UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

For the quarterly period ended August 31, 2003

OR

For the transition period fromto.

Commission file number 333-49957-01

11201 North Tatum Blvd. Suite 110, Phoenix, Arizona 85028

Registrant’s telephone number, including area code:
602-652-9600

EAGLEPICHER HOLDINGS, INC. IS FILING THIS REPORT VOLUNTARILY IN ORDER TO COMPLY WITH THE REQUIREMENTS OF THE TERMS OF ITS 9-3/4% SENIOR NOTES AND 11-3/4% SERIES B CUMULATIVE EXCHANGEABLE PREFERRED STOCK AND IS NOT REQUIRED TO FILE THIS REPORT PURSUANT TO EITHER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

TABLE OF ADDITIONAL REGISTRANTS

2

TABLE OF ADDITIONAL REGISTRANTS

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.Statements.

EaglePicher Holdings, Inc.

The accompanying notes are an integral part of these consolidated balance sheets.

34

EaglePicher Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended August 31, 2002 and 2003
(unaudited) (In thousands of dollars)

The accompanying notes are an integral part of these consolidated financial statements.

5

EaglePicher Holdings, Inc.

The accompanying notes are an integral part of these consolidated financial statements.

6

EaglePicher Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A.BASIS OF REPORTING FOR INTERIM FINANCIAL STATEMENTS

     TheOur 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, 20022003 presented in our Form 10-K, filed with the SEC on March 3, 2003.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, 20022003 and 2003.2004. Results of operations for interim periods are not necessarily indicative of results to be expected for an entire year.

        In the fourth quarter of fiscal 2002, we restated our financial statements to reflect the appropriate adoption of EITF 00-10, “Accounting for Shipping and Handling Fees and Costs,” which we should have adopted in 2001. EITF 00-10 states that all amounts billed to a customer in a sale transaction related to shipping and handling represent revenues earned for the goods provided and should be classified as revenue. Prior to the adoption of EITF 00-10, some of the costs billed to our customers for shipping and handling (our transportation expenses) were included as an offset to our costs. This restatement had no impact on operating income, net income, or cash flows. The impact to the financial statements for the three months ended August 31, 2002 was an increase in Net Sales and Cost of Products Sold by $3.9 million. The impact to the financial statements for the nine months ended August 31, 2002 was an increase in Net Sales and Cost of Products Sold by $11.9 million. In addition, certain amounts in 2002 have been reclassified to conform to the 2003 financial statement presentation.Inventories

     As discussed in Note H to these financial statements, the accompanying 2002 financial statements have been restated to reflect as discontinued operations our Hillsdale U.K. Automotive operation and certain operations of our Germanium-based business in our Technologies Segment.

B.INVENTORIES

        Inventories consisted of the following at November 30, 20022003 and August 31, 20032004 (in thousands of dollars):

C.REVENUE RECOGNITIONComprehensive 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):

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.

67

     The following provides information on contracts in progress at November 30, 20022003 and August 31, 20032004 (in thousands of dollars):

D.COMPREHENSIVE INCOME (LOSS)Reclassifications

     During the three and nine months ended August 31, 2002 and2004, we reclassified amounts in our 2003 financial statements to conform to our comprehensive income (loss)2004 presentation.

B. GOODWILL

     EaglePicher Horizon Batteries LLC was as follows (in thousands of dollars):

E.GOODWILL

     On December 1, 2002, we adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” The ratable amortization of goodwill and other intangible assets with indefinite lives was replaced with an annual test for impairment. Accordingly, we ceased amortization of goodwill on December 1, 2002. We have determineda 50% owned venture that we have six reporting units, as defined in SFAS No. 142, within our three reportable business segments. The following goodwill amounts by reporting unit were recordeddid not control as of November 30, 20022003. 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, 2003 (in thousands of dollars):

     We have completed our initial impairment test as of December 1, 2002, and determined that no impairment charge exists. Our fair values for each reporting unit were determined based on our estimate of future cash flows by reporting unit, which were derived from our annual forecasting process.

7

     The following pro forma disclosure presents our income (loss) applicable to common shareholders and our basic and diluted per share income (loss) applicable to common shareholders for the three and nine months ended August 31, 2002 and 2003 as if SFAS No. 142 had been adopted on December 1, 2001 (in thousands of dollars, except per share amounts):

F.D. RECENTLY RELEASED OR ADOPTED ACCOUNTING STANDARDS

     In June 2001,January 2003, the FASBFinancial Accounting Standards Board (“FASB”) issued SFASInterpretation (“FIN”) No. 143, “Accounting46, “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 Asset Retirement Obligations,” which requires that the fair valuefiscal years ending after December 15, 2003 for special-purpose entities and for all other types of a liabilityentities for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived assets and depreciated over their estimated useful life while the liability is accreted to its expected obligation amount upon retirement. We adopted SFAS No. 143 on December 1, 2002.periods ending after March 31, 2004. The adoption of this statement

8

FIN No. 46(R) did not have a material impact on our financial condition or results of operations.

     In September 2001,March 2004, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which superceded SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of.” The primary difference is that goodwill and certain intangibles with indefinite lives have been removed from the scope of SFAS No. 144, as they are covered by SFAS No. 142. It also broadens the presentation of discontinued operations to include a component of an entity rather than a segment of a business. A component of an entity comprises operations and cash flows that can clearly be distinguished operationally and for financial accounting purposes from the rest of the entity. We adopted SFAS No. 144 on December 1, 2002 and accounted for the sale of our Hillsdale U.K. Automotive operation and the sale of certain assets of our Germanium-based business in our Technologies Segment, as discussed in Note H, in accordance with this statement.

     In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which is effective for exit or disposal activities initiated after December 31, 2002. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue(“EITF”) reached a consensus on EITF No. 94-3, “Liability Recognition03-16, “Accounting for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs IncurredInvestments in Limited Liability Companies.” This consensus would require that we account for our investment in a Restructuring).” The adoptionstart-up manufacturing company, as described in Note S of this statement did not have a material impact on our financial condition or results of operations.

     On AprilForm 10-K for the year ended November 30, 2003, the FASB issued SFAS No. 149, “Amendmentfiled on February 17, 2004, as an equity method investment. As of Statement 133 on Derivative Instruments and Hedging Activities.” This statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embeddedAugust 31, 2004, we have $1.7 million recorded in other contracts, and for hedging activities under SFAS No. 133. This statement isour balance sheet related to this investment. The consensus will be effective for contracts entered into or modified after June 20, 2003, for hedging relationships designated after June 30, 2003,us on September 1, 2004 and to certain preexisting contracts. We adopted SFAS No. 149 onwill require that we record a prospective basis at its effective date on July 1, 2003. The adoptioncumulative effect of this statement did not have a material impact onchange in accounting principle in our financial condition or resultsfourth quarter of operations.

8

     In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement is effective for financial instruments entered into or modified after May 31, 2003, except for mandatorily redeemable financial instruments. Mandatorily redeemable financial instruments are subject to the provisions of this statement beginning on January 1, 2004. We have not completed our evaluation ofyet determined what the impact if any, the adoption of this statementEITF 03-16 will have on our financial condition or results of operations.

     In November 2002,The EITF has issued Issue No. 04-6, “Accounting for Stripping Costs Incurred during Production in the FASB issued Interpretation No. 45 (“FIN 45”) “Guarantor’s AccountingMining Industry.” The issue is attempting to address numerous implementation and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 elaborates on the existing disclosure requirements for most guarantees, including loan guarantees. It also clarifies that at the time a companyconsistency issues a guarantee, the company must recognize an initial liability for the fair value, or market value, ofmining industry, including the obligations it assumes under that guarantee. However, the provisions related to recognizing a liability at inception of the guarantee for the fair value of the guarantor’s obligations does not apply to product warranties or to guarantees accounted for as derivatives. The initial recognition and measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. FIN 45 does not affect theappropriate accounting for guarantees issued priordeferred stripping costs. Any consensus reached by the EITF on this issue could result in a change to the effective date, unless the guarantee is modified subsequent to December 31, 2002. We adopted the disclosure requirementsour accounting policy on December 1, 2002,Deferred Stripping and the initial recognition and measurement provisions in our February 28, 2003 financial statements. The adoption of this interpretation did notas a result may have a material impact on our financial condition or results of operations.

     In JanuaryDecember 2003, the FASB issued InterpretationStatement of Financial Accounting Standards (“SFAS”) No. 46 (“FIN 46”) “Consolidation of Variable Interest Entities.” Until this interpretation, a company generally included another entity in its consolidated financial statements only if it controlled132 (Revised 2003),Employers’ Disclosures about Pensions and Other Postretirement Benefits. This standard increases the entity through voting interests. FIN 46 requires a variable interest entityexisting disclosure requirements by requiring more details about pension plan assets, benefit obligations, cash flows, benefit costs and related information. We will be required to be consolidatedsegregate plan assets by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns. FIN 46 applies to variable interest entities created after January 31, 2003,category, such as debt, equity and real estate, and to variable interest entities in which an enterprise obtains an interest in after that date. A public entity with a variable interest in a variable interest entity created before February 1, 2003, shall apply the provisionsprovide certain expected rates of this interpretation (other than the transition disclosure provisions in paragraph 26) to that entity no later than the beginning of the first interim or annual reporting period beginning after December 15, 2003. The related disclosure requirements were effective immediately. The impact of this interpretation is not expected to have a material impact on our financial condition or results of operations.

     In November 2002, the EITF issued EITF 00-21, “Revenue Arrangements with Multiple Deliverables.” EITF 00-21 prescribes a method to account for contracts that have multiple elements or deliverables. It provides guidance on how to allocate the value of a contract to its different deliverables, as well as guidance on when to recognize revenue allocated to each deliverable over its performance period.return and other informational disclosures. We arewill be required to adopt EITF 00-21 for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. We are evaluating the impact EITF 00-21 will have on us, but do not expect it to have a material impact ondisclosure requirements of SFAS No. 132(R) when we issue our financial condition or results of operations.

G.RESTRUCTURING

     During 2001, we recorded asset write-downs and other charges totaling $14.1 million in connection with a restructuring plan (the “Plan”) announced in November 2001. The Plan primarily relocated our corporate headquarters from Cincinnati, Ohio to Phoenix, Arizona and closed three plants in our Technologies Segment as a result of the elimination of certain product lines. During the second quarter of 2002, we determined that a portion of the assets in our over-funded pension plan could be made available to pay severance costs related to the Plan. We amended the pension plan and provided new or amended severance plans to allow for such payments. Approximately $2.5 million of severance was expected to be paid out of the pension plan. Accordingly, during the second quarter of 2002, we reduced our restructuring provision originally recorded in the fourth quarter of 2001 by $2.5 million.

     In the second quarter of 2002, we announced we would exit our Gallium based business in our Technologies Segment due to the downturn in the fiber-optic, telecommunication and semiconductor markets, the primary markets for

9

our Gallium products. This action resulted in a $5.5 million charge to restructuring expense.

     The remaining balance of $1.0 million as of August 31, 2003, is included in Other Accrued Liabilities in our balance sheets. An analysis of the facilities, severance and other costs incurred related to restructuring reserves since November 30, 2002 is2004 financial statements, and we have disclosed the various elements of pension and postretirement benefit costs in interim-period financial statements as follows (in thousands of dollars):

H.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 may need to be recorded.

     In the second quarter of 2002, we signed a letter of intent to sell certain assets and liabilities of the Precision Products business in our Technologies Segment to a group of employees and management personnel. We recorded a $2.8 million estimated loss on sale in Loss from Divestitures in the Statements of Income (Loss). In addition, during 2002, we recorded approximately $3.2 million in additional accruals for costs related to certain litigation issues and environmental remediation.

     An analysis of the liabilities related to divestitures is as follows (in thousands of dollars):

     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. This division represented our entire former Machinery Segment. The sale price was $6.1 million in cash, plus an estimated working capital adjustment of $1.0 million, and the assumption of approximately $6.7 million of current liabilities. 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-yearfive year term. The buyer has an option to buy the facility for $2.5 million, increasing $100,000 per year over the term of the lease. We also retained $900,000a certain amount of accounts receivable and approximately $2.3 million of raw materials inventory, a portion of which the buyer was required to purchase within one year. At August 31, 2003, the buyer failed to purchase approximately $182,000purchase. During the second quarter of 2004, we reached an agreement with the buyer to reimburse us for the remaining inventory which is includedand terminated our lease for the Lubbock, Texas building and land. As such, we recorded a loss in AssetsGain/(Loss) on Disposal of Discontinued Operations inBusinesses of $0.4 million, net of a zero tax provision (benefit), to reduce the accompanying balance sheets. We are pursuing collection actions.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 AutomotiveHillsdale Segment) for cash of $1.1 million. The sale

9

closed on June 11, 2003. In addition, we will be windingwound 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 in our Statementsa loss of Income (Loss) $902,000 for the three months ended August 31, 2002, $1.4$0.4 million for the nine months ended August 31, 2002, and $431,000 for the nine months ended August 31, 2003. In addition, in the second quarter of 2003, we recognized a Lossloss in Gain/(Loss) on Disposal of BusinessDiscontinued Businesses of $3.0 million, which is net of a $600,000$0.6 million tax benefit related to this sale, and

10

during the third quarter of 2003, we recognized an increase of $751,000$0.8 million to that Loss on Disposal of Discontinued Businesses due to various shutdown costs. We expect to incur an additional $500,000 of shutdown costs, such as one-time termination benefits, contract termination costs and facility closure costs during the fourth quarter of 2003, which have not accrued as of August 31, 2003.

     In July 2003, we completed the sale of certain assets of our Germanium-based business in our Technologies SegmentBusiness Unit for net cash proceeds of approximately $15.0 million, subject to a working capital adjustment.$14.0 million. These assets relaterelated to the production of Germanium-based products primarily used in the infrared optics and fiber optics applications and do not include any of our assets that are involved in the production of Germanium substrates and wafers. We agreed that if the buyer is required to divest the acquired business due to certain regulatory proceedings commenced within one year of the sale, then we would reimburse the buyer for 50% of the amount by which the sale price is less than $15.0 million up to a maximum reimbursement of $4.0 million, and we would receive 50% of any excess of the sale price over the $15.0 million up to a maximum of $4.0 million. We believe that the likelihood of being required to make or receive payments pursuant to these provisions is remote, and therefore, we have not recorded an asset or liability. During the third quarter of 2003, we discontinued the operations of our Germanium-based business and restated all prior period financial statements. We have included in Loss from Operations of Discontinued Businesses in our Statementslosses of Income (Loss) $890,000$0.2 million for the three months ended August 31, 2002, $213,000 for the three months August 31, 2003 $2.0 million for the nine months ended August 31, 2002, and $1.3 million for the nine months ended August 31, 2003. In addition, during the third quarter of 2003, we recorded in LossGain/(Loss) on Disposal of Discontinued Businesses a gain of $484,000,$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).

     At August 31, 2003, the remaining balance in Assets of Discontinued Operations was, primarily accounts receivable, inventory, and property, plant, and equipment related to our Hillsdale U.K. Automotive operation andthe write-off of an insurance receivable related to an entity that was supposed to provide a source of GermaniumGermanium. 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 salethree months ended August 31, 2003, income of certain$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 withinto be sold or discontinued less debt that is required to be paid as a result of the disposal transaction to the sum of our Germanium-based business. Thetotal 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 accounts payableaccrued liabilities and accrued liabilitiespension obligations related to our Hillsdale U.K. Automotive operation.

I.

10 F. ACCOUNTS RECEIVABLE ASSET-BACKED SECURITIZATION (QUALIFYING SPECIAL PURPOSE ENTITY)

     During the first quarter of 2002, we entered intoWe 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”). Initially $47.0The size of this facility is $55.0 million, of proceeds from this new facility were used primarilysubject to payoff amounts outstanding under our existing Receivables Loan Agreement with our wholly owned subsidiary, EaglePicher Acceptance Corporation.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 New Credit Agreement (as defined in Note P) 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 New Credit Agreement, (as defined in Note P), we include the outstanding obligations of EPFC.

     In conjunction with the initial transaction during 2002, we sold $82.5 million of receivables to EPFC, and we incurred charges of $1.5 million, which were included in Interest Expense in the accompanying condensed consolidated statements of income (loss) for the nine-months ended August 31, 2002.     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, 20022003 or August 31, 2003. We retain an interest in a portion of the receivables transferred, representing an over collateralization on the securitization. Our involvement with both this over collateralization interest and the transferred receivables is generally limited to the servicing performed.2004. The carrying value of our retained interest in the receivables is recorded at fair value, which is estimated as its net realizable value due to the short duration of the receivables

11

transferred. 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.

     AtAs of November 30, 2002,2003, our retained interest in EPFC was $29.4$63.3 million and the revolving pool of receivables that we serviced totaled $77.5$64.9 million. At November 30, 2002, the outstanding balance of the interest sold to the financial institution recorded on EPFC’s financial statements was $46.5 million. During the three months ended August 31, 2002, we sold $147.5 million of accounts receivable to EPFC, and during the same period, EPFC collected $145.0 million of cash that was reinvested in new securitizations. During the nine months ended August 31, 2002, we sold, outside of the initial sale, $422.0 million of accounts receivable to EPFC, and during the same period, EPFC collected $403.0 million of cash that was reinvested in new securitizations.

     As of August 31, 2003, we reduced the amount due to the financial institution by EPFC. Accordingly, our interest in EPFC was $66.5 million and the revolving pool of receivables that we serviced totaled $67.9 million. At August 31, 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 for the nine month period ended August 31,as of November 30, 2003 in the securitization was approximately 2.58%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

     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):

12

     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.INSURANCE RELATED LOSSES (GAINS) LEGAL MATTERS

     In the second quarter of 2002, we recorded a provision of $3.1 million primarily related to a dispute with an insurance carrier over the coverage on a fire during 2001 at our Harrisonville, Missouri bulk pharmaceutical plant. During 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 settlementthird quarter of this claim.

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.

K.SHAREHOLDERS’ EQUITY (DEFICIT)

     During In addition, during the secondthird quarter of 2003,2004, we sold to our controlling common shareholder, Granaria Holdings B.V., Bert Iedema, one of our directors and an executive officer of Granaria Holdings B.V., and two of our executive officers the 69,500 shares of common stock held in our Treasury for $13.00 per share, or $903,000. In connection with this stock issuance, we reclassified the balance in our Treasury, or $7.2 million, to Additional Paid in Capital in our accompanying balance sheets.

L.LEGAL MATTERS

     On January 25, 1996, Richard Darrell Peoples, a former employee, filedsettled a lawsuit related to assets which were destroyed in the United States District Courtfire for the Western District of Missouri claiming that we violated the federal False Claims Act based on alleged irregularitieswhich a settlement gain was recorded in testing procedures in connection with certain United States Government contracts. Mr. Peoples filed this lawsuit under a procedure which gives a private individual the right to file a lawsuit for a violation of a Federal statute and be awarded up to 30% of any recovery. The government has the right to intervene and take control of such a lawsuit. Following an extensive investigation, the United States Government declined the opportunity to intervene or take control of this suit. The allegations in the lawsuit are similar to allegations made by Mr. Peoples, and investigated by our outside counsel, prior to the filing of the lawsuit. Our outside counsel’s investigation found no evidence to support any of Mr. Peoples’ allegations, except for some inconsequential expense account matters. The case is in a discovery phase. Recently the court disqualified Mr. Peoples’ lawyer from the case after he read some of our attorney-client privileged documents that Mr. Peoples took from our lawyers’ offices without authorization. We intend to contest this suit vigorously and do not believe that the resolution of this lawsuit will have a material adverse effect on our financial condition, results of operations or cash flows.

12

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 has again 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

     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 these lawsuitsthis lawsuit vigorously and do not believe that these lawsuitsthe resolution of this suit will result inhave a material adverse effect on our financial position,condition, results of operationoperations, 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.