8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): July 22, 2003

(Commission File Number) 333-49957

EaglePicher Holdings, Inc.

(Exact name of Registrant as specified in its charter)

Delaware	13-3989553
(State of incorporation)	(I.R.S. Employer Identification Number)

11201 North Tatum Blvd., Suite 110
Phoenix, Arizona 85028
(Address of Registrant’s principal executive office)

(602) 652-9600
(Registrant’s telephone number)

	Jurisdiction		IRS Employer
	Incorporation or	Commission	Identification
Name	Organization	File Number	Number
EaglePicher Incorporated	Ohio	333-49957	31-0268670
Daisy Parts, Inc.	Michigan	333-49957-02	38-1406772
EaglePicher Development Co., Inc.	Delaware	333-49957-03	31-1215706
EaglePicher Far East, Inc.	Delaware	333-49957-04	31-1235685
EaglePicher Filtration & Minerals, Inc.	Nevada	333-49957-06	31-1188662
EaglePicher Technologies, LLC	Delaware	333-49957-09	31-1587660
Hillsdale Tool & Manufacturing Co.	Michigan	333-49957-07	38-0946293
EPMR Corporation (f/k/a Michigan Automotive Research Corp.)	Michigan	333-49957-08	38-2185909

TABLE OF CONTENTS

	ITEM 7. Financial Statements and Exhibits
	ITEM 9. Regulation FD Disclosure
SIGNATURES
Exhibit Index
EX-99.1
EX-99.2
EX-99.3
EX-99.4
EX-99.5
EX-99.6
EX-99.7

ITEM 7. Financial Statements and Exhibits

99.1	Press Release, dated July 21, 2003.
99.2	The section of the preliminary offering memorandum titled “Risk factors.”
99.3	The section of the preliminary offering memorandum titled “Business.”
99.4	The audited financial statements contained in the preliminary offering memorandum.
99.5	Certain sections of the section of the preliminary offering memorandum titled “Management’s discussion and analysis of financial condition and results of operations.”
99.6	The paragraph of the preliminary offering memorandum describing the anticipated sale of our germanium business.
99.7	The section of the offering memorandum titled “Selected historical financial data.”

ITEM 9. Regulation FD Disclosure

     On July 21, 2003, EaglePicher Incorporated, our wholly owned subsidiary, commenced a private offering of $220 million principal amount of new senior subordinated notes due 2013. A press release describing the terms and conditions of this note offering, is attached as Exhibit 99.1 to this Report.

     Certain matters regarding EaglePicher Incorporated and its subsidiaries that have not been previously disclosed are disclosed in the preliminary offering memorandum for the senior notes. These disclosures are attached as exhibits to this Report and are being furnished to comply with Regulation FD. The information disclosed in this Report is not considered “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 and is not subject to the liabilities of that section. With respect to the exhibits to this Report that set forth sections of the offering memorandum, please note that references to “we,” “our,” “us,” “our,” and “company” refer to EaglePicher Incorporated, and “parent” refers to EaglePicher Holdings, Inc., unless the context requires otherwise.

     This Report includes statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These statements are subject to risks and uncertainties. Forward-looking statements include information concerning possible or assumed future results of operations of us and our affiliates. These statements may relate to, but are not limited to, information and assumptions about capital and other expenditures, dividends, financing plans, capital structure, cash flow, pending legal and regulatory proceedings and claims, including environmental matters, future economic performance, operating income, cost savings, management’s plans, goals and objectives for future operations and growth. These forward-looking statements generally are accompanied by words such as “intend,” “anticipate,” “believe,” “estimate,” “expect,” “should” or similar expressions. It should be understood that these forward-looking statements are necessarily estimates reflecting the best judgment of our senior management, not guarantees of future performance. They are subject to a number of assumptions, risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements.

     Undue reliance should not be placed on forward-looking statements, which speak only as of the date of this Report.

     All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report and any other cautionary statements that may accompany such forward-looking statements. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, unless the securities laws require us to do so.

1

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 hereunto duly authorized.

Date: July 22, 2003
	EAGLEPICHER HOLDINGS, INC.
	By:	Thomas R. Pilholski
	Name:	Thomas R. Pilholski
	Title:	Senior Vice President and Chief Financial Officer

2

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 hereunto duly authorized.

Date: July 22, 2003
	EAGLEPICHER INCORPORATED
	By:	Thomas R. Pilholski
	Name:	Thomas R. Pilholski
	Title:	Senior Vice President and Chief Financial Officer

3

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 hereunto duly authorized.

Date: July 22, 2003
	DAISY PARTS, INC.
	By:	Thomas R. Pilholski
	Name:	Thomas R. Pilholski
	Title:	Vice President

4

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 hereunto duly authorized.

Date: July 22, 2003
	EAGLEPICHER DEVELOPMENT CO., INC.
	By:	Thomas R. Pilholski
	Name:	Thomas R. Pilholski
	Title:	Vice President

5

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 hereunto duly authorized.

Date: July 22, 2003
	EAGLEPICHER FAR EAST, INC.
	By:	Thomas R. Pilholski
	Name:	Thomas R. Pilholski
	Title:	Vice President

6

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 hereunto duly authorized.

Date: July 22, 2003
	EAGLEPICHER FILTRATION & MINERALS, INC.
	By:	Thomas R. Pilholski
	Name:	Thomas R. Pilholski
	Title:	Vice President

7

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 hereunto duly authorized.

Date: July 22, 2003
	EAGLEPICHER TECHNOLOGIES, LLC
	By:	Bradley J. Waters
	Name:	Bradley J. Waters
	Title:	Vice President and Chief Financial Officer

8

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 hereunto duly authorized.

Date: July 22, 2003
	HILLSDALE TOOL & MANUFACTURING CO.
	By:	Thomas R. Pilholski
	Name:	Thomas R. Pilholski
	Title:	Vice President

9

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 hereunto duly authorized.

Date: July 22, 2003
	EPMR CORPORATION
	By:	Thomas R. Pilholski
	Name:	Thomas R. Pilholski
	Title:	Vice President

10

Exhibit Index

Exhibit Number	Description
99.1	Press Release, dated July 21, 2003.
99.2	The section of the preliminary offering memorandum titled “Risk factors.”
99.3	The section of the preliminary offering memorandum titled “Business.”
99.4	The audited financial statements contained in the preliminary offering memorandum.
99.5	Certain sections of the section of the preliminary offering memorandum titled “Management’s discussion and analysis of financial condition and results of operations.”
99.6	The paragraph of the preliminary offering memorandum describing the anticipated sale of our germanium business.
99.7	The section of the offering memorandum titled “Selected historical financial data.”

EX-99.1 3 p68044exv99w1.txt EX-99.1 EXHIBIT 99.1 FOR RELEASE: IMMEDIATELY FOR ADDITIONAL INFORMATION CONTACT: THOMAS R. PILHOLSKI - 602.652.9600 EAGLEPICHER INCORPORATED ANNOUNCES PLAN TO ISSUE $220 MILLION SENIOR NOTES DUE 2013 PHOENIX, ARIZONA, JULY 21 , 2003 - EaglePicher Incorporated ("EPI"), a wholly-owned subsidiary of EaglePicher Holdings, Inc. (the "Company"), announced today that it plans to issue $220 million Senior Notes due 2013. The notes will be issued in a private placement and are expected to be resold by the initial purchasers to qualified institutional buyers under Rule 144A and Regulation S of the Securities Act of 1933. The proceeds from the sale of the notes will be used to repurchase EPI's outstanding 9 3/8% Senior Subordinated Notes which are currently the subject of a previously announced cash tender offer. The notes to be offered have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. This news release shall not constitute an offer to sell or a solicitation of an offer to buy such notes in any jurisdiction in which such offer or sale would be unlawful and is issued pursuant to Rule 135c under the Securities Act of 1933. All of the Company's operations are conducted through EPI and its subsidiaries. EPI, founded in 1843, is a diversified manufacturer of advanced technology and industrial products that are used in a diverse group of industries including the automotive, defense, aerospace, pharmaceutical services, nuclear energy and food and beverage industries, in addition to other industrial arenas. Forward Looking Statements This news release 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; our ability to develop, market and sell new products, our ability to obtain raw materials, 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. # # # # # # July 21, 2003 EX-99.2 4 p68044exv99w2.txt EX-99.2 EXHIBIT 99.2 - -------------------------------------------------------------------------------- Risk factors You should carefully consider the information set forth in this section, as well as the other information contained in this offering memorandum, in deciding whether to invest in the notes. RISKS RELATED TO OUR BUSINESS WE HAVE A SIGNIFICANT LEVEL OF INDEBTEDNESS THAT COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND PREVENT US FROM MAKING PRINCIPAL AND INTEREST PAYMENTS ON OUR DEBT OBLIGATIONS, INCLUDING THE NOTES. We have now and, after the offering, will continue to have, a significant level of indebtedness. As of May 31, 2003, after giving pro forma effect to this offering, the closing of our new senior secured credit facility and the application of our net proceeds therefrom, assuming 100% of our 9 3/8% senior subordinated notes are tendered, our aggregate outstanding indebtedness would have been $385.3 million. Our significant level of indebtedness could have important consequences to you. For example, it may: - - make it more difficult for us to satisfy our obligations with respect to the notes and our other debt; - - limit our ability to obtain additional financing for capital expenditures, acquisitions, joint ventures, strategic alliances, research and development, working capital or other purposes; - - require us to dedicate a material portion of our operating cash flow to fund interest payments on our indebtedness, thereby reducing funds available for capital expenditures, acquisitions, joint ventures, strategic alliances, research and development, working capital or other purposes; - - reduce our flexibility in responding to changing business and economic conditions; - - increase our vulnerability to adverse economic and industry conditions; and - - place us at a competitive disadvantage compared to our competitors that may have less debt. A SUBSTANTIAL PORTION OF OUR REVENUE COMES FROM CUSTOMERS IN A LIMITED NUMBER OF INDUSTRIES, PARTICULARLY THE AUTOMOTIVE, AEROSPACE AND DEFENSE INDUSTRIES. Although we manufacture numerous products for use in many different applications, approximately 77% of our fiscal year 2002 net sales came from our Automotive Segment and our Power Group within our Technologies Segment which supply products primarily to the automotive, aerospace and defense industries. An economic downturn in one or more of these industries or any other adverse change that could affect these industries such as increased government regulation or decreased military spending could have a material adverse effect on us. In addition, a majority of the net sales generated by the Technologies Segment in fiscal year 2002 was attributable, directly or indirectly, to the United States government. Although we do not foresee government spending on defense applications incorporating our products decreasing in the short term, changes in the domestic or international political climate could lead to decreases in federal military spending, which could have a material adverse effect on us. OUR BUSINESS IS VERY COMPETITIVE AND INCREASED COMPETITION COULD REDUCE OUR SALES. Markets for our products are highly competitive. We compete based on quality, service, price, performance, timely delivery and technological innovation. Many of our competitors are more diversified and have greater financial and other resources than we do. In addition, with respect to certain of our products, some of our competitors are divisions of our OEM customers. We cannot assure you that our business will not be adversely affected by competition or that we will be able to maintain our profitability if the competitive environment changes. OUR AUTOMOTIVE SEGMENT FACES INTENSE COMPETITION FOR ITS PRODUCTS AND SERVICES AND AUTOMOTIVE MANUFACTURERS ARE INCREASINGLY USING A SMALLER NUMBER OF SUPPLIERS TO SATISFY THEIR MANUFACTURING REQUIREMENTS. The motor vehicle components industry is highly competitive and we believe this competition will intensify in the future. Our Automotive Segment faces competition from both domestic and international suppliers, as well as the automotive manufacturers themselves. In order to simplify vehicle designs and assembly processes and reduce their costs, automotive manufacturers are increasingly expecting their suppliers to provide fully engineered, pre-assembled combinations of components in systems and modules rather than individual components. Many suppliers do not have the technological or economic resources to satisfy these increasingly demanding standards. As a result, automotive manufacturers are increasingly relying on a smaller number of suppliers who can satisfy their more demanding manufacturing requirements. In addition, the automotive manufacturers have increasingly demanded price decreases from their suppliers, which forces suppliers like us to continually search for ways to reduce our manufacturing costs to preserve our operating margins. Our inability to achieve the cost savings and technological innovation necessary to comply with the increasingly demanding requirements of one or more of the automotive manufacturers to whom we supply our products could have a material adverse effect on us. OUR AUTOMOTIVE SEGMENT IS DEPENDENT ON A SMALL NUMBER OF PRINCIPAL CUSTOMERS FOR A SIGNIFICANT PERCENTAGE OF ITS NET SALES. In fiscal year 2002, Honda accounted for 12% of our net sales. The loss of any significant portion of our sales to this customer or any other significant customers would have a material adverse affect on us. The programs we have entered into with many of our automotive customers provide for supplying the customers' requirements for a particular model, rather than for manufacturing a specific quantity of products. Therefore, the loss of a program for a major model or a significant decrease in demand for certain key models or a group of related models sold by any of our major customers could have a material adverse effect on us. DEMAND FOR OUR AUTOMOTIVE PRODUCTS DEPENDS UPON THE OVERALL CONDITION OF THE GLOBAL AUTOMOTIVE INDUSTRY. Our financial performance depends on the economic conditions in the global automotive industry, as well as in the North American and European economies. Sales of our automotive products represented more than 60% of our net sales in fiscal year 2002. Demand in the automotive industry fluctuates in response to overall economic conditions and is particularly sensitive to changes in interest rate, consumer confidence and fuel costs. Any sustained weakness in demand or continued downturn in the global automotive industry or North American or European economies could have a material adverse effect on us. WE MAY NOT BE SUCCESSFUL IN IMPLEMENTING OUR STRATEGY OF DEVELOPING NEW APPLICATIONS FOR OUR EXISTING TECHNOLOGIES AND PENETRATING NEW MARKETS FOR OUR EXISTING PRODUCTS. One of the key elements of our business strategy is to develop new applications for our existing technologies outside of our core automotive, aerospace and defense markets. We plan to enter into new markets through joint ventures, acquisitions, strategic alliances, licensing arrangements and other technology initiatives in an effort to diversify and grow our revenue base. Successful implementation of this strategy will depend upon a number of factors including, without limitation, our ability to: - - identify new industries, applications and markets for our technologies; - - successfully integrate any acquired businesses into our operations; - - negotiate and execute favorable joint venture, strategic alliance, licensing and other technology arrangements for these new applications; - - manufacture products for these new applications in a cost efficient and profitable manner; - - develop effective marketing, sales and distribution networks for these new applications; and - - obtain necessary financing consents to implement this strategy. Our failure to implement one or more elements of this strategy may have a material adverse effect on us. In addition, we may incur additional indebtedness to implement this strategy, which may increase our leverage. WE MAY NOT BE ABLE TO KEEP PACE WITH TECHNOLOGICAL ADVANCES IN THE INDUSTRIES IN WHICH WE COMPETE OR FUND THE CAPITAL INVESTMENTS NECESSARY TO UPGRADE OUR FACILITIES AND ENHANCE OUR PROCESSES NECESSARY IN ORDER TO KEEP PACE WITH SUCH ADVANCES. Our business divisions and the markets for their products are subject to technological advances, evolving industry standards, changing customer requirements and improvements in and expansion of product offerings. Advances in technologies may make certain of our products and processes obsolete. Although we attempt to explore and develop new technologies in the industries in which we compete, we cannot assure you that our technologies and products will remain competitive or that we will be able to fund the capital investments necessary to upgrade our facilities and enhance our processes necessary to keep pace with such advances. Our failure to keep pace with technological changes in the industries in which we compete could have a material adverse effect on us. IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY ADEQUATELY, WE COULD LOSE OUR COMPETITIVE ADVANTAGE IN MANY OF THE INDUSTRIES IN WHICH WE COMPETE. Our ability to compete effectively in the technology sectors in which we operate will depend, in part, on our ability to protect our current and future proprietary technologies, product designs and testing and manufacturing processes under existing and future patent, copyright, trademark, trade secret and unfair competition laws. We may not be able to adequately protect our intellectual property from misappropriation or infringement and may need to defend our intellectual property against the infringement claims of others, either of which could result in the loss of our competitive advantage in our markets and materially harm us. We face the following risks in protecting our intellectual property: - - we cannot be certain that our pending United States and foreign patent applications will result in issued patents or that any patents issued will be sufficiently broad to protect our technologies or processes; - - third parties may design around our patented technologies or seek to challenge or invalidate our patented technologies; - - we may incur significant costs and diversion of management resources in prosecuting or defending patent infringement suits; - - we may not be successful in prosecuting or defending patent infringement suits and, as a result, may be forced to seek to enter into costly royalty or licensing agreements; however, such royalty or licensing agreements may not be available to us or may not be available to us on commercially reasonable terms; and - - the contractual provisions we rely on to protect our trade secrets and proprietary information, such as our confidentiality and non-disclosure agreements with our employees, consultants and other third parties, may be breached and our trade secrets and proprietary information may be disclosed to our competitors or the public. Moreover, the laws of certain foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Although we implement protective measures and intend to defend and enforce our proprietary rights, there can be no assurance that these efforts will succeed. We may be forced to litigate within the United States or abroad to enforce our issued or licensed patents, to protect our trade secrets and know-how or to determine the enforceability, scope and validity of our proprietary rights and the proprietary rights of others. Enforcing or defending our proprietary rights may be expensive and may fail to result in timely and effective relief. WE MAY NOT HAVE SUFFICIENT INSURANCE COVERAGE OR FUNDS AVAILABLE TO COVER ALL POTENTIAL PRODUCT LIABILITY AND WARRANTY CLAIMS. The failure of our products to perform as expected could give rise to product liability, warranty or recall claims, or claims for personal injury, property or other damages. We do not carry insurance for warranty or product recall claims. Although we believe we maintain adequate product liability insurance and a comprehensive quality control program, we cannot give any assurance that our products will not suffer from defects or other deficiencies or that we will not experience material warranty or products liability related costs, including product recalls in the future. Defects and deficiencies may result in additional development costs, diversion of technical and economic resources and the loss of credibility with our current and prospective customers. We also may incur material losses and significant costs in excess of anticipated amounts as a result of our customers returning products to us as a result of warranty-related issues. A successful claim against us may force us to incur significant costs which could result in a reduction of our working capital available for other uses, and have a material adverse effect on us. ENVIRONMENTAL REGULATIONS THAT AFFECT EACH OF OUR BUSINESS SEGMENTS MAY LEAD TO SIGNIFICANT, UNFORESEEN EXPENSES. Our operations and properties are subject to a wide variety of increasingly complex and stringent federal, state, local and international environmental laws and regulations, including those governing the use, storage, handling, generation, treatment, emission, release, discharge and disposal of materials, substances and wastes, the remediation of contaminated soil and groundwater and the health and safety of our employees. Some environmental laws, including but not limited to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, impose strict, and in certain circumstances, joint and several liability for remediation of hazardous substances at contaminated sites which may include facilities presently or formerly owned or operated by us or our predecessors, as well as at properties to which wastes we or our predecessors generated have been sent or otherwise come to be located. The nature of our operations exposes us to the risk of claims with respect to such matters, and we can give no assurance that violations of such laws have not occurred or will not occur or that material costs or liabilities will not be incurred in connection with such claims. Future events, such as new information, changes in existing environmental laws or their interpretation, or more vigorous enforcement policies of regulatory agencies, may have a material adverse effect on us. Complying with environmental and safety requirements has added and will continue to add to our cost of doing business, and has increased the capital-intensive nature of our business. We believe that we are in compliance in all material respects with these laws and regulations and have set aside reserves for known remediation and corrective measures projects. However, we cannot assure you that our reserves will not be exceeded, or that we will not be adversely impacted by costs, liabilities or claims with respect to our operations under existing laws or those that may be adopted. AS A GOVERNMENT CONTRACTOR AND SUBCONTRACTOR, WE ARE SUBJECT TO POTENTIALLY ADVERSE EFFECTS OF GOVERNMENT CONTRACT PROVISIONS AND AUDITS. As a contractor and subcontractor to the United States government, we are subject to various laws and regulations that are more restrictive than those applicable to non-government contractors. The majority of our Technologies Segment's fiscal year 2002 net sales were made directly or indirectly to the United States government. Contracts directly or indirectly with the United States government are governed by rules favoring the government's or the prime contractors' contractual position. As a consequence, such contracts may be subject to protest or challenge by unsuccessful bidders or to termination, reduction or modification in the event of changes in government requirements, reductions in federal spending or other factors. The accuracy and appropriateness of certain costs and expenses used to substantiate our direct and indirect costs for the United States government under both cost-plus and fixed-price contracts are subject to extensive regulation and audit by the Defense Contract Audit Agency, an agency of the United States Department of Defense. WE FACE INCREASINGLY STRINGENT UNITED STATES AND FOREIGN GOVERNMENT REGULATIONS AND POLICIES, AND HAVE EXPOSURE TO CERTAIN OTHER RISKS ASSOCIATED WITH OUR FOREIGN OPERATIONS. Domestic and foreign political developments and government regulations and policies directly affect our products and services in the United States and abroad. We currently have manufacturing and distribution relationships in North America, Germany, Asia and Mexico. The modification of existing laws, regulations or policies, or the adoption of new laws, regulations or policies could have a material adverse effect us. Our failure to comply with these laws and regulations could subject us to civil and criminal penalties which also could have a material adverse effect on us. In addition, our foreign operations are subject to certain risks which could have a material adverse effect on us. These risks include, but are not limited to: - - currency exchange rate fluctuations; - - tax rates in certain foreign countries potentially exceeding those in the United States and the potential subjection of foreign earnings to withholding requirements or the imposition of tariffs, exchange controls or other restrictions; and - - general economic and political conditions in countries where we operate and/or sell our products, including inflation. WE MAY BE UNABLE TO OBTAIN CERTAIN PARTS, RAW MATERIALS AND NATURAL GAS AT FAVORABLE PRICES. Generally, our raw material requirements are obtainable from various sources and in the desired quantities. However, our suppliers may be unable to provide parts at prices acceptable to us, on schedules or at the quality we require, and obtaining alternative parts could slow or stop production of our products and impair our ability to generate revenues. The principal raw materials which we require to manufacture our products are rubber, steel, zinc, nickel, boron and aluminum. The prices of these raw materials are subject to fluctuation. Similarly, the price of natural gas is subject to fluctuation. Our Wolverine division and the Filtration and Minerals Segment use a substantial amount of natural gas in connection with certain of their manufacturing operations. If we were forced to find alternate suppliers or if the price of one or more of the commodities rose substantially, we may be forced to expend unforeseen resources, which could have a material adverse effect on us. WE DEPEND ON THE SERVICES OF KEY INDIVIDUALS AND RELATIONSHIPS, THE LOSS OF WHICH WOULD MATERIALLY HARM US. Our success will depend, in part, on the efforts of our executive officers and other key employees. In addition, our future success will depend on, among other factors, our ability to attract and retain other qualified personnel. The loss of the services of any of our key employees or the failure to attract or retain employees could have a material adverse effect on us. In addition, the controlling shareholder of our parent, Granaria Holdings B.V., provides us with valuable strategic, operational and financial support, the loss of which could have a material adverse effect on us. WE MAY BE SUBJECT TO WORK STOPPAGES AT OUR FACILITIES OR OUR CUSTOMERS MAY BE SUBJECTED TO WORK STOPPAGES. As of May 31, 2003, approximately 30% of our work force was unionized. If our unionized workers were to engage in strikes, work stoppages or other slowdowns in the future, we could experience a significant disruption of our operations, which could have a material adverse effect on us. In addition, if a greater percentage of our work force becomes unionized, our business and financial results could be materially adversely affected. Many of our direct or indirect customers have unionized work forces. Strikes, work stoppages or slowdowns experienced by these customers or their suppliers could result in slowdowns or closures of assembly plants where our products are sold. Any interruption in the delivery of our customers' products could reduce demand for our products and could have a material adverse effect on us. WE ARE CONTROLLED BY A SMALL NUMBER OF SHAREHOLDERS WHOSE INTERESTS MAY CONFLICT WITH THE INTERESTS OF THE HOLDERS OF THE NOTES. We are a wholly-owned subsidiary of our parent whose only asset is our stock. Granaria Holdings B.V., indirectly owns 45.7% of the common stock of our parent and controls 62.5% of the common stock of our parent. ABN AMRO Participaties B.V. and Residex Capital IV, C.V. indirectly own 37.5% and 15.0%, respectively, of the common stock of our parent. Circumstances may occur in which the interests of Granaria Holdings B.V., ABN AMRO Participaties B.V. and Residex Capital IV, C.V. could be in conflict with the interests of the holders of the notes. If we encounter financial difficulties, or are unable to pay certain of our debts as they mature, the interests of our parent's shareholders (whether or not as holders of our equity securities) might conflict with those of the holders of the notes. In addition, our parent's shareholders may have an interest in pursuing acquisitions, divestitures or other transactions that, in their judgment, could enhance their equity investment, even though such transactions might involve risks to the holders of the notes. RISKS RELATED TO THE OFFERING NOT ALL OF OUR SUBSIDIARIES ARE GUARANTORS AND ASSETS OF THE NON-GUARANTOR SUBSIDIARIES MAY NOT BE AVAILABLE TO MAKE PAYMENTS ON THE NOTES. Not all of our subsidiaries will guarantee the notes. Unrestricted subsidiaries, foreign subsidiaries and receivables subsidiaries will not be guarantors. In the event of a bankruptcy, liquidation or reorganization of any of these non-guarantor subsidiaries, these non-guarantor subsidiaries will pay the holders of their debts and their trade creditors before they will be able to distribute any of their assets to us. The non-guarantor subsidiaries generated approximately 13% of our Adjusted EBITDA for the twelve-month period ended May 31, 2003 and held approximately 19% of our total assets as of May 31, 2003. YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES WILL BE SUBORDINATED TO THE RIGHTS OF OUR AND THE GUARANTORS' EXISTING AND FUTURE SECURED CREDITORS. ASSETS OF OUR NON-GUARANTOR SUBSIDIARIES MAY NOT BE AVAILABLE TO MAKE PAYMENTS ON THE NOTES. Holders of our secured indebtedness and the secured indebtedness of the guarantors will have claims that are senior to the claims of holders of the notes to the extent of the value of the assets securing such secured indebtedness. We expect we and our subsidiaries will be parties to a new senior secured credit facility, which is secured by substantially all of our assets, all of our capital stock, and all of the equity interests in our domestic subsidiaries. Our industrial revenue bonds will be secured by letters of credit issued under our new senior secured credit facility. The notes will be effectively subordinated to the debt obligations under our new senior secured credit facility and our industrial revenue bonds. If we are declared bankrupt or insolvent, or are liquidated, holders of our secured debt and the secured debt of our subsidiaries will be entitled to be paid from our assets before any payment may be made with respect to the notes. In addition, in that circumstance, holders of debt of our non-guarantor subsidiaries would be entitled to be paid from the assets of those subsidiaries before the proceeds of those assets could be applied to pay the notes. If any of the foregoing events occur, we cannot assure you that we will have sufficient assets to pay amounts due on our secured debt, the secured debt of the guarantors, the debt of our non-guarantor subsidiaries, and the notes. As a result, holders of the notes may receive less, ratably, than holders of our and the guarantors' secured debt and the holders of the debt of our non-guarantor subsidiaries. As of May 31, 2003, assuming this offering and the related transactions had occurred on that date, we would have had approximately $165.3 million of senior secured indebtedness outstanding and $85.0 million of additional senior secured indebtedness available to be borrowed under our new senior secured credit facility. OUR EXISTING DEBT AGREEMENTS CURRENTLY INCLUDE, AND OUR NEW SENIOR SECURED CREDIT FACILITY, WILL INCLUDE RESTRICTIVE AND FINANCIAL COVENANTS THAT LIMIT OR MAY IN THE FUTURE LIMIT OUR OPERATING FLEXIBILITY. The agreements governing our indebtedness obligations relating to our new senior secured credit facility, the notes and our industrial revenue bonds, as well as our unconsolidated accounts receivable asset-backed securitization, contain or will contain covenants that, among other things, restrict our ability to take specific actions in certain situations, even if we believe them to be in our best interest. These include restrictions on our ability to: - - incur additional debt, pay dividends or distributions on, or redeem or repurchase, our capital stock; - - permit liens on our assets to secure debt; - - merge, consolidate or enter into other business combination transactions; - - issue and sell capital stock of our subsidiaries; - - enter into certain transactions with affiliates; - - enter into sale and leaseback transactions; - - transfer or sell assets; and - - make certain investments, including investments in joint ventures. In addition, the agreements governing our senior secured credit facility and our unconsolidated accounts asset-backed receivable securitization, contain financial covenants which require us to comply with specified financial ratios and tests relating to leverage and fixed charge coverage ratios, among others. These restrictions could limit our ability to obtain future financings, make needed capital expenditures, withstand a future downturn in our business or the economy in general, or otherwise conduct necessary corporate activities. We may also be prevented from taking advantage of business opportunities that arise because of the limitations that these restrictive covenants impose on us. Our ability to comply with our covenants may be affected by events beyond our control, including prevailing economic, financial, and industry conditions. A breach of any of these covenants would result in a default under the applicable agreement. A default, if not waived, could result in acceleration of the obligations outstanding under, or termination of, the applicable agreement and in a default with respect to, and acceleration of the debt outstanding under, or termination of, the other agreements. If that should occur, we may not be able to pay all such debt or to borrow sufficient funds to refinance it. Even if new financing were then available, it may not be on terms that are acceptable to us. WE MAY NOT BE ABLE TO REPURCHASE THE NOTES OR REPAY DEBT UNDER OUR NEW SENIOR SECURED CREDIT FACILITY UPON A CHANGE IN CONTROL. Upon the occurrence of a "change of control," as defined in the indenture, holders of the notes may require us to offer to repurchase all or any part of their notes. We may not have sufficient funds at the time of the change of control to make the required purchases, or restrictions under our new senior secured credit facility may not allow such repurchases. Additionally, such a change of control may constitute a default under the terms of our new senior secured credit facility. In such event, the lenders under our new senior secured credit facility may accelerate the outstanding indebtedness thereunder, causing an event of default under the indenture. If the change of control were to cause a default under our new senior secured credit facility, we would be required to repay our outstanding indebtedness and cash collateralize our outstanding letters of credit under our revolving credit facility. As a result, in the event of a change of control, we may not have or be able to raise sufficient funds to repurchase the notes, repay outstanding indebtedness under our new senior secured credit facility and cash collateralize our outstanding letters of credit under our revolving credit facility. Furthermore, using available cash to fund the potential consequences of a change of control may impair our ability to obtain additional financing in the future. FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID GUARANTEES AND REQUIRE NOTE HOLDERS TO RETURN PAYMENTS RECEIVED FROM GUARANTORS. The notes will be guaranteed by our parent and substantially all of our domestic subsidiaries. The guarantees may be subject to review under United States bankruptcy law and comparable provisions of state fraudulent conveyance laws if a bankruptcy or reorganization case or lawsuit is commenced by or on behalf of our or one of a guarantor's unpaid creditors. Under these laws, if a court were to find in such a bankruptcy or reorganization case or lawsuit that, at the time any guarantor issued a guarantee of the notes: - - it issued the guarantee to delay, hinder or defraud present or future creditors; or - - it received less than reasonably equivalent value or fair consideration for issuing the guarantee at the time it issued the guarantee; and - it was insolvent or rendered insolvent by reason of issuing the guarantee; or - it was engaged, or about to engage, in a business or transaction for which its remaining unencumbered assets constituted unreasonably small capital to carry on its business; or - it intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature; then the court could void the obligations under the guarantee, subordinate the guarantee of the notes to that guarantor's other debt or take other action detrimental to holders of the notes and the guarantees of the notes. The measures of insolvency for purposes of these fraudulent transfer laws vary depending upon the law of the jurisdiction applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a guarantor would be considered insolvent if, at the time it incurred the debt: - - the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or - - it could not pay its debts as they become due. We cannot be sure as to the standard that a court would use to determine whether or not a guarantor was solvent at the relevant time, or, regardless of the standard that the court uses, that the issuance of the guarantees would not be voided or the guarantees would not be subordinated to the guarantors' other debt. If such a case were to occur, the guarantees of our domestic subsidiaries could also be subject to the claim that, since the guarantees were incurred for our benefit and only indirectly for the benefit of such guarantors, the obligations of such guarantors were incurred for less than fair consideration. THERE ARE RESTRICTIONS ON YOUR ABILITY TO TRANSFER OR RESELL THE NOTES WITHOUT REGISTRATION UNDER APPLICABLE SECURITIES LAWS. The notes are being offered and sold pursuant to exemptions from registration under United States and applicable state securities laws. Therefore, you may transfer or resell the notes in the United States only in a transaction registered under or exempt from the registration requirements of the United States and applicable state securities laws, and you may be required to bear the risk of your investment for an indefinite period of time. We are obligated to commence an offer to exchange the notes for equivalent notes registered under United States securities laws or, in certain circumstances, to register the reoffer and resale of the notes under United States securities laws. The SEC has discretion to declare a registration statement effective and may delay or deny the effectiveness of a registration statement for a variety of reasons. THERE IS NO ESTABLISHED TRADING MARKET FOR THE NOTES, AND YOU MAY NOT BE ABLE TO SELL THEM QUICKLY OR AT THE PRICE THAT YOU PAID. The notes are a new issue of securities for which there is no established public market. The initial purchasers have advised us that they intend to make a market in the notes, and the exchange notes, if issued, as permitted by applicable laws and regulations. However, the initial purchasers are not obligated to make a market in the notes or the exchange notes, and they may discontinue their market-making activities at any time without notice. The notes are being offered and sold only to qualified institutional buyers and to persons outside of the United States and are subject to restrictions on transfer. Therefore, we cannot assure you that an active market for the notes or exchange notes will develop or, if developed, that it will continue. Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the notes. We cannot assure you that the market, if any, for the notes or exchange notes will be free from similar disruptions or that any such disruptions may not adversely affect the prices at which you may sell your notes. In addition, subsequent to their initial issuance, the notes or exchange notes may trade at a discount from their initial offering price, depending upon prevailing interest rates, the market for similar notes, our performance and other factors. We expect that the notes will be eligible to be traded in The PORTAL(SM) Market. We do not intend to apply for listing of the notes on any securities exchange. EX-99.3 5 p68044exv99w3.txt EX-99.3 EXHIBIT 99.3 Business GENERAL We are a diversified manufacturer of advanced technology and industrial products that are used in the automotive, defense, aerospace, environmental testing, medical implant devices, pharmaceutical services, nuclear energy and food and beverage industries, in addition to other industrial arenas. Our long history of innovation in technology and engineering has helped us become a leader in certain markets in which we compete. Headquartered in Phoenix, Arizona, we have domestic operations throughout the United States and international operations in Mexico, Germany, Canada and Asia. Our business consists of three operating segments: the Automotive Segment, the Technologies Segment and the Filtration and Minerals Segment. - - Our Automotive Segment is operated under two separate business units, the Hillsdale division and the Wolverine division. The Hillsdale division produces NVH dampers for engine crankshafts and drivelines, driveline yokes, flanges, transmission and engine pumps, automatic transmission filtration products, chassis corners and knuckle assemblies and other precision machined components. The Wolverine division produces rubber-coated materials and gaskets for automotive and non-automotive applications. - - Our Technologies Segment develops and commercializes advanced power systems for defense, aerospace and commercial applications; produces boron isotopes for nuclear radiation containment; supplies ultra-clean scientific containers for pharmaceutical and environmental testing; and provides contract pharmaceutical services. - - Our Filtration and Minerals Segment mines, processes and markets diatomaceous earth for use as a filtration aid, absorbent, performance additive and soil amendment. For the twelve months ended May 31, 2003, we generated $687.9 million of net sales and $97.5 million of Adjusted EBITDA. The following chart sets forth the percentage of our net sales generated by each of our operating segments for the twelve months ended May 31, 2003. $687.9 MILLION REVENUE BY BUSINESS SEGMENT(1) (PIE CHART) (1) Our Automotive Segment consists of the Hillsdale and Wolverine divisions. The following table sets forth the primary product groups that each of our business segments develops and manufactures, the current markets for each of these product groups and major customers for each product group:

BUSINESS SEGMENT PRODUCTS CURRENT MARKET(S) MAJOR CUSTOMERS ---------------- -------- ----------------- --------------- AUTOMOTIVE SEGMENT Hillsdale Division NVH dampers, driveline Automotive OEMs and Allison, American yokes, flanges, Tier 1 automotive Axle, DaimlerChrysler, transmission and parts suppliers Delphi, Ford, GM, engine pumps, Honda, Mitsubishi, automatic transmission Nissan, Toyota, filtration products, Visteon chassis corners and knuckles and other precision machined components

Wolverine Division Rubber-coated Automotive OEMs and Automotive materials and gaskets Tier 1 and Tier 2 aftermarket, automotive parts industrial and suppliers consumer market, Tier 1 and Tier 2 automotive parts suppliers TECHNOLOGIES SEGMENT Power Group Batteries and power Defense, aerospace, Boeing, CECom systems medical, (US Army), Guidant, telecommunications, Lockheed Martin, and other commercial Loral, Raytheon, TRW industries Specialty Materials Specialty materials Nuclear energy, Dow Chemical, Group such as boron isotopes environmental testing Fisher Scientific, and ultra-clean and pharmaceutical Gemeinschaft, scientific containers testing Transnuclear, VWR International, Westinghouse Pharmaceutical Drugs and drug active Pharmaceutical Celegene, Elkins-Sinn, Services Group ingredients for Immunogen, Phoenix clinical trials, low Scientific, Wyeth volume drugs and radioisotopic tagging FILTRATION AND FILTER AID PRODUCTS, FOOD AND BEVERAGE AND ADM, BAYSHORE, MINERALS SEGMENT fine mineral other miscellaneous Canandaigua Wine, additives, and industries Cargill, Chevron, chemical and moisture Roquette, Valspar absorbents COMPETITIVE STRENGTHS We believe that we have the following competitive strengths: Strong market positions in niche markets. We have a strong supply position across a number of product lines, including NVH dampers, brake shims and advanced power systems, allowing us to compete effectively in each of the markets that we serve. Strong management team. Substantially all of the senior management team at both the corporate and divisional levels began working for us within the past two years. Our senior management team, led by our chief executive officer, John Weber, has an average of 20 years of experience in the automotive and other diversified industries and has experience in running a global business. Over the past 18 months, coinciding with the recent introduction of our newly revamped senior management team we have achieved the following milestones: - - Introduced a high performance culture; - - Reorganized and refocused our business lines; - - Implemented lean manufacturing and six sigma programs; - - Introduced low cost sourcing; - - Implemented successful cost-cutting initiatives such as pension plan and health care restructurings; - - Improved capital utilization; - - Reduced headcount while increasing productivity; - - Improved relations with our unions; and - - Divested marginal businesses. Strong financial performance. Under our new management team, we have increased our last twelve months Adjusted EBITDA over each of the last five quarters, despite overall cyclical weakness in the automotive sector and the economy. Strong prospects for future business. Due to its primarily Tier 1 status as a direct supplier to OEMs and the long-term nature of typical automotive platforms, our Hillsdale division enjoys strong visibility of its future revenues. The typical duration for these programs averages four to eight years. As a result of its recent success at winning new business, our Hillsdale division has already identified a significant portion of its planned business for the next five years. For example, based on internal and external estimates of North American automotive production, almost 100% of Hillsdale's projected fiscal year 2004 sales and approximately 75% of its projected fiscal year 2008 sales have already been identified. However, these programs are not contractually guaranteed and generally customers have the right to re-source products at any time. Our Wolverine division also maintains a strong backlog of business. In addition, as a result of our recent program awards, our Technologies Segment's backlog has increased significantly. Stable, diversified revenue base/business mix. Our products are highly diversified with applications in the automotive, defense, aerospace, environmental testing, medical implant devices, pharmaceutical services, nuclear energy and food and beverage industries, in addition to other industrial arenas. Our product diversification has helped us to offset the cyclicality of the automotive market with revenues from our Technologies Segment and Filtration and Minerals Segment, and also limited our dependence upon any individual raw material source for a substantial part of our business. Additionally, we have built a stable customer base that includes industry-leading companies who seek superior products and world-class execution. Except for Honda, which accounted for approximately 12% of our net sales for our fiscal year ended November 30, 2002, no customer represents more than 10% of our net sales. Proven history of technological innovation and product development. We have been in business for 160 years and have been at the forefront of technological innovation and product development in many of the markets in which we compete. Our history includes such achievements as the following: - - We pioneered and perfected the technology to produce rubber-coated paper and metal using the line coating process; - - We developed the first advanced chemistry special purpose battery in 1945; - - Our batteries powered the return of the Apollo 13 spaceship; and - - We were the first supplier in North America to offer secondary micro fluid filtration components for automatic transmissions. In addition, our Technologies Segment averages approximately $8 million per year of customer-funded research and development activities and recently an increasing percentage has been for commercial products, such as medical implant devices. BUSINESS STRATEGY A key component of implementing our business strategy involves recruiting highly qualified leadership to operate our business segments autonomously. Each of our business segments has developed its own business strategy for capitalizing on growth opportunities for its existing markets as well as penetrating new markets. Our overall business strategy involves: Expanding our strong technological capabilities and customer relationships We plan to leverage our strong positions in certain markets, our long established customer relationships and our strong technology capabilities as a means of further penetrating existing markets that we serve and penetrating new markets for our technologies. We believe there are growth opportunities in each of our business segments. - Automotive Segment. Our Hillsdale division plans to rely on its strong proprietary damper technology and new design and predictive software to identify and resolve customer NVH problems. This initiative has already led to significant new business for its damper products. In addition, our Hillsdale division has introduced new micro bypass filtration technology for transmission, engine and power steering filtration applications that will improve filtration performance, which we expect to significantly reduce warranty issues for customers. Our Hillsdale division seeks to implement these new problem-solving technologies and improved cost structure as a means of generating additional business from existing customers. Our Wolverine division has a strong market position in rubber-coated metal technology in the automotive OEM market and in certain non-automotive applications. It has recently penetrated the brake aftermarket and the small engines market (e.g. motorcycles). We believe there are significant additional opportunities for further penetration of these new markets, as well as expansion into other high performance applications in non-automotive markets, such as compressor applications. - Technologies Segment. The Power Group, within our Technologies Segment, has a long history of successfully implementing leading-edge technology for demanding battery and power applications. The Power Group often licenses this technology from government entities. The Power Group's strategy involves leveraging its reputation in this field into increased penetration of existing defense and aerospace markets. The Power Group also plans to develop new commercial applications through joint ventures, licenses, alliances and other technology initiatives. The Power Group has entered into or agreed in principle to enter into, new joint ventures or licenses for technology in high performance, low weight specialty lead acid batteries, fast battery recharging technology and nano-material medical battery technology. We believe the potential for high sales growth in these markets will be one of the main growth drivers for this segment. - Filtration and Minerals Segment. Our Filtration and Minerals Segment's core strategy involves moving into certain higher margin segments of its current markets. We also believe there are significant opportunities to penetrate new markets where our filtration technologies can add significant value, including potable drinking water, industrial and pharmaceutical filtration applications, as well as to increase sales of diatomaceous earth for soil amendments and paper industry processing. Focusing on operating efficiency and optimal capital utilization Another key element of our business strategy involves improving our cost structure. We believe our continual focus on improving our profit margins and cost effectiveness will provide a competitive advantage in all aspects of our business. Our gross margin improved from 18.9% in fiscal year 2001 to 21.7% in fiscal year 2002, and is expected to improve in fiscal year 2003. Examples of our commitment to improving our cost structure include: - - Applying lean manufacturing and six sigma programs across our business segments. Productivity improvements from applying these programs in our Hillsdale division and in our Technologies Segment are ahead of our expectations and we believe provide a basis for substantial future savings; - - Implementing low cost production in Mexico and sourcing from China and Southeast Asia. In order to improve productivity, our Hillsdale division is increasing production in Mexico, where we believe available plant infrastructure capacity exists. The Technologies Segment has also begun sourcing commercial batteries from China and Southwest Asia, including a new enhanced lead acid battery from China; and - - Improving factory automation to reduce costs and improve quality. Specific projects underway include automated defense battery production lines for which government funding is being negotiated, automated vision quality and coating line inspection systems at our Wolverine facilities, and automated packaging lines for our filtration and minerals products. Divesting non-core business divisions We continually evaluate the profitability and competitive strength, market trends and conditions and future prospects for our various businesses. An outcome of this process is that we have sold or exited marginal businesses that we did not believe would appropriately contribute to our goal of sustained financial performance improvement. We anticipate selling substantially all of our germanium business within our Technologies Segment for a purchase price of approximately $15 million. This business contributed $6.6 million in net sales and $0.7 million of Adjusted EBITDA during the six months ended May 31, 2003 and $15.0 million in net sales and $1.7 million of Adjusted EBITDA for fiscal year ended November 30, 2002. We cannot assure you that this transaction will be completed. We sold our Hillsdale UK automotive operation in June 2003. In 2002, we sold our Precision Products business and exited our gallium-based business due to continued soft demand from customers in the telecommunications and semiconductor markets. In 2001, we sold our Construction Equipment division. In 2000, we sold five automotive and industrial businesses. BUSINESS SEGMENTS AUTOMOTIVE SEGMENT General Our Automotive Segment, consisting of the Hillsdale and Wolverine divisions, supplies the global automotive market with a diverse range of products. Together these two divisions produce systems, components and materials for sport utility vehicles, trucks, vans and passenger cars. We sell these products to major automotive manufacturers and Tier 1 and Tier 2 suppliers in North America, Europe and Asia. Hillsdale division The Hillsdale division provides NVH dampening solutions to the worldwide automotive market. The Hillsdale division also supplies complex machined components for engine, transmission, axle/driveline and chassis/suspension applications. The Hillsdale division has a diverse customer base with over 60% of its sales made directly to automotive vehicle manufacturers. The Hillsdale division utilizes its nine manufacturing facilities located throughout the United States and Mexico to produce its diverse product line. It employs complex manufacturing and quality control systems such as robotic material handling and assembly, lean manufacturing and six sigma methodologies to produce high quality and often custom automotive components and systems. The Hillsdale division will expand the use of low cost production in Mexico and sourcing from China and Southeast Asia to remain competitive across its product lines. For the twelve months ended May 31, 2003, approximately 35% of the Hillsdale division's sales were to Japanese operators in North America and 18% to General Motors for use in large engine truck and SUV platforms. Sales to Honda represent approximately 25% of the Hillsdale division's net sales and approximately 12% of our consolidated net sales in fiscal year 2002. We believe the Hillsdale division is North America's leading torsional vibration damper manufacturer. Although competitive conditions are intense in the automotive parts industry, the Hillsdale division's primary product groups are incorporated into automotive products that typically run for four to eight years. However, these programs are not contractually guaranteed, and generally customers have the right to re-source products at any time. Major products - - Dampers. Dampers are vibration control devices which reduce the torsional stress vibrations caused by internal combustion engine systems, thereby alleviating the stress on shafts and relaxing the flex points. Dampers reduce fatigue and prevent cracking thereby enhancing the durability of engines and their components. We believe the Hillsdale division is widely recognized as North American's leading manufacturer of torsional vibration damper devices for use in engine and drivetrain applications, with custom rubber compounding and manufacturing capabilities. - - Precision Machined Components. The Hillsdale division also manufactures a wide array of precision machined metal components. These parts, made of iron, aluminum, steel and magnesium, include flanges, connecting rods, yokes, driveshaft support brackets, front engine covers and pump housings. - - Chassis Corners and Knuckles. Corners and knuckles are structural components of vehicle chassis and suspension systems. The Hillsdale division's corner and knuckle products include front and rear steering knuckles and damper forks. - - Pumps. The Hillsdale division also designs and manufactures both fixed and variable pressure style pumps for engines and transmissions. Its products includes complete pump components and complete oil pump assemblies. Although one of its major pump programs with Ford is being phased out, the Hillsdale division believes that certain market trends present new business opportunities for its pump products. We believe that increased fuel efficiency requirements for motor vehicles will drive the market towards a larger demand for variable displacement pumps. To achieve improved fuel efficiency, vehicle manufacturers are developing vehicles that idle at lower revolutions per minute (RPMs) requiring either a larger and more burdensome pump or a variable displacement pump. The Hillsdale division currently is exploring new technologies to address this market trend. Business strategy. Key elements of the Hillsdale division's business strategy include: - - Improving efficiency, cost structure and quality through lean manufacturing, six sigma and value added engineering design; - - Expanding production at its Mexico operation and expanding the use of low cost sourcing from China, India and Southeast Asia; - - Optimizing capital deployment by focusing on higher margin and lower capital intensive areas such as dampers, filtration and driveline components; - - Continuing to invest in new high value technologies in damper design and predictive testing, and in micro bypass filtration for transmissions, engines and power steering, to solve customer problems and strengthen customer relationships, and leverage these technologies to drive additional penetration of other existing products to customers; and - - Exploring promising concepts to develop new pump technologies that offer a unique competitive technical and value added advantage. Wolverine division We believe our Wolverine division is among the world's largest and most diversified suppliers of rubber-coated metal and gasket material, designed for superior performance under extreme conditions, for sealing, sound dampening and other applications in the automotive, industrial and consumer markets. The Wolverine division pioneered and perfected the technology to produce rubber-coated paper and metal using the line coating process. Typical applications include sealing systems (i.e., gaskets) for engines, transmissions and compressors. These materials are also used as an NVH suppressant for brakes, a product in which we believe Wolverine is the global market leader. The Wolverine division manufactures the rubber-coated materials in the United States. Certain sealing and insulating products, such as compressor gaskets for air conditioning units and brake noise insulators, are stamped out of the rubber-coated materials both in the United States and in Germany. Wolverine has installed additional manufacturing capacity and is focused on several growth initiatives, including new market opportunities in the brake aftermarket and small engines markets, as well as increased penetration of the global market. The Wolverine division sells primarily to Tier 1 and Tier 2 suppliers, with nearly 85% of its sales to the automotive end-market (OEM and OEM replacement parts). The Wolverine division has a diverse customer base with over 250 customers. Major products - Brake products. The Wolverine division's brake product segment focuses on the design, manufacture and sale of shims and sound damping materials for disc brakes and replacement part markets. The Wolverine division combines substrates, elastomer coatings, attachment options and adhesive layers in different formulations to arrive at economical products to meet a wide range of application demands. The Wolverine division's aftermarket products now account for nearly 10% of its brake product sales and it plans to continue to penetrate this market to mitigate the impact of vehicle production cycles. - Gasket and gasket materials. The Wolverine division supplies a wide range of rubber-coated metals for sealing and sound damping and other applications in the automotive OEM and aftermarket, and industrial and consumer markets. The Wolverine division's gaskets and gaskets materials are used in many automotive applications including cylinder head and various other engine gaskets, fuel system gaskets and transmission gaskets. The increased demand for more fuel efficient vehicles and reduced warranty expense has led to an increased demand for more sophisticated sealing applications. Aftermarket applications now account for nearly 10% of all of the Wolverine division's gasket related sales. - Compressor gaskets. The Wolverine division's compressor gaskets focus on the design, manufacture and sale of gaskets and gasket materials for industrial and consumer product applications including small engines, industrial air compressor systems, air power tools, commercial and residential air conditioning systems and fluid pumps and pneumatic applications. The Wolverine division plans to further penetrate these higher margin applications by leveraging its reputation and market leading position as a premier supplier of gasket products and materials. Business strategy. Key elements of the Wolverine division's business strategy include: - Penetrating the brake aftermarket market to mitigate the impact of OEM production cycles; - Leveraging its strong technology position into new applications such as small engines, acoustic panels, and industrial gasket applications; - Expanding globally by replicating its success in developing Japan and Korea businesses into other emerging markets such as China, India and Southeast Asia; and - Leveraging existing availability capacity to realize the above opportunities. TECHNOLOGIES SEGMENT General Our Technologies Segment consists of a diverse group of businesses with a broad spectrum of technologies and capabilities and operates these businesses through the following three divisions: the Power Group, the Specialty Materials Group, and the Pharmaceutical Services Group. These divisions provide innovative advanced technology products for aerospace, defense, and commercial power, nuclear energy, environmental and pharmaceutical applications. Power group The Power Group supplies batteries and power systems for aerospace, defense, medical implant and other specialty commercial applications. It has been providing the aerospace and defense industries with high quality, reliable batteries for more than 50 years. Nickel hydrogen and other types of batteries manufactured by the Power Group provide power for commercial and government satellites and spacecraft, serve as launch batteries in booster rockets and support a variety of military applications, including missiles, "smart weapon" munitions and mobile radio communications. Our batteries power a significant number of the United States' most advanced communications and surveillance satellites. Our batteries have been on every United States manned space flight, and our silver zinc batteries provided the power for the safe return to earth of the famed Apollo 13 flight crew. The Power Group also manufactures a line of batteries sold commercially for use in items such as medical implants, industrial fire and burglary alarm systems, telecommunications backup systems and remote global positioning units. Defense and space power products. Over 90% of the Power Group's revenue comes from military or space applications. Major customers include Raytheon, Lockheed Martin, Boeing and the United States Army. The Power Group is looking to expand its presence in the commercial market through joint ventures, licensing, and other technology development initiatives. These new market opportunities presently include high performance lead-acid batteries, implantable medical device batteries, fast battery chargers, and long life batteries for remote applications, such as coastal buoys and remote monitoring stations. Commercial power products. The Power Group, through its Commercial Power division, produces batteries for commercial applications in various high growth market segments. Its commercial line of batteries include Carefree(R) batteries and Keeper(TM) II batteries. Carefree(R) cells and batteries, based upon lead acid, nickel cadmium, nickel metal hydride and lithium-ion chemistries, are long-life rechargeable batteries. Common applications for these batteries include emergency lighting, fire and security systems, handheld power tools, telecommunications back-up systems and wheelchairs and scooters. Keeper(TM) II cells and batteries, based upon lithium thionyl chloride, lithium manganese dioxide and lithium sulfur dioxide chemistries, are non-rechargeable batteries. Common applications include automotive toll tags, memory back-up for computer servers and radio frequency transponders. Specialty materials group The Specialty Materials Group manufactures and markets high purity specialty material compounds for a wide range of services and products. The Specialty Materials Group supplies isotopically enriched boron and isotopically purified zinc, which are used in nuclear power plants for radioactive absorption and containment. The Specialty Materials Group also supplies ultra-clean containers for use in pharmaceutical and environmental testing. Boron and related products. The Specialty Materials Group uses sophisticated manufacturing processes to produce isotopically pure boron, which involves the separation of boron into its isotopes, and to produce high purity enriched boron compounds. The Specialty Materials Group maintains a strong commitment to delivering innovative products such as BondAids(TM), a ceramic concrete product based on technology licensed from the Argonne National Laboratory with radiation absorption qualities that is used in containers for radioactive and hazardous waste. This product is in the initial commercialization phase and the Specialty Materials Group has recently received a $3.0 million initial order from the United States Government. The Specialty Materials Group also produces depleted zinc and lithium products for nuclear containment applications. Environmental Sciences & Technology. Our Environmental Sciences & Technology (ESAT) division is the leading resource for glassware and plasticware cleaning and treating services. This division supports the pharmaceutical/biotech, semiconductor and environmental industries globally with off-the-shelf and customized solutions. ESAT offers the following products and services: - Ultra-high purity chemical filtration and packaging; - Low-particle/low-metals certified containers; - EPA certified products; - Chemical preservation and preservatives; and - Certificates of analysis -- products & services. Pharmaceutical services group The Pharmaceutical Services Group manufactures drug active ingredients for pharmaceutical companies principally in small batches for clinical trials and low volume prescription drugs. Our primary customers for these products are Wyeth, Immunogen and Celgene. The Pharmaceutical Services Group has manufactured hundreds of new drug candidates for use in pre-clinical studies, toxicology studies, clinical trials and commercial use. The manufacturing of these drugs requires specially designed facilities and operating systems to ensure safe handling and to prevent cross-contamination with other drugs. Our high level facility in Harrisonville, Missouri provides the rigorous controls necessary to develop and manufacture both new and existing anticancer drugs and other high potency compounds. We believe this facility is one of only a few facilities worldwide specifically designed to manufacture this class of drugs. Business strategy Key elements of the Technologies Segment's business strategy include: - - Improving its efficiency and cost structure through six sigma, low cost sourcing, factory automation and consolidation of its supply base; - - Leveraging strengthened customer relationships with key defense customers, and their increased desire for a reliable United States based supplier, into an additional share of existing business; - - Leveraging its strong reputation and technology development and commercialization capability to exploit significant commercial business development opportunities, including penetrating the following specialty markets: - Implantable medical devices; - Specialty transportation (forklifts, golf carts, trucking); and - Remote applications (coastal buoys, monitoring stations and telecom back-up). - - Leveraging the Specialty Materials Group's newly developed BondAids(TM) product in helping to decommission aging nuclear reactors and storing spent fuel on a global basis. FILTRATION AND MINERALS SEGMENT General Our Filtration and Minerals Segment mines, processes and markets diatomaceous earth and perlite products. The primary uses of its products are as a filtration aid for removing solids and impurities, as a fine mineral additive for enhancing the surface of products, and as a liquid absorbent. Filtration aids are used in processing food sweeteners (sugar and corn syrup), filtration of beer, wine and fruit juices, and in swimming pool filtration systems. Fine mineral additives are sold to the paint and plastics industries. Diatomaceous earth absorbents are used as chemical and moisture absorbents in industrial and chemical plants and as a soil enhancement in golf courses, sports fields and horticultural applications. The Filtration and Minerals Segment serves over 35 markets and more than 2,000 customers around the globe with its various products. Major products Diatomaceous earth, or diatomite, is a silica material that is odorless, tasteless and highly stable. With its natural honeycomb structure, strength and low bulk density, diatomite is an ideal medium for filtration applications. Perlite is a mineral of volcanic origin, also with natural qualities that make it valuable as a filter aid. These products are used in a variety of industrial and commercial applications, including liquid solid separation in food and beverage, chemical, pharmaceutical and wastewater industries and as catalyst carriers and for liquid waste solidification. The Filtration and Minerals Segment sells its filter aid products under the trademark CELATOM(R) both directly and through distributors to many customers. The Filtration and Minerals Segment also sells absorbent products known as FLOOR DRY(TM), as well as AXIS(TM) and PLAY BALL!(TM) soil amendments and conditioners. Business strategy Key elements of the Filtration and Minerals Segment's business strategy include: - - Improving its efficiency and cost structure through six sigma and packaging line automation; - - Using its existing technology and customer demand for a second source of supply to increase penetration of brewing and additives markets; and - - Exploiting its technology position to expand into new markets, including potable drinking water filtration to meet new federally mandated water standards effective 2006, industrial and pharmaceutical filtration, soil amendments and paper industry processing aids. COMPETITION Our three business segments collectively manufacture hundreds of products for customers worldwide. The economic and competitive conditions at any given time in the markets we serve are likely to vary significantly from market to market. Our competitive position for our products varies substantially across product lines. Automotive Segment. Our Automotive Segment competes with other automotive parts suppliers as well as OEMs themselves. Competition in the automotive parts industry is intense on a global basis but varies along product lines. Generally, competitive conditions in the automotive parts industry are characterized by the decrease in the number of competitors, increased foreign competition, particularly from Asia, increased emphasis on quality and intense pricing pressures from automotive manufacturers. Technologies Segment. Our Technologies Segment competes in several industries and industry sub-segments. The Power Group's battery and power products serve several industries including defense, aerospace and specialty commercial industries and competes with many different companies. The Power Group supplies batteries and power components for use in defense and aerospace applications in North America. SAFT, a subsidiary of Alcatel, is the Power Group's leading competitor with respect to these products. The Specialty Materials Group supplies enriched boron, which is used in nuclear power plants for radioactive absorption and containment. Its enriched boron products compete primarily on the basis of cost versus natural boron, although there are a few smaller competitors in the enriched boron market. The Pharmaceutical Services Group has numerous small competitors in a highly fragmented, high margin market. Filtration and Minerals Segment. Our Filtration and Minerals Segment competes primarily on the basis of price in a market with relatively few competitors, one of which is significantly larger than us. RAW MATERIALS The prices of our raw materials are subject to volatility. Our principal raw materials consist of rubber, steel, zinc, nickel, boron, and aluminum. In addition, due to their manufacturing processes, our Filtration and Minerals Segment and our Wolverine division consume large amounts of natural gas. Generally, these raw materials are commodities that are widely available. Although we have alternate sources for these commodities, our policy is to establish arrangements with select vendors based upon price, quality and delivery terms. We also are looking to further diversify our supplier base and increase the percentage of our materials purchased in lower cost regions, such as Asia, Mexico, and Eastern Europe. INTELLECTUAL PROPERTY We own or license a number of patents, primarily in the United States. Many of our products incorporate a wide variety of technological innovations, some of which are protected by individual patents. Many of these innovations are treated as trade secrets with programs in place to protect these trade secrets. No one patent or group of related patents is material to our business. We also have numerous trademarks, including the EaglePicher name. GOVERNMENT CONTRACTS Our Technologies Segment has contracts, directly or indirectly, with the United States government that have standard termination provisions permitting the United States government to terminate the contracts at its convenience. However, if contracts are terminated, we are entitled to be reimbursed for allowable costs and profits through the date of the contract termination. The United States government contracts are also subject to reduction or modification in the event of changes in Government requirements or budgetary constraints. During fiscal year 2002, a majority of our Technologies Segment's sales were directly with the United States government or with other companies where the United States government was the end customer. RESEARCH AND DEVELOPMENT We spent approximately $11.7 million in fiscal year 2000, $10.4 million in fiscal year 2001 and $9.8 million in fiscal year 2002 on research and development activities, primarily for the development of new products or the improvement of existing products. Included in these amounts are costs reimbursed by customers for customer sponsored research activities of $7.5 million in fiscal year 2000, $9.3 million in fiscal year 2001 and $8.8 million in fiscal year 2002. EMPLOYEES As of May 31, 2003, we employed approximately 4,100 persons. Approximately 30% of our employees are represented by labor organizations. We believe that our relations with our employees are generally good. ENVIRONMENTAL MATTERS We are subject to extensive and evolving Federal, state, local and international environmental laws and regulations. Compliance with such laws and regulations can be costly. Governmental authorities may enforce these laws and regulations with a variety of enforcement measures, including monetary penalties and remediation requirements. We have policies and procedures in place to ensure that our operations are conducted in compliance with such laws and regulations and with a commitment to the protection of the environment. We are involved in various stages of investigation and remediation of soil and groundwater at approximately 15 sites as a result of past and present operations, including currently owned and formerly owned plants. Also, we have received notice that we may have liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, as a potentially responsible party at approximately 20 additional sites, but we believe that any potential liability would not be material. The ultimate cost of site remediation is difficult to predict given the uncertainties regarding the extent of the required remediation, the interpretation of applicable laws and regulations and alternative remediation methods. Based on our available information and experience with environmental remediation matters, we have accrued reserves for our best estimate of remediation costs, and we do not believe that remediation activities will have a material adverse impact on our financial condition, results of operations or cash flows. In addition, in the course of our bankruptcy described below, we obtained an agreement with the United States Environmental Protection Agency and Department of Interior and the states of Arizona, Michigan and Oklahoma whereby we have limited responsibility to them for response costs and natural resource damages for environmental contamination of sites not owned by us that is attributable to pre-bankruptcy activities. We retain all of our defenses, legal or factual, at such sites. However, if we are found liable for such contamination at any of these sites, our liability is capped at approximately 37%. We had total expenditures for environmental compliance and remediation of $11.3 million in 2000, $9.1 million in 2001, and $10.0 million in 2002. We estimate that we will spend $12.8 million during 2003 on environmental compliance and remediation and that such expenditures will be in an approximately similar amount in fiscal year 2004. As of November 30, 2002, we had $17.7 million accrued, and as of May 31, 2003, we had $13.6 million accrued, primarily for sold divisions or businesses related to legal and environmental remediation matters. In addition, we had $2.4 million recorded at November 30, 2002, and $1.6 million recorded at May 31, 2003 in other accrued liabilities related to environmental remediation liabilities for our on-going businesses. While we believe these reserves are adequate based on current circumstances, we cannot guarantee that our actual losses will not exceed our reserves or be material. PROPERTIES Our principal fixed assets consist of our manufacturing, processing and storage facilities, and our transportation and plant vehicles. We have pledged substantially all of our owned properties and assets as collateral under our existing senior secured credit agreement. The following table sets forth selected information regarding our manufacturing and processing facilities:

BUSINESS SEGMENT LOCATION DESCRIPTION OF PROPERTY INTEREST ---------------- -------- -------------------------------- AUTOMOTIVE Domestic Blacksburg, Virginia (2 plant owned locations) Hillsdale, Michigan (4 plant owned locations) Hamilton, Indiana owned Inkster, Michigan owned Jonesville, Michigan owned Leesburg, Florida owned Manchester, Tennessee leased Mount Pleasant, Michigan owned Traverse City, Michigan owned Vassar, Michigan leased International Ohringen, Germany owned San Luis Potosi, Mexico owned Tamworth, England owned TECHNOLOGIES Domestic Colorado Springs, Colorado owned Galena, Kansas owned Grove, Oklahoma owned Harrisonville, Missouri owned Joplin, Missouri (6 plant locations) owned & leased Lenexa, Kansas owned Miami, Oklahoma (3 plant locations) owned & leased Quawpaw, Oklahoma (2 plant locations) owned Seneca, Missouri owned Stella, Missouri owned International Vancouver, Canada leased FILTRATION AND MINERALS(1) Domestic Clark Station, Nevada owned Lovelock, Nevada owned Vale, Oregon owned

OTHER Domestic Lubbock, Texas owned (1) In addition to the facilities listed, the Filtration and Minerals Segment has office space in Reno, Nevada, and mining locations in Nevada and Oregon. We own or lease additional office space, including our corporate headquarters in Phoenix, Arizona as well as our former corporate headquarters in Cincinnati, Ohio. We also have sales offices in Europe and Asia, and warehouse space for certain of our operations. We believe our properties are adequate and suitable for our business and generally have capacity for expansion of existing buildings on owned real estate. Plants range in size of floor space and generally are located away from large urban centers. Substantially all of our buildings have been well maintained, and are in sound operating condition. Mining The Filtration and Minerals Segment owns and leases diatomaceous earth and perlite mining locations as well as numerous claims in Nevada and Oregon. Our owned and leased mining properties, including those not currently being mined, comprise a total of approximately 10,500 acres in Storey, Lyon, Pershing and Churchill Counties in Nevada and 5,000 acres in Malhuer and Harney Counties in Oregon, as well as rights on 2,500 acres not currently being mined in Siskiyou County in California. We continually evaluate potential mining properties, and additional mining properties may be acquired in the future. The Filtration and Minerals Segment extracts diatomaceous earth and perlite through open-pit mining using a combination of bulldozers, wheel type tractor scrapers, excavators and articulated trucks. We transport the extracted materials by truck to separate processing facilities. A total of approximately 374,000 tons of diatomaceous earth and perlite were extracted by our mining properties in Nevada and Oregon in 2002. On average, we have extracted a total of approximately 423,000 tons of diatomaceous earth and perlite from our Nevada and Oregon properties each year for the past six years. As ore deposits are depleted, we reclaim the land in accordance with plans approved by the relevant Federal, state and local regulators. The following mining properties are of major significance to our mining operations. Nevada. Our diatomaceous earth mining operations in Nevada commenced in 1945 in Storey County. We commenced perlite-mining operations in Churchill County in 1993. We extracted a total of approximately 223,000 tons of diatomaceous earth and perlite from our Nevada mining properties in 2002 and, on average, extracted a total of approximately 266,000 tons of diatomaceous earth and perlite from our Nevada mining properties each year for the past six years, or approximately 60% of our total diatomaceous earth and perlite production (and including 100% of our perlite production). Approximately 265 acres in Storey County, where mining activities commenced 57 years ago, and approximately 62 acres in the Counties of Lyon and Churchill are actively being mined by us for diatomaceous earth. Diatomaceous earth from Storey, Churchill and Lyon mining properties is processed at the Clark Station, Nevada facility. We believe our diatomaceous earth reserves in the Counties of Storey, Churchill and Lyon, including mining properties not actively being mined, are in excess of 30 years at current levels of extraction based upon estimates prepared by our mining and exploration personnel. Diatomaceous earth extractions from the Pershing mining properties, which commenced more than 42 years ago, are processed at the Lovelock, Nevada facility. Approximately 975 acres are actively being mined for diatomaceous earth in Pershing. We believe our diatomaceous earth reserves in Pershing, including mining properties not actively being mined, to be in excess of 15 years at the current level of extraction based on estimates prepared by our mining and exploration personnel. Beginning in 1993, we have actively mined approximately 25 acres in Churchill County for perlite, which is processed at the Lovelock, Nevada facility. We believe our perlite reserves in Churchill County, including mining properties not actively mined, are in excess of 30 years at the current level of extraction based upon estimates prepared by our mining and exploration personnel. Oregon. We commenced mining diatomaceous earth in Oregon in 1985 at our mining properties in Harney and Malhuer Counties. Approximately 88 acres in Harney County and 80 acres in Malhuer County are actively being mined. Diatomaceous earth extracted from these mines is processed at our Vale, Oregon facility. We extracted approximately 151,000 tons of diatomaceous earth from the Harney County and Malhuer County mining properties during 2002 and on average, have extracted approximately 158,000 tons of diatomaceous earth each year for the past six years from these mining properties, or approximately 40% of our total diatomaceous earth and perlite production. We believe our diatomaceous earth reserves in Harney County and Malhuer County, including mining properties not actively being mined, are in excess of 30 years at the current level of extraction based on estimates prepared by our mining and exploration personnel. LEGAL PROCEEDINGS As a result of sales prior to 1971 of asbestos-containing insulation materials, EaglePicher Incorporated became the target of numerous lawsuits seeking damages for illness resulting from exposure to asbestos. By the end of 1990, we had paid hundreds of millions of dollars to asbestos litigation plaintiffs and their lawyers. In January 1991, we filed for protection under Chapter 11 of the United States Bankruptcy Code as a direct consequence of cash shortfalls attributable to pending asbestos litigation liabilities. On November 29, 1996, we emerged from bankruptcy as a reorganized company. Pursuant to Section 524 of the United States Bankruptcy Code, the bankruptcy court issued a permanent injunction that precludes holders of present and future asbestos-related personal injury claims from pursuing their claims against us. Although not expressly authorized by Section 524, the bankruptcy court's permanent injunction also precludes holders of present and future lead-related personal injury claims from pursuing their claims against us. Consequently, we have no further liability in connection with such asbestos-related or lead-related personal injury claims. Instead, those claims will be channeled to the Eagle-Picher Industries Personal Injury Settlement Trust (the "PI Trust"), which is an independently administered qualified settlement trust established to resolve and satisfy those claims. Under the terms of our bankruptcy reorganization, all of our outstanding common stock was cancelled and our newly issued common stock, as a reorganized entity, was contributed to the PI Trust, together with certain notes and cash. On February 24, 1998, our parent acquired from the PI Trust for $702.5 million. A final distribution of approximately $10.9 million was made by us to the PI Trust and all other eligible unsecured claimants in June 2001. On January 25, 1996, Richard Darrell Peoples, a former employee, filed a lawsuit in the United States District Court for the Western District of Missouri claiming that we violated the federal False Claims Act based on alleged irregularities 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. 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. 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. We intend to contest these lawsuits vigorously and do not believe that these lawsuits will result in a material adverse effect on our financial position, results of operation or cash flows. In addition, 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. EX-99.4 6 p68044exv99w4.txt EX-99.4 . . . EXHIBIT 99.4 Index to financial statements

PAGE ---- EAGLEPICHER HOLDINGS, INC. AND SUBSIDIARIES ANNUAL FINANCIAL STATEMENTS (AUDITED) Independent Auditors' Report..................................... F-2 Consolidated Balance Sheets as of November 31, 2001 and 2002.......................................................... F-3 Consolidated Statements of Income (Loss) for the years ended November 30, 2000, 2001 and 2002........................ F-4 Consolidated Statements of Shareholders' Equity (Deficit) for the years ended November 30, 2000, 2001 and 2002.......... F-5 Consolidated Statements of Cash Flows for the years ended November 30, 2000, 2001 and 2002.............................. F-6 Notes to Consolidated Financial Statements....................... F-7

F-1 EAGLEPICHER HOLDINGS INC. AND SUBSIDIARIES INDEPENDENT AUDITORS' REPORT The Board of Directors EaglePicher Holdings, Inc.: We have audited the accompanying consolidated balance sheets of EaglePicher Holdings, Inc. and subsidiaries as of November 30, 2001 and 2002, and the related consolidated statements of income (loss), shareholders' equity (deficit), and cash flows for each of the three years in the period ended November 30, 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of EaglePicher Holdings, Inc. as of November 30, 2001 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended November 30, 2002, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note Q, the accompanying 2000 and 2001 financial statements have been restated to reflect the appropriate adoption of EITF 00-10, "Accounting for Shipping and Handling Fees and Costs," which resulted in an increase to Net Sales and a corresponding increase to Cost of Products Sold for transportation costs billed to customers. /s/ DELOITTE & TOUCHE LLP Cincinnati, Ohio February 3, 2003, except for Note R, as to which the date is July 11, 2003. F-2 EAGLEPICHER HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS NOVEMBER 30, 2001 AND 2002 (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AND PAR VALUE AMOUNTS)

2001 2002 --------- --------- ASSETS Current Assets: Cash and cash equivalents .......................................... $ 24,620 $ 31,522 Receivables, net of doubtful accounts of $1,000 in 2001 and $435 in 2002 ................................................. 97,634 21,473 Retained interest in Eagle-Picher Funding Corporation, net of allowance of $700 in 2002 ..................................... -- 29,400 Costs and estimated earnings in excess of billings ................. 10,744 16,942 Inventories ........................................................ 66,449 54,118 Assets of discontinued operations .................................. 13,646 9,974 Prepaid expenses and other assets .................................. 14,667 15,437 Deferred income taxes .............................................. 24,287 10,798 --------- --------- 252,047 189,664 Property, Plant and Equipment, net ................................... 210,421 177,135 Goodwill, net of accumulated amortization of $57,435 in 2001 and $73,257 in 2002 ................................................ 179,762 163,940 Prepaid Pension ...................................................... 54,676 54,796 Other Assets, net .................................................... 32,028 27,506 --------- --------- $ 728,934 $ 613,041 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current Liabilities: Accounts payable ................................................... $ 83,863 $ 83,621 Current portion of long-term debt .................................. 39,820 18,625 Compensation and employee benefits ................................. 18,334 20,208 Billings in excess of costs and estimated earnings ................. 2,088 944 Accrued divestiture reserve ........................................ 17,810 17,662 Liabilities of discontinued operations ............................. 5,599 3,417 Other accrued liabilities .......................................... 36,125 36,506 --------- --------- 203,639 180,983 Long-term Debt, net of current portion ............................... 401,169 355,100 Postretirement Benefits Other Than Pensions .......................... 17,873 17,635 Deferred Income Taxes ................................................ 6,940 -- Other Long-Term Liabilities .......................................... 9,882 8,928 --------- --------- 639,503 562,646 --------- --------- 11.75% Cumulative Redeemable Exchangeable Preferred Stock; 50,000,000 shares authorized; 14,191 shares issued and outstanding (Mandatorily Redeemable at $10,000 per share on March 1, 2008) .................................................. 123,086 137,973 --------- --------- Commitments and Contingencies (Notes I, L and M) Shareholders' Equity (Deficit): Common stock; $0.01 par value each; 1,000,000 shares authorized and issued ............................................ 10 10 Additional paid-in capital ......................................... 99,991 99,991 Accumulated deficit ................................................ (123,393) (175,112) Accumulated other comprehensive income (loss) ...................... (5,730) (4,376) Treasury stock, at cost, 27,750 shares in 2001 and 66,500 shares in 2002 ................................................... (4,533) (8,091) --------- --------- (33,655) (87,578) --------- --------- $ 728,934 $ 613,041 ========= =========

The accompanying notes are an integral part of these consolidated balance sheets. F-3 EAGLEPICHER HOLDINGS, INC. CONSOLIDATED STATEMENTS OF INCOME (LOSS) YEARS ENDED NOVEMBER 30, 2000, 2001 AND 2002 (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)

2000 2001 2002 --------- --------- --------- Net Sales ................................................. $ 752,509 $ 689,776 $ 682,829 --------- --------- --------- Operating Costs and Expenses: Cost of products sold (exclusive of depreciation) ....... 593,688 559,748 534,605 Selling and administrative .............................. 57,654 49,343 60,348 Depreciation and amortization of intangibles ............ 40,676 42,338 47,299 Goodwill amortization ................................... 15,877 15,825 15,822 Restructuring ........................................... -- 14,163 5,898 Loss (gain) from divestitures ........................... (3,149) 2,105 6,497 Management compensation -- special ...................... 1,560 3,125 3,383 Insurance related losses (gains) ........................ (16,000) -- 3,100 --------- --------- --------- 690,306 686,647 676,952 --------- --------- --------- Operating Income .......................................... 62,203 3,129 5,877 Interest expense ........................................ (42,644) (38,883) (40,022) Other income, net ....................................... 624 3,566 1,516 --------- --------- --------- Income (Loss) from Continuing Operations Before Taxes ..... 20,183 (32,188) (32,629) Income Taxes (Benefit) .................................. 9,321 (10,063) 1,938 --------- --------- --------- Income (Loss) from Continuing Operations .................. 10,862 (22,125) (34,567) Discontinued Operations: Loss from operations of discontinued businesses, net of income tax provision (benefit) of $(2,321), $(853) and $663 ................................................. (5,252) (1,430) (2,265) Loss on disposal of discontinued business, including provision of $5,685 for operating losses during phase-out period, net of income tax benefit of $6,084 ............................................... -- (30,416) -- --------- --------- --------- Net Income (Loss) ......................................... 5,610 (53,971) (36,832) Preferred Stock Dividends Accreted ........................ (11,848) (13,282) (14,887) --------- --------- --------- Loss Applicable to Common Shareholders .................... $ (6,238) $ (67,253) $ (51,719) ========= ========= ========= Basic and Diluted Loss per Share Applicable to Common Shareholders: Loss from Continuing Operations ......................... $ (0.99) $ (36.07) $ (51.25) Loss from Discontinued Operations ....................... (5.27) (32.44) (2.35) --------- --------- --------- Net Loss ................................................ $ (6.26) $ (68.51) $ (53.60) ========= ========= ========= Weighted Average Number of Common Shares .................. 997,125 981,583 964,979 ========= ========= =========

The accompanying notes are an integral part of these consolidated financial statements. F-4 EAGLEPICHER HOLDINGS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) YEARS ENDED NOVEMBER 30, 2000, 2001 AND 2002 (IN THOUSANDS OF DOLLARS)

ACCUMULATED CLASS A CLASS B ADDITIONAL OTHER COMMON COMMON COMMON PAID-IN ACCUMULATED COMPREHENSIVE STOCK STOCK STOCK CAPITAL DEFICIT INCOME (LOSS) ----- ------- ------- ---------- ------------ ------------- BALANCE NOVEMBER 30, 1999 ................ $-- $ 6 $ 4 $99,991 $ (49,902) $ (788) Net income .......... -- -- -- -- 5,610 -- Foreign currency translation, net of tax of $810 ... -- -- -- -- -- (1,505) Purchase of treasury stock .... -- -- -- -- -- -- Preferred stock dividend accretion ......... -- -- -- -- (11,848) -- --- --- --- ------- --------- ------- BALANCE NOVEMBER 30, 2000 ................ -- 6 4 99,991 (56,140) (2,293) Net loss ............ -- -- -- -- (53,971) -- Foreign currency translation, net of tax of $134 .... -- -- -- -- -- (248) Gains (losses) on hedging derivatives, net of tax of $1,718 . -- -- -- -- -- (3,189) Amendment to capital structure . 10 (6) (4) -- -- -- Purchase of treasury stock .... -- -- -- -- -- -- Preferred stock dividend accretion ......... -- -- -- -- (13,282) -- --- --- --- ------- --------- ------- BALANCE NOVEMBER 30, 2001 ................ 10 -- -- 99,991 (123,393) (5,730) Net loss ............ -- -- -- -- (36,832) -- Foreign currency translation, net of tax of ($624) .. -- -- -- -- -- 1,159 Gains (loss) on hedging derivatives, net of tax of ($105) .. -- -- -- -- -- 195 Purchase of treasury stock .... -- -- -- -- -- -- Preferred stock dividend accretion ......... -- -- -- -- (14,887) -- --- --- --- ------- --------- ------- BALANCE NOVEMBER 30, 2002 ................ $10 $-- $-- $99,991 $(175,112) $(4,376) === === === ======= ========= =======

TOTAL SHAREHOLDERS' TREASURY EQUITY COMPREHENSIVE STOCK (DEFICIT) INCOME (LOSS) --------- ------------- ------------- BALANCE NOVEMBER 30, 1999 ................ $ -- $ 49,311 Net income .......... -- 5,610 $ 5,610 Foreign currency translation, net of tax of $810 ... -- (1,505) (1,505) Purchase of treasury stock .... (2,371) (2,371) Preferred stock dividend accretion ......... -- (11,848) ------- -------- -------- BALANCE NOVEMBER 30, 2000 ................ (2,371) 39,197 $ 4,105 ======== Net loss ............ -- (53,971) $(53,971) Foreign currency translation, net of tax of $134 .... -- (248) (248) Gains (losses) on hedging derivatives, net of tax of $1,718 . -- (3,189) (3,189) Amendment to capital structure . -- -- Purchase of treasury stock .... (2,162) (2,162) Preferred stock dividend accretion ......... -- (13,282) ------- -------- -------- BALANCE NOVEMBER 30, 2001 ................ (4,533) (33,655) $(57,408) ======== Net loss ............ -- (36,832) $(36,832) Foreign currency translation, net of tax of ($624) .. -- 1,159 1,159 Gains (loss) on hedging derivatives, net of tax of ($105) .. -- 195 195 Purchase of treasury stock .... (3,558) (3,558) Preferred stock dividend accretion ......... -- (14,887) ------- -------- -------- BALANCE NOVEMBER 30, 2002 ................ $(8,091) $(87,578) $(35,478) ======= ======== ========

The accompanying notes are an integral part of these consolidated financial statements. F-5 EAGLEPICHER HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED NOVEMBER 30, 2000, 2001 AND 2002 (IN THOUSANDS OF DOLLARS)

2000 2001 2002 -------- -------- -------- Cash Flows From Operating Activities: Net income (loss) ..................................... $ 5,610 $(53,971) $(36,832) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization ...................... 59,799 61,870 66,252 Provisions for discontinued operations ............. -- 30,416 -- Loss (gain) from divestitures ...................... (3,149) 2,105 6,497 Deferred income taxes .............................. 4,897 (9,344) 6,147 Changes in assets and liabilities, net of effects of acquisitions and divestitures: Sale of receivables, net (See Note D) ............ -- -- 46,475 Receivables ...................................... 8,428 (2,735) 286 Inventories ...................................... (8,748) 8,140 4,168 Prepaid expenses ................................. 11 (2,413) (796) Other assets ..................................... (13,617) (575) 2,609 Accounts payable ................................. 11,568 28,146 (1,703) Accrued liabilities .............................. (23,792) 3,635 (6,213) Other, net ....................................... 2,726 (1,916) (6,198) -------- -------- -------- Net cash provided by operating activities ............. 43,733 63,358 80,692 -------- -------- -------- Cash Flows From Investing Activities: Proceeds from sales of divisions ...................... 85,048 -- 10,027 Proceeds from the sale of property and equipment, and other, net ......................................... -- -- 639 Cash paid for acquisitions ............................ (12,306) -- -- Capital expenditures .................................. (40,846) (35,711) (16,397) Other, net ............................................ 4,464 (247) -- -------- -------- -------- Net cash provided by (used in) investing activities 36,360 (35,958) (5,731) -------- -------- -------- Cash Flows From Financing Activities: Reduction of long-term debt ........................... (24,557) (18,946) (32,527) Net borrowings (repayments) under revolving credit agreements ......................................... (61,774) 6,229 (34,736) Acquisition of treasury stock ......................... (2,371) (2,162) (159) Other, net ............................................ 1,454 (872) -- -------- -------- -------- Net cash used in financing activities .............. (87,248) (15,751) (67,422) -------- -------- -------- Net Cash (Used In) Provided by Discontinued Operations .. 5,819 5,725 (1,713) -------- -------- -------- Effect of Exchange Rates on Cash ........................ (1,268) (221) 1,076 -------- -------- -------- Net Increase (Decrease) in Cash and Cash Equivalents .... (2,604) 17,153 6,902 Cash and Cash Equivalents, beginning of year ............ 10,071 7,467 24,620 -------- -------- -------- Cash and Cash Equivalents, end of year .................. $ 7,467 $ 24,620 $ 31,522 ======== ======== ======== Supplemental Cash Flow Information: Interest paid ......................................... $ 43,589 $ 38,419 $ 34,585 ======== ======== ======== Income taxes paid (refunded), net ..................... $ 6,300 $ (4,500) $ (4,036) ======== ======== ========

The accompanying notes are an integral part of these consolidated financial statements. F-6 EaglePicher Holdings, Inc. Notes to Consolidated Financial Statements Years ended November 30, 2000, 2001 and 2002 A. ORGANIZATION AND OPERATIONS We are a majority-owned subsidiary of Granaria Industries, B.V. ("Granaria Industries"). Granaria Industries formed us to acquire the operations of EaglePicher Incorporated ("EPI" and formerly Eagle-Picher Industries, Inc.). We have no other operations other than the operations of EPI. We are a diversified manufacturer of advanced technology and industrial products that are used in the automotive, defense, aerospace, environmental testing, medical implant devices, pharmaceutical services, nuclear energy and food and beverage industries, in addition to other industrial arenas. Our business consists of three operating segments: the Automotive Segment, the Technologies Segment and the Filtration and Minerals Segment. Our Automotive Segment is operated under two separate business units, the Hillsdale division and the Wolverine division. The Hillsdale division produces noise, vibration and harshness ("NVH") dampers for engine crankshafts and drivelines, driveline yokes, flanges, transmission and engine pumps, automatic transmission filtration products, chassis corners and knuckle assemblies and other precision machined components. The Wolverine division produces rubber-coated materials and gaskets for automotive and non-automotive applications. Our Technologies Segment develops and commercializes advanced power systems for defense, aerospace and commercial applications; produces boron isotopes for nuclear radiation containment; supplies ultra-clean scientific containers for pharmaceutical and environmental testing; and provides contract pharmaceutical services. Our Filtration and Minerals Segment mines, processes and markets diatomaceous earth for use as a filtration aid, absorbent, performance additive and soil amendment. Our consolidated financial statements include the accounts of our wholly-owned and majority (50% or more) owned or controlled subsidiaries. All significant intercompany accounts and transactions have been eliminated. Investments in our unconsolidated affiliates or subsidiaries in which we own at least 20%, or over which we exercise significant influence, are accounted for using the equity method. B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect amounts reported in the consolidated financial statements. Actual results could differ from those estimates. Cash Equivalents Marketable securities with original maturities of three months or less are considered to be cash equivalents. Revenue Recognition We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed and determinable, and collectibility is reasonably assured. Generally, all of these conditions are met at the time we ship our products to our customers. Net Sales and Cost of Products Sold include transportation costs (see Note Q) that are billed to customers. 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. Contract costs include direct material, labor costs, and those indirect costs related to contract performance, such as indirect labor, supplies, tools and repairs. Selling and administrative expenses are charged to expense as incurred. Provisions for estimated losses on F-7 uncompleted contracts are made in the period in which such losses are determined. Changes to job performance, job conditions, and estimated profitability may result in revisions to contract revenue and costs and are recognized in the period in which the revisions are made. We provided for estimated losses on uncompleted contracts of $935,000 at November 30, 2001 and $468,000 at November 30, 2002. The asset, Costs and Estimated Earnings in Excess of Billings, represents revenues recognized in excess of amounts billed on individual contracts. The liability, Billings in Excess of Costs and Estimated Earnings, represents billings in excess of revenues recognized on individual contracts. The following provides information on contracts in progress at November 30 (in thousands of dollars):

2001 2002 --------- --------- Costs incurred on uncompleted contracts .......... $ 90,222 $ 115,476 Estimated earnings ............................... 17,046 21,664 --------- --------- 107,268 137,140 Less: billings to date ........................... (98,612) (121,142) --------- --------- $ 8,656 $ 15,998 ========= ========= Costs and estimated earnings in excess of billings $ 10,744 $ 16,942 Billings in excess of costs and estimated earnings (2,088) (944) --------- --------- $ 8,656 $ 15,998 ========= =========

Concentrations of Credit Risk Our concentrations of credit risk consist primarily of cash and cash equivalents, trade accounts receivable, retained interest in Eagle-Picher Funding Corporation, and sales concentrations with certain customers. As part of our ongoing control procedures, we monitor concentrations of credit risk associated with financial institutions with which we conduct business. Credit risk with financial institutions is considered minimal as we utilize only high quality financial institutions. We conduct periodic credit evaluations of our customers' financial condition and generally do not require collateral. Our customer base includes all significant automotive manufacturers and their first tier suppliers in North America and Europe. Although we are directly affected by the well-being of the automotive industry, we do not believe significant credit risk existed at November 30, 2002. In addition, during 2002, we formed EPFC, an off balance-sheet qualifying special-purpose entity, to sell an interest in certain receivables. See Note D for a discussion of EPFC. We believe that EPFC assists in the management of our credit risk related to trade receivables as it permits us to sell an interest in our receivables on a non-recourse basis. Net sales to our largest customer were $98.2 million in 2000, $91.0 million in 2001, and $84.2 million in 2002. No other customer accounted for 10% or more of consolidated sales. Fair Value of Financial Instruments Our financial instruments consist primarily of investments in cash and cash equivalents, receivables and certain other assets, as well as obligations under accounts payable, long-term debt and preferred stock. The carrying values of these financial instruments, with the exception of long-term debt and preferred stock, approximate their fair value. See Note H for a discussion of the fair value of the long-term debt and Note I for a discussion of the fair value of preferred stock. Derivative Financial Instruments On December 1, 2000, we adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities -- an Amendment of SFAS 133." The adoption of these standards was not material to our financial position or results of operations. Under this guidance, all derivative instruments are recognized as assets or liabilities at their fair value on the balance sheet. On the date a derivative contract is entered into, we designate the derivative as either a) a hedge of the fair value of a recognized asset or liability (a fair value hedge), b) a hedge of a forecasted transaction or as a hedge of the variability of cash flows to be received or paid related to a recognized asset or liability (a cash flow hedge), or c) as a hedge of a net investment in a foreign operation (a net investment hedge). Changes in the fair value of derivatives are either recognized in the income statement or as a component of Accumulated Other Comprehensive Income (Loss) in the balance sheet, depending on whether the derivative is being used to hedge changes in fair value or cash flows. The ineffective portion of derivatives that are designated as hedges is recorded in the consolidated statements of income. From time to time, we enter into interest rate swaps and foreign currency forward exchange contracts to manage our interest costs and foreign currency exposures. We use interest rate swap contracts to adjust the proportion of our total debt that is subject to variable interest rates. Under our interest rate swap contracts, we agree to pay an amount equal to a specified fixed-rate of interest for a certain notional amount and receive in F-8 return an amount equal to a variable-rate. The notional amounts of the contract are not exchanged. No other cash payments are made unless the contract is terminated prior to maturity. Although no collateral is held or exchanged for these contracts, interest rate swap contracts are entered into with a major financial institution in order to minimize our counterparty credit risk. These interest rate swap contracts are designated as cash flow hedges against changes in the amount of future cash flows associated with our interest payments on variable-rate debt. Accordingly, they are reflected at fair value in our balance sheets and the related changes in fair value on these contracts, net of tax, are recorded as a component of Accumulated Other Comprehensive Income (Loss) in our balance sheets. To the extent that any of these contracts are not considered to be effective in offsetting the change in the value of the interest payments being hedged, any changes in fair value relating to the ineffective portion of these contracts are immediately recognized in our income statement. The net effect of this accounting on our operating results is that interest expense on a portion of variable-rate debt being hedged is generally recorded based on fixed interest rates. At November 30, 2001, we had interest rate swap contracts on $90.0 million notional amount of indebtedness. At November 30, 2002, we had interest rate swap contracts to pay fixed-rates of interest (average rate of 5.68%) on $90.0 million notional amount of indebtedness. The $90.0 million notional amount of outstanding contracts will mature during fiscal year 2004. As of November 30, 2001, we had $4.8 million in unrealized losses under our interest rate swap agreements, and as of November 30, 2002 we had $4.5 million in unrealized losses which represent the fair values of the interest rate swap agreements as of those dates. The fair value of interest rate swap contracts is based on quoted market prices and third-party provided calculations, which reflect the present values of the difference between estimated future variable-rate receipts and future fixed-rate payments. The unrealized losses, net of tax, are recorded in Accumulated Other Comprehensive Income (Loss) in our balance sheets. We use foreign currency forward exchange contracts to hedge the risk of cash flow fluctuations due to changes in exchange rates on sales denominated in foreign currencies. As part of our overall strategy to manage the level of exposure to the risk of foreign currency exchange rate fluctuations, we hedge a portion of our foreign currency exposures anticipated over the next twelve-months. To hedge this exposure, we used foreign currency forward exchange contracts that generally have maturities that approximate the timing of the forecasted transactions. Foreign currency forward exchange contracts are placed with a number of major financial institutions in order to minimize our counterparty credit risk. We record these foreign currency forward exchange contracts at fair value in our balance sheets and the related unrealized gains or losses on these contracts, net of tax, are recorded as a component of Accumulated Other Comprehensive Income (Loss) in our balance sheets. These unrealized gains and losses are recognized in the income statement in the period in which the related transactions being hedged are recognized in the income statement. However, to the extent that any of these contracts are not considered to be effective in offsetting the change in the value of the cash flows being hedged, any changes in fair value relating to the ineffective portion of these contracts are immediately recognized in our income statement. As of November 30, 2001, we had outstanding foreign currency forward exchange contracts with an aggregate notional amount of $14.5 million. Net unrealized losses on these contracts, based on prevailing financial market information, as of November 30, 2001 were $149,000 and were included in Accumulated Other Comprehensive Income (Loss), net of tax, in our balance sheets. As of November 30, 2002, we had outstanding foreign currency forward exchange contracts with an aggregate notional amount of $13.5 million. Net unrealized losses on these contracts, based on prevailing financial market information, as of November 30, 2002, were $148,000 and were included in Accumulated Other Comprehensive Income (Loss), net of tax, in our balance sheets. During 2000, we recognized $314,000 in gains from foreign currency hedge transactions, which were offset by losses of $157,000. During 2001, we recognized $693,000 in gains from foreign currency hedge transactions, which were offset by losses of approximately $186,000. During 2002, we recognized $52,000 in gains from foreign currency hedge transactions, which were offset by losses of $1.2 million. The fair value of foreign currency contracts represents the amount required to enter into offsetting contracts with similar remaining maturities based on quoted market prices. Income Taxes Current income taxes are provided for based upon income for financial statement purposes. Deferred tax assets and liabilities are established based on the difference between the financial statement and income tax bases of assets and liabilities. A valuation allowance represents a provision for uncertainty on the realization of the deferred tax asset. Inventories Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) method. Until 2002, the current fiscal year, a substantial portion of domestic inventories were accounted for at cost determined on a last-in, first-out (LIFO) basis. In 2002, our domestic operations changed to the FIFO method. This change in accounting principle was made to provide a better matching of revenue and expenses and to be consistent with prevalent industry practice. This accounting change was not material to the financial statements on an annual or quarterly basis, and accordingly, no retroactive restatement of prior financial statements was made. Property, Plant and Equipment We record our investment in property, plant and equipment at cost. We provide for depreciation on property, plant and equipment F-9 using the straight-line method over the estimated useful lives of the assets which are generally 20 to 30 years for buildings and 3 to 10 years for machinery and equipment. Improvements which extend the useful life of property are capitalized, while repair and maintenance costs are charged to operations as incurred. Property, plant and equipment acquired in the acquisition of a business, are stated at fair value, based on independent appraisal, as of the date of the acquisition. Goodwill Goodwill represents the excess of purchase price paid over the fair value of assets acquired and liabilities assumed in business combinations. This amount has been amortized on a straight-line basis over 15 years. The recoverability of the asset is evaluated periodically as events or circumstances indicate a possible inability to recover its carrying value. Effective December 1, 2002, we adopted SFAS No. 142, "Goodwill and Other Intangible Assets" which addresses goodwill and other intangible assets that have indefinite useful lives and, as such, prescribes that these assets will not be amortized, but rather tested, at least annually, for impairment. This pronouncement also provides specific guidance on performing the annual impairment test for goodwill and intangibles with indefinite lives. Under this new accounting standard, we will no longer amortize our goodwill and will be required to complete an annual impairment test. We have had approximately $16.0 million of goodwill amortization per year that will no longer be recorded in fiscal 2003 and beyond. We have determined that we have six reporting units, as defined in SFAS No. 142, within our three reportable business segments. We have completed our initial impairment test required by this accounting standard and have determined we will not recognize an impairment charge related to the adoption of this accounting standard in 2003. Pre-Production Costs Related to Long-Term Supply Arrangements We capitalize costs incurred during the pre-production phase of new product launches for goods that will be sold under long-term supply arrangements, primarily in our Automotive Segment. These costs consist primarily of product development and validation costs. The costs are amortized into Cost of Products Sold over the life of the related programs. At November 30, 2001, the unamortized balance of these costs was $3.0 million, and at November 30, 2002, the unamortized balance was $3.1 million. The unamortized balance is included in Other Assets in the accompanying balance sheets. Tooling Costs Incurred and Held for Future Customer Reimbursement We capitalize costs incurred to design and develop molds, dies and other tools for customers that we contract to sell product to under long-term supply arrangements. We are typically reimbursed for these costs when volume production commences; however, we are also reimbursed for these costs over the period of volume production. For contracts where we are reimbursed over the period of volume production, we amortize the balance over the estimated life of the supply arrangement. At November 30, 2001, the unamortized balance of the costs held by us for which ownership will be transferred to the customer was $4.4 million, and at November 30, 2002, the unamortized balance was $5.7 million. The unamortized balance is included in Other Assets in the accompanying balance sheets. Other Assets Other assets consist primarily of the pre-production costs related to long-term supply arrangements and tooling costs incurred and held for future customer reimbursement (as discussed above), and debt issuance costs. The debt issuance costs are being amortized over the term of the related debt. The debt issuance costs have an original cost of $26.1 million at November 30, 2001, and $25.4 million at November 30, 2002. The related accumulated amortization amounts are $12.6 million at November 30, 2001, and $14.3 million at November 30, 2002. Accounting for Long-Lived Assets Impairment losses are recorded on long-lived assets used in operations when impairment indicators are present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying value of such assets. If this occurs, an impairment charge is recorded for the amount by which the carrying value of the long-lived assets exceeds its fair value. Environmental Remediation Costs We accrue for environmental expenses when the costs are probable and can be reasonably estimated. The estimated liabilities are not discounted or reduced for possible recoveries from insurance carriers. Research and Development Research and development expenditures are expensed in Selling and Administrative expense as incurred. Research and development F-10 expense was $11.7 million in 2000, $10.4 million in 2001, and $9.8 million in 2002. Included in these amounts are costs reimbursed by customers for customer sponsored research activities of $7.5 million in 2000, $9.3 million in 2001, and $8.8 million in 2002. Foreign Currency Translation Assets and liabilities of foreign subsidiaries are translated at current exchange rates, and income and expenses are translated using weighted average exchange rates. Adjustments resulting from translation of financial statements stated in local currencies are included in Accumulated Other Comprehensive Income (Loss). Gains and losses from foreign currency transactions are included in the statements of income (loss). Reclassifications During 2002, we reclassified amounts in our 2001 and 2000 financial statements to conform to our 2002 presentation. Basic and Diluted Income (Loss) Per Share The calculation of net income (loss) per share is based upon the average number of common shares outstanding. No potentially dilutive shares were outstanding during the three year period ended November 30, 2002. Management Compensation -- Special Management compensation -- special expense consists of payments to former officers upon their separation from employment. Insurance Related Loss (Gains) In 2000 we received $16.0 million from insurance companies as a result of the settlement of certain claims relating primarily to environmental remediation. In 2002 we recorded a provision of $3.1 million related to a dispute with an insurance carrier over the coverage on a fire which occurred at one of our facilities during 2001. Recently Released or Adopted Accounting Standards In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which requires that the fair value of a liability 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. The adoption did not have a material impact on our financial condition or results of operations. In September 2001, 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, as described above. 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. The adoption did not have a material impact on our financial condition or results of operations. 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 No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The adoption of this statement is not expected to have a material impact on our financial condition or results of operations. In November 2002, the FASB issued Interpretation No. 45 ("FIN 45") "Guarantor's Accounting 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 company issues a guarantee, the company must recognize an initial liability for the fair value, or market value, of 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 initial 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. We have not completed the process of evaluating F-11 the impact that will result from adopting this interpretation. We therefore are unable to disclose the impact, if any, of adopting this interpretation on our financial position and results of operations. In January 2003, the FASB issued Interpretation 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 controlled the entity through voting interests. FIN 46 requires a variable interest entity to be consolidated 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, 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 provisions 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 June 15, 2003. The related disclosure requirements are 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. We are required to adopt EITF 00-21 on December 1, 2003. We are evaluating the impact EITF 00-21 will have on us, but do not expect it to have a material impact on our financial condition or results of operations. C. ACQUISITIONS, DIVESTITURES AND DISCONTINUED OPERATIONS Acquisitions During fiscal 2000, we acquired the assets of the depleted zinc business of Isonics Corporation and the stock of the Blue Star Battery Systems Corporation, a manufacturer of special purpose batteries. These acquisitions were made at an aggregate cost, including acquisition-related expenses, of $13.8 million, consisting of $12.3 million in cash and contingent cash payments of $500,000 annually for three years. These acquisitions were accounted for using the purchase method. The excess of the purchase prices over the assessed values of the net assets was $6.9 million. This amount was allocated to Goodwill in our balance sheets and was amortized over 15 years prior to the adoption of SFAS No. 142 on December 1, 2002. The impact of these transactions on our results of operations in 2000 was not material. See Note M for a discussion of the litigation and subsequent settlement related to this acquisition. Divestitures We recognized amounts related to divestitures in our statements of income (loss) during the years ended November 30 as follows: (in thousands of dollars):

2000 2001 2002 -------- ------- ------ (Gain) loss on sale of divisions ...................... $(17,077) $(2,635) $2,800 Losses recognized related to divisions sold in previous years ............................................... 13,928 4,740 3,352 Losses recognized for medical and workers compensation -- -- 345 -------- ------- ------ $ (3,149) $ 2,105 $6,497 ======== ======= ======

We have indemnified the buyers for certain liabilities related to items such as environmental remediation and warranty issues on divisions sold in previous years. Liabilities for these exposures had been previously recorded by us; however, from time to time, as additional information becomes available, additional amounts may need to be recorded. During 2000, we sold a significant number of divisions for aggregate net proceeds of $85.0 million. The aggregate net gain resulting from these transactions during 2000 was $17.1 million. This net gain included a gain of $3.7 million resulting from a curtailment of our pension and postretirement plans. Also in 2000, we recorded $13.9 million in losses primarily related to environmental exposures for divisions sold prior to 2000. During 2001, additional amounts totaling $4.7 million were recorded for various environmental and litigation matters. Also in 2001, we received $2.6 million in cash which was previously held in an escrow account for environmental matters related to a previously sold division. These environmental matters were settled with the regulatory authorities and we have no further exposure. The amount was recorded as a gain on sale of divisions. During 2002, we sold certain assets and liabilities of our Precision Products business in our Technologies Segment to a group of former employees and divisional management personnel. We received approximately $3.1 million in proceeds and recorded a $2.8 F-12 million loss on the sale. During 2002, based on new information that became available, we also recorded additional amounts totaling $3.4 million for various environmental and litigation matters, and $345,000 for medical and worker's compensation claims relating to previous divestitures. An analysis of the other liabilities related to divestitures is as follows (in thousands of dollars): Balance at November 30, 1999 ............................. $ 877 Additional amounts recorded for transaction expenses and other items ......................................... 3,459 Additional amounts recorded ............................ 18,018 Amounts spent .......................................... (7,354) -------- Balance at November 30, 2000 ............................. 15,000 Additional amounts recorded ............................ 4,740 Amounts spent .......................................... (1,930) -------- Balance at November 30, 2001 ............................. 17,810 Additional amounts recorded ............................ 3,697 Amounts spent .......................................... (6,757) Amounts transferred from discontinued operations ....... 2,912 -------- Balance at November 30, 2002 ............................. $ 17,662 ======== 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 lease the facility to the buyer for a five year term. The buyer has an option to buy the facility for $2.5 million, increasing $100,000 per year over the term. We also retained approximately $2.3 million of raw materials inventory, which the buyer was required to purchase within one year. The buyer failed to purchase 25%, or approximately $600,000, of the inventory. We intend to pursue collection actions. Finally, we retained approximately $900,000 of accounts receivable. The Assets of Discontinued Operations at November 30, 2002 include $643,000 of the remaining balance of the inventory as the liabilities associated with this transaction, totaling $2.9 million and representing primarily environmental liabilities have been transferred to the Accrued Divestitures reserve at November 30, 2002. The measurement date to account for the Machinery Segment as a discontinued operation was March 1, 2001. Accordingly, the results of the Machinery Segment's operations have been reported separately as a discontinued operation in the accompanying financial statements. Net sales from discontinued operations were $82.6 million in 2000 and $65.1 million in 2001. During 2001, we recorded provisions totaling $30.4 million, net of an income tax benefit of $6.1 million. This provision included estimated losses and costs to be incurred in connection with the disposition of the Machinery Segment, including $5.7 million in expected losses during the phase out period from March 1, 2001 to December 14, 2001. An operating loss of $1.7 million, net of a $900,000 tax benefit, was incurred in the first quarter of 2001. D. ACCOUNTS RECEIVABLE ASSET-BACKED SECURITIZATION (QUALIFYING SPECIAL PURPOSE ENTITY) During 2002, we entered into an agreement with a major U.S. financial institution to sell an interest in certain receivables through an unconsolidated qualifying special purpose entity, Eagle-Picher Funding Corporation ("EPFC"). Initially $47.0 million of proceeds from this new facility were used primarily to payoff amounts outstanding under our existing Receivables Loan Agreement with our wholly-owned subsidiary, Eagle-Picher Acceptance Corporation. 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. The agreement provides for the continuation of the program on a revolving basis until the earlier of a) the maturity of our senior credit facility, or b) assuming we are able to refinance our senior credit facility, the fourth quarter of 2004. 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 compliance under our Credit Agreement (see Note H for a discussion of our debt), we include the debt outstanding on EPFC. In conjunction with the initial transaction, we sold $82.5 million of receivables to EPFC, and we incurred charges of $1.5 million which are included in Interest Expense in the accompanying statements of operations. 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, 2002. We retain an F-13 interest in a portion of the receivables transferred, representing an over collateralization on the securitization. Our involvement with both this over collaterization interest and the transferred receivables is generally limited to the servicing performed. The carrying value of our 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 transferred. 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. At November 30, 2002, our interest in EPFC was $29.4 million and the revolving pool of receivables that we service totaled $77.5 million. At November 30, 2002, the outstanding balance of the interest sold to the financial institution recorded on EPFC was $46.5 million. During the year ended November 30, 2002, we sold, outside of the initial sale, $568.2 million of accounts receivable to EPFC. During 2002, EPFC collected $546.8 million of cash that was reinvested in new securitizations. The effective interest rate as of November 30, 2002 in the securitization was approximately 2.55%. E. 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 relocates our corporate headquarters from Cincinnati, Ohio to Phoenix, Arizona and closes three plants in the Technologies Segment as a result of the elimination of certain product lines in the Power Group business. The costs related to the Plan, which were recognized as a separate component of operating expenses during 2001, included $5.4 million related to the facilities, $5.0 million related to severance of approximately 165 employees and $3.7 million in other costs to exit business activities. The facility costs of $5.4 million include a non-cash adjustment of $1.3 million to write down the carrying value of the three plants to their estimated fair value in holding them for sale, a non-cash charge of $2.2 million on the loss of abandoning the machinery and equipment and other assets at the plant locations and at corporate headquarters, and a $1.9 million charge for future lease commitments, net of estimated proceeds received from subleasing the various spaces. The asset impairment adjustments are recorded against Property Plant and Equipment in our balance sheets. The other shutdown costs to exit the business consist primarily of a $3.0 million non-cash charge related to inventory. The $7.4 million restructuring reserve balance as of November 30, 2001 is included in Other Accrued Liabilities. During 2002, we determined that a portion of the assets in our over-funded pension plan at November 30, 2001 could be made available to pay severance costs related to the Plan. Accordingly, we have amended our pension plan and have provided new or amended severance plans to allow for such payments. Accordingly, a portion of our restructuring liability has been paid from our prepaid pension asset. In May 2002, we announced we would exit the Gallium business in our Technologies Segment due to the downturn in the fiber-optic, telecommunication and semiconductor markets, the primary markets for our Gallium products. This action resulted in a $5.5 million charge to restructuring expense. This charge consists of an inventory impairment totaling $2.9 million, representing the loss to be incurred from the liquidation of current inventory. The charge also consists of an accrual totaling $2.4 million recorded in Other Accrued Liabilities representing primarily the loss to be incurred from the liquidation of inventory to be purchased under firm purchase commitments. In addition, a $200,000 asset impairment charge was recorded against Property, Plant and Equipment. The remaining balance of $3.3 million as of November 30, 2002, is included in Other Accrued Liabilities in our balance sheets. An analysis of the facilities, severance and other costs incurred related to restructuring reserves is as follows (in thousands of dollars):

FACILITIES SEVERANCE OTHER COSTS TOTAL ---------- --------- ----------- ------- Original Reserves ................................. $ 1,850 $ 5,044 $ 694 $ 7,588 Amounts spent ..................................... -- (202) -- (202) ------- ------- ------- ------- Balance at November 30, 2001 ...................... 1,850 4,842 694 7,386 Amounts paid from prepaid pension assets .......... -- (3,080) -- (3,080) Additional amounts recorded for exiting the Gallium business ........................................ -- -- 2,382 2,382 Additional provision for severance liability ...... -- 416 -- 416 Amounts spent ..................................... (221) (1,864) (1,736) (3,821) ------- ------- ------- ------- Balance at November 30, 2002 ...................... $ 1,629 $ 314 $ 1,340 $ 3,283 ======= ======= ======= =======

F. INVENTORIES Inventories consisted of the following at November 30 (in thousands of dollars): F-14

2001 2002 -------- ------- Raw materials and supplies ................ $ 22,527 $25,365 Work-in-process ........................... 26,783 14,058 Finished goods ............................ 18,096 14,695 -------- ------- 67,406 54,118 Adjustment to state inventory at LIFO value (957) -- -------- ------- $ 66,449 $54,118 ======== =======

G. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following at November 30 (in thousands of dollars):

2001 2002 --------- --------- Land and land improvements ... $ 15,308 $ 14,828 Buildings .................... 66,973 64,277 Machinery and equipment ...... 236,294 260,646 Construction in progress ..... 25,197 10,777 --------- --------- 343,772 350,528 Less: accumulated depreciation (133,351) (173,393) --------- --------- $ 210,421 $ 177,135 ========= =========

H. LONG-TERM DEBT Long-term debt consisted of the following at November 30 (in thousands of dollars):

2001 2002 --------- --------- Credit Agreement: Revolving credit facility, due February 27, 2004 .... $ 142,000 $ 121,500 Term loan, due 2003 ................................. 47,739 16,925 Accounts Receivable Loan Agreement, paid-off in January 2002 ................................................ 14,250 -- Senior Subordinated Notes, 9.375% interest, due 2008 .. 220,000 220,000 Industrial Revenue Bonds, 1.8% to 2.2% interest, due 2005 ................................................ 17,000 15,300 --------- --------- 440,989 373,725 Less: current portion ................................. (39,820) (18,625) --------- --------- Long-term debt, net of current portion ................ $ 401,169 $ 355,100 ========= =========

Aggregate maturities of long-term debt are as follows at November 30, 2002 (in thousands of dollars): 2003........ $ 18,625 2004........ 123,300 2005........ 11,800 2006........ -- 2007........ -- Thereafter.. 220,000 ----------- $ 373,725 Credit Agreement We have a syndicated senior secured loan facility ("Credit Agreement") providing an original term loan ("Term Loan") of $75.0 million, as amended, and a $220.0 million revolving credit facility ("Facility"). The Facility and the Term Loan bear interest, at our option, at LIBOR rate plus 2.75%, or the bank's prime rate plus 1.5%. Interest is generally payable quarterly on the Facility and Term Loan. We have entered into interest rate swap agreements to manage our variable interest rate exposure. See Note B for a discussion of our outstanding interest rate swap agreements. Our weighted average effective interest rate during 2002 was 7.36% and during 2001 was 8.85%. The amounts are not comparable because during 2002 we completed our accounts receivable asset-backed securitization (see Note D) that significantly reduced our Credit Agreement borrowings in 2002 compared to 2001. At November 30, 2002, we had $42.2 million in outstanding letters of credit under the Facility, which together with borrowings of $121.5 million, made our available borrowing capacity of $56.3 million. However, due to various financial covenant limitations under the Credit Agreement, we could only incur an additional $39.3 million of indebtedness at November 30, 2002. The Credit Agreement also contains certain fees. There are fees for letters of credit equal to 2.75% per annum for all issued letters of credit, and there is a F-15 commitment fee on the Facility equal to 0.5% per annum of the unused portion of the Facility. If we meet or fail to meet certain financial benchmarks, the interest rate spreads on the borrowing, the commitment fees and the fees for letters of credit may be reduced or increased. The Credit Agreement is secured by our capital stock, the capital stock of our domestic United States subsidiaries, a certain portion of the capital stock of our foreign subsidiaries, and substantially all other property of our United States subsidiaries. Additionally, the Credit Agreement is guaranteed by us and certain of our subsidiaries (see "Subsidiary Guarantors and Non-Guarantors" below). 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 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 include the debt outstanding on EPFC, our off-balance sheet special purpose entity (see Note D, for a detailed discussion of EPFC). We are in compliance with all covenants at November 30, 2002. 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. The net proceeds from the sale of assets (subject to certain conditions), the net proceeds of certain new debt issued, and 50.0% of the net proceeds of any equity securities issued are also subject to mandatory prepayments on the Credit Agreement. No excess cash flow payments were due for the years ended November 30, 2001 and 2002. Accounts Receivable Loan Agreement Prior to the formation of EPFC, we had an accounts receivable loan agreement, whereby, we sold certain of our trade receivables to a wholly-owned, consolidated subsidiary, Eagle-Picher Acceptance Corporation. The receivables were then used as security for loans made under a separate revolving credit facility. This accounts receivable loan agreement was paid-off with the formation of EPFC. See Note D for a discussion of EPFC. Senior Subordinated Notes Our Senior Subordinated Notes require semi-annual interest payments on September 1 and March 1. The Senior Subordinated Notes, which are unsecured, are redeemable at our option, in whole or in part, any time after February 28, 2003 at set redemption prices. We are required to offer to purchase the Senior Subordinated Notes at a set redemption price should there be a change in control. The Senior Subordinated 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 are in compliance with these covenants at November 30, 2002. The Senior Subordinated Notes are guaranteed by us and certain of our subsidiaries (see "Subsidiary Guarantors and Non-Guarantors" below). Industrial Revenue Bonds Our industrial revenue bonds require monthly interest payments at variable interest rates based on the market for similar issues and are secured by letters of credit issued under the Facility described above. Effective Interest Rates and Fair Value of Long-term Debt Our effective interest rate under our outstanding debt at November 30, 2001 was 8.07% and at November 30, 2002 was 8.53% (including the effect of the interest rate swaps). Our debt had an estimated fair value of $337.2 million at November 30, 2001, and $303.3 million at November 30, 2002. The estimated fair value of our debt, except for our Senior Subordinated Notes, was calculated based on using discounted cash flow analysis based on current rates offered for similar issues of other debt. For our Senior Subordinated Notes, we were provided the fair market value by the primary market maker of the Senior Subordinated Notes, who based the amount on the current market conditions at November 30, 2001 and 2002 as there is generally no significant trading activity in our Senior Subordinated Notes. Subsidiary Guarantors and Non-Guarantors Both the Credit Agreement and the Senior Subordinated Notes were issued by our wholly-owned subsidiary, EPI, and are guaranteed on a full, unconditional, and joint and several basis by us and certain of our wholly-owned domestic 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 and the Subsidiary Guarantors are subject to F-16 restrictions on the payment of dividends under the terms of both the Credit Agreement and the Senior Subordinated Notes. The following supplemental condensed combining financial statements present information regarding EPI, as the Issuer, the Subsidiary Guarantors and Non-Guarantor Subsidiaries. F-17 EAGLEPICHER HOLDINGS, INC. SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEETS AS OF NOVEMBER 30, 2001 (IN THOUSANDS OF DOLLARS)

GUARANTORS ------------------------------------------ NON- GUARANTORS EAGLEPICHER SUBSIDIARY FOREIGN ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL --------- -------------- ---------- ------------ ------------ --------- ASSETS Current Assets: Cash and cash equivalents .. $ 17,145 $ 1 $ 471 $ 6,936 $ 67 $ 24,620 Receivables, net ........... (18,238) -- 103,168 12,704 -- 97,634 Costs and estimated earnings in excess of billings .... -- -- 10,744 -- -- 10,744 Intercompany accounts receivable ............... 46,674 -- 3,559 65 (50,298) -- Inventories ................ 4,129 -- 51,983 11,708 (1,371) 66,449 Assets of discontinued operations ............... 3,610 -- -- 16,342 (6,306) 13,646 Prepaid expenses ........... 6,948 -- 6,152 2,432 (865) 14,667 Deferred income taxes ...... 24,287 -- -- -- -- 24,287 --------- --------- -------- --------- --------- --------- 84,555 1 176,077 50,187 (58,773) 252,047 Property, Plant and Equipment, net ........... 28,733 -- 157,653 24,067 (32) 210,421 Investment in Subsidiaries ............. 271,708 78,066 16,058 -- (365,832) -- Goodwill, net .............. 41,939 -- 120,969 19,994 (3,140) 179,762 Prepaid Pension ............ 54,676 -- -- -- -- 54,676 Other Assets ............... 33,227 (4,533) 3,468 10,712 (10,846) 32,028 --------- --------- -------- --------- --------- --------- $ 514,838 $ 73,534 $474,225 $ 104,960 $(438,623) $ 728,934 ========= ========= ======== ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current Liabilities: Accounts payable ........... $ 16,156 $ -- $ 62,171 $ 5,536 $ -- $ 83,863 Intercompany accounts payable .................. 76 -- 48 7,404 (7,528) -- Long-term debt -- current portion .................. 25,569 -- 14,250 7,293 (7,292) 39,820 Liabilities of discontinued operations ............... -- -- -- 5,599 -- 5,599 Other accrued liabilities .. 42,059 -- 29,386 2,911 1 74,357 --------- --------- -------- --------- --------- --------- 83,860 -- 105,855 28,743 (14,819) 203,639 Long-term Debt, less current portion .................. 401,169 -- 42,452 -- (42,452) 401,169 Postretirement Benefits Other Than Pensions ...... 17,873 -- -- -- -- 17,873 Deferred Income Taxes ...... 9,362 -- -- 663 (3,085) 6,940 Other Long-term Liabilities .............. 8,038 19 1,000 825 -- 9,882 --------- --------- -------- --------- --------- --------- 520,302 19 149,307 30,231 (60,356) 639,503 Intercompany Accounts ...... (273,724) -- 252,557 35,782 (14,615) -- Preferred Stock ............ -- 123,086 -- -- -- 123,086 Shareholders' Equity (Deficit) ................ 268,260 (49,571) 72,361 38,947 (363,652) (33,655) --------- --------- -------- --------- --------- --------- $ 514,838 $ 73,534 $474,225 $ 104,960 $(438,623) $ 728,934 ========= ========= ======== ========= ========= =========

F-18 EAGLEPICHER HOLDINGS, INC. SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEETS AS OF NOVEMBER 30, 2002 (IN THOUSANDS OF DOLLARS)

GUARANTORS ------------------------------------------ NON- GUARANTORS EAGLEPICHER SUBSIDIARY FOREIGN ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL --------- -------------- ---------- ------------ ------------ --------- ASSETS Current Assets: Cash and cash equivalents ... $ 27,694 $ 1 $ (4,895) $ 7,902 $ 820 $ 31,522 Receivables and retained interest, net ............. 2,535 -- 31,472 16,866 -- 50,873 Costs and estimated earnings in excess of billings ..... -- -- 16,942 -- -- 16,942 Intercompany accounts receivable ................ 1,997 -- 6,228 2,037 (10,262) -- Inventories ................. 3,957 -- 39,394 12,683 (1,916) 54,118 Assets of discontinued operations ................ 643 -- -- 9,331 -- 9,974 Prepaid expenses and other assets .................... 7,840 -- 4,755 4,456 (1,614) 15,437 Deferred income taxes ....... 10,798 -- -- -- -- 10,798 --------- --------- --------- --------- --------- --------- 55,464 1 93,896 53,275 (12,972) 189,664 Property, Plant and Equipment, net ............ 24,016 -- 129,052 24,067 -- 177,135 Investment in Subsidiaries .. 239,864 58,509 18,286 -- (316,659) -- Goodwill, net ............... 37,339 -- 116,586 13,154 (3,139) 163,940 Prepaid Pension ............. 54,796 -- -- -- -- 54,796 Other Assets, net ........... 14,296 (8,091) 21,744 11,070 (11,513) 27,506 --------- --------- --------- --------- --------- --------- $ 425,775 $ 50,419 $ 379,564 $ 101,566 $(344,283) $ 613,041 ========= ========= ========= ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current Liabilities: Accounts payable ............ $ 15,398 $ -- $ 53,151 $ 14,252 $ 820 $ 83,621 Intercompany accounts payable ................... 3,171 -- 5,887 1,184 (10,242) -- Current portion of long-term debt ...................... 18,625 -- -- -- -- 18,625 Liabilities of discontinued operations ................ -- -- -- 3,417 -- 3,417 Other accrued liabilities ... 46,313 -- 25,128 3,879 -- 75,320 --------- --------- --------- --------- --------- --------- 83,507 -- 84,166 22,732 (9,422) 180,983 Long-term Debt, net of current portion ........... 355,100 -- -- 11,491 (11,491) 355,100 Postretirement Benefits Other Than Pensions ............. 17,635 -- -- -- -- 17,635 Other Long-term Liabilities ............... 8,687 -- -- 216 25 8,928 --------- --------- --------- --------- --------- --------- 464,929 -- 84,166 34,439 (20,888) 562,646 Intercompany Accounts ....... (282,707) 24 267,578 25,925 (10,820) -- Preferred Stock ............. -- 137,973 -- -- -- 137,973 Shareholders' Equity (Deficit) ................. 243,553 (87,578) 27,820 41,202 (312,575) (87,578) --------- --------- --------- --------- --------- --------- $ 425,775 $ 50,419 $ 379,564 $ 101,566 $(344,283) $ 613,041 ========= ========= ========= ========= ========= =========

F-19 EAGLEPICHER HOLDINGS, INC. SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) YEAR ENDED NOVEMBER 30, 2000 (IN THOUSANDS OF DOLLARS)

GUARANTORS ------------------------------------------ NON- GUARANTORS EAGLEPICHER SUBSIDIARY FOREIGN ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL --------- -------------- ---------- ------------ ------------ --------- Net Sales: Customers ................. $ 74,650 $ -- $ 593,408 $ 84,451 $ -- $ 752,509 Intercompany .............. 16,470 -- 12,856 9,997 (39,323) -- -------- --------- --------- -------- --------- --------- 91,120 -- 606,264 94,448 (39,323) 752,509 -------- --------- --------- -------- --------- --------- Operating Costs and Expenses: Cost of products sold (exclusively of depreciation) ........... 55,066 -- 497,162 80,698 (39,238) 593,688 Selling and administrative .......... 25,454 9 24,144 8,345 (298) 57,654 Intercompany charges ...... (11,370) -- 11,370 (298) 298 -- Depreciation and amortization of intangibles ............. 4,492 -- 32,540 3,644 -- 40,676 Goodwill amortization ..... 3,736 -- 11,100 1,041 -- 15,877 Other ..................... 663 -- (4,057) (14,238) 43 (17,589) -------- --------- --------- -------- --------- --------- 78,041 9 572,259 79,192 (39,195) 690,306 -------- --------- --------- -------- --------- --------- Operating Income (Loss) ..... 13,079 (9) 34,005 15,256 (128) 62,203 Other Income (Expense): Interest (expense) income .................. (16,311) -- (31,969) (2,682) 8,318 (42,644) Other income (expense), net ..................... 1,247 -- 7,790 (95) (8,318) 624 Equity in earnings (losses) of consolidated subsidiaries ............ 13,538 5,619 1,920 -- (21,077) -- -------- --------- --------- -------- --------- --------- Income (Loss) from Continuing Operations Before Taxes ... 11,553 5,610 11,746 12,479 (21,205) 20,183 Income Taxes ................ 2,082 -- 6,099 1,140 -- 9,321 -------- --------- --------- -------- --------- --------- Income (Loss) from Continuing Operations ................ 9,471 5,610 5,647 11,339 (21,205) 10,862 Discontinued Operations, net ....................... (3,724) -- -- (1,528) -- (5,252) -------- --------- --------- -------- --------- --------- Net Income (Loss) ........... $ 5,747 $ 5,610 $ 5,647 $ 9,811 $ (21,205) $ 5,610 ======== ========= ========= ======== ========= =========

EAGLEPICHER HOLDINGS, INC. SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) YEAR ENDED NOVEMBER 30, 2001 (IN THOUSANDS OF DOLLARS)

GUARANTORS ------------------------------------------ NON- GUARANTORS EAGLEPICHER SUBSIDIARY FOREIGN ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL --------- -------------- ---------- ------------ ------------ --------- Net Sales: Customers ................. $ 47,892 $ -- $ 571,914 $ 69,970 $ -- $ 689,776 Intercompany .............. 15,398 -- 15,185 -- (30,583) -- -------- --------- --------- -------- --------- --------- 63,290 -- 587,099 69,970 (30,583) 689,776 -------- --------- --------- -------- --------- --------- Operating Costs and Expenses: Cost of products sold (exclusively of depreciation) ........... 35,492 -- 497,674 57,165 (30,583) 559,748 Selling and administrative .......... 21,627 5 21,163 6,548 -- 49,343 Intercompany charges ...... (6,329) -- 6,537 (208) -- -- Depreciation and amortization of intangibles ............. 3,749 -- 35,790 2,799 -- 42,338 Goodwill amortization ..... 3,736 -- 11,100 989 -- 15,825 Other ..................... 12,122 -- 7,375 (93) (11) 19,393 -------- --------- --------- -------- --------- --------- 70,397 5 579,639 67,200 (30,594) 686,647 -------- --------- --------- -------- --------- --------- Operating Income (Loss) ..... (7,107) (5) 7,460 2,770 11 3,129 Other Income (Expense): Interest (expense) income .................. (11,227) -- (36,006) 636 7,714 (38,883) Other income (expense), net ..................... 1,069 -- 8,689 1,522 (7,714) 3,566 Equity in earnings (losses) of consolidated subsidiaries ............ (15,145) (53,966) 2,183 -- 66,928 -- -------- --------- --------- -------- --------- --------- Income (Loss) from Continuing Operations Before Taxes ... (32,410) (53,971) (17,674) 4,928 66,939 (32,188) Income Taxes (Benefit) ...... (12,689) -- (8) 2,634 -- (10,063) -------- --------- --------- -------- --------- --------- Income (Loss) from Continuing Operations ................ (19,721) (53,971) (17,666) 2,294 66,939 (22,125) Discontinued Operations, net ....................... (32,073) -- -- 227 -- (31,846) -------- --------- --------- -------- --------- --------- Net Income (Loss) ........... $(51,794) $ (53,971) $ (17,666) $ 2,521 $ 66,939 $ (53,971) ======== ========= ========= ======== ========= =========

F-21 EAGLEPICHER HOLDINGS, INC. SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) YEAR ENDED NOVEMBER 30, 2002 (IN THOUSANDS OF DOLLARS)

GUARANTORS ------------------------------------------ NON- GUARANTORS EAGLEPICHER SUBSIDIARY FOREIGN ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL --------- -------------- ---------- ------------ ------------ --------- Net Sales: Customers ................. $ 50,879 $ -- $ 553,983 $ 77,967 $ -- $ 682,829 Intercompany .............. 16,411 -- 13,628 4 (30,043) -- -------- --------- --------- -------- --------- --------- 67,290 -- 567,611 77,971 (30,043) 682,829 -------- --------- --------- -------- --------- --------- Operating Costs and Expenses: Cost of products sold (exclusively of depreciation) ........... 36,167 -- 465,907 62,574 (30,043) 534,605 Selling and administrative .......... 24,128 5 30,449 5,766 -- 60,348 Intercompany charges ...... (6,322) -- 6,322 -- -- -- Depreciation and amortization of intangibles ............. 5,434 -- 39,449 2,416 -- 47,299 Goodwill amortization ..... 3,736 -- 11,100 986 -- 15,822 Other ..................... 9,595 -- 9,283 -- -- 18,878 -------- --------- --------- -------- --------- --------- 72,738 5 562,510 71,742 (30,043) 676,952 -------- --------- --------- -------- --------- --------- Operating Income (Loss) ..... (5,448) (5) 5,101 6,229 -- 5,877 Other Income (Expense): Interest (expense) income . 12,680 -- (54,407) (104) 1,809 (40,022) Other income (expense), net ..................... 601 -- 2,549 175 (1,809) 1,516 Equity in earnings (losses) of consolidated subsidiaries ............ (31,844) (19,557) 2,228 -- 49,173 -- -------- --------- --------- -------- --------- --------- Income (Loss) from Continuing Operations Before Taxes ... (24,011) (19,562) (44,529) 6,300 49,173 (32,629) Income Taxes ................ 146 -- 12 1,780 -- 1,938 -------- --------- --------- -------- --------- --------- Income (Loss) from Continuing Operations ................ (24,157) (19,562) (44,541) 4,520 49,173 (34,567) Discontinued Operations, net ....................... -- -- -- (2,265) -- (2,265) -------- --------- --------- -------- --------- --------- Net Income (Loss) ........... $(24,157) $ (19,562) $ (44,541) $ 2,255 $ 49,173 $ (36,832) ======== ========= ========= ======== ========= =========

F-22 EAGLEPICHER HOLDINGS, INC. SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS YEAR ENDED NOVEMBER 30, 2000 (IN THOUSANDS OF DOLLARS)

GUARANTORS ------------------------------------ NON- GUARANTORS EAGLEPICHER SUBSIDIARY FOREIGN ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL -------- -------------- ---------- -------------- ------------ --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) ............... $ 5,747 $ 5,610 $ 5,647 $ 9,811 $(21,205) $ 5,610 Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: Equity in (earnings) loss of consolidated subsidiaries .............. (13,538) (5,619) (1,920) -- 21,077 -- Depreciation and amortization .............. 11,474 -- 43,640 4,685 -- 59,799 Provisions for discontinued operations ................ -- -- -- -- -- -- Loss (Gain) from divestitures .............. 14,965 -- (3,870) (14,244) (3,149) Deferred income taxes ....... 4,897 -- -- -- -- 4,897 Changes in assets and liabilities, net of effect of non-cash items ......... (26,940) 9 11,230 (18,516) 10,793 (23,424) -------- -------- -------- -------- -------- -------- (3,395) -- 54,727 (18,264) 10,665 43,733 -------- -------- -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales of divisions ..................... 47,002 -- 10,430 27,616 -- 85,048 Cash paid for acquisitions ...... -- -- (12,306) -- -- (12,306) Capital expenditures ............ (6,183) -- (30,320) (4,343) -- (40,846) Other, net ...................... 6,871 -- 876 (2,871) (412) 4,464 -------- -------- -------- -------- -------- -------- 47,690 -- (31,320) 20,402 (412) 36,360 -------- -------- -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Reduction of long-term debt ..... (24,374) -- -- (183) -- (24,557) Net borrowing (repayments) under revolving credit agreements ... (30,340) -- (21,000) (10,434) -- (61,774) Acquisition of treasury stock ... (2,371) -- -- -- -- (2,371) Other, net ...................... 1,454 -- -- -- -- 1,454 -------- -------- -------- -------- -------- -------- (55,631) -- (21,000) (10,617) -- (87,248) -------- -------- -------- -------- -------- -------- Net cash provided by discontinued operations .................... 4,563 -- -- 1,256 -- 5,819 -------- -------- -------- -------- -------- -------- Effect of exchange rates on cash .......................... -- -- -- (1,268) -- (1,268) -------- -------- -------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents .......... (6,773) -- 2,407 (8,491) 10,253 (2,604) Intercompany accounts ........... 5,511 -- (2,738) 6,211 (8,984) -- Cash and cash equivalents, beginning of period ........... 4,064 1 870 5,088 48 10,071 -------- -------- -------- -------- -------- -------- Cash and cash equivalents, end of period ........................ $ 2,802 $ 1 $ 539 $ 2,808 $ 1,317 $ 7,467 ======== ======== ======== ======== ======== ========

F-23 EAGLEPICHER HOLDINGS, INC. SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS YEAR ENDED NOVEMBER 30, 2001 (IN THOUSANDS OF DOLLARS)

GUARANTORS -------------------------------------- NON- GUARANTORS EAGLEPICHER SUBSIDIARY FOREIGN ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL --------- -------------- ---------- ------------ ------------ --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) ........... $(51,794) $(53,971) $(17,666) $ 2,521 $ 66,939 $(53,971) Adjustments to reconcile net income (loss) to cash provided by operating activities: Equity in (earnings) loss of consolidated subsidiaries ......... 15,145 53,966 (2,183) -- (66,928) -- Depreciation and amortization ......... 11,192 -- 46,890 3,788 -- 61,870 Provisions for discontinued operations ........... 30,416 -- -- -- -- 30,416 Loss from divestitures .. 2,105 -- -- -- -- 2,105 Deferred income taxes ... (9,344) -- -- -- -- (9,344) Changes in assets and liabilities, net of effect of non-cash items ................ 12,850 5 (3,737) (4,965) 28,129 32,282 -------- -------- -------- -------- -------- -------- 10,570 -- 23,304 1,344 28,140 63,358 -------- -------- -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales of divisions ................. -- -- -- -- -- -- Capital expenditures ........ (7,208) -- (16,469) (12,034) -- (35,711) Other, net .................. 26 -- 3,753 (4,026) -- (247) -------- -------- -------- -------- -------- -------- (7,182) -- (12,716) (16,060) -- (35,958) -------- -------- -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Reduction of long-term debt ...................... (20,795) -- -- 1,849 -- (18,946) Net borrowing (repayments) under revolving credit agreements ................ 36,340 -- (28,500) (1,611) -- 6,229 Acquisition of treasury stock ..................... (2,162) -- -- -- -- (2,162) Other, net .................. 2,593 -- -- (3,465) -- (872) -------- -------- -------- -------- -------- -------- 15,976 -- (28,500) (3,227) -- (15,751) -------- -------- -------- -------- -------- -------- Net cash provided by discontinued operations ... 4,322 -- -- 1,403 -- 5,725 -------- -------- -------- -------- -------- -------- Effect of exchange rates on cash ...................... -- -- -- (221) -- (221) -------- -------- -------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents ............... 23,686 -- (17,912) (16,761) 28,140 17,153 Intercompany accounts ....... (9,343) -- 17,844 20,889 (29,390) -- Cash and cash equivalents, beginning of period ....... 2,802 1 539 2,808 1,317 7,467 -------- -------- -------- -------- -------- -------- Cash and cash equivalents, end of period ............. $ 17,145 $ 1 $ 471 $ 6,936 $ 67 $ 24,620 ======== ======== ======== ======== ======== ========

F-24 EAGLEPICHER HOLDINGS, INC. SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS YEAR ENDED NOVEMBER 30, 2002 (IN THOUSANDS OF DOLLARS)

GUARANTORS -------------------------------------- NON- GUARANTORS EAGLEPICHER SUBSIDIARY FOREIGN ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL -------- -------------- ---------- ------------ ------------ --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ............. $(24,157) $(19,562) $(44,541) $ 2,255 $ 49,173 $(36,832) Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: Equity in (earnings) loss of consolidated subsidiaries ........... 31,844 19,557 (2,228) -- (49,173) -- Depreciation and amortization ......... 12,301 -- 50,549 3,402 -- 66,252 Provisions for discontinued operations ........... -- -- -- -- -- -- Loss from divestitures ......... 3,325 -- 3,172 -- -- 6,497 Deferred income taxes .. 6,147 -- -- -- -- 6,147 Changes in assets and liabilities, net of effect of non-cash items ................ 33,873 5 58,068 (6,629) (46,689) 38,628 -------- -------- -------- -------- -------- -------- 63,333 -- 65,020 (972) (46,689) 80,692 -------- -------- -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of divisions ................... 6,927 -- 3,100 -- -- 10,027 Capital expenditures .......... (980) -- (13,566) (1,851) -- (16,397) Proceeds from sale of property and equipment, and other, net ......................... 639 -- -- -- -- 639 -------- -------- -------- -------- -------- -------- 6,586 -- (10,466) (1,851) -- (5,731) -------- -------- -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Reduction of long-term debt ... (32,515) -- -- (12) -- (32,527) Net borrowings (repayments) under revolving credit agreements .................. 21,966 -- (56,702) -- -- (34,736) Acquisition of treasury stock ....................... (159) -- -- -- -- (159) Other ......................... -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- (10,708) -- (56,702) (12) -- (67,422) -------- -------- -------- -------- -------- -------- Net cash (used in) discontinued operations .................. -- -- -- (1,713) -- (1,713) -------- -------- -------- -------- -------- -------- Effect of exchange rates on cash ........................ -- -- -- 1,076 -- 1,076 -------- -------- -------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents ........ 59,211 -- (2,148) (3,472) (46,689) 6,902 Intercompany accounts ......... (48,662) -- (3,218) 4,438 47,442 -- Cash and cash equivalents, beginning of period ......... 17,145 1 471 6,936 67 24,620 -------- -------- -------- -------- -------- -------- Cash and cash equivalents, end of period ................... $ 27,694 $ 1 $ (4,895) $ 7,902 $ 820 $ 31,522 ======== ======== ======== ======== ======== ========

F-25 I. 11.75% CUMULATIVE REDEEMABLE EXCHANGEABLE PREFERRED STOCK We have 14,191 shares of 11.75% Cumulative Redeemable Exchangeable Preferred Stock outstanding. The Preferred Stock had an initial liquidation preference at February 24, 1998 of $5,637.70 per share which accretes during the first five years after issuance at 11.75% per annum, compounded semiannually, ultimately reaching $10,000 per share on March 1, 2003. No dividends will accrue prior to March 1, 2003, but will be cumulative at 11.75% per annum thereafter. Beginning March 1, 2003, the holders of the Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors, cash dividends at a rate per annum equal to 11.75%. Such dividends shall be payable in arrears in equal amounts semiannually. Future accretion and dividends on the Preferred Stock are as follows (in thousands of dollars):

FISCAL YEAR ACCRETION DIVIDENDS ----------------- --------- --------- 2003 ............ $ 3,937 $12,737 2004 ............ -- 16,674 2005 ............ -- 16,674 2006 ............ -- 16,674 2007 ............ -- 16,674 2008 ............ -- 4,167 ------- ------- $ 3,937 $83,600 ======= =======

The Preferred Stock is mandatorily redeemable by us on March 1, 2008 or earlier under certain circumstances, but may be redeemed at our option, in whole or in part, at any time after February 28, 2003, at set redemption prices. On February 28, 2003, we may also exchange all of the Preferred Stock for 11.75% Exchange Debentures, which would have terms similar to a debt instrument. This debt instrument would bear interest at 11.75% on the full redemption value in 2008 of approximately $141.9 million with interest payable semiannually and the principle due in 2008. We are required to offer to purchase the Preferred Stock should there be a change in control. Holders of the Preferred Stock have no voting rights except in certain circumstances. The terms of the Preferred Stock contain covenants similar to the covenants in the Senior Subordinated Notes. We are in compliance with these covenants as of November 30, 2002. The Preferred Stock had an estimated fair value of $21.3 million at November 30, 2001 and $28.4 million at November 30, 2002. These estimated fair market values were determined by the primary market maker of the Preferred Stock based on the then current market conditions at those dates as there is generally no significant trading activity in the Preferred Stock. J. SHAREHOLDERS' EQUITY (DEFICIT) Common Stock On August 31, 2001, we adopted an amendment to our Amended and Restated Certificate of Incorporation to change our capital structure. Effective with this amendment, the total number of shares of common stock which we are authorized to issue is 1,000,000 shares, par value $0.01 per share. The holders of the Common Stock shares are entitled to one vote per share on all matters which may be submitted to the holders of the Common Stock. At the effective time of this amendment, each share of Class A Common Stock and each share of the Class B Common Stock outstanding immediately prior to the effective time was reclassified as one share of Common Stock. Accumulated Other Comprehensive Income (Loss) At November 30, 2001 Accumulated Other Comprehensive Loss consisted of a net foreign currency translation loss of $2.5 million, which is net of taxes of $1.3 million, and a net loss on hedging derivatives of $3.2 million, which is net of taxes of $1.7 million. Accumulated Other Comprehensive Loss at November 30, 2002 consisted of a net foreign currency translation loss of $1.4 million, which is net of taxes of $754,000, and a net loss on hedging derivatives of $3.0 million, which is net of taxes of $1.6 million. K. INCOME TAXES The following is a summary of the sources of income (loss) from continuing operations before income taxes (benefit) for the years ended November 30 (in thousands of dollars):

2000 2001 2002 -------- -------- -------- United States .. $ 11,067 $(39,337) $(40,812) Foreign ........ 9,116 7,149 8,183 -------- -------- -------- $ 20,183 $(32,188) $(32,629) ======== ======== ========

The following is a summary of the components of income taxes (benefit) from continuing operations for the years ended November 30 F-26 (in thousands of dollars):

2000 2001 2002 -------- -------- ------- Current: Federal ........... $ 1,445 $ (5,066) $(5,956) Foreign ........... 900 2,700 2,455 State and local ... 60 (700) (45) -------- -------- ------- 2,405 (3,066) (3,546) Deferred ............ 6,916 (6,997) 5,484 -------- -------- ------- $ 9,321 $(10,063) $ 1,938 ======== ======== =======

The following is a summary of the primary differences between the income tax expense (benefit) from continuing operations and the income tax expense computed using the statutory Federal income tax rate for the years ended November 30 (in thousands of dollars):

2000 2001 2002 -------- -------- -------- Income tax expense (benefit) at Federal statutory rate .. $ 7,064 $(11,266) $(11,420) Foreign taxes rate differential ......................... (2,866) 49 66 State and local taxes, net of the Federal benefit ....... -- (100) (29) Non-deductible amortization relating to goodwill ........ 5,400 700 992 Valuation allowance ..................................... -- -- 13,813 Other ................................................... (277) 554 (1,484) -------- -------- -------- $ 9,321 $(10,063) $ 1,938 ======== ======== ========

Components of deferred tax balances as of November 30 are as follows (in thousands of dollars):

2001 2002 -------- -------- Current deferred tax assets attributable to: Accrued liabilities .................................... $ 15,442 $ 15,619 Reserve for discontinued operations and restructuring .. 14,210 500 Other .................................................. 1,135 929 -------- -------- Current deferred tax asset ............................. 30,787 17,048 Valuation allowance .................................... (6,500) (6,250) -------- -------- Current deferred tax asset, net of valuation allowance . 24,287 10,798 -------- -------- Non-current deferred tax assets (liabilities) attributable to: Property, plant and equipment .......................... (10,857) (7,321) Prepaid pension ........................................ (19,137) (19,177) Net operating loss carryforwards ....................... 5,901 32,363 Alternative minimum tax credit carryforwards ........... 5,963 -- Amortization of intangibles ............................ 5,879 5,177 Other .................................................. 5,311 3,021 -------- -------- Non-current deferred tax asset (liability) ............. (6,940) 14,063 Valuation Allowance .................................... -- (14,063) -------- -------- Non-current deferred tax asset (liability), net of valuation allowance ................................. (6,940) -- -------- -------- Net deferred tax asset ................................... $ 17,347 $ 10,798 ======== ========

As of November 30, 2002 we had net operating loss carryforwards of $88.0 million in the United States available to offset future taxable income that will begin to expire in 2021. SFAS No. 109 requires a valuation allowance to be recorded when it is more likely than not that some or all of the deferred tax assets will not be realized. As of November 30, 2001 and 2002, we recorded a valuation allowance to reduce our deferred tax assets to an amount that is more likely than not to be realized. In estimating levels of future taxable income, we have considered historical results of operations in recent years and the implementation of prudent and feasible tax planning strategies to generate future taxable income. If future taxable income is less than the amount that has been assumed in determining the deferred tax asset, then an increase in the valuation reserve will be required, with a corresponding charge against income. On the other hand, if future taxable income exceeds the level that has been assumed in calculating the deferred tax asset, the valuation reserve could be reduced, with a corresponding credit to income. L. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS, AND COMPENSATION PLANS Pension and Other Postretirement Benefit Plans F-27 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. Plan benefits for salaried employees are based primarily on employees' highest five consecutive years' earnings during the last ten years of employment. Plan benefits for hourly employees are typically based on a dollar unit multiplied by the number of service years. In December 2002, our board of directors authorized us to change from a "final average pay plan," as described above, to a cash-balance pension plan effective January 1, 2004. All benefits earned through December 31, 2003, will be unchanged. This will apply to all salaried and certain hourly employees. In addition to providing pension retirement benefits, we make health care and life insurance benefits available to certain retired employees on a limited basis. Generally, the medical plans pay a stated percentage of medical expenses reduced by deductibles and other coverages. Eligible employees may elect to be covered by these health and life insurance benefits if they reach early or normal retirement age while employed by us. In most cases, a retiree contribution for health care coverage is required. We fund these benefit costs primarily on a pay-as-you-go basis. Net periodic pension and postretirement benefit costs are based on valuations performed by our actuary as of the beginning of each fiscal year. The components of the costs are as follows (in thousands of dollars):

PENSION BENEFITS POSTRETIREMENT BENEFITS ------------------------------------ ------------------------------ 2000 2001 2002 2000 2001 2002 -------- -------- -------- ------ ------- ------ Service cost -- benefits earned during the period.................. $ 5,006 $ 4,790 $ 3,933 $ 519 $ 546 $ 463 Interest cost on projected benefit obligations ....................... 15,662 15,314 15,652 1,191 1,271 1,187 Expected return on plan assets ...... (24,091) (23,600) (23,705) -- -- -- Net amortization and deferral ....... 107 210 327 -- -- -- -------- -------- -------- ------ ------- ------ Net periodic cost (income) .......... (3,316) (3,286) (3,793) $1,710 $ 1,817 $1,650 ====== ======= ====== Special termination benefits ........ -- -- 3,674 Other retirement plans .............. 1,228 1,131 1,082 -------- ------- --------- Total cost of (income from) providing retirement benefits ............... $ (2,088) $(2,155) $ 963 ======== ======= =========

During 2002, we recognized special termination benefits as a result of determining that a portion of assets in our over-funded pension plan at November 30, 2001 could be made available to pay severance costs. Accordingly, we have amended our pension plan and have provided new or amended severance plans to allow for such payments. Approximately $3.7 million has been or is expected to be paid out of the pension plan, and was recorded as special termination benefits in 2002. Of this amount, $2.7 million in 2001 and $400,000 in 2002 is included in Restructuring expense in our statements of income (loss). In 2000, we recognized curtailment gains of $3.2 million in our pension plan and $569,000 in our postretirement plan due to the reduction in active or eligible participants in the plans primarily from the divestiture of certain divisions Our board of directors froze our Supplemental Executive Retirement Plan (the "SERP"), effective January 1, 2003. The Compensation Committee of the board of directors has approved replacement of the SERP with a "Pension Restoration Plan" which will allow certain employees whose compensation is greater than $200,000 to receive pension benefits, which are currently limited primarily by governmental regulations. In addition, certain key executives will be provided an additional 5% of compensation per year in lieu of the prior SERP benefits. These will be unfunded and unsecured obligations. We anticipate implementing the Pension Restoration Plan during 2003 effective January 1, 2003. The pension plans' assets consist primarily of listed equity securities and publicly traded notes and bonds. The following tables set forth the plans' changes in benefit obligation, plan assets and funded status on the measurement dates, November 30, 2001 and 2002, and amounts recognized in our consolidated balance sheets as of those dates (in thousands of dollars).

POSTRETIREMENT PENSION BENEFITS BENEFITS ------------------------- ----------------------- 2001 2002 2001 2002 ---------- ---------- --------- --------- Changes in Benefit Obligations: Benefit Obligation, beginning of year .............. $ 222,353 $ 219,816 $ 17,549 $ 16,509 Service cost ..................................... 4,790 3,933 546 463 Interest cost .................................... 15,314 15,652 1,271 1,187 Amendments ....................................... 644 2,305 -- -- Actuarial (gain)/loss ............................ (10,166) 3,397 (1,424) 2,367

F-28 Divestitures and other ........................... 109 -- -- -- Plan participant's contributions ................. -- -- 699 776 Special termination benefits ..................... -- 3,674 -- -- Benefits paid .................................... (13,228) (16,763) (2,132) (2,664) --------- --------- -------- -------- Benefit Obligation, end of year .................... 219,816 232,014 16,509 18,638 --------- --------- -------- -------- Change in Plan Assets: Fair Value of Plan Assets, beginning of year ..... 267,410 264,104 -- -- Actual return (loss) on plan assets .............. 9,922 (14,440) -- -- Employer contributions ........................... -- -- 1,433 1,888 Plan participants' contributions ................. -- -- 699 776 Benefits paid .................................... (13,228) (16,763) (2,132) (2,664) --------- --------- -------- -------- Fair Value of Plan Assets, end of year ............. 264,104 232,901 -- -- --------- --------- -------- -------- Funded Status ...................................... 44,288 887 (16,509) (18,638) Unrecognized Actuarial (Gain)/Loss ................. 8,052 49,205 (1,364) 1,003 Unrecognized Prior Service Cost .................... 2,336 4,704 -- -- --------- --------- -------- -------- Net Prepaid Benefit Cost (Accrued Benefit Liability) Recognized ....................................... $ 54,676 $ 54,796 $(17,873) $(17,635) ========= ========= ======== ======== Weighted average assumptions as of November 30 are:

PENSION POSTRETIREMENT BENEFITS BENEFITS --------------------- ------------------ 2001 2002 2001 2002 -------- -------- -------- -------- Discount rate ........................ 7.25% 6.95% 7.25% 6.95% Expected rate of return on plan assets 9.25% 9.25% N/A N/A Rate of compensation increase ........ 3.00% 3.00% N/A N/A

During 2002, we recognized $2.3 million in amendments to our projected benefit obligation related to changes in benefit obligations for our hourly employees. These employees' benefits are periodically increased as a result of negotiations with our unions. The effect of a 25 basis point change in our discount rate would be to decrease or increase our annual pension cost by $800,000 and the annual post retirement welfare cost by $100,000. Additionally, a 25 basis point change in our expected return on plan assets would change our pension cost by approximately $600,000. Postretirement benefit costs were estimated assuming retiree health care costs would initially increase at a 12% annual rate. The rate was assumed to decrease 1% per year until it reaches 5% and then remain at that level thereafter. If this annual trend rate would increase by 1%, the accumulated postretirement obligation as of November 30, 2002 would increase by $1.9 million with a corresponding increase of $201,000 in the postretirement benefit expense in 2002. A 1% decrease in this annual trend rate would decrease the accumulated postretirement benefit obligation by $1.5 million and the postretirement benefit expense by $164,000 in 2002. Compensation Plans We also offer 401(k) savings plans to our employees in the United States. Participants may contribute a portion of their earnings, of which 50% of their contribution, up to 6% of their earnings, is matched by us. Our matching cost for these plans was $2.1 million in 2000 and 2001 and $1.6 million in 2002. Our board of directors adopted a "401(k) Restoration Plan," effective January 1, 2003, for all employees whose base compensation is greater than $200,000. This will allow all employees to maximize our matching policy without being limited by governmental regulations related to maximum employee contributions into a 401(k) plan. This will be an unfunded and unsecured obligation. We have a Share Appreciation Plan ("SAP Plan") to reward certain executives and managers whose individual performance and effort will have a direct impact on achieving our profit and growth objectives. Shares of stock are not actually awarded, however participants are awarded units on which appreciation is calculated based upon a formula of the prior year's earnings before interest, taxes, depreciation, and amortization ("EBITDA") minus net debt and preferred stock. The units vested over five years and are payable any time during the sixth through tenth year following the date of award. We recognized income of $1.0 million related to this plan in the fourth quarter of 2001 because the calculated value of the units at November 30, 2001 was below the base price; the units had no value at the end of November 30, 2002 as well. Expense related to the SAP Plan in 2000 was $635,000. It is our intent to no longer grant units under the SAP Plan. In June 2002, we adopted a "Long-Term Bonus Program", effective December 1, 2001. This plan provides for the grant of units to certain members of management. Individuals are rewarded based on the growth of a unit's value over time. The unit value is F-29 determined based on a multiple (6.54x) of our annual EBITDA less net debt and preferred stock, as defined and as adjusted for certain items in the agreement. The initial grant of approximately 500,000 units was completed retroactive to December 1, 2001. The units vest ratably over three years and can be redeemed by the individuals after the vesting period and up to five years, which is when the units expire. No award payments can be made until the earlier of a) September 2004, or b) Dakruiter S.A., a company controlled by Granaria Holdings B.V., our controlling common shareholder, selling all shares of our preferred stock owned by it. Additionally, the potential annual payment of any vested units is limited to certain conditions to prevent any undue financial stress. During 2002, we expensed $1.2 million in Selling and Administrative expense in the statements of income (loss) for the cost associated with this plan. M. COMMITMENTS AND CONTINGENCIES Environmental Matters We are subject to extensive and evolving Federal, state and local environmental laws and regulations. Compliance with such laws and regulations can be costly. Governmental authorities may enforce these laws and regulations with a variety of enforcement measures, including monetary penalties and remediation requirements. We have policies and procedures in place to ensure that our operations are conducted in compliance with such laws and regulations and with a commitment to the protection of the environment. We are involved in various stages of investigation and remediation related to environmental remediation projects at a number of sites as a result of past and present operations, including currently-owned and formerly-owned plants. Also, we have received notice that we may have liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 as a potentially responsible party at a number of sites ("Superfund Sites"). The ultimate cost of site remediation is difficult to predict given the uncertainties regarding the extent of the required remediation, the interpretation of applicable laws and regulations and alternative remediation methods. Based on our experience with environmental remediation matters, we have accrued reserves for our best estimate of remediation costs, and we do not believe that remediation activities will have a material adverse impact on our financial condition, results of operations or cash flows. In addition, in the course of our bankruptcy described below under Legal Matters, we obtained an agreement with the U.S. Environmental Protection Agency and the states of Arizona, Michigan and Oklahoma whereby we are limited in our responsibility for environmental sites not owned by us that allegedly arise from pre-bankruptcy activities. We retain all of our defenses, legal or factual, at such sites. However, if we are found liable at any of these sites we may be required to pay as if such claims had been resolved in our bankruptcy and therefore our liability is paid at approximately 37%. We had total expenditures for environmental compliance and remediation of $11.3 million in 2000, $9.1 million in 2001, and $10.0 million in 2002. We estimate that we will spend $12.8 million during 2003. As of November 30, 2002, we had $17.7 million accrued primarily for sold divisions or businesses related to legal and environmental remediation matters, and believe such reserves to be adequate under the current circumstances. In addition, we have $2.4 million recorded in other accrued liabilities related to environmental remediation liabilities for our on-going businesses. Legal Matters As a result of sales prior to 1971 of asbestos-containing insulation materials, EPI became the target of numerous lawsuits seeking damages for illness resulting from exposure to asbestos. By the end of 1990, we had paid hundreds of millions of dollars to asbestos litigation plaintiffs and their lawyers. In January 1991, we filed for protection under Chapter 11 of the U.S. Bankruptcy Code as a direct consequence of cash shortfalls attributable to pending asbestos litigation liabilities. On November 29, 1996, we emerged from bankruptcy as a reorganized company. The bankruptcy court issued permanent injunction which precludes holders of present and future asbestos-related or lead-related personal injury claims from pursuing their claims against us. Consequently, we have no further liability in connection with such asbestos-related or lead-related personal injury claims. Instead, those claims will be channeled to the EPI Personal Injury Settlement Trust (the "PI Trust") which is an independently administered qualified settlement trust established to resolve and satisfy those claims. Under the terms of our bankruptcy reorganization, all of the outstanding common stock of the former Eagle-Picher Industries, Inc. was cancelled and newly issued common stock of the reorganized entity was contributed to the PI Trust, together with certain notes and cash. On February 24, 1998, we acquired the reorganized entity from the PI Trust for $702.5 million. A final distribution of approximately $10.9 million was made by us to the PI Trust and all other eligible unsecured claimants in June 2001. On January 25, 1996, Richard Darrell Peoples, a former employee, filed a lawsuit in the United States District Court for the Western District of Missouri claiming that we violated the federal False Claims Act based on alleged irregularities in testing procedures in connection with certain U.S. 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 U.S. Government declined the opportunity to F-30 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. 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. 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. As previously reported, last year our former President and Chief Executive Officer, Andries Ruijssenaars, filed a lawsuit against us, certain of our directors, and ABN AMRO Bank in the U.S. District Court for the Southern District of Ohio, Western Division. Mr. Ruijssenaars claimed that we were obligated to purchase his shares of our common stock for approximately $4.7 million rather than $2.8 million as we claimed. Mr. Ruijssenaars' lawsuit also challenged a 2001 amendment to our Supplemental Executive Retirement Plan which changed the determination of benefits under the SERP, and claimed that we were obligated to purchase an annuity for his additional SERP benefit accrued after 2000 and reimburse him for the tax consequences. In the fourth quarter of 2002 we finalized a settlement of the lawsuit, agreeing to pay Mr. Ruijssenaars $3.8 million in December 2002 for his stock and recognize his SERP benefits under the pre-2001 amendment, but not to purchase an annuity or reimburse any taxes. We allocated $2.8 million of the $3.8 million settlement for the stock to our Treasury shares in the accompanying balance sheets and the remaining amount, representing the difference between the formula price and the settlement amount of the stock, was recorded as compensation expense. In addition, we recognized approximately $1.0 million in expense which represents the actuarially determined net present value of his SERP benefits. Granaria Holdings B.V., our controlling common shareholder, and ABN AMRO Bank, N.V., the agent under our senior credit facility and the indirect holder of approximately 37.5% of our common stock, each guaranteed 50% of Mr. Ruijssenaars unfunded SERP payments. On December 1, 1999, our Technologies Segment acquired the depleted zinc distribution business (the "DZ Business") of Isonics Corporation ("Isonics") for approximately $8.2 million, payable $6.7 million at closing and $1.5 million in three installments of $500,000 each payable on the first three anniversaries of the closing. In connection with the purchase of the DZ Business, we agreed to sell 200 kg of isotopically purified silicon-28 to Isonics. Due to various factors, we did not deliver any silicon-28 to Isonics. Isonics asserted a claim against us for $75.0 million in arbitration for the failure to deliver silicon-28. On July 24, 2002, we paid $2.5 million to Isonics to settle all claims among us and Isonics including the remaining installment payments totaling $1.5 million for the DZ business, and the parties signed mutual general releases. On October 30, 2001, GMAC Business Credit, LLC (GMAC) and Eagle Trim, Inc. filed a lawsuit in the United States District Court for the Eastern District of Michigan, Southern Division, against us arising out of the sale of our former automotive interior trim division to Eagle Trim. In connection with that sale, we guaranteed to GMAC, which funded the acquisition, that approximately $3.9 million of receivables relating to tooling purchased by us on behalf of customers would be paid by November 2001. Eagle Trim ceased operations during 2001. At that time, Eagle Trim and GMAC alleged that approximately $2.7 million of the tooling receivables had not been collected and did not exist at the time of the sale. On September 30, 2002, we settled this matter by agreeing to pay $5.4 million, which is included in Accrued Divestitures in our balance sheets, to GMAC, payable $1.7 million by December 5, 2002, $1.5 million payable in monthly installments from January 2003 through June 2003, and $2.2 million, payable in monthly installments from July 2003 through October 2005, plus interest at 4.5% per annum. In addition, 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. F-31 Operating Leases Future minimum rental commitments over the next five years as of November 30, 2002, under noncancellable operating leases, which expire at various dates, are as follows: $5.5 million in 2003, $5.0 million in 2004, $3.3 million in 2005, $2.6 million in 2006, $2.4 million in 2007, and $2.8 million thereafter. Rent expense was $4.8 million in 2000, $5.7 million in 2001, and $6.4 million in 2002. Guarantee We are the guarantor on the lease of a building that was owned by one of our former subsidiaries. We believe the likelihood of being liable for the lease is remote. The original term of the lease expires in 2005; however, there are two five-year renewal terms that we have also guaranteed. The rent for the two five-year renewals is based upon the Consumer Price Index, at the time of renewal, should the buyer of the former subsidiary not exercise its purchase option on the building. The amount of the guarantee is $4.0 million at November 30, 2002; however, this amount excludes any guarantee on the two five-year renewals as those amounts can not be determined as of November 30, 2002. N. RELATED PARTY TRANSACTIONS We have an advisory and consulting agreement with Granaria Holdings B.V., our controlling common shareholder, pursuant to which we pay Granaria Holdings B.V. an annual management fee of $1.8 million. The agreement terminates on the earlier of February 24, 2008 or the end of the fiscal year in which Granaria Holdings, B.V. and its affiliates, in the aggregate, beneficially owns less than 10% of our outstanding common stock. Fees and expenses relating to these services amounted to $2.1 million in 2000 and 2001, and $2.2 million in 2002. At November 30, 2001, $600,000 was accrued in Other Accrued Liabilities in the accompanying balance sheet relating to these fees and expenses. At November 30, 2002, $556,000 was accrued in Other Accrued Liabilities in the accompanying balance sheet relating to these fees and expenses. During 2002, we paid $800,000 which is included in Other Assets in our balance sheets to a start-up high-technology manufacturing company for the exclusive right to manufacture the start-up companies' battery technology. This asset will be amortized into Cost of Products Sold over the term of the supply arrangement. In addition, an entity affiliated with Granaria Holdings, B.V., our controlling common shareholder, invested $2.0 million for a 14.8% interest, and Thomas R. Pilholski, our Senior Vice President and Chief Financial Officer invested $200,000 for a 1.5% interest. In addition, John H. Weber, our President and Chief Executive Officer, invested $20,000, and David G. Krall, our Senior Vice President and General Counsel, invested $5,000. Both Mr. Weber and Mr. Krall received less than 1% interest for their investments. In addition, Noel Longuemare, a director of our wholly-owned subsidiary, Eagle Picher Technologies, LLC, holds a 5% interest in this start-up company. O. BUSINESS SEGMENT INFORMATION Our business consists of three operating segments: the Automotive Segment, the Technologies Segment and the Filtration and Minerals Segment. Our Automotive Segment is operated under two separate business units, the Hillsdale division and the Wolverine division. The Hillsdale division produces NVH dampers for engine crankshafts and drivelines, driveline yokes, flanges, transmission and engine pumps, automatic transmission filtration products, chassis corners and knuckle assemblies and other precision machined components. The Wolverine division produces rubber-coated materials and gaskets for automotive and non-automotive applications. Our Technologies Segment develops and commercializes advanced power systems for defense, aerospace and commercial applications; produces boron isotopes for nuclear radiation containment; supplies ultra-clean scientific containers for pharmaceutical and environmental testing; and provides contract pharmaceutical services. An $8.7 million restructuring charge was recorded in the fourth quarter of 2001, and a $5.5 million restructuring charge was recorded in the second quarter of 2002. See Note E for a discussion of the restructuring charges. Our Filtration and Minerals Segment mines, processes and markets diatomaceous earth for use as a filtration aid, absorbent, performance additive and soil amendment. Sales between segments were not material. Our foreign operations are located primarily in Europe and in Mexico. Our subsidiary guarantor and non-guarantor disclosure included in Note H discloses our net sales and long-lived asset amounts by geographic region. In that note, the columns marked as Issuer, EaglePicher Holdings, Inc., and Subsidiary Guarantors represent all United States operations, and the column marked Non-Guarantor Foreign Subsidiaries represent our foreign operations. Net sales and long-lived assets included in Note H are based on where the sale F-32 originates, and where the long-lived assets reside. Included in the United States net sales amounts are export sales to non-affiliated customers of $75.3 million in 2000, $76.7 million in 2001, and $78.6 million in 2003. Intercompany transactions with foreign operations are made at established transfer prices. The following data represents financial information about our reportable business segments. During 2002, we elected to modify our internal methodology of allocating certain expenses from the corporate segment to the operating segments. In the following tables, the financial information for 2001 and 2000 has been restated to conform to the new 2002 presentation (in thousands of dollars).

2000 2001 2002 --------- --------- --------- NET SALES Hillsdale .................................... $ 356,130 $ 334,172 $ 342,678 Wolverine .................................... 82,300 74,100 79,367 --------- --------- --------- Automotive ................................. 438,430 408,272 422,045 --------- --------- --------- Power Group .................................. 90,600 100,788 104,620 Precision Products-divested July 17, 2002 .... 13,400 10,214 3,435 Specialty Materials .......................... 78,100 75,584 57,400 Chemsyn ...................................... 9,300 13,714 13,200 --------- --------- --------- Technologies ............................... 191,400 200,300 178,655 --------- --------- --------- Filtration and Minerals ...................... 80,579 82,004 82,129 --------- --------- --------- Divested Divisions ........................... 42,800 -- -- --------- --------- --------- Corporate/Intersegment ....................... (700) (800) -- --------- --------- --------- $ 752,509 $ 689,776 $ 682,829 ========= ========= ========= OPERATING INCOME (LOSS) Automotive ................................... $ 28,061 $ 7,487 $ 10,501 Technologies ................................. 15,073 1,539 (1,887) Filtration and Minerals ...................... 4,837 4,730 8,078 Divested Divisions ........................... 976 (2,105) (6,497) Corporate/Intersegment ....................... 13,256 (8,522) (4,318) --------- --------- --------- $ 62,203 $ 3,129 $ 5,877 ========= ========= ========= DEPRECIATION AND AMORTIZATION Automotive ................................... $ 33,821 $ 37,851 $ 42,994 Technologies ................................. 14,389 14,612 14,346 Filtration and Minerals ...................... 5,712 5,482 5,276 Divested Divisions ........................... 2,418 -- -- Corporate/Intersegment ....................... 213 218 505 --------- --------- --------- $ 56,553 $ 58,163 $ 63,121 ========= ========= ========= CAPITAL EXPENDITURES Automotive ................................... $ 33,679 $ 27,167 $ 11,340 Technologies ................................. 3,300 5,500 1,889 Filtration and Minerals ...................... 2,100 2,600 1,969 Divested Divisions ........................... 1,400 -- -- Corporate/Intersegment ....................... 367 444 1,199 --------- --------- --------- $ 40,846 $ 35,711 $ 16,397 ========= ========= ========= IDENTIFIABLE ASSETS Automotive ................................... $ 324,012 $ 278,936 Technologies ................................. 209,023 169,909 Filtration and Minerals ...................... 52,000 48,721 Divested Divisions ........................... -- -- Corporate/Intersegment/Discontinued Operations 143,899 115,475 --------- --------- $ 728,934 $ 613,041 ========= =========

P. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following table summarizes the unaudited consolidated quarterly financial results of operations for 2001 and 2002, which we believe include all necessary adjustments for a fair presentation of our interim results. During the fourth quarter of 2002, we restated the 2001 and 2000 financial statements to reflect the appropriate adoption of EITF 00-10, "Accounting for Shipping and Handling Fees and Costs," as discussed in Note Q. As a result, Net Sales and Cost of Products Sold in prior years comparative financial statements have been restated and increased from the amounts previously reported. Net Sales and Cost of Products Sold were increased by $4.2 million in the first quarter of 2001, $3.6 million in the second quarter of 2001, $5.3 million in the third quarter of 2001, and $3.2 million in the fourth quarter of 2001; $3.9 million in the first quarter of 2002, $4.1 F-33 million in the second quarter of 2002, and $3.9 million in the third quarter of 2002. These restatements had no impact on operating income, net income, or cash flows. The following table is in thousands of dollars, except per share amounts.

2001 QUARTERS ------------------------------------------------------ Q1 Q2 Q3 Q4 --------- --------- --------- --------- Net sales ...................................................... $ 162,323 $ 183,389 $ 170,802 $ 173,262 Cost of products sold .......................................... 129,489 147,637 141,727 140,895 Operating income (loss) ........................................ 8,338 4,845 490 (10,544) Loss from continuing operations ................................ (920) (3,148) (5,037) (13,020) Net loss ....................................................... (17,430) (6,262) (10,603) (19,676) Diluted loss per share from continuing operations .............. (4.08) (6.57) (8.50) (16.92) Diluted net loss per share ..................................... (20.80) (9.74) (14.18) (23.75)

2002 QUARTERS ------------------------------------------------------ Q1 Q2 Q3 Q4 --------- --------- --------- --------- Net sales ...................................................... $ 158,677 $ 181,878 $ 170,567 $ 171,707 Cost of products sold .......................................... 126,116 141,137 133,123 134,229 Operating income (loss) ........................................ 4,535 (10,255) 7,046 4,551 Loss from continuing operations ................................ (6,180) (21,523) (2,669) (4,195) Net loss ....................................................... (6,207) (21,968) (3,571) (5,086) Diluted loss per share from continuing operations .............. (10.01) (26.17) (6.63) (8.44) Diluted net loss per share ..................................... (10.04) (26.63) (7.57) (9.36)

During the fourth quarter of 2001, our operating income (loss) was significantly impacted as a result of recording $14.1 million in restructuring charges related to our Technologies Segment's operations and the relocation of our corporate headquarters to Phoenix, Arizona. During the second quarter of 2002 our operating income (loss) was significantly impacted as a result of recording $5.5 million in restructuring charges related to exiting our Gallium business within our Technologies Segment, approximately $5.9 million of losses related to divestitures for divisions sold in prior years, a $3.1 million charge in our Technologies Segment primarily related to inventories damaged in a fire, and $4.8 million of legal and settlement charges, included in Selling and Administrative expenses as described under Legal Matters in Note M. During the fourth quarter of 2002, our domestic operations changed from the LIFO to the FIFO method of inventory valuation. This change in accounting principle was made to provide a better matching of revenue and expenses and to be consistent with prevalent industry practice. This accounting change resulted in a credit to Cost of Products Sold of approximately $1.0 million in the fourth quarter of 2002. Q. RESTATEMENT FOR TRANSPORTATION COSTS BILLED TO CUSTOMERS In the fourth quarter of fiscal 2002, we restated the 2000 and 2001 financial statements to reflect the appropriate adoption of EITF 00-10, "Accounting for Shipping and Handling Fees and Costs." We should have adopted EITF 00-10 in the fourth quarter of 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 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 impacts to the financial statements for the years ended November 30, 2000 and 2001 are shown below (in thousands of dollars):

2000 2001 -------- -------- Net Sales as originally reported ................... $737,009 $673,476 Increase in Net Sales .............................. 15,500 16,300 -------- -------- Restated Net Sales ................................. $752,509 $689,776 ======== ======== Cost of Products Sold (exclusive of depreciation) as originally reported .............................. $578,188 $543,448 Increase in Cost of Products Sold .................. 15,500 16,300 -------- -------- Restated Cost of Products Sold (exclusive of depreciation) .................................... $593,688 $559,748 ======== ========

F-34 R. SUBSEQUENT EVENTS 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 component of our Automotive Segment) for cash of $1.1 million. This sale closed on June 11, 2003. In addition, we will be winding down the remaining operations of our Hillsdale U.K. Automotive operation during 2003. Accordingly, effective May 31, 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. In addition, in the second quarter of 2003, we recognized a Loss on Disposal of Business of $3.0 million, which is net of a $600,000 tax benefit related to this sale. At May 31, 2003, the assets of our Hillsdale U.K. Automotive Operation have been reclassified as Assets of discontinued operations, and the liabilities have been reclassified as Liabilities of discontinued operations. We expect to incur the following shutdown costs during 2003 related to our Hillsdale U.K. Automotive operation (in thousands of dollars): One-time termination benefits.... $ 642 Contract termination costs....... 100 Facility closure and other....... 420 ------ $1,162 ====== 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. During the second quarter of 2003, 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 certain of our executive officers the 69,500 shares of common stock held in our Treasury for $13.00 per share, or $0.9 million. 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. In July 2003, we announced the commencement of a cash tender offer and consent solicitation for our 9 3/8% Senior Subordinated Notes Due 2008. In July 2003, we engaged ABN AMRO Incorporated and UBS Securities LLC to act as joint lead arrangers in connection with a new senior secured credit facility to refinance our existing senior secured credit facility, which matures in February 2004. F-35 EX-99.5 7 p68044exv99w5.txt EX-99.5 EXHIBIT 99.5 For purposes of this exhibit, company, we, us and our refer to EaglePicher Holdings, Inc. RESULTS OF OPERATIONS YEARS ENDED 2002 COMPARED TO 2001, AND 2001 COMPARED TO 2000 The following summary financial information about our industry segment data is presented to gain a better understanding of the narrative discussion below about our business segments. See Note O in our November 30, 2002 consolidated financial statements included in Exhibit 99.4 to this Report. All references herein to years are to our fiscal year ending November 30 unless otherwise indicated (in thousands).

2000 TO 2001 2001 TO 2002 2000 2001 2002 CHANGE % CHANGE % ---- ---- ---- ------ - ------ - NET SALES Hillsdale $ 356,130 $ 334,172 $ 342,678 $(21,958) (6.2) $ 8,506 2.5 Wolverine 82,300 74,100 79,367 (8,200) (10.0) 5,267 7.1 --------- --------- --------- -------- -------- Automotive 438,430 408,272 422,045 (30,158) (6.9) 13,773 3.4 --------- --------- --------- -------- -------- Power Group 90,600 100,788 104,620 10,188 11.2 3,832 3.8 Precision Products -- divested July 17,2002 13,400 10,214 3,435 (3,186) (23.8) (6,779) (66.4) Specialty Materials 78,100 75,584 57,400 (2,516) (3.2) (18,184) (24.1) Chemsyn 9,300 13,714 13,200 4,414 47.5 (514) (3.7) --------- --------- --------- -------- -------- Technologies 191,400 200,300 178,655 8,900 4.6 (21,645) (10.8) --------- --------- --------- -------- -------- Filtration and Minerals 80,579 82,004 82,129 1,425 1.8 125 0.2 --------- --------- --------- -------- -------- Divested Divisions 42,800 -- -- (42,800) (100.0) -- -- --------- --------- --------- -------- -------- Corporate/Intersegment (700) (800) -- (100) 14.3 800 100.0 --------- --------- --------- -------- -------- $ 752,509 $ 689,776 $ 682,829 $(62,733) (8.3) $ (6,947) (1.0) ========= ========= ========= ======== ======== OPERATING INCOME (LOSS) Automotive $ 28,061 $ 7,487 $ 10,501 $(20,574) (73.3) $ 3,014 40.3 Technologies 15,073 1,539 (1,887) (13,534) (89.8) (3,426) N/A Filtration and Minerals 4,837 4,730 8,078 (107) (2.2) 3,348 70.8 Divested Divisions 976 (2,105) (6,497) (3,081) N/A (4,392) 208.6 Corporate/Intersegment 13,256 (8,522) (4,318) (21,778) N/A 4,204 (49.3) --------- --------- --------- -------- -------- $ 62,203 $ 3,129 $ 5,877 $(59,074) (95.0) $ 2,748 87.8 ========= ========= ========= ======== ========

2002 COMPARED TO 2001 COMPANY DISCUSSION Net sales. Net sales of $682.8 million in 2002 decreased $6.9 million, or 1.0%, from $689.8 million in 2001. Excluding the sale in July 2002 of our Precision Products business included in our Technologies Segment, our net sales were essentially flat in 2002 compared to 2001. Cost of products sold (exclusive of depreciation). Our gross margins increased 2.8 points to 21.7% in 2002 from 18.9% in 2001. The improved sales mix primarily related to increased sales in our Technologies Segment's Power Group and our Automotive Segment's Wolverine operation, and productivity improvements in all our businesses contributed to the increased gross margins. Our Technologies Segment was also favorably impacted by the restructuring actions initiated in the fourth quarter of 2001, while our Filtration and Minerals Segment benefited from improved pricing and significantly lower energy costs, which were high in 2001 when the Western United States experienced an energy crisis. Selling and administrative. Selling and administrative expenses increased $11.0 million, or 22.3%, to $60.3 million in 2002 from $49.3 million in 2001. The increased costs in 2002 were primarily related to: (i) $6.0 million of legal expenses and legal settlement charges recorded in Selling and Administrative expenses during the first half of 2002 as described in Note M of our November 30, 2002 consolidated financial statements included in Exhibit 99.4 to this Report; (ii) $1.4 million in our Technologies Segment for business consulting fees to develop a strategy for our Power Group business; (iii) $3.7 million in severance (excluding management compensation -- special), recruiting, relocation costs, and workforce-related consulting fees as we continued our investment in restructuring and strengthening our leadership team; and (iv) $1.2 million in increased compensation costs related to a recently adopted long-term bonus plan for certain corporate and divisional management executives. Depreciation and amortization. Depreciation and amortization expenses increased $5.0 million, or 8.5%, to $63.1 million in 2002 from $58.2 million in 2001. The increase is primarily attributable to higher depreciation costs as a result of capital expenditures in 2001, primarily for new automotive programs, and an adjustment for an additional $1.1 million in expense in the second quarter of 2002 to bring the estimated useful lives of certain equipment in the Automotive Segment in line with estimated periods of active production on existing automotive programs. Restructuring. During 2002, we recorded $5.9 million of restructuring expense, which was primarily related to our announcement on May 31, 2002 to exit our Gallium business in our Technologies Segment due to the downturn in the fiber-optic, telecommunication and semiconductor markets. This resulted in a $5.5 million charge recorded in restructuring expense during the second quarter of 2002. This charge primarily represents the liquidation of existing inventories and an accrual for inventory to be purchased under firm purchase commitments. Loss from divestitures. All amounts recorded in divestitures expense relate to operations that were sold or that were divested prior to November 30, 2002. During 2002, we completed the sale of our Precision Products business in our Technologies Segment to a group of former employees and divisional management personnel. We recorded in the second quarter of 2002 a $2.8 million loss on this sale. Also, during the second quarter of 2002, we recorded $3.4 million in accruals related to costs for certain litigation issues and environmental remediation costs. The remaining amounts related to workmen's compensation claims for employees of our sold divisions, and additional accruals related to litigation and environmental remediation costs. The amounts recorded in 2001 related to costs of divestitures in previous years. Management compensation -- special. These expenses primarily relate to the separation of officer employment and the settlement with our former Chief Executive Officer. During 2002, we separated four officers (two in our Automotive Segment, one in our Corporate Segment and one in our Technologies Segment) at a cost of $1.3 million, and finalized a settlement with our former Chief Executive Officer as described in Note M of our November 30, 2002 consolidated financial statements included in Exhibit 99.4 to this Report. During 2001, we separated three officers in the Corporate Segment that aggregated $3.1 million. Insurance related losses. During the second quarter 2002, we recorded a $3.1 million loss for an insurance receivable primarily related to inventories damaged in a fire during the third quarter 2001 at our Missouri bulk pharmaceutical manufacturing plant. We have recorded this charge to fully reserve the receivable because the insurance underwriter is contesting the coverage on these assets. We are disputing the insurance carrier's position and are vigorously pursuing efforts to collect on our claims, but the recovery of our claim is uncertain at this time. Interest expense. Interest expense was $40.0 million in 2002 and $38.9 million in 2001 (not including interest allocated to discontinued operations in 2002 of $1.1 million and in 2001 of $4.5 million). Also included in interest expense in 2002 are $1.5 million in fees and other costs, primarily related to our unconsolidated accounts receivable asset-backed securitization. Excluding these $1.5 million in fees and other costs and including the interest allocated to discontinued operations, our interest expense decreased due to lower interest rates and lower debt levels. Income (loss) from continuing operations before taxes. Loss from continuing operations before taxes increased $0.4 million, or 1.4%, to $32.6 million in 2002 from $32.2 million in 2001. The following items represent charges by segment that affect the comparability between loss from continuing operations before taxes for 2001 and 2002. All of these items are excluded from calculating compliance with our debt covenants under our senior credit facility (in millions).

2001 2002 SEGMENT ---- ---- ------- Management compensation -- special $ 3.1 $ 2.3 Corporate Management compensation -- special -- 0.4 Technologies Management compensation -- special -- 0.7 Automotive Loss from divestitures 2.1 6.5 Divested Divisions Restructuring -- exiting of the gallium business -- 5.5 Technologies Restructuring 5.4 0.4 Corporate Restructuring 8.7 -- Technologies Selling and administrative -- legal and settlement costs -- 5.7 Technologies Selling and administrative -- legal and settlement costs -- 0.3 Corporate Insurance related losses -- 3.1 Technologies Depreciation adjustment related to equipment useful lives -- 1.1 Automotive --------- --------- $ 19.3 $ 26.0 ========= =========

In addition, during 2002, we incurred $1.4 million of expense in our Technologies Segment for business consulting fees to develop a strategy for our Power Group and $3.7 million in severance, recruiting, relocation and workforce-related consulting projects as we have continued our investment in strengthening our leadership team. Income taxes (benefit). Income tax provision was $1.9 million in 2002 compared to a benefit of $10.1 million in 2001. Differences in the income taxes recorded primarily relate to recording a tax benefit during 2001 on losses, to the extent those losses could be carried back to prior fiscal years, and a refund could be obtained from the taxing authority. For any amounts in excess of the carry back amounts, we have elected to provide a valuation allowance as it is more likely than not that some or all of the deferred tax assets will not be realized. Accordingly, there is no tax benefit recorded during 2002. The provision in 2002 relates to the allocation of income and loss between the United States and foreign jurisdictions and represents the estimated tax that will be due in certain jurisdictions where no tax benefit can be assured from utilizing our losses. Discontinued operations. Throughout 2001, we accounted for our former Machinery Segment as a discontinued operation and prior periods have been restated to conform to the discontinued operations presentation. On December 14, 2001, we completed the sale of our Machinery Segment as of November 30, 2001. Accordingly, there is no effect on our operations in 2002. In addition, the accompanying 2001 and 2002 financial information has been restated to reflect the accounting of our Hillsdale UK Automotive operation as a discontinued business. The Hillsdale UK Automotive operation was sold on June 11, 2003. Net loss. The net loss decreased $17.1 million, or 31.8%, to $36.8 million in 2002 from $54.0 million in 2001. The decrease in net loss is the result of the items discussed above. Preferred stock dividend accretion of $14.9 million in 2002 increased our net loss of $36.8 million to a net loss applicable to common shareholders of $51.7 million. In 2001, preferred stock dividend accretion of $13.3 million increased the net loss of $54.0 million to a net loss applicable to common shareholders of $67.3 million. AUTOMOTIVE SEGMENT Sales in our Automotive Segment increased $13.8 million, or 3.4%, to $422.0 million in 2002 from $408.3 million in 2001. Our Hillsdale division's net sales increased $8.5 million, or 2.5%, to $342.7 million in 2002 from $334.2 million in 2001. This increase is a result of increased North American automotive builds in 2002 compared to 2001. Our Wolverine division's sales increased $5.3 million, or 7.1%, to $79.4 million in 2002 from $74.1 million in 2001. This increase was a result of the increased North American automotive build in 2002 compared to 2001, as well as the initial penetration in the United States aftermarket business. Operating income increased $3.0 million, or 40.3%, to $10.5 million in 2002 from $7.5 million in 2001. This improved performance resulted primarily from slightly higher sales volumes, improved sales mix, and productivity improvements. Unusual expenses, totaling $1.8 million in 2002 were incurred for severance, recruiting and relocation related to strengthening the Automotive Segment's management team and workforce-related consulting fees that further dampened our profitability. An additional $1.1 million in depreciation expense was recorded in the second quarter of 2002 related to adjustments to bring the estimated useful lives of certain equipment within this segment in line with estimated periods of active production. TECHNOLOGIES SEGMENT Sales in our Technologies Segment decreased $21.6 million, or 10.8%, to $178.7 million in 2002 from $200.3 million in 2001. Excluding sales from our Precision Products business, which we divested in July 2002, this segment's sales decreased $14.9 million, or 7.8%. Sales in the Power Group increased $3.8 million, or 3.8%, during 2002 compared to 2001, which was offset by a decrease of $18.2 million, or 24.1%, in our Specialty Materials Group. Within the Specialty Materials Group, the demand for germanium and gallium-based products, which are sold to the telecommunications, fiber optics and semiconductor markets, was significantly impacted by the extremely weak demand in these markets which led to our decision to exit the gallium business. Germanium and gallium sales decreased $21.8 million, or 59.1%, in 2002 compared to 2001, which were partially offset by an increase of $5.5 million, or 33.5%, in sales of enriched boric acid products sold to nuclear power reactor facilities. Operating results decreased $3.4 million to an operating loss of $1.9 million in 2002 from operating income of $1.5 million in 2001. The decrease in 2002 operating results included provisions of $15.7 million in special charges, detailed below, versus $8.7 million of restructuring charges recorded in our 2001 earnings. These 2002 special charges, detailed below, impact the comparability with 2001. The following items detail the $15.7 million of special charges in 2002: (i) $5.7 million of legal expenses and legal settlement charges recorded in Selling and Administrative expenses during the first half of 2002 as described in Note M of our November 30, 2002 consolidated financial statements included in Exhibit 99.4 to this Report; (ii) $3.1 million loss for an insurance receivable primarily related to inventories damaged in a fire during the third quarter of 2001 at our Missouri bulk pharmaceutical manufacturing plant; (iii) $1.4 million in expense for business consulting fees to develop a strategy for our Power Group business; and (iv) $5.5 million charge in restructuring expense in the second quarter of 2002 associated with our decision to exit our gallium-based specialty material business due to continued soft demand from customers in the telecommunications and semi-conductor markets. The $5.5 million restructuring charge during the second quarter of 2002 included an inventory write-down of $2.9 million, representing the estimated loss incurred from the liquidation of current inventory. An additional $2.4 million was recorded in other accrued liabilities primarily related to the estimated loss of inventory to be purchased under a firm purchase commitment. Finally, a $0.2 million asset impairment charge was recorded against property, plant and equipment. FILTRATION AND MINERALS SEGMENT Sales in our Filtration and Minerals Segment increased $0.1 million, or 0.2%, to $82.1 million in 2002 from $82.0 million in 2001. The sales increase during 2002 was primarily the result of improved pricing and sales mix, partially offset by decreased volumes. Operating income increased $3.3 million, or 70.8%, to $8.1 million in 2002 from $4.7 million in 2001. Improved profitability was primarily attributable to lower energy costs, favorable product mix and pricing, improved production efficiencies and favorable foreign currency exchange rates due to the strengthening of the Euro during 2002. 2001 COMPARED TO 2000 COMPANY DISCUSSION Net sales. Sales decreased 8.3% to $689.8 million in 2001 from $752.5 million in 2000, or 2.8% or $19.9 million excluding sales from Divested Divisions in 2000. The decline in sales was principally attributed to reduced demand for our products in the Automotive Segment from automobile manufacturers. These decreases were partially offset by gains in our Technologies Segment. Cost of products sold (exclusive of depreciation). Gross margins decreased to 18.9% in 2001 from 21.1% in 2000 largely as a result of poor overhead absorption due to lower volumes, particularly in the Automotive Segment, as well as new product launch costs in the Automotive Segment. Selling and administrative. Selling and administrative expenses decreased 14.4% or $8.3 million from 2000 to 2001. The Divested Divisions accounted for $4.8 million of the reduction. As a percentage of sales, selling and administrative expenses declined from 7.7% in 2000 to 7.2% in 2001. Depreciation and amortization of intangibles. Depreciation and amortization of intangibles expense increased $1.6 million. The increase in depreciation expense is primarily attributable to capital expenditures in the Automotive Segment. Management compensation -- special. Management compensation -- special is severance primarily related to the separation from employment for officers. This aggregated $3.1 million in 2001 is for three senior executives and $1.6 million in 2000 is for one senior executive. Insurance related loss (gains). During 2000, we settled claims against a former insurer regarding environmental remediation costs for $16.0 million and received such proceeds in the first quarter of 2000. Restructuring. During the fourth quarter of 2001 we announced a restructuring of our Technologies Segment and a restructuring and relocation of our corporate headquarters to Phoenix, Arizona. We recorded a charge of $14.1 million. Approximately $5.4 million related to facilities, $5.0 million related to involuntary severance of approximately 165 employees and $3.7 million related to other costs to exit business activities. In the facilities charge, approximately $3.6 million is non-cash adjustments to write down the carrying value of the three Technologies plants to their estimated net realizable value and abandoning primarily machinery and equipment at these locations. The affected plants are located in Seneca, Missouri; Grove, Oklahoma and Colorado Springs, Colorado. Each plant will be closed once final customer orders are completed and shipped. Approximately $1.9 million represents an estimate of the total future lease commitments less estimated proceeds received from subleasing the various spaces, primarily at our former corporate headquarters in Cincinnati. Approximately 100 employees in our Technologies Segment will be provided approximately $1.6 million in severance based upon their length of service. Approximately 40 employees at our former corporate headquarters located in Cincinnati will be provided approximately $3.2 million in severance based upon length of service. The remaining 25 employees in various locations will be provided approximately $0.2 million in severance based upon length of service. The $3.7 million in other shutdown costs is primarily non-cash and relates to inventory. Loss (gain) from divestitures. During 2001, we incurred costs of $2.1 million related to Divested Divisions which were sold in prior years. During 2000, as part of our previously announced program to focus management, technical and financial resources on our core businesses, we completed the sale of our Ross Aluminum Foundries, Fluid Systems, MARCO, Rubber Molding and Cincinnati Industrial Machinery divisions for aggregate net proceeds of $85.0 million and realized an aggregate gain on the sale of these divisions of $17.1 million, which was reduced for provisions of $14.0 million for items relating to divisions sold in prior years, to a net gain of $3.1 million. Interest expense. Interest expense was $38.9 million in 2001 (not including interest allocated to discontinued operations of $4.5 million) and $42.6 million in 2000 (not including interest allocated to discontinued operations of $4.8 million), or a decrease of $3.7 million. The decrease in interest expense is due to lower interest rates in 2001 and lower debt balances in 2001 as a result of the application of proceeds from the sales of divisions and the insurance settlement received in 2000. Income (loss) from continuing operations before taxes. Income (loss) from continuing operations before taxes was $(32.2) million in 2001 and $20.2 million in 2000. The following items are significant differences between income (loss) from continuing operations before taxes for 2001 and 2000: (i) A restructuring charge of $14.1 million principally related to our Technologies Segment and Headquarters relocation during 2001; (ii) Provisions for Management Compensation -- Special of $3.1 million in 2001 versus $1.6 million in 2000; (iii) Income of $16.0 million from an insurance settlement in 2000; (iv) Gain on the sale of the Divested Divisions of $3.1 million in 2000; (v) In 2001, recognition of additional costs of $2.1 million related to environmental and litigation matters associated with divisions divested in prior years. See Note C in our November 30, 2002 consolidated financial statements included in Exhibit 99.4 to this Report; (vi) An increase in Other Income of $3.8 million in 2001 primarily due to gains in foreign currency transactions of $0.5 million in 2001 versus a loss of $1.4 million in 2000 and an increase in royalty income of $0.9 million in 2001 versus 2000; (vii) Loss before tax of Divested Divisions, before the gain on the sale of such divisions, in 2000 of $4.3 million; (viii) Operating income decreases in 2001 of $13.5 million in our Technologies Segment and $19.5 million in our Automotive Segment; and (ix) A decrease in headquarters operating expenses of $1.7 million, excluding the insurance settlement proceeds in 2000 and the restructuring charge in 2001. Income taxes (benefit). Income taxes (benefit) were $(10.1) million in 2001 and $9.3 million in 2000. The sale of the Divested Divisions and the income from the insurance settlement in 2000 affect comparability of income taxes and the effective tax rates. The income taxes (benefit) in 2000 are largely attributable to taxable gains resulting from divestitures. Discontinued operations. Throughout 2001, we accounted for our former Machinery Segment as a discontinued operation and prior periods have been restated to conform to the discontinued operations presentation. On December 14, 2001, we completed the sale of our Machinery Segment. In addition, the accompanying 2000 and 2001 financial information has been restated to reflect the accounting of our Hillsdale UK automotive operation as a discontinued business. The Hillsdale UK automotive operation was sold on June 11, 2003. Net income (loss). Net income (loss) for 2001 was $(54.0) million and $5.6 million in 2000. The significant items are discussed in the income (loss) from continuing operations before taxes and discontinued operations sections above. Preferred stock dividend accretion of $13.3 million in 2001 increased net loss of $54.0 million to a net loss applicable to common shareholders of $67.3 million. In 2000, preferred stock dividend accretion of $11.8 million reduced net income of $5.6 million to a net loss applicable to common shareholders of $6.2 million. AUTOMOTIVE SEGMENT Sales in our Automotive Segment decreased 6.9% to $408.3 million in 2001 from $438.4 million in 2000 (excluding Divested Divisions). The decline in our sales was principally attributed to reduced demand for our products. North American car and light truck build for 2001 was reported at 15.9 million units, down more than 10% from the 2000 build, reported at 17.7 million units. The decline in volumes was partially offset by new product launches. In addition, North American production by the U.S.-based original equipment manufacturers (OEMs -- General Motors, Ford and Chrysler) declined on a percentage basis more than North American production by non-U.S. based OEMs, and our Automotive Segment has a higher percentage of sales in North America to non-U.S. based OEMs than North American production in general. Operating income decreased $20.6 million to $7.5 million in 2001 from $28.1 million in 2000. Reduced profitability was primarily the result of lower volumes, $4.5 million in new program launch costs in our precision machined components business, an increase in depreciation of $3.3 million caused by capital expenditures placed in service during 2001 and 2000 primarily related to new programs, pricing reductions of $2.8 million, and higher workers compensation expense. Although in 2000 we had projected declining sales, offsetting cost reductions could not be achieved in a timely manner. In particular, high fixed costs in our Automotive Segment severely impact profitability in the event of a decrease in sales. Capital expenditures for the Automotive Segment were $27.2 million in 2001 compared to $33.7 million in 2000. These capital expenditures were related to a significant number of new product launches in our Hillsdale operation and the acquisition of a new rubber coating line in our Wolverine operation. TECHNOLOGIES SEGMENT Sales in our Technologies Segment increased 4.6% to $200.3 million in 2001 from $191.4 million in 2000. Slightly more than half of the increase is attributable to the sales of EaglePicher Energy Products Corporation, which was acquired by us in June 2000. Other increases were attributable to sales of specialty materials used in fiber-optic applications along with certain aerospace battery programs. Additionally, volumes of bulk pharmaceutical products increased in 2001 resulting from added capacity at a recent plant expansion. These increases were offset by lower demands for lead based products sold as chemical agents and lead-acid batteries. A decline in orders from telecommunications customers also had a negative impact on our electronics assembly products. Additionally, we experienced a fire at our Harrisonville, Missouri bulk pharmaceutical chemical processing plant in August 2001. We estimate we lost sales in 2001 of approximately $1.5 million from the fire. This plant was restored to full operation in December 2001. Operating income decreased 89.8% to $1.5 million in 2001 from $15.1 million in 2000. Reduced profitability was primarily a result of an $8.7 million restructuring charge taken in the fourth quarter of 2001. Three plants were impacted by this restructuring charge. They are located in Seneca, Missouri; Grove, Oklahoma and Colorado Springs, Colorado. These plants will be closed once final customer orders are completed and shipped. Asset impairment charges of approximately $3.6 million were recorded to bring these facilities to their estimated net realizable value. Approximately 100 employees, primarily manufacturing labor from these locations, will be provided severance based upon their length of service totaling approximately $1.6 million. Other shutdown costs, estimated to be $3.5 million, are primarily non-cash and relate to inventory. These charges are all included in the restructuring charge. Additionally, operating income decreased due to lower operating margins and increased reserves ($2.0 million) for bad debt and warranty costs. As mentioned above, we experienced a fire at one of our chemical plants which resulted in lost margins and incremental costs of approximately $0.9 million, which was offset by an equal amount of benefit from insurance coverage. FILTRATION AND MINERALS SEGMENT Sales in our Filtration and Minerals Segment increased 1.8% to $82.0 million in 2001 from $80.6 million in 2000 despite a decrease in the total volume of products sold. Volume decreases were due to the rationalization of existing business and general economic weakness. Revenue increased because of volume increases in higher value-added products, a general price increase, and an energy surcharge that was in effect for part of the year to defray a portion of the increase in natural gas and electricity costs experienced nationwide. At the end of 2001, we also implemented an aggressive price improvement program directed toward improving margins. Operating income decreased 2.2% to $4.7 million in 2001 from $4.8 million in 2000. This decrease was primarily caused by increased natural gas costs of $2.8 million and power cost increases of $0.4 million. The increases in energy costs were partially mitigated through the use of alternative fuels, energy conservation measures, and energy surcharges to our customers. Additionally, penalties of $0.5 million and legal and consultant costs of $0.4 million were incurred in the settlement of regulatory claims for violating gaseous emission permits in Nevada and Oregon. Settlements have been reached in both jurisdictions and we are in compliance with current permits and interim orders. LIQUIDITY AND CAPITAL RESOURCES YEAR ENDED 2002 COMPARED TO 2001 Operating activities. Net cash provided by operating activities during 2002 was $80.7 million compared to $63.4 million during 2001, which includes $66.3 million of non-cash depreciation and amortization expense in 2002 and $61.9 million in 2001. The majority of the increase in reported cash from operating activities was $46.5 million which was received as a result of selling certain of our receivables to our unconsolidated accounts receivable asset-backed securitization. A decrease in our inventory provided $4.2 million, a decrease in accounts payable used $1.7 million and a decrease in accrued liabilities used $6.2 million. The use of cash as a result of the decrease in accrued liabilities is primarily related to spending on restructuring and environmental activities. Also, during 2002 we received approximately $5.2 million of net operating loss tax refunds. Investing activities. Investing activities used $5.7 million in cash during 2002 compared to $36.0 million used in 2001. During 2002, $6.9 million was provided by proceeds from the sale of our Construction Equipment Division, which represented our former Machinery Segment, and $3.1 million was provided by proceeds from the sale of our Precision Products business. Capital expenditures amounted to $16.4 million during 2002 compared to $35.7 million during 2001. Financing activities. Financing activities used $67.4 million during 2002 compared to $15.8 million during 2001. During 2002, we used $32.5 million to reduce our revolving credit facility, primarily from proceeds associated with the sale of our receivables to our unconsolidated accounts receivable asset-backed securitization. Both regularly scheduled debt payments and the proceeds from the sale of our Construction Equipment Division and Precision Products resulted in a $34.7 million decline in our long-term debt during 2002. EX-99.6 8 p68044exv99w6.txt EX-99.6 EXHIBIT 99.6 We anticipate selling substantially all of our germanium business within our Technologies Segment for a purchase price of approximately $15 million. This business contributed $6.6 million of net sales and $0.7 million of Adjusted EBITDA during the six months ended May 31, 2003 and $15.0 million of net sales and $1.7 million of Adjusted EBITDA for our fiscal year ended November 30, 2002. We cannot assure you that this transaction will be completed. EX-99.7 9 p68044exv99w7.txt EX-99.7 EXHIBIT 99.7 Selected historical financial data The following selected historical financial data is derived from our the historical consolidated financial statements of our parent, EaglePicher Holdings, Inc. This table does not include the obligations of our unconsolidated accounts receivable asset-backed securitization entity. The following table should be read in conjunction with "Management's discussion and analysis of financial condition and results of operations" and the historical financial statements and related notes of our parent included elsewhere in this offering memorandum. Data and ratios relating to preferred stock refer to our parent's 11 3/4% cumulative redeemable exchangeable preferred stock.

NINE MONTHS YEAR ENDED NOVEMBER 30, ENDED ------------------------------------------------------------ NOVEMBER 30, 1998 1999 2000 2001 2002 ------------ --------- --------- --------- --------- (IN THOUSANDS EXCEPT RATIOS) STATEMENTS OF INCOME (LOSS) DATA: Net sales(1) .......................... $ 567,774 $ 824,133 $ 752,509 $ 689,776 $ 682,829 Costs of products sold (exclusive of depreciation) ....................... 441,405 647,297 593,688 559,748 534,605 --------- --------- --------- --------- --------- Gross profit .......................... 126,369 176,836 158,821 130,028 148,224 Selling and administrative ............ 52,670 66,665 57,654 49,343 60,348 Depreciation and amortization ......... 27,059 44,101 40,676 42,338 47,299 Goodwill amortization ................. 11,908 15,877 15,877 15,825 15,822 Restructuring ......................... -- -- -- 14,163 5,898 Losses (gains) from divestitures ...... -- 21,407 (3,149) 2,105 6,497 Management compensation-special(2) .... 26,808 556 1,560 3,125 3,383 Insurance (gains) losses(3) ........... -- -- (16,000) -- 3,100 --------- --------- --------- --------- --------- Operating income (loss) ............... 7,924 28,230 62,203 3,129 5,877 Interest expense(4) ................... (32,295) (44,297) (42,644) (38,883) (40,022) Other income, net ..................... 1,839 3,893 624 3,566 1,516 --------- --------- --------- --------- --------- Income (loss) from continuing operations before taxes ............. (22,532) (12,174) 20,183 (32,188) (32,629) Income tax (provision) benefit ........ 4,812 96 (9,321) 10,063 (1,938) --------- --------- --------- --------- --------- Income (loss) from continuing operations .......................... (17,720) (12,078) 10,862 (22,125) (34,567) Discontinued operations, net(5) ....... 3,356 (5,509) (5,252) (31,846) (2,265) --------- --------- --------- --------- --------- Net income (loss) ..................... $ (14,364) $ (17,587) $ 5,610 $ (53,971) $ (36,832) ========= ========= ========= ========= ========= BALANCE SHEET DATA (AT END OF PERIOD): Cash and cash equivalents ............. $ 13,681 $ 10,071 $ 7,467 $ 24,620 $ 31,522 Working capital ....................... 115,501 114,737 72,405 48,408 8,681 Property, plant and equipment, net .... 226,043 218,993 219,559 210,421 177,135 Total assets .......................... 807,307 833,947 767,699 728,934 613,041 Total debt(6) ......................... 484,095 540,275 456,118 440,989 373,725 Preferred stock ....................... 87,387 97,956 109,804 123,086 137,973 Shareholders' equity (deficit) ........ 80,612 49,311 39,197 (33,655) (87,578) OTHER DATA AND SELECTED RATIOS: Adjusted EBITDA(7) .................... $ 59,492 $ 115,271 $ 102,951 $ 85,259 $ 92,500 Earnings to fixed charges and preferred stock dividends(8) .................. N/A N/A 1.15x N/A N/A Adjusted EBITDA/interest expense(9) ... 2.3x 2.2x 2.0x 2.2x Total debt/Adjusted EBITDA(10) ........ 4.7x 4.4x 5.2x 4.0x Capital expenditures .................. N/A $ 41,746 $ 40,846 $ 35,711 $ 16,397 Gross margin .......................... 22.3% 21.5% 21.1% 18.9% 21.7%

TWELVE SIX MONTHS ENDED MONTHS MAY 31, ENDED -------------------------- MAY 31, 2002 2003 2003 --------- --------- --------- STATEMENTS OF INCOME (LOSS) DATA: Net sales(1) .......................... $ 340,555 $ 345,610 $ 687,884 Costs of products sold (exclusive of depreciation) ....................... 267,253 266,285 533,637 --------- --------- --------- Gross profit .......................... 73,302 79,325 154,247 Selling and administrative ............ 33,797 29,797 56,348 Depreciation and amortization ......... 22,864 22,458 46,893 Goodwill amortization ................. 7,912 -- 7,910 Restructuring ......................... 2,998 -- 2,900 Losses (gains) from divestitures ...... 5,970 -- 527 Management compensation-special(2) .... 2,381 424 1,426 Insurance (gains) losses(3) ........... 3,100 (5,736) (5,736) --------- --------- --------- Operating income (loss) ............... (5,720) 32,382 43,979 Interest expense(4) ................... (21,696) (18,146) (36,472) Other income, net ..................... 918 73 671 --------- --------- --------- Income (loss) from continuing operations before taxes ............. (26,498) 14,309 8,178 Income tax (provision) benefit ........ (1,205) (2,046) (2,779) --------- --------- --------- Income (loss) from continuing operations .......................... (27,703) 12,263 5,399 Discontinued operations, net(5) ....... (472) (3,409) (5,202) --------- --------- --------- Net income (loss) ..................... $ (28,175) $ 8,854 $ 197 ========= ========= ========= BALANCE SHEET DATA (AT END OF PERIOD): Cash and cash equivalents ............. $ 22,088 $ 13,508 $ 13,508 Working capital ....................... (3,529) (87,237) (87,237) Property, plant and equipment, net .... 195,668 164,705 164,705 Total assets .......................... 640,565 608,250 608,250 Total debt(6) ......................... 378,533 370,762 370,762 Preferred stock ....................... 130,317 146,079 146,079 Shareholders' equity (deficit) ........ (67,877) (82,648) (82,648) OTHER DATA AND SELECTED RATIOS: Adjusted EBITDA(7) .................... $ 44,856 $ 49,874 $ 97,518 Earnings to fixed charges and preferred stock dividends(8) .................. N/A 1.23x N/A Adjusted EBITDA/interest expense(9) ... 2.6x Total debt/Adjusted EBITDA(10) ........ 3.8x Capital expenditures .................. $ 8,516 $ 8,808 $ 16,689 Gross margin .......................... 21.5% 23.0% 22.4%

- -------------------- (1) Net sales includes $121.6 million in the nine months ended November 30, 1998; $146.1 million in the year ended November 30, 1999; $56.2 million in year ended November 30, 2000; $10.2 million in the year ended November 30, 2001; $3.4 million in the year ended November 30, 2002; $2.6 million in the six months ended May 31, 2002; and $0.8 million in the twelve months ended May 31, 2003, which is attributed to certain divested or sold businesses. (2) Management compensation -- special expense consists of payments to former officers upon their separation from employment. (3) In 2000, we received $16.0 million from insurance companies as a result of the settlement of certain claims relating primarily to environmental remediation. 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 which occurred at one of our facilities during 2001. 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 a non-operating facility. (4) Interest expense excludes $4.0 million in the nine months ended November 30, 1998; $4.8 million in the year ended November 30, 1999; $4.7 million in the year ended November 30, 2000; $4.5 million in the year ended November 30, 2001; $1.1 million in the year ended November 30, 2002; $0.6 million in the six months ended May 31, 2002; $0.6 million in the six months ended May 31, 2003; and $1.1 million in the twelve months ended May 31, 2003, which has been allocated to discontinued operations (see footnote 5). (5) In 2001, we discontinued the operations of our former Construction Equipment Division, which represented our entire former Machinery Segment. We completed this sale on December 14, 2001, effective November 30, 2001. In addition, during the second quarter of 2003, we discontinued the operations of our Hillsdale UK automotive operation. We sold our Hillsdale UK automotive operation on June 11, 2003. (6) Total debt excludes $0.3 million at November 30, 1998; $3.8 million at November 30, 1999; $1.8 million at November 30, 2000; $2.1 million at November 30, 2001; and $2.2 million at May 31, 2002, which has been allocated to discontinued operations (see footnote 5). In addition, total debt excludes $46.5 million at November 30, 2002; $52.4 million at May 31, 2002; and $26.2 million at May 31, 2003, which represents amounts advanced under our accounts receivable asset-backed securitization. (7) Adjusted EBITDA represents net income (loss) adjusted for (i) loss (gain) from discontinued operations, net; (ii) loss on disposal of discontinued operations, net; (iii) income taxes; (iv) interest expense; (v) depreciation and amortization; (vi) restructuring; (vii) losses (gains) from divestitures; (viii) insurance related losses (gains); (ix) certain legal and litigation costs; and (x) Adjusted EBITDA impact from discontinued operations. Adjusted EBITDA is presented herein because we believe it is a useful supplement to operating income and cash flow from operations in understanding cash flows generated from operations that are available for taxes, debt service and capital expenditures. Management also uses this measurement as part of its evaluation of core operating results and underlying trends and therefore believes it is a key measure of its performance. However, Adjusted EBITDA, which does not represent operating income or net cash provided by operating activities as those items are defined by GAAP, should not be considered by prospective purchasers of the notes to be an alternative to operating income or cash flow from operations or indicative of whether cash flows will be sufficient to fund our future cash requirements. In addition, Adjusted EBITDA may differ from and may not be comparable to similarly titled measures used by other companies. The following table reconciles our net income (loss) to Adjusted EBITDA for each period presented:

NINE MONTHS ENDED YEAR ENDED NOVEMBER 30, NOVEMBER 30, ------------------------------------------------------ 1998 1999 2000 2001 2002 ----------- --------- -------- -------- -------- (IN THOUSANDS) Net income (loss) ................ $(14,364) $ (17,587) $ 5,610 $(53,971) $(36,832) Loss (gain) from discontinued operations, net .............. (3,356) 5,509 5,252 1,430 2,265 Loss on disposal of discontinued operations, net .............. -- -- -- 30,416 -- Income taxes ................... (4,812) (96) 9,321 (10,063) 1,938 Interest expense ............... 32,295 44,297 42,644 38,883 40,022 Depreciation and amortization .. 38,967 59,978 56,553 58,163 63,121 Restructuring .................. -- -- -- 14,163 5,898 Losses (gains) from divestitures ................. -- 21,407 (3,149) 2,105 6,497 Insurance related losses (gains) ...................... -- -- 16,000) -- 3,100 Certain legal and litigation costs(11) .................... -- -- -- -- 6,050 Adjusted EBITDA impact from discontinued operations ...... 10,762 1,763 2,720 4,133 441 -------- --------- -------- -------- -------- Adjusted EBITDA .................. $ 59,492 $ 115,271 $102,951 $ 85,259 $ 92,500 ======== ========= ======== ======== ========

TWELVE SIX MONTHS ENDED MONTHS MAY 31, ENDED ----------------------- MAY 31, 2002 2003 2003 -------- -------- -------- Net income (loss) ................ $(28,175) $ 8,854 $ 197 Loss (gain) from discontinued operations, net .............. 472 431 2,224 Loss on disposal of discontinued operations, net .............. -- 2,978 2,978 Income taxes ................... 1,205 2,046 2,779 Interest expense ............... 21,696 18,146 36,472 Depreciation and amortization .. 30,776 22,458 54,803 Restructuring .................. 2,998 -- 2,900 Losses (gains) from divestitures ................. 5,970 -- 527 Insurance related losses (gains) ...................... 3,100 (5,736) (5,736) Certain legal and litigation costs(11) .................... 6,250 -- (200) Adjusted EBITDA impact from discontinued operations ...... 564 697 574 -------- -------- -------- Adjusted EBITDA .................. $ 44,856 $ 49,874 $ 97,518 ======== ======== ========

(8) For purposes of determining the ratio of earnings to fixed charges and preferred stock dividends, "earnings" consist of income from continuing operations before provision (benefit) for income taxes and fixed charges. "Fixed charges" consist of interest expense (including amortization of deferred financing costs) and approximately 30% of our rental expense, representing that portion of interest expense deemed to be representative of the interest factor. Earnings were insufficient to cover fixed charges and preferred stock dividends by $29.9 million in the nine months ended November 30, 1998; $22.7 million in the year ended November 30, 1999; $45.5 million in the year ended November 30, 2001; $47.5 million in the year ended November 30, 2002; $33.7 million in the six months ended May 31, 2002; and $7.6 million in the twelve months ended May 31, 2003. (9) For purposes of calculating Adjusted EBITDA/interest expense, we have included the interest expense from the summary financial table and interest expense allocated to discontinued operations (see footnote 4 above). (10) For purposes of calculating total debt/Adjusted EBITDA, we have included the total debt from the summary financial table and debt allocated to discontinued operations (see footnote 6). (11) Certain legal and litigation costs are included in selling and administrative expense and are discussed in greater detail in Note M to our parent's November 30, 2002 consolidated financial statements included in Exhibit 99.4 of this Report. -----END PRIVACY-ENHANCED MESSAGE-----

EX-99.1

EXHIBIT 99.1

FOR RELEASE: IMMEDIATELY

     FOR ADDITIONAL INFORMATION CONTACT: THOMAS R. PILHOLSKI - 602.652.9600



                       EAGLEPICHER INCORPORATED ANNOUNCES
                           PLAN TO ISSUE $220 MILLION
                              SENIOR NOTES DUE 2013

      PHOENIX, ARIZONA, JULY 21 , 2003 - EaglePicher Incorporated ("EPI"), a
wholly-owned subsidiary of EaglePicher Holdings, Inc. (the "Company"), announced
today that it plans to issue $220 million Senior Notes due 2013. The notes will
be issued in a private placement and are expected to be resold by the initial
purchasers to qualified institutional buyers under Rule 144A and Regulation S of
the Securities Act of 1933. The proceeds from the sale of the notes will be used
to repurchase EPI's outstanding 9 3/8% Senior Subordinated Notes which are
currently the subject of a previously announced cash tender offer.

      The notes to be offered have not been registered under the Securities Act
of 1933 and may not be offered or sold in the United States absent registration
or an applicable exemption from registration requirements. This news release
shall not constitute an offer to sell or a solicitation of an offer to buy such
notes in any jurisdiction in which such offer or sale would be unlawful and is
issued pursuant to Rule 135c under the Securities Act of 1933.

      All of the Company's operations are conducted through EPI and its
subsidiaries. EPI, founded in 1843, is a diversified manufacturer of advanced
technology and industrial products that are used in a diverse group of
industries including the automotive, defense, aerospace, pharmaceutical
services, nuclear energy and food and beverage industries, in addition to other
industrial arenas.

Forward Looking Statements

      This news release 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; our ability to develop, market and sell new products, our
ability to obtain raw materials, 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.

                                   # # # # # #
July 21, 2003

EX-99.2

EXHIBIT 99.2

- --------------------------------------------------------------------------------

Risk factors

You should carefully consider the information set forth in this section, as well
as the other information contained in this offering memorandum, in deciding
whether to invest in the notes.

RISKS RELATED TO OUR BUSINESS

WE HAVE A SIGNIFICANT LEVEL OF INDEBTEDNESS THAT COULD ADVERSELY AFFECT OUR
FINANCIAL CONDITION AND PREVENT US FROM MAKING PRINCIPAL AND INTEREST PAYMENTS
ON OUR DEBT OBLIGATIONS, INCLUDING THE NOTES.

We have now and, after the offering, will continue to have, a significant level
of indebtedness. As of May 31, 2003, after giving pro forma effect to this
offering, the closing of our new senior secured credit facility and the
application of our net proceeds therefrom, assuming 100% of our 9 3/8% senior
subordinated notes are tendered, our aggregate outstanding indebtedness would
have been $385.3 million.

Our significant level of indebtedness could have important consequences to you.
For example, it may:

- -     make it more difficult for us to satisfy our obligations with respect to
      the notes and our other debt;

- -     limit our ability to obtain additional financing for capital expenditures,
      acquisitions, joint ventures, strategic alliances, research and
      development, working capital or other purposes;

- -     require us to dedicate a material portion of our operating cash flow to
      fund interest payments on our indebtedness, thereby reducing funds
      available for capital expenditures, acquisitions, joint ventures,
      strategic alliances, research and development, working capital or other
      purposes;

- -     reduce our flexibility in responding to changing business and economic
      conditions;

- -     increase our vulnerability to adverse economic and industry conditions;
      and

- -     place us at a competitive disadvantage compared to our competitors that
      may have less debt.

A SUBSTANTIAL PORTION OF OUR REVENUE COMES FROM CUSTOMERS IN A LIMITED NUMBER OF
INDUSTRIES, PARTICULARLY THE AUTOMOTIVE, AEROSPACE AND DEFENSE INDUSTRIES.

Although we manufacture numerous products for use in many different
applications, approximately 77% of our fiscal year 2002 net sales came from our
Automotive Segment and our Power Group within our Technologies Segment which
supply products primarily to the automotive, aerospace and defense industries.
An economic downturn in one or more of these industries or any other adverse
change that could affect these industries such as increased government
regulation or decreased military spending could have a material adverse effect
on us.

In addition, a majority of the net sales generated by the Technologies Segment
in fiscal year 2002 was attributable, directly or indirectly, to the United
States government. Although we do not foresee government spending on defense
applications incorporating our products decreasing in the short term, changes in
the domestic or international political climate could lead to decreases in
federal military spending, which could have a material adverse effect on us.

OUR BUSINESS IS VERY COMPETITIVE AND INCREASED COMPETITION COULD REDUCE OUR
SALES.

Markets for our products are highly competitive. We compete based on quality,
service, price, performance, timely delivery and technological innovation. Many
of our competitors are more diversified and have greater financial and other
resources than we do. In addition, with respect to certain of our products, some
of our competitors are divisions of our OEM customers. We cannot assure you that
our business will not be adversely affected by

competition or that we will be able to maintain our profitability if the
competitive environment changes.

OUR AUTOMOTIVE SEGMENT FACES INTENSE COMPETITION FOR ITS PRODUCTS AND SERVICES
AND AUTOMOTIVE MANUFACTURERS ARE INCREASINGLY USING A SMALLER NUMBER OF
SUPPLIERS TO SATISFY THEIR MANUFACTURING REQUIREMENTS.

The motor vehicle components industry is highly competitive and we believe this
competition will intensify in the future. Our Automotive Segment faces
competition from both domestic and international suppliers, as well as the
automotive manufacturers themselves. In order to simplify vehicle designs and
assembly processes and reduce their costs, automotive manufacturers are
increasingly expecting their suppliers to provide fully engineered,
pre-assembled combinations of components in systems and modules rather than
individual components. Many suppliers do not have the technological or economic
resources to satisfy these increasingly demanding standards. As a result,
automotive manufacturers are increasingly relying on a smaller number of
suppliers who can satisfy their more demanding manufacturing requirements. In
addition, the automotive manufacturers have increasingly demanded price
decreases from their suppliers, which forces suppliers like us to continually
search for ways to reduce our manufacturing costs to preserve our operating
margins. Our inability to achieve the cost savings and technological innovation
necessary to comply with the increasingly demanding requirements of one or more
of the automotive manufacturers to whom we supply our products could have a
material adverse effect on us.

OUR AUTOMOTIVE SEGMENT IS DEPENDENT ON A SMALL NUMBER OF PRINCIPAL CUSTOMERS FOR
A SIGNIFICANT PERCENTAGE OF ITS NET SALES.

In fiscal year 2002, Honda accounted for 12% of our net sales. The loss of any
significant portion of our sales to this customer or any other significant
customers would have a material adverse affect on us. The programs we have
entered into with many of our automotive customers provide for supplying the
customers' requirements for a particular model, rather than for manufacturing a
specific quantity of products. Therefore, the loss of a program for a major
model or a significant decrease in demand for certain key models or a group of
related models sold by any of our major customers could have a material adverse
effect on us.

DEMAND FOR OUR AUTOMOTIVE PRODUCTS DEPENDS UPON THE OVERALL CONDITION OF THE
GLOBAL AUTOMOTIVE INDUSTRY.

Our financial performance depends on the economic conditions in the global
automotive industry, as well as in the North American and European economies.
Sales of our automotive products represented more than 60% of our net sales in
fiscal year 2002. Demand in the automotive industry fluctuates in response to
overall economic conditions and is particularly sensitive to changes in interest
rate, consumer confidence and fuel costs. Any sustained weakness in demand or
continued downturn in the global automotive industry or North American or
European economies could have a material adverse effect on us.

WE MAY NOT BE SUCCESSFUL IN IMPLEMENTING OUR STRATEGY OF DEVELOPING NEW
APPLICATIONS FOR OUR EXISTING TECHNOLOGIES AND PENETRATING NEW MARKETS FOR OUR
EXISTING PRODUCTS.

One of the key elements of our business strategy is to develop new applications
for our existing technologies outside of our core automotive, aerospace and
defense markets. We plan to enter into new markets through joint ventures,
acquisitions, strategic alliances, licensing arrangements and other technology
initiatives in an effort to diversify and grow our revenue base. Successful
implementation of this strategy will depend upon a number of factors including,
without limitation, our ability to:

- -     identify new industries, applications and markets for our technologies;

- -     successfully integrate any acquired businesses into our operations;

- -     negotiate and execute favorable joint venture, strategic alliance,
      licensing and other technology arrangements for these new applications;

- -     manufacture products for these new applications in a cost efficient and
      profitable manner;

- -     develop effective marketing, sales and distribution networks for these new
      applications; and

- -     obtain necessary financing consents to implement this strategy.

Our failure to implement one or more elements of this strategy may have a
material adverse effect on us. In addition, we may incur additional indebtedness
to implement this strategy, which may increase our leverage.

WE MAY NOT BE ABLE TO KEEP PACE WITH TECHNOLOGICAL ADVANCES IN THE INDUSTRIES IN
WHICH WE COMPETE OR FUND THE CAPITAL INVESTMENTS NECESSARY TO UPGRADE OUR
FACILITIES AND ENHANCE OUR PROCESSES NECESSARY IN ORDER TO KEEP PACE WITH SUCH
ADVANCES.

Our business divisions and the markets for their products are subject to
technological advances, evolving industry standards, changing customer
requirements and improvements in and expansion of product offerings. Advances in
technologies may make certain of our products and processes obsolete. Although
we attempt to explore and develop new technologies in the industries in which we
compete, we cannot assure you that our technologies and products will remain
competitive or that we will be able to fund the capital investments necessary to
upgrade our facilities and enhance our processes necessary to keep pace with
such advances. Our failure to keep pace with technological changes in the
industries in which we compete could have a material adverse effect on us.

IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY ADEQUATELY, WE COULD LOSE
OUR COMPETITIVE ADVANTAGE IN MANY OF THE INDUSTRIES IN WHICH WE COMPETE.

Our ability to compete effectively in the technology sectors in which we operate
will depend, in part, on our ability to protect our current and future
proprietary technologies, product designs and testing and manufacturing
processes under existing and future patent, copyright, trademark, trade secret
and unfair competition laws. We may not be able to adequately protect our
intellectual property from misappropriation or infringement and may need to
defend our intellectual property against the infringement claims of others,
either of which could result in the loss of our competitive advantage in our
markets and materially harm us. We face the following risks in protecting our
intellectual property:

- -     we cannot be certain that our pending United States and foreign patent
      applications will result in issued patents or that any patents issued will
      be sufficiently broad to protect our technologies or processes;

- -     third parties may design around our patented technologies or seek to
      challenge or invalidate our patented technologies;

- -     we may incur significant costs and diversion of management resources in
      prosecuting or defending patent infringement suits;

- -     we may not be successful in prosecuting or defending patent infringement
      suits and, as a result, may be forced to seek to enter into costly royalty
      or licensing agreements; however, such royalty or licensing agreements may
      not be available to us or may not be available to us on commercially
      reasonable terms; and

- -     the contractual provisions we rely on to protect our trade secrets and
      proprietary information, such as our confidentiality and non-disclosure
      agreements with our employees, consultants and other third parties, may be
      breached and our trade secrets and proprietary information may be
      disclosed to our competitors or the public.

Moreover, the laws of certain foreign countries do not protect intellectual
property rights to the same extent as the laws of the United States. Although we
implement protective measures and intend to defend and enforce our proprietary
rights, there can be no assurance that these efforts will succeed. We may be
forced to litigate within the United States or abroad to enforce our issued or
licensed patents, to protect our trade secrets and know-how or to determine the
enforceability, scope and validity of our proprietary rights and the proprietary
rights of others. Enforcing or defending our proprietary rights may be expensive
and may fail to result in timely and effective relief.

WE MAY NOT HAVE SUFFICIENT INSURANCE COVERAGE OR FUNDS AVAILABLE TO COVER ALL
POTENTIAL PRODUCT LIABILITY AND WARRANTY CLAIMS.

The failure of our products to perform as expected could give rise to product
liability, warranty or recall claims, or claims for personal injury, property or
other damages. We do not carry insurance for warranty or product recall claims.
Although we believe we maintain adequate product liability insurance and a
comprehensive quality control program, we cannot give any assurance that our
products will not suffer from defects or other deficiencies or that we will not
experience material warranty or products liability related costs, including
product recalls in the future. Defects and deficiencies may result in additional
development costs, diversion of technical and economic resources and the loss of
credibility with our current and prospective customers. We also may incur
material losses and significant costs in excess of anticipated amounts as a
result of our customers returning products to us as a result of warranty-related
issues. A successful claim against us may force us to incur significant costs
which could result in a reduction of our working capital available for other
uses, and have a material adverse effect on us.

ENVIRONMENTAL REGULATIONS THAT AFFECT EACH OF OUR BUSINESS SEGMENTS MAY LEAD TO
SIGNIFICANT, UNFORESEEN EXPENSES.

Our operations and properties are subject to a wide variety of increasingly
complex and stringent federal, state, local and international environmental laws
and regulations, including those governing the use, storage, handling,
generation, treatment, emission, release, discharge and disposal of materials,
substances and wastes, the remediation of contaminated soil and groundwater and
the health and safety of our employees. Some environmental laws, including but
not limited to the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, impose strict, and in certain circumstances,
joint and several liability for remediation of hazardous substances at
contaminated sites which may include facilities presently or formerly owned or
operated by us or our predecessors, as well as at properties to which wastes we
or our predecessors generated have been sent or otherwise come to be located.
The nature of our operations exposes us to the risk of claims with respect to
such matters, and we can give no assurance that violations of such laws have not
occurred or will not occur or that material costs or liabilities will not be
incurred in connection with such claims. Future events, such as new information,
changes in existing environmental laws or their interpretation, or more vigorous
enforcement policies of regulatory agencies, may have a material adverse effect
on us.

Complying with environmental and safety requirements has added and will continue
to add to our cost of doing business, and has increased the capital-intensive
nature of our business. We believe that we are in compliance in all material
respects with these laws and regulations and have set aside reserves for known
remediation and corrective measures projects. However, we cannot assure you that
our reserves will not be exceeded, or that we will not be adversely impacted by
costs, liabilities or claims with respect to our operations under existing laws
or those that may be adopted.

AS A GOVERNMENT CONTRACTOR AND SUBCONTRACTOR, WE ARE SUBJECT TO POTENTIALLY
ADVERSE EFFECTS OF GOVERNMENT CONTRACT PROVISIONS AND AUDITS.

As a contractor and subcontractor to the United States government, we are
subject to various laws and regulations that are more restrictive than those
applicable to non-government contractors. The majority of our Technologies
Segment's fiscal year 2002 net sales were made directly or indirectly to the
United States government. Contracts directly or indirectly with the United
States government are governed by rules favoring the government's or the prime
contractors' contractual position. As a consequence, such contracts may be
subject to protest or challenge by unsuccessful bidders or to termination,
reduction or modification in the event of changes in government requirements,
reductions in federal spending or other factors. The accuracy and
appropriateness of certain costs and expenses used to substantiate our direct
and indirect costs for the United States government under both cost-plus and
fixed-price contracts are subject to extensive regulation and audit by the
Defense Contract Audit Agency, an agency of the United States Department of
Defense.

WE FACE INCREASINGLY STRINGENT UNITED STATES AND FOREIGN GOVERNMENT REGULATIONS
AND POLICIES, AND HAVE EXPOSURE TO CERTAIN OTHER RISKS ASSOCIATED WITH OUR
FOREIGN OPERATIONS.

Domestic and foreign political developments and government regulations and
policies directly affect our products and services in the United States and
abroad. We currently have manufacturing and distribution relationships in North
America, Germany, Asia and Mexico. The modification of existing laws,
regulations or policies, or the

adoption of new laws, regulations or policies could have a material adverse
effect us. Our failure to comply with these laws and regulations could subject
us to civil and criminal penalties which also could have a material adverse
effect on us.

In addition, our foreign operations are subject to certain risks which could
have a material adverse effect on us. These risks include, but are not limited
to:

- -     currency exchange rate fluctuations;

- -     tax rates in certain foreign countries potentially exceeding those in the
      United States and the potential subjection of foreign earnings to
      withholding requirements or the imposition of tariffs, exchange controls
      or other restrictions; and

- -     general economic and political conditions in countries where we operate
      and/or sell our products, including inflation.

WE MAY BE UNABLE TO OBTAIN CERTAIN PARTS, RAW MATERIALS AND NATURAL GAS AT
FAVORABLE PRICES.

Generally, our raw material requirements are obtainable from various sources and
in the desired quantities. However, our suppliers may be unable to provide parts
at prices acceptable to us, on schedules or at the quality we require, and
obtaining alternative parts could slow or stop production of our products and
impair our ability to generate revenues. The principal raw materials which we
require to manufacture our products are rubber, steel, zinc, nickel, boron and
aluminum. The prices of these raw materials are subject to fluctuation.
Similarly, the price of natural gas is subject to fluctuation. Our Wolverine
division and the Filtration and Minerals Segment use a substantial amount of
natural gas in connection with certain of their manufacturing operations. If we
were forced to find alternate suppliers or if the price of one or more of the
commodities rose substantially, we may be forced to expend unforeseen resources,
which could have a material adverse effect on us.

WE DEPEND ON THE SERVICES OF KEY INDIVIDUALS AND RELATIONSHIPS, THE LOSS OF
WHICH WOULD MATERIALLY HARM US.

Our success will depend, in part, on the efforts of our executive officers and
other key employees. In addition, our future success will depend on, among other
factors, our ability to attract and retain other qualified personnel. The loss
of the services of any of our key employees or the failure to attract or retain
employees could have a material adverse effect on us. In addition, the
controlling shareholder of our parent, Granaria Holdings B.V., provides us with
valuable strategic, operational and financial support, the loss of which could
have a material adverse effect on us.

WE MAY BE SUBJECT TO WORK STOPPAGES AT OUR FACILITIES OR OUR CUSTOMERS MAY BE
SUBJECTED TO WORK STOPPAGES.

As of May 31, 2003, approximately 30% of our work force was unionized. If our
unionized workers were to engage in strikes, work stoppages or other slowdowns
in the future, we could experience a significant disruption of our operations,
which could have a material adverse effect on us. In addition, if a greater
percentage of our work force becomes unionized, our business and financial
results could be materially adversely affected. Many of our direct or indirect
customers have unionized work forces. Strikes, work stoppages or slowdowns
experienced by these customers or their suppliers could result in slowdowns or
closures of assembly plants where our products are sold. Any interruption in the
delivery of our customers' products could reduce demand for our products and
could have a material adverse effect on us.

WE ARE CONTROLLED BY A SMALL NUMBER OF SHAREHOLDERS WHOSE INTERESTS MAY CONFLICT
WITH THE INTERESTS OF THE HOLDERS OF THE NOTES.

We are a wholly-owned subsidiary of our parent whose only asset is our stock.
Granaria Holdings B.V., indirectly owns 45.7% of the common stock of our parent
and controls 62.5% of the common stock of our parent. ABN AMRO Participaties
B.V. and Residex Capital IV, C.V. indirectly own 37.5% and 15.0%, respectively,
of the common stock of our parent. Circumstances may occur in which the
interests of Granaria Holdings B.V., ABN AMRO Participaties B.V. and Residex
Capital IV, C.V. could be in conflict with the interests of the holders of the
notes. If we encounter financial difficulties, or are unable to pay certain of
our debts as they mature, the interests of

our parent's shareholders (whether or not as holders of our equity securities)
might conflict with those of the holders of the notes. In addition, our parent's
shareholders may have an interest in pursuing acquisitions, divestitures or
other transactions that, in their judgment, could enhance their equity
investment, even though such transactions might involve risks to the holders of
the notes.

RISKS RELATED TO THE OFFERING

NOT ALL OF OUR SUBSIDIARIES ARE GUARANTORS AND ASSETS OF THE NON-GUARANTOR
SUBSIDIARIES MAY NOT BE AVAILABLE TO MAKE PAYMENTS ON THE NOTES.

Not all of our subsidiaries will guarantee the notes. Unrestricted subsidiaries,
foreign subsidiaries and receivables subsidiaries will not be guarantors. In the
event of a bankruptcy, liquidation or reorganization of any of these
non-guarantor subsidiaries, these non-guarantor subsidiaries will pay the
holders of their debts and their trade creditors before they will be able to
distribute any of their assets to us. The non-guarantor subsidiaries generated
approximately 13% of our Adjusted EBITDA for the twelve-month period ended May
31, 2003 and held approximately 19% of our total assets as of May 31, 2003.

YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES WILL BE SUBORDINATED TO THE RIGHTS
OF OUR AND THE GUARANTORS' EXISTING AND FUTURE SECURED CREDITORS. ASSETS OF OUR
NON-GUARANTOR SUBSIDIARIES MAY NOT BE AVAILABLE TO MAKE PAYMENTS ON THE NOTES.

Holders of our secured indebtedness and the secured indebtedness of the
guarantors will have claims that are senior to the claims of holders of the
notes to the extent of the value of the assets securing such secured
indebtedness. We expect we and our subsidiaries will be parties to a new senior
secured credit facility, which is secured by substantially all of our assets,
all of our capital stock, and all of the equity interests in our domestic
subsidiaries. Our industrial revenue bonds will be secured by letters of credit
issued under our new senior secured credit facility. The notes will be
effectively subordinated to the debt obligations under our new senior secured
credit facility and our industrial revenue bonds. If we are declared bankrupt or
insolvent, or are liquidated, holders of our secured debt and the secured debt
of our subsidiaries will be entitled to be paid from our assets before any
payment may be made with respect to the notes. In addition, in that
circumstance, holders of debt of our non-guarantor subsidiaries would be
entitled to be paid from the assets of those subsidiaries before the proceeds of
those assets could be applied to pay the notes. If any of the foregoing events
occur, we cannot assure you that we will have sufficient assets to pay amounts
due on our secured debt, the secured debt of the guarantors, the debt of our
non-guarantor subsidiaries, and the notes. As a result, holders of the notes may
receive less, ratably, than holders of our and the guarantors' secured debt and
the holders of the debt of our non-guarantor subsidiaries. As of May 31, 2003,
assuming this offering and the related transactions had occurred on that date,
we would have had approximately $165.3 million of senior secured indebtedness
outstanding and $85.0 million of additional senior secured indebtedness
available to be borrowed under our new senior secured credit facility.

OUR EXISTING DEBT AGREEMENTS CURRENTLY INCLUDE, AND OUR NEW SENIOR SECURED
CREDIT FACILITY, WILL INCLUDE RESTRICTIVE AND FINANCIAL COVENANTS THAT LIMIT OR
MAY IN THE FUTURE LIMIT OUR OPERATING FLEXIBILITY.

The agreements governing our indebtedness obligations relating to our new senior
secured credit facility, the notes and our industrial revenue bonds, as well as
our unconsolidated accounts receivable asset-backed securitization, contain or
will contain covenants that, among other things, restrict our ability to take
specific actions in certain situations, even if we believe them to be in our
best interest. These include restrictions on our ability to:

- -     incur additional debt, pay dividends or distributions on, or redeem or
      repurchase, our capital stock;

- -     permit liens on our assets to secure debt;

- -     merge, consolidate or enter into other business combination transactions;

- -     issue and sell capital stock of our subsidiaries;

- -     enter into certain transactions with affiliates;

- -     enter into sale and leaseback transactions;

- -     transfer or sell assets; and

- -     make certain investments, including investments in joint ventures.

In addition, the agreements governing our senior secured credit facility and our
unconsolidated accounts asset-backed receivable securitization, contain
financial covenants which require us to comply with specified financial ratios
and tests relating to leverage and fixed charge coverage ratios, among others.

These restrictions could limit our ability to obtain future financings, make
needed capital expenditures, withstand a future downturn in our business or the
economy in general, or otherwise conduct necessary corporate activities. We may
also be prevented from taking advantage of business opportunities that arise
because of the limitations that these restrictive covenants impose on us.

Our ability to comply with our covenants may be affected by events beyond our
control, including prevailing economic, financial, and industry conditions. A
breach of any of these covenants would result in a default under the applicable
agreement. A default, if not waived, could result in acceleration of the
obligations outstanding under, or termination of, the applicable agreement and
in a default with respect to, and acceleration of the debt outstanding under, or
termination of, the other agreements. If that should occur, we may not be able
to pay all such debt or to borrow sufficient funds to refinance it. Even if new
financing were then available, it may not be on terms that are acceptable to us.

WE MAY NOT BE ABLE TO REPURCHASE THE NOTES OR REPAY DEBT UNDER OUR NEW SENIOR
SECURED CREDIT FACILITY UPON A CHANGE IN CONTROL.

Upon the occurrence of a "change of control," as defined in the indenture,
holders of the notes may require us to offer to repurchase all or any part of
their notes. We may not have sufficient funds at the time of the change of
control to make the required purchases, or restrictions under our new senior
secured credit facility may not allow such repurchases. Additionally, such a
change of control may constitute a default under the terms of our new senior
secured credit facility. In such event, the lenders under our new senior secured
credit facility may accelerate the outstanding indebtedness thereunder, causing
an event of default under the indenture. If the change of control were to cause
a default under our new senior secured credit facility, we would be required to
repay our outstanding indebtedness and cash collateralize our outstanding
letters of credit under our revolving credit facility. As a result, in the event
of a change of control, we may not have or be able to raise sufficient funds to
repurchase the notes, repay outstanding indebtedness under our new senior
secured credit facility and cash collateralize our outstanding letters of credit
under our revolving credit facility. Furthermore, using available cash to fund
the potential consequences of a change of control may impair our ability to
obtain additional financing in the future.

FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTEES AND REQUIRE NOTE HOLDERS TO RETURN PAYMENTS RECEIVED FROM GUARANTORS.

The notes will be guaranteed by our parent and substantially all of our domestic
subsidiaries. The guarantees may be subject to review under United States
bankruptcy law and comparable provisions of state fraudulent conveyance laws if
a bankruptcy or reorganization case or lawsuit is commenced by or on behalf of
our or one of a guarantor's unpaid creditors. Under these laws, if a court were
to find in such a bankruptcy or reorganization case or lawsuit that, at the time
any guarantor issued a guarantee of the notes:

- -     it issued the guarantee to delay, hinder or defraud present or future
      creditors; or

- -     it received less than reasonably equivalent value or fair consideration
      for issuing the guarantee at the time it issued the guarantee; and

      -     it was insolvent or rendered insolvent by reason of issuing the
            guarantee; or

      -     it was engaged, or about to engage, in a business or transaction for
            which its remaining unencumbered assets constituted unreasonably
            small capital to carry on its business; or

      -     it intended to incur, or believed that it would incur, debts beyond
            its ability to pay such debts as they mature;

then the court could void the obligations under the guarantee, subordinate the
guarantee of the notes to that guarantor's other debt or take other action
detrimental to holders of the notes and the guarantees of the notes.

The measures of insolvency for purposes of these fraudulent transfer laws vary
depending upon the law of the jurisdiction applied in any proceeding to
determine whether a fraudulent transfer has occurred. Generally, however, a
guarantor would be considered insolvent if, at the time it incurred the debt:

- -     the present fair saleable value of its assets was less than the amount
      that would be required to pay its probable liability on its existing
      debts, including contingent liabilities, as they become absolute and
      mature; or

- -     it could not pay its debts as they become due.

We cannot be sure as to the standard that a court would use to determine whether
or not a guarantor was solvent at the relevant time, or, regardless of the
standard that the court uses, that the issuance of the guarantees would not be
voided or the guarantees would not be subordinated to the guarantors' other
debt. If such a case were to occur, the guarantees of our domestic subsidiaries
could also be subject to the claim that, since the guarantees were incurred for
our benefit and only indirectly for the benefit of such guarantors, the
obligations of such guarantors were incurred for less than fair consideration.

THERE ARE RESTRICTIONS ON YOUR ABILITY TO TRANSFER OR RESELL THE NOTES WITHOUT
REGISTRATION UNDER APPLICABLE SECURITIES LAWS.

The notes are being offered and sold pursuant to exemptions from registration
under United States and applicable state securities laws. Therefore, you may
transfer or resell the notes in the United States only in a transaction
registered under or exempt from the registration requirements of the United
States and applicable state securities laws, and you may be required to bear the
risk of your investment for an indefinite period of time. We are obligated to
commence an offer to exchange the notes for equivalent notes registered under
United States securities laws or, in certain circumstances, to register the
reoffer and resale of the notes under United States securities laws. The SEC has
discretion to declare a registration statement effective and may delay or deny
the effectiveness of a registration statement for a variety of reasons.

THERE IS NO ESTABLISHED TRADING MARKET FOR THE NOTES, AND YOU MAY NOT BE ABLE TO
SELL THEM QUICKLY OR AT THE PRICE THAT YOU PAID.

The notes are a new issue of securities for which there is no established public
market. The initial purchasers have advised us that they intend to make a market
in the notes, and the exchange notes, if issued, as permitted by applicable laws
and regulations. However, the initial purchasers are not obligated to make a
market in the notes or the exchange notes, and they may discontinue their
market-making activities at any time without notice. The notes are being offered
and sold only to qualified institutional buyers and to persons outside of the
United States and are subject to restrictions on transfer. Therefore, we cannot
assure you that an active market for the notes or exchange notes will develop
or, if developed, that it will continue. Historically, the market for
non-investment grade debt has been subject to disruptions that have caused
substantial volatility in the prices of securities similar to the notes. We
cannot assure you that the market, if any, for the notes or exchange notes will
be free from similar disruptions or that any such disruptions may not adversely
affect the prices at which you may sell your notes. In addition, subsequent to
their initial issuance, the notes or exchange notes may trade at a discount from
their initial offering price, depending upon prevailing interest rates, the
market for similar notes, our performance and other factors. We expect that the
notes will be eligible to be traded in The PORTAL(SM) Market. We do not intend
to apply for listing of the notes on any securities exchange.

EX-99.3

EXHIBIT 99.3


Business

GENERAL

We are a diversified manufacturer of advanced technology and industrial products
that are used in the automotive, defense, aerospace, environmental testing,
medical implant devices, pharmaceutical services, nuclear energy and food and
beverage industries, in addition to other industrial arenas. Our long history of
innovation in technology and engineering has helped us become a leader in
certain markets in which we compete. Headquartered in Phoenix, Arizona, we have
domestic operations throughout the United States and international operations in
Mexico, Germany, Canada and Asia.

Our business consists of three operating segments: the Automotive Segment, the
Technologies Segment and the Filtration and Minerals Segment.

- -     Our Automotive Segment is operated under two separate business units, the
      Hillsdale division and the Wolverine division. The Hillsdale division
      produces NVH dampers for engine crankshafts and drivelines, driveline
      yokes, flanges, transmission and engine pumps, automatic transmission
      filtration products, chassis corners and knuckle assemblies and other
      precision machined components. The Wolverine division produces
      rubber-coated materials and gaskets for automotive and non-automotive
      applications.

- -     Our Technologies Segment develops and commercializes advanced power
      systems for defense, aerospace and commercial applications; produces boron
      isotopes for nuclear radiation containment; supplies ultra-clean
      scientific containers for pharmaceutical and environmental testing; and
      provides contract pharmaceutical services.

- -     Our Filtration and Minerals Segment mines, processes and markets
      diatomaceous earth for use as a filtration aid, absorbent, performance
      additive and soil amendment.

For the twelve months ended May 31, 2003, we generated $687.9 million of net
sales and $97.5 million of Adjusted EBITDA. The following chart sets forth the
percentage of our net sales generated by each of our operating segments for the
twelve months ended May 31, 2003.

                                 $687.9 MILLION
                         REVENUE BY BUSINESS SEGMENT(1)

                                   (PIE CHART)

  (1) Our Automotive Segment consists of the Hillsdale and Wolverine divisions.


The following table sets forth the primary product groups that each of our
business segments develops and manufactures, the current markets for each of
these product groups and major customers for each product group:



           BUSINESS SEGMENT                 PRODUCTS                 CURRENT MARKET(S)           MAJOR CUSTOMERS
           ----------------                 --------                 -----------------           ---------------
                                                                                      
          AUTOMOTIVE
          SEGMENT

          Hillsdale Division          NVH dampers, driveline      Automotive OEMs and          Allison, American
                                      yokes, flanges,             Tier 1 automotive            Axle, DaimlerChrysler,
                                      transmission and            parts suppliers              Delphi, Ford, GM,
                                      engine pumps,                                            Honda, Mitsubishi,
                                      automatic transmission                                   Nissan, Toyota,
                                      filtration products,                                     Visteon
                                      chassis corners and
                                      knuckles and other
                                      precision machined
                                      components




                                                                                      

          Wolverine Division          Rubber-coated               Automotive OEMs and          Automotive
                                      materials and gaskets       Tier 1 and Tier 2            aftermarket,
                                                                  automotive parts             industrial and
                                                                  suppliers                    consumer market, Tier
                                                                                               1 and Tier 2
                                                                                               automotive parts
                                                                                               suppliers

          TECHNOLOGIES
            SEGMENT

          Power Group                 Batteries and power         Defense, aerospace,          Boeing, CECom
                                      systems                     medical,                     (US Army), Guidant,
                                                                  telecommunications,          Lockheed Martin,
                                                                  and other commercial         Loral, Raytheon, TRW
                                                                  industries

          Specialty Materials         Specialty materials         Nuclear energy,              Dow Chemical,
            Group                     such as boron isotopes      environmental testing        Fisher Scientific,
                                      and ultra-clean             and pharmaceutical           Gemeinschaft,
                                      scientific containers       testing                      Transnuclear,
                                                                                               VWR International,
                                                                                               Westinghouse
          Pharmaceutical              Drugs and drug active       Pharmaceutical               Celegene, Elkins-Sinn,
            Services Group            ingredients for                                          Immunogen, Phoenix
                                      clinical trials, low                                     Scientific, Wyeth
                                      volume drugs and
                                      radioisotopic tagging
          FILTRATION AND              FILTER AID PRODUCTS,        FOOD AND BEVERAGE AND        ADM, BAYSHORE,
            MINERALS SEGMENT          fine mineral                other miscellaneous          Canandaigua Wine,
                                      additives, and              industries                   Cargill, Chevron,
                                      chemical and moisture                                    Roquette, Valspar
                                      absorbents





COMPETITIVE STRENGTHS

We believe that we have the following competitive strengths:

Strong market positions in niche markets. We have a strong supply position
across a number of product lines, including NVH dampers, brake shims and
advanced power systems, allowing us to compete effectively in each of the
markets that we serve.

Strong management team. Substantially all of the senior management team at both
the corporate and divisional levels began working for us within the past two
years. Our senior management team, led by our chief executive officer, John
Weber, has an average of 20 years of experience in the automotive and other
diversified industries and has experience in running a global business. Over the
past 18 months, coinciding with the recent introduction of our newly revamped
senior management team we have achieved the following milestones:

- -     Introduced a high performance culture;

- -     Reorganized and refocused our business lines;

- -     Implemented lean manufacturing and six sigma programs;

- -     Introduced low cost sourcing;

- -     Implemented successful cost-cutting initiatives such as pension plan and
      health care restructurings;

- -     Improved capital utilization;

- -     Reduced headcount while increasing productivity;

- -     Improved relations with our unions; and

- -     Divested marginal businesses.

Strong financial performance. Under our new management team, we have increased
our last twelve months Adjusted EBITDA over each of the last five quarters,
despite overall cyclical weakness in the automotive sector and the economy.

Strong prospects for future business. Due to its primarily Tier 1 status as a
direct supplier to OEMs and the long-term nature of typical automotive
platforms, our Hillsdale division enjoys strong visibility of its future
revenues. The typical duration for these programs averages four to eight years.
As a result of its recent success at winning new business, our Hillsdale
division has already identified a significant portion of its planned business
for the next five years. For example, based on internal and external estimates
of North American automotive production, almost 100% of Hillsdale's projected
fiscal year 2004 sales and approximately 75% of its projected fiscal year 2008
sales have already been identified. However, these programs are not
contractually guaranteed and generally customers have the right to re-source
products at any time. Our Wolverine division also maintains a strong backlog of
business. In addition, as a result of our recent program awards, our
Technologies Segment's backlog has increased significantly.

Stable, diversified revenue base/business mix. Our products are highly
diversified with applications in the automotive, defense, aerospace,
environmental testing, medical implant devices, pharmaceutical services, nuclear
energy and food and beverage industries, in addition to other industrial arenas.
Our product diversification has helped us to offset the cyclicality of the
automotive market with revenues from our Technologies Segment and Filtration and
Minerals Segment, and also limited our dependence upon any individual raw
material source for a substantial part of our business. Additionally, we have
built a stable customer base that includes industry-leading companies who seek
superior products and world-class execution. Except for Honda, which accounted
for approximately 12% of our net sales for our fiscal year ended November 30,
2002, no customer represents more than 10% of our net sales.

Proven history of technological innovation and product development. We have been
in business for 160 years and have been at the forefront of technological
innovation and product development in many of the markets in which we compete.
Our history includes such achievements as the following:

- -     We pioneered and perfected the technology to produce rubber-coated paper
      and metal using the line coating process;

- -     We developed the first advanced chemistry special purpose battery in 1945;

- -     Our batteries powered the return of the Apollo 13 spaceship; and

- -     We were the first supplier in North America to offer secondary micro fluid
      filtration components for automatic transmissions.

In addition, our Technologies Segment averages approximately $8 million per year
of customer-funded research and development activities and recently an
increasing percentage has been for commercial products, such as medical implant
devices.

BUSINESS STRATEGY

A key component of implementing our business strategy involves recruiting highly
qualified leadership to operate our business segments autonomously. Each of our
business segments has developed its own business strategy for capitalizing on
growth opportunities for its existing markets as well as penetrating new
markets. Our overall business strategy involves:

Expanding our strong technological capabilities and customer relationships

We plan to leverage our strong positions in certain markets, our long
established customer relationships and our strong technology capabilities as a
means of further penetrating existing markets that we serve and penetrating new
markets for our technologies. We believe there are growth opportunities in each
of our business segments.

      -     Automotive Segment. Our Hillsdale division plans to rely on its
            strong proprietary damper technology and new design and predictive
            software to identify and resolve customer NVH problems. This
            initiative has already led to significant new business for its
            damper products. In addition, our Hillsdale division has introduced
            new micro bypass filtration technology for transmission, engine and
            power steering filtration applications that will improve filtration
            performance, which we expect to significantly reduce warranty issues
            for customers. Our Hillsdale division seeks to implement these new
            problem-solving technologies and improved cost structure as a means
            of generating additional business from existing customers.

Our Wolverine division has a strong market position in rubber-coated metal
technology in the automotive OEM market and in certain non-automotive
applications. It has recently penetrated the brake aftermarket and the small
engines market (e.g. motorcycles). We believe there are significant additional
opportunities for further penetration of these new markets, as well as expansion
into other high performance applications in non-automotive markets, such as
compressor applications.

      -     Technologies Segment. The Power Group, within our Technologies
            Segment, has a long history of successfully implementing
            leading-edge technology for demanding battery and power
            applications. The Power Group often licenses this technology from
            government entities. The Power Group's strategy involves leveraging
            its reputation in this field into increased penetration of existing
            defense and aerospace markets. The Power Group also plans to develop
            new commercial applications through joint ventures, licenses,
            alliances and other technology initiatives. The Power Group has
            entered into or agreed in principle to enter into, new joint
            ventures or licenses for technology in high performance, low weight
            specialty lead acid batteries, fast battery recharging technology
            and nano-material medical battery technology. We believe the
            potential for high sales growth in these markets will be one of the
            main growth drivers for this segment.

      -     Filtration and Minerals Segment. Our Filtration and Minerals
            Segment's core strategy involves moving into certain higher margin
            segments of its current markets. We also believe there are
            significant opportunities to penetrate new markets where our
            filtration technologies can add significant value, including potable
            drinking water, industrial and pharmaceutical filtration
            applications, as well as to increase sales of diatomaceous earth for
            soil amendments and paper industry processing.

Focusing on operating efficiency and optimal capital utilization

Another key element of our business strategy involves improving our cost
structure. We believe our continual focus on improving our profit margins and
cost effectiveness will provide a competitive advantage in all aspects of our
business. Our gross margin improved from 18.9% in fiscal year 2001 to 21.7% in
fiscal year 2002, and is expected to improve in fiscal year 2003.

Examples of our commitment to improving our cost structure include:

- -     Applying lean manufacturing and six sigma programs across our business
      segments. Productivity improvements from applying these programs in our
      Hillsdale division and in our Technologies Segment are ahead of our
      expectations and we believe provide a basis for substantial future
      savings;

- -     Implementing low cost production in Mexico and sourcing from China and
      Southeast Asia. In order to improve

      productivity, our Hillsdale division is increasing production in Mexico,
      where we believe available plant infrastructure capacity exists. The
      Technologies Segment has also begun sourcing commercial batteries from
      China and Southwest Asia, including a new enhanced lead acid battery from
      China; and

- -     Improving factory automation to reduce costs and improve quality. Specific
      projects underway include automated defense battery production lines for
      which government funding is being negotiated, automated vision quality and
      coating line inspection systems at our Wolverine facilities, and automated
      packaging lines for our filtration and minerals products.

Divesting non-core business divisions

We continually evaluate the profitability and competitive strength, market
trends and conditions and future prospects for our various businesses. An
outcome of this process is that we have sold or exited marginal businesses that
we did not believe would appropriately contribute to our goal of sustained
financial performance improvement.

We anticipate selling substantially all of our germanium business within our
Technologies Segment for a purchase price of approximately $15 million. This
business contributed $6.6 million in net sales and $0.7 million of Adjusted
EBITDA during the six months ended May 31, 2003 and $15.0 million in net sales
and $1.7 million of Adjusted EBITDA for fiscal year ended November 30, 2002. We
cannot assure you that this transaction will be completed.

We sold our Hillsdale UK automotive operation in June 2003. In 2002, we sold our
Precision Products business and exited our gallium-based business due to
continued soft demand from customers in the telecommunications and semiconductor
markets. In 2001, we sold our Construction Equipment division. In 2000, we sold
five automotive and industrial businesses.

BUSINESS SEGMENTS

AUTOMOTIVE SEGMENT

General

Our Automotive Segment, consisting of the Hillsdale and Wolverine divisions,
supplies the global automotive market with a diverse range of products. Together
these two divisions produce systems, components and materials for sport utility
vehicles, trucks, vans and passenger cars. We sell these products to major
automotive manufacturers and Tier 1 and Tier 2 suppliers in North America,
Europe and Asia.

Hillsdale division

The Hillsdale division provides NVH dampening solutions to the worldwide
automotive market. The Hillsdale division also supplies complex machined
components for engine, transmission, axle/driveline and chassis/suspension
applications. The Hillsdale division has a diverse customer base with over 60%
of its sales made directly to automotive vehicle manufacturers. The Hillsdale
division utilizes its nine manufacturing facilities located throughout the
United States and Mexico to produce its diverse product line. It employs complex
manufacturing and quality control systems such as robotic material handling and
assembly, lean manufacturing and six sigma methodologies to produce high quality
and often custom automotive components and systems. The Hillsdale division will
expand the use of low cost production in Mexico and sourcing from China and
Southeast Asia to remain competitive across its product lines.

For the twelve months ended May 31, 2003, approximately 35% of the Hillsdale
division's sales were to Japanese operators in North America and 18% to General
Motors for use in large engine truck and SUV platforms. Sales to Honda represent
approximately 25% of the Hillsdale division's net sales and approximately 12% of
our consolidated net sales in fiscal year 2002. We believe the Hillsdale
division is North America's leading torsional vibration damper manufacturer.
Although competitive conditions are intense in the automotive parts industry,
the Hillsdale division's primary product groups are incorporated into automotive
products that typically run for four to eight years. However, these programs are
not contractually guaranteed, and generally customers have the right to
re-source products at any time.

Major products

- -     Dampers. Dampers are vibration control devices which reduce the torsional
      stress vibrations caused by internal combustion engine systems, thereby
      alleviating the stress on shafts and relaxing the flex points. Dampers
      reduce fatigue and prevent cracking thereby enhancing the durability of
      engines and their components. We believe the Hillsdale division is widely
      recognized as North American's leading manufacturer of torsional vibration
      damper devices for use in engine and drivetrain applications, with custom
      rubber compounding and manufacturing capabilities.

- -     Precision Machined Components. The Hillsdale division also manufactures a
      wide array of precision machined metal components. These parts, made of
      iron, aluminum, steel and magnesium, include flanges, connecting rods,
      yokes, driveshaft support brackets, front engine covers and pump housings.

- -     Chassis Corners and Knuckles. Corners and knuckles are structural
      components of vehicle chassis and suspension systems. The Hillsdale
      division's corner and knuckle products include front and rear steering
      knuckles and damper forks.

- -     Pumps. The Hillsdale division also designs and manufactures both fixed and
      variable pressure style pumps for engines and transmissions. Its products
      includes complete pump components and complete oil pump assemblies.
      Although one of its major pump programs with Ford is being phased out, the
      Hillsdale division believes that certain market trends present new
      business opportunities for its pump products. We believe that increased
      fuel efficiency requirements for motor vehicles will drive the market
      towards a larger demand for variable displacement pumps. To achieve
      improved fuel efficiency, vehicle manufacturers are developing vehicles
      that idle at lower revolutions per minute (RPMs) requiring either a larger
      and more burdensome pump or a variable displacement pump. The Hillsdale
      division currently is exploring new technologies to address this market
      trend.

Business strategy. Key elements of the Hillsdale division's business strategy
include:

- -     Improving efficiency, cost structure and quality through lean
      manufacturing, six sigma and value added engineering design;

- -     Expanding production at its Mexico operation and expanding the use of low
      cost sourcing from China, India and Southeast Asia;

- -     Optimizing capital deployment by focusing on higher margin and lower
      capital intensive areas such as dampers, filtration and driveline
      components;

- -     Continuing to invest in new high value technologies in damper design and
      predictive testing, and in micro bypass filtration for transmissions,
      engines and power steering, to solve customer problems and strengthen
      customer relationships, and leverage these technologies to drive
      additional penetration of other existing products to customers; and

- -     Exploring promising concepts to develop new pump technologies that offer a
      unique competitive technical and value added advantage.

Wolverine division

We believe our Wolverine division is among the world's largest and most
diversified suppliers of rubber-coated metal and gasket material, designed for
superior performance under extreme conditions, for sealing, sound dampening and
other applications in the automotive, industrial and consumer markets. The
Wolverine division pioneered and perfected the technology to produce
rubber-coated paper and metal using the line coating process. Typical
applications include sealing systems (i.e., gaskets) for engines, transmissions
and compressors. These materials are also used as an NVH suppressant for brakes,
a product in which we believe Wolverine is the global market leader. The
Wolverine division manufactures the rubber-coated materials in the United
States. Certain

sealing and insulating products, such as compressor gaskets for air conditioning
units and brake noise insulators, are stamped out of the rubber-coated materials
both in the United States and in Germany. Wolverine has installed additional
manufacturing capacity and is focused on several growth initiatives, including
new market opportunities in the brake aftermarket and small engines markets, as
well as increased penetration of the global market.

The Wolverine division sells primarily to Tier 1 and Tier 2 suppliers, with
nearly 85% of its sales to the automotive end-market (OEM and OEM replacement
parts). The Wolverine division has a diverse customer base with over 250
customers.

Major products

      -     Brake products. The Wolverine division's brake product segment
            focuses on the design, manufacture and sale of shims and sound
            damping materials for disc brakes and replacement part markets. The
            Wolverine division combines substrates, elastomer coatings,
            attachment options and adhesive layers in different formulations to
            arrive at economical products to meet a wide range of application
            demands. The Wolverine division's aftermarket products now account
            for nearly 10% of its brake product sales and it plans to continue
            to penetrate this market to mitigate the impact of vehicle
            production cycles.

      -     Gasket and gasket materials. The Wolverine division supplies a wide
            range of rubber-coated metals for sealing and sound damping and
            other applications in the automotive OEM and aftermarket, and
            industrial and consumer markets. The Wolverine division's gaskets
            and gaskets materials are used in many automotive applications
            including cylinder head and various other engine gaskets, fuel
            system gaskets and transmission gaskets. The increased demand for
            more fuel efficient vehicles and reduced warranty expense has led to
            an increased demand for more sophisticated sealing applications.
            Aftermarket applications now account for nearly 10% of all of the
            Wolverine division's gasket related sales.

      -     Compressor gaskets. The Wolverine division's compressor gaskets
            focus on the design, manufacture and sale of gaskets and gasket
            materials for industrial and consumer product applications including
            small engines, industrial air compressor systems, air power tools,
            commercial and residential air conditioning systems and fluid pumps
            and pneumatic applications. The Wolverine division plans to further
            penetrate these higher margin applications by leveraging its
            reputation and market leading position as a premier supplier of
            gasket products and materials.

Business strategy. Key elements of the Wolverine division's business strategy
include:

      -     Penetrating the brake aftermarket market to mitigate the impact of
            OEM production cycles;

      -     Leveraging its strong technology position into new applications such
            as small engines, acoustic panels, and industrial gasket
            applications;

      -     Expanding globally by replicating its success in developing Japan
            and Korea businesses into other emerging markets such as China,
            India and Southeast Asia; and

      -     Leveraging existing availability capacity to realize the above
            opportunities.

TECHNOLOGIES SEGMENT

General

Our Technologies Segment consists of a diverse group of businesses with a broad
spectrum of technologies and capabilities and operates these businesses through
the following three divisions: the Power Group, the Specialty Materials Group,
and the Pharmaceutical Services Group. These divisions provide innovative
advanced technology products for aerospace, defense, and commercial power,
nuclear energy, environmental and pharmaceutical applications.

Power group


The Power Group supplies batteries and power systems for aerospace, defense,
medical implant and other specialty commercial applications. It has been
providing the aerospace and defense industries with high quality, reliable
batteries for more than 50 years. Nickel hydrogen and other types of batteries
manufactured by the Power Group provide power for commercial and government
satellites and spacecraft, serve as launch batteries in booster rockets and
support a variety of military applications, including missiles, "smart weapon"
munitions and mobile radio communications.

Our batteries power a significant number of the United States' most advanced
communications and surveillance satellites. Our batteries have been on every
United States manned space flight, and our silver zinc batteries provided the
power for the safe return to earth of the famed Apollo 13 flight crew.

The Power Group also manufactures a line of batteries sold commercially for use
in items such as medical implants, industrial fire and burglary alarm systems,
telecommunications backup systems and remote global positioning units.

      Defense and space power products. Over 90% of the Power Group's revenue
      comes from military or space applications. Major customers include
      Raytheon, Lockheed Martin, Boeing and the United States Army. The Power
      Group is looking to expand its presence in the commercial market through
      joint ventures, licensing, and other technology development initiatives.
      These new market opportunities presently include high performance
      lead-acid batteries, implantable medical device batteries, fast battery
      chargers, and long life batteries for remote applications, such as coastal
      buoys and remote monitoring stations.

      Commercial power products. The Power Group, through its Commercial Power
      division, produces batteries for commercial applications in various high
      growth market segments. Its commercial line of batteries include
      Carefree(R) batteries and Keeper(TM) II batteries. Carefree(R) cells and
      batteries, based upon lead acid, nickel cadmium, nickel metal hydride and
      lithium-ion chemistries, are long-life rechargeable batteries. Common
      applications for these batteries include emergency lighting, fire and
      security systems, handheld power tools, telecommunications back-up systems
      and wheelchairs and scooters. Keeper(TM) II cells and batteries, based
      upon lithium thionyl chloride, lithium manganese dioxide and lithium
      sulfur dioxide chemistries, are non-rechargeable batteries. Common
      applications include automotive toll tags, memory back-up for computer
      servers and radio frequency transponders.

Specialty materials group

The Specialty Materials Group manufactures and markets high purity specialty
material compounds for a wide range of services and products. The Specialty
Materials Group supplies isotopically enriched boron and isotopically purified
zinc, which are used in nuclear power plants for radioactive absorption and
containment. The Specialty Materials Group also supplies ultra-clean containers
for use in pharmaceutical and environmental testing.

      Boron and related products. The Specialty Materials Group uses
      sophisticated manufacturing processes to produce isotopically pure boron,
      which involves the separation of boron into its isotopes, and to produce
      high purity enriched boron compounds. The Specialty Materials Group
      maintains a strong commitment to delivering innovative products such as
      BondAids(TM), a ceramic concrete product based on technology licensed from
      the Argonne National Laboratory with radiation absorption qualities that
      is used in containers for radioactive and hazardous waste. This product is
      in the initial commercialization phase and the Specialty Materials Group
      has recently received a $3.0 million initial order from the United States
      Government. The Specialty Materials Group also produces depleted zinc and
      lithium products for nuclear containment applications.

      Environmental Sciences & Technology. Our Environmental Sciences &
      Technology (ESAT) division is the leading resource for glassware and
      plasticware cleaning and treating services. This division supports the
      pharmaceutical/biotech, semiconductor and environmental industries
      globally with off-the-shelf and customized solutions.

      ESAT offers the following products and services:

      -     Ultra-high purity chemical filtration and packaging;

      -     Low-particle/low-metals certified containers;

      -     EPA certified products;

      -     Chemical preservation and preservatives; and

      -     Certificates of analysis -- products & services.

Pharmaceutical services group

The Pharmaceutical Services Group manufactures drug active ingredients for
pharmaceutical companies principally in small batches for clinical trials and
low volume prescription drugs. Our primary customers for these products are
Wyeth, Immunogen and Celgene. The Pharmaceutical Services Group has manufactured
hundreds of new drug candidates for use in pre-clinical studies, toxicology
studies, clinical trials and commercial use. The manufacturing of these drugs
requires specially designed facilities and operating systems to ensure safe
handling and to prevent cross-contamination with other drugs. Our high level
facility in Harrisonville, Missouri provides the rigorous controls necessary to
develop and manufacture both new and existing anticancer drugs and other high
potency compounds. We believe this facility is one of only a few facilities
worldwide specifically designed to manufacture this class of drugs.

Business strategy

Key elements of the Technologies Segment's business strategy include:

- -     Improving its efficiency and cost structure through six sigma, low cost
      sourcing, factory automation and consolidation of its supply base;

- -     Leveraging strengthened customer relationships with key defense customers,
      and their increased desire for a reliable United States based supplier,
      into an additional share of existing business;

- -     Leveraging its strong reputation and technology development and
      commercialization capability to exploit significant commercial business
      development opportunities, including penetrating the following specialty
      markets:

      -     Implantable medical devices;

      -     Specialty transportation (forklifts, golf carts, trucking); and

      -     Remote applications (coastal buoys, monitoring stations and telecom
            back-up).

- -     Leveraging the Specialty Materials Group's newly developed BondAids(TM)
      product in helping to decommission aging nuclear reactors and storing
      spent fuel on a global basis.

FILTRATION AND MINERALS SEGMENT

General

Our Filtration and Minerals Segment mines, processes and markets diatomaceous
earth and perlite products. The primary uses of its products are as a filtration
aid for removing solids and impurities, as a fine mineral additive for enhancing
the surface of products, and as a liquid absorbent. Filtration aids are used in
processing food sweeteners (sugar and corn syrup), filtration of beer, wine and
fruit juices, and in swimming pool filtration systems. Fine mineral additives
are sold to the paint and plastics industries. Diatomaceous earth absorbents are
used as chemical and moisture absorbents in industrial and chemical plants and
as a soil enhancement in golf courses, sports fields and horticultural
applications. The Filtration and Minerals Segment serves over 35 markets and
more than 2,000 customers around the globe with its various products.

Major products

Diatomaceous earth, or diatomite, is a silica material that is odorless,
tasteless and highly stable. With its natural honeycomb structure, strength and
low bulk density, diatomite is an ideal medium for filtration applications.
Perlite is a mineral of volcanic origin, also with natural qualities that make
it valuable as a filter aid. These products are used in a variety of industrial
and commercial applications, including liquid solid separation in food and
beverage, chemical, pharmaceutical and wastewater industries and as catalyst
carriers and for liquid waste solidification. The Filtration and Minerals
Segment sells its filter aid products under the trademark CELATOM(R) both
directly and through distributors to many customers. The Filtration and Minerals
Segment also sells absorbent products known as FLOOR DRY(TM), as well as
AXIS(TM) and PLAY BALL!(TM) soil amendments and conditioners.

Business strategy

Key elements of the Filtration and Minerals Segment's business strategy include:

- -     Improving its efficiency and cost structure through six sigma and
      packaging line automation;

- -     Using its existing technology and customer demand for a second source of
      supply to increase penetration of brewing and additives markets; and

- -     Exploiting its technology position to expand into new markets, including
      potable drinking water filtration to meet new federally mandated water
      standards effective 2006, industrial and pharmaceutical filtration, soil
      amendments and paper industry processing aids.

COMPETITION

Our three business segments collectively manufacture hundreds of products for
customers worldwide. The economic and competitive conditions at any given time
in the markets we serve are likely to vary significantly from market to market.
Our competitive position for our products varies substantially across product
lines.

Automotive Segment. Our Automotive Segment competes with other automotive parts
suppliers as well as OEMs themselves. Competition in the automotive parts
industry is intense on a global basis but varies along product lines. Generally,
competitive conditions in the automotive parts industry are characterized by the
decrease in the number of competitors, increased foreign competition,
particularly from Asia, increased emphasis on quality and intense pricing
pressures from automotive manufacturers.

Technologies Segment. Our Technologies Segment competes in several industries
and industry sub-segments. The Power Group's battery and power products serve
several industries including defense, aerospace and specialty commercial
industries and competes with many different companies. The Power Group supplies
batteries and power components for use in defense and aerospace applications in
North America. SAFT, a subsidiary of Alcatel, is the Power Group's leading
competitor with respect to these products. The Specialty Materials Group
supplies enriched boron, which is used in nuclear power plants for radioactive
absorption and containment. Its enriched boron products compete primarily on the
basis of cost versus natural boron, although there are a few smaller competitors
in the enriched boron market. The Pharmaceutical Services Group has numerous
small competitors in a highly fragmented, high margin market.

Filtration and Minerals Segment. Our Filtration and Minerals Segment competes
primarily on the basis of price in a market with relatively few competitors, one
of which is significantly larger than us.

RAW MATERIALS

The prices of our raw materials are subject to volatility. Our principal raw
materials consist of rubber, steel, zinc, nickel, boron, and aluminum. In
addition, due to their manufacturing processes, our Filtration and Minerals
Segment and our Wolverine division consume large amounts of natural gas.
Generally, these raw materials are commodities

that are widely available. Although we have alternate sources for these
commodities, our policy is to establish arrangements with select vendors based
upon price, quality and delivery terms. We also are looking to further diversify
our supplier base and increase the percentage of our materials purchased in
lower cost regions, such as Asia, Mexico, and Eastern Europe.

INTELLECTUAL PROPERTY

We own or license a number of patents, primarily in the United States. Many of
our products incorporate a wide variety of technological innovations, some of
which are protected by individual patents. Many of these innovations are treated
as trade secrets with programs in place to protect these trade secrets. No one
patent or group of related patents is material to our business. We also have
numerous trademarks, including the EaglePicher name.

GOVERNMENT CONTRACTS

Our Technologies Segment has contracts, directly or indirectly, with the United
States government that have standard termination provisions permitting the
United States government to terminate the contracts at its convenience. However,
if contracts are terminated, we are entitled to be reimbursed for allowable
costs and profits through the date of the contract termination. The United
States government contracts are also subject to reduction or modification in the
event of changes in Government requirements or budgetary constraints. During
fiscal year 2002, a majority of our Technologies Segment's sales were directly
with the United States government or with other companies where the United
States government was the end customer.

RESEARCH AND DEVELOPMENT

We spent approximately $11.7 million in fiscal year 2000, $10.4 million in
fiscal year 2001 and $9.8 million in fiscal year 2002 on research and
development activities, primarily for the development of new products or the
improvement of existing products. Included in these amounts are costs reimbursed
by customers for customer sponsored research activities of $7.5 million in
fiscal year 2000, $9.3 million in fiscal year 2001 and $8.8 million in fiscal
year 2002.

EMPLOYEES

As of May 31, 2003, we employed approximately 4,100 persons. Approximately 30%
of our employees are represented by labor organizations. We believe that our
relations with our employees are generally good.

ENVIRONMENTAL MATTERS

We are subject to extensive and evolving Federal, state, local and international
environmental laws and regulations. Compliance with such laws and regulations
can be costly. Governmental authorities may enforce these laws and regulations
with a variety of enforcement measures, including monetary penalties and
remediation requirements. We have policies and procedures in place to ensure
that our operations are conducted in compliance with such laws and regulations
and with a commitment to the protection of the environment.

We are involved in various stages of investigation and remediation of soil and
groundwater at approximately 15 sites as a result of past and present
operations, including currently owned and formerly owned plants. Also, we have
received notice that we may have liability under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, as a potentially
responsible party at approximately 20 additional sites, but we believe that any
potential liability would not be material.

The ultimate cost of site remediation is difficult to predict given the
uncertainties regarding the extent of the required remediation, the
interpretation of applicable laws and regulations and alternative remediation
methods. Based on our available information and experience with environmental
remediation matters, we have accrued reserves for our best estimate of
remediation costs, and we do not believe that remediation activities will have a
material adverse impact on our financial condition, results of operations or
cash flows. In addition, in the course of our bankruptcy described below, we
obtained an agreement with the United States Environmental Protection Agency and
Department of Interior and the states of Arizona, Michigan and Oklahoma whereby
we have limited

responsibility to them for response costs and natural resource damages for
environmental contamination of sites not owned by us that is attributable to
pre-bankruptcy activities. We retain all of our defenses, legal or factual, at
such sites. However, if we are found liable for such contamination at any of
these sites, our liability is capped at approximately 37%.

We had total expenditures for environmental compliance and remediation of $11.3
million in 2000, $9.1 million in 2001, and $10.0 million in 2002. We estimate
that we will spend $12.8 million during 2003 on environmental compliance and
remediation and that such expenditures will be in an approximately similar
amount in fiscal year 2004.

As of November 30, 2002, we had $17.7 million accrued, and as of May 31, 2003,
we had $13.6 million accrued, primarily for sold divisions or businesses related
to legal and environmental remediation matters. In addition, we had $2.4 million
recorded at November 30, 2002, and $1.6 million recorded at May 31, 2003 in
other accrued liabilities related to environmental remediation liabilities for
our on-going businesses. While we believe these reserves are adequate based on
current circumstances, we cannot guarantee that our actual losses will not
exceed our reserves or be material.

PROPERTIES

Our principal fixed assets consist of our manufacturing, processing and storage
facilities, and our transportation and plant vehicles. We have pledged
substantially all of our owned properties and assets as collateral under our
existing senior secured credit agreement. The following table sets forth
selected information regarding our manufacturing and processing facilities:



                BUSINESS SEGMENT                  LOCATION                      DESCRIPTION OF PROPERTY INTEREST
                ----------------                  --------                      --------------------------------
                                                                          

                  AUTOMOTIVE

                  Domestic             Blacksburg, Virginia (2 plant                owned
                                       locations)
                                       Hillsdale, Michigan (4 plant                 owned
                                       locations)
                                       Hamilton, Indiana                            owned
                                       Inkster, Michigan                            owned
                                       Jonesville, Michigan                         owned
                                       Leesburg, Florida                            owned
                                       Manchester, Tennessee                        leased
                                       Mount Pleasant, Michigan                     owned
                                       Traverse City, Michigan                      owned
                                       Vassar, Michigan                             leased
                  International        Ohringen, Germany                            owned
                                       San Luis Potosi, Mexico                      owned
                                       Tamworth, England                            owned

                  TECHNOLOGIES

                  Domestic             Colorado Springs, Colorado                   owned
                                       Galena, Kansas                               owned
                                       Grove, Oklahoma                              owned
                                       Harrisonville, Missouri                      owned
                                       Joplin, Missouri (6 plant locations)         owned & leased
                                       Lenexa, Kansas                               owned
                                       Miami, Oklahoma (3 plant locations)          owned & leased
                                       Quawpaw, Oklahoma (2 plant locations)        owned
                                       Seneca, Missouri                             owned
                                       Stella, Missouri                             owned
                  International        Vancouver, Canada                            leased
                  FILTRATION AND

                    MINERALS(1)

                  Domestic             Clark Station, Nevada                        owned
                                       Lovelock, Nevada                             owned
                                       Vale, Oregon                                 owned


                                                                              
                  OTHER

                  Domestic             Lubbock, Texas                               owned






(1)   In addition to the facilities listed, the Filtration and Minerals Segment
      has office space in Reno, Nevada, and mining locations in Nevada and
      Oregon.

We own or lease additional office space, including our corporate headquarters in
Phoenix, Arizona as well as our former corporate headquarters in Cincinnati,
Ohio. We also have sales offices in Europe and Asia, and warehouse space for
certain of our operations.

We believe our properties are adequate and suitable for our business and
generally have capacity for expansion of existing buildings on owned real
estate. Plants range in size of floor space and generally are located away from
large urban centers. Substantially all of our buildings have been well
maintained, and are in sound operating condition.

Mining

The Filtration and Minerals Segment owns and leases diatomaceous earth and
perlite mining locations as well as numerous claims in Nevada and Oregon. Our
owned and leased mining properties, including those not currently being mined,
comprise a total of approximately 10,500 acres in Storey, Lyon, Pershing and
Churchill Counties in Nevada and 5,000 acres in Malhuer and Harney Counties in
Oregon, as well as rights on 2,500 acres not currently being mined in Siskiyou
County in California. We continually evaluate potential mining properties, and
additional mining properties may be acquired in the future. The Filtration and
Minerals Segment extracts diatomaceous earth and perlite through open-pit mining
using a combination of bulldozers, wheel type tractor scrapers, excavators and
articulated trucks. We transport the extracted materials by truck to separate
processing facilities. A total of approximately 374,000 tons of diatomaceous
earth and perlite were extracted by our mining properties in Nevada and Oregon
in 2002. On average, we have extracted a total of approximately 423,000 tons of
diatomaceous earth and perlite from our Nevada and Oregon properties each year
for the past six years. As ore deposits are depleted, we reclaim the land in
accordance with plans approved by the relevant Federal, state and local
regulators.

The following mining properties are of major significance to our mining
operations.

Nevada. Our diatomaceous earth mining operations in Nevada commenced in 1945 in
Storey County. We commenced perlite-mining operations in Churchill County in
1993. We extracted a total of approximately 223,000 tons of diatomaceous earth
and perlite from our Nevada mining properties in 2002 and, on average, extracted
a total of approximately 266,000 tons of diatomaceous earth and perlite from our
Nevada mining properties each year for the past six years, or approximately 60%
of our total diatomaceous earth and perlite production (and including 100% of
our perlite production). Approximately 265 acres in Storey County, where mining
activities commenced 57 years ago, and approximately 62 acres in the Counties of
Lyon and Churchill are actively being mined by us for diatomaceous earth.
Diatomaceous earth from Storey, Churchill and Lyon mining properties is
processed at the Clark Station, Nevada facility. We believe our diatomaceous
earth reserves in the Counties of Storey, Churchill and Lyon, including mining
properties not actively being mined, are in excess of 30 years at current levels
of extraction based upon estimates prepared by our mining and exploration
personnel. Diatomaceous earth extractions from the Pershing mining properties,
which commenced more than 42 years ago, are processed at the Lovelock, Nevada
facility. Approximately 975 acres are actively being mined for diatomaceous
earth in Pershing. We believe our diatomaceous earth reserves in Pershing,
including mining properties not actively being mined, to be in excess of 15
years at the current level of extraction based on estimates prepared by our
mining and exploration personnel. Beginning in 1993, we have actively mined
approximately 25 acres in Churchill County for perlite, which is processed at
the Lovelock, Nevada facility. We believe our perlite reserves in Churchill
County, including mining properties not actively mined, are in excess of 30
years at the current level of extraction based upon estimates prepared by our
mining and exploration personnel.

Oregon. We commenced mining diatomaceous earth in Oregon in 1985 at our mining
properties in Harney and Malhuer Counties. Approximately 88 acres in Harney
County and 80 acres in Malhuer County are actively being mined. Diatomaceous
earth extracted from these mines is processed at our Vale, Oregon facility. We
extracted

approximately 151,000 tons of diatomaceous earth from the Harney County and
Malhuer County mining properties during 2002 and on average, have extracted
approximately 158,000 tons of diatomaceous earth each year for the past six
years from these mining properties, or approximately 40% of our total
diatomaceous earth and perlite production. We believe our diatomaceous earth
reserves in Harney County and Malhuer County, including mining properties not
actively being mined, are in excess of 30 years at the current level of
extraction based on estimates prepared by our mining and exploration personnel.

LEGAL PROCEEDINGS

As a result of sales prior to 1971 of asbestos-containing insulation materials,
EaglePicher Incorporated became the target of numerous lawsuits seeking damages
for illness resulting from exposure to asbestos. By the end of 1990, we had paid
hundreds of millions of dollars to asbestos litigation plaintiffs and their
lawyers. In January 1991, we filed for protection under Chapter 11 of the United
States Bankruptcy Code as a direct consequence of cash shortfalls attributable
to pending asbestos litigation liabilities. On November 29, 1996, we emerged
from bankruptcy as a reorganized company. Pursuant to Section 524 of the United
States Bankruptcy Code, the bankruptcy court issued a permanent injunction that
precludes holders of present and future asbestos-related personal injury claims
from pursuing their claims against us. Although not expressly authorized by
Section 524, the bankruptcy court's permanent injunction also precludes holders
of present and future lead-related personal injury claims from pursuing their
claims against us. Consequently, we have no further liability in connection with
such asbestos-related or lead-related personal injury claims. Instead, those
claims will be channeled to the Eagle-Picher Industries Personal Injury
Settlement Trust (the "PI Trust"), which is an independently administered
qualified settlement trust established to resolve and satisfy those claims.
Under the terms of our bankruptcy reorganization, all of our outstanding common
stock was cancelled and our newly issued common stock, as a reorganized entity,
was contributed to the PI Trust, together with certain notes and cash. On
February 24, 1998, our parent acquired from the PI Trust for $702.5 million. A
final distribution of approximately $10.9 million was made by us to the PI Trust
and all other eligible unsecured claimants in June 2001.

On January 25, 1996, Richard Darrell Peoples, a former employee, filed a lawsuit
in the United States District Court for the Western District of Missouri
claiming that we violated the federal False Claims Act based on alleged
irregularities 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.

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. 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. We intend to contest these lawsuits
vigorously and do not believe that these lawsuits will result in a material
adverse effect on our financial position, results of operation or cash flows.

In addition, 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.

EX-99.4

                                                                               .
                                                                               .
                                                                               .
EXHIBIT 99.4


Index to financial statements



                                                                                                   PAGE
                                                                                                   ----
                                                                                               
                           EAGLEPICHER HOLDINGS, INC. AND SUBSIDIARIES
                           ANNUAL FINANCIAL STATEMENTS (AUDITED)
                             Independent Auditors' Report.....................................    F-2
                             Consolidated Balance Sheets as of November 31, 2001 and
                                2002..........................................................    F-3
                             Consolidated Statements of Income (Loss) for the years
                                ended November 30, 2000, 2001 and 2002........................    F-4
                             Consolidated Statements of Shareholders' Equity (Deficit)
                                for the years ended November 30, 2000, 2001 and 2002..........    F-5
                             Consolidated Statements of Cash Flows for the years ended
                                November 30, 2000, 2001 and 2002..............................    F-6
                             Notes to Consolidated Financial Statements.......................    F-7


                                      F-1

EAGLEPICHER HOLDINGS INC. AND SUBSIDIARIES


                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
EaglePicher Holdings, Inc.:

We have audited the accompanying consolidated balance sheets of EaglePicher
Holdings, Inc. and subsidiaries as of November 30, 2001 and 2002, and the
related consolidated statements of income (loss), shareholders' equity
(deficit), and cash flows for each of the three years in the period ended
November 30, 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of EaglePicher
Holdings, Inc. as of November 30, 2001 and 2002, and the results of its
operations and its cash flows for each of the three years in the period ended
November 30, 2002, in conformity with accounting principles generally accepted
in the United States of America.

As discussed in Note Q, the accompanying 2000 and 2001 financial statements have
been restated to reflect the appropriate adoption of EITF 00-10, "Accounting for
Shipping and Handling Fees and Costs," which resulted in an increase to Net
Sales and a corresponding increase to Cost of Products Sold for transportation
costs billed to customers.

/s/ DELOITTE & TOUCHE LLP

Cincinnati, Ohio
February 3, 2003, except for Note R, as to which the date is July 11, 2003.

                                      F-2

                           EAGLEPICHER HOLDINGS, INC.
                           CONSOLIDATED BALANCE SHEETS
                           NOVEMBER 30, 2001 AND 2002
        (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AND PAR VALUE AMOUNTS)



                                                                               2001            2002
                                                                            ---------       ---------
                                                                                      
                                         ASSETS
Current Assets:
  Cash and cash equivalents ..........................................      $  24,620       $  31,522
  Receivables, net of doubtful accounts of $1,000 in 2001
    and $435 in 2002 .................................................         97,634          21,473
  Retained interest in Eagle-Picher Funding Corporation, net
    of allowance of $700 in 2002 .....................................             --          29,400
  Costs and estimated earnings in excess of billings .................         10,744          16,942
  Inventories ........................................................         66,449          54,118
  Assets of discontinued operations ..................................         13,646           9,974
  Prepaid expenses and other assets ..................................         14,667          15,437
  Deferred income taxes ..............................................         24,287          10,798
                                                                            ---------       ---------
                                                                              252,047         189,664
Property, Plant and Equipment, net ...................................        210,421         177,135
Goodwill, net of accumulated amortization of $57,435 in 2001
  and $73,257 in 2002 ................................................        179,762         163,940
Prepaid Pension ......................................................         54,676          54,796
Other Assets, net ....................................................         32,028          27,506
                                                                            ---------       ---------
                                                                            $ 728,934       $ 613,041
                                                                            =========       =========
              LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
  Accounts payable ...................................................      $  83,863       $  83,621
  Current portion of long-term debt ..................................         39,820          18,625
  Compensation and employee benefits .................................         18,334          20,208
  Billings in excess of costs and estimated earnings .................          2,088             944
  Accrued divestiture reserve ........................................         17,810          17,662
  Liabilities of discontinued operations .............................          5,599           3,417
  Other accrued liabilities ..........................................         36,125          36,506
                                                                            ---------       ---------
                                                                              203,639         180,983
Long-term Debt, net of current portion ...............................        401,169         355,100
Postretirement Benefits Other Than Pensions ..........................         17,873          17,635
Deferred Income Taxes ................................................          6,940              --
Other Long-Term Liabilities ..........................................          9,882           8,928
                                                                            ---------       ---------
                                                                              639,503         562,646
                                                                            ---------       ---------
11.75% Cumulative Redeemable Exchangeable Preferred Stock; 50,000,000
  shares authorized; 14,191 shares issued and outstanding (Mandatorily
  Redeemable at $10,000 per share
  on March 1, 2008) ..................................................        123,086         137,973
                                                                            ---------       ---------
Commitments and Contingencies (Notes I, L and M)
Shareholders' Equity (Deficit):
  Common stock; $0.01 par value each; 1,000,000 shares
    authorized and issued ............................................             10              10
  Additional paid-in capital .........................................         99,991          99,991
  Accumulated deficit ................................................       (123,393)       (175,112)
  Accumulated other comprehensive income (loss) ......................         (5,730)         (4,376)
  Treasury stock, at cost, 27,750 shares in 2001 and 66,500
    shares in 2002 ...................................................         (4,533)         (8,091)
                                                                            ---------       ---------
                                                                              (33,655)        (87,578)
                                                                            ---------       ---------
                                                                            $ 728,934       $ 613,041
                                                                            =========       =========


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

                                      F-3

                           EAGLEPICHER HOLDINGS, INC.
                    CONSOLIDATED STATEMENTS OF INCOME (LOSS)
                  YEARS ENDED NOVEMBER 30, 2000, 2001 AND 2002
               (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)



                                                                   2000             2001           2002
                                                                 ---------       ---------       ---------
                                                                                        
Net Sales .................................................      $ 752,509       $ 689,776       $ 682,829
                                                                 ---------       ---------       ---------
Operating Costs and Expenses:
  Cost of products sold (exclusive of depreciation) .......        593,688         559,748         534,605
  Selling and administrative ..............................         57,654          49,343          60,348
  Depreciation and amortization of intangibles ............         40,676          42,338          47,299
  Goodwill amortization ...................................         15,877          15,825          15,822
  Restructuring ...........................................             --          14,163           5,898
  Loss (gain) from divestitures ...........................         (3,149)          2,105           6,497
  Management compensation -- special ......................          1,560           3,125           3,383
  Insurance related losses (gains) ........................        (16,000)             --           3,100
                                                                 ---------       ---------       ---------
                                                                   690,306         686,647         676,952
                                                                 ---------       ---------       ---------
Operating Income ..........................................         62,203           3,129           5,877
  Interest expense ........................................        (42,644)        (38,883)        (40,022)
  Other income, net .......................................            624           3,566           1,516
                                                                 ---------       ---------       ---------
Income (Loss) from Continuing Operations Before Taxes .....         20,183         (32,188)        (32,629)
  Income Taxes (Benefit) ..................................          9,321         (10,063)          1,938
                                                                 ---------       ---------       ---------
Income (Loss) from Continuing Operations ..................         10,862         (22,125)        (34,567)
Discontinued Operations:
  Loss from operations of discontinued businesses, net of
     income tax provision (benefit) of $(2,321), $(853) and
     $663 .................................................         (5,252)         (1,430)         (2,265)
  Loss on disposal of discontinued business, including
     provision of $5,685 for operating losses during
     phase-out period, net of income tax benefit of
     $6,084 ...............................................             --         (30,416)             --
                                                                 ---------       ---------       ---------
Net Income (Loss) .........................................          5,610         (53,971)        (36,832)
Preferred Stock Dividends Accreted ........................        (11,848)        (13,282)        (14,887)
                                                                 ---------       ---------       ---------
Loss Applicable to Common Shareholders ....................      $  (6,238)      $ (67,253)      $ (51,719)
                                                                 =========       =========       =========
Basic and Diluted Loss per Share Applicable to Common
  Shareholders:
  Loss from Continuing Operations .........................      $   (0.99)      $  (36.07)      $  (51.25)
  Loss from Discontinued Operations .......................          (5.27)         (32.44)          (2.35)
                                                                 ---------       ---------       ---------
  Net Loss ................................................      $   (6.26)      $  (68.51)      $  (53.60)
                                                                 =========       =========       =========
Weighted Average Number of Common Shares ..................        997,125         981,583         964,979
                                                                 =========       =========       =========


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

                                      F-4

                           EAGLEPICHER HOLDINGS, INC.
            CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                  YEARS ENDED NOVEMBER 30, 2000, 2001 AND 2002
                            (IN THOUSANDS OF DOLLARS)



                                                                                                                    ACCUMULATED
                                               CLASS A       CLASS B        ADDITIONAL                                 OTHER
                                 COMMON        COMMON        COMMON          PAID-IN            ACCUMULATED        COMPREHENSIVE
                                 STOCK         STOCK         STOCK           CAPITAL              DEFICIT          INCOME (LOSS)
                                 -----         -------       -------        ----------          ------------       -------------
                                                                                                 
BALANCE NOVEMBER 30,
  1999 ................           $--           $ 6            $ 4            $99,991           $ (49,902)           $  (788)
  Net income ..........            --            --             --                 --               5,610                 --
  Foreign currency
    translation, net
    of  tax of $810 ...            --            --             --                 --                  --             (1,505)
  Purchase of
    treasury stock ....            --            --             --                 --                  --                 --
  Preferred stock
    dividend
    accretion .........            --            --             --                 --             (11,848)                --
                                  ---           ---            ---            -------           ---------            -------
BALANCE NOVEMBER 30,
  2000 ................            --             6              4             99,991             (56,140)            (2,293)

  Net loss ............            --            --             --                 --             (53,971)                --
  Foreign currency
    translation, net
    of tax of $134 ....            --            --             --                 --                  --               (248)
  Gains (losses) on
    hedging
    derivatives, net
    of  tax of $1,718 .            --            --             --                 --                  --             (3,189)
  Amendment to
    capital structure .            10            (6)            (4)                --                  --                 --

  Purchase of
    treasury stock ....            --            --             --                 --                  --                 --
  Preferred stock
    dividend
    accretion .........            --            --             --                 --             (13,282)                --
                                  ---           ---            ---            -------           ---------            -------
BALANCE NOVEMBER 30,
  2001 ................            10            --             --             99,991            (123,393)            (5,730)

  Net loss ............            --            --             --                 --             (36,832)                --
  Foreign currency
    translation, net
    of tax of ($624) ..            --            --             --                 --                  --              1,159
  Gains (loss) on
    hedging
    derivatives, net
    of tax of ($105) ..            --            --             --                 --                  --                195
  Purchase of
    treasury stock ....            --            --             --                 --                  --                 --

  Preferred stock
    dividend
    accretion .........            --            --             --                 --             (14,887)                --
                                  ---           ---            ---            -------           ---------            -------
BALANCE NOVEMBER 30,
  2002 ................           $10           $--            $--            $99,991           $(175,112)           $(4,376)
                                  ===           ===            ===            =======           =========            =======





                                                           TOTAL
                                                        SHAREHOLDERS'
                                       TREASURY            EQUITY         COMPREHENSIVE
                                        STOCK            (DEFICIT)        INCOME (LOSS)
                                      ---------         -------------     -------------
                                                                 
BALANCE NOVEMBER 30,
  1999 ................               $    --            $ 49,311
  Net income ..........                    --               5,610            $  5,610
  Foreign currency
    translation, net
    of  tax of $810 ...                    --              (1,505)             (1,505)
  Purchase of
    treasury stock ....                (2,371)             (2,371)
  Preferred stock
    dividend
    accretion .........                    --             (11,848)
                                      -------            --------            --------
BALANCE NOVEMBER 30,
  2000 ................                (2,371)             39,197            $  4,105
                                                                             ========
  Net loss ............                    --             (53,971)           $(53,971)
  Foreign currency
    translation, net
    of tax of $134 ....                    --                (248)               (248)
  Gains (losses) on
    hedging
    derivatives, net
    of  tax of $1,718 .                    --              (3,189)             (3,189)
  Amendment to
    capital structure .                    --                  --

  Purchase of
    treasury stock ....                (2,162)             (2,162)
  Preferred stock
    dividend
    accretion .........                    --             (13,282)
                                      -------            --------            --------
BALANCE NOVEMBER 30,
  2001 ................                (4,533)            (33,655)           $(57,408)
                                                                             ========
  Net loss ............                    --             (36,832)           $(36,832)
  Foreign currency
    translation, net
    of tax of ($624) ..                    --               1,159               1,159
  Gains (loss) on
    hedging
    derivatives, net
    of tax of ($105) ..                    --                 195                 195
  Purchase of
    treasury stock ....                (3,558)             (3,558)

  Preferred stock
    dividend
    accretion .........                    --             (14,887)
                                      -------            --------            --------
BALANCE NOVEMBER 30,
  2002 ................               $(8,091)           $(87,578)           $(35,478)
                                      =======            ========            ========



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

                                      F-5

                           EAGLEPICHER HOLDINGS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED NOVEMBER 30, 2000, 2001 AND 2002
                            (IN THOUSANDS OF DOLLARS)



                                                                 2000           2001           2002
                                                               --------       --------       --------
                                                                                    
Cash Flows From Operating Activities:
  Net income (loss) .....................................      $  5,610       $(53,971)      $(36,832)
  Adjustments to reconcile net income (loss) to net cash
     provided by operating activities:
     Depreciation and amortization ......................        59,799         61,870         66,252
     Provisions for discontinued operations .............            --         30,416             --
     Loss (gain) from divestitures ......................        (3,149)         2,105          6,497
     Deferred income taxes ..............................         4,897         (9,344)         6,147
     Changes in assets and liabilities, net of effects of
       acquisitions and divestitures:
       Sale of receivables, net (See Note D) ............            --             --         46,475
       Receivables ......................................         8,428         (2,735)           286
       Inventories ......................................        (8,748)         8,140          4,168
       Prepaid expenses .................................            11         (2,413)          (796)
       Other assets .....................................       (13,617)          (575)         2,609
       Accounts payable .................................        11,568         28,146         (1,703)
       Accrued liabilities ..............................       (23,792)         3,635         (6,213)
       Other, net .......................................         2,726         (1,916)        (6,198)
                                                               --------       --------       --------
  Net cash provided by operating activities .............        43,733         63,358         80,692
                                                               --------       --------       --------
Cash Flows From Investing Activities:
  Proceeds from sales of divisions ......................        85,048             --         10,027
  Proceeds from the sale of property and equipment, and
     other, net .........................................            --             --            639
  Cash paid for acquisitions ............................       (12,306)            --             --
  Capital expenditures ..................................       (40,846)       (35,711)       (16,397)
  Other, net ............................................         4,464           (247)            --
                                                               --------       --------       --------
     Net cash provided by (used in) investing activities         36,360        (35,958)        (5,731)
                                                               --------       --------       --------
Cash Flows From Financing Activities:
  Reduction of long-term debt ...........................       (24,557)       (18,946)       (32,527)
  Net borrowings (repayments) under revolving credit
     agreements .........................................       (61,774)         6,229        (34,736)
  Acquisition of treasury stock .........................        (2,371)        (2,162)          (159)
  Other, net ............................................         1,454           (872)            --
                                                               --------       --------       --------
     Net cash used in financing activities ..............       (87,248)       (15,751)       (67,422)
                                                               --------       --------       --------
Net Cash (Used In) Provided by Discontinued Operations ..         5,819          5,725         (1,713)
                                                               --------       --------       --------
Effect of Exchange Rates on Cash ........................        (1,268)          (221)         1,076
                                                               --------       --------       --------
Net Increase (Decrease) in Cash and Cash Equivalents ....        (2,604)        17,153          6,902
Cash and Cash Equivalents, beginning of year ............        10,071          7,467         24,620
                                                               --------       --------       --------
Cash and Cash Equivalents, end of year ..................      $  7,467       $ 24,620       $ 31,522
                                                               ========       ========       ========
Supplemental Cash Flow Information:
  Interest paid .........................................      $ 43,589       $ 38,419       $ 34,585
                                                               ========       ========       ========
  Income taxes paid (refunded), net .....................      $  6,300       $ (4,500)      $ (4,036)
                                                               ========       ========       ========


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

                                      F-6

EaglePicher Holdings, Inc.
Notes to Consolidated Financial Statements
Years ended November 30, 2000, 2001 and 2002

A. ORGANIZATION AND OPERATIONS

We are a majority-owned subsidiary of Granaria Industries, B.V. ("Granaria
Industries"). Granaria Industries formed us to acquire the operations of
EaglePicher Incorporated ("EPI" and formerly Eagle-Picher Industries, Inc.). We
have no other operations other than the operations of EPI.

We are a diversified manufacturer of advanced technology and industrial products
that are used in the automotive, defense, aerospace, environmental testing,
medical implant devices, pharmaceutical services, nuclear energy and food and
beverage industries, in addition to other industrial arenas. Our business
consists of three operating segments: the Automotive Segment, the Technologies
Segment and the Filtration and Minerals Segment.

Our Automotive Segment is operated under two separate business units, the
Hillsdale division and the Wolverine division. The Hillsdale division produces
noise, vibration and harshness ("NVH") dampers for engine crankshafts and
drivelines, driveline yokes, flanges, transmission and engine pumps, automatic
transmission filtration products, chassis corners and knuckle assemblies and
other precision machined components. The Wolverine division produces
rubber-coated materials and gaskets for automotive and non-automotive
applications.

Our Technologies Segment develops and commercializes advanced power systems for
defense, aerospace and commercial applications; produces boron isotopes for
nuclear radiation containment; supplies ultra-clean scientific containers for
pharmaceutical and environmental testing; and provides contract pharmaceutical
services.

Our Filtration and Minerals Segment mines, processes and markets diatomaceous
earth for use as a filtration aid, absorbent, performance additive and soil
amendment.

Our consolidated financial statements include the accounts of our wholly-owned
and majority (50% or more) owned or controlled subsidiaries. All significant
intercompany accounts and transactions have been eliminated. Investments in our
unconsolidated affiliates or subsidiaries in which we own at least 20%, or over
which we exercise significant influence, are accounted for using the equity
method.

B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires us to make estimates
and assumptions that affect amounts reported in the consolidated financial
statements. Actual results could differ from those estimates.

Cash Equivalents

Marketable securities with original maturities of three months or less are
considered to be cash equivalents.

Revenue Recognition

We recognize revenue when persuasive evidence of an arrangement exists, delivery
has occurred, the fee is fixed and determinable, and collectibility is
reasonably assured. Generally, all of these conditions are met at the time we
ship our products to our customers. Net Sales and Cost of Products Sold include
transportation costs (see Note Q) that are billed to customers. 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.

Contract costs include direct material, labor costs, and those indirect costs
related to contract performance, such as indirect labor, supplies, tools and
repairs. Selling and administrative expenses are charged to expense as incurred.
Provisions for estimated losses on

                                      F-7

uncompleted contracts are made in the period in which such losses are
determined. Changes to job performance, job conditions, and estimated
profitability may result in revisions to contract revenue and costs and are
recognized in the period in which the revisions are made. We provided for
estimated losses on uncompleted contracts of $935,000 at November 30, 2001 and
$468,000 at November 30, 2002.

The asset, Costs and Estimated Earnings in Excess of Billings, represents
revenues recognized in excess of amounts billed on individual contracts. The
liability, Billings in Excess of Costs and Estimated Earnings, represents
billings in excess of revenues recognized on individual contracts.

The following provides information on contracts in progress at November 30 (in
thousands of dollars):



                                                           2001           2002
                                                        ---------       ---------
                                                                  
Costs incurred on uncompleted contracts ..........      $  90,222       $ 115,476
Estimated earnings ...............................         17,046          21,664
                                                        ---------       ---------
                                                          107,268         137,140
Less: billings to date ...........................        (98,612)       (121,142)
                                                        ---------       ---------
                                                        $   8,656       $  15,998
                                                        =========       =========
Costs and estimated earnings in excess of billings      $  10,744       $  16,942
Billings in excess of costs and estimated earnings         (2,088)           (944)
                                                        ---------       ---------
                                                        $   8,656       $  15,998
                                                        =========       =========


Concentrations of Credit Risk

Our concentrations of credit risk consist primarily of cash and cash
equivalents, trade accounts receivable, retained interest in Eagle-Picher
Funding Corporation, and sales concentrations with certain customers. As part of
our ongoing control procedures, we monitor concentrations of credit risk
associated with financial institutions with which we conduct business. Credit
risk with financial institutions is considered minimal as we utilize only high
quality financial institutions. We conduct periodic credit evaluations of our
customers' financial condition and generally do not require collateral. Our
customer base includes all significant automotive manufacturers and their first
tier suppliers in North America and Europe. Although we are directly affected by
the well-being of the automotive industry, we do not believe significant credit
risk existed at November 30, 2002. In addition, during 2002, we formed EPFC, an
off balance-sheet qualifying special-purpose entity, to sell an interest in
certain receivables. See Note D for a discussion of EPFC. We believe that EPFC
assists in the management of our credit risk related to trade receivables as it
permits us to sell an interest in our receivables on a non-recourse basis.

Net sales to our largest customer were $98.2 million in 2000, $91.0 million in
2001, and $84.2 million in 2002. No other customer accounted for 10% or more of
consolidated sales.

Fair Value of Financial Instruments

Our financial instruments consist primarily of investments in cash and cash
equivalents, receivables and certain other assets, as well as obligations under
accounts payable, long-term debt and preferred stock. The carrying values of
these financial instruments, with the exception of long-term debt and preferred
stock, approximate their fair value. See Note H for a discussion of the fair
value of the long-term debt and Note I for a discussion of the fair value of
preferred stock.

Derivative Financial Instruments

On December 1, 2000, we adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities -- an Amendment of
SFAS 133." The adoption of these standards was not material to our financial
position or results of operations. Under this guidance, all derivative
instruments are recognized as assets or liabilities at their fair value on the
balance sheet. On the date a derivative contract is entered into, we designate
the derivative as either a) a hedge of the fair value of a recognized asset or
liability (a fair value hedge), b) a hedge of a forecasted transaction or as a
hedge of the variability of cash flows to be received or paid related to a
recognized asset or liability (a cash flow hedge), or c) as a hedge of a net
investment in a foreign operation (a net investment hedge). Changes in the fair
value of derivatives are either recognized in the income statement or as a
component of Accumulated Other Comprehensive Income (Loss) in the balance sheet,
depending on whether the derivative is being used to hedge changes in fair value
or cash flows. The ineffective portion of derivatives that are designated as
hedges is recorded in the consolidated statements of income. From time to time,
we enter into interest rate swaps and foreign currency forward exchange
contracts to manage our interest costs and foreign currency exposures.

We use interest rate swap contracts to adjust the proportion of our total debt
that is subject to variable interest rates. Under our interest rate swap
contracts, we agree to pay an amount equal to a specified fixed-rate of interest
for a certain notional amount and receive in

                                      F-8

return an amount equal to a variable-rate. The notional amounts of the contract
are not exchanged. No other cash payments are made unless the contract is
terminated prior to maturity. Although no collateral is held or exchanged for
these contracts, interest rate swap contracts are entered into with a major
financial institution in order to minimize our counterparty credit risk. These
interest rate swap contracts are designated as cash flow hedges against changes
in the amount of future cash flows associated with our interest payments on
variable-rate debt. Accordingly, they are reflected at fair value in our balance
sheets and the related changes in fair value on these contracts, net of tax, are
recorded as a component of Accumulated Other Comprehensive Income (Loss) in our
balance sheets. To the extent that any of these contracts are not considered to
be effective in offsetting the change in the value of the interest payments
being hedged, any changes in fair value relating to the ineffective portion of
these contracts are immediately recognized in our income statement. The net
effect of this accounting on our operating results is that interest expense on a
portion of variable-rate debt being hedged is generally recorded based on fixed
interest rates. At November 30, 2001, we had interest rate swap contracts on
$90.0 million notional amount of indebtedness. At November 30, 2002, we had
interest rate swap contracts to pay fixed-rates of interest (average rate of
5.68%) on $90.0 million notional amount of indebtedness. The $90.0 million
notional amount of outstanding contracts will mature during fiscal year 2004. As
of November 30, 2001, we had $4.8 million in unrealized losses under our
interest rate swap agreements, and as of November 30, 2002 we had $4.5 million
in unrealized losses which represent the fair values of the interest rate swap
agreements as of those dates. The fair value of interest rate swap contracts is
based on quoted market prices and third-party provided calculations, which
reflect the present values of the difference between estimated future
variable-rate receipts and future fixed-rate payments. The unrealized losses,
net of tax, are recorded in Accumulated Other Comprehensive Income (Loss) in our
balance sheets.

We use foreign currency forward exchange contracts to hedge the risk of cash
flow fluctuations due to changes in exchange rates on sales denominated in
foreign currencies. As part of our overall strategy to manage the level of
exposure to the risk of foreign currency exchange rate fluctuations, we hedge a
portion of our foreign currency exposures anticipated over the next
twelve-months. To hedge this exposure, we used foreign currency forward exchange
contracts that generally have maturities that approximate the timing of the
forecasted transactions. Foreign currency forward exchange contracts are placed
with a number of major financial institutions in order to minimize our
counterparty credit risk. We record these foreign currency forward exchange
contracts at fair value in our balance sheets and the related unrealized gains
or losses on these contracts, net of tax, are recorded as a component of
Accumulated Other Comprehensive Income (Loss) in our balance sheets. These
unrealized gains and losses are recognized in the income statement in the period
in which the related transactions being hedged are recognized in the income
statement. However, to the extent that any of these contracts are not considered
to be effective in offsetting the change in the value of the cash flows being
hedged, any changes in fair value relating to the ineffective portion of these
contracts are immediately recognized in our income statement. As of November 30,
2001, we had outstanding foreign currency forward exchange contracts with an
aggregate notional amount of $14.5 million. Net unrealized losses on these
contracts, based on prevailing financial market information, as of November 30,
2001 were $149,000 and were included in Accumulated Other Comprehensive Income
(Loss), net of tax, in our balance sheets. As of November 30, 2002, we had
outstanding foreign currency forward exchange contracts with an aggregate
notional amount of $13.5 million. Net unrealized losses on these contracts,
based on prevailing financial market information, as of November 30, 2002, were
$148,000 and were included in Accumulated Other Comprehensive Income (Loss), net
of tax, in our balance sheets. During 2000, we recognized $314,000 in gains from
foreign currency hedge transactions, which were offset by losses of $157,000.
During 2001, we recognized $693,000 in gains from foreign currency hedge
transactions, which were offset by losses of approximately $186,000. During
2002, we recognized $52,000 in gains from foreign currency hedge transactions,
which were offset by losses of $1.2 million. The fair value of foreign currency
contracts represents the amount required to enter into offsetting contracts with
similar remaining maturities based on quoted market prices.

Income Taxes

Current income taxes are provided for based upon income for financial statement
purposes. Deferred tax assets and liabilities are established based on the
difference between the financial statement and income tax bases of assets and
liabilities. A valuation allowance represents a provision for uncertainty on the
realization of the deferred tax asset.

Inventories

Inventories are stated at the lower of cost or market using the first-in,
first-out (FIFO) method. Until 2002, the current fiscal year, a substantial
portion of domestic inventories were accounted for at cost determined on a
last-in, first-out (LIFO) basis. In 2002, our domestic operations changed to the
FIFO method. This change in accounting principle was made to provide a better
matching of revenue and expenses and to be consistent with prevalent industry
practice. This accounting change was not material to the financial statements on
an annual or quarterly basis, and accordingly, no retroactive restatement of
prior financial statements was made.

Property, Plant and Equipment

We record our investment in property, plant and equipment at cost. We provide
for depreciation on property, plant and equipment

                                      F-9

using the straight-line method over the estimated useful lives of the assets
which are generally 20 to 30 years for buildings and 3 to 10 years for machinery
and equipment. Improvements which extend the useful life of property are
capitalized, while repair and maintenance costs are charged to operations as
incurred. Property, plant and equipment acquired in the acquisition of a
business, are stated at fair value, based on independent appraisal, as of the
date of the acquisition.

Goodwill

Goodwill represents the excess of purchase price paid over the fair value of
assets acquired and liabilities assumed in business combinations. This amount
has been amortized on a straight-line basis over 15 years. The recoverability of
the asset is evaluated periodically as events or circumstances indicate a
possible inability to recover its carrying value. Effective December 1, 2002, we
adopted SFAS No. 142, "Goodwill and Other Intangible Assets" which addresses
goodwill and other intangible assets that have indefinite useful lives and, as
such, prescribes that these assets will not be amortized, but rather tested, at
least annually, for impairment. This pronouncement also provides specific
guidance on performing the annual impairment test for goodwill and intangibles
with indefinite lives. Under this new accounting standard, we will no longer
amortize our goodwill and will be required to complete an annual impairment
test. We have had approximately $16.0 million of goodwill amortization per year
that will no longer be recorded in fiscal 2003 and beyond. We have determined
that we have six reporting units, as defined in SFAS No. 142, within our three
reportable business segments. We have completed our initial impairment test
required by this accounting standard and have determined we will not recognize
an impairment charge related to the adoption of this accounting standard in
2003.

Pre-Production Costs Related to Long-Term Supply Arrangements

We capitalize costs incurred during the pre-production phase of new product
launches for goods that will be sold under long-term supply arrangements,
primarily in our Automotive Segment. These costs consist primarily of product
development and validation costs. The costs are amortized into Cost of Products
Sold over the life of the related programs. At November 30, 2001, the
unamortized balance of these costs was $3.0 million, and at November 30, 2002,
the unamortized balance was $3.1 million. The unamortized balance is included in
Other Assets in the accompanying balance sheets.

Tooling Costs Incurred and Held for Future Customer Reimbursement

We capitalize costs incurred to design and develop molds, dies and other tools
for customers that we contract to sell product to under long-term supply
arrangements. We are typically reimbursed for these costs when volume production
commences; however, we are also reimbursed for these costs over the period of
volume production. For contracts where we are reimbursed over the period of
volume production, we amortize the balance over the estimated life of the supply
arrangement. At November 30, 2001, the unamortized balance of the costs held by
us for which ownership will be transferred to the customer was $4.4 million, and
at November 30, 2002, the unamortized balance was $5.7 million. The unamortized
balance is included in Other Assets in the accompanying balance sheets.

Other Assets

Other assets consist primarily of the pre-production costs related to long-term
supply arrangements and tooling costs incurred and held for future customer
reimbursement (as discussed above), and debt issuance costs. The debt issuance
costs are being amortized over the term of the related debt. The debt issuance
costs have an original cost of $26.1 million at November 30, 2001, and $25.4
million at November 30, 2002. The related accumulated amortization amounts are
$12.6 million at November 30, 2001, and $14.3 million at November 30, 2002.

Accounting for Long-Lived Assets

Impairment losses are recorded on long-lived assets used in operations when
impairment indicators are present and the undiscounted cash flows estimated to
be generated by those assets are less than the carrying value of such assets. If
this occurs, an impairment charge is recorded for the amount by which the
carrying value of the long-lived assets exceeds its fair value.

Environmental Remediation Costs

We accrue for environmental expenses when the costs are probable and can be
reasonably estimated. The estimated liabilities are not discounted or reduced
for possible recoveries from insurance carriers.

Research and Development

Research and development expenditures are expensed in Selling and Administrative
expense as incurred. Research and development

                                      F-10

expense was $11.7 million in 2000, $10.4 million in 2001, and $9.8 million in
2002. Included in these amounts are costs reimbursed by customers for customer
sponsored research activities of $7.5 million in 2000, $9.3 million in 2001, and
$8.8 million in 2002.

Foreign Currency Translation

Assets and liabilities of foreign subsidiaries are translated at current
exchange rates, and income and expenses are translated using weighted average
exchange rates. Adjustments resulting from translation of financial statements
stated in local currencies are included in Accumulated Other Comprehensive
Income (Loss). Gains and losses from foreign currency transactions are included
in the statements of income (loss).

Reclassifications

During 2002, we reclassified amounts in our 2001 and 2000 financial statements
to conform to our 2002 presentation.

Basic and Diluted Income (Loss) Per Share

The calculation of net income (loss) per share is based upon the average number
of common shares outstanding. No potentially dilutive shares were outstanding
during the three year period ended November 30, 2002.

Management Compensation -- Special

Management compensation -- special expense consists of payments to former
officers upon their separation from employment.

Insurance Related Loss (Gains)

In 2000 we received $16.0 million from insurance companies as a result of the
settlement of certain claims relating primarily to environmental remediation. In
2002 we recorded a provision of $3.1 million related to a dispute with an
insurance carrier over the coverage on a fire which occurred at one of our
facilities during 2001.

Recently Released or Adopted Accounting Standards

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," which requires that the fair value of a liability 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. The adoption did not have a material impact on our financial
condition or results of operations.

In September 2001, 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, as described above. 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. The adoption did not have a material impact on our financial
condition or results of operations.

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 No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." The adoption of
this statement is not expected to have a material impact on our financial
condition or results of operations.

In November 2002, the FASB issued Interpretation No. 45 ("FIN 45") "Guarantor's
Accounting 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 company issues a guarantee, the company must
recognize an initial liability for the fair value, or market value, of 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 initial 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. We have not completed the process of evaluating

                                      F-11

the impact that will result from adopting this interpretation. We therefore are
unable to disclose the impact, if any, of adopting this interpretation on our
financial position and results of operations.

In January 2003, the FASB issued Interpretation 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
controlled the entity through voting interests. FIN 46 requires a variable
interest entity to be consolidated 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, 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 provisions 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 June 15, 2003. The related disclosure requirements are 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. We are required to adopt EITF 00-21 on December 1, 2003. We
are evaluating the impact EITF 00-21 will have on us, but do not expect it to
have a material impact on our financial condition or results of operations.

C. ACQUISITIONS, DIVESTITURES AND DISCONTINUED OPERATIONS

Acquisitions

During fiscal 2000, we acquired the assets of the depleted zinc business of
Isonics Corporation and the stock of the Blue Star Battery Systems Corporation,
a manufacturer of special purpose batteries. These acquisitions were made at an
aggregate cost, including acquisition-related expenses, of $13.8 million,
consisting of $12.3 million in cash and contingent cash payments of $500,000
annually for three years. These acquisitions were accounted for using the
purchase method. The excess of the purchase prices over the assessed values of
the net assets was $6.9 million. This amount was allocated to Goodwill in our
balance sheets and was amortized over 15 years prior to the adoption of SFAS No.
142 on December 1, 2002. The impact of these transactions on our results of
operations in 2000 was not material. See Note M for a discussion of the
litigation and subsequent settlement related to this acquisition.

Divestitures

We recognized amounts related to divestitures in our statements of income (loss)
during the years ended November 30 as follows: (in thousands of dollars):



                                                               2000          2001          2002
                                                             --------       -------       ------
                                                                                 
(Gain) loss on sale of divisions ......................      $(17,077)      $(2,635)      $2,800
Losses recognized related to divisions sold in previous
  years ...............................................        13,928         4,740        3,352
Losses recognized for medical and workers compensation             --            --          345
                                                             --------       -------       ------
                                                             $ (3,149)      $ 2,105       $6,497
                                                             ========       =======       ======


We have indemnified the buyers for certain liabilities related to items such as
environmental remediation and warranty issues on divisions sold in previous
years. Liabilities for these exposures had been previously recorded by us;
however, from time to time, as additional information becomes available,
additional amounts may need to be recorded.

During 2000, we sold a significant number of divisions for aggregate net
proceeds of $85.0 million. The aggregate net gain resulting from these
transactions during 2000 was $17.1 million. This net gain included a gain of
$3.7 million resulting from a curtailment of our pension and postretirement
plans. Also in 2000, we recorded $13.9 million in losses primarily related to
environmental exposures for divisions sold prior to 2000.

During 2001, additional amounts totaling $4.7 million were recorded for various
environmental and litigation matters. Also in 2001, we received $2.6 million in
cash which was previously held in an escrow account for environmental matters
related to a previously sold division. These environmental matters were settled
with the regulatory authorities and we have no further exposure. The amount was
recorded as a gain on sale of divisions.

During 2002, we sold certain assets and liabilities of our Precision Products
business in our Technologies Segment to a group of former employees and
divisional management personnel. We received approximately $3.1 million in
proceeds and recorded a $2.8

                                      F-12

million loss on the sale. During 2002, based on new information that became
available, we also recorded additional amounts totaling $3.4 million for various
environmental and litigation matters, and $345,000 for medical and worker's
compensation claims relating to previous divestitures.

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

                                                             
Balance at November 30, 1999 .............................      $    877
  Additional amounts recorded for transaction expenses and
     other items .........................................         3,459
  Additional amounts recorded ............................        18,018
  Amounts spent ..........................................        (7,354)
                                                                --------
Balance at November 30, 2000 .............................        15,000
  Additional amounts recorded ............................         4,740
  Amounts spent ..........................................        (1,930)
                                                                --------
Balance at November 30, 2001 .............................        17,810
  Additional amounts recorded ............................         3,697
  Amounts spent ..........................................        (6,757)
  Amounts transferred from discontinued operations .......         2,912
                                                                --------
Balance at November 30, 2002 .............................      $ 17,662
                                                                ========



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 lease the
facility to the buyer for a five year term. The buyer has an option to buy the
facility for $2.5 million, increasing $100,000 per year over the term. We also
retained approximately $2.3 million of raw materials inventory, which the buyer
was required to purchase within one year. The buyer failed to purchase 25%, or
approximately $600,000, of the inventory. We intend to pursue collection
actions. Finally, we retained approximately $900,000 of accounts receivable. The
Assets of Discontinued Operations at November 30, 2002 include $643,000 of the
remaining balance of the inventory as the liabilities associated with this
transaction, totaling $2.9 million and representing primarily environmental
liabilities have been transferred to the Accrued Divestitures reserve at
November 30, 2002.

The measurement date to account for the Machinery Segment as a discontinued
operation was March 1, 2001. Accordingly, the results of the Machinery Segment's
operations have been reported separately as a discontinued operation in the
accompanying financial statements. Net sales from discontinued operations were
$82.6 million in 2000 and $65.1 million in 2001. During 2001, we recorded
provisions totaling $30.4 million, net of an income tax benefit of $6.1 million.
This provision included estimated losses and costs to be incurred in connection
with the disposition of the Machinery Segment, including $5.7 million in
expected losses during the phase out period from March 1, 2001 to December 14,
2001. An operating loss of $1.7 million, net of a $900,000 tax benefit, was
incurred in the first quarter of 2001.

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

During 2002, we entered into an agreement with a major U.S. financial
institution to sell an interest in certain receivables through an unconsolidated
qualifying special purpose entity, Eagle-Picher Funding Corporation ("EPFC").
Initially $47.0 million of proceeds from this new facility were used primarily
to payoff amounts outstanding under our existing Receivables Loan Agreement with
our wholly-owned subsidiary, Eagle-Picher Acceptance Corporation. 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. The
agreement provides for the continuation of the program on a revolving basis
until the earlier of a) the maturity of our senior credit facility, or b)
assuming we are able to refinance our senior credit facility, the fourth quarter
of 2004.

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 compliance
under our Credit Agreement (see Note H for a discussion of our debt), we include
the debt outstanding on EPFC.

In conjunction with the initial transaction, we sold $82.5 million of
receivables to EPFC, and we incurred charges of $1.5 million which are included
in Interest Expense in the accompanying statements of operations. 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, 2002. We retain an

                                      F-13

interest in a portion of the receivables transferred, representing an over
collateralization on the securitization. Our involvement with both this over
collaterization interest and the transferred receivables is generally limited to
the servicing performed. The carrying value of our 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 transferred. 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.

At November 30, 2002, our interest in EPFC was $29.4 million and the revolving
pool of receivables that we service totaled $77.5 million. At November 30, 2002,
the outstanding balance of the interest sold to the financial institution
recorded on EPFC was $46.5 million. During the year ended November 30, 2002, we
sold, outside of the initial sale, $568.2 million of accounts receivable to
EPFC. During 2002, EPFC collected $546.8 million of cash that was reinvested in
new securitizations. The effective interest rate as of November 30, 2002 in the
securitization was approximately 2.55%.

E. 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 relocates our corporate headquarters from
Cincinnati, Ohio to Phoenix, Arizona and closes three plants in the Technologies
Segment as a result of the elimination of certain product lines in the Power
Group business. The costs related to the Plan, which were recognized as a
separate component of operating expenses during 2001, included $5.4 million
related to the facilities, $5.0 million related to severance of approximately
165 employees and $3.7 million in other costs to exit business activities.

The facility costs of $5.4 million include a non-cash adjustment of $1.3 million
to write down the carrying value of the three plants to their estimated fair
value in holding them for sale, a non-cash charge of $2.2 million on the loss of
abandoning the machinery and equipment and other assets at the plant locations
and at corporate headquarters, and a $1.9 million charge for future lease
commitments, net of estimated proceeds received from subleasing the various
spaces. The asset impairment adjustments are recorded against Property Plant and
Equipment in our balance sheets. The other shutdown costs to exit the business
consist primarily of a $3.0 million non-cash charge related to inventory. The
$7.4 million restructuring reserve balance as of November 30, 2001 is included
in Other Accrued Liabilities.

During 2002, we determined that a portion of the assets in our over-funded
pension plan at November 30, 2001 could be made available to pay severance costs
related to the Plan. Accordingly, we have amended our pension plan and have
provided new or amended severance plans to allow for such payments. Accordingly,
a portion of our restructuring liability has been paid from our prepaid pension
asset.

In May 2002, we announced we would exit the Gallium business in our Technologies
Segment due to the downturn in the fiber-optic, telecommunication and
semiconductor markets, the primary markets for our Gallium products. This action
resulted in a $5.5 million charge to restructuring expense. This charge consists
of an inventory impairment totaling $2.9 million, representing the loss to be
incurred from the liquidation of current inventory. The charge also consists of
an accrual totaling $2.4 million recorded in Other Accrued Liabilities
representing primarily the loss to be incurred from the liquidation of inventory
to be purchased under firm purchase commitments. In addition, a $200,000 asset
impairment charge was recorded against Property, Plant and Equipment.

The remaining balance of $3.3 million as of November 30, 2002, is included in
Other Accrued Liabilities in our balance sheets. An analysis of the facilities,
severance and other costs incurred related to restructuring reserves is as
follows (in thousands of dollars):



                                                       FACILITIES     SEVERANCE    OTHER COSTS      TOTAL
                                                       ----------     ---------    -----------     -------
                                                                                       
Original Reserves .................................      $ 1,850       $ 5,044       $   694       $ 7,588
Amounts spent .....................................           --          (202)           --          (202)
                                                         -------       -------       -------       -------
Balance at November 30, 2001 ......................        1,850         4,842           694         7,386
Amounts paid from prepaid pension assets ..........           --        (3,080)           --        (3,080)
Additional amounts recorded for exiting the Gallium
  business ........................................           --            --         2,382         2,382
Additional provision for severance liability ......           --           416            --           416
Amounts spent .....................................         (221)       (1,864)       (1,736)       (3,821)
                                                         -------       -------       -------       -------
Balance at November 30, 2002 ......................      $ 1,629       $   314       $ 1,340       $ 3,283
                                                         =======       =======       =======       =======


F. INVENTORIES

Inventories consisted of the following at November 30 (in thousands of dollars):

                                      F-14



                                                   2001           2002
                                                 --------       -------
                                                          
Raw materials and supplies ................      $ 22,527       $25,365
Work-in-process ...........................        26,783        14,058
Finished goods ............................        18,096        14,695
                                                 --------       -------
                                                   67,406        54,118
Adjustment to state inventory at LIFO value          (957)           --
                                                 --------       -------
                                                 $ 66,449       $54,118
                                                 ========       =======


G.  PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following at November 30 (in
thousands of dollars):



                                      2001             2002
                                    ---------       ---------
                                              
Land and land improvements ...      $  15,308       $  14,828
Buildings ....................         66,973          64,277
Machinery and equipment ......        236,294         260,646
Construction in progress .....         25,197          10,777
                                    ---------       ---------
                                      343,772         350,528
Less: accumulated depreciation       (133,351)       (173,393)
                                    ---------       ---------
                                    $ 210,421       $ 177,135
                                    =========       =========


H. LONG-TERM DEBT

Long-term debt consisted of the following at November 30 (in thousands of
dollars):



                                                                2001            2002
                                                             ---------       ---------
                                                                       
Credit Agreement:
  Revolving credit facility, due February 27, 2004 ....      $ 142,000       $ 121,500
  Term loan, due 2003 .................................         47,739          16,925
Accounts Receivable Loan Agreement, paid-off in January

  2002 ................................................         14,250              --
Senior Subordinated Notes, 9.375% interest, due 2008 ..        220,000         220,000
Industrial Revenue Bonds, 1.8% to 2.2% interest, due
  2005 ................................................         17,000          15,300
                                                             ---------       ---------
                                                               440,989         373,725
Less: current portion .................................        (39,820)        (18,625)
                                                             ---------       ---------
Long-term debt, net of current portion ................      $ 401,169       $ 355,100
                                                             =========       =========


Aggregate maturities of long-term debt are as follows at November 30, 2002 (in
thousands of dollars):

                                  
                     2003........    $    18,625
                     2004........        123,300
                     2005........         11,800
                     2006........            --
                     2007........            --
                     Thereafter..        220,000
                                     -----------
                                     $   373,725



Credit Agreement

We have a syndicated senior secured loan facility ("Credit Agreement") providing
an original term loan ("Term Loan") of $75.0 million, as amended, and a $220.0
million revolving credit facility ("Facility"). The Facility and the Term Loan
bear interest, at our option, at LIBOR rate plus 2.75%, or the bank's prime rate
plus 1.5%. Interest is generally payable quarterly on the Facility and Term
Loan. We have entered into interest rate swap agreements to manage our variable
interest rate exposure. See Note B for a discussion of our outstanding interest
rate swap agreements. Our weighted average effective interest rate during 2002
was 7.36% and during 2001 was 8.85%. The amounts are not comparable because
during 2002 we completed our accounts receivable asset-backed securitization
(see Note D) that significantly reduced our Credit Agreement borrowings in 2002
compared to 2001.

At November 30, 2002, we had $42.2 million in outstanding letters of credit
under the Facility, which together with borrowings of $121.5 million, made our
available borrowing capacity of $56.3 million. However, due to various financial
covenant limitations under the Credit Agreement, we could only incur an
additional $39.3 million of indebtedness at November 30, 2002. The Credit
Agreement also contains certain fees. There are fees for letters of credit equal
to 2.75% per annum for all issued letters of credit, and there is a

                                      F-15

commitment fee on the Facility equal to 0.5% per annum of the unused portion of
the Facility. If we meet or fail to meet certain financial benchmarks, the
interest rate spreads on the borrowing, the commitment fees and the fees for
letters of credit may be reduced or increased.

The Credit Agreement is secured by our capital stock, the capital stock of our
domestic United States subsidiaries, a certain portion of the capital stock of
our foreign subsidiaries, and substantially all other property of our United
States subsidiaries. Additionally, the Credit Agreement is guaranteed by us and
certain of our subsidiaries (see "Subsidiary Guarantors and Non-Guarantors"
below).

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 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 include the debt outstanding on
EPFC, our off-balance sheet special purpose entity (see Note D, for a detailed
discussion of EPFC). We are in compliance with all covenants at November 30,
2002.

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. The net proceeds from the sale of assets
(subject to certain conditions), the net proceeds of certain new debt issued,
and 50.0% of the net proceeds of any equity securities issued are also subject
to mandatory prepayments on the Credit Agreement. No excess cash flow payments
were due for the years ended November 30, 2001 and 2002.

Accounts Receivable Loan Agreement

Prior to the formation of EPFC, we had an accounts receivable loan agreement,
whereby, we sold certain of our trade receivables to a wholly-owned,
consolidated subsidiary, Eagle-Picher Acceptance Corporation. The receivables
were then used as security for loans made under a separate revolving credit
facility. This accounts receivable loan agreement was paid-off with the
formation of EPFC. See Note D for a discussion of EPFC.

Senior Subordinated Notes

Our Senior Subordinated Notes require semi-annual interest payments on September
1 and March 1. The Senior Subordinated Notes, which are unsecured, are
redeemable at our option, in whole or in part, any time after February 28, 2003
at set redemption prices. We are required to offer to purchase the Senior
Subordinated Notes at a set redemption price should there be a change in
control. The Senior Subordinated 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 are in compliance with these covenants at November 30, 2002. The
Senior Subordinated Notes are guaranteed by us and certain of our subsidiaries
(see "Subsidiary Guarantors and Non-Guarantors" below).

Industrial Revenue Bonds

Our industrial revenue bonds require monthly interest payments at variable
interest rates based on the market for similar issues and are secured by letters
of credit issued under the Facility described above.

Effective Interest Rates and Fair Value of Long-term Debt

Our effective interest rate under our outstanding debt at November 30, 2001 was
8.07% and at November 30, 2002 was 8.53% (including the effect of the interest
rate swaps). Our debt had an estimated fair value of $337.2 million at November
30, 2001, and $303.3 million at November 30, 2002. The estimated fair value of
our debt, except for our Senior Subordinated Notes, was calculated based on
using discounted cash flow analysis based on current rates offered for similar
issues of other debt. For our Senior Subordinated Notes, we were provided the
fair market value by the primary market maker of the Senior Subordinated Notes,
who based the amount on the current market conditions at November 30, 2001 and
2002 as there is generally no significant trading activity in our Senior
Subordinated Notes.

Subsidiary Guarantors and Non-Guarantors

Both the Credit Agreement and the Senior Subordinated Notes were issued by our
wholly-owned subsidiary, EPI, and are guaranteed on a full, unconditional, and
joint and several basis by us and certain of our wholly-owned domestic
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 and the Subsidiary Guarantors are subject to

                                      F-16

restrictions on the payment of dividends under the terms of both the Credit
Agreement and the Senior Subordinated Notes. The following supplemental
condensed combining financial statements present information regarding EPI, as
the Issuer, the Subsidiary Guarantors and Non-Guarantor Subsidiaries.

                                      F-17

                           EAGLEPICHER HOLDINGS, INC.
                 SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEETS
                             AS OF NOVEMBER 30, 2001
                            (IN THOUSANDS OF DOLLARS)



                                                 GUARANTORS
                                  ------------------------------------------
                                                                                     NON-
                                                                                  GUARANTORS
                                                 EAGLEPICHER      SUBSIDIARY       FOREIGN
                                   ISSUER       HOLDINGS, INC.    GUARANTORS     SUBSIDIARIES     ELIMINATIONS      TOTAL
                                  ---------     --------------    ----------     ------------     ------------    ---------
                                                                                                
ASSETS
Current Assets:
Cash and cash equivalents ..      $  17,145       $       1         $    471      $   6,936       $      67       $  24,620
Receivables, net ...........        (18,238)             --          103,168         12,704              --          97,634
Costs and estimated earnings
  in excess of billings ....             --              --           10,744             --              --          10,744
Intercompany accounts
  receivable ...............         46,674              --            3,559             65         (50,298)             --
Inventories ................          4,129              --           51,983         11,708          (1,371)         66,449
Assets of discontinued
  operations ...............          3,610              --               --         16,342          (6,306)         13,646
Prepaid expenses ...........          6,948              --            6,152          2,432            (865)         14,667
Deferred income taxes ......         24,287              --               --             --              --          24,287
                                  ---------       ---------         --------      ---------       ---------       ---------
                                     84,555               1          176,077         50,187         (58,773)        252,047
Property, Plant and
  Equipment, net ...........         28,733              --          157,653         24,067             (32)        210,421
Investment in
  Subsidiaries .............        271,708          78,066           16,058             --        (365,832)             --
Goodwill, net ..............         41,939              --          120,969         19,994          (3,140)        179,762
Prepaid Pension ............         54,676              --               --             --              --          54,676
Other Assets ...............         33,227          (4,533)           3,468         10,712         (10,846)         32,028
                                  ---------       ---------         --------      ---------       ---------       ---------
                                  $ 514,838       $  73,534         $474,225      $ 104,960       $(438,623)      $ 728,934
                                  =========       =========         ========      =========       =========       =========
LIABILITIES AND
  SHAREHOLDERS' EQUITY
  (DEFICIT)
Current Liabilities:
Accounts payable ...........      $  16,156       $      --         $ 62,171      $   5,536       $      --       $  83,863
Intercompany accounts
  payable ..................             76              --               48          7,404          (7,528)             --
Long-term debt -- current
  portion ..................         25,569              --           14,250          7,293          (7,292)         39,820
Liabilities of discontinued
  operations ...............             --              --               --          5,599              --           5,599
Other accrued liabilities ..         42,059              --           29,386          2,911               1          74,357
                                  ---------       ---------         --------      ---------       ---------       ---------
                                     83,860              --          105,855         28,743         (14,819)        203,639
Long-term Debt, less current

  portion ..................        401,169              --           42,452             --         (42,452)        401,169
Postretirement Benefits
  Other Than Pensions ......         17,873              --               --             --              --          17,873
Deferred Income Taxes ......          9,362              --               --            663          (3,085)          6,940
Other Long-term
  Liabilities ..............          8,038              19            1,000            825              --           9,882
                                  ---------       ---------         --------      ---------       ---------       ---------
                                    520,302              19          149,307         30,231         (60,356)        639,503
Intercompany Accounts ......       (273,724)             --          252,557         35,782         (14,615)             --
Preferred Stock ............             --         123,086               --             --              --         123,086
Shareholders' Equity
  (Deficit) ................        268,260         (49,571)          72,361         38,947        (363,652)        (33,655)
                                  ---------       ---------         --------      ---------       ---------       ---------
                                  $ 514,838       $  73,534         $474,225      $ 104,960       $(438,623)      $ 728,934
                                  =========       =========         ========      =========       =========       =========


                                      F-18

                           EAGLEPICHER HOLDINGS, INC.
                 SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEETS
                             AS OF NOVEMBER 30, 2002
                            (IN THOUSANDS OF DOLLARS)



                                                  GUARANTORS
                                   ------------------------------------------
                                                                                      NON-
                                                                                   GUARANTORS
                                                  EAGLEPICHER      SUBSIDIARY       FOREIGN
                                    ISSUER       HOLDINGS, INC.    GUARANTORS     SUBSIDIARIES     ELIMINATIONS      TOTAL
                                   ---------     --------------    ----------     ------------     ------------    ---------
                                                                                                 
ASSETS
Current Assets:
Cash and cash equivalents ...      $  27,694       $       1       $  (4,895)      $   7,902       $     820       $  31,522
Receivables and retained
  interest, net .............          2,535              --          31,472          16,866              --          50,873
Costs and estimated earnings
  in excess of billings .....             --              --          16,942              --              --          16,942
Intercompany accounts
  receivable ................          1,997              --           6,228           2,037         (10,262)             --
Inventories .................          3,957              --          39,394          12,683          (1,916)         54,118
Assets of discontinued
  operations ................            643              --              --           9,331              --           9,974
Prepaid expenses and other
  assets ....................          7,840              --           4,755           4,456          (1,614)         15,437
Deferred income taxes .......         10,798              --              --              --              --          10,798
                                   ---------       ---------       ---------       ---------       ---------       ---------
                                      55,464               1          93,896          53,275         (12,972)        189,664
Property, Plant and
  Equipment, net ............         24,016              --         129,052          24,067              --         177,135
Investment in Subsidiaries ..        239,864          58,509          18,286              --        (316,659)             --
Goodwill, net ...............         37,339              --         116,586          13,154          (3,139)        163,940
Prepaid Pension .............         54,796              --              --              --              --          54,796
Other Assets, net ...........         14,296          (8,091)         21,744          11,070         (11,513)         27,506
                                   ---------       ---------       ---------       ---------       ---------       ---------
                                   $ 425,775       $  50,419       $ 379,564       $ 101,566       $(344,283)      $ 613,041
                                   =========       =========       =========       =========       =========       =========
LIABILITIES AND SHAREHOLDERS'
  EQUITY (DEFICIT)
Current Liabilities:
Accounts payable ............      $  15,398       $      --       $  53,151       $  14,252       $     820       $  83,621
Intercompany accounts
  payable ...................          3,171              --           5,887           1,184         (10,242)             --
Current portion of long-term
  debt ......................         18,625              --              --              --              --          18,625
Liabilities of discontinued
  operations ................             --              --              --           3,417              --           3,417
Other accrued liabilities ...         46,313              --          25,128           3,879              --          75,320
                                   ---------       ---------       ---------       ---------       ---------       ---------
                                      83,507              --          84,166          22,732          (9,422)        180,983
Long-term Debt, net of

  current portion ...........        355,100              --              --          11,491         (11,491)        355,100
Postretirement Benefits Other
  Than Pensions .............         17,635              --              --              --              --          17,635
Other Long-term
  Liabilities ...............          8,687              --              --             216              25           8,928
                                   ---------       ---------       ---------       ---------       ---------       ---------
                                     464,929              --          84,166          34,439         (20,888)        562,646
Intercompany Accounts .......       (282,707)             24         267,578          25,925         (10,820)             --
Preferred Stock .............             --         137,973              --              --              --         137,973
Shareholders' Equity
  (Deficit) .................        243,553         (87,578)         27,820          41,202        (312,575)        (87,578)
                                   ---------       ---------       ---------       ---------       ---------       ---------
                                   $ 425,775       $  50,419       $ 379,564       $ 101,566       $(344,283)      $ 613,041
                                   =========       =========       =========       =========       =========       =========


                                      F-19

                           EAGLEPICHER HOLDINGS, INC.
          SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS)
                          YEAR ENDED NOVEMBER 30, 2000
                            (IN THOUSANDS OF DOLLARS)



                                                  GUARANTORS
                                   ------------------------------------------
                                                                                      NON-
                                                                                   GUARANTORS
                                                  EAGLEPICHER      SUBSIDIARY       FOREIGN
                                    ISSUER       HOLDINGS, INC.    GUARANTORS     SUBSIDIARIES   ELIMINATIONS      TOTAL
                                   ---------     --------------    ----------     ------------   ------------    ---------
                                                                                               
Net Sales:
  Customers .................      $ 74,650       $      --       $ 593,408       $ 84,451       $      --       $ 752,509
  Intercompany ..............        16,470              --          12,856          9,997         (39,323)             --
                                   --------       ---------       ---------       --------       ---------       ---------
                                     91,120              --         606,264         94,448         (39,323)        752,509
                                   --------       ---------       ---------       --------       ---------       ---------
Operating Costs and Expenses:
  Cost of products sold
    (exclusively of
    depreciation) ...........        55,066              --         497,162         80,698         (39,238)        593,688
  Selling and
    administrative ..........        25,454               9          24,144          8,345            (298)         57,654
  Intercompany charges ......       (11,370)             --          11,370           (298)            298              --
  Depreciation and
    amortization of
    intangibles .............         4,492              --          32,540          3,644              --          40,676
  Goodwill amortization .....         3,736              --          11,100          1,041              --          15,877
  Other .....................           663              --          (4,057)       (14,238)             43         (17,589)
                                   --------       ---------       ---------       --------       ---------       ---------
                                     78,041               9         572,259         79,192         (39,195)        690,306
                                   --------       ---------       ---------       --------       ---------       ---------
Operating Income (Loss) .....        13,079              (9)         34,005         15,256            (128)         62,203
Other Income (Expense):
  Interest (expense)
    income ..................       (16,311)             --         (31,969)        (2,682)          8,318         (42,644)
  Other income (expense),
    net .....................         1,247              --           7,790            (95)         (8,318)            624
  Equity in earnings (losses)
    of consolidated
    subsidiaries ............        13,538           5,619           1,920             --         (21,077)             --
                                   --------       ---------       ---------       --------       ---------       ---------
Income (Loss) from Continuing

  Operations Before Taxes ...        11,553           5,610          11,746         12,479         (21,205)         20,183
Income Taxes ................         2,082              --           6,099          1,140              --           9,321
                                   --------       ---------       ---------       --------       ---------       ---------
Income (Loss) from Continuing
  Operations ................         9,471           5,610           5,647         11,339         (21,205)         10,862
Discontinued Operations,
  net .......................        (3,724)             --              --         (1,528)             --          (5,252)
                                   --------       ---------       ---------       --------       ---------       ---------
Net Income (Loss) ...........      $  5,747       $   5,610       $   5,647       $  9,811       $ (21,205)      $   5,610
                                   ========       =========       =========       ========       =========       =========


                           EAGLEPICHER HOLDINGS, INC.
          SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS)
                          YEAR ENDED NOVEMBER 30, 2001
                            (IN THOUSANDS OF DOLLARS)



                                                  GUARANTORS
                                   ------------------------------------------
                                                                                      NON-
                                                                                   GUARANTORS
                                                  EAGLEPICHER      SUBSIDIARY       FOREIGN
                                    ISSUER       HOLDINGS, INC.    GUARANTORS     SUBSIDIARIES   ELIMINATIONS      TOTAL
                                   ---------     --------------    ----------     ------------   ------------    ---------
                                                                                               

Net Sales:
  Customers .................      $ 47,892       $      --       $ 571,914       $ 69,970       $      --       $ 689,776
  Intercompany ..............        15,398              --          15,185             --         (30,583)             --
                                   --------       ---------       ---------       --------       ---------       ---------
                                     63,290              --         587,099         69,970         (30,583)        689,776
                                   --------       ---------       ---------       --------       ---------       ---------
Operating Costs and Expenses:
  Cost of products sold
    (exclusively of
    depreciation) ...........        35,492              --         497,674         57,165         (30,583)        559,748
  Selling and
    administrative ..........        21,627               5          21,163          6,548              --          49,343
  Intercompany charges ......        (6,329)             --           6,537           (208)             --              --
  Depreciation and
    amortization of
    intangibles .............         3,749              --          35,790          2,799              --          42,338
  Goodwill amortization .....         3,736              --          11,100            989              --          15,825
  Other .....................        12,122              --           7,375            (93)            (11)         19,393
                                   --------       ---------       ---------       --------       ---------       ---------
                                     70,397               5         579,639         67,200         (30,594)        686,647
                                   --------       ---------       ---------       --------       ---------       ---------
Operating Income (Loss) .....        (7,107)             (5)          7,460          2,770              11           3,129
Other Income (Expense):
  Interest (expense)
    income ..................       (11,227)             --         (36,006)           636           7,714         (38,883)
  Other income (expense),
    net .....................         1,069              --           8,689          1,522          (7,714)          3,566
  Equity in earnings (losses)
    of consolidated
    subsidiaries ............       (15,145)        (53,966)          2,183             --          66,928              --
                                   --------       ---------       ---------       --------       ---------       ---------
Income (Loss) from Continuing

  Operations Before Taxes ...       (32,410)        (53,971)        (17,674)         4,928          66,939         (32,188)
Income Taxes (Benefit) ......       (12,689)             --              (8)         2,634              --         (10,063)
                                   --------       ---------       ---------       --------       ---------       ---------
Income (Loss) from Continuing

  Operations ................       (19,721)        (53,971)        (17,666)         2,294          66,939         (22,125)
Discontinued Operations,
  net .......................       (32,073)             --              --            227              --         (31,846)
                                   --------       ---------       ---------       --------       ---------       ---------
Net Income (Loss) ...........      $(51,794)      $ (53,971)      $ (17,666)      $  2,521       $  66,939       $ (53,971)
                                   ========       =========       =========       ========       =========       =========


                                      F-21

                           EAGLEPICHER HOLDINGS, INC.
          SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS)
                          YEAR ENDED NOVEMBER 30, 2002
                            (IN THOUSANDS OF DOLLARS)



                                                  GUARANTORS
                                   ------------------------------------------
                                                                                      NON-
                                                                                   GUARANTORS
                                                  EAGLEPICHER      SUBSIDIARY       FOREIGN
                                    ISSUER       HOLDINGS, INC.    GUARANTORS     SUBSIDIARIES   ELIMINATIONS      TOTAL
                                   ---------     --------------    ----------     ------------   ------------    ---------
                                                                                               
Net Sales:
  Customers .................      $ 50,879       $      --       $ 553,983       $ 77,967       $      --       $ 682,829
  Intercompany ..............        16,411              --          13,628              4         (30,043)             --
                                   --------       ---------       ---------       --------       ---------       ---------
                                     67,290              --         567,611         77,971         (30,043)        682,829
                                   --------       ---------       ---------       --------       ---------       ---------
Operating Costs and Expenses:
  Cost of products sold
    (exclusively of
    depreciation) ...........        36,167              --         465,907         62,574         (30,043)        534,605
  Selling and
    administrative ..........        24,128               5          30,449          5,766              --          60,348
  Intercompany charges ......        (6,322)             --           6,322             --              --              --
  Depreciation and
    amortization of
    intangibles .............         5,434              --          39,449          2,416              --          47,299
  Goodwill amortization .....         3,736              --          11,100            986              --          15,822
  Other .....................         9,595              --           9,283             --              --          18,878
                                   --------       ---------       ---------       --------       ---------       ---------
                                     72,738               5         562,510         71,742         (30,043)        676,952
                                   --------       ---------       ---------       --------       ---------       ---------
Operating Income (Loss) .....        (5,448)             (5)          5,101          6,229              --           5,877
Other Income (Expense):
  Interest (expense) income .        12,680              --         (54,407)          (104)          1,809         (40,022)
  Other income (expense),
    net .....................           601              --           2,549            175          (1,809)          1,516
  Equity in earnings (losses)
    of consolidated
    subsidiaries ............       (31,844)        (19,557)          2,228             --          49,173              --
                                   --------       ---------       ---------       --------       ---------       ---------
Income (Loss) from Continuing

  Operations Before Taxes ...       (24,011)        (19,562)        (44,529)         6,300          49,173         (32,629)
Income Taxes ................           146              --              12          1,780              --           1,938
                                   --------       ---------       ---------       --------       ---------       ---------
Income (Loss) from Continuing

  Operations ................       (24,157)        (19,562)        (44,541)         4,520          49,173         (34,567)
Discontinued Operations,
  net .......................            --              --              --         (2,265)             --          (2,265)
                                   --------       ---------       ---------       --------       ---------       ---------
Net Income (Loss) ...........      $(24,157)      $ (19,562)      $ (44,541)      $  2,255       $  49,173       $ (36,832)
                                   ========       =========       =========       ========       =========       =========


                                      F-22





                           EAGLEPICHER HOLDINGS, INC.
            SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS
                          YEAR ENDED NOVEMBER 30, 2000
                            (IN THOUSANDS OF DOLLARS)



                                                  GUARANTORS
                                      ------------------------------------        NON-
                                                                               GUARANTORS
                                                  EAGLEPICHER    SUBSIDIARY     FOREIGN
                                       ISSUER    HOLDINGS, INC.  GUARANTORS   SUBSIDIARIES    ELIMINATIONS      TOTAL
                                      --------   --------------  ----------  --------------   ------------    ---------
                                                                                            
CASH FLOWS FROM OPERATING
  ACTIVITIES
Net income (loss) ...............     $  5,747      $  5,610      $  5,647       $  9,811       $(21,205)     $  5,610
Adjustments to reconcile net
  income (loss) to cash provided
  by (used in) operating
  activities:
    Equity in (earnings) loss of
      consolidated
      subsidiaries ..............      (13,538)       (5,619)       (1,920)            --         21,077            --
    Depreciation and
      amortization ..............       11,474            --        43,640          4,685             --        59,799
    Provisions for discontinued
      operations ................           --            --            --             --             --            --
    Loss (Gain) from
      divestitures ..............       14,965            --        (3,870)       (14,244)        (3,149)
    Deferred income taxes .......        4,897            --            --             --             --         4,897
    Changes in assets and
      liabilities, net of effect
      of non-cash items .........      (26,940)            9        11,230        (18,516)        10,793       (23,424)
                                      --------      --------      --------       --------       --------      --------
                                        (3,395)           --        54,727        (18,264)        10,665        43,733
                                      --------      --------      --------       --------       --------      --------
CASH FLOWS FROM INVESTING
  ACTIVITIES
Proceeds from sales of
  divisions .....................       47,002            --        10,430         27,616             --        85,048
Cash paid for acquisitions ......           --            --       (12,306)            --             --       (12,306)
Capital expenditures ............       (6,183)           --       (30,320)        (4,343)            --       (40,846)
Other, net ......................        6,871            --           876         (2,871)          (412)        4,464
                                      --------      --------      --------       --------       --------      --------
                                        47,690            --       (31,320)        20,402           (412)       36,360
                                      --------      --------      --------       --------       --------      --------
CASH FLOWS FROM FINANCING
  ACTIVITIES
Reduction of long-term debt .....      (24,374)           --            --           (183)            --       (24,557)
Net borrowing (repayments) under
  revolving credit agreements ...      (30,340)           --       (21,000)       (10,434)            --       (61,774)
Acquisition of treasury stock ...       (2,371)           --            --             --             --        (2,371)
Other, net ......................        1,454            --            --             --             --         1,454
                                      --------      --------      --------       --------       --------      --------
                                       (55,631)           --       (21,000)       (10,617)            --       (87,248)
                                      --------      --------      --------       --------       --------      --------
Net cash provided by discontinued
  operations ....................        4,563            --            --          1,256             --         5,819
                                      --------      --------      --------       --------       --------      --------
Effect of exchange rates on
  cash ..........................           --            --            --         (1,268)            --        (1,268)
                                      --------      --------      --------       --------       --------      --------
Net increase (decrease) in cash
  and cash equivalents ..........       (6,773)           --         2,407         (8,491)        10,253        (2,604)
Intercompany accounts ...........        5,511            --        (2,738)         6,211         (8,984)           --
Cash and cash equivalents,
  beginning of period ...........        4,064             1           870          5,088             48        10,071
                                      --------      --------      --------       --------       --------      --------
Cash and cash equivalents, end of
  period ........................     $  2,802      $      1      $    539       $  2,808       $  1,317      $  7,467
                                      ========      ========      ========       ========       ========      ========



                                      F-23

                           EAGLEPICHER HOLDINGS, INC.
            SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS
                          YEAR ENDED NOVEMBER 30, 2001
                            (IN THOUSANDS OF DOLLARS)



                                              GUARANTORS
                                  --------------------------------------      NON-
                                                                           GUARANTORS
                                              EAGLEPICHER     SUBSIDIARY    FOREIGN
                                   ISSUER     HOLDINGS, INC.  GUARANTORS  SUBSIDIARIES   ELIMINATIONS      TOTAL
                                  ---------   --------------  ----------  ------------   ------------    ---------
                                                                                       
CASH FLOWS FROM OPERATING
  ACTIVITIES
Net income (loss) ...........     $(51,794)     $(53,971)      $(17,666)     $  2,521      $ 66,939      $(53,971)
Adjustments to reconcile net
  income (loss) to cash
  provided by operating
  activities:
    Equity in (earnings) loss
       of consolidated
       subsidiaries .........       15,145        53,966         (2,183)           --       (66,928)           --
    Depreciation and
       amortization .........       11,192            --         46,890         3,788            --        61,870
    Provisions for
       discontinued
       operations ...........       30,416            --             --            --            --        30,416
    Loss from divestitures ..        2,105            --             --            --            --         2,105
    Deferred income taxes ...       (9,344)           --             --            --            --        (9,344)
    Changes in assets and
       liabilities, net of
       effect of non-cash
       items ................       12,850             5         (3,737)       (4,965)       28,129        32,282
                                  --------      --------       --------      --------      --------      --------
                                    10,570            --         23,304         1,344        28,140        63,358
                                  --------      --------       --------      --------      --------      --------
CASH FLOWS FROM INVESTING
  ACTIVITIES
Proceeds from sales of
  divisions .................           --            --             --            --            --            --
Capital expenditures ........       (7,208)           --        (16,469)      (12,034)           --       (35,711)
Other, net ..................           26            --          3,753        (4,026)           --          (247)
                                  --------      --------       --------      --------      --------      --------
                                    (7,182)           --        (12,716)      (16,060)           --       (35,958)
                                  --------      --------       --------      --------      --------      --------
CASH FLOWS FROM FINANCING
  ACTIVITIES
Reduction of long-term
  debt ......................      (20,795)           --             --         1,849            --       (18,946)
Net borrowing (repayments)
  under revolving credit
  agreements ................       36,340            --        (28,500)       (1,611)           --         6,229
Acquisition of treasury
  stock .....................       (2,162)           --             --            --            --        (2,162)
Other, net ..................        2,593            --             --        (3,465)           --          (872)
                                  --------      --------       --------      --------      --------      --------
                                    15,976            --        (28,500)       (3,227)           --       (15,751)
                                  --------      --------       --------      --------      --------      --------
Net cash provided by
  discontinued operations ...        4,322            --             --         1,403            --         5,725
                                  --------      --------       --------      --------      --------      --------
Effect of exchange rates on
  cash ......................           --            --             --          (221)           --          (221)
                                  --------      --------       --------      --------      --------      --------
Net increase (decrease) in
  cash and cash
  equivalents ...............       23,686            --        (17,912)      (16,761)       28,140        17,153
Intercompany accounts .......       (9,343)           --         17,844        20,889       (29,390)           --
Cash and cash equivalents,
  beginning of period .......        2,802             1            539         2,808         1,317         7,467
                                  --------      --------       --------      --------      --------      --------
Cash and cash equivalents,
  end of period .............     $ 17,145      $      1       $    471      $  6,936      $     67      $ 24,620
                                  ========      ========       ========      ========      ========      ========


                                      F-24

                           EAGLEPICHER HOLDINGS, INC.
            SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS
                          YEAR ENDED NOVEMBER 30, 2002
                            (IN THOUSANDS OF DOLLARS)



                                                 GUARANTORS
                                    --------------------------------------      NON-
                                                                             GUARANTORS
                                                 EAGLEPICHER    SUBSIDIARY    FOREIGN
                                     ISSUER     HOLDINGS, INC.  GUARANTORS  SUBSIDIARIES   ELIMINATIONS      TOTAL
                                    --------    --------------  ----------  ------------   ------------    ---------
                                                                                         
CASH FLOWS FROM OPERATING
  ACTIVITIES:
Net income (loss) .............     $(24,157)     $(19,562)      $(44,541)     $  2,255      $ 49,173      $(36,832)
Adjustments to reconcile net
  income (loss) to cash
  provided by (used in)
  operating activities:
    Equity in (earnings) loss
       of consolidated
       subsidiaries ...........       31,844        19,557         (2,228)           --       (49,173)           --
       Depreciation and
         amortization .........       12,301            --         50,549         3,402            --        66,252
       Provisions for
         discontinued
         operations ...........           --            --             --            --            --            --
       Loss from
         divestitures .........        3,325            --          3,172            --            --         6,497
       Deferred income taxes ..        6,147            --             --            --            --         6,147
       Changes in assets and
         liabilities, net of
         effect of non-cash
         items ................       33,873             5         58,068        (6,629)      (46,689)       38,628
                                    --------      --------       --------      --------      --------      --------
                                      63,333            --         65,020          (972)      (46,689)       80,692
                                    --------      --------       --------      --------      --------      --------
CASH FLOWS FROM INVESTING
  ACTIVITIES:
Proceeds from sales of
  divisions ...................        6,927            --          3,100            --            --        10,027
Capital expenditures ..........         (980)           --        (13,566)       (1,851)           --       (16,397)
Proceeds from sale of property
  and equipment, and other,
  net .........................          639            --             --            --            --           639
                                    --------      --------       --------      --------      --------      --------
                                       6,586            --        (10,466)       (1,851)           --        (5,731)
                                    --------      --------       --------      --------      --------      --------
CASH FLOWS FROM FINANCING
  ACTIVITIES:
Reduction of long-term debt ...      (32,515)           --             --           (12)           --       (32,527)
Net borrowings (repayments)
  under revolving credit
  agreements ..................       21,966            --        (56,702)           --            --       (34,736)
Acquisition of treasury
  stock .......................         (159)           --             --            --            --          (159)
Other .........................           --            --             --            --            --            --
                                    --------      --------       --------      --------      --------      --------
                                     (10,708)           --        (56,702)          (12)           --       (67,422)
                                    --------      --------       --------      --------      --------      --------
Net cash (used in) discontinued
  operations ..................           --            --             --        (1,713)           --        (1,713)
                                    --------      --------       --------      --------      --------      --------
Effect of exchange rates on
  cash ........................           --            --             --         1,076            --         1,076
                                    --------      --------       --------      --------      --------      --------
Net increase (decrease) in cash
  and cash equivalents ........       59,211            --         (2,148)       (3,472)      (46,689)        6,902
Intercompany accounts .........      (48,662)           --         (3,218)        4,438        47,442            --
Cash and cash equivalents,
  beginning of period .........       17,145             1            471         6,936            67        24,620
                                    --------      --------       --------      --------      --------      --------
Cash and cash equivalents, end
  of period ...................     $ 27,694      $      1       $ (4,895)     $  7,902      $    820      $ 31,522
                                    ========      ========       ========      ========      ========      ========



                                      F-25

I.  11.75% CUMULATIVE REDEEMABLE EXCHANGEABLE PREFERRED STOCK

We have 14,191 shares of 11.75% Cumulative Redeemable Exchangeable Preferred
Stock outstanding. The Preferred Stock had an initial liquidation preference at
February 24, 1998 of $5,637.70 per share which accretes during the first five
years after issuance at 11.75% per annum, compounded semiannually, ultimately
reaching $10,000 per share on March 1, 2003. No dividends will accrue prior to
March 1, 2003, but will be cumulative at 11.75% per annum thereafter. Beginning
March 1, 2003, the holders of the Preferred Stock shall be entitled to receive,
when and as declared by the Board of Directors, cash dividends at a rate per
annum equal to 11.75%. Such dividends shall be payable in arrears in equal
amounts semiannually. Future accretion and dividends on the Preferred Stock are
as follows (in thousands of dollars):



                      FISCAL YEAR     ACCRETION   DIVIDENDS
                   -----------------  ---------   ---------
                                            
                   2003 ............   $ 3,937     $12,737
                   2004 ............        --      16,674
                   2005 ............        --      16,674
                   2006 ............        --      16,674
                   2007 ............        --      16,674
                   2008 ............        --       4,167
                                       -------     -------
                                       $ 3,937     $83,600
                                       =======     =======


The Preferred Stock is mandatorily redeemable by us on March 1, 2008 or earlier
under certain circumstances, but may be redeemed at our option, in whole or in
part, at any time after February 28, 2003, at set redemption prices. On February
28, 2003, we may also exchange all of the Preferred Stock for 11.75% Exchange
Debentures, which would have terms similar to a debt instrument. This debt
instrument would bear interest at 11.75% on the full redemption value in 2008 of
approximately $141.9 million with interest payable semiannually and the
principle due in 2008. We are required to offer to purchase the Preferred Stock
should there be a change in control. Holders of the Preferred Stock have no
voting rights except in certain circumstances. The terms of the Preferred Stock
contain covenants similar to the covenants in the Senior Subordinated Notes. We
are in compliance with these covenants as of November 30, 2002. The Preferred
Stock had an estimated fair value of $21.3 million at November 30, 2001 and
$28.4 million at November 30, 2002. These estimated fair market values were
determined by the primary market maker of the Preferred Stock based on the then
current market conditions at those dates as there is generally no significant
trading activity in the Preferred Stock.

J.  SHAREHOLDERS' EQUITY (DEFICIT)

Common Stock

On August 31, 2001, we adopted an amendment to our Amended and Restated
Certificate of Incorporation to change our capital structure. Effective with
this amendment, the total number of shares of common stock which we are
authorized to issue is 1,000,000 shares, par value $0.01 per share. The holders
of the Common Stock shares are entitled to one vote per share on all matters
which may be submitted to the holders of the Common Stock. At the effective time
of this amendment, each share of Class A Common Stock and each share of the
Class B Common Stock outstanding immediately prior to the effective time was
reclassified as one share of Common Stock.

Accumulated Other Comprehensive Income (Loss)

At November 30, 2001 Accumulated Other Comprehensive Loss consisted of a net
foreign currency translation loss of $2.5 million, which is net of taxes of $1.3
million, and a net loss on hedging derivatives of $3.2 million, which is net of
taxes of $1.7 million. Accumulated Other Comprehensive Loss at November 30, 2002
consisted of a net foreign currency translation loss of $1.4 million, which is
net of taxes of $754,000, and a net loss on hedging derivatives of $3.0 million,
which is net of taxes of $1.6 million.

K.  INCOME TAXES

The following is a summary of the sources of income (loss) from continuing
operations before income taxes (benefit) for the years ended November 30 (in
thousands of dollars):



                                2000          2001          2002
                              --------      --------      --------
                                                 
            United States ..  $ 11,067      $(39,337)     $(40,812)
            Foreign ........     9,116         7,149         8,183
                              --------      --------      --------
                              $ 20,183      $(32,188)     $(32,629)
                              ========      ========      ========


The following is a summary of the components of income taxes (benefit) from
continuing operations for the years ended November 30


                                      F-26

(in thousands of dollars):



                                   2000          2001         2002
                                 --------      --------      -------
                                                    
       Current:
         Federal ...........     $  1,445      $ (5,066)     $(5,956)
         Foreign ...........          900         2,700        2,455
         State and local ...           60          (700)         (45)
                                 --------      --------      -------
                                    2,405        (3,066)      (3,546)
       Deferred ............        6,916        (6,997)       5,484
                                 --------      --------      -------
                                 $  9,321      $(10,063)     $ 1,938
                                 ========      ========      =======


The following is a summary of the primary differences between the income tax
expense (benefit) from continuing operations and the income tax expense computed
using the statutory Federal income tax rate for the years ended November 30 (in
thousands of dollars):



                                                             2000          2001          2002
                                                           --------      --------      --------
                                                                              
Income tax expense (benefit) at Federal statutory rate ..  $  7,064      $(11,266)     $(11,420)
Foreign taxes rate differential .........................    (2,866)           49            66
State and local taxes, net of the Federal benefit .......        --          (100)          (29)
Non-deductible amortization relating to goodwill ........     5,400           700           992
Valuation allowance .....................................        --            --        13,813
Other ...................................................      (277)          554        (1,484)
                                                           --------      --------      --------
                                                           $  9,321      $(10,063)     $  1,938
                                                           ========      ========      ========


Components of deferred tax balances as of November 30 are as follows (in
thousands of dollars):



                                                                 2001          2002
                                                               --------      --------
                                                                       
Current deferred tax assets attributable to:
  Accrued liabilities ....................................     $ 15,442      $ 15,619
  Reserve for discontinued operations and restructuring ..       14,210           500
  Other ..................................................        1,135           929
                                                               --------      --------
  Current deferred tax asset .............................       30,787        17,048
  Valuation allowance ....................................       (6,500)       (6,250)
                                                               --------      --------
  Current deferred tax asset, net of valuation allowance .       24,287        10,798
                                                               --------      --------
Non-current deferred tax assets (liabilities) attributable
  to:
  Property, plant and equipment ..........................      (10,857)       (7,321)
  Prepaid pension ........................................      (19,137)      (19,177)
  Net operating loss carryforwards .......................        5,901        32,363
  Alternative minimum tax credit carryforwards ...........        5,963            --
  Amortization of intangibles ............................        5,879         5,177
  Other ..................................................        5,311         3,021
                                                               --------      --------
  Non-current deferred tax asset (liability) .............       (6,940)       14,063
  Valuation Allowance ....................................           --       (14,063)
                                                               --------      --------
  Non-current deferred tax asset (liability), net of
     valuation allowance .................................       (6,940)           --
                                                               --------      --------
Net deferred tax asset ...................................     $ 17,347      $ 10,798
                                                               ========      ========


As of November 30, 2002 we had net operating loss carryforwards of $88.0 million
in the United States available to offset future taxable income that will begin
to expire in 2021.

SFAS No. 109 requires a valuation allowance to be recorded when it is more
likely than not that some or all of the deferred tax assets will not be
realized. As of November 30, 2001 and 2002, we recorded a valuation allowance to
reduce our deferred tax assets to an amount that is more likely than not to be
realized. In estimating levels of future taxable income, we have considered
historical results of operations in recent years and the implementation of
prudent and feasible tax planning strategies to generate future taxable income.
If future taxable income is less than the amount that has been assumed in
determining the deferred tax asset, then an increase in the valuation reserve
will be required, with a corresponding charge against income. On the other hand,
if future taxable income exceeds the level that has been assumed in calculating
the deferred tax asset, the valuation reserve could be reduced, with a
corresponding credit to income.

L.  PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS, AND COMPENSATION PLANS

Pension and Other Postretirement Benefit Plans


                                      F-27

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.

Plan benefits for salaried employees are based primarily on employees' highest
five consecutive years' earnings during the last ten years of employment. Plan
benefits for hourly employees are typically based on a dollar unit multiplied by
the number of service years. In December 2002, our board of directors authorized
us to change from a "final average pay plan," as described above, to a
cash-balance pension plan effective January 1, 2004. All benefits earned through
December 31, 2003, will be unchanged. This will apply to all salaried and
certain hourly employees.

In addition to providing pension retirement benefits, we make health care and
life insurance benefits available to certain retired employees on a limited
basis. Generally, the medical plans pay a stated percentage of medical expenses
reduced by deductibles and other coverages. Eligible employees may elect to be
covered by these health and life insurance benefits if they reach early or
normal retirement age while employed by us. In most cases, a retiree
contribution for health care coverage is required. We fund these benefit costs
primarily on a pay-as-you-go basis.

Net periodic pension and postretirement benefit costs are based on valuations
performed by our actuary as of the beginning of each fiscal year. The components
of the costs are as follows (in thousands of dollars):



                                                    PENSION BENEFITS                   POSTRETIREMENT BENEFITS
                                          ------------------------------------      ------------------------------
                                            2000          2001          2002         2000       2001         2002
                                          --------      --------      --------      ------     -------      ------
                                                                                          
Service cost -- benefits earned
  during the period..................     $  5,006      $  4,790      $  3,933      $  519     $   546      $  463
Interest cost on projected benefit
  obligations .......................       15,662        15,314        15,652       1,191       1,271       1,187
Expected return on plan assets ......      (24,091)      (23,600)      (23,705)         --          --          --
Net amortization and deferral .......          107           210           327          --          --          --
                                          --------      --------      --------      ------     -------      ------
Net periodic cost (income) ..........       (3,316)       (3,286)       (3,793)     $1,710     $ 1,817      $1,650
                                                                                    ======     =======      ======
Special termination benefits ........           --            --         3,674
Other retirement plans ..............        1,228         1,131         1,082
                                          --------      -------      ---------
Total cost of (income from) providing
  retirement benefits ...............     $ (2,088)     $(2,155)     $     963
                                          ========      =======      =========


During 2002, we recognized special termination benefits as a result of
determining that a portion of assets in our over-funded pension plan at November
30, 2001 could be made available to pay severance costs. Accordingly, we have
amended our pension plan and have provided new or amended severance plans to
allow for such payments. Approximately $3.7 million has been or is expected to
be paid out of the pension plan, and was recorded as special termination
benefits in 2002. Of this amount, $2.7 million in 2001 and $400,000 in 2002 is
included in Restructuring expense in our statements of income (loss). In 2000,
we recognized curtailment gains of $3.2 million in our pension plan and $569,000
in our postretirement plan due to the reduction in active or eligible
participants in the plans primarily from the divestiture of certain divisions

Our board of directors froze our Supplemental Executive Retirement Plan (the
"SERP"), effective January 1, 2003. The Compensation Committee of the board of
directors has approved replacement of the SERP with a "Pension Restoration Plan"
which will allow certain employees whose compensation is greater than $200,000
to receive pension benefits, which are currently limited primarily by
governmental regulations. In addition, certain key executives will be provided
an additional 5% of compensation per year in lieu of the prior SERP benefits.
These will be unfunded and unsecured obligations. We anticipate implementing the
Pension Restoration Plan during 2003 effective January 1, 2003.

The pension plans' assets consist primarily of listed equity securities and
publicly traded notes and bonds.

The following tables set forth the plans' changes in benefit obligation, plan
assets and funded status on the measurement dates, November 30, 2001 and 2002,
and amounts recognized in our consolidated balance sheets as of those dates (in
thousands of dollars).



                                                                                           POSTRETIREMENT
                                                             PENSION BENEFITS                 BENEFITS
                                                         -------------------------     -----------------------
                                                           2001            2002          2001          2002
                                                         ----------     ----------     ---------     ---------
                                                                                         
Changes in Benefit Obligations:
Benefit Obligation, beginning of year ..............     $ 222,353      $ 219,816      $ 17,549      $ 16,509
  Service cost .....................................         4,790          3,933           546           463
  Interest cost ....................................        15,314         15,652         1,271         1,187
  Amendments .......................................           644          2,305            --            --
  Actuarial (gain)/loss ............................       (10,166)         3,397        (1,424)        2,367



                                      F-28

                                                                                         
  Divestitures and other ...........................           109             --            --            --
  Plan participant's contributions .................            --             --           699           776
  Special termination benefits .....................            --          3,674            --            --
  Benefits paid ....................................       (13,228)       (16,763)       (2,132)       (2,664)
                                                         ---------      ---------      --------      --------
Benefit Obligation, end of year ....................       219,816        232,014        16,509        18,638
                                                         ---------      ---------      --------      --------
Change in Plan Assets:
  Fair Value of Plan Assets, beginning of year .....       267,410        264,104            --            --
  Actual return (loss) on plan assets ..............         9,922        (14,440)           --            --
  Employer contributions ...........................            --             --         1,433         1,888
  Plan participants' contributions .................            --             --           699           776
  Benefits paid ....................................       (13,228)       (16,763)       (2,132)       (2,664)
                                                         ---------      ---------      --------      --------
Fair Value of Plan Assets, end of year .............       264,104        232,901            --            --
                                                         ---------      ---------      --------      --------
Funded Status ......................................        44,288            887       (16,509)      (18,638)
Unrecognized Actuarial (Gain)/Loss .................         8,052         49,205        (1,364)        1,003
Unrecognized Prior Service Cost ....................         2,336          4,704            --            --
                                                         ---------      ---------      --------      --------
Net Prepaid Benefit Cost (Accrued Benefit Liability)
  Recognized .......................................     $  54,676      $  54,796      $(17,873)     $(17,635)
                                                         =========      =========      ========      ========



Weighted average assumptions as of November 30 are:



                                                  PENSION                POSTRETIREMENT
                                                  BENEFITS                  BENEFITS
                                            ---------------------      ------------------
                                              2001         2002          2001      2002
                                            --------     --------      --------  --------
                                                                     
Discount rate ........................        7.25%        6.95%        7.25%      6.95%
Expected rate of return on plan assets        9.25%        9.25%         N/A        N/A
Rate of compensation increase ........        3.00%        3.00%         N/A        N/A


During 2002, we recognized $2.3 million in amendments to our projected benefit
obligation related to changes in benefit obligations for our hourly employees.
These employees' benefits are periodically increased as a result of negotiations
with our unions.

The effect of a 25 basis point change in our discount rate would be to decrease
or increase our annual pension cost by $800,000 and the annual post retirement
welfare cost by $100,000. Additionally, a 25 basis point change in our expected
return on plan assets would change our pension cost by approximately $600,000.

Postretirement benefit costs were estimated assuming retiree health care costs
would initially increase at a 12% annual rate. The rate was assumed to decrease
1% per year until it reaches 5% and then remain at that level thereafter. If
this annual trend rate would increase by 1%, the accumulated postretirement
obligation as of November 30, 2002 would increase by $1.9 million with a
corresponding increase of $201,000 in the postretirement benefit expense in
2002. A 1% decrease in this annual trend rate would decrease the accumulated
postretirement benefit obligation by $1.5 million and the postretirement benefit
expense by $164,000 in 2002.

Compensation Plans

We also offer 401(k) savings plans to our employees in the United States.
Participants may contribute a portion of their earnings, of which 50% of their
contribution, up to 6% of their earnings, is matched by us. Our matching cost
for these plans was $2.1 million in 2000 and 2001 and $1.6 million in 2002. Our
board of directors adopted a "401(k) Restoration Plan," effective January 1,
2003, for all employees whose base compensation is greater than $200,000. This
will allow all employees to maximize our matching policy without being limited
by governmental regulations related to maximum employee contributions into a
401(k) plan. This will be an unfunded and unsecured obligation.

We have a Share Appreciation Plan ("SAP Plan") to reward certain executives and
managers whose individual performance and effort will have a direct impact on
achieving our profit and growth objectives. Shares of stock are not actually
awarded, however participants are awarded units on which appreciation is
calculated based upon a formula of the prior year's earnings before interest,
taxes, depreciation, and amortization ("EBITDA") minus net debt and preferred
stock. The units vested over five years and are payable any time during the
sixth through tenth year following the date of award. We recognized income of
$1.0 million related to this plan in the fourth quarter of 2001 because the
calculated value of the units at November 30, 2001 was below the base price; the
units had no value at the end of November 30, 2002 as well. Expense related to
the SAP Plan in 2000 was $635,000. It is our intent to no longer grant units
under the SAP Plan.

In June 2002, we adopted a "Long-Term Bonus Program", effective December 1,
2001. This plan provides for the grant of units to certain members of
management. Individuals are rewarded based on the growth of a unit's value over
time. The unit value is


                                      F-29

determined based on a multiple (6.54x) of our annual EBITDA less net debt and
preferred stock, as defined and as adjusted for certain items in the agreement.
The initial grant of approximately 500,000 units was completed retroactive to
December 1, 2001. The units vest ratably over three years and can be redeemed by
the individuals after the vesting period and up to five years, which is when the
units expire. No award payments can be made until the earlier of a) September
2004, or b) Dakruiter S.A., a company controlled by Granaria Holdings B.V., our
controlling common shareholder, selling all shares of our preferred stock owned
by it. Additionally, the potential annual payment of any vested units is limited
to certain conditions to prevent any undue financial stress. During 2002, we
expensed $1.2 million in Selling and Administrative expense in the statements of
income (loss) for the cost associated with this plan.

M.  COMMITMENTS AND CONTINGENCIES

Environmental Matters

We are subject to extensive and evolving Federal, state and local environmental
laws and regulations. Compliance with such laws and regulations can be costly.
Governmental authorities may enforce these laws and regulations with a variety
of enforcement measures, including monetary penalties and remediation
requirements. We have policies and procedures in place to ensure that our
operations are conducted in compliance with such laws and regulations and with a
commitment to the protection of the environment.

We are involved in various stages of investigation and remediation related to
environmental remediation projects at a number of sites as a result of past and
present operations, including currently-owned and formerly-owned plants. Also,
we have received notice that we may have liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 as a potentially
responsible party at a number of sites ("Superfund Sites").

The ultimate cost of site remediation is difficult to predict given the
uncertainties regarding the extent of the required remediation, the
interpretation of applicable laws and regulations and alternative remediation
methods. Based on our experience with environmental remediation matters, we have
accrued reserves for our best estimate of remediation costs, and we do not
believe that remediation activities will have a material adverse impact on our
financial condition, results of operations or cash flows. In addition, in the
course of our bankruptcy described below under Legal Matters, we obtained an
agreement with the U.S. Environmental Protection Agency and the states of
Arizona, Michigan and Oklahoma whereby we are limited in our responsibility for
environmental sites not owned by us that allegedly arise from pre-bankruptcy
activities. We retain all of our defenses, legal or factual, at such sites.
However, if we are found liable at any of these sites we may be required to pay
as if such claims had been resolved in our bankruptcy and therefore our
liability is paid at approximately 37%.

We had total expenditures for environmental compliance and remediation of $11.3
million in 2000, $9.1 million in 2001, and $10.0 million in 2002. We estimate
that we will spend $12.8 million during 2003. As of November 30, 2002, we had
$17.7 million accrued primarily for sold divisions or businesses related to
legal and environmental remediation matters, and believe such reserves to be
adequate under the current circumstances. In addition, we have $2.4 million
recorded in other accrued liabilities related to environmental remediation
liabilities for our on-going businesses.

Legal Matters

As a result of sales prior to 1971 of asbestos-containing insulation materials,
EPI became the target of numerous lawsuits seeking damages for illness resulting
from exposure to asbestos. By the end of 1990, we had paid hundreds of millions
of dollars to asbestos litigation plaintiffs and their lawyers. In January 1991,
we filed for protection under Chapter 11 of the U.S. Bankruptcy Code as a direct
consequence of cash shortfalls attributable to pending asbestos litigation
liabilities. On November 29, 1996, we emerged from bankruptcy as a reorganized
company. The bankruptcy court issued permanent injunction which precludes
holders of present and future asbestos-related or lead-related personal injury
claims from pursuing their claims against us. Consequently, we have no further
liability in connection with such asbestos-related or lead-related personal
injury claims. Instead, those claims will be channeled to the EPI Personal
Injury Settlement Trust (the "PI Trust") which is an independently administered
qualified settlement trust established to resolve and satisfy those claims.
Under the terms of our bankruptcy reorganization, all of the outstanding common
stock of the former Eagle-Picher Industries, Inc. was cancelled and newly issued
common stock of the reorganized entity was contributed to the PI Trust, together
with certain notes and cash. On February 24, 1998, we acquired the reorganized
entity from the PI Trust for $702.5 million. A final distribution of
approximately $10.9 million was made by us to the PI Trust and all other
eligible unsecured claimants in June 2001.

On January 25, 1996, Richard Darrell Peoples, a former employee, filed a lawsuit
in the United States District Court for the Western District of Missouri
claiming that we violated the federal False Claims Act based on alleged
irregularities in testing procedures in connection with certain U.S. 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 U.S. Government declined the opportunity to


                                      F-30

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.

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. 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.

As previously reported, last year our former President and Chief Executive
Officer, Andries Ruijssenaars, filed a lawsuit against us, certain of our
directors, and ABN AMRO Bank in the U.S. District Court for the Southern
District of Ohio, Western Division. Mr. Ruijssenaars claimed that we were
obligated to purchase his shares of our common stock for approximately $4.7
million rather than $2.8 million as we claimed. Mr. Ruijssenaars' lawsuit also
challenged a 2001 amendment to our Supplemental Executive Retirement Plan which
changed the determination of benefits under the SERP, and claimed that we were
obligated to purchase an annuity for his additional SERP benefit accrued after
2000 and reimburse him for the tax consequences. In the fourth quarter of 2002
we finalized a settlement of the lawsuit, agreeing to pay Mr. Ruijssenaars $3.8
million in December 2002 for his stock and recognize his SERP benefits under the
pre-2001 amendment, but not to purchase an annuity or reimburse any taxes. We
allocated $2.8 million of the $3.8 million settlement for the stock to our
Treasury shares in the accompanying balance sheets and the remaining amount,
representing the difference between the formula price and the settlement amount
of the stock, was recorded as compensation expense. In addition, we recognized
approximately $1.0 million in expense which represents the actuarially
determined net present value of his SERP benefits. Granaria Holdings B.V., our
controlling common shareholder, and ABN AMRO Bank, N.V., the agent under our
senior credit facility and the indirect holder of approximately 37.5% of our
common stock, each guaranteed 50% of Mr. Ruijssenaars unfunded SERP payments.

On December 1, 1999, our Technologies Segment acquired the depleted zinc
distribution business (the "DZ Business") of Isonics Corporation ("Isonics") for
approximately $8.2 million, payable $6.7 million at closing and $1.5 million in
three installments of $500,000 each payable on the first three anniversaries of
the closing. In connection with the purchase of the DZ Business, we agreed to
sell 200 kg of isotopically purified silicon-28 to Isonics. Due to various
factors, we did not deliver any silicon-28 to Isonics. Isonics asserted a claim
against us for $75.0 million in arbitration for the failure to deliver
silicon-28. On July 24, 2002, we paid $2.5 million to Isonics to settle all
claims among us and Isonics including the remaining installment payments
totaling $1.5 million for the DZ business, and the parties signed mutual general
releases.

On October 30, 2001, GMAC Business Credit, LLC (GMAC) and Eagle Trim, Inc. filed
a lawsuit in the United States District Court for the Eastern District of
Michigan, Southern Division, against us arising out of the sale of our former
automotive interior trim division to Eagle Trim. In connection with that sale,
we guaranteed to GMAC, which funded the acquisition, that approximately $3.9
million of receivables relating to tooling purchased by us on behalf of
customers would be paid by November 2001. Eagle Trim ceased operations during
2001. At that time, Eagle Trim and GMAC alleged that approximately $2.7 million
of the tooling receivables had not been collected and did not exist at the time
of the sale. On September 30, 2002, we settled this matter by agreeing to pay
$5.4 million, which is included in Accrued Divestitures in our balance sheets,
to GMAC, payable $1.7 million by December 5, 2002, $1.5 million payable in
monthly installments from January 2003 through June 2003, and $2.2 million,
payable in monthly installments from July 2003 through October 2005, plus
interest at 4.5% per annum.

In addition, 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.


                                      F-31

Operating Leases

Future minimum rental commitments over the next five years as of November 30,
2002, under noncancellable operating leases, which expire at various dates, are
as follows: $5.5 million in 2003, $5.0 million in 2004, $3.3 million in 2005,
$2.6 million in 2006, $2.4 million in 2007, and $2.8 million thereafter. Rent
expense was $4.8 million in 2000, $5.7 million in 2001, and $6.4 million in
2002.

Guarantee

We are the guarantor on the lease of a building that was owned by one of our
former subsidiaries. We believe the likelihood of being liable for the lease is
remote. The original term of the lease expires in 2005; however, there are two
five-year renewal terms that we have also guaranteed. The rent for the two
five-year renewals is based upon the Consumer Price Index, at the time of
renewal, should the buyer of the former subsidiary not exercise its purchase
option on the building. The amount of the guarantee is $4.0 million at November
30, 2002; however, this amount excludes any guarantee on the two five-year
renewals as those amounts can not be determined as of November 30, 2002.

N.  RELATED PARTY TRANSACTIONS

We have an advisory and consulting agreement with Granaria Holdings B.V., our
controlling common shareholder, pursuant to which we pay Granaria Holdings B.V.
an annual management fee of $1.8 million. The agreement terminates on the
earlier of February 24, 2008 or the end of the fiscal year in which Granaria
Holdings, B.V. and its affiliates, in the aggregate, beneficially owns less than
10% of our outstanding common stock. Fees and expenses relating to these
services amounted to $2.1 million in 2000 and 2001, and $2.2 million in 2002. At
November 30, 2001, $600,000 was accrued in Other Accrued Liabilities in the
accompanying balance sheet relating to these fees and expenses. At November 30,
2002, $556,000 was accrued in Other Accrued Liabilities in the accompanying
balance sheet relating to these fees and expenses.

During 2002, we paid $800,000 which is included in Other Assets in our balance
sheets to a start-up high-technology manufacturing company for the exclusive
right to manufacture the start-up companies' battery technology. This asset will
be amortized into Cost of Products Sold over the term of the supply arrangement.
In addition, an entity affiliated with Granaria Holdings, B.V., our controlling
common shareholder, invested $2.0 million for a 14.8% interest, and Thomas R.
Pilholski, our Senior Vice President and Chief Financial Officer invested
$200,000 for a 1.5% interest. In addition, John H. Weber, our President and
Chief Executive Officer, invested $20,000, and David G. Krall, our Senior Vice
President and General Counsel, invested $5,000. Both Mr. Weber and Mr. Krall
received less than 1% interest for their investments. In addition, Noel
Longuemare, a director of our wholly-owned subsidiary, Eagle Picher
Technologies, LLC, holds a 5% interest in this start-up company.

O.  BUSINESS SEGMENT INFORMATION

Our business consists of three operating segments: the Automotive Segment, the
Technologies Segment and the Filtration and Minerals Segment.

Our Automotive Segment is operated under two separate business units, the
Hillsdale division and the Wolverine division. The Hillsdale division produces
NVH dampers for engine crankshafts and drivelines, driveline yokes, flanges,
transmission and engine pumps, automatic transmission filtration products,
chassis corners and knuckle assemblies and other precision machined components.
The Wolverine division produces rubber-coated materials and gaskets for
automotive and non-automotive applications.

Our Technologies Segment develops and commercializes advanced power systems for
defense, aerospace and commercial applications; produces boron isotopes for
nuclear radiation containment; supplies ultra-clean scientific containers for
pharmaceutical and environmental testing; and provides contract pharmaceutical
services. An $8.7 million restructuring charge was recorded in the fourth
quarter of 2001, and a $5.5 million restructuring charge was recorded in the
second quarter of 2002. See Note E for a discussion of the restructuring
charges.

Our Filtration and Minerals Segment mines, processes and markets diatomaceous
earth for use as a filtration aid, absorbent, performance additive and soil
amendment.

Sales between segments were not material.

Our foreign operations are located primarily in Europe and in Mexico. Our
subsidiary guarantor and non-guarantor disclosure included in Note H discloses
our net sales and long-lived asset amounts by geographic region. In that note,
the columns marked as Issuer, EaglePicher Holdings, Inc., and Subsidiary
Guarantors represent all United States operations, and the column marked
Non-Guarantor Foreign Subsidiaries represent our foreign operations. Net sales
and long-lived assets included in Note H are based on where the sale


                                      F-32

originates, and where the long-lived assets reside. Included in the United
States net sales amounts are export sales to non-affiliated customers of $75.3
million in 2000, $76.7 million in 2001, and $78.6 million in 2003. Intercompany
transactions with foreign operations are made at established transfer prices.

The following data represents financial information about our reportable
business segments. During 2002, we elected to modify our internal methodology of
allocating certain expenses from the corporate segment to the operating
segments. In the following tables, the financial information for 2001 and 2000
has been restated to conform to the new 2002 presentation (in thousands of
dollars).



                                                     2000           2001           2002
                                                   ---------      ---------      ---------
                                                                        
NET SALES
Hillsdale ....................................     $ 356,130      $ 334,172      $ 342,678
Wolverine ....................................        82,300         74,100         79,367
                                                   ---------      ---------      ---------
  Automotive .................................       438,430        408,272        422,045
                                                   ---------      ---------      ---------
Power Group ..................................        90,600        100,788        104,620
Precision Products-divested July 17, 2002 ....        13,400         10,214          3,435
Specialty Materials ..........................        78,100         75,584         57,400
Chemsyn ......................................         9,300         13,714         13,200
                                                   ---------      ---------      ---------
  Technologies ...............................       191,400        200,300        178,655
                                                   ---------      ---------      ---------
Filtration and Minerals ......................        80,579         82,004         82,129
                                                   ---------      ---------      ---------
Divested Divisions ...........................        42,800             --             --
                                                   ---------      ---------      ---------
Corporate/Intersegment .......................          (700)          (800)            --
                                                   ---------      ---------      ---------
                                                   $ 752,509      $ 689,776      $ 682,829
                                                   =========      =========      =========
OPERATING INCOME (LOSS)
Automotive ...................................     $  28,061      $   7,487      $  10,501
Technologies .................................        15,073          1,539         (1,887)
Filtration and Minerals ......................         4,837          4,730          8,078
Divested Divisions ...........................           976         (2,105)        (6,497)
Corporate/Intersegment .......................        13,256         (8,522)        (4,318)
                                                   ---------      ---------      ---------
                                                   $  62,203      $   3,129      $   5,877
                                                   =========      =========      =========
DEPRECIATION AND AMORTIZATION
Automotive ...................................     $  33,821      $  37,851      $  42,994
Technologies .................................        14,389         14,612         14,346
Filtration and Minerals ......................         5,712          5,482          5,276
Divested Divisions ...........................         2,418             --             --
Corporate/Intersegment .......................           213            218            505
                                                   ---------      ---------      ---------
                                                   $  56,553      $  58,163      $  63,121
                                                   =========      =========      =========
CAPITAL EXPENDITURES
Automotive ...................................     $  33,679      $  27,167      $  11,340
Technologies .................................         3,300          5,500          1,889
Filtration and Minerals ......................         2,100          2,600          1,969
Divested Divisions ...........................         1,400             --             --
Corporate/Intersegment .......................           367            444          1,199
                                                   ---------      ---------      ---------
                                                   $  40,846      $  35,711      $  16,397
                                                   =========      =========      =========
IDENTIFIABLE ASSETS
Automotive ...................................                    $ 324,012      $ 278,936
Technologies .................................                      209,023        169,909
Filtration and Minerals ......................                       52,000         48,721
Divested Divisions ...........................                           --             --
Corporate/Intersegment/Discontinued Operations                      143,899        115,475
                                                                  ---------      ---------
                                                                  $ 728,934      $ 613,041
                                                                  =========      =========


P.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following table summarizes the unaudited consolidated quarterly financial
results of operations for 2001 and 2002, which we believe include all necessary
adjustments for a fair presentation of our interim results.

During the fourth quarter of 2002, we restated the 2001 and 2000 financial
statements to reflect the appropriate adoption of EITF 00-10, "Accounting for
Shipping and Handling Fees and Costs," as discussed in Note Q. As a result, Net
Sales and Cost of Products Sold in prior years comparative financial statements
have been restated and increased from the amounts previously reported. Net Sales
and Cost of Products Sold were increased by $4.2 million in the first quarter of
2001, $3.6 million in the second quarter of 2001, $5.3 million in the third
quarter of 2001, and $3.2 million in the fourth quarter of 2001; $3.9 million in
the first quarter of 2002, $4.1


                                      F-33

million in the second quarter of 2002, and $3.9 million in the third quarter of
2002. These restatements had no impact on operating income, net income, or cash
flows. The following table is in thousands of dollars, except per share amounts.



                                                                                          2001 QUARTERS
                                                                     ------------------------------------------------------
                                                                         Q1             Q2             Q3             Q4
                                                                     ---------      ---------      ---------      ---------
                                                                                                      
Net sales ......................................................     $ 162,323      $ 183,389      $ 170,802      $ 173,262
Cost of products sold ..........................................       129,489        147,637        141,727        140,895
Operating income (loss) ........................................         8,338          4,845            490        (10,544)
Loss from continuing operations ................................          (920)        (3,148)        (5,037)       (13,020)
Net loss .......................................................       (17,430)        (6,262)       (10,603)       (19,676)
Diluted loss per share from continuing operations ..............         (4.08)         (6.57)         (8.50)        (16.92)
Diluted net loss per share .....................................        (20.80)         (9.74)        (14.18)        (23.75)




                                                                                          2002 QUARTERS
                                                                     ------------------------------------------------------
                                                                         Q1             Q2             Q3             Q4
                                                                     ---------      ---------      ---------      ---------
                                                                                                      
Net sales ......................................................     $ 158,677      $ 181,878      $ 170,567      $ 171,707
Cost of products sold ..........................................       126,116        141,137        133,123        134,229
Operating income (loss) ........................................         4,535        (10,255)         7,046          4,551
Loss from continuing operations ................................        (6,180)       (21,523)        (2,669)        (4,195)
Net loss .......................................................        (6,207)       (21,968)        (3,571)        (5,086)
Diluted loss per share from continuing operations ..............        (10.01)        (26.17)         (6.63)         (8.44)
Diluted net loss per share .....................................        (10.04)        (26.63)         (7.57)         (9.36)


During the fourth quarter of 2001, our operating income (loss) was significantly
impacted as a result of recording $14.1 million in restructuring charges related
to our Technologies Segment's operations and the relocation of our corporate
headquarters to Phoenix, Arizona.

During the second quarter of 2002 our operating income (loss) was significantly
impacted as a result of recording $5.5 million in restructuring charges related
to exiting our Gallium business within our Technologies Segment, approximately
$5.9 million of losses related to divestitures for divisions sold in prior
years, a $3.1 million charge in our Technologies Segment primarily related to
inventories damaged in a fire, and $4.8 million of legal and settlement charges,
included in Selling and Administrative expenses as described under Legal Matters
in Note M.

During the fourth quarter of 2002, our domestic operations changed from the LIFO
to the FIFO method of inventory valuation. This change in accounting principle
was made to provide a better matching of revenue and expenses and to be
consistent with prevalent industry practice. This accounting change resulted in
a credit to Cost of Products Sold of approximately $1.0 million in the fourth
quarter of 2002.

Q.  RESTATEMENT FOR TRANSPORTATION COSTS BILLED TO CUSTOMERS

In the fourth quarter of fiscal 2002, we restated the 2000 and 2001 financial
statements to reflect the appropriate adoption of EITF 00-10, "Accounting for
Shipping and Handling Fees and Costs." We should have adopted EITF 00-10 in the
fourth quarter of 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 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 impacts to the financial statements for the years ended November 30, 2000
and 2001 are shown below (in thousands of dollars):



                                                           2000         2001
                                                         --------     --------
                                                                
Net Sales as originally reported ...................     $737,009     $673,476
Increase in Net Sales ..............................       15,500       16,300
                                                         --------     --------
Restated Net Sales .................................     $752,509     $689,776
                                                         ========     ========
Cost of Products Sold (exclusive of depreciation) as
  originally reported ..............................     $578,188     $543,448
Increase in Cost of Products Sold ..................       15,500       16,300
                                                         --------     --------
Restated Cost of Products Sold (exclusive of
  depreciation) ....................................     $593,688     $559,748
                                                         ========     ========



                                      F-34

R.  SUBSEQUENT EVENTS

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 component
of our Automotive Segment) for cash of $1.1 million. This sale closed on June
11, 2003. In addition, we will be winding down the remaining operations of our
Hillsdale U.K. Automotive operation during 2003. Accordingly, effective May 31,
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. In addition, in the second quarter of 2003, we
recognized a Loss on Disposal of Business of $3.0 million, which is net of a
$600,000 tax benefit related to this sale. At May 31, 2003, the assets of our
Hillsdale U.K. Automotive Operation have been reclassified as Assets of
discontinued operations, and the liabilities have been reclassified as
Liabilities of discontinued operations. We expect to incur the following
shutdown costs during 2003 related to our Hillsdale U.K. Automotive operation
(in thousands of dollars):

                                                     
                  One-time termination benefits....     $  642
                  Contract termination costs.......        100
                  Facility closure and other.......        420
                                                        ------
                                                        $1,162
                                                        ======



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.

During the second quarter of 2003, 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 certain of our executive
officers the 69,500 shares of common stock held in our Treasury for $13.00 per
share, or $0.9 million. 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.

In July 2003, we announced the commencement of a cash tender offer and consent
solicitation for our 9 3/8% Senior Subordinated Notes Due 2008.

In July 2003, we engaged ABN AMRO Incorporated and UBS Securities LLC to act as
joint lead arrangers in connection with a new senior secured credit facility to
refinance our existing senior secured credit facility, which matures in February
2004.


                                      F-35

EX-99.5

EXHIBIT 99.5

For purposes of this exhibit, company, we, us and our refer to EaglePicher
Holdings, Inc.

RESULTS OF OPERATIONS

YEARS ENDED 2002 COMPARED TO 2001, AND 2001 COMPARED TO 2000

The following summary financial information about our industry segment data is
presented to gain a better understanding of the narrative discussion below about
our business segments. See Note O in our November 30, 2002 consolidated
financial statements included in Exhibit 99.4 to this Report. All
references herein to years are to our fiscal year ending November 30 unless
otherwise indicated (in thousands).



                                                                            2000 TO 2001               2001 TO 2002
                             2000              2001           2002            CHANGE           %          CHANGE           %
                             ----              ----           ----            ------           -          ------           -
                                                                                                     
NET SALES

Hillsdale                 $ 356,130        $ 334,172        $ 342,678        $(21,958)        (6.2)       $  8,506          2.5

Wolverine                    82,300           74,100           79,367          (8,200)       (10.0)          5,267          7.1
                          ---------        ---------        ---------        --------                     --------
  Automotive                438,430          408,272          422,045         (30,158)        (6.9)         13,773          3.4
                          ---------        ---------        ---------        --------                     --------
Power Group                  90,600          100,788          104,620          10,188         11.2           3,832          3.8
Precision Products --
divested July 17,2002        13,400           10,214            3,435          (3,186)       (23.8)         (6,779)       (66.4)

Specialty Materials          78,100           75,584           57,400          (2,516)        (3.2)        (18,184)       (24.1)
Chemsyn                       9,300           13,714           13,200           4,414         47.5            (514)        (3.7)
                          ---------        ---------        ---------        --------                     --------
  Technologies              191,400          200,300          178,655           8,900          4.6         (21,645)       (10.8)
                          ---------        ---------        ---------        --------                     --------
Filtration and Minerals      80,579           82,004           82,129           1,425          1.8             125          0.2
                          ---------        ---------        ---------        --------                     --------
Divested Divisions           42,800             --               --           (42,800)       (100.0)          --           --
                          ---------        ---------        ---------        --------                     --------
Corporate/Intersegment         (700)            (800)            --              (100)        14.3             800        100.0
                          ---------        ---------        ---------        --------                     --------
                          $ 752,509        $ 689,776        $ 682,829        $(62,733)        (8.3)       $ (6,947)        (1.0)
                          =========        =========        =========        ========                     ========
OPERATING INCOME (LOSS)

Automotive                $  28,061        $   7,487        $  10,501        $(20,574)       (73.3)       $  3,014         40.3
Technologies                 15,073            1,539           (1,887)        (13,534)       (89.8)         (3,426)         N/A
Filtration and Minerals       4,837            4,730            8,078            (107)        (2.2)          3,348         70.8
Divested Divisions              976           (2,105)          (6,497)         (3,081)         N/A          (4,392)       208.6
Corporate/Intersegment       13,256           (8,522)          (4,318)        (21,778)         N/A           4,204        (49.3)
                          ---------        ---------        ---------        --------                     --------
                          $  62,203        $   3,129        $   5,877        $(59,074)       (95.0)       $  2,748         87.8
                          =========        =========        =========        ========                     ========


2002 COMPARED TO 2001

COMPANY DISCUSSION

Net sales. Net sales of $682.8 million in 2002 decreased $6.9 million, or 1.0%,
from $689.8 million in 2001. Excluding the sale in July 2002 of our Precision
Products business included in our Technologies Segment, our net sales were
essentially flat in 2002 compared to 2001.

Cost of products sold (exclusive of depreciation). Our gross margins increased
2.8 points to 21.7% in 2002 from 18.9% in 2001. The improved sales mix primarily
related to increased sales in our Technologies Segment's Power Group and our
Automotive Segment's Wolverine operation, and productivity improvements in all
our businesses contributed to the increased gross margins. Our Technologies
Segment was also favorably impacted by the restructuring actions initiated in
the fourth quarter of 2001, while our Filtration and Minerals Segment benefited
from improved pricing and significantly lower energy costs, which were high in
2001 when the Western United States experienced an energy crisis.

Selling and administrative. Selling and administrative expenses increased $11.0
million, or 22.3%, to $60.3 million in 2002 from $49.3 million in 2001. The
increased costs in 2002 were primarily related to:

(i)   $6.0 million of legal expenses and legal settlement charges recorded in
      Selling and Administrative expenses during the first half of 2002 as
      described in Note M of our November 30, 2002 consolidated financial
      statements included in Exhibit 99.4 to this Report;

(ii)  $1.4 million in our Technologies Segment for business consulting fees to
      develop a strategy for our Power Group business;

(iii)  $3.7 million in severance (excluding management compensation -- special),
      recruiting, relocation costs, and workforce-related consulting fees as we
      continued our investment in restructuring and strengthening our leadership
      team; and

(iv)  $1.2 million in increased compensation costs related to a recently adopted
      long-term bonus plan for certain corporate and divisional management
      executives.

Depreciation and amortization. Depreciation and amortization expenses increased
$5.0 million, or 8.5%, to $63.1 million in 2002 from $58.2 million in 2001. The
increase is primarily attributable to higher depreciation costs as a result of
capital expenditures in

2001, primarily for new automotive programs, and an adjustment for an additional
$1.1 million in expense in the second quarter of 2002 to bring the estimated
useful lives of certain equipment in the Automotive Segment in line with
estimated periods of active production on existing automotive programs.

Restructuring. During 2002, we recorded $5.9 million of restructuring expense,
which was primarily related to our announcement on May 31, 2002 to exit our
Gallium business in our Technologies Segment due to the downturn in the
fiber-optic, telecommunication and semiconductor markets. This resulted in a
$5.5 million charge recorded in restructuring expense during the second quarter
of 2002. This charge primarily represents the liquidation of existing
inventories and an accrual for inventory to be purchased under firm purchase
commitments.

Loss from divestitures. All amounts recorded in divestitures expense relate to
operations that were sold or that were divested prior to November 30, 2002.
During 2002, we completed the sale of our Precision Products business in our
Technologies Segment to a group of former employees and divisional management
personnel. We recorded in the second quarter of 2002 a $2.8 million loss on this
sale. Also, during the second quarter of 2002, we recorded $3.4 million in
accruals related to costs for certain litigation issues and environmental
remediation costs. The remaining amounts related to workmen's compensation
claims for employees of our sold divisions, and additional accruals related to
litigation and environmental remediation costs. The amounts recorded in 2001
related to costs of divestitures in previous years.

Management compensation -- special. These expenses primarily relate to the
separation of officer employment and the settlement with our former Chief
Executive Officer. During 2002, we separated four officers (two in our
Automotive Segment, one in our Corporate Segment and one in our Technologies
Segment) at a cost of $1.3 million, and finalized a settlement with our former
Chief Executive Officer as described in Note M of our November 30, 2002
consolidated financial statements included in Exhibit 99.4 to this Report.
During 2001, we separated three officers in the Corporate Segment that
aggregated $3.1 million.

Insurance related losses. During the second quarter 2002, we recorded a $3.1
million loss for an insurance receivable primarily related to inventories
damaged in a fire during the third quarter 2001 at our Missouri bulk
pharmaceutical manufacturing plant. We have recorded this charge to fully
reserve the receivable because the insurance underwriter is contesting the
coverage on these assets. We are disputing the insurance carrier's position and
are vigorously pursuing efforts to collect on our claims, but the recovery of
our claim is uncertain at this time.

Interest expense. Interest expense was $40.0 million in 2002 and $38.9 million
in 2001 (not including interest allocated to discontinued operations in 2002 of
$1.1 million and in 2001 of $4.5 million). Also included in interest expense in
2002 are $1.5 million in fees and other costs, primarily related to our
unconsolidated accounts receivable asset-backed securitization. Excluding these
$1.5 million in fees and other costs and including the interest allocated to
discontinued operations, our interest expense decreased due to lower interest
rates and lower debt levels.

Income (loss) from continuing operations before taxes. Loss from continuing
operations before taxes increased $0.4 million, or 1.4%, to $32.6 million in
2002 from $32.2 million in 2001. The following items represent charges by
segment that affect the comparability between loss from continuing operations
before taxes for 2001 and 2002. All of these items are excluded from calculating
compliance with our debt covenants under our senior credit facility (in
millions).



                                                                   2001          2002        SEGMENT
                                                                   ----          ----        -------

                                                                                   
Management compensation -- special                              $     3.1     $     2.3     Corporate
Management compensation -- special                                     --           0.4     Technologies
Management compensation -- special                                     --           0.7     Automotive
Loss from divestitures                                                2.1           6.5     Divested Divisions
Restructuring -- exiting of the gallium business                       --           5.5     Technologies
Restructuring                                                         5.4           0.4     Corporate
Restructuring                                                         8.7            --     Technologies
Selling and administrative -- legal and settlement costs               --           5.7     Technologies
Selling and administrative -- legal and settlement costs               --           0.3     Corporate
Insurance related losses                                               --           3.1     Technologies
Depreciation adjustment related to equipment useful lives              --           1.1     Automotive

                                                                ---------     ---------
                                                                $    19.3     $    26.0
                                                                =========     =========



In addition, during 2002, we incurred $1.4 million of expense in our
Technologies Segment for business consulting fees to develop a strategy for our
Power Group and $3.7 million in severance, recruiting, relocation and
workforce-related consulting projects as we have continued our investment in
strengthening our leadership team.

Income taxes (benefit). Income tax provision was $1.9 million in 2002 compared
to a benefit of $10.1 million in 2001. Differences in the income taxes recorded
primarily relate to recording a tax benefit during 2001 on losses, to the extent
those losses could be carried back to prior fiscal years, and a refund could be
obtained from the taxing authority. For any amounts in excess of the carry back
amounts, we have elected to provide a valuation allowance as it is more likely
than not that some or all of the deferred tax assets will not be realized.
Accordingly, there is no tax benefit recorded during 2002. The provision in 2002
relates to the allocation of income and loss between the United States and
foreign jurisdictions and represents the estimated tax that will be due in
certain jurisdictions where no tax benefit can be assured from utilizing our
losses.

Discontinued operations. Throughout 2001, we accounted for our former Machinery
Segment as a discontinued operation and prior periods have been restated to
conform to the discontinued operations presentation. On December 14, 2001, we
completed the sale of our Machinery Segment as of November 30, 2001.
Accordingly, there is no effect on our operations in 2002. In addition, the
accompanying 2001 and 2002 financial information has been restated to reflect
the accounting of our Hillsdale UK Automotive operation as a discontinued
business. The Hillsdale UK Automotive operation was sold on June 11, 2003.

Net loss. The net loss decreased $17.1 million, or 31.8%, to $36.8 million in
2002 from $54.0 million in 2001. The decrease in net loss is the result of the
items discussed above.

Preferred stock dividend accretion of $14.9 million in 2002 increased our net
loss of $36.8 million to a net loss applicable to common shareholders of $51.7
million. In 2001, preferred stock dividend accretion of $13.3 million increased
the net loss of $54.0 million to a net loss applicable to common shareholders of
$67.3 million.

AUTOMOTIVE SEGMENT

Sales in our Automotive Segment increased $13.8 million, or 3.4%, to $422.0
million in 2002 from $408.3 million in 2001. Our Hillsdale division's net sales
increased $8.5 million, or 2.5%, to $342.7 million in 2002 from $334.2 million
in 2001. This increase is a result of increased North American automotive builds
in 2002 compared to 2001. Our Wolverine division's sales increased $5.3 million,
or 7.1%, to $79.4 million in 2002 from $74.1 million in 2001. This increase was
a result of the increased North American automotive build in 2002 compared to
2001, as well as the initial penetration in the United States aftermarket
business.

Operating income increased $3.0 million, or 40.3%, to $10.5 million in 2002 from
$7.5 million in 2001. This improved performance resulted primarily from slightly
higher sales volumes, improved sales mix, and productivity improvements. Unusual
expenses, totaling $1.8 million in 2002 were incurred for severance, recruiting
and relocation related to strengthening the Automotive Segment's management team
and workforce-related consulting fees that further dampened our profitability.
An additional $1.1 million in depreciation expense was recorded in the second
quarter of 2002 related to adjustments to bring the estimated useful lives of
certain equipment within this segment in line with estimated periods of active
production.

TECHNOLOGIES SEGMENT

Sales in our Technologies Segment decreased $21.6 million, or 10.8%, to $178.7
million in 2002 from $200.3 million in 2001. Excluding sales from our Precision
Products business, which we divested in July 2002, this segment's sales
decreased $14.9 million, or 7.8%. Sales in the Power Group increased $3.8
million, or 3.8%, during 2002 compared to 2001, which was offset by a decrease
of $18.2 million, or 24.1%, in our Specialty Materials Group. Within the
Specialty Materials Group, the demand for germanium and gallium-based products,
which are sold to the telecommunications, fiber optics and semiconductor
markets, was significantly impacted by the extremely weak demand in these
markets which led to our decision to exit the gallium business. Germanium and
gallium sales decreased $21.8 million, or 59.1%, in 2002 compared to 2001, which
were partially offset by an increase of $5.5 million, or 33.5%, in sales of
enriched boric acid products sold to nuclear power reactor facilities.

Operating results decreased $3.4 million to an operating loss of $1.9 million in
2002 from operating income of $1.5 million in 2001. The decrease in 2002
operating results included provisions of $15.7 million in special charges,
detailed below, versus $8.7 million of restructuring charges recorded in our
2001 earnings. These 2002 special charges, detailed below, impact the
comparability with 2001. The following items detail the $15.7 million of special
charges in 2002:

(i)   $5.7 million of legal expenses and legal settlement charges recorded in
      Selling and Administrative expenses during the first half of 2002 as
      described in Note M of our November 30, 2002 consolidated financial
      statements included in Exhibit 99.4 to this Report;

(ii)  $3.1 million loss for an insurance receivable primarily related to
      inventories damaged in a fire during the third quarter of 2001 at our
      Missouri bulk pharmaceutical manufacturing plant;

(iii) $1.4 million in expense for business consulting fees to develop a strategy
      for our Power Group business; and

(iv)  $5.5 million charge in restructuring expense in the second quarter of 2002
      associated with our decision to exit our gallium-based specialty material
      business due to continued soft demand from customers in the
      telecommunications and semi-conductor markets. The $5.5 million
      restructuring charge during the second quarter of 2002 included an
      inventory write-down of $2.9 million, representing the estimated loss
      incurred from the liquidation of current inventory. An additional $2.4
      million was recorded in other accrued liabilities primarily related to the
      estimated loss of inventory to be purchased under a firm purchase
      commitment. Finally, a $0.2 million asset impairment charge was recorded
      against property, plant and equipment.

FILTRATION AND MINERALS SEGMENT

Sales in our Filtration and Minerals Segment increased $0.1 million, or 0.2%, to
$82.1 million in 2002 from $82.0 million in 2001. The sales increase during 2002
was primarily the result of improved pricing and sales mix, partially offset by
decreased volumes.

Operating income increased $3.3 million, or 70.8%, to $8.1 million in 2002 from
$4.7 million in 2001. Improved profitability was primarily attributable to lower
energy costs, favorable product mix and pricing, improved production
efficiencies and favorable foreign currency exchange rates due to the
strengthening of the Euro during 2002.

2001 COMPARED TO 2000

COMPANY DISCUSSION

Net sales. Sales decreased 8.3% to $689.8 million in 2001 from $752.5 million in
2000, or 2.8% or $19.9 million excluding sales from Divested Divisions in 2000.
The decline in sales was principally attributed to reduced demand for our
products in the Automotive Segment from automobile manufacturers. These
decreases were partially offset by gains in our Technologies Segment.

Cost of products sold (exclusive of depreciation). Gross margins decreased to
18.9% in 2001 from 21.1% in 2000 largely as a result of poor overhead absorption
due to lower volumes, particularly in the Automotive Segment, as well as new
product launch costs in the Automotive Segment.

Selling and administrative. Selling and administrative expenses decreased 14.4%
or $8.3 million from 2000 to 2001. The Divested Divisions accounted for $4.8
million of the reduction. As a percentage of sales, selling and administrative
expenses declined from 7.7% in 2000 to 7.2% in 2001.

Depreciation and amortization of intangibles. Depreciation and amortization of
intangibles expense increased $1.6 million. The increase in depreciation expense
is primarily attributable to capital expenditures in the Automotive Segment.

Management compensation -- special. Management compensation -- special is
severance primarily related to the separation from employment for officers. This
aggregated $3.1 million in 2001 is for three senior executives and $1.6 million
in 2000 is for one senior executive.

Insurance related loss (gains). During 2000, we settled claims against a former
insurer regarding environmental remediation costs for $16.0 million and received
such proceeds in the first quarter of 2000.

Restructuring. During the fourth quarter of 2001 we announced a restructuring of
our Technologies Segment and a restructuring and relocation of our corporate
headquarters to Phoenix, Arizona. We recorded a charge of $14.1 million.
Approximately $5.4 million related to facilities, $5.0 million related to
involuntary severance of approximately 165 employees and $3.7 million related to
other costs to exit business activities.

In the facilities charge, approximately $3.6 million is non-cash adjustments to
write down the carrying value of the three Technologies plants to their
estimated net realizable value and abandoning primarily machinery and equipment
at these locations. The affected plants are located in Seneca, Missouri; Grove,
Oklahoma and Colorado Springs, Colorado. Each plant will be closed once final
customer orders are completed and shipped. Approximately $1.9 million represents
an estimate of the total future lease commitments less estimated proceeds
received from subleasing the various spaces, primarily at our former corporate
headquarters in Cincinnati.

Approximately 100 employees in our Technologies Segment will be provided
approximately $1.6 million in severance based upon their length of service.
Approximately 40 employees at our former corporate headquarters located in
Cincinnati will be provided

approximately $3.2 million in severance based upon length of service. The
remaining 25 employees in various locations will be provided approximately $0.2
million in severance based upon length of service.

The $3.7 million in other shutdown costs is primarily non-cash and relates to
inventory.

Loss (gain) from divestitures. During 2001, we incurred costs of $2.1 million
related to Divested Divisions which were sold in prior years. During 2000, as
part of our previously announced program to focus management, technical and
financial resources on our core businesses, we completed the sale of our Ross
Aluminum Foundries, Fluid Systems, MARCO, Rubber Molding and Cincinnati
Industrial Machinery divisions for aggregate net proceeds of $85.0 million and
realized an aggregate gain on the sale of these divisions of $17.1 million,
which was reduced for provisions of $14.0 million for items relating to
divisions sold in prior years, to a net gain of $3.1 million.

Interest expense. Interest expense was $38.9 million in 2001 (not including
interest allocated to discontinued operations of $4.5 million) and $42.6 million
in 2000 (not including interest allocated to discontinued operations of $4.8
million), or a decrease of $3.7 million. The decrease in interest expense is due
to lower interest rates in 2001 and lower debt balances in 2001 as a result of
the application of proceeds from the sales of divisions and the insurance
settlement received in 2000.

Income (loss) from continuing operations before taxes. Income (loss) from
continuing operations before taxes was $(32.2) million in 2001 and $20.2 million
in 2000. The following items are significant differences between income (loss)
from continuing operations before taxes for 2001 and 2000:

(i)   A restructuring charge of $14.1 million principally related to our
      Technologies Segment and Headquarters relocation during 2001;

(ii)  Provisions for Management Compensation -- Special of $3.1 million in 2001
      versus $1.6 million in 2000;

(iii) Income of $16.0 million from an insurance settlement in 2000;

(iv)  Gain on the sale of the Divested Divisions of $3.1 million in 2000;

(v)   In 2001, recognition of additional costs of $2.1 million related to
      environmental and litigation matters associated with divisions divested in
      prior years. See Note C in our November 30, 2002 consolidated financial
      statements included in Exhibit 99.4 to this Report;

(vi)  An increase in Other Income of $3.8 million in 2001 primarily due to gains
      in foreign currency transactions of $0.5 million in 2001 versus a loss of
      $1.4 million in 2000 and an increase in royalty income of $0.9 million in
      2001 versus 2000;

(vii) Loss before tax of Divested Divisions, before the gain on the sale of such
      divisions, in 2000 of $4.3 million;

(viii) Operating income decreases in 2001 of $13.5 million in our Technologies
      Segment and $19.5 million in our Automotive Segment; and

(ix)  A decrease in headquarters operating expenses of $1.7 million, excluding
      the insurance settlement proceeds in 2000 and the restructuring charge in
      2001.

Income taxes (benefit). Income taxes (benefit) were $(10.1) million in 2001 and
$9.3 million in 2000. The sale of the Divested Divisions and the income from the
insurance settlement in 2000 affect comparability of income taxes and the
effective tax rates. The income taxes (benefit) in 2000 are largely attributable
to taxable gains resulting from divestitures.

Discontinued operations. Throughout 2001, we accounted for our former Machinery
Segment as a discontinued operation and prior periods have been restated to
conform to the discontinued operations presentation. On December 14, 2001, we
completed the sale of our Machinery Segment. In addition, the accompanying 2000
and 2001 financial information has been restated to reflect the accounting of
our Hillsdale UK automotive operation as a discontinued business. The Hillsdale
UK automotive operation was sold on June 11, 2003.

Net income (loss). Net income (loss) for 2001 was $(54.0) million and $5.6
million in 2000. The significant items are discussed in the income (loss) from
continuing operations before taxes and discontinued operations sections above.

Preferred stock dividend accretion of $13.3 million in 2001 increased net loss
of $54.0 million to a net loss applicable to common

shareholders of $67.3 million. In 2000, preferred stock dividend accretion of
$11.8 million reduced net income of $5.6 million to a net loss applicable to
common shareholders of $6.2 million.

AUTOMOTIVE SEGMENT

Sales in our Automotive Segment decreased 6.9% to $408.3 million in 2001 from
$438.4 million in 2000 (excluding Divested Divisions). The decline in our sales
was principally attributed to reduced demand for our products. North American
car and light truck build for 2001 was reported at 15.9 million units, down more
than 10% from the 2000 build, reported at 17.7 million units. The decline in
volumes was partially offset by new product launches. In addition, North
American production by the U.S.-based original equipment manufacturers (OEMs --
General Motors, Ford and Chrysler) declined on a percentage basis more than
North American production by non-U.S. based OEMs, and our Automotive Segment has
a higher percentage of sales in North America to non-U.S. based OEMs than North
American production in general.

Operating income decreased $20.6 million to $7.5 million in 2001 from $28.1
million in 2000. Reduced profitability was primarily the result of lower
volumes, $4.5 million in new program launch costs in our precision machined
components business, an increase in depreciation of $3.3 million caused by
capital expenditures placed in service during 2001 and 2000 primarily related to
new programs, pricing reductions of $2.8 million, and higher workers
compensation expense. Although in 2000 we had projected declining sales,
offsetting cost reductions could not be achieved in a timely manner. In
particular, high fixed costs in our Automotive Segment severely impact
profitability in the event of a decrease in sales. Capital expenditures for the
Automotive Segment were $27.2 million in 2001 compared to $33.7 million in 2000.
These capital expenditures were related to a significant number of new product
launches in our Hillsdale operation and the acquisition of a new rubber coating
line in our Wolverine operation.

TECHNOLOGIES SEGMENT

Sales in our Technologies Segment increased 4.6% to $200.3 million in 2001 from
$191.4 million in 2000. Slightly more than half of the increase is attributable
to the sales of EaglePicher Energy Products Corporation, which was acquired by
us in June 2000. Other increases were attributable to sales of specialty
materials used in fiber-optic applications along with certain aerospace battery
programs. Additionally, volumes of bulk pharmaceutical products increased in
2001 resulting from added capacity at a recent plant expansion. These increases
were offset by lower demands for lead based products sold as chemical agents and
lead-acid batteries. A decline in orders from telecommunications customers also
had a negative impact on our electronics assembly products. Additionally, we
experienced a fire at our Harrisonville, Missouri bulk pharmaceutical chemical
processing plant in August 2001. We estimate we lost sales in 2001 of
approximately $1.5 million from the fire. This plant was restored to full
operation in December 2001.

Operating income decreased 89.8% to $1.5 million in 2001 from $15.1 million in
2000. Reduced profitability was primarily a result of an $8.7 million
restructuring charge taken in the fourth quarter of 2001. Three plants were
impacted by this restructuring charge. They are located in Seneca, Missouri;
Grove, Oklahoma and Colorado Springs, Colorado. These plants will be closed once
final customer orders are completed and shipped. Asset impairment charges of
approximately $3.6 million were recorded to bring these facilities to their
estimated net realizable value. Approximately 100 employees, primarily
manufacturing labor from these locations, will be provided severance based upon
their length of service totaling approximately $1.6 million. Other shutdown
costs, estimated to be $3.5 million, are primarily non-cash and relate to
inventory. These charges are all included in the restructuring charge.
Additionally, operating income decreased due to lower operating margins and
increased reserves ($2.0 million) for bad debt and warranty costs. As mentioned
above, we experienced a fire at one of our chemical plants which resulted in
lost margins and incremental costs of approximately $0.9 million, which was
offset by an equal amount of benefit from insurance coverage.

FILTRATION AND MINERALS SEGMENT

Sales in our Filtration and Minerals Segment increased 1.8% to $82.0 million in
2001 from $80.6 million in 2000 despite a decrease in the total volume of
products sold. Volume decreases were due to the rationalization of existing
business and general economic weakness. Revenue increased because of volume
increases in higher value-added products, a general price increase, and an
energy surcharge that was in effect for part of the year to defray a portion of
the increase in natural gas and electricity costs experienced nationwide. At the
end of 2001, we also implemented an aggressive price improvement program
directed toward improving margins.

Operating income decreased 2.2% to $4.7 million in 2001 from $4.8 million in
2000. This decrease was primarily caused by increased natural gas costs of $2.8
million and power cost increases of $0.4 million. The increases in energy costs
were partially mitigated through the use of alternative fuels, energy
conservation measures, and energy surcharges to our customers. Additionally,
penalties of $0.5 million and legal and consultant costs of $0.4 million were
incurred in the settlement of regulatory claims for violating gaseous emission
permits in Nevada and Oregon. Settlements have been reached in both
jurisdictions and we are in compliance with current permits and interim orders.

LIQUIDITY AND CAPITAL RESOURCES

YEAR ENDED 2002 COMPARED TO 2001

Operating activities.  Net cash provided by operating activities during 2002 was
$80.7 million compared to $63.4 million during 2001, which includes $66.3
million of non-cash depreciation and amortization expense in 2002 and $61.9
million in 2001. The majority of the increase in reported cash from operating
activities was $46.5 million which was received as a result of selling certain
of our receivables to our unconsolidated accounts receivable asset-backed
securitization. A decrease in our inventory provided $4.2 million, a decrease in
accounts payable used $1.7 million and a decrease in accrued liabilities used
$6.2 million. The use of cash as a result of the decrease in accrued liabilities
is primarily related to spending on restructuring and environmental activities.
Also, during 2002 we received approximately $5.2 million of net operating loss
tax refunds.

Investing activities.  Investing activities used $5.7 million in cash during
2002 compared to $36.0 million used in 2001. During 2002, $6.9 million was
provided by proceeds from the sale of our Construction Equipment Division, which
represented our former Machinery Segment, and $3.1 million was provided by
proceeds from the sale of our Precision Products business. Capital expenditures
amounted to $16.4 million during 2002 compared to $35.7 million during 2001.

Financing activities.  Financing activities used $67.4 million during 2002
compared to $15.8 million during 2001. During 2002, we used $32.5 million to
reduce our revolving credit facility, primarily from proceeds associated with
the sale of our receivables to our unconsolidated accounts receivable
asset-backed securitization. Both regularly scheduled debt payments and the
proceeds from the sale of our Construction Equipment Division and Precision
Products resulted in a $34.7 million decline in our long-term debt during 2002.

EX-99.6

EXHIBIT 99.6

We anticipate selling substantially all of our germanium business within our
Technologies Segment for a purchase price of approximately $15 million. This
business contributed $6.6 million of net sales and $0.7 million of Adjusted
EBITDA during the six months ended May 31, 2003 and $15.0 million of net sales
and $1.7 million of Adjusted EBITDA for our fiscal year ended November 30, 2002.
We cannot assure you that this transaction will be completed.

EX-99.7

EXHIBIT 99.7

Selected historical financial data

The following selected historical financial data is derived from our the
historical consolidated financial statements of our parent, EaglePicher
Holdings, Inc. This table does not include the obligations of our unconsolidated
accounts receivable asset-backed securitization entity. The following table
should be read in conjunction with "Management's discussion and analysis of
financial condition and results of operations" and the historical financial
statements and related notes of our parent included elsewhere in this offering
memorandum. Data and ratios relating to preferred stock refer to our parent's
11 3/4% cumulative redeemable exchangeable preferred stock.




                                            NINE MONTHS                          YEAR ENDED NOVEMBER 30,
                                               ENDED          ------------------------------------------------------------
                                            NOVEMBER 30,
                                               1998              1999            2000              2001            2002
                                            ------------      ---------        ---------        ---------        ---------
                                                                       (IN THOUSANDS EXCEPT RATIOS)
                                                                                                  
STATEMENTS OF INCOME (LOSS) DATA:
Net sales(1) ..........................      $ 567,774        $ 824,133        $ 752,509        $ 689,776        $ 682,829
Costs of products sold (exclusive of
  depreciation) .......................        441,405          647,297          593,688          559,748          534,605
                                             ---------        ---------        ---------        ---------        ---------
Gross profit ..........................        126,369          176,836          158,821          130,028          148,224
Selling and administrative ............         52,670           66,665           57,654           49,343           60,348
Depreciation and amortization .........         27,059           44,101           40,676           42,338           47,299
Goodwill amortization .................         11,908           15,877           15,877           15,825           15,822
Restructuring .........................             --               --               --           14,163            5,898
Losses (gains) from divestitures ......             --           21,407           (3,149)           2,105            6,497
Management compensation-special(2) ....         26,808              556            1,560            3,125            3,383
Insurance (gains) losses(3) ...........             --               --          (16,000)              --            3,100
                                             ---------        ---------        ---------        ---------        ---------
Operating income (loss) ...............          7,924           28,230           62,203            3,129            5,877
Interest expense(4) ...................        (32,295)         (44,297)         (42,644)         (38,883)         (40,022)
Other income, net .....................          1,839            3,893              624            3,566            1,516
                                             ---------        ---------        ---------        ---------        ---------
Income (loss) from continuing
  operations before taxes .............        (22,532)         (12,174)          20,183          (32,188)         (32,629)
Income tax (provision) benefit ........          4,812               96           (9,321)          10,063           (1,938)
                                             ---------        ---------        ---------        ---------        ---------
Income (loss) from continuing
  operations ..........................        (17,720)         (12,078)          10,862          (22,125)         (34,567)
Discontinued operations, net(5) .......          3,356           (5,509)          (5,252)         (31,846)          (2,265)
                                             ---------        ---------        ---------        ---------        ---------
Net income (loss) .....................      $ (14,364)       $ (17,587)       $   5,610        $ (53,971)       $ (36,832)
                                             =========        =========        =========        =========        =========
BALANCE SHEET DATA (AT END OF
  PERIOD):
Cash and cash equivalents .............      $  13,681        $  10,071        $   7,467        $  24,620        $  31,522
Working capital .......................        115,501          114,737           72,405           48,408            8,681
Property, plant and equipment, net ....        226,043          218,993          219,559          210,421          177,135
Total assets ..........................        807,307          833,947          767,699          728,934          613,041
Total debt(6) .........................        484,095          540,275          456,118          440,989          373,725
Preferred stock .......................         87,387           97,956          109,804          123,086          137,973
Shareholders' equity (deficit) ........         80,612           49,311           39,197          (33,655)         (87,578)
OTHER DATA AND SELECTED RATIOS:
Adjusted EBITDA(7) ....................      $  59,492        $ 115,271        $ 102,951        $  85,259        $  92,500
Earnings to fixed charges and preferred
  stock dividends(8) ..................            N/A              N/A            1.15x              N/A              N/A
Adjusted EBITDA/interest expense(9) ...                            2.3x             2.2x             2.0x             2.2x
Total debt/Adjusted EBITDA(10) ........                            4.7x             4.4x             5.2x             4.0x
Capital expenditures ..................            N/A        $  41,746        $  40,846        $  35,711        $  16,397
Gross margin ..........................           22.3%            21.5%            21.1%            18.9%            21.7%




                                                                                 TWELVE
                                                SIX MONTHS ENDED                 MONTHS
                                                      MAY 31,                    ENDED
                                            --------------------------          MAY 31,
                                              2002             2003              2003
                                            ---------        ---------        ---------
                                                                     
STATEMENTS OF INCOME (LOSS) DATA:
Net sales(1) ..........................     $ 340,555        $ 345,610        $ 687,884
Costs of products sold (exclusive of
  depreciation) .......................       267,253          266,285          533,637
                                            ---------        ---------        ---------
Gross profit ..........................        73,302           79,325          154,247
Selling and administrative ............        33,797           29,797           56,348
Depreciation and amortization .........        22,864           22,458           46,893
Goodwill amortization .................         7,912               --            7,910
Restructuring .........................         2,998               --            2,900
Losses (gains) from divestitures ......         5,970               --              527
Management compensation-special(2) ....         2,381              424            1,426
Insurance (gains) losses(3) ...........         3,100           (5,736)          (5,736)
                                            ---------        ---------        ---------
Operating income (loss) ...............        (5,720)          32,382           43,979
Interest expense(4) ...................       (21,696)         (18,146)         (36,472)
Other income, net .....................           918               73              671
                                            ---------        ---------        ---------
Income (loss) from continuing
  operations before taxes .............       (26,498)          14,309            8,178
Income tax (provision) benefit ........        (1,205)          (2,046)          (2,779)
                                            ---------        ---------        ---------
Income (loss) from continuing
  operations ..........................       (27,703)          12,263            5,399
Discontinued operations, net(5) .......          (472)          (3,409)          (5,202)
                                            ---------        ---------        ---------
Net income (loss) .....................     $ (28,175)       $   8,854        $     197
                                            =========        =========        =========
BALANCE SHEET DATA (AT END OF
  PERIOD):

Cash and cash equivalents .............     $  22,088        $  13,508        $  13,508
Working capital .......................        (3,529)         (87,237)         (87,237)
Property, plant and equipment, net ....       195,668          164,705          164,705
Total assets ..........................       640,565          608,250          608,250
Total debt(6) .........................       378,533          370,762          370,762
Preferred stock .......................       130,317          146,079          146,079
Shareholders' equity (deficit) ........       (67,877)         (82,648)         (82,648)
OTHER DATA AND SELECTED RATIOS:
Adjusted EBITDA(7) ....................     $  44,856        $  49,874        $  97,518
Earnings to fixed charges and preferred
  stock dividends(8) ..................           N/A            1.23x              N/A
Adjusted EBITDA/interest expense(9) ...                                            2.6x
Total debt/Adjusted EBITDA(10) ........                                            3.8x
Capital expenditures ..................     $   8,516        $   8,808        $  16,689
Gross margin ..........................          21.5%            23.0%            22.4%


- --------------------

(1)      Net sales includes $121.6 million in the nine months ended November 30,
         1998; $146.1 million in the year ended November 30, 1999; $56.2 million
         in year ended November 30, 2000; $10.2 million in the year ended
         November 30, 2001; $3.4 million in the year ended November 30, 2002;
         $2.6 million in the six months ended May 31, 2002; and $0.8 million in
         the twelve months ended May 31, 2003, which is attributed to certain
         divested or sold businesses.

(2)      Management compensation -- special expense consists of payments to
         former officers upon their separation from employment.

(3)      In 2000, we received $16.0 million from insurance companies as a result
         of the settlement of certain claims relating primarily to environmental
         remediation. 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 which occurred at one of our facilities
         during 2001. 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 a non-operating
         facility.

(4)      Interest expense excludes $4.0 million in the nine months ended
         November 30, 1998; $4.8 million in the year ended November 30, 1999;
         $4.7 million in the year ended November 30, 2000; $4.5 million in the
         year ended November 30, 2001; $1.1 million in the

         year ended November 30, 2002; $0.6 million in the six months ended May
         31, 2002; $0.6 million in the six months ended May 31, 2003; and $1.1
         million in the twelve months ended May 31, 2003, which has been
         allocated to discontinued operations (see footnote 5).

(5)      In 2001, we discontinued the operations of our former Construction
         Equipment Division, which represented our entire former Machinery
         Segment. We completed this sale on December 14, 2001, effective
         November 30, 2001. In addition, during the second quarter of 2003, we
         discontinued the operations of our Hillsdale UK automotive operation.
         We sold our Hillsdale UK automotive operation on June 11, 2003.

(6)      Total debt excludes $0.3 million at November 30, 1998; $3.8 million at
         November 30, 1999; $1.8 million at November 30, 2000; $2.1 million at
         November 30, 2001; and $2.2 million at May 31, 2002, which has been
         allocated to discontinued operations (see footnote 5). In addition,
         total debt excludes $46.5 million at November 30, 2002; $52.4 million
         at May 31, 2002; and $26.2 million at May 31, 2003, which represents
         amounts advanced under our accounts receivable asset-backed
         securitization.

(7)      Adjusted EBITDA represents net income (loss) adjusted for (i) loss
         (gain) from discontinued operations, net; (ii) loss on disposal of
         discontinued operations, net; (iii) income taxes; (iv) interest
         expense; (v) depreciation and amortization; (vi) restructuring; (vii)
         losses (gains) from divestitures; (viii) insurance related losses
         (gains); (ix) certain legal and litigation costs; and (x) Adjusted
         EBITDA impact from discontinued operations. Adjusted EBITDA is
         presented herein because we believe it is a useful supplement to
         operating income and cash flow from operations in understanding cash
         flows generated from operations that are available for taxes, debt
         service and capital expenditures. Management also uses this measurement
         as part of its evaluation of core operating results and underlying
         trends and therefore believes it is a key measure of its performance.
         However, Adjusted EBITDA, which does not represent operating income or
         net cash provided by operating activities as those items are defined by
         GAAP, should not be considered by prospective purchasers of the notes
         to be an alternative to operating income or cash flow from operations
         or indicative of whether cash flows will be sufficient to fund our
         future cash requirements. In addition, Adjusted EBITDA may differ from
         and may not be comparable to similarly titled measures used by other
         companies.

         The following table reconciles our net income (loss) to Adjusted EBITDA
for each period presented:







                                       NINE MONTHS
                                          ENDED                          YEAR ENDED NOVEMBER 30,
                                       NOVEMBER 30,    ------------------------------------------------------
                                          1998           1999            2000          2001             2002
                                       -----------     ---------       --------       --------       --------
                                                                            (IN THOUSANDS)
                                                                                      
Net income (loss) ................      $(14,364)      $ (17,587)      $  5,610       $(53,971)      $(36,832)
  Loss (gain) from discontinued
    operations, net ..............        (3,356)          5,509          5,252          1,430          2,265
  Loss on disposal of discontinued
    operations, net ..............            --              --             --         30,416             --
  Income taxes ...................        (4,812)            (96)         9,321        (10,063)         1,938
  Interest expense ...............        32,295          44,297         42,644         38,883         40,022
  Depreciation and amortization ..        38,967          59,978         56,553         58,163         63,121
  Restructuring ..................            --              --             --         14,163          5,898
  Losses (gains) from
    divestitures .................            --          21,407         (3,149)         2,105          6,497
  Insurance related losses
    (gains) ......................            --              --         16,000)            --          3,100
  Certain legal and litigation
    costs(11) ....................            --              --             --             --          6,050
  Adjusted EBITDA impact from
    discontinued operations ......        10,762           1,763          2,720          4,133            441
                                        --------       ---------       --------       --------       --------
Adjusted EBITDA ..................      $ 59,492       $ 115,271       $102,951       $ 85,259       $ 92,500
                                        ========       =========       ========       ========       ========




                                                                           TWELVE
                                               SIX MONTHS ENDED            MONTHS
                                                     MAY 31,               ENDED
                                           -----------------------        MAY 31,
                                             2002           2003           2003
                                           --------       --------       --------

                                                                
Net income (loss) ................         $(28,175)      $  8,854       $    197
  Loss (gain) from discontinued
    operations, net ..............              472            431          2,224
  Loss on disposal of discontinued
    operations, net ..............               --          2,978          2,978
  Income taxes ...................            1,205          2,046          2,779
  Interest expense ...............           21,696         18,146         36,472
  Depreciation and amortization ..           30,776         22,458         54,803
  Restructuring ..................            2,998             --          2,900
  Losses (gains) from
    divestitures .................            5,970             --            527
  Insurance related losses
    (gains) ......................            3,100         (5,736)        (5,736)
  Certain legal and litigation
    costs(11) ....................            6,250             --           (200)
  Adjusted EBITDA impact from
    discontinued operations ......              564            697            574
                                           --------       --------       --------
Adjusted EBITDA ..................         $ 44,856       $ 49,874       $ 97,518
                                           ========       ========       ========



(8)      For purposes of determining the ratio of earnings to fixed charges and
         preferred stock dividends, "earnings" consist of income from continuing
         operations before provision (benefit) for income taxes and fixed
         charges. "Fixed charges" consist of interest expense (including
         amortization of deferred financing costs) and approximately 30% of our
         rental expense, representing that portion of interest expense deemed to
         be representative of the interest factor. Earnings were insufficient to
         cover fixed charges and preferred stock dividends by $29.9 million in
         the nine months ended November 30, 1998; $22.7 million in the year
         ended November 30, 1999; $45.5 million in the year ended November 30,
         2001; $47.5 million in the year ended November 30, 2002; $33.7 million
         in the six months ended May 31, 2002; and $7.6 million in the twelve
         months ended May 31, 2003.

(9)      For purposes of calculating Adjusted EBITDA/interest expense, we have
         included the interest expense from the summary financial table and
         interest expense allocated to discontinued operations (see footnote 4
         above).

(10)     For purposes of calculating total debt/Adjusted EBITDA, we have
         included the total debt from the summary financial table and debt
         allocated to discontinued operations (see footnote 6).

(11)     Certain legal and litigation costs are included in selling and
         administrative expense and are discussed in greater detail in Note M to
         our parent's November 30, 2002 consolidated financial statements
         included in Exhibit 99.4 of this Report.