Loss)
    
    
    5,331
    
    
    
    (4
    )
    
    
    30,873
    
    
    
    7,098
    
    
    
    
    
    
    
    43,298Other Income (Expense):Interest (expense) income
    
    
    (24,110
    )
    
    
    (50
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,160
    )Other income (expense), net
    
    
    (1,619
    )
    
    
    
    
    
    
    1,064
    
    
    
    28
    
    
    
    
    
    
    
    (527
    )Write-off of Deferred Financing Fees
    
    
    (6,327
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,327
    )Equity in earnings (losses) of
consolidated subsidiaries
    
    
    34,046
    
    
    
    4,682
    
    
    
    4,960
    
    
    
    (134
    )
    
    
    (43,554
    )
    
    
    Income (Loss) from Continuing Operations Before
Taxes
    
    
    7,321
    
    
    
    4,628
    
    
    
    36,897
    
    
    
    6,992
    
    
    
    (43,554
    )
    
    
    12,284Income Taxes
    
    
    (399
    )
    
    
    
    
    
    
    (46
    )
    
    
    (2,405
    )
    
    
    
    
    
    
    (2,850
    )Income (Loss) From Continuing Operations
    
    
    6,922
    
    
    
    4,628
    
    
    
    36,851
    
    
    
    4,587
    
    
    
    (43,554
    )
    
    
    9,434Discontinued Operations
    
    
    
    
    
    
    
    
    
    
    (646
    )
    
    
    (4,160
    )
    
    
    
    
    
    
    (4,806
    )Net Income (Loss)
    
    $
    6,922
    
    
    $
    4,628
    
    
    $
    36,205
    
    
    $
    427
    
    
    $
    (43,554
    )
    
    $
    4,628
 20




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##### Table of Contents



EAGLEPICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS)
NINE MONTHS ENDED AUGUST 31, 2004
(in thousands of dollars) GuarantorsEaglePicher
    
    Subsidiary
    
    Non-GuarantorsIssuer
    
    Holdings, Inc.
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    TotalNet Sales:Customers
    
    $
    47,439
    
    
    $
    
    
    
    $
    373,791
    
    
    $
    107,996
    
    
    $
    
    
    
    $
    529,226Intercompany
    
    
    21,399
    
    
    
    
    
    
    
    13,150
    
    
    
    1,766
    
    
    
    (36,315
    )
    
    
    68,838
    
    
    
    
    
    
    
    386,941
    
    
    
    109,762
    
    
    
    (36,315
    )
    
    
    529,226Operating Costs and Expenses:Cost of products sold (exclusive of depreciation)
    
    
    46,115
    
    
    
    
    
    
    
    313,749
    
    
    
    91,816
    
    
    
    (34,944
    )
    
    
    416,736Selling and administrative
    
    
    18,903
    
    
    
    
    
    
    
    22,980
    
    
    
    8,038
    
    
    
    
    
    
    
    49,921Intercompany charges
    
    
    (5,169
    )
    
    
    
    
    
    
    4,809
    
    
    
    360
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    4,176
    
    
    
    
    
    
    
    22,262
    
    
    
    3,312
    
    
    
    
    
    
    
    29,750Insurance related loss
    
    
    
    
    
    
    
    
    
    
    405
    
    
    
    
    
    
    
    
    
    
    
    405Loss from divestitures
    
    
    3,209
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,20967,234
    
    
    
    
    
    
    
    364,205
    
    
    
    103,526
    
    
    
    (34,944
    )
    
    
    500,021Operating Income (Loss)
    
    
    1,604
    
    
    
    
    
    
    
    22,736
    
    
    
    6,236
    
    
    
    (1,371
    )
    
    
    29,205Other Income (Expense):Interest (expense) income
    
    
    (27,321
    )
    
    
    (445
    )
    
    
    825
    
    
    
    
    
    
    
    
    
    
    
    (26,941
    )Preferred stock dividends accrued
    
    
    
    
    
    
    (12,505
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,505
    )Other income (expense), net
    
    
    (186
    )
    
    
    (3
    )
    
    
    1,279
    
    
    
    (283
    )
    
    
    
    
    
    
    807Write off of Deferred financing costs
    
    
    (492
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (492
    )Equity in earnings (losses) of
consolidated subsidiaries
    
    
    32,838
    
    
    
    6,598
    
    
    
    (1,660
    )
    
    
    
    
    
    
    (37,776
    )
    
    
    Income (Loss) from Continuing
Operations Before Taxes
    
    
    6,443
    
    
    
    (6,355
    )
    
    
    23,180
    
    
    
    5,953
    
    
    
    (39,147
    )
    
    
    (9,926
    )Income Taxes
    
    
    (510
    )
    
    
    
    
    
    
    
    
    
    
    3,316
    
    
    
    
    
    
    
    2,806Income (Loss) from Continuing Operations
    
    
    6,953
    
    
    
    (6,355
    )
    
    
    23,180
    
    
    
    2,637
    
    
    
    (39,147
    )
    
    
    (12,732
    )Discontinued Operations
    
    
    (355
    )
    
    
    
    
    
    
    5,361
    
    
    
    
    
    
    
    
    
    
    
    5,006Net Income (Loss)
    
    $
    6,598
    
    
    $
    (6,355
    )
    
    $
    28,541
    
    
    $
    2,637
    
    
    $
    (39,147
    )
    
    $
    (7,726
    )
 21




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##### Table of Contents



EAGLEPICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED AUGUST 31, 2003
(in thousands of dollars) GuarantorsEaglePicher
    
    Subsidiary
    
    Non-GuarantorsIssuer
    
    Holdings, Inc.
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    TotalCASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    6,922
    
    
    $
    4,628
    
    
    $
    36,205
    
    
    $
    427
    
    
    $
    (43,554
    )
    
    $
    4,628Adjustments to reconcile net income (loss) to cash provided
by (used in) operating activities:Equity in (earnings) loss of consolidated
subsidiaries
    
    
    (34,046
    )
    
    
    (4,682
    )
    
    
    (4,960
    )
    
    
    134
    
    
    
    43,554
    
    
    
    Depreciation and amortization
    
    
    4,380
    
    
    
    
    
    
    
    28,478
    
    
    
    3,956
    
    
    
    
    
    
    
    36,814Provision for discontinued operations
    
    
    
    
    
    
    
    
    
    
    (484
    )
    
    
    3,729
    
    
    
    
    
    
    
    3,245Insurance related gain
    
    
    
    
    
    
    
    
    
    
    (3,312
    )
    
    
    
    
    
    
    
    
    
    
    (3,312
    )Write-off of Deferred Financing Costs
    
    
    6,327
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,327Changes in assets and liabilities, net of effect
of non-cash items
    
    
    (21,504
    )
    
    
    (10,711
    )
    
    
    (75,789
    )
    
    
    (22,617
    )
    
    
    27,010
    
    
    
    (103,611
    )(37,921
    )
    
    
    (10,765
    )
    
    
    (19,862
    )
    
    
    (14,371
    )
    
    
    27,010
    
    
    
    (55,909
    )CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (1,815
    )
    
    
    
    
    
    
    (5,510
    )
    
    
    (3,305
    )
    
    
    
    
    
    
    (10,630
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    
    
    
    
    1,068
    
    
    
    
    
    
    
    
    
    
    
    1,068(1,815
    )
    
    
    
    
    
    
    (4,442
    )
    
    
    (3,305
    )
    
    
    
    
    
    
    (9,562
    )CASH FLOWS FROM FINANCING ACTIVITIES:Reduction of long-term debt
    
    
    (226,425
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (226,425
    )Net borrowings (repayments) under revolving
credit agreements
    
    
    (121,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (121,500
    )Proceeds from the New Credit Agreement and issuance of Senior
Unsecured Notes
    
    
    398,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    398,000Payment of deferred financing costs
    
    
    (9,708
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,708
    )Proceeds from issuance of treasury stock
    
    
    
    
    
    
    903
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90340,367
    
    
    
    903
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,270Net cash provided by discontinued operations
    
    
    
    
    
    
    
    
    
    
    14,810
    
    
    
    (874
    )
    
    
    
    
    
    
    13,936Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,724
    
    
    
    
    
    
    
    2,724Net increase (decrease) in cash and
cash equivalents
    
    
    631
    
    
    
    (9,862
    )
    
    
    (9,494
    )
    
    
    (15,826
    )
    
    
    27,010
    
    
    
    (7,541
    )Intercompany accounts
    
    
    (15,708
    )
    
    
    9,862
    
    
    
    13,095
    
    
    
    20,581
    
    
    
    (27,830
    )
    
    
    Cash and cash equivalents,
beginning of period
    
    
    27,694
    
    
    
    1
    
    
    
    (4,895
    )
    
    
    7,902
    
    
    
    820
    
    
    
    31,522Cash and cash equivalents,
end of period
    
    $
    12,617
    
    
    $
    1
    
    
    $
    (1,294
    )
    
    $
    12,657
    
    
    $
    
    
    
    $
    23,981
 22




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##### Table of Contents



EAGLEPICHER HOLDINGS, INC
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED AUGUST 31, 2004
(in thousands of dollars) GuarantorsEaglePicher
    
    Subsidiary
    
    Non-GuarantorsIssuer
    
    Holdings, Inc.
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    TotalCASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    6,598
    
    
    $
    (6,355
    )
    
    $
    28,541
    
    
    $
    2,637
    
    
    $
    (39,147
    )
    
    $
    (7,726
    )Adjustments to reconcile net income (loss) to cash provided
by (used in) operating activities:Equity in (earnings) loss of consolidated
subsidiaries
    
    
    (32,838
    )
    
    
    (6,598
    )
    
    
    1,660
    
    
    
    
    
    
    
    37,776
    
    
    
    Depreciation and amortization
    
    
    5,264
    
    
    
    444
    
    
    
    22,262
    
    
    
    3,310
    
    
    
    
    
    
    
    31,280Preferred stock dividends accrued
    
    
    
    
    
    
    12,505
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,505Loss (gain) on disposal of discontinued operations
    
    
    355
    
    
    
    
    
    
    
    (5,414
    )
    
    
    
    
    
    
    
    
    
    
    (5,059
    )Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,951
    
    
    
    
    
    
    
    1,951Insurance related loss
    
    
    
    
    
    
    
    
    
    
    405
    
    
    
    
    
    
    
    
    
    
    
    405Write-off of deferred financing costs
    
    
    492
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    492Loss from divestitures
    
    
    609
    
    
    

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    609Changes in
assets and liabilities, net of effect of non-cash items
    
    
    (85
    )
    
    
    
    
    
    
    (27,206
    )
    
    
    (7,896
    )
    
    
    1,367
    
    
    
    (33,820
    )(19,605
    )
    
    
    (4
    )
    
    
    20,248
    
    
    
    2
    
    
    
    (4
    )
    
    
    637CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from sales of property and equipment and other
    
    
    
    
    
    
    
    
    
    
    474
    
    
    
    
    
    
    
    
    
    
    
    474Capital Expenditures
    
    
    (2,882
    )
    
    
    
    
    
    
    (23,470
    )
    
    
    (7,981
    )
    
    
    
    
    
    
    (34,333
    )Kokam investment, license and other costs
    
    
    
    
    
    
    
    
    
    
    (5,671
    )
    
    
    (5,280
    )
    
    
    
    
    
    
    (10,951
    )Acquisition of majority interest in EaglePicher Horizon Battery LLC
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,500
    )
    
    
    
    
    
    
    (3,500
    )(2,882
    )
    
    
    
    
    
    
    (28,667
    )
    
    
    (16,761
    )
    
    
    
    
    
    
    (48,310
    )CASH FLOWS FROM FINANCING ACTIVITIES:Reduction of long-term debt
    
    
    (26,337
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,337
    )(26,337
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,337
    )Cash provided by discontinued operations
    
    
    
    
    
    
    
    
    
    
    21,099
    
    
    
    
    
    
    
    
    
    

    
    21,099Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (111
    )
    
    
    
    
    
    
    (111
    )Net increase (decrease) in cash and
cash equivalents
    
    
    (48,824
    )
    
    
    (4
    )
    
    
    12,680
    
    
    
    (16,870
    )
    
    
    (4
    )
    
    
    (53,022
    )Intercompany accounts
    
    
    2,373
    
    
    
    4
    
    
    
    (9,079
    )
    
    
    6,698
    
    
    
    4
    
    
    
    Cash and cash equivalents,
beginning of period
    
    
    52,478
    
    
    
    1
    
    
    
    (2,732
    )
    
    
    17,573
    
    
    
    
    
    
    
    67,320Cash and cash equivalents,
end of period
    
    $
    6,027
    
    
    $
    1
    
    
    $
    869
    
    
    $
    7,401
    
    
    $
    
    
    
    $
    14,298
 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 This Form 10-Q contains statements that, to the extent that they are not
recitations of historical fact, constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, section
21E of the Securities Exchange Act of 1934. Such forward-looking information
involves risks and uncertainties that could cause actual results to differ
materially from those expressed in any such forward-looking statements. These
risks and uncertainties include, but are not limited to: our ability to
maintain existing relationships with customers, demand for our products, our
ability to successfully implement productivity improvements and/or cost
reduction initiatives, including the performance of automated equipment,
accuracy of our estimates to complete contracts on a percentage of completion
method of accounting, our ability to source raw materials and components from
overseas suppliers, accuracy of our reserves for losses, our ability to
consolidate manufacturing plants, our ability to develop, market and sell new
products, our ability to obtain raw materials especially certain grades of
steel and natural gas on an economic basis, increased government regulation or
changing regulatory policies resulting in higher costs and/or restricting
output, increased price competition, currency fluctuations, general economic
conditions, acquisitions and divestitures, technological developments and
changes in the competitive environment in which we operate, as well as factors
discussed in our filings with the U.S. Securities and Exchange Commission. We
undertake no duty to update the forward-looking statements in this Form 10-Q
and you should not view the statements made as accurate beyond the date of this
Form 10-Q. 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, other than Pension Benefit Assumptions which are augmented by
the disclosure below. Pension Benefit Plans Assumptions As discussed in our Form 10-K for the year ended November 20, 2003, we are
continuing to monitor the funded status of our pension plans. Based on the
decline this year in benchmark interest rates used to calculate pension
liabilities, and the current pension asset values, it is likely that as of
November 30, 2004, when we remeasure our pension obligations, we will need to
write-off substantially all of our prepaid pension asset which was $59.3
million as of August 31, 2004, and record an additional minimum pension
liability for the unfunded amount by a non-cash charge to other comprehensive
income (OCI), resulting in an increased deficit in our shareholders equity.
Any write-off of our prepaid pension asset will not have any impact on our
covenant compliance. The write-off to OCI of the prepaid pension asset and the accrual for the
pension liability are all non-cash items that are required under United States
generally accepted accounting principles (GAAP). The accounting treatment
under GAAP is different from the funding requirements mandated by the Employee
Retirement Income Security Act of 1974 (ERISA). Accordingly, we do not
expect these non-cash charges to OCI to impact the need for potential cash
contributions to our pension plans. Under the pension funding assumptions
currently being evaluated, we do not anticipate a requirement for any cash
contributions during the next several years. However, at our discretion, we
may make voluntary contributions from time to time, based on our cash position,
deductibility limits, and overall financial status, and the potential to
further strengthen the funded status of the plans over the long-term. 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): 24




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##### Table of Contents



Three Months Ended August 31,2003
    
    2004
    
    Variance
    
    %Net SalesHillsdale
    
    $
    74,660
    
    
    $
    76,050
    
    
    $
    1,390
    
    
    
    1.9
    %Wolverine
    
    
    22,957
    
    
    
    27,345
    
    
    
    4,388
    
    
    
    19.1
    %Automotive Business Unit
    
    
    97,617
    
    
    
    103,395
    
    
    
    5,778
    
    
    
    5.9
    %Power Group
    
    
    38,047
    
    
    
    45,847
    
    
    
    7,800
    
    
    
    20.5
    %Specialty Materials Group
    
    
    6,553
    
    
    
    5,599
    
    
    
    (954
    )
    
    
    (14.6
    %)Pharmaceutical Services
    
    
    1,407
    
    
    
    3,172
    
    
    
    1,765
    
    
    
    125.4
    %Technologies Business Unit
    
    
    46,007
    
    
    
    54,618
    
    
    
    8,611
    
    
    
    18.7
    %Filtration and Minerals Business Unit
    
    
    19,387
    
    
    
    21,043
    
    
    
    1,656
    
    
    
    8.5
    %$
    163,011
    
    
    $
    179,056
    
    
    $
    16,045
    
    
    
    9.8
    %Operating Income (Loss)Hillsdale
    
    $
    605
    
    
    $
    (1,299
    )
    
    $
    (1,904
    )
    
    
    N/AWolverine
    
    
    3,647
    
    
    
    3,246
    
    
    
    (401
    )
    
    
    (11.0
    %)Automotive Business Unit
    
    
    4,252
    
    
    
    1,947
    
    
    
    (2,305
    )
    
    
    (54.2
    %)Power Group
    
    
    3,386
    
    
    
    4,025
    
    
    
    639
    
    
    
    18.9
    %Specialty Materials Group
    
    
    (312
    )
    
    
    1,487
    
    
    
    1,799
    
    
    
    N/APharmaceutical Services
    
    
    2,674
    
    
    
    144
    
    
    
    (2,530
    )
    
    
    (94.6
    %)Technologies Business Unit
    
    
    5,748
    
    
    
    5,656
    
    
    
    (92
    )
    
    
    (1.6
    %)Filtration and Minerals Business Unit
    
    
    1,929
    
    
    
    1,149
    
    
    
    (780
    )
    
    
    (40.4
    %)Corporate/ Intersegment
    
    
    805
    
    
    
    (1,792
    )
    
    
    (2,597
    )
    
    
    N/A$
    12,734
    
    
    $
    6,960
    
    
    $
    (5,774
    )
    
    
    (45.3
    %)
 Nine Months Ended August 31,2003
    
    2004
    
    Variance
    
    %Net SalesHillsdale
    
    $
    239,597
    
    
    $
    234,738
    
    
    $
    (4,859
    )
    
    
    (2.0
    %)Wolverine
    
    
    66,864
    
    
    
    79,499
    
    
    
    12,635
    
    
    
    18.9
    %Automotive Business Unit
    
    
    306,461
    
    
    
    314,237
    
    
    
    7,776
    
    
    
    2.5
    %Power Group
    
    
    104,187
    
    
    
    129,967
    
    
    
    25,780
    
    
    
    24.7
    %Specialty Materials Group
    
    
    20,996
    
    
    
    14,574
    
    
    
    (6,422
    )
    
    
    (30.6
    %)Pharmaceutical Services
    
    
    6,690
    
    
    
    9,009
    
    
    
    2,319
    
    
    
    34.7
    %Technologies Business Unit
    
    
    131,873
    
    
    
    153,550
    
    
    
    21,677
    
    
    
    16.4
    %Filtration and Minerals Business
Unit
    
    
    58,058
    
    
    
    61,439
    
    
    
    3,381
    
    
    
    5.8
    %$
    496,392
    
    
    $
    529,226
    
    
    $
    32,834
    
    
    
    6.6
    %Operating Income (Loss)Hillsdale
    
    $
    5,184
    
    
    $
    788
    
    
    $
    (4,396
    )
    
    
    (84.8
    %)Wolverine
    
    
    10,981
    
    
    
    12,125
    
    
    
    1,144
    
    
    
    10.4
    %Automotive Business Unit
    
    
    16,165
    
    
    
    12,913
    
    
    
    (3,252
    )
    
    
    (20.1
    %)Power Group
    
    
    20,358
    
    
    
    15,432
    
    
    
    (4,926
    )
    
    
    (24.2
    %)Specialty Materials Group
    
    
    3,963
    
    
    
    4,248
    
    
    
    285
    
    
    
    7.2
    %Pharmaceutical Services
    
    
    2,631
    
    
    
    946
    
    
    
    (1,685
    )
    
    
    (64.0
    %)Technologies Business Unit
    
    
    26,952
    
    
    
    20,626
    
    
    
    (6,326
    )
    
    
    (23.5
    %)Filtration and Minerals Business Unit
    
    
    3,439
    
    
    
    3,608
    
    
    
    169
    
    
    
    4.9
    %Corporate/ Intersegment
    
    
    (3,258
    )
    
    
    (7,942
    )
    
    
    (4,684
    )
    
    
    (143.8
    %)$
    43,298
    
    
    $
    29,205
    
    
    $
    (14,093
    )
    
    
    (32.5
    %)
 25




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##### Table of Contents



Hillsdale Segment (Automotive Business Unit) Sales in our Hillsdale Segment increased $1.4 million, or 1.9%, to $76.1
million in the third quarter of 2004 from $74.7 million in the third quarter of
2003, and decreased $4.9 million, or 2.0%, to $234.7 million in the first nine
months of 2004 from $239.6 million in the first nine months of 2003. This
compares to an estimated decrease in North American automotive production
(excluding North American light truck production by foreign manufacturers) of
2.5% in the third quarter of 2004 compared to 2003, and 2.8% in the first nine
months of 2004 compared to 2003. The sales increase in the third quarter of
2004 was comprised of $2.0 million of higher volumes partially offset by $0.6
million, or 0.8%, of lower average selling prices. The sales decrease in the
first nine months of 2004 was comprised of $3.1 million, or 1.3%, of lower
average selling prices and $1.8 million of lower volumes. The volume changes were negatively impacted by the continued phase-out of
three specific contracts that reduced comparative third quarter sales by $2.1
million and the first nine months sales by $5.2 million. The prospective
(fourth quarter 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, which is a Ford transmission pump
program, we anticipate no further fourth quarter sales which will have a year
over year reduction of $4.8 million. Also, reductions in North American build
levels for models we source to Honda, Hillsdales largest customer, reduced
sales by $1.2 million in the third quarter of 2004 and $4.5 million in the
first nine months of 2004, and reduced production for Mitsubishi vehicles we
supply reduced sales by $1.6 million in the first half of 2004, with no impact
on third quarter sales. These decreases were offset by 2004 sales increases of
(a) a new technology transmission micro-filtration program to Ford of $1.6
million in the third quarter 2004, and $4.9 million in the first nine months of
2004, (b) an increase in sales of Allison transmission components of $1.0
million in the third quarter of 2004 and $2.8 million in the first nine months
of 2004, (c) increases in Daimler Chrysler dampers of $0.8 million in the third
quarter and $2.4 million in the first nine months of 2004, and (d) the launch
of two new General Motors dampers programs for the L4 and L5 engines which
increased sales by $0.6 million in the third quarter of 2004 and $2.0 million
in the first nine months of 2004. The remainder of the sales variance is
primarily due to the decreases in overall automotive builds. Also, a change in
status from a Tier 2 vendor (where we only bill value add work) to a Tier 1
vendor (where we also bill for materials at cost) increased sales by $1.2
million for the third quarter and first nine months of 2004 with no impact on
gross margins. Operating income in our Hillsdale Segment decreased $1.9 million to a loss
of $1.3 million in the third quarter of 2004 from income of $0.6 million in the
third quarter of 2003, and decreased $4.4 million, or 84.8%, to $0.8 million in
the first nine months of 2004 from $5.2 million in the first nine months of
2003. Earnings have been impacted throughout 2004 by the costs to consolidate
some of our U.S. production facilities and by the transition costs to establish
a China sourcing base. These initiatives have proved more difficult than
management anticipated and they have diluted management focus on remaining
plant operations. This has resulted in lower productivity growth for the year
in these plants, particularly in the second and third quarters of 2004, than we
have achieved in recent years. However, we believe these key strategic
initiatives will provide a more productive and competitive supply base to meet
the increasing pressure from customers for cost reductions. We are also
incurring higher steel costs that we believe will increasingly impact earnings
the balance of the year. To date, we have been unable to completely recover
these cost increases through surcharges to our customers. The decreases in operating income of $1.9 million in the third quarter of
2004 and $4.4 million in the first nine months of 2004 are primarily
attributable to the following:  a.
    
    The impact of lower average selling prices which reduced
operating income by $0.6 million in the third quarter of 2004 and
$3.1 million in the first nine months of 2004;b.
    
    Changes in volume which increased gross margins in the third
quarter of 2004 by $0.5 million but decreased them in the first nine
months of 2004 by $0.5 million;c.
    
    Restructuring costs of $2.0 million in the third quarter of
2004 and $3.4 million in the first nine months of 2004 to close two
U.S. production facilities and to establish a China sourcing base;d.
    
    Premium air freight and overtime costs of $1.2 million
incurred in the first half of 2004 due to capacity problems on an
Allison transmission components program; and partially offset bye.
    
    Improved operating income due to lower depreciation and
amortization costs of $1.0 million in the third quarter of 2004 and
$3.9 million in the first nine months of 2004 due to lower capital
spending in recent years. 26




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##### Table of Contents



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 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 $4.4 million, or 19.1%, to $27.4
million in the third quarter of 2004 from $23.0 million in the third quarter of
2003, and increased $12.6 million, or 18.9%, to $79.5 million in the first nine
months of 2004 from $66.9 million in the first nine months of 2003. Excluding
the impact of favorable foreign currency (approximately 40% of Wolverines
sales are in Europe), sales increased 16.5% in the third quarter of 2004 and
14.6% in the first nine months of 2004. These sales increases were due entirely
to volume gains, as pricing was essentially flat in both the third quarter of
2004 and the first nine 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 engine gasket sales have
lower margins due to the higher cost of the stainless steel commonly utilized
in this product offering. Operating income in our Wolverine Segment decreased $0.4 million, or
11.0%, to $3.2 million in the third quarter of 2004 from $3.6 million during
the third quarter of 2003, and increased $1.1 million, or 10.4%, to $12.1
million in the first nine months of 2004 from $11.0 million in the first nine
months of 2003. In the third quarter of 2004, the impact of higher volumes,
improved cost absorption, and favorable foreign currency was essentially offset
by a $1.0 million increase in steel prices, a $0.4 million inventory valuation
adjustment, and other increases in normal operating expenses, such as
manufacturing labor and healthcare costs. In addition to increased steel
costs, Wolverine is experiencing periodic difficulty in procuring adequate
sources of specific 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 nine 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 in the first nine months of 2004 include:  a.
    
    $1.7 million in increased steel costs;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;d.
    
    $0.4 million inventory valuation adjustment; ande.
    
    $1.2 million in increased manufacturing labor and healthcare
costs. Power Group Segment (Technologies Business Unit) Sales in our Power Group Segment increased $7.8 million, or 20.5%, to
$45.8 million in the third quarter of 2004 from $38.0 million in the third
quarter of 2003, and increased $25.8 million, or 24.7%, to $130.0 million in
the first nine months of 2004 from $104.2 million in the first nine months of
2003. These increases were primarily due to higher volumes. During the third quarter of 2004, the increases included $4.1 million in
missile battery sales, $1.2 million in batteries for mobile military
communications equipment, $1.1 million in space batteries, $0.7 million in
commercial battery sales, and $0.7 million, or 20%, in customer funded product
development contracts. The increase in customer 27




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##### Table of Contents



funded product development contracts is particularly important as they
represent a foundation for future production awards. During the first nine months of 2004, our defense and space battery sales
increased $22.3 million and our commercial battery sales increased $3.5
million. The increased defense and space volumes included $8.4 million in
missile battery sales, $5.2 million in sales of batteries for mobile military
communications equipment, $3.9 million in space batteries, and $4.8 million, or
66%, in customer funded product development contracts. Operating income in our Power Group Segment increased $0.6 million, or
18.9%, to $4.0 million in the third quarter of 2004 from $3.4 million in the
third quarter of 2003, and decreased $4.9 million, or 24.2%, to $15.5 million
in the first nine months of 2004 from $20.4 million in the first nine months of
2003. The decrease in the first nine months of 2004 is 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 increased operating income in the third quarter of 2004 is primarily
due to a $2.0 million of gross margin on additional sales volumes and favorable
pricing, partially offset by $1.2 million of start-up losses for EaglePicher
Horizon Batteries; The decrease in the first nine months of 2004 is 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.
    
    $4.2 million increase in margin on additional sales volume;c.
    
    $1.2 million related to favorable pricing;d.
    
    ($2.0) million related to start-up losses for EaglePicher
Horizon Batteries; ande.
    
    ($1.8) million increase in selling, general and
administrative expenses for consulting, severance, travel, legal,
and increased staffing. Productivity initiatives, primarily related to improved supply chain
management and automation of production process, during 2004 were essentially
offset by a reduced margin booking rate, under long-term contract accounting,
on a specific defense contract primarily due to additional labor costs to
support future growth on that contract as a result of the delay in the
implementation of automation, as well as start-up costs on our new Phoenix
manufacturing line. Specialty Materials Group Segment (Technologies Business Unit) Sales in our Specialty Materials Group Segment decreased $1.0 million, or
14.6%, to $5.6 million in the third quarter of 2004 from $6.6 million in the
third quarter of 2003, and decreased $6.4 million, or 30.6%, to $14.6 million
in the first nine months of 2004 from $21.0 million in the first nine months of
2003. These sales decreases were primarily due to exiting certain product
lines in 2003 ($1.0 million in the third quarter of 2003, and $3.5 million in
the first nine months of 2003), and in the first nine months of 2004, the
timing of shipment in our enriched Boron business to nuclear power plant
customers. In April 2004, we sold our Environmental Sciences & Technology division
within our Technologies Business Units Specialty Materials Group Segment for
cash, net of expenses, of approximately $21.7 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 income from
continuing operations. Operating income in our Specialty Materials Group Segment increased $1.8
million to income of $1.5 million in the third quarter of 2004 from a loss of
$0.3 million in the third quarter of 2003, and increased $0.2 million, or 7.2%,
to $4.2 million in the first nine months of 2004 from $4.0 million in the first
nine months of 2003. The increase in operating income in third quarter of 2004
and the first nine months of 2004 was due to $2.1 million of accelerated
depreciation expense recorded in the third quarter of 2003 for product lines
that were exited at that time. This was partially offset in both periods by
the impact of lower sales. 28




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##### Table of Contents



Pharmaceutical Services Segment (Technologies Business Unit) Sales in our Pharmaceutical Services Segment increased $1.8 million, or
125.4%, to $3.2 million in the third quarter of 2004 from $1.4 million in the
third quarter of 2003, and increased $2.3 million, or 34.7%, to $9.0 million in
the first nine months of 2004 from $6.7 million in the first nine months of
2003. These increases are primarily related to increased volumes. Operating income in our Pharmaceutical Services Segment decreased $2.5
million, or 94.6%, to $0.1 million in the third quarter of 2004 from $2.6
million in the third quarter of 2003, and decreased $1.7 million, or 64.0%, to
$0.9 million in the first nine months of 2004 from $2.6 million in the first
nine months of 2003. These decreases are primarily due to a $2.8 million
insurance gain recorded in third quarter of 2003 and the $0.4 million insurance
loss recorded in the third quarter of 2004, offset by increased volume and
favorable sales mix. Filtration and Minerals Segment (and Business Unit) Sales in our Filtration and Minerals Segment increased $1.7 million, or
8.5%, to $21.0 million in the third quarter of 2004 from $19.3 million in the
third quarter of 2003, and increased $3.4 million, or 5.8%, to $61.4 million in
the first nine months of 2004 from $58.0 million in the first nine months of
2003. These sales increases are primarily related to increased volumes 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, including increases in sales of low beer
soluble iron product used in the brewing industry. Operating income in our Filtration and Minerals Segment decreased $0.8
million, or 40.4%, to $1.1 million in the third quarter of 2004 from $1.9
million in the third quarter of 2003, and increased $0.2 million, or 4.9%, to
$3.6 million in the first nine months of 2004 from $3.4 million in the first
nine months of 2003. The decrease in the third quarter of 2004 was primarily
related to increased gross margin on the higher sales volumes which was more
than offset by $0.7 million of higher ore mining and fuel costs, as well as a
$0.6 million inventory valuation adjustment. This increase in the first nine
months of 2004 was primarily related to increased gross margin on the higher
sales volumes and favorable foreign currency, partially offset by $1.9 million
of higher ore mining and fuel costs, as well as a $0.6 million inventory
valuation adjustment. Corporate Segment Operating income (loss) in our Corporate Segment decreased $2.6 million to
a loss of $1.8 million in the third quarter of 2004 from income of $0.8 million
in the third quarter of 2003, and decreased $4.7 million, or 143.8%, to a loss
of $8.0 million in the first nine months of 2004 from $3.3 million in the first
nine months of 2003. These decreases are primarily due to (a) increased
actuarial determined expenses for pension and postretirement benefits, (b)
higher depreciation expense related to lower depreciation allocations to the
Operating Segments, and (c) increased Loss from Divestitures expense primarily
related to the $2.6 million first quarter of 2004 settlement of a warranty
claim. These higher expenses were partially offset by lower management bonus
expenses of $1.7 million in the third quarter of 2004 and $2.4 million in the
first nine months of 2004. Company Discussion Net Sales.Net sales increased $16.0 million, or 9.8%, to $179.1 million
in the third quarter of 2004 from $163.1 million in the third quarter of 2003,
and increased $32.8 million, or 6.6%, to $529.2 million in the first nine
months of 2004 from $496.4 million in the first nine months of 2003. The sales increase in the third quarter of 2004 was primarily driven by a
$7.8 million, or 20.5%, increase in our Technologies Business Units Power
Group Segment related to higher volumes in our defense and space businesses.
In addition, the increase was driven by a $4.4 million, or 19.1%, increase in
our Automotive Business Units Wolverine Segment primarily due to a 16.5%
volume increase, and a $1.7 million, or 8.5%, increase in our Filtration and
Minerals Segment. The sales increase in the first nine months of 2004 was
primarily driven by a $25.8 million, or 24.7%, increase in our Technologies
Business Units Power Group Segment related to higher volumes in our defense
and space businesses. In addition, the increase was driven by a $12.6 million,
or 18.9%, increase in our Automotive Business Units Wolverine Segment,
primarily due to a 14.6% volume increase. These increases were partially
offset by a $4.9 million, or 2.0%, decrease in our Automotives Business Units
Hillsdale Segment, due to lower average selling prices and the phase-out of
three specific programs. See above for a more detailed discussion of the
individual segments results. 29




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##### Table of Contents



Cost of Products Sold (exclusive of depreciation). Costs of products sold
increased $20.6 million, or 16.5%, to $145.4 million in the third quarter of
2004 from $124.8 million in the third quarter of 2003, and increased $35.5
million, or 9.3%, to $416.7 million in the first nine months of 2004 from
$381.2 million in the first nine months of 2003. Our gross margin decreased
$4.6 million, or 11.9%, to $33.7 million in the third quarter of 2004 from
$38.3 million in the third quarter of 2003, and the gross margin percentage
decreased 4.7 points to 18.8% from 23.5%. Our gross margin decreased $2.7
million, or 2.3%, to $112.5 million in the first nine months of 2004 from
$115.2 million in the first nine months of 2003, and the gross margin
percentage decreased 1.9 points to 21.3% from 23.2%. The deterioration of
these margin rates are primarily the result of:  a.
    
    Increased steel costs and plant closure costs in our
Wolverine Segment;b.
    
    Increased ore mining and energy costs in our Filtration and
Minerals Segment;c.
    
    Lower average selling prices, plant restructuring and China
sourcing start-up costs in our Hillsdale Segment; andd.
    
    Negative gross margins in EaglePicher Horizon Batteries. Selling and Administrative.Selling and administrative expense increased
$0.2 million, or 1.5%, to $15.8 million in the third quarter of 2004 from $15.6
million in the third quarter of 2003, and increased $4.1 million, or 8.9%, to
$49.9 million in the first nine months of 2004 from $45.8 million in the first
six months of 2003. These increases are primarily due to management
infrastructure costs and selling expenses in our Power Group Segment to support
growth in EaglePicher Horizon Batteries ($0.7 million in the third quarter of
2004 and $1.7 million in the first nine months of 2004), increased costs to
support the selling activities in our Wolverine Segment, as well as costs to
support global sourcing initiatives, primarily in China, in our Hillsdale
Segment. Depreciation and Amortization. Depreciation and amortization decreased
$2.8 million, or 22.2%, to $9.9 million in the third quarter of 2004 from $12.7
million in the third quarter of 2003, and decreased $4.8 million, or 13.8%, to
$29.7 million in the first nine months of 2004 from $34.5 million in the first
nine months of 2003. These decreases were primarily related to $2.1 million of
accelerated depreciation expense recorded in the third quarter of 2003 for
product lines that were exited at that time, and for certain assets whose
depreciation was completed in 2003. Insurance Related Gains. In the third quarter of 2003, we recorded a $2.8
million gain related to a final settlement with our insurance carrier on a fire
that occurred during the third quarter of 2001. In addition, 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. In addition,
during the third quarter of 2004, we settled a lawsuit related to assets which
were destroyed in the fire for which a settlement gain was recorded in 2003. 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 the third quarter of 2004, we recorded $0.6 million
primarily related to environmental and workers compensation claims, and during
the first quarter of 2004, we recorded a $2.6 million charge related to a
litigation settlement of a warranty claim for a division sold effective
December 1999. We paid this settlement in the second quarter of 2004. Operating Income. Operating income decreased $5.7 million, or 45.3%, to
$7.0 million in the third quarter of 2004 from $12.7 million in the third
quarter of 2003, and decreased $14.1 million, or 32.5%, to $29.2 million in the
first nine months of 2004 from $43.3 million in the first nine months of 2003.
These changes were primarily the result of the following favorable/
(unfavorable) items (in million of dollars): Third
    
    First NineQuarter of
    
    Months of2004
    
    2004a. Gross margins
    
    $
    (4.6
    )
    
    $
    (2.7
    )b. Selling and administrative
expenses
    
    
    (0.2
    )
    
    
    (4.1
    )c. Depreciation and
amortization
    
    
    2.9
    
    
    
    4.8d. Insurance related
gains in 2003 and losses in
2004
    
    
    (3.2
    )
    
    
    (8.9
    )e. Loss from
divestitures in
2004
    
    
    (0.6
    )
    
    
    (3.2
    )$
    (5.7
    )
    
    $
    (14.1
    )
 See above for a discussion of the variances in each of these line items. 30




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##### Table of Contents



Interest Expense.Interest expense was $8.6 million in the third quarter
of 2003 and $9.1 million in the third quarter of 2004 (not including $0.9
million in the third quarter of 2003 which was allocated to discontinued
operations). Interest expense was $24.2 million in the first nine months of
2003 and $26.9 million in the first nine months of 2004 (not including $4.1
million in the first nine months of 2003 and $0.9 million in the first nine
months of 2004 which was allocated to discontinued operations). Including
interest allocation to discontinued operations, our year over year interest
expense decreased $1.4 million in the third quarter of 2004 and $0.5 million in
the first nine months of 2004 primarily due to lower interest rates. 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). During 2004, $12.5 million of
dividends have been accrued. In accordance with this statement, the prior
period financial statements have not been reclassified. Write-off of Deferred Financing Costs.During the third quarter of 2003,
we wrote-off $6.3 million of deferred financing costs in connection with the
retirement of our former senior secured credit facility and the redemption of
approximately 95% of our senior subordinated notes. In addition, in the third
quarter of 2004, we wrote-off $0.5 million of costs in connection with retiring
the remaining 5% of our senior subordinated notes. Income Tax Provision.Income tax provision was $1.5 million in the third
quarter of 2004 compared to $0.8 million in the third quarter of 2003, and $2.8
million in the first nine months of 2004 compared to $2.9 million in the first
nine 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 loss increased $3.1 million, or 73.9%, to $7.3
million in the third quarter of 2004 from $4.2 million in the third quarter of
2003. Our net income (loss) decreased $12.4 million to a net loss of $7.7
million in the first nine months of 2004 from net income of $4.6 million in the
first nine 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 August 31, 2004, we had $116.4 million unused under our various
credit facilities, including EaglePicher Funding Corporation. However, due to
various financial covenant limitations under our Credit Agreement measured at
the end of each quarter, on August 31, 2004, we could only incur an additional
$19.5 million of indebtedness. At August 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 nine-months ended August 31
unless otherwise indicated. Operating Activities.Operating activities provided $0.6 million in cash
during 2004 compared to using $55.9 million in 2003. In 2003, cash flows from
operating activities were impacted by our net income of $4.6 million and
non-cash charges of $36.8 million from depreciation and amortization, $6.3
million from the write-off of deferred financing costs, $3.2 million from loss
on the disposal of a discontinued businesses, partially offset by a non-cash
gain of $3.3 from 31




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insurance, resulting in cash sources of $47.6 million compared to a 2004
amount of $34.5 million. The 2004 amount of $34.5 million is comprised of our
net loss of $7.7 million, and non-cash charges of $31.3 million from
depreciation and amortization, $12.5 million from preferred stock dividends
accruals, $2.0 million from deferred tax provision, $0.5 million from the
write-off of deferred financing costs, $0.4 million from insurance losses, $0.6
million from loss from divestitures, partially offset by a gain of $5.1 million
from discontinued operations. The operating cash flow for 2003 was also decreased by $103.5 million due
to changes in certain assets and liabilities, resulting in net cash used in
operating activities of $55.9 million. This $103.5 million decrease was
primarily due to a $46.5 million reduction of beneficial interests issued by
our accounts receivable asset-backed securitization, EaglePicher Funding
Corporation, $20.7 million decrease in accrued liabilities, primarily related
to payments on restructuring and legal matters which were expenses in 2002, and
$22.7 million decrease in accounts payable primarily related to obtaining
discounts from vendors on early payment options and to shorten payment terms
for two major suppliers, as a result of our increased liquidity from our August
2003 capital structure refinancing. 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. The operating cash flow for 2004 was decreased by $33.9 million due to
changes in certain assets and liabilities, resulting in net cash provided by
operating activities of $0.6 million. This was primarily due to:  a.
    
    $21.1 million source of cash as a result of the issuance of
beneficial interests by our accounts receivable asset-backed
securitization, EaglePicher Funding Corporation.b.
    
    $14.7 million increase in inventories primarily related to an
inventory build in our Hillsdale Segment to support plant and
sourcing restructurings, increases in our Wolverine and Power Group
Segments to support their sales growth, and $3.7 million to build
our inventory position for EaglePicher Horizon Batteries.c.
    
    $13.3 million increase in receivables primarily due to (a)
overall increased sales growth and (b) increases in days sales
outstanding in the third quarter of 2004 compared to the fourth
quarter of 2003. However, the overall level of days sales
outstanding as of August 31, 2004 of 51 days is less than the amount
as of August 31, 2003 of 53 days.d.
    
    $16.8 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)
24.7% increase in our Power Group Segments revenues in the first
nine months of 2004, and (b) production bottlenecks in the latter
stages of certain defense contracts which have resulted in the delay
of certain shipments to customers.e.
    
    $8.0 million use of cash primarily from the payment of legal
and environmental matters related to previously sold divisions. Investing Activities.Investing activities used $48.3 million of cash
during 2004 compared to $9.6 million in 2003. The 2004 amount includes $34.3
million for capital expenditures, $3.5 million for the purchase of a
controlling interest in EaglePicher Horizon Batteries LLC, and $11.0 million
for our initial investment and payment of license fees and other costs to
acquire an interest in Kokam Engineering Ltd, a Lithium-ion battery
manufacturer based in Seoul, South Korea. The 2003 amount primarily includes
$10.6 million for capital expenditures. We expect our capital expenditures to
be approximately $40.0 million in 2004. Financing Activities.Financing activities used $26.3 million of cash
during 2004 compared to providing $41.3 million in 2003. During 2004, the use
of cash was primarily to pay off a $10.0 million Industrial Revenue Bond, to
repay a portion of our Term Loan from proceeds of the sale of our Environmental
Science & Technology division, and to redeem the remaining $9.5 million of
outstanding senior subordinated notes. During 2003, we completed a tender
offer on our senior subordinated notes and issued new senior unsecured notes.
In addition, we paid off our former credit agreement and issued a new credit
agreement. Accordingly, during 2003, we used $347.9 million of cash to redeem
our senior subordinated notes and pay-off our former credit agreement, and we
received $388.3 million, net of financing costs, of cash for the issuance of
our senior unsecured notes and credit agreement. 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 $21.1 million of
net cash provided by discontinued operations. During 2003, we sold certain
assets of our Germanium-based business in our Technologies Business Unit for
approximately $14.0 million. 32




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Capitalization Our capitalization, which excludes the obligations of our accounts
receivable asset-backed securitization of zero at November 30, 2003 and $21.1
million at August 31, 2004, consisted of the following at November 30, 2003 and
August 31, 2004 (in thousands of dollars): November 30,
    
    August 31,2003
    
    2004Credit Agreement:Revolving credit facility
    
    $
    
    
    
    $
    Term loan
    
    
    149,625
    
    
    
    142,820Senior Unsecured Notes, 9.75% interest,
due 2013, net of $1.9 million discount
    
    
    248,040
    
    
    
    248,142Senior Subordinated Notes, 9.375%
interest, paid off in June 2004
    
    
    9,500
    
    
    
    Industrial Revenue Bond, variable
interest (1.64% at August 31, 2004),
due in 2005
    
    
    13,600
    
    
    
    3,600Other
    
    
    1,105
    
    
    
    1,072421,870
    
    
    
    395,634Preferred Stock
    
    
    154,416
    
    
    
    166,921Shareholders Deficit
    
    
    (90,207
    )
    
    
    (96,480
    )$
    486,079
    
    
    $
    466,075
 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 August 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 August 31, 2004, we had $29.5 million in outstanding letters of credit
under the Facility, which together with borrowings of zero, made our available
borrowing capacity of $95.5 million. However, due to various financial
covenant limitations under our Credit Agreement measured at the end of each
quarter, on August 31, 2004, we could only incur an additional $19.5 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. 33




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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 August 31,
2004. 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 August 31, 2004. The Senior Unsecured
Notes are guaranteed by us and certain of our subsidiaries. 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 $12.5 million during the
first nine 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. The Preferred Stock is scheduled for mandatory
redemption on March 1, 2008. If we dont redeem the Preferred Stock on March
1, 2008, the holders of the Preferred Stock may become entitled to elect a
majority of our Board of Directors. Shareholders Deficit.Our shareholders deficit increased $6.3 million
during the first nine months of 2004 due to our comprehensive loss. 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. 34




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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 August 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 August 31, 2003, we sold $132.4 million of accounts
receivable to EPFC, and during the same period, EPFC collected $135.0 million
of cash that was reinvested in new securitizations. During the nine months
ended August 31, 2003, we sold $418.0 million of accounts receivable to EPFC,
and during the same period, EPFC collected $405.9 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 August 31, 2004, our retained interest in EPFC was $48.0 million and
the revolving pool of receivables that we serviced totaled $71.2 million. At
August 31, 2004, the outstanding balance of the interest sold to the financial
institution recorded on EPFCs financial statements was $21.1 million. During
the three months ended August 31, 2004, we sold $130.4 million of accounts
receivable to EPFC, and during the same period, EPFC collected $130.3 million
of cash that was reinvested in new securitizations. During the nine months
ended August 31, 2004, we sold $409.1 million of accounts receivable to EPFC,
and during the same period, EPFC collected $387.2 million of cash that was
invested in new securitization. The effective interest rate as of August 31,
2004 in the securitization was approximately 3.58%. 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 August 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 Please refer to Note D of the financial statements regarding Recently
Released or Adopted Accounting Standards in Part I, Item 1, which is
incorporated by reference in this Part I, Item 2. 35




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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 procedures to comply with Sarbanes Oxley
Section 404, 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 system to
be fully implemented at the time we are required to comply with the new
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. 36




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PART II. OTHER INFORMATION 
 Item 1. Legal Proceedings. Please refer to Note J of the financial statements 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 July 15, 2004, concerning our press release dated July 14, 2004.
    
    Form 8-K, filed July 29, 2004, concerning our Regulation FD Disclosure. 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 HOLDINGS, INC./s/ Thomas R. PilholskiThomas R. PilholskiSenior Vice President and Chief Financial Officer(Principal Financial Officer)
 DATE: October 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. EAGLEPICHER INCORPORATED/s/ Thomas R. PilholskiThomas R. PilholskiSenior Vice President and Chief Financial Officer(Principal Financial Officer)
 DATE: October 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. CARPENTER ENTERPRISES, INC./s/ Thomas R. PilholskiThomas R. PilholskiVice President(Principal Financial Officer)
 DATE: October 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. DAISY PARTS, INC./s/ Thomas R. PilholskiThomas R. PilholskiVice President(Principal Financial Officer)
 DATE: October 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. EAGLE-PICHER FAR EAST, INC./s/ Thomas R. PilholskiThomas R. PilholskiVice President(Principal Financial Officer)
 DATE: October 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 FILTRATION & MINERALS, INC./s/ Thomas R. PilholskiThomas R. PilholskiVice President(Principal Financial Officer)
 DATE: October 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 TECHNOLOGIES, LLC/s/ Bradley J. WatersBradley J. WatersVice President and Chief Financial Officer(Principal Financial Officer)
 DATE October 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 AUTOMOTIVE, INC./s/ Thomas R. PilholskiThomas R. PilholskiVice President(Principal Financial Officer)
 DATE: October 12, 2004 45




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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. PilholskiVice President(Principal Financial Officer)
 DATE: October 12, 2004 46




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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