SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission file number 333-49957-01

EaglePicher Holdings, Inc.

A Delaware Corporation

I.R.S. Employer Identification

No. 13-3989553

3402 East University Drive, Phoenix, Arizona 85034

Registrant’s telephone number, including area code:

602-794-9600

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

None

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     þ

      The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was zero.

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2)     Yes o          No þ

      1,000,000 shares of common capital stock, $0.01 par value each, were outstanding at March 14, 2005.

TABLE OF ADDITIONAL REGISTRANTS

TABLE OF CONTENTS

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

      This Form 10-K 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. Please refer to our discussion of risk factors contained in Part II, Item 7 of this report. We undertake no duty to update the forward-looking statements in this Form 10-K and you should not view the statements made as accurate beyond the date of this Form 10-K.

PART I

Recent Events

      As of November 30, 2004, we were not in compliance with certain financial covenants under our Credit Agreement and accounts receivable securitization facility. As a result of this noncompliance, our Credit Agreement lenders are entitled to exercise a number of remedies, including declaring all debt immediately due and payable, ceasing to advance new loans, or enforcing their security interest in collateral, and our accounts receivable purchaser is entitled to discontinue this facility and collect all receivables up to the amount of their purchased interest.

      In order to address the current situation in an orderly manner, on February 28, 2005, we entered into forbearance agreements with our Credit Agreement lenders. Pursuant to this agreement, the lenders agreed to forbear from exercising any remedies as a result of this covenant noncompliance through June 10, 2005 and to continue funding our existing revolving credit facility through that date in its full amount of $125.0 million, provided that no new defaults occur. In order to induce the lenders to enter into these forbearance agreements and fund payment of the March 1, 2005 interest on our 9.75% Senior Notes, due 2013, Granaria Holdings B.V. and ABN AMRO Participaties B.V., which collectively control 100% and beneficially own approximately 84% of our common stock, purchased a $12,187,500 junior participation in our revolving credit facility. Also, Granaria deferred payment of its $1.75 million per year management fee through June 10, 2005.

      On March 10, 2005, we entered into a similar agreement with our accounts receivable purchaser, pursuant to which the purchaser agreed to continue funding this program through June 10, 2005, provided no new defaults occur.

      Because the forbearance agreements referenced above do not extend to the end of our fiscal year, we have classified our entire Credit Agreement as a current liability. This in turn has forced our auditors to indicate in their report that there is substantial doubt about our ability to continue as a going concern.

      Mr. Bert Iedema, the Chief Executive Officer of Granaria, has been named Chief Executive Officer of EaglePicher following the resignation of John Weber in January. In addition, we hired Stuart B. Gleichenhaus to serve as our Chief Development Officer. Mr. Gleichenhaus is expected to assist EaglePicher in evaluating financing alternatives and potential debt reduction through divestitures of one or more business units. To date, we have taken a number of actions to improve our operating performance and financial condition. We have retained Giuliani Capital Advisors LLC (“GCA”) as a financial and strategic advisor for our Hillsdale business segment. GCA will assist Hillsdale in developing a comprehensive strategy to improve operating and financial performance, including further plant consolidations, a detailed assessment of our China sourcing initiatives, and an assessment of our long-term customer profitability. We have also implemented a retention bonus program to induce certain key employees to remain with us for at least the next two years.

      We are currently evaluating possible divestitures of business units in order to reduce our debt, as well as various other financing alternatives. No assurance can be given that we will complete any such measures prior to the June 10, 2005 expiration of the forbearance agreements. Accordingly, there is a substantial chance that we will need to negotiate a further extension of the forbearance agreements or an amendment to our Credit Agreement and accounts receivable program. No assurance can be given that we will be able to obtain alternative financing or such an extension or amendment.

General

      We are a diversified manufacturer of advanced technology and industrial products that are used in the automotive, defense, aerospace, telecommunications, 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 the following seven operating segments:

      For the fiscal year ended November 30, 2004, we generated $707.3 million of net sales. The percentage of our total net sales generated by each of our operating segments for our fiscal year ended November 30, 2004, are as follows:

      The following table sets forth the primary product groups that each of our operating segments develop and manufacture and the current markets and major customers for each product group:

Business Segments

      The Hillsdale segment provides NVH dampening solutions to the worldwide automotive market. The Hillsdale segment also supplies complex machined components for engine, transmission, axle/driveline and chassis/suspension applications. The Hillsdale segment has a diverse customer base with over 67% of its sales made directly to automotive vehicle manufacturers. The Hillsdale segment utilizes its 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.

      For the fiscal year ended November 30, 2004, approximately 32% of the Hillsdale segment’s sales were to Japanese operators in North America and approximately 24% to General Motors for use in light truck and SUV platforms. Sales to Honda represented approximately 22% of the Hillsdale segment’s net sales. The current generation of Honda Accord programs, representing over 50% of the total Honda volume, will phase out of production during 2006. While Honda is in the initial sourcing stages for this program, no assurances can be given that Hillsdale will win the replacement program. We believe the Hillsdale segment is one of North America’s leading torsional vibration damper manufacturers. Although competitive conditions are intense in the automotive parts industry, the Hillsdale segment’s primary product groups are incorporated into automotive products with typical productions of four to eight years. However, our right to supply these programs is not contractually guaranteed, and generally customers have the right to re-source products at any time. Quality, delivery and customer satisfaction issues have led to the cancellation of significant programs with two customers in the first quarter of 2005. These programs, totaling $30 million of annualized sales, will be phased out by the end of the third quarter of 2005, based on current information. There can be no assurance that additional programs may not be lost due to operational problems Hillsdale has encountered and customer concerns over our financial condition.

      The North American automotive market remains a highly competitive market that is subject to potentially significant volume changes. We expect these competitive pressures to continue and possibly intensify. Our customers are consolidating their supplier base, increasing international sourcing and intensifying pressure for price reductions. In addition, market forecasts indicate that the Big 3 U.S. OEM’s will reduce production volumes in 2005, particularly during the first half of the year to reduce historically high inventory levels. We expect this will negatively impact the SUV and light truck market segment, where Hillsdale has a relatively high concentration of its sales.

      In addition, during 2004, steel cost increases were imposed by suppliers due to market conditions in the steel industry. While Hillsdale has been able to somewhat mitigate the impact of these increases to date through negotiations with both suppliers and customers, there is no assurance it will be able to continue to do so in the future. Steel prices have recently abated; however, there can be no assurance as to the future direction of steel prices.

      As a result of the 2004 financial performance of Hillsdale and the loss of programs with two customers totaling $30 million in annual sales subsequent to November 30, 2004, in February 2005, we hired Giuliani Capital Advisors LLC to assist us in performing a detailed strategic and financial performance review of Hillsdale’s operations. This review will include a comprehensive strategy to improve operating and financial performance, including further plant consolidations, a detailed assessment of our China sourcing initiatives, and an assessment of our long-term customer profitability. The outcome of this comprehensive strategy could lead to the closure of one or more plants which may result in the material impairments of certain assets and potential restructuring costs.

      We believe our Wolverine segment 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 segment pioneered 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 segment 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 supplies rubber-coated materials to third-party stampers and parts manufacturers globally. Wolverine has installed additional manufacturing capacity and is focused on several growth initiatives, including market opportunities in the brake aftermarket, NVH applications, and small engine markets, as well as increased penetration of the global marketplace.

      The Wolverine segment sells primarily to Tier 1 and Tier 2 suppliers, with nearly 80% of its fiscal year 2004 sales to the automotive end-market (OEM and OEM replacement parts). The Wolverine segment has a diverse customer base with over 250 global customers, with nearly 50% of sales outside the NAFTA region.

      The Defense and Space Power Segment supplies batteries and power systems for the aerospace and defense markets. 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 Defense and Space Power Segment 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.

      Commercial Power Solutions draws on EaglePicher’s expertise derived from its rich heritage in battery development and packaging for military and space applications and builds on it by teaming with national labs, universities and third-party developers to bring the latest power technologies to bear on commercial applications. Our innovative solutions address a wide range of applications — including motives, telecommunications, and medical. The growing Commercial Power Solutions portfolio includes the following products:

      Commercial Power Solutions is looking to expand its presence in the commercial market through licensing and other technology development initiatives.

      The Specialty Materials Group Segment 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 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. The Specialty Materials Group also produces depleted zinc and lithium products for nuclear containment applications.

      Our Pharmaceutical Services Segment manufactures drug active ingredients for pharmaceutical companies principally in small batches for clinical trials and low volume prescription drugs. The Pharmaceutical Services Segment has manufactured hundreds of new drug candidates for use in pre-clinical studies, toxicology studies, clinical trials and for commercial use. The manufacturing of these drugs require 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.

      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 performance of plastics and coatings, and as a liquid absorbent. Filtration aids are used in processing food sweeteners, beer, wine, fruit juices, chemicals, pharmaceuticals, lube oils, and in swimming pool filtration systems. Fine mineral additives are used in plastic film and architectural paints. Diatomaceous earth absorbents are used as oil, chemical and water absorbents in auto shops and industrial and chemical plants and as soil enhancements in golf courses, sports fields and agricultural applications. The Filtration and Minerals Segment serves over 35 markets and more than 2,000 customers around the globe with its various products.

      Diatomaceous earth, or diatomite, is a natural 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 and absorption applications. Perlite is a mineral of volcanic origin, also with natural qualities that make it valuable as a filter aid. The Filtration and Minerals Segment sells its filter aid and additive products under the trademark CELATOM® both directly and through distributors to many customers. The Filtration and Minerals Segment also sells products known as FLOOR DRY^tm, AXIS^tm, PLAY BALL^tm, Celabrite® and Celabrew®.

Competition

      Our seven 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 and geographies.

      Hillsdale Segment. Our Hillsdale Segment competes with numerous 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. The North American automotive market remains a highly competitive market that is subject to potentially significant volume changes. We expect these competitive pressures to continue and possibly intensify. Our customers are increasing international sourcing and intensifying pressure for price reductions.

      Wolverine Segment. Our Wolverine Segment competes primarily with other Tier 1 and Tier 2 automotive parts suppliers in several narrow specialty material segments. Wolverine operates within the very competitive automotive parts industry, but believes its coating line process and proprietary formulations provide some competitive advantage. We expect competitive pressures for our Wolverine Segment to intensify since it supplies principally to automotive OEM’s worldwide.

      Defense and Space Power Segment. Our Defense and Space Power Segment’s battery and power products serve the defense and aerospace industries and compete with many different companies. Saft is the Defense and Space Power Segment’s principal competitor.

      Commercial Power Solutions Segment. The Commercial Power Solutions Segment’s battery and power products, which include our next generation woven lead-acid Horizon and Kokam Lithium-Ion batteries, serve specialty commercial and consumer industries and compete with a variety of companies depending on the application.

      Specialty Materials Group Segment. The Specialty Materials Group Segment supplies isotopically enriched boron-10, 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.

      Pharmaceutical Services Segment. The Pharmaceutical Services Segment has numerous small competitors in a highly fragmented 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. The primary competitor is World Minerals Inc., a subsidiary of Alleghany Corporation.

Corporate Structure

      We are a majority-controlled subsidiary of Granaria Holdings B.V. of The Netherlands. Our corporate headquarters is located in Phoenix, Arizona with operations in the United States, Mexico, Canada, South Korea, and Germany. We were founded in 1843 as a manufacturer of paint pigments that were marketed under the brand name Eagle White Lead. In 1876, the Picher family of Joplin, Missouri formed the Picher Lead Mining Company. The two firms merged in 1916 forming the Eagle-Picher Lead Company.

Recent Acquisitions and Divestitures

      During the second quarter of 2004, we signed a share purchase agreement to buy 51.1% of the equity securities of Kokam Engineering Co., Ltd. (“Kokam”) from its majority shareholder. Kokam is a lithium-ion battery and battery equipment manufacturer based in South Korea. Under the provisions of this agreement, we paid $1.0 million in July 2004 as a good-faith non-refundable fee toward the total purchase price of approximately $6.2 million for the 51.1% interest. In December 2004, we closed this share purchase. Also, during 2004 and in early 2005, we purchased approximately 16.0% of additional shares of Kokam for approximately $5.7 million. As of November 30, 2004, we accounted for our 15.2% interest in the outstanding equity securities of Kokam at cost. After completing the share purchase in December 2004, our ownership interest exceeded 50%. Therefore, we will consolidate Kokam in our first quarter of 2005 (February 28, 2005)

financial statements within our Commercial Power Solutions Segment. The Kokam share purchase agreement provides for an earn-out arrangement where the seller will receive ten times 1% of EBITDA (as defined in the share purchase agreement) for the first five years after closing with a maximum amount payable of approximately $16.3 million (this amount is payable in South Korean Won and therefore subject to foreign exchange fluctuations). In addition, we signed a license agreement with Kokam for the exclusive rights to manufacture and sell all of Kokam’s products and to utilize all of Kokam’s technology to sell into government markets throughout the world. Under the provisions of the license agreement, we paid $4.0 million in July 2004 and another $4.0 million in December 2004. Our investment in Kokam and the license have been included in Other Assets, net, in the accompanying November 30, 2004 financial statements.

      During 2002, we paid $0.8 million to a start-up technology manufacturing company for the exclusive right to manufacture the start-up company’s battery technology. During the third quarter of 2003, we converted this exclusive right to manufacture into a 6.0% interest in such start-up company, and invested an additional $0.4 million for an incremental 2.7560% interest. During the fourth quarter of 2004, we changed our method of accounting for this investment from a cost based investment to an equity method investment as required by EITF No. 03-16, “Accounting for Investments in Limited Liability Companies.” As of November 30, 2004, we had $1.8 million recorded in Other Assets, net, in our balance sheet to account for this investment under the equity method of accounting. This amount included $1.0 million for our combined 8.7560% interest as of November 30, 2004, net of equity method losses since the third quarter of 2003, and $0.8 million of advances made in the form of promissory notes. In December 2004, we acquired an incremental 21.1% interest for $2.0 million. Also, in December 2004, we purchased from two founding members 5.0% of their interest in this start-up entity for $0.5 million. As part of executing our December 2004 investment, we acquired control of the start-up entities’ Board of Directors and certain preferential distribution and liquidation rights of this entity. Since we now control and are also now the primary beneficiary of this entity, we will consolidate it in our first quarter financial results ending February 28, 2005 in our Commercial Power Solutions Segment. In connection with this investment, an entity affiliated with Granaria Holdings, B.V., our controlling common shareholder, invested $3,028,333 (including $105,640 from Mr. Bert Iedema, our chief executive officer and one of our directors) for a 21.6163% interest, Thomas R. Pilholski, our Senior Vice President and Chief Financial Officer invested $306,667 for a 2.1890% interest and David G. Krall, our Senior Vice President and General Counsel, invested $7,667 and received less than 1% interest. In addition, Noel Longuemare, a director of our wholly-owned subsidiary, EaglePicher Technologies, LLC, holds a 2.1343% interest in this start-up company.

      During November 2004, we sold the remaining assets of our former Construction Equipment Division for proceeds of $1.4 million in cash, and we recognized an after tax gain of $0.6 million. We previously accounted the division as a discontinued operation when certain of its assets were sold during December 2001 for a sale price of $6.1 million in cash plus the assumption of $6.7 million of liabilities. We recognized an after tax loss of $30.4 million as a result of the 2001 sale. Our financial statements have been restated to classify the operations prior to the sale as a discontinued operation.

      In April 2004, we sold our Environmental Science and Technology division within our Specialty Materials Group Segment for cash of approximately $23.0 million and recognized an after tax gain of $10.2 million. This divestiture was accounted for as a discontinued operation. Accordingly, our financial statements have been restated to classify the operations prior to the sale as a discontinued operation.

      Effective December 1, 2003, we acquired an incremental 12% interest in EaglePicher Horizon Batteries, LLC from its other member for $7.5 million. Accordingly, we have consolidated this entity in the financial results of our Commercial Power Solutions Segment beginning with our quarter ended February 29, 2004. We recognized $9.0 million of additional goodwill related to taking control and consolidating this entity in our financial statements. EaglePicher Horizon Batteries LLC manufactures and distributes next generation woven lead-acid battery technology.

      In July 2003, we completed the sale of certain assets of our Germanium-based business in our Specialty Materials Group Segment for net cash proceeds of approximately $14.0 million and recognized an after-tax gain on disposal of $0.3 million. During 2004, this gain on disposal was adjusted by $4.2 million primarily related to the write-off of an insurance receivable related to an entity that was supposed to provide a source of Germanium. These assets related to the production of Germanium-based products primarily used in the

infrared optics and fiber optics applications and do not include any of our assets that are involved in the production of Germanium substrates and wafers. During the third quarter of 2003, we discontinued the operations of our Germanium-based business to classify the operations prior to the sale as a discontinued operation.

      During 2003, we sold certain assets of our Hillsdale UK Automotive operation for cash of $1.1 million and recognized an after-tax loss of approximately $4.3 million. This divestiture was accounted for as a discontinued operation. Accordingly, our financial statements have been restated to classify the operations prior to the sale as a discontinued operation.

      During 2002, we sold certain assets and liabilities of our Precision Products business for cash of $3.1 million and recognized a pre-tax loss of approximately $2.8 million on the sale.

      During 2000, we completed the sale of our Ross Aluminum Foundries, Fluid Systems, Michigan Automotive Research Corporation, Rubber Molding, and Cincinnati Industrial Machinery divisions for aggregate net proceeds of $85.0 million, and recognized a pre-tax gain of approximately $17.1 million.

      On June 30, 2000, our Defense and Space Power Segment acquired the stock of BlueStar Battery Systems Corporation for $4.9 million in cash. Immediately following the transaction the name of the corporation was changed to Eagle-Picher Energy Products Corp. (“EPEP”). EPEP manufactures batteries using lithium based technology, which is of strategic importance to the battery manufacturing operations in our Defense and Space Power Segment. Substantially all of EPEP’s products are sold to the United States Army.

      On December 1, 1999, our Specialty Materials Group Segment acquired the depleted zinc distribution business of Isonics Corporation for approximately $8.2 million.

Backlog

      Our backlog was $160.2 million at November 30, 2004, a decrease of $8.4 million, or 5.0%, from $168.6 million at November 30, 2003. We expect 90% of our order backlog outstanding at November 30, 2004 to be filled during fiscal 2005.

      Within our Defense and Space Power Segment, we are a supplier of U.S. Government contracts. The U.S. Government backlog is limited to amounts obligated to contracts. Normally, the U.S. Government funds its major programs only to the dollar level appropriated annually by Congress, even though the total estimated program values are considerably greater. Accordingly, our backlog represents only that amount which has been appropriated and against which we can be reimbursed for work performed. Non-appropriated backlog at November 30, 2004 was zero and at November 30, 2003 was $19.0 million.

      As is customary in the automotive industry, our customers issue blanket purchase orders to us with respect to specific product orders. From time to time, the customer, depending on their needs, will provide us with releases on a blanket purchase order for a specified amount of products. As a result, the backlog for our Hillsdale and Wolverine Segments is not significant.

Raw Materials

      Our raw material prices and energy costs 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 Segment consume large amounts of natural gas. Generally, these raw materials are commodities that are widely available. During 2004, steel cost increases were imposed by suppliers due to market conditions in the steel industry. While we have been able to somewhat mitigate the impact of these increases to date through negotiations with both suppliers and customers, there is no assurance we will be able to continue to do so in the future. Steel prices have recently abated; however, there can be no assurance as to the future direction of steel prices. In addition to increased steel costs, our Wolverine Segment is experiencing periodic difficulty in procuring adequate sources of specific steel grades which is resulting in adjustments to production schedules and decreased manufacturing efficiency. If the ability to procure appropriate steel grades does not improve, or if it deteriorates in the future, Wolverine’s ability to meet customer demands in a timely manner may be jeopardized and operating efficiency

will continue to suffer. Hillsdale relies on three foundries for a significant portion of its raw castings. Many North American foundries are under significant financial pressure. An interruption in supply from these foundries could have an adverse impact on our business. 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 are also looking to 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 Defense and Space Power 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 2004, a majority of our Defense and Space Power 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 $9.8 million in fiscal year 2002, $13.2 million in fiscal year 2003, and $15.8 million in fiscal year 2004 on research and development activities, primarily for the development of new products or the improvement of existing products. Included in Net Sales are the following amounts which represent customer sponsored research activities: $8.8 million in fiscal year 2002, $11.0 million in fiscal year 2003, and $12.2 million in fiscal year 2004.

Employees

      As of November 30, 2004, we employed approximately 4,200 persons and as of November 30, 2003, we employed approximately 3,900 persons. We believe that our relations with our employees are generally good.

      Approximately 46% of our employees are covered by collective bargaining agreements with various unions. A number of our existing collective bargaining agreements expire in any given year. Historically, we have been successful at negotiating successor agreements without any material disruption of operating activities. This does not assure, however, that we will be successful in our efforts to negotiate renewals of our existing collective bargaining agreements when they expire. If we were unsuccessful in those efforts, there is the potential that we could incur unanticipated delays or expenses in the programs affected by any resulting work stoppages.

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 25 additional sites. Any potential liability to fund environmental remediation activities could have a material adverse effect on our covenant compliance with the forbearance agreements, as described elsewhere in this report, and our liquidity given our current financial condition.

      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 of $7.1 million for our best estimate of remediation costs. In addition, in the course of our 1998 bankruptcy emergence, 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 our pre-1998 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% of the liability amount.

      We incurred environmental compliance expenses of $8.7 million in 2002, $8.3 million in 2003, and $8.1 million in 2004. We expect to incur approximately $8.0 million in 2005.

      In addition, we made capital expenditures for environmental compliance and remediation of $0.6 million in 2002, $0.6 million in 2003, and $1.9 million in 2004. We expect to incur approximately $2.5 million in 2005.

      We had total remediation expenditures of $1.2 million in 2002, $3.3 million in 2003, and $2.2 million in 2004, of which $1.2 million in 2002, $2.8 million in 2003, and $2.2 million in 2004 were charged to our accrued environmental reserves. As of November 30, 2003, we had $9.3 million, and as of November 30, 2004, we had $5.7 million accrued for sold divisions and businesses related to legal and environmental matters. In addition, as of November 30, 2003, we had $1.6 million, and as of November 30, 2004, we had $1.4 million accrued in other accrued liabilities related to environmental liabilities for our on-going businesses.

Financial Information about Foreign and Domestic Operations and Export Sales

      Financial information about Foreign and Domestic Operations and Export Sales is included in our financial statements (see Notes M and T of the financial statements).

      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 U.S. domestically-owned assets and 65% of the capital stock of our foreign subsidiaries as collateral under our Credit Agreement. The following table sets forth selected information regarding our manufacturing and processing facilities:

      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

      Filtration and Minerals owns and leases diatomaceous earth and perlite mining locations as well as numerous claims in Nevada, Oregon and California. Owned and leased mining properties, including those not currently being mined, comprise a total of approximately 12,000 acres in Storey, Lyon, Pershing and Churchill Counties of Nevada and 5,000 acres in Malheur and Harney Counties in Oregon. The company holds mining rights on 2,200 acres not currently being mined in Siskiyou County in California. We extract diatomaceous earth through open-pit mining methods using a combination of bulldozers, wheel type tractor scrapers, excavators and articulated trucks. A total of approximately 266,000 tons of diatomaceous earth and perlite

were extracted from our mining properties in Nevada and Oregon in fiscal 2004. As ore deposits are depleted, we reclaim the land in accordance with plans approved by the relevant Federal, State and local regulators.

      Filtration and Minerals performs periodic mineral evaluations and exploration as opportunities present themselves. As ore reserves are mined from a specific mine site further exploration is conducted to delineate more reserves adjacent to its operating plant. Exploration work is comprised of sampling sedimentary rock outcrops by hand, trench or rotary drill hole. Drill hole spacing ranges from 1,000 feet to 100 feet between holes in random pattern. Hole depth is sufficient to cross the desired strata. Sample spacing and frequency is dependent on the individual deposit or outcrop observed, but typically provides three dimensional collections of statistically significant geologic data for decision making.

      Filtration and Minerals mines freshwater sedimentary deposits of diatomaceous earth located in Nevada and Oregon. Reserves of diatomaceous earth are quantity estimates based on sufficient measurements of outcrops, trenches, mine workings and drill holes which represent ores of similar functional characteristics and market-desired qualities. Each ore zone is characterized as having physical attributes necessary to produce an array of products satisfying the needs of absorbent, soil amendment, functional filler, fine filler, catalyst support or filtration markets. We mine perlite located on public lands in Nevada. Reserves of perlite are quantity estimates based on measurements of outcrops, trenches, mine workings and drill holes that describe rock which will lend itself to utilization in the filtration market. Potential reserves are geological occurrences of significant quantity which exhibit qualities of functional interest in one or more of the fore mentioned markets. Potential reserves lack sufficient measurements in outcrops, trenches, or drill holes to accurately estimate an economic quantity.

      Lands held by us fall into three categories, fee simple property, owned mining claims on Federal lands and leased mining claims held by others on Federal lands. All mining claims are managed by the Bureau Land Management and subject to annual county filings and annual Federal fees. Leases of mining claims are subject to annual lease fees which, upon payment, reduce the annual production royalty of each lease. Leases have a range in duration from year-to-year self renewing out to 50 years with varied renewal options.

      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 approximately 130,000 tons of diatomaceous earth and perlite from Nevada mining properties in fiscal 2004. Diatomaceous earth from Storey, Churchill and Lyon mining properties is processed at our Clark operations facility. Clark operations holds approximately 4,884 acres of owned and leased property. We are mining approximately 265 acres in Storey County, where mining activities commenced 59 years ago and approximately 62 acres in the Counties of Lyon and Churchill for diatomaceous earth. We believe our reserves of diatomaceous earth in the Counties of Storey, Churchill and Lyon, including mining properties not actively being mined, are approximately 3,000,000 tons based on estimates by our mining and exploration personnel. Diatomaceous earth extractions from the Pershing mining properties, which commenced 44 years ago, are processed at the Lovelock, Nevada facility named Colado operations. Colado operations hold approximately 7,145 acres of owned and leased lands. Approximately 975 acres are actively being mined for diatomaceous earth in Pershing County. We believe our reserves of diatomaceous earth in Pershing County, including mining properties not actively being mined, are approximately 1,900,000 tons 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 potential reserves for perlite in Churchill County, including mining properties not actively mined, are approximately 1,400,000 tons 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 Malheur Counties called Celatom operations. Diatomaceous earth extracted from these mines is processed at our Vale, Oregon facility. Celatom operations holds approximately 4,978 acres of owned and leased property. We are mining approximately 88 acres in Harney and 80 acres in Malheur County for diatomaceous earth. We extracted approximately 136,000 tons of diatomaceous earth from Harney County and Malheur County mining properties during fiscal 2004. We believe our reserves of diatomaceous earth in Harney County and Malheur County, including mining properties not being actively mined, are approximately 10,900,000 tons based on estimates prepared by our mining and exploration personnel.

Tons Mined by Location

      Access to all holdings is via public roads, highways, railways and non-exclusive rights-of-way appurtenant to specific properties. Public roads, highways and non-exclusive rights-of-way span distances of five to 75 miles between mines and plants. Safety on public roads, highways and railways are regulated by State and Federal agencies while private mine roads are overseen by MSHA.

Item 3. Legal Proceedings

      Please refer to Note R of the financial statements regarding Legal Matters contained in Part II, Item 8 of this report, which is incorporated by reference in this Part I, as its Item 3.

      None.

PART II

      Not Applicable.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

      This Form 10-K 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 those items listed below. We undertake no duty to update the forward-looking statements in this Form 10-K and you should not view the statements made as accurate beyond the date of this Form 10-K.

RISK FACTORS

      An investment in our debt securities or preferred stock involves risks and uncertainties. You should consider the following factors carefully, in addition to the other information contained in this Form 10-K, before deciding to purchase our securities.

      We have a risk of insolvency.

      As of March 10, 2005, the latest date of available financial information, we had approximately $11 million of available liquidity under our credit facilities, and cash on hand. Based on current projections, we may fully utilize our revolving credit facility, accounts receivable program and cash on hand at certain times through June 10, 2005, the date on which our current forbearance agreements with our lenders expire (as discussed below). Our current financial condition may cause our suppliers to tighten their credit terms with us, which would further negatively impact our liquidity. If our liquidity needs exceed the availability under these facilities, we would need to obtain other sources of funding. Our 9.75% Senior Notes currently restrict the amount of incremental debt we can incur to approximately $15.0 million in addition to our Credit Agreement debt. There can be no assurance that this additional financing can be obtained or that it will provide sufficient liquidity to meet our needs.

      If we do not maintain sufficient liquidity to fund our operations, comply with the terms of the forbearance agreements with our lenders as described below, or extend the forbearance agreements beyond June 10, 2005, we may be forced to restructure our indebtedness, including possibly filing bankruptcy.

      We are currently out of compliance with financial covenants in our Credit Agreement and Accounts Receivable Securitization Facility.

      As of November 30, 2004, we were not in compliance with certain financial covenants under our Credit Agreement and accounts receivable securitization facility, and as a result we have classified our entire Credit Agreement debt as a current liability at November 30, 2004. As a result of this noncompliance, our Credit Agreement lenders are entitled to exercise a number of remedies, including declaring all debt immediately due and payable, ceasing to advance new loans, or enforcing their security interest in collateral, and our accounts receivable purchaser is entitled to discontinue this facility and collect all receivables up to the amount of their purchased interest.

      On February 28, 2005, we entered into forbearance agreements with our Credit Agreement lenders. Pursuant to this agreement, the lenders agreed to forbear from exercising any remedies as a result of this covenant noncompliance through June 10, 2005 and to continue funding our existing revolving credit facility through that date in its full amount of $125 million, provided that no new defaults occur. The forbearance agreements contain a covenant of minimum monthly earnings before interest, taxes, depreciation and amortization (“EBITDA”) as defined. This covenant is in lieu of the three financial covenants in the Credit Agreement for which we are currently not in compliance. The lenders can terminate the forbearance agreements if anything occurs in our business that has had, or could reasonably be expected to have, a material adverse effect on our business, assets, operations, or condition, financial or otherwise. We also agreed to an increase of 1.25% in the interest rate for the term loan and 0.75% in the interest rate for the revolving facility under the Credit Agreement, and agreed to limit capital expenditures to $10 million from February 28, 2005 through June 10, 2005.

      On March 10, 2005, we entered into a similar agreement with our accounts receivable purchaser, pursuant to which the purchaser agreed to continue funding this program through June 10, 2005, provided no new defaults occur.

      We are currently evaluating possible divestitures of business units in order to reduce our debt, as well as various other financing alternatives. No assurance can be given that any such measures will be successful or that we will complete any such measure prior to the June 10, 2005 expiration of the forbearance agreements. Accordingly, there is a substantial chance that we will need to negotiate a further extension of the forbearance agreements or an amendment to our Credit Agreement and accounts receivable program. No assurance can be given that we will be able to obtain alternative financing or such an extension or amendment.

      We have a significant level of indebtedness and high leverage that could adversely affect our financial condition and prevent us from making timely interest and payments on our debt obligations.

      We have a significant level of indebtedness and high leverage. As of November 30, 2004 our aggregate outstanding indebtedness was $393.6 million. This excludes the obligations of our accounts receivable asset-backed securitization of $32.7 million.

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

      Our CEO and CFO may not have access to adequate financial information from our subsidiary EaglePicher Technologies, LLC in order to enable them to certify our periodic reports.

      Because our controlling shareholder Granaria Holdings B.V. is a Dutch corporation, the U.S. Department of Defense has required that Granaria, EaglePicher Incorporated, its wholly-owned subsidiary EaglePicher Technologies, LLC, which comprises all of our Defense and Space Power and Specialty Materials Group Segments, as well as a portion of our Commercial Power Solutions Segment, and the U.S. Department of Defense entered into a Special Security Agreement in order for EaglePicher Technologies to retain certain facility security clearances that it holds. This Special Security Agreement restricts the transmission of certain information regarding EaglePicher Technologies’ business from EaglePicher Technologies to EaglePicher Incorporated in order to protect classified and controlled, unclassified information and insulate EaglePicher Technologies from foreign control or influence. While all parties are cooperating to ensure adequate information is available to EaglePicher Incorporated, the possibility exists that these restrictions could in the future result in the inability of our chief executive officer and chief financial officer to provide certifications under Sarbanes-Oxley sections 302 and 906, which would prevent us from filing quarterly and annual reports with the SEC. If that were to occur, we would also be in default under the provisions of our indenture related to the 9.75% Senior Notes.

      We currently have excessive demands on management resources.

      Our current financial condition and significant activities in connection with the forbearance agreements with our lenders and actions to address the situation have placed unusually heavy demands on management resources. We may not have adequate management resources to devote sufficient attention to both the aforementioned items and operations at the same time and our results of operations or financial condition may be adversely affected.

      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 60% of our net sales in fiscal year 2004. Demand in the automotive industry fluctuates in response to overall economic conditions and is particularly sensitive to changes in interest rates, consumer confidence and fuel costs. A large percentage of Hillsdale’s sales are used in SUVs and light trucks. Continued high fuel prices have weakened the demand in this market segment, and certain OEM’s have announced 2005 production reductions to address weakened demand and historically high vehicle inventory levels. Any sustained weakness in demand

or continued downturn in the global automotive industry, especially with regard to SUVs and light trucks, or North American or European economies could have a material adverse effect on us.

      Our Hillsdale and Wolverine segments face intense competition for their products and services, and automotive manufacturers are increasingly leveraging their suppliers for cost reductions to offset their market share or volume reductions and metal market pressures.

      The motor vehicle components industry is highly competitive and we believe this competition will intensify in the future. Our Hillsdale and Wolverine segments face competition from both domestic and international suppliers, as well as the automotive manufacturers themselves. The trend toward global supply solutions and low cost off-shore sourcing has resulted in increased price pressure for incumbent suppliers. Our inability to achieve the cost savings and meet 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 Hillsdale Segment is dependent on a small number of principal customers for a significant percentage of its net sales.

      In fiscal year 2004, General Motors accounted for approximately 24% of Hillsdale’s sales and 11% of our consolidated sales. In addition, Honda accounted for approximately 22% of Hillsdale’s sales and approximately 10% of our consolidated net sales. The current generation of Honda Accord programs, representing over 50% of the total Honda volume, will phase out of production during 2006. While Honda is in the initial sourcing stages for this program, no assurances can be given that Hillsdale will win the replacement program. In addition, 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.

      Our China sourcing initiative for our Hillsdale Segment may not be successful.

      During 2004, we have incurred costs associated with establishing a sourcing base in China for our Hillsdale Segment. This initiative has proven more difficult than management anticipated and has diluted management focus on remaining plant operations. This has resulted in lower than anticipated productivity growth for the year in these plants. Although we believe these key strategic initiatives will provide a more productive and competitive supply base to meet the increasing pressure from customers for cost reductions, we cannot provide any assurance that this initiative will succeed or that it will not continue to dilute management focus. Specifically, we may not realize cost reductions we were anticipating, our vendors may not be able to produce parts that meet our customers’ specifications, or our vendors may not be able to meet our delivery deadlines, any of which could have a material adverse effect on us and may make it more difficult to generate profits on the lower priced contracts that were the basis of our decision to begin sourcing parts from China. Any delays or manufacturing issues have harmed and may continue to harm our relationships with our customers.

      We may be unable to obtain certain parts, raw materials and natural gas at favorable prices or at all.

      Generally, our raw material requirements can be obtained 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, lead, lithium, manganese, boron and aluminum. The prices of these raw materials are subject to fluctuation that may be material at times, as was the case with steel during 2004. Similarly, the price of natural gas is subject to fluctuation. Our Wolverine and Filtration and Minerals Segments use a substantial amount of natural gas in connection with certain of their manufacturing operations. During 2004, we have seen significant increases in natural gas prices, which have adversely affected our Wolverine and Filtration and Minerals businesses. If natural gas prices remain at their current levels or increase, the profitability of these businesses will continue to be dampened.

      Our Hillsdale and Wolverine segments use a substantial amount of steel as a part of their operations. During 2004, steel cost increases were imposed by suppliers due to market conditions in the steel industry.

Steel prices have recently abated; however, there can be no assurance as to the future direction of steel prices. While we have been able to partially mitigate the impact of these increases to date through negotiations with both suppliers and customers, there is no assurance we will be able to continue to do so in the future. In addition to increased steel costs, our Wolverine Segment is experiencing periodic difficulty in procuring adequate sources of specific steel grades which is resulting in adjustments to production schedules and decreased manufacturing efficiency. If the ability to procure appropriate steel grades does not improve, or if it deteriorates in the future, Wolverine’s ability to meet customer demands in a timely manner may be jeopardized and operating efficiency will continue to suffer. Hillsdale relies on three foundries for a significant portion of its raw castings. Many North American foundries are under significant financial pressure. An interruption in supply from these foundries could have an adverse impact on our business.

      In addition to the increases in natural gas and steel prices we have experienced during 2004, if we were forced to find alternate suppliers or if the price of one or more of the commodities we use in production rose substantially, we may be forced to expend additional resources, which could have a material adverse effect on us. Also, due to the market conditions in the steel industry, steel suppliers changed payment terms in 2004 and prospectively for 2005 that require us to pay earlier, thereby decreasing our liquidity.

      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 81% of our fiscal year 2004 net sales came from our Hillsdale and Wolverine Segments and our Defense and Space Power Segment which supply products primarily to the automotive, aerospace and defense industries. An economic downturn in one or more of these industries, such as a continuation of the decline in automotive builds we experienced during 2004, 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 Defense and Space Power Segment in fiscal year 2004 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 all of 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.

      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 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:

      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 or acquire 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.

      We utilize automated production equipment. Any failure of that equipment, any failure to upgrade or replace that equipment or bring on line new equipment would harm our ability to produce our products.

      We rely heavily on automated production equipment. Although we maintain maintenance programs, one or more of our automated machines may fail. If any of that equipment should fail during a production run it may harm our ability to complete products in a timely manner, increase our costs for producing those products and harm our relationship with our customers. Further, new products requested by our customers, especially in our Hillsdale segment, may require us to modify or purchase new automated equipment. If such modifications to existing equipment or new equipment that we purchase do not perform as expected, we may be required to spend material additional funds in order to begin production. In addition, any delays in beginning production could harm our ability to complete such new products in a timely manner, could increase our costs of production and harm our relationships with our customers.

      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:

      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 be subject to intellectual property claims, which could be costly and time consuming and could divert our management and key personnel from our business operations.

      In producing our products, third parties may claim that we are infringing their intellectual property rights, and we may be found to have infringed those intellectual property rights. While we do not believe that any of our products infringe the intellectual property rights of third parties, we may be unaware of intellectual property rights of others that may be used in our technologies and products. In addition, third parties may claim that our patents have been improperly granted and may seek to invalidate our existing or future patents. Although we do not believe that any of our active patents should be subject to invalidation, if any claim for invalidation prevailed, the result could be greatly expanded opportunities for third parties to manufacture and sell products which compete with our products and our revenues from any related license agreements would decrease accordingly. Any litigation or other challenges regarding our patents or other intellectual property could be costly and time consuming and could divert our management and key personnel from our business operations. The complexity of the technology involved in some of our products, and the uncertainty of intellectual property litigation increase these risks. Claims of intellectual property infringement might also require us to enter into costly royalty or license agreements. However, we may not be able to obtain royalty or license agreements on terms acceptable to us, or at all. We also may be subject to significant damages or injunctions against development and sale of our products. Infringement claims, even if not substantiated, could result in significant legal and other costs and may be a distraction to management.

      We are subject to the provisions of Section 404(a) of the Sarbanes-Oxley Act of 2002.

      Starting with our fiscal year 2006 Annual Report on Form 10-K, we must comply with Section 404(a) of the Sarbanes-Oxley Act of 2002, and the related SEC rules, which require management to assess the effectiveness of our internal control over financial reporting annually and to include in our Annual Report on Form 10-K a management report on that assessment, together with an attestation by our independent registered public accounting firm. While we are implementing steps to ensure the effectiveness of our internal control over financial reporting, we cannot provide any assurance that our efforts to comply with Section 404(a) of the Sarbanes-Oxley Act of 2002 will be successful. One of our significant challenges, amongst others, is the implementation of a new enterprise resource planning (“ERP”) system within our Defense and Space, Commercial Power Solutions, Specialty Materials Group and Pharmaceutical Services segments. We have devoted significant resources to this implementation and expect to meet the deadline, but we can not assure the system will be fully operational to meet our Section 404(a) testing timetable. In addition, we will incur significant costs during 2005 and 2006 in connection with our compliance efforts. We cannot predict the impact, if any, on our operations or the financial markets if we are unable to comply.

      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 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.

      Our U.S. Government contracts may be terminated at any time and may contain other unfavorable provisions.

      The U.S. Government can typically terminate or modify any of its contracts with us either for its convenience or if we default by failing to perform under the terms of the applicable contract. A termination arising out of our default could expose us to liability and have a material adverse effect on our ability to re-compete for future contracts and orders.

      In addition, our U.S. Government contracts typically span one or more base years and multiple option years. U.S. Government agencies generally have the right to not exercise these option periods and may not exercise an option period if the agency is not satisfied with our performance of the contract. If any of our contracts are terminated by the U.S. Government, our backlog would be reduced by the expected value of the remaining terms of such contracts and our financial condition and operating results could be materially adversely affected. In addition, on those contracts for which we are teamed with others and are not the prime contractor, the U.S. Government could terminate a prime contract under which we are a subcontractor, irrespective of the quality of our services as a subcontractor.

      In addition to unfavorable termination provisions, our U.S. Government contracts contain provisions that allow the U.S. Government to unilaterally suspend us from receiving new contracts pending resolution of alleged violations of procurement laws or regulations, reduce the value of existing contracts, issue modifications to a contract and control and potentially prohibit the export of our services and associated materials.

      As a U.S. Government contractor, we are subject to a number of procurement rules and regulations.

      We must comply with and are affected by laws and regulations relating to the formation, administration and performance of U.S. Government contracts. These laws and regulations, among other things:

      These laws and regulations affect how we do business with our customers and, in some instances, impose added costs on our business. A violation of specific laws and regulations could result in the imposition of fines and penalties or the termination of our contracts.

      Our business could be adversely affected by a negative audit by the U.S. Government.

      U.S. Government agencies, including the Defense Contract Audit Agency, routinely audit and investigate government contractors. These agencies review a contractor’s performance under its contracts, cost structure and compliance with applicable laws, regulations and standards. The U.S. Government also may review the adequacy of, and a contractor’s compliance with, its internal control systems and policies, including the contractor’s purchasing, property, estimating, compensation and management information systems. Any costs found to be improperly allocated to a specific contract will not be reimbursed, while such costs already reimbursed must be refunded. If an audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business with the U.S. Government. In addition, we could suffer serious harm to our reputation if allegations of impropriety were made against us.

      We face increasingly stringent U.S. 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, and Asia. 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:

      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.

      We may be subject to work stoppages at our facilities or our customers may be subjected to work stoppages.

      As of November 30, 2004, approximately 46% 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.

      Our failure to timely or properly implement our new information systems could adversely affect our business.

      We are in the process of implementing a new information system. Any failures, difficulties or significant delays in implementing this new information system could result in material adverse consequences to our business, including disruption of operations, loss of information and unanticipated increases in cost.

      We are controlled by a small number of shareholders whose interests may conflict with the interests of other investors.

      Granaria Holdings B.V., indirectly beneficially owns approximately 46.5% and controls the voting of 62.5% of our common stock. ABN AMRO Participaties B.V. indirectly beneficially owns and controls the voting of 37.5% of our common stock. Circumstances may occur in which the interests of Granaria Holdings B.V. and ABN AMRO Participaties B.V. could be in conflict with the interests of other investors. If we encounter financial difficulties, or are unable to pay certain of our debts as they mature, the interests of our controlling shareholders (whether or not as holders of our equity securities) might conflict with those of the other investors.

CRITICAL ACCOUNTING POLICIES

      Our financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the use of estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. We believe that our critical accounting policies, which involve a higher degree of judgments, estimates and complexity, are as follows:

      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 25 additional sites. Any potential liability to fund environmental remediation activities could have a material adverse effect on our covenant compliance with the forbearance agreements, as described elsewhere in this report, and our liquidity given our current financial condition.

      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. In addition, in the course of our 1998 bankruptcy emergence, 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 our pre-1998 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% of the liability amount.

      We incurred environmental compliance expenses of $8.7 million in 2002, $8.3 million in 2003, and $8.1 million in 2004. We expect to incur approximately $8.0 million in 2005.

      In addition, we made capital expenditures for environmental compliance and remediation of $0.6 million in 2002, $0.6 million in 2003, and $1.9 million in 2004. We expect to incur approximately $2.5 million in 2005.

      We had total remediation expenditures of $1.2 million in 2002, $3.3 million in 2003, and $2.2 million in 2004, of which $1.2 million in 2002, $2.8 million in 2003, and $2.2 million in 2004 were charged to our accrued environmental reserves. As of November 30, 2003, we had $9.3 million, and as of November 30, 2004, we had $5.7 million accrued for sold divisions and businesses related to legal and environmental matters. In addition, as of November 30, 2003, we had $1.6 million, and as of November 30, 2004, we had $1.4 million accrued in other accrued liabilities related to environmental liabilities for our on-going businesses.

      We review for impairment the carrying value of our long-lived assets held for use and assets to be disposed of. For assets held for use, the carrying value of a long-lived asset is considered impaired if the sum of the undiscounted cash flows is less than the carrying value of the asset. 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. For assets to be disposed of, the recorded amount is the lower of the carrying value or fair value less cost to sell. We do not amortize goodwill, but we complete an annual impairment test. These evaluations require us to forecast our future cash flows or current fair values, which require significant judgment. As of November 30, 2003, we had recorded $152.0 million of goodwill, and as of November 30, 2004, we had recorded $126.2 million of goodwill. In addition, as of November 30, 2003, we had recorded $150.8 million of property, plant, and equipment, net (our primary long-lived asset), and as of November 30, 2004, we had recorded $157.7 million of property, plant, and equipment, net.

      Based on a combination of factors, particularly: (1) our current and projected operating results; (2) the loss of several key automotive programs prior to November 30, 2004; and (3) the overall deterioration in the U.S. automotive industry, prior to finalizing our fiscal year 2004 annual financial statements, we concluded there were sufficient indicators to require us to assess whether the recorded goodwill balance of our Hillsdale segment was impaired at November 30, 2004. Based on a valuation of our Hillsdale reporting unit, we concluded that the goodwill in our Hillsdale reporting unit was impaired. As required by SFAS No. 142, in measuring the amount of goodwill impairment, we made a hypothetical allocation of the estimated fair value of the reporting unit to the tangible and intangible assets (other than goodwill) within this reporting unit. Based on this allocation, we wrote off $34.8 million of goodwill in the Hillsdale reporting unit as a non-cash charge to continuing operations during the fourth quarter of fiscal 2004.

      We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed and determinable, and collectibility is reasonably assured. These conditions are met at the time we ship our products to our customers. Net Sales and Cost of Products Sold include transportation costs 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. Under the percentage-of-completion method, contract costs include direct material, labor costs, and those indirect costs related to contract performance, such as indirect labor, supplies, tools and facility costs. Selling and administrative expenses are charged to expense as incurred. Provisions for estimated losses on 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.

      As noted above, the United States Government has the right to terminate contracts at its convenience. If the United States Government were to terminate one or more of our contracts, we may be required to write-off a portion of our asset called costs and estimated earnings in excess of billings.

      We provided for estimated losses on uncompleted contracts of $0.2 million at November 30, 2003 and $0.1 million at November 30, 2004. The percentage of completion method requires a higher degree of judgment and use of estimates than other revenue recognition methods. The primary judgments and estimates involved include our ability to accurately estimate the contracts’ percent complete and the reasonableness of the estimated costs to complete as of each financial reporting period.

      We have an off-balance sheet accounts receivable asset-backed qualifying special purpose entity to assist us in our capital resources and liquidity. Under this arrangement, we sell certain receivables to the off-balance sheet entity, which in turn sells an interest in the revolving pool of receivables to a major U.S. financial institution. 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. We continue to service sold receivables and receive a monthly servicing fee of approximately 1% per annum of the receivable pool’s average balance. The accounting for qualifying special purpose entities is a complex and evolving area of accounting. In the event the accounting is modified in the future, we may be forced to consolidate the off-balance sheet special purpose entity which could have a significant impact on our financial position. Our retained interest in the off-balance sheet entity, which is recorded as an asset on our balance sheet, was $63.3 million at November 30, 2003 and $34.3 million at November 30, 2004. The revolving pool of receivables that the off-balance sheet entity owned and we serviced totaled $64.9 million at November 30, 2003 and $69.2 million at November 30, 2004. The outstanding balance of the interest sold to the financial institution recorded on the off-balance sheet special purpose entities’ financial statements was zero at November 30, 2003 and $32.7 million at November 30, 2004.

      We sponsor pension plans covering substantially all employees who meet certain eligibility requirements. Several statistical and other factors that attempt to anticipate future events are used in calculating the expense and liability related to these plans. These factors include key assumptions, such as discount rate, expected return on plan assets and rate of future compensation increases. In addition, our actuarial consultants also use subjective factors such as withdrawal and mortality rates to estimate these factors. The actuarial assumptions we use may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. These differences may result in a significant impact to the amount of pension benefit expenses we have recorded or may record in the future. Assuming a constant employee base, we estimate that as of November 30, 2004, a 25 basis point change in the discount rate, would change the annual pension expense by approximately $0.4 million and change our pension benefit obligation by $7.9 million. Additionally, a 25 basis point change in the expected return on plan assets would change the annual pension expense by approximately $0.6 million.

      In 2005, we will consider conducting a detailed mortality experience study to determine if we should consider adopting a more recently issued actuarial mortality table, which would increase our pension plan benefit obligations by approximately $8.2 million (assuming all assumptions at November 30, 2004 are held constant) and increase our annual expense by approximately $1.0 million. If we elect to adopt this more recent actuarial mortality table and if our plan assets do not increase more than the liabilities, our pension plans may become underfunded. If this occurs, we would be forced to write-off substantially all of our $59.4 million prepaid pension asset as of November 30, 2004 and record an additional minimum pension liability for the unfunded amount by a non-cash charge to other comprehensive income (“OCI”), resulting in an increased deficiency in our shareholders’ equity.

      The write-off to OCI of the prepaid pension asset and the accrual for the pension liability are all non-cash items that are required under United States generally accepted accounting principles (“GAAP”). The accounting treatment under GAAP is different from the funding requirements mandated by the Employee Retirement Income Security Act of 1974 (“ERISA”). Accordingly, based on the current ERISA funding rules, we do not expect these non-cash charges to OCI to impact the need for potential cash contributions to our pension plans. Under the pension funding assumptions currently being utilized and rules currently dictated by ERISA, we do not anticipate a requirement for any cash contributions during the next several years.

However, at our discretion, we may make voluntary contributions from time to time, based on our cash position, deductibility limits, and overall financial status, and the potential to further strengthen the funded status of the plans over the long-term.

      In our Filtration and Minerals Segment, we charge our mining costs to Cost of Products Sold as sales occur. However, we defer and amortize certain mining costs on a units-of-production basis over the estimated life of the particular section of a mine, based on estimated recoverable cubic yards of ore in that section. These mining costs, which are commonly referred to as “deferred stripping” costs, are incurred in mining activities that are normally associated with the removal of waste rock. We include our deferred stripping costs in Other Assets, net in our accompanying balance sheets.

      We evaluate the carrying value of our deferred stripping costs utilizing a SFAS No. 144 model by comparing the carrying amount of the asset against the estimated undiscounted future cash flows. If the undiscounted cash flows are less than the carrying value, an impairment loss is recorded for the difference between the fair value of the asset and the carrying value.

      Because we amortize these costs using the units-of-production method based on the estimate of ore that is mineable in each section of the mine, the amount of deferred stripping amortized in each period will vary based on the amount of deferred stripping activity versus production activity during a given period. Our accounting policy is to amortize the deferred stripping costs for a specific mineable deposit over the specific mineable deposit’s estimated life into Depreciation and Amortization when production of that specific mineable deposit’s ore occurs. We expect our existing deferred stripping costs to be fully amortized within 10 years which is our estimated completion of our active mining deposit locations. In the future, we will incur additional deferred stripping costs related to our reserves which are not yet active.

      The accounting for deferred stripping costs is mixed in practice, and some mining companies expense deferred stripping as incurred which results in greater volatility in reported results. In addition, some mining companies defer inner-burden or embedded burden costs, which we do not defer. We believe our accounting policy, which is generally accepted in the mining industry, provides a smoothing of the cost of over-burden waste-rock removal over the life of the mine, rather than expensing it as incurred, and provides a better matching of revenues with expenses. As of November 30, 2003, we had $4.8 million and as of November 30, 2004, we had $4.4 million recorded for deferred stripping.

      The EITF has issued Issue No. 04-6 for the task force to discuss, “Accounting for Stripping Costs Incurred during Production in the Mining Industry.” The issue is attempting to address numerous implementation and consistency issues for the mining industry, including the appropriate accounting for deferred stripping costs. Any consensus reached by the EITF on this issue could result in a change to our accounting policy on Deferred Stripping and as a result may have a material impact on our financial condition or results of operations.

      We are a defendant in numerous litigation and regulatory matters including those involving environmental law, employment law and patent law, as discussed in Note R of our November 30, 2004 financial statements included elsewhere in this report. As required by SFAS No. 5, we determine whether an estimated loss from a loss contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. We analyze our litigation and regulatory matters based on available information to assess potential liability. We develop our views on estimated losses in consultation with outside counsel and environmental experts handling our defense in these matters, which involves an analysis of potential results, assuming a combination of litigation and settlement strategies. Should these matters result in an adverse judgment or be settled for significant amounts, they could have a material adverse effect on our results of operations, cash flows and financial position in the period or periods in which such judgment or settlement occurs.

      Over the last several years we have engaged in significant restructuring actions and divestitures, which have required us to develop formalized plans as they relate to exit activities. These plans have required us to utilize significant estimates related to salvage values of assets that were made redundant or obsolete. In addition, we have had to record estimated expenses for severance and other employee separation costs, lease cancellation and other exit costs. Given the significance and the timing of the execution of such actions, this process is complex and involves periodic reassessment of estimates made at the time the original decisions were made. Our policies, as supported by current authoritative guidance, require us to continually evaluate the adequacy of the remaining liabilities under our restructuring initiatives. As we continue to evaluate the business, there may be supplemental charges for new plan initiatives as well as changes in estimates to amounts previously recorded as payments are made or actions are completed. As of November 30, 2004, we had recorded on our balance sheet $5.7 million of accrued costs for sold divisions and businesses related to legal and environmental matters and $0.7 million in restructuring reserves.

      We record the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in our balance sheets, as well as operating loss and tax credit carryforwards. We follow very specific and detailed guidelines in each tax jurisdiction regarding the recoverability of any tax assets recorded on the balance sheet and provide necessary valuation allowances as required. We regularly review our deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and the implementation of prudent and feasible tax planning strategies. These feasible tax planning strategies include the sale of certain assets which we expect could generate estimated taxable gains of approximately $60 million (see Note P contained in Part II, Item 8 of this report). If we continue to operate at a loss in certain jurisdictions or are unable to generate sufficient future taxable income, or if there is a material change in the actual effective tax rates or time period within which the underlying temporary differences become taxable or deductible, we could be required to increase the valuation allowance against all or a significant portion of our deferred tax assets resulting in a change in our effective tax rate and a material adverse impact on our reported results. Conversely, if we generate positive pre-tax income, we could be required to reduce our existing valuation allowance on a portion or all of our deferred tax assets resulting in a change in our effective tax rate and a material positive impact on our reported results. As of November 30, 2004, our gross deferred tax assets were approximately $71.6 million and our gross deferred tax liabilities were approximately $44.8 million. These amounts were reduced by a valuation allowance of $12.5 million for a net deferred tax asset of $14.3 million.

      Other significant accounting policies, not involving the same level of uncertainties as those discussed above, are nevertheless important to an understanding of our financial statements. See Note B to the November 30, 2004 consolidated financial statements included elsewhere in this report which discusses our other significant accounting policies.

RESULTS OF OPERATIONS

      During the first quarter of 2004, we elected to modify our reportable business segment information and move from reporting three business segments (Automotive, Technologies and Filtration and Minerals) to reporting six business segments (Hillsdale, Wolverine, Power Group, Specialty Materials Group, Pharmaceutical Services, and Filtration and Minerals), which was consistent with how our chief operating decision maker reviewed the performance of the businesses at that time. During the fourth quarter of 2004, our chief operating decision maker elected to separate our Power Group into two separate business units to better serve our customers and to better focus on penetrating existing and new markets. As a result, we separated our Power Group into the Defense and Space Power Segment and the Commercial Power Solutions Segment. We have restated our prior period segment information to conform to the new presentation. 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 T in our November 30, 2004 consolidated

financial statements for additional financial information by segment. All references herein to years are to our fiscal year ended November 30 unless otherwise indicated (in thousands of dollars).

      Sales decreased $6.1 million, or 1.9%, to $317.7 million in 2004 from $323.8 million in 2003. The sales decrease was comprised of $3.0 million of lower volumes and $5.0 million, or 1.6%, of lower average selling prices, which were partially offset by a change in status from a Tier 2 vendor (where we only bill value add work) to a Tier 1 vendor (where we also bill for materials at cost) which increased sales by $1.9 million with no impact on gross margin or operating income (loss).

      The lower volume was primarily a result of the continued phase-out of several programs that reduced sales by $14.1 million, a $4.3 million reduction in North American build levels for models we source to Honda, Hillsdale’s second largest customer, and a $1.6 million reduction in sales to Mitsubishi. These decreases were partially offset by sales increases of (a) a new technology transmission micro-filtration program to Ford of $6.1 million, (b) sales of Allison transmission components of $3.4 million, (c) sales of Daimler Chrysler dampers of $2.5 million, and (d) the launch of two new General Motors dampers programs for the L4 and L5 engines which increased sales by $3.5 million. The remainder of the sales variance is primarily due to the decreases in overall automotive builds.

      Operating income decreased $46.7 million to a loss of $39.8 million in 2004 from income of $6.9 million in 2003. Earnings have been impacted throughout 2004 by the costs to consolidate some of our U.S. production facilities and by the transition costs to establish a China sourcing base. These initiatives have

proved more difficult than management anticipated and they have diluted management focus on remaining plant operations. This has resulted in lower productivity growth in 2004 for these plants than we have achieved in recent years. We are also incurring higher steel costs that we believe will continue to impact earnings into 2005. To date, we have been unable to completely recover these cost increases through surcharges to our customers. The decreased operating income is primarily attributable to the following favorable/(unfavorable) items:

      The North American automotive market remains a highly competitive market that is subject to potentially significant volume changes. We expect these competitive pressures to continue and possibly intensify. Our customers are consolidating their supplier base, increasing international sourcing and intensifying pressure for price reductions. In addition, market forecasts indicate that the Big 3 U.S. OEM’s will reduce production volumes in 2005, particularly during the first half of the year to reduce historically high inventory levels. We expect this will negatively impact the SUV and light truck market segment, where Hillsdale has a relatively high concentration of its sales.

      In addition, during 2004, steel cost increases were imposed by suppliers due to market conditions in the steel industry. While Hillsdale has been able to somewhat mitigate the impact of these increases to date through negotiations with both suppliers and customers, there is no assurance it will be able to continue to do so in the future. Steel prices have recently abated; however, there can be no assurance as to the future direction of steel prices.

      As a result of the 2004 financial performance of Hillsdale and the loss of programs with two customers totaling $30 million in annual sales subsequent to November 30, 2004, in February 2005, we hired Giuliani Capital Advisors LLC to assist us in performing a detailed strategic and financial performance review of Hillsdale’s operations. This review will include a comprehensive strategy to improve operating and financial performance, including further plant consolidations, a detailed assessment of our China sourcing initiatives, and an assessment of our long-term customer profitability. The outcome of this comprehensive strategy could lead to the closure of one or more plants which may result in material impairments of certain assets and potential restructuring costs.

      Sales increased $16.7 million, or 18.6%, to $106.5 million in 2004 from $89.9 million in 2003. Excluding the impact of favorable foreign currency exchange rates (approximately 40% of Wolverine’s sales are in Europe), sales increased 14.4%. This sales increase was due entirely to volume gains, as pricing was essentially flat in 2004. The volume increases are primarily related to new brake programs in Europe and new engine gasket programs in the United States. Sales mix has been somewhat negative as engine gasket sales have lower margins due to the higher cost of the stainless steel commonly utilized in this product offering.

      Operating income increased $1.0 million, or 6.8%, to $15.6 million in 2004 from $14.6 million in 2003. The increase in operating income is primarily due to the following favorable/(unfavorable) items:

      In addition to increased steel costs, Wolverine is experiencing periodic difficulty in procuring adequate sources of specific steel grades which is resulting in adjustments to production schedules and decreased manufacturing efficiency. If the ability to procure appropriate steel grades does not improve, or if it deteriorates in the future, Wolverine’s ability to meet customer demands in a timely manner may be jeopardized and operating efficiency will continue to suffer.

      Sales in our Defense and Space Power Segment increased $21.1 million, or 16.2%, to $152.0 million in 2004 from $130.8 million in 2003. This increase includes $11.0 million in missile battery sales, $4.5 million in space batteries, and $5.6 million in customer funded product development contracts.

      Operating income decreased $4.9 million, or 23.6%, to $15.8 million in 2004 from $20.7 million in 2003. The decrease in operating income is primarily due to the following favorable/ (unfavorable) items:

      Our margin booking rates were negatively impacted due to a combination of issues on our two largest contracts. These factors impacting the rates were (a) unanticipated start-up issues with new automated machinery in our Phoenix manufacturing facility, and (b) lower than anticipated productivity in our Vancouver B.C. plant. It was projected that our Phoenix plant would reach full capacity during the fourth quarter of 2004; however, due to a variety of issues we achieved approximately 30-40% of our full capacity at that time. In addition to the lower than projected productivity at our Vancouver B.C. facility we were also negatively impacted by the continued weakness of the U.S. dollar to the Canadian dollar, especially in the fourth quarter of 2004.

      Sales increased $0.9 million, or 6.7%, to $13.9 million in 2004 from $13.0 million in 2003. This increase was primarily driven by volume growth in the medical battery business.

      Operating income decreased $11.2 million to a loss of $6.6 million in 2004 from income of $4.6 million in 2003. The decrease is primarily due to a $6.2 million insurance gain recorded in 2003, and $4.4 million of start-up operating losses to support the future growth in our EaglePicher Horizon Batteries venture.

      Sales decreased $5.8 million, or 20.6%, to $22.3 million in 2004 from $28.1 million in 2003. This sales decrease was primarily due to discontinuation of certain product lines in 2003 ($3.6 million in 2003), and reduced demand for nuclear power plant products, partially offset by increased demand for semiconductor products.

      In April 2004, we sold our Environmental Sciences & Technology division for cash of approximately $23.0 million. We have accounted for this sale as a Discontinued Operation and therefore restated our 2003 and 2004 financial results to exclude this division’s operating results from income from continuing operations.

      Operating income increased $0.5 million, or 7.9%, to $6.6 million in 2004 from $6.1 million in 2003. The increase in operating income was primarily due to $2.3 million of accelerated depreciation expense recorded in 2003 as a result of product lines that we discontinued at that time and reduced gross margins as a result of the sales decrease, partially offset by lower selling, general, and administrative expenses allocated to the business.

      Sales increased $3.4 million, or 37.4%, to $12.5 million in 2004 from $9.1 million in 2003. This increase is primarily related to general overall improvement in the business.

      Operating income decreased $1.1 million, or 40.0%, to $1.6 million in 2004 from $2.7 million in 2003. This decrease is primarily due to a $2.8 million insurance gain recorded in 2003 and $0.5 million of insurance losses recorded in 2004, which were partially offset by increased volume and favorable sales mix.

      Sales increased $3.8 million, or 4.9%, to $82.4 million in 2004 from $78.6 million in 2003. The sales increase was primarily due to increased volumes as the impact of lower pricing in Europe was offset by favorable foreign currency exchange rates. The sales increase is primarily related to increased sales in our targeted filtration and additives market.

      Operating income decreased $1.5 million, or 27.2%, to $3.8 million in 2004 from $5.3 million in 2003. This decrease was primarily related to increased gross margins on higher sales volume and favorable foreign currency, which was more than offset by $2.5 million of higher ore mining, fuel costs, maintenance supplies and deferred strip amortization, as well as a $0.6 million unfavorable inventory valuation adjustment, and manufacturing related costs (e.g. healthcare, maintenance supplies, and power).

      Net sales. Net sales increased $34.0 million, or 5.1%, to $707.3 million in 2004 from $673.3 million in 2003. The sales increase was primarily driven by a $21.1 million, or 16.2%, increase in our Defense and Space Power Segment related to higher volumes, and a $16.7 million, or 18.6%, increase in our Wolverine Segment, primarily due to a 14.4% volume increase. See above for a more detailed discussion of the individual segments’ results.

      Cost of products sold (exclusive of depreciation). Costs of products sold increased $58.0 million, or 11.3%, to $571.1 million in 2004 from $513.1 million in 2003. Our gross margin decreased $24.0 million, or 15.0%, to $136.2 million in 2004 from $160.2 million in 2003, and the gross margin percentage decreased 4.5% to 19.3% from 23.8%. The deterioration of our gross margin is primarily the result of the following favorable/(unfavorable) items:

      Selling and administrative. Selling and administrative expense increased $3.5 million, or 5.5%, to $66.7 million in 2004 from $63.2 million in 2003. This increase is primarily related to the following favorable/(unfavorable) items:

      Depreciation and amortization. Depreciation and amortization decreased $7.0 million, or 14.7%, to $40.7 million in 2004 from $47.7 million in 2003. This decrease was primarily related to $2.1 million of accelerated depreciation expense recorded in 2003 for product lines that were discontinued at that time, and for certain assets whose depreciation was completed in 2003 and 2004. Our reduced capital expenditures in 2002 and 2003 also contributed to reduced depreciation expense in 2004.

      Restructuring and asset impairments. During 2004, we recorded $1.0 million of expense to true-up our 2001 and 2002 restructuring charges ($0.4 million), and to record asset impairments for assets no longer in use ($0.6 million).

      Loss from divestitures. All amounts recorded in loss from divestitures expense relate to operations that were sold or that were divested prior to November 30, 2003. During 2004, we recorded $0.8 million related to old workers compensation claims, $2.6 million related to a litigation settlement of a claim for a division sold effective December 1999, and $2.1 million in other divested division environmental and legal matters.

      Insurance related losses/(gains). In 2003, we recorded two insurance gains. The first was a $2.8 million gain related to a final settlement with our insurance carrier on a fire that occurred during the third quarter of 2001. The second gain was for $5.5 million primarily related to the settlement of a claim with our insurance carrier over the coverage on a fire during 2002 at our Seneca, Missouri non-operating facility. In 2004, the $0.7 million loss is primarily related to settling a lawsuit related to assets which were destroyed in a fire.

      Goodwill impairment. Based on a combination of factors, particularly: (1) our current and projected operating results; (2) the loss of several key automotive programs prior to November 30, 2004; and (3) the overall deterioration in the U.S. automotive industry, prior to finalizing our fiscal year 2004 annual financial statements, we concluded there were sufficient indicators to require us to assess whether the recorded goodwill balance of our Hillsdale segment was impaired at November 30, 2004. Based on a valuation of our Hillsdale reporting unit, we concluded that the goodwill in our Hillsdale reporting unit was impaired. As required by SFAS No. 142, in measuring the amount of goodwill impairment, we made a hypothetical allocation of the estimated fair value of the reporting unit to the tangible and intangible assets (other than goodwill) within this

reporting unit. Based on this allocation, we wrote off $34.8 million of goodwill in the Hillsdale reporting unit as a non-cash charge to continuing operations during the fourth quarter of fiscal 2004.

      Operating Income. Operating income decreased $70.7 million, to a loss of $13.1 million in 2004 from income of $57.6 million in 2003. This change was primarily the result of the following favorable/(unfavorable) items (in million of dollars):

      See above for a discussion of the variances in each of these line items.

      Interest expense. Interest expense was $36.7 million in 2004 and $34.0 million in 2003 (not including $0.9 million in 2004 and $4.8 million in 2003 which was allocated to discontinued operations). Including interest allocated to discontinued operations, our year over year interest expense decreased $1.2 million in 2004 primarily due to lower interest rates.

      Preferred stock dividends accrued. Effective September 1, 2003, we adopted SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” which requires that certain instruments be classified as liabilities in our balance sheet. The effect of the adoption was that, as of September 1, 2003, we reclassified the current redemption value plus unpaid dividends on our redeemable preferred stock to long-term liabilities, and the accrual of dividends payable for periods ending after September 1, 2003 has been recorded as a component of non-operating expenses in our consolidated statements of operations. During 2003, $4.1 million of dividends have been accrued as a component of other non-operating expenses and $12.3 million was accrued as a deduction from net income in arriving at loss available to common shareholders. During 2004, $16.7 million of dividends have been accrued as a component of non-operating income. In accordance with this statement, the prior period financial statements have not been reclassified.

      Other income (expense), net. Other income (expense), net increased $3.3 million to income of $1.7 million in 2004 from a loss of $1.6 million in 2003. This increase is primarily related to reduced losses on foreign currency exchange rate forward contract hedges in the Corporate Segment which are entered into to offset foreign currency exchange rate exposures in the operating segments.

      Write-off of deferred financing costs. During 2003, we wrote-off $6.3 million of deferred financing costs in connection with the retirement of our former senior secured credit facility and the redemption of approximately 95% of our senior subordinated notes. In addition, in 2004, we wrote-off $0.5 million of costs in connection with retiring the remaining 5% of our senior subordinated notes.

      Income tax provision (benefit). Income tax benefit was $6.6 million in 2004 compared to a provision of $2.8 million in 2003 (excluding $0.6 million of tax benefit which was allocated to discontinued operations in 2003). The 2003 provision relates to the allocation of income and loss between the United States and foreign jurisdictions and primarily represent the estimated tax that will be due in certain jurisdictions where no tax benefit can be assured from utilizing previous losses. There was no U.S. Federal or state tax benefit or provision recorded during 2003. During 2004, in an effort to better manage our outstanding borrowings, we elected to repatriate the earnings of certain of our foreign subsidiaries. As a result of this repatriation, we determined that we can no longer consider the unremitted earnings of these subsidiaries to be permanently invested outside of the United States, and pursuant to APB Opinion No. 23, “Accounting for Income Taxes — Special Areas,” we recorded a tax provision of approximately $7.2 million. As of November 30, 2004, we have provided taxes on all foreign earnings. In addition, during 2004, we recorded an income tax benefit of approximately $7.5 million related to the write-off of goodwill associated with our Hillsdale segment.

We primarily generate our revenues in the United States and in certain foreign jurisdictions, including Canada, Mexico, Asia and Germany. For the three years ended November 30, 2004, we had cumulative sources of income (loss) from continuing operations before income taxes in the United States of ($110.0) million and in foreign locations of $27.6 million. Our cumulative losses in the United States were primarily the result of (i) the amortization of goodwill primarily in the U.S. operations prior to our adoption of SFAS No. 142 on December 1, 2003, (ii) the fact that our debt is primarily U.S. based and accordingly most of our interest expense is U.S. based, (iii) our Goodwill impairment charge for our Hillsdale Segment in 2004, and (iv) in the past three years, we have had significant expenses related to restructuring charges, legal costs, environmental liabilities and divestitures, substantially all of which have been U.S. based.

      Discontinued operations. During 2003, we accounted for our Hillsdale U.K. operation as a discontinued operation. In addition, during 2003 we accounted for the sale of certain assets of our Germanium-based business as a discontinued operation. During 2004, we accounted for the sale of our Environmental Science & Technology division as a discontinued operation. Accordingly, we have restated our prior period financial statements to conform to the discontinued operations presentation.

      Cumulative effect of accounting change. Effective September 1, 2004, we adopted EITF Issue No. 03-16, “Accounting for Investments in Limited Liability Companies.” Upon adoption, this consensus requires that we account for our investment in a start-up manufacturing company as an equity method investment. The consensus was effective for us on September 1, 2004 and required that we record as a cumulative effect of a change in accounting principle in our fourth quarter of 2004 an after-tax charge of $0.2 million.

      Net income (loss). Our loss increased $55.1 million to a net loss of $52.3 million in 2004 from net income of $2.8 million in 2003. This decline is the result of the items discussed above.

      Sales decreased $18.8 million, or 5.5%, to $323.8 million in 2003 from $342.7 million in 2002. This decline in sales is primarily related to the 4.0%-4.5% decrease in overall North American light vehicle production levels in 2003 and the phase-out of three programs. The sales decrease for the three program phase-outs totaled $31.1 million, including $10.5 million for a Ford Motor Company transmission pump, $9.6 million for a General Motors connecting rod program, and $11.0 million for an Acura knuckle program. Partially offsetting these program losses was $5.0 million related to a new technology micro-filtration transmission program and a Mitsubishi knuckle program. Hillsdale’s customer/platform mix compares favorably to the industry composite sales performance, which also contributed to partially offsetting the overall North American light vehicle production decrease and the decreases from the three program phase-outs. Approximately 36% of Hillsdale sales are to U.S. operations of Japanese automakers and 19% are related to General Motors light trucks and SUVs, which continue to outperform the overall industry growth rate.

      Operating income increased $4.7 million, or 204.8%, to $6.9 million in 2003 from $2.3 million in 2002. This $4.7 million improvement in operating income was primarily due to the following favorable/(unfavorable) items:

      Hillsdale’s decrease in margin associated with the volume changes discussed above was essentially offset by favorable sales mix.

      Sales increased $10.5 million, or 13.2%, to $89.9 million in 2003 from $79.4 million in 2002. This increase is due to a 6.4% volume increase despite lower overall North American automotive production levels and 6.8% favorable foreign currency exchange rates as a result of the strengthening of the Euro. Approximately 40% of our Wolverine division’s sales are European. Wolverine’s volume increases were driven by increased gasket material sales primarily as a result of new program wins in North America, and increased brake programs with original equipment manufacturers in Europe, as well as other new programs with original equipment manufacturers.

      Operating income increased $6.3 million, or 77.0%, to $14.6 million in 2003 from $8.2 million in 2002. This $6.3 million improvement in operating income was primarily due to the following favorable/(unfavorable) items:

      Sales increased $32.8 million, or 33.4%, to $130.8 million from 98.1 million. This increase is primarily related to new contracts, improved pricing, and increased defense spending. Growth was particularly strong in battery sales to Boeing Corporation, the U.S. Government, and customer funded product development contracts. We were awarded several significant military and space battery contracts.

      Operating income improved $25.0 million to income of $20.7 million in 2003 from a loss of $4.3 million in 2002. Included in the 2002 amount were the following unusual items that reduced 2002 operating income by $3.8 million and affect the comparability of 2002 and 2003.

      Included in the 2003 amount were the following unusual items that increased 2003 operating income by $4.0 million and affect the comparability of 2002 and 2003.

      In addition, the following favorable/(unfavorable) items, with a net favorable total of $17.2 million in 2003, contributed to the improvement in operating income:

      Sales increased $6.5 million, or 99.0%, to $13.0 million in 2003 from $6.5 million in 2002. This increase was driven by the re-introduction of lead acid batteries to the telecommunications industry and an overall improvement in on-time contract deliveries, as well as reducing our delinquencies through enhanced performance.

      Operating income improved $4.9 million to income of $4.6 in 2003 from a loss of $0.3 million in 2002. Included in the 2003 amount was $6.2 million of insurance gain related to the settlement of a fire insurance claim and $2.6 million of expense primarily related to the settlement of environmental and legal issues at our former Colorado Springs facility as discussed in the Item 3, Legal Proceeding, included elsewhere in this report. The remaining $1.3 million of net favorable items was the result of the increased sales discussed above, which were partially offset by management infrastructure expense to launch our commercial power products growth initiatives.

      Sales decreased $4.2 million, or 12.9%, to $28.1 million in 2003 from $32.3 million in 2002. This decrease is primarily related to $1.5 million from two relatively small businesses that we exited during 2003, and $2.7 million due to a decrease in enriched boron sales, which are generally larger value orders that are not consistent in timing.

      Operating income improved $7.1 million to income of $6.1 million in 2003 from a loss of $1.0 million in 2002. Included in the 2002 amount were the following unusual items that reduced 2002 operating income by $9.3 million and affect the comparability of 2002 and 2003.

      Included in the 2003 amount were the following unusual items that increased 2003 operating income by $0.6 million and affect the comparability of 2002 and 2003.

      The remaining $2.8 million decrease in operating income was primarily the result of the lower sales discussed above in 2003.

      Sales decreased $4.1 million, or 31.2%, to $9.1 million in 2003 from $13.2 million in 2002. A fire in the third quarter of 2001 disrupted operations at our primary pharmaceutical manufacturing facility and resulted in customer concerns as to the potential impact on quality and sourcing capability. This led to the non-renewal of some contracts and general softening in orders due to customer concerns. In 2003, a Federal Drug Administration (“FDA”) quality audit was successfully completed with very favorable results, which was communicated to our customers. This enabled us to recapture orders from customers that were lost after the disruptive impact of the fire.

      Operating income improved $0.4 million, or 16.5%, to $2.7 million in 2003 from $2.3 million in 2002. Included in 2002 is an expense of $2.4 million for an insurance loss related to inventories damaged in a fire during the third quarter of 2001 at our Missouri bulk pharmaceutical manufacturing plant and included in 2003 is a $2.8 million insurance gain related to the same fire. The remaining $4.8 million of unfavorable items in 2003 is the result of the decreased sales, technical production difficulties and severance costs.

      Sales in our Filtration and Minerals Segment decreased $3.6 million, or 4.3%, to $78.6 million in 2003 from $82.1 million 2002. This decrease was due primarily to lower volumes and a change from acting as a distributor to a sales agent for the sale of a certain product.

      The Filtration and Minerals Segment’s operating income decreased $2.8 million, or 34.6%, to $5.3 million in 2003 from $8.1 million in 2002. The decreased earnings were primarily due to lower volumes ($1.7 million), higher energy costs ($1.0 million), higher severance and recruiting costs related to restructuring the segment’s management team ($1.2 million), and additional freight costs largely related to the resolution of disputed freight claims with a former carrier ($0.8 million). These negative factors were partially offset by favorable foreign currency exchange rates as a result of the strengthening of the Euro and lower per ton mining costs.

      Net sales. Net Sales increased $15.6 million, or 2.4%, to $673.3 in 2003 from $657.7 in 2002. Excluding sales from our Precision Products business, which we divested in July 2002, net sales increased $19.0 million, or 2.9%. This increase was due to strong increases of 33.4% in our Defense and Space Power Segment and 13.2% in our Wolverine Segment, partially offset by decreases of 5.5% in our Hillsdale segment and 4.3% in our Filtration and Minerals Segment. See above for a discussion of the individual segments’ results.

      Cost of products sold (exclusive of depreciation). Costs of products sold decreased $0.5 million to $513.1 million in 2003 from $513.6 million in 2002. Our gross margin increased $16.1 million to $160.2 million in 2003 from $144.1 million in 2002, and the gross margin percentage increased 1.9 points from 21.9% to 23.8%, despite an increase in energy costs which represent a significant component of the operating costs of our Wolverine and Filtration and Minerals Segments. This margin rate improvement is primarily the result of productivity improvements in our Hillsdale and Defense and Space Power Segments, price increases in our Defense and Space Power Segment, improved sales mix in our Hillsdale Segment, and favorable foreign currency exchange rates as a result of the strengthening of the Euro in the Wolverine and Filtration and Minerals Segments.

      Selling and administrative. Selling and administrative expenses decreased $0.5 million, or 0.8%, to $63.2 million in 2003 from $63.7 million in 2002. The decreased expenses are primarily related to the following favorable/(unfavorable) items:

      Depreciation and amortization. Depreciation and amortization expense increased $1.6 million, or 3.4%, to $47.7 million in 2003 from $46.2 million 2002. The increase in depreciation and amortization expense was primarily the result of accelerated depreciation expense for product lines that were exited in 2003, and for certain assets whose depreciation was completed in 2003.

      Goodwill amortization. Due to the adoption of SFAS No. 142, Goodwill and Other Intangible Assets, no goodwill amortization expense was recorded in 2003 while 2002 included $14.6 million of expense. This new accounting standard required that we cease the amortization of goodwill, effective December 1, 2002, and complete an annual impairment test to determine if an impairment charge has occurred. We did not recognize any impairment charges in 2003.

      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, 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. There were no restructuring charges in 2003.

      Loss from divestitures. All amounts recorded in loss from divestitures expense relate to operations that were sold or that were divested prior to November 30, 2002. During 2002, we completed the sale of our Precision Products business to a group of former employees and divisional management personnel. We recorded a $2.8 million loss on this sale in the second quarter of 2002. 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 worker’s compensation claims for employees of our sold divisions. There was no loss from divestitures during 2003.

      Insurance related losses/(gains). During the second quarter of 2002, we recorded a $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. We recorded this charge to fully reserve the receivable because the insurance underwriter was contesting the coverage on these assets. We were disputing the insurance carrier’s position and were vigorously pursuing efforts to collect on our claims. In the third quarter of 2003, we recorded a $2.8 million gain related to our final settlement with this insurance carrier. In addition, in the second quarter of 2003, we recorded a $5.5 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.

      Operating income. Operating income improved $53.4 million to $57.6 million in 2003 from $4.1 million in 2002. This change was primarily the result of the following favorable/(unfavorable) items (in million of dollars):

      Interest expense. Interest expense was $34.0 million in 2003 and $34.2 million in 2002 (not including $4.8 million in 2003 and $6.9 million in 2002 which was allocated to discontinued operations). Included in 2002 was $1.5 million in fees and other costs, primarily related to establishing our accounts receivable asset-backed securitization. Including the interest allocated to discontinued operations and excluding the one-time fees related to our accounts receivable asset-backed securitization, our reduced interest expense is due to lower average debt levels. As a result of our August 2003 refinancings, we incurred an additional $39.5 million of debt ($250.0 million of Senior Notes, due 2013, were issued to redeem $210.5 million of our existing $220.0 million of senior subordinated notes). These additional proceeds were used to reduce lower rate bank debt and the obligations of our accounts receivable asset-backed securitization.

      Preferred stock dividends accrued. Effective September 1, 2003, we adopted SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” which requires that certain instruments be classified as liabilities in our balance sheet. The effect of the adoption was that, as of September 1, 2003, we reclassified the current redemption value plus unpaid dividends on our redeemable preferred stock to long-term liabilities, and the accrual of dividends payable for periods ending after September 1, 2003 has been recorded as a component of non-operating expenses in our consolidated statements of operations. During 2003, $4.1 million of dividends have been accrued in other non-operating expenses and $12.3 million was accrued as a deduction from net income in arriving at loss available to common shareholders. In accordance with this statement, the prior period financial statements have not been reclassified.

      Other income (expense), net. Other income (expense), net decreased $3.1 million to expense of $1.6 million in 2003 from income of $1.5 million in 2002. This decrease is primarily related to losses on foreign currency exchange rate forward contract hedges in the Corporate Segment which are entered into to offset foreign currency exchange rate exposures in the operating segments.

      Write-off of deferred financing costs. During the third quarter of 2003, we wrote-off $6.3 million of deferred financing costs in connection with the retirement of our former senior secured credit facility and the redemption of approximately 95% of our senior subordinated notes.

      Income tax provision (benefit). Income tax provision (benefit) was $2.8 million in 2003 and $1.9 million in 2002 (excluding $0.6 million tax benefit in 2003 and $0.7 million tax provision in 2002 which was allocated to discontinued operations). These provisions relate to the allocation of income and loss between the United States and foreign jurisdictions and primarily represent the estimated tax that will be due in certain non-U.S. jurisdictions where no tax benefit can be assured from utilizing previous losses. There was no U.S. Federal tax benefit or provision recorded during 2003 and 2002.

      Discontinued operations. During 2003, we accounted for our Hillsdale U.K. operation as a discontinued operation. In addition, during 2003 we accounted for the sale of certain assets of our Germanium-based business as a discontinued operation. Accordingly, we have restated our prior period financial statements to conform to the discontinued operations presentation.

      Net income (loss). Net income (loss) improved $39.7 million to net income of $2.8 million in 2003 from a net loss of $36.8 million in 2002 as a result of the items discussed above.

LIQUIDITY AND CAPITAL RESOURCES

      As of November 30, 2004, we were not in compliance with certain financial covenants under our Credit Agreement and accounts receivable securitization facility. Because our forbearance agreements only extend to June 10, 2005, prior to the end of our fiscal year 2005, we have classified our entire Credit Agreement debt as a current liability at November 30, 2004. As a result of this noncompliance, our Credit Agreement lenders are entitled to exercise a number of remedies, including declaring all debt immediately due and payable, ceasing to advance new loans, or enforcing their security interest in collateral, and our accounts receivable purchaser is entitled to discontinue this facility and collect all receivables up to the amount of their purchased interest.

      On February 28, 2005, we entered into forbearance agreements with our Credit Agreement lenders. Pursuant to this agreement, the lenders agreed to forbear from exercising any remedies as a result of this covenant noncompliance through June 10, 2005 and to continue funding our existing revolving credit facility through that date in its full amount of $125 million, provided that no new defaults occur. The forbearance

agreements contain a covenant of minimum monthly earnings before interest, taxes, depreciation and amortization (“EBITDA”) as defined. This covenant is in lieu of the three financial covenants in the Credit Agreement for which we are currently not in compliance. The lenders can terminate the forbearance agreements if anything occurs in our business that has had, or could reasonably be expected to have, a material adverse effect on our business, assets, operations, or condition, financial or otherwise. We also agreed to an increase of 1.25% in the interest rate for the term loan and 0.75% in the interest rate for the revolving facility under the Credit Agreement, and agreed to limit capital expenditures to $10 million from February 28, 2005 through June 10, 2005.

      On March 10, 2005, we entered into a similar agreement with our accounts receivable purchaser, pursuant to which the purchaser agreed to continue funding this program through June 10, 2005, provided no new defaults occur.

      As of March 10, 2005, the latest date of available financial information, we had approximately $11 million of available liquidity under our credit facilities, and cash on hand. Our liquidity since November 30, 2004 has been negatively impacted by an increase in working capital, debt service payments, and our acquisition of EaglePicher Kokam Ltd. Based on current projections, we may fully utilize our revolving credit facility, accounts receivable program and cash on hand at certain times through June 10, 2005, the date on which our current forbearance agreements with our lenders expire (as discussed below). Our current financial condition may cause our suppliers to tighten their credit terms with us, which would further negatively impact our liquidity. If our liquidity needs exceed the availability under these facilities, we would need to obtain other sources of funding. Our 9.75% Senior Notes currently restrict the amount of incremental debt we can incur to approximately $15 million in addition to our Credit Agreement debt. There can be no assurance that this additional financing can be obtained or that it will provide sufficient liquidity to meet our needs.

      If we do not maintain sufficient liquidity to fund our operations, comply with the terms of the forbearance agreements with our lenders as described below, or extend the forbearance agreements beyond June 10, 2005, we may be forced to restructure our indebtedness, including possibly filing bankruptcy.

      We are currently evaluating possible divestitures of business units in order to reduce our debt, as well as various other financing alternatives. No assurance can be given that any such measures will be successful or that we will complete any such measure prior to the June 10, 2005 expiration of the forbearance agreements. Accordingly, there is a substantial chance that we will need to negotiate a further extension of the forbearance agreements or an amendment to our Credit Agreement and accounts receivable program. No assurance can be given that we will be able to obtain alternative financing or such an extension or amendment.

      Operating Activities. Operating activities provided $18.7 million in cash during 2004 compared to using $1.0 million in 2003. In 2003, cash flows from operating activities was impacted by our net income of $2.8 million, and non-cash charges of $50.4 million from depreciation and amortization, $4.2 million from preferred stock dividends accrued, $4.2 million from loss from discontinued operations, and $6.3 million from the write-off of deferred financing costs, partially offset by non-cash insurance gains of $8.3 million, which results in cash sources of $59.6 million compared to a similarly calculated amount in 2004 of $34.0 million. The 2004 amount of $34.0 million was impacted by our net loss of $52.3 million, which was offset by non-cash charges of $42.7 million from depreciation and amortization, $16.7 million from preferred stock dividends accrued, $2.9 million from non-cash loss from divestitures, $0.7 million from insurance related losses, $0.5 million from the write-off of deferred financing costs, $1.0 million from restructuring and asset impairments, $0.2 million from cumulative effect of change in accounting principle, and $34.8 million from a goodwill impairment, which were partially offset by non-cash gains from discontinued operations of $6.7 million, and $6.5 million from deferred income taxes.

      The cash flow for 2003 was reduced by $60.6 million due to cash related changes in certain assets and liabilities, resulting in net cash used in operating activities of $1.0 million. This was primarily due to:

      The cash flow for 2004 was reduced by $15.3 million due to cash related changes in certain assets and liabilities, resulting in net cash provided by operating activities of $18.7 million. This was primarily due to:

      Investing Activities. Investing activities used $61.6 million in cash during 2004 compared to using $23.4 million in 2003. The 2004 amount primarily includes $45.6 million for capital expenditures, $3.5 million for the purchase of a controlling interest in EaglePicher Horizon Batteries, and $12.7 million for our initial investment and payment of license fees and other costs to acquire an interest in Kokam Engineering Ltd, a Lithium-ion battery manufacturer based in Seoul, Korea. The 2003 amount primarily includes $16.1 million for capital expenditures, and $7.6 million for the purchase of intangibles and investments in unconsolidated subsidiaries. We expect to spend $25 to $30 million on capital expenditures in 2005. This amount may be reduced given our liquidity constraints.

      Financing Activities. Financing activities used $28.4 million of cash during 2004 compared to providing $37.1 million in 2003. During 2004, the use of cash was primarily to pay off a $10.0 million Industrial Revenue Bond, to repay a portion of our Term Loan from proceeds of the sale of our Environmental Science & Technology division, and to redeem the remaining $9.5 million of outstanding senior subordinated notes. During 2003, we completed a tender offer on our senior subordinated notes and issued new 9.75% Senior Notes. In addition, we paid off our former Credit Agreement and issued a new Credit Agreement. Accordingly, during 2003, we used $351.0 million of cash to redeem our senior subordinated notes and pay-off our former Credit Agreement, and we received $387.2 million, net of financing costs, of cash for the issuance of our 9.75% Senior Notes and Credit Agreement.

      Discontinued Operations Activities. During 2004, we sold our Environmental Science & Technology division for approximately $23.0 million. During 2003, we sold certain assets of our Germanium-based business for approximately $14.0 million.

      Our capitalization, which excludes the obligations of our accounts receivable asset-backed securitization of zero at November 30, 2003 and $32.7 million at November 30, 2004, consisted of the following at November 30, 2003 and November 30, 2004 (in thousands of dollars):

      Credit Agreement. We have a syndicated senior secured loan facility (“Credit Agreement”) providing an original term loan (“Term Loan”) of $150.0 million and a $125.0 million revolving credit facility (“Facility”). The Facility bears interest, at our option, at a rate equal to (i) LIBOR plus 375 basis points or (ii) an Alternate Base Rate (“ABR”) (which is equal to the highest of (a) the agent’s prime rate, (b) the Federal funds effective rate plus 50 basis points, or (c) the base CD rate plus 100 basis points) plus 275 basis points. The Term Loan bears interest, at our option, at a rate equal to (i) LIBOR plus 325 basis points or (ii) the ABR plus 225 basis points. Interest is generally payable quarterly on the Facility and Term Loan. We are permitted to enter into interest rate swap agreements to manage our variable interest rate exposure. However, as of November 30, 2004, we had no interest rate swaps outstanding. The Credit Agreement also contains certain fees. There are fees for letters of credit equal to 3.75% per annum for all issued letters of credit, and there is a commitment fee on the Facility equal to 0.5% per annum of the unused portion of the Facility. If we meet certain financial benchmarks, the interest rate spreads on the Facility, the commitment fees and the fees for letters of credit may be reduced.

      As of November 30, 2004, we were not in compliance with certain financial covenants under our Credit Agreement. Because of our forbearance agreements, as described below, only extend to June 10, 2005, prior to the end of our fiscal year 2005, we have classified our entire Credit Agreement debt as a current liability at November 30, 2004. As a result of this noncompliance, our Credit Agreement lenders are entitled to exercise a number of remedies, including declaring all debt immediately due and payable, ceasing to advance new loans, or enforcing their security interest in collateral.

      On February 28, 2005, we entered into a forbearance agreement with our Credit Agreement lenders. Pursuant to this agreement, the lenders agreed to forbear from exercising any remedies as a result of this covenant noncompliance through June 10, 2005 and to continue funding our existing revolving credit facility through that date in its full amount of $125 million, provided that no new defaults occur. The forbearance agreements contain a covenant of minimum monthly earnings before interest, taxes, depreciation and amortization (“EBITDA”) as defined. This covenant is in lieu of the three financial covenants in the Credit Agreement for which we are currently not in compliance. The lenders can terminate the forbearance agreements if anything occurs in our business that has had, or could reasonably be expected to have, a material adverse effect on our business, assets, operations, or condition, financial or otherwise. We also agreed to an increase of 1.25% in the interest rate for the term loan and 0.75% in the interest rate for the revolving facility under the Credit Agreement, and agreed to limit capital expenditures to $10 million from February 28 through June 10, 2005.

      The Term Loan is scheduled to mature upon the earlier of (i) August 7, 2009 or (ii) 180 days prior to the mandatory redemption of our 11.75% Cumulative Redeemable Exchangeable Preferred Stock (“Preferred Stock”) if more than $5.0 million of its aggregate liquidation preference remains outstanding. The Facility is scheduled to mature upon the earlier of (i) August 7, 2008 or (ii) 180 days prior to the mandatory redemption of our Preferred Stock if more than $5.0 million of its aggregate liquidation preference remains outstanding. Our Preferred Stock is scheduled for mandatory redemption on March 1, 2008.

      At November 30, 2004, we had $26.6 million in outstanding letters of credit under the Facility, which together with borrowings of zero, made our available borrowing capacity $98.4 million.

      The Credit Agreement is secured by EaglePicher Holdings, Inc.’s capital stock, the capital stock of substantially all of our domestic United States subsidiaries, a certain portion of the capital stock of our foreign subsidiaries, and substantially all other assets of our United States subsidiaries. Additionally, the Credit Agreement is guaranteed by us and certain of our United States subsidiaries.

      The Credit Agreement contains covenants that restrict our ability to declare dividends or redeem capital stock, incur additional debt or liens, alter existing debt agreements, make loans or investments, form or invest in joint ventures, undergo a change in control or engage in mergers, acquisitions or asset sales. These covenants also limit the annual amount of capital expenditures and require us to meet certain minimum financial ratios. For purposes of determining outstanding debt under our Credit Agreement, we are required to include the outstanding obligations of EPFC, our off-balance sheet special purpose entity.

      In addition to regularly scheduled payments on the Credit Agreement, we are required to make mandatory prepayments equal to 50.0% of annual excess cash flow, as defined in the Credit Agreement, beginning with our fiscal year ending November 30, 2004. The net proceeds from the sale of assets (subject to certain conditions), the net proceeds of certain new debt issuance, and 50.0% of the net proceeds of any equity securities issuance are also subject to mandatory prepayments on the Credit Agreement. For the year ended November 30, 2004, we were not required to make any excess cash flow payout. In December 2004, we repaid $15 million of our Term Loan as required by our Credit Agreement due to the sale of our Environmental Science and Technology Division in April 2004.

      Senior Unsecured Notes. In August 2003, we issued $250.0 million 9.75% Senior Unsecured Notes due in 2013, at a price of 99.2% of par to yield 9.875%. Accordingly, the net proceeds before issuance costs were $248.0 million. The discount is being amortized over the life of the Senior Unsecured Notes. The Senior Unsecured Notes require semi-annual interest payments on September 1 and March 1, beginning on March 1, 2004. The Senior Unsecured Notes are redeemable at our option, in whole or in part, any time after September 1, 2008 at set redemption prices. We are required to offer to purchase the Senior Unsecured Notes at a set redemption price should there be a change in control. The Senior Unsecured Notes contain covenants which restrict or limit our ability to declare or pay dividends, incur additional debt or liens, issue stock, engage in affiliate transactions, undergo a change in control or sell assets. We were in compliance with these covenants at November 30, 2004. The covenant restricting additional indebtedness currently limits us to incur an approximate $15.0 million of debt in addition to our Credit Agreement debt. The Senior Unsecured Notes are guaranteed by us and certain of our subsidiaries.

      Senior Subordinated Notes. On May 31, 2004, we provided notice to the trustee and the holders of our Senior Subordinated Notes that we would redeem all remaining outstanding Senior Subordinated Notes on June 30, 2004, at a redemption price equal to 103.125% of the principal amount of each such Note, plus accrued and unpaid interest of $30.99 per $1,000 principal amount. On June 30, 2004, we made this redemption payment and removed this $9.5 million debt from our balance sheet.

      Industrial Revenue Bond. Our industrial revenue bond requires monthly interest payments at variable interest rates based on the market for similar issues and is secured by a letter of credit issued under the Facility described above.

      Preferred Stock. We have outstanding 14,191 shares of our 11.75% Cumulative Mandatorily Redeemable Exchangeable Preferred Stock. The Preferred Stock had an initial liquidation preference at February 24, 1998 of $5,637.70 per share which accreted during the first five years after issuance at 11.75% per annum, compounded semiannually, ultimately reaching $10,000 per share on March 1, 2003. Commencing March 1, 2003, dividends on our Preferred Stock became cash payable in arrears, semiannually, at 11.75% per annum of

the liquidation preference if and when declared by the Board of Directors; the first semiannual dividend payment of $8.3 million was due September 1, 2003. The Credit Agreement and the Senior Unsecured Notes contain financial covenants that currently prohibit us from paying dividends on the Preferred Stock. Our Board of Directors have not declared any cash dividends. If we do not pay cash dividends on the Preferred Stock, then holders of the Preferred Stock may become entitled to elect a majority of our Board of Directors. Dakruiter S.A. and Harbourgate B.V., both companies controlled by Granaria Holdings B.V., our controlling common shareholder, hold approximately 78% of our preferred stock, and therefore Granaria Holdings B.V. would continue to be able to elect our entire Board of Directors. The election of a majority of the directors is the only remedy of holders of the preferred stock for a failure to pay cash dividends. Unpaid dividends are cumulative but do not bear interest. During 2003, we accrued $16.4 million, and during 2004, we accrued $16.7 million of preferred dividends.

      Shareholders’ Deficiency. Our shareholders’ deficiency increased $51.8 million during 2004 due to our comprehensive loss.

      We have an agreement with a major United States financial institution to sell an interest in certain receivables through an unconsolidated qualifying special purpose entity, EaglePicher Funding Corporation (“EPFC”). The size of this facility is $55.0 million, subject to certain financial covenant limitations. This agreement provides for the sale of certain receivables to EPFC, which in turn sells an interest in a revolving pool of receivables to the financial institution. EPFC has no recourse against us for failure of the debtors to pay when due. In the third quarter of 2003, we amended this agreement to extend the receivables program until the earlier of (a) 90 days prior to the maturity of our Credit Agreement or (b) January 2008.

      As discussed below, as of November 30, 2004, we were not in compliance with certain financial covenants under the receivables securitization. As a result of this noncompliance, the accounts receivable purchaser is entitled to discontinue this facility and collect all receivables up to the amount of their purchased interest.

      On March 10, 2005, we entered into an agreement with our accounts receivable purchaser, pursuant to which the purchaser agreed to continue funding this program through June 10, 2005, provided no new defaults occur.

      We account for the securitization of these sold receivables in accordance with SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities — a Replacement of FASB Statement No. 125.” Under this guidance, at the time the receivables are sold, the balances are removed from our financial statements. For purposes of calculating our debt covenant compliance under our Credit Agreement, we include the outstanding obligations of EPFC, our off-balance sheet special purpose entity.

      As of November 30, 2003, our retained interest in EPFC was $63.3 million and the revolving pool of receivables that we serviced totaled $64.9 million. At November 30, 2003, the outstanding balance of the interest sold to the financial institution recorded on EPFC’s financial statements was zero. During the year ended November 30, 2003, we sold $565.8 million of accounts receivable to EPFC, and during the same period EPFC collected $552.3 million of cash that was reinvested in new securitizations. The effective interest rate as of November 30, 2003 in the securitization was approximately 2.95%.

      At November 30, 2004, our retained interest in EPFC was $34.3 million and the revolving pool of receivables that we serviced totaled $69.2 million. At November 30, 2004, the outstanding balance of the interest sold to the financial institution recorded on EPFC’s financial statements was $32.7 million. During the year ended November 30, 2004, we sold $548.0 million of accounts receivable to EPFC and during the same period, EPFC collected $526.4 million of cash that was reinvested in new securitizations. The effective interest rate as of November 30, 2004 in the securitization was approximately 3.74%.

      There are three financial covenants contained in our Credit Agreement and the Accounts Receivable Asset-Backed Securitization, as amended. They are a leverage ratio (the ratio of total debt, including the obligations of our accounts receivable asset-backed securitization, to Credit Agreement EBITDA), an interest

coverage ratio (the ratio of Credit Agreement EBITDA to interest expense) and a fixed charge coverage ratio (the ratio of Credit Agreement EBITDA minus capital expenditures to the sum of interest expense plus scheduled principal payments plus cash dividends paid plus income taxes paid), all as defined in the Credit Agreement and the Accounts Receivable Asset-Backed Securitization, as amended.

      As of November 30, 2004, we were not in compliance with certain financial covenants under our Credit Agreement and accounts receivable securitization facility, and as a result we have classified our entire Credit Agreement debt as a current liability at November 30, 2004. As a result of this noncompliance, our Credit Agreement lenders are entitled to exercise a number of remedies, including declaring all debt immediately due and payable, ceasing to advance new loans, or enforcing their security interest in collateral, and our accounts receivable purchaser is entitled to discontinue this facility and collect all receivables up to the amount of their purchased interest.

      On February 28, 2005, we entered into forbearance agreements with our Credit Agreement lenders. Pursuant to this agreement, the lenders agreed to forbear from exercising any remedies as a result of this covenant noncompliance through June 10, 2005 and to continue funding our existing revolving credit facility through that date in its full amount of $125 million, provided that no new defaults occur. The forbearance agreements contains a covenant of minimum monthly earnings before interest, taxes, depreciation and amortization (“EBITDA”) as defined. This covenant is in lieu of the three financial covenants in the Credit Agreement for which we are currently not in compliance. The lenders can terminate the forbearance agreements if anything occurs in our business that has had, or could reasonably be expected to have, a material adverse effect on our business, assets, operations, or condition, financial or otherwise. We also agreed to an increase of 1.25% in the interest rate for the term loan and 0.75% in the interest rate for the revolving facility under the Credit Agreement, and agreed to limit capital expenditures to $10 million from February 28 through June 10, 2005.

      On March 10, 2005, we entered into a similar agreement with our accounts receivable purchaser, pursuant to which the purchaser agreed to continue funding this program through June 10, 2005, provided no new defaults occur.

      The following table lists our contractual cash obligation as of November 30, 2004 (in millions of dollars).

      For a discussion of our long-term debt and its related provisions, see Note M in our November 30, 2004 consolidated financial statements included elsewhere in this report. In the above table, we have included only principal payments on long-term debt (interest expense is excluded).

      As discussed in the Recent Acquisitions and Divestitures section within Part I, Item 1 of this report, subsequent to November 30, 2004, we acquired additional interests in two companies we did not consolidate as of November 30, 2004. As a result of the acquisition of the additional interests, we will consolidate both companies in our results beginning with our first fiscal quarter of 2005. As of the date we acquired the additional interests, the two companies on a combined basis had approximately $14.0 million of debt, which is excluded from the table above. These two companies had no other significant contractual obligations at that time. One of these acquisitions provides for an earn-out arrangement where the seller will receive ten times 1% of the acquiree’s EBITDA (as defined in the share purchase agreement) for the first five years after closing

with a maximum amount payable of approximately $16.3 million (this amount is payable in South Korean Won and therefore subject to foreign exchange fluctuations). Any payments to be made under this earn-out are excluded from the table above, as they cannot be estimated at this time.

      Our 11.75% Cumulative Mandatorily Redeemable Exchangeable Preferred Stock is scheduled for redemption on March 1, 2008. However, if we do not redeem the Preferred Stock, the only remedy of holders is to elect a majority of our board of directors. Holders of the Preferred Stock do not have a right to obtain a judgment against us for the redemption amount or to obtain equitable relief requiring us to redeem the Preferred Stock. We have included in the above table the current Preferred Stock balance on our balance sheet but have excluded any future dividend accruals or payments, which are approximately $16.7 million per year.

      We have an advisory and consulting agreement with a related party, Granaria Holdings B.V., our controlling common shareholder, which requires an annual management fee of $1.8 million. Included in the above table is the annual $1.8 million management fee. As part of the forbearance agreements discussed above, Granaria Holdings B.V. has deferred payment of its management fee through June 10, 2005.

      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. 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 $5.7 million in our Accrued Divestitures Reserve at November 30, 2004 related to environmental remediation and legal matters for sold divisions or businesses, and $1.4 million is recorded in Other Accrued Liabilities related to on-going businesses. There can be no assurances that environmental laws and regulations will not become more stringent in the future or that we will not incur significant costs in the future to comply with such laws and regulations. Accordingly, future information and developments will require us to continually reassess the expected impact of these environmental matters. The amount included in the above table represents our contractual cash commitments based on our current remediation plans. The remaining commitments are not contractually committed and therefore not included in the above table.

      The following table lists our other commercial commitments as of November 30, 2004:

      The stand-by letters of credit are required by various governmental regulatory agencies and support our obligations for certain environmental remediation, industrial revenue bonds, workers compensation and mining reclamation activities. Although the letters of credit expire by their terms within one year, the obligations they support extend into the future and it is expected that these letters of credit will be renewed annually.

      In addition, we are engaged in various litigation matters as further described in Note R of our November 30, 2004 consolidated financial statements included elsewhere in this report. It is not possible to quantify an estimate of the cost of such litigation matters at this time and accordingly they have not been included as other commercial commitments.

      During 2004, our earnings were insufficient to cover fixed charges and preferred stock dividends by $65.3 million and during 2003, our earnings were insufficient to cover fixed charges and preferred stock dividends by $0.8 million. The decrease from 2003 to 2004 is primarily related to our decline in operating performance as discussed above.

      Please refer to Note B of the financial statements regarding Recently Released or Adopted Accounting Standards in Part II, Item 8, which is incorporated by reference in this Part II, Item 7.

Item 7a. Quantitative and Qualitative Disclosures About Market Risk

Risk Management Activities

      We are exposed to market risk including changes in interest rates and currency exchange rates. In addition, we are exposed to credit risk. We use derivative financial instruments to manage our interest rate and foreign currency exchange rate exposures. We do not use derivative instruments for speculative or trading purposes. Generally, we enter into hedging relationships such that changes in the fair values or cash flows of items and transactions being hedged are expected to be offset by corresponding changes in the values of the derivatives.

      As of November 30, 2004, we did not have any financial derivative instruments outstanding to hedge our interest rate exposures. However, we periodically review the need for such instruments and will enter into them when we believe it is in our best interest to manage our interest rate exposure.

      The combined effect of a 1% increase in the applicable index rates would result in additional interest expense of approximately $1.8 million annually, assuming no change in debt levels.

      We use foreign currency forward exchange contracts to hedge the risk of cash flow fluctuations due to changes in exchange rates 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 anticipated foreign currency exchange rate exposures. To hedge this exposure, we use 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 statement of operations in the period in which the related transactions being hedged are recognized in the statement of operations. As of November 30, 2004, we had outstanding foreign currency forward exchange contracts with an aggregate notional amount of $29.5 million, which represents approximately 40% of our net foreign currency exchange rate exposures for fiscal 2005. Net unrealized losses on these contracts, based on prevailing financial market information, as of November 30, 2004, were $1.3 million, net of tax, and were included in Accumulated Other Comprehensive Income (Loss) in our balance sheets. The fair value of foreign current hedge contracts represents the amount required to enter into offsetting contracts with similar remaining maturities based on quoted market prices.

      Subsequent to November 30, 2004, we entered into additional foreign currency forward exchange contracts bringing the aggregate notional amount of forward contracts to $52.0 million, which represents approximately 71% of our net foreign currency exchange rate exposures for fiscal 2005.

      Our concentrations of credit risk consist primarily of cash and cash equivalents, trade accounts receivable, retained interest in EaglePicher 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, 2004. In addition, during 2002, we formed EaglePicher Funding Corporation, an off-balance sheet qualifying special-purpose entity, to sell an interest in certain receivables. We believe that EaglePicher Funding Corporation 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.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

EaglePicher Holdings, Inc.:

      We have audited the accompanying consolidated balance sheets of EaglePicher Holdings, Inc. and subsidiaries (the “Company”) as of November 30, 2003 and 2004, and the related consolidated statements of operations, shareholders’ (deficiency) and comprehensive income (loss), and cash flows for each of the three years in the period ended November 30, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, such consolidated financial statements present fairly, in all material respects, the financial position of EaglePicher Holdings, Inc. and subsidiaries as of November 30, 2003 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended November 30, 2004, in conformity with accounting principles generally accepted in the United States of America.

      As discussed in Notes B and S to the consolidated financial statements, effective September 1, 2004, EaglePicher Holdings, Inc. adopted Emerging Issues Task Force No. 03-16, “Accounting for Investments in Limited Liability Companies.”

      The accompanying financial statements have been prepared assuming that EaglePicher Holdings, Inc. will continue as a going concern. As discussed in Note A to the financial statements, the Company’s failure to meet financial covenants of its Credit Agreement raise substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note A. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Phoenix, Arizona

March 14, 2005

EaglePicher Holdings, Inc.

Consolidated Balance Sheets

November 30, 2003 and 2004

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

EaglePicher Holdings, Inc.

Consolidated Statements of Operations

Years Ended November 30, 2002, 2003 and 2004

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

EaglePicher Holdings, Inc.

Consolidated Statements of Shareholders’ (Deficiency) and Comprehensive Income (Loss)

Years Ended November 30, 2002, 2003 and 2004