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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
  þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended October 1, 2005
 o
    
    Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
 For the transition period from _________ to ____________
 Commission file number: 1-32266
 POLYPORE INTERNATIONAL, INC.
  Delaware
    
    43-2049334(State or Other Jurisdiction of
Incorporation or Organization)
    
    (IRS Employer
Identification No.)13800 South Lakes Drive
Charlotte, North Carolina
    
    28273(Address of Principal Executive Offices)
    
    (Zip Code)
 (704) 587-8409
   þ o
  o þ
 o þ




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Polypore International, Inc.
Index to Quarterly Report on Form 10-Q
For the Quarter Ended October 1, 2005
 PagePART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    29Item 4.
    
    Controls and Procedures
    
    
    30PART II


    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    30Item 6.
    
    Exhibits
    
    
    31SignaturesEX-10.1EX-10.2EX-31.1EX-31.2EX-32.1EX-32.2
   2




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Forward-looking statements
  
    
    the highly competitive nature of the markets in which we sell our products;
    
    the failure to continue to develop innovative products;
    
    the increased use of synthetic hemodialysis filtration membranes by our customers;
    
    the loss of our customers;
    
    the vertical integration by our customers of the production of our products into
their own manufacturing process;
    
    increases in prices for raw materials or the loss of key supplier contracts;
    
    employee slowdowns, strikes or similar actions;
    
    product liability claims exposure;
    
    risks in connection with our operations outside the United States;
    
    the incurrence of substantial costs to comply with, or as a result of violations of,
or liabilities under environmental laws;
    
    the failure to protect our intellectual property;
    
    the failure to replace lost senior management;
    
    the incurrence of additional debt, contingent liabilities and expenses in connection
with future acquisitions;
    
    the failure to effectively integrate newly acquired operations; and
    
    the absence of expected returns from the amount of intangible assets we have recorded.
  Additional information
  3




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Polypore International, Inc.
Condensed Consolidated Balance Sheets
 October 1, 2005(in thousands)
    
    (unaudited)
    
    January 1, 2005*AssetsCurrent assets:Cash and equivalents
    
    $
    29,908
    
    
    $
    33,149Accounts receivable, net
    
    
    94,260
    
    
    
    106,296Inventories
    
    
    54,205
    
    
    
    61,789Refundable income taxes
    
    
    15,046
    
    
    
    8,850Deferred income taxes
    
    
    3,403
    
    
    
    7,954Prepaid and other
    
    
    6,953
    
    
    
    5,288Total current assets
    
    
    203,775
    
    
    
    223,326Property, plant and equipment, net
    
    
    389,755
    
    
    
    441,350Goodwill
    
    
    537,517
    
    
    
    535,844Intangibles and loan acquisition costs, net
    
    
    227,053
    
    
    
    244,629Environmental indemnification receivable, less current portion
    
    
    17,285
    
    
    
    20,125Other
    
    
    1,093
    
    
    
    1,142Total assets
    
    
    1,376,478
    
    
    $
    1,466,416Liabilities and shareholders equityCurrent liabilities:Revolving credit obligations
    
    $
    
    
    
    $
    Accounts payable
    
    
    21,312
    
    
    
    20,581Accrued liabilities
    
    
    49,431
    
    
    
    51,229Current portion of debt-optional prepayment
    
    
    
    
    
    
    25,000Current portion of debt
    
    
    88
    
    
    
    2,260Current portion of capital lease obligation
    
    
    1,312
    
    
    
    1,272Total current liabilities
    
    
    72,143
    
    
    
    100,342Debt, less current portion
    
    
    997,441
    
    
    
    1,029,391Capital lease obligation, less current portion
    
    
    6,355
    
    
    
    7,344Pension and postretirement benefits
    
    
    47,045
    
    
    
    48,652Post employment benefits
    
    
    7,895
    
    
    
    10,119Environmental reserve, less current portion
    
    
    22,570
    
    
    
    24,394Deferred income taxes
    
    
    123,524
    
    
    
    137,240Other
    
    
    1,203
    
    
    
    3,033Commitments and contingenciesShareholders equity:Common stock
    
    
    2
    
    
    
    2Paid-in capital
    
    
    124,755
    
    
    
    124,468Retained (deficit)
    
    
    (21,847
    )
    
    
    (19,265
    )Accumulated other comprehensive income (loss)
    
    
    (4,608
    )
    
    
    69698,302
    
    
    
    105,901Total liabilities and shareholders equity
    
    $
    1,376,478
    
    
    $
    1,466,416
 
 (*)
    Derived from audited consolidated financial statementsSee notes to condensed consolidated financial statements 4




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Polypore International, Inc .  Condensed Consolidated Statements of Operations (Unaudited)
 Successor
    
    PredecessorThree Months
    
    Three Months
    
    Nine Months
    
    May 2, 2004
    
    January 4, 2004Ended
    
    Ended
    
    Ended
    
    through
    
    through(in thousands)
    
    October 1, 2005
    
    October 2, 2004
    
    October 1, 2005
    
    October 2, 2004
    
    May 1, 2004Net sales
    
    $
    105,764
    
    
    $
    117,496
    
    
    $
    330,876
    
    
    $
    206,225
    
    
    $
    179,273Cost of goods sold
    
    
    74,316
    
    
    
    91,833
    
    
    
    220,030
    
    
    
    149,983
    
    
    
    110,166Gross profit
    
    
    31,448
    
    
    
    25,663
    
    
    
    110,846
    
    
    
    56,242
    
    
    
    69,107Selling, general and administrative
expenses
    
    
    18,454
    
    
    
    19,189
    
    
    
    55,460
    
    
    
    31,851
    
    
    
    23,381Business restructuring
    
    
    1,453
    
    
    
    13,581
    
    
    
    6,855
    
    
    
    13,581
    
    
    
    In process research and development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,280
    
    
    
    Operating income
    
    
    11,541
    
    
    
    (7,107
    )
    
    
    48,531
    
    
    
    5,530
    
    
    
    45,726Other (income) expense:Interest expense, net
    
    
    20,580
    
    
    
    13,602
    
    
    
    61,178
    
    
    
    21,974
    
    
    
    6,048Foreign currency and other
    
    
    (126
    )
    
    
    506
    
    
    
    (3,531
    )
    
    
    782
    
    
    
    481Unrealized gain on derivative
instrument
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,321
    )20,454
    
    
    
    14,108
    
    
    
    57,647
    
    
    
    22,756
    
    
    
    5,208Income (loss) before income taxes
    
    
    (8,913
    )
    
    
    (21,215
    )
    
    
    (9,116
    )
    
    
    (17,226
    )
    
    
    40,518Income taxes
    
    
    (6,605
    )
    
    
    (8,779
    )
    
    
    (6,534
    )
    
    
    (7,465
    )
    
    
    13,685Net income (loss)
    
    
    (2,308
    )
    
    
    (12,436
    )
    
    
    (2,582
    )
    
    
    (9,761
    )
    
    
    26,833Redeemable preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (424
    )Net income (loss) applicable to
common stock
    
    $
    (2,308
    )
    
    $
    (12,436
    )
    
    $
    (2,582
    )
    
    $
    (9,761
    )
    
    $
    26,409Net income (loss) per common
share-basic and diluted
    
    $
    (13.46
    )
    
    $
    (72.55
    )
    
    $
    (15.06
    )
    
    $
    (57.01
    )
    
    $
    170.29Weighted average shares outstanding
    
    
    171,421
    
    
    
    171,421
    
    
    
    171,421
    
    
    
    171,198
    
    
    
    155,086
 
 See notes to condensed consolidated financial statements 5




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Polypore International, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
 Successor
    
    PredecessorNine Months
    
    May 2, 2004
    
    January 4, 2004Ended
    
    through
    
    through(in thousands)
    
    October 1, 2005
    
    October 2, 2004
    
    May 1, 2004Operating activities:Net income (loss)
    
    $
    (2,582
    )
    
    $
    (9,761
    )
    
    $
    26,833Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation expense
    
    
    28,947
    
    
    
    10,677
    
    
    
    14,409Amortization expense
    
    
    13,307
    
    
    
    7,287
    
    
    
    808Amortization of debt discount
    
    
    16,265
    
    
    
    
    
    
    
    Amortization of loan acquisition costs
    
    
    2,044
    
    
    
    1,066
    
    
    
    632Stock compensation
    
    
    287
    
    
    
    144
    
    
    
    Inventory purchase accounting
    
    
    
    
    
    
    18,505
    
    
    
    Loss (gain) on disposal of property, plant and equipment
    
    
    294
    
    
    
    
    
    
    
    (1,432
    )Business restructuring
    
    
    6,855
    
    
    
    13,581
    
    
    
    Foreign currency and other
    
    
    (3,860
    )
    
    
    (11
    )
    
    
    (3,067
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    6,181
    
    
    
    (2,900
    )
    
    
    (13,189
    )Inventories
    
    
    3,294
    
    
    
    6,199
    
    
    
    (1,434
    )Prepaid and other current assets
    
    
    (2,088
    )
    
    
    188
    
    
    
    (107
    )Accounts payable and accrued liabilities
    
    
    (3,853
    )
    
    
    (11,082
    )
    
    
    4,160Other, net
    
    
    (4,806
    )
    
    
    (8,330
    )
    
    
    1,298Net cash provided by operating activities
    
    
    60,285
    
    
    
    25,563
    
    
    
    28,911Investing activities:Purchases of property, plant and equipment
    
    
    (9,994
    )
    
    
    (6,477
    )
    
    
    (5,497
    )Proceeds from sale of property, plant and equipment
    
    
    24
    
    
    
    62
    
    
    
    1,923Acquisitions, net of cash acquired
    
    
    
    
    
    
    (867,368
    )
    
    
    Net cash used in investing activities
    
    
    (9,970
    )
    
    
    (873,783
    )
    
    
    (3,574
    )Financing activities:Proceeds from debt
    
    
    
    
    
    
    821,517
    
    
    
    610Principal payments on debt
    
    
    (50,065
    )
    
    
    (263,315
    )
    
    
    (7,923
    )Borrowings on revolving credit agreement
    
    
    
    
    
    
    1,500
    
    
    
    Payments on revolving credit agreement
    
    
    
    
    
    
    (11,500
    )
    
    
    Loan acquisition costs
    
    
    (798
    )
    
    
    (19,755
    )
    
    
    (59
    )Issuance of common stock
    
    
    
    
    
    
    150,000
    
    
    
    Issuance of nonconvertible preferred stock
    
    
    
    
    
    
    171,421
    
    
    
    Net cash provided by (used in) financing activities
    
    
    (50,863
    )
    
    
    849,868
    
    
    
    (7,372
    )Effect of exchange rate changes on cash and equivalents
    
    
    (2,692
    )
    
    
    (221
    )
    
    
    (2,156
    )Net increase (decrease) in cash and equivalents
    
    
    (3,240
    )
    
    
    1,427
    
    
    
    15,809Cash and equivalents at beginning of period
    
    
    33,149
    
    
    
    35,872
    
    
    
    20,063Cash and equivalents at end of period
    
    $
    29,909
    
    
    $
    37,299
    
    
    $
    35,872
 
 See notes to condensed consolidated financial statements 6




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1. Description of Business and Transactions
 Description
of Business
 Change
in Ownership
 Business Combinations Goodwill and
Other Intangible Assets
  (in thousands)Current assets
    
    $
    201,405Property, plant and equipment
    
    
    406,934Intangible assets
    
    
    253,005Goodwill
    
    
    537,517Other assets
    
    
    23,933Total assets acquired
    
    
    1,422,794Current liabilities
    
    
    85,830Debt, less current portion
    
    
    819,790Pension, postretirement and post employment benefits
    
    
    54,027Deferred income taxes
    
    
    120,298Other
    
    
    22,464Total liabilities assumed
    
    
    1,102,409Net assets acquired
    
    $
    320,385
  7
    Table of Contents   
  Three Months
    
    Nine MonthsEnded
    
    Ended(in thousands)
    
    October 2, 2004
    
    October 2, 2004Net sales
    
    $
    117,496
    
    
    $
    385,498Net income (loss)
    
    $
    (6,944
    )
    
    $
    17,638Net income
(loss) per common share  basic and diluted
    
    $
    (40.56
    )
    
    $
    103.03
 2. Basis of Presentation
  3. Accounting Pronouncements
 Accounting Changes and Error Corrections
 Accounting for
Early Retirement or Postemployment Programs with Specific Features (Such As Terms Specified in
Altersteilzeit Early Retirement Arrangements)
 Exchanges of Nonmonetary Assets, Accounting for Nonmonetary Transactions
 8




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Share-Based Payment Accounting for Stock
Issued to Employees
 Share-Based Payment
 Inventory Costs Inventory Pricing
 4. Inventories
   (in thousands)
    
    October 1, 2005
    
    January 1, 2005Raw materials
    
    $
    21,365
    
    
    $
    22,243Work-in-process
    
    
    7,378
    
    
    
    6,395Finished goods
    
    
    25,462
    
    
    
    33,151Total
    
    $
    54,205
    
    
    $
    61,789
 9




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5. Debt
  (in thousands)
    
    October 1, 2005
    
    January 1, 2005Senior credit facilities:Revolving credit facility
    
    $
    
    
    
    $
    Term loan facilities
    
    
    367,099
    
    
    
    416,9418.75% senior subordinated notes
    
    
    408,375
    
    
    
    429,31510.5% senior discount notes
(net of unamortized original
issue discount of $79,283 and
$95,548)
    
    
    220,717
    
    
    
    204,452Other
    
    
    1,338
    
    
    
    5,943997,529
    
    
    
    1,056,651Less optional prepayment
    
    
    
    
    
    
    25,000Less current maturities
    
    
    88
    
    
    
    2,260Long-term debt
    
    $
    997,441
    
    
    $
    1,029,391
  6. Pension and Other Postretirement Benefits
   Pension PlansSuccessor
    
    PredecessorThree Months
    
    Three Months
    
    Nine Months
    
    May 2, 2004
    
    January 4, 2004Ended
    
    Ended
    
    Ended
    
    through
    
    through(in thousands)
    
    October 1, 2005
    
    October 2, 2004
    
    October 1, 2005
    
    October 2, 2004
    
    May 1, 2004Service cost
    
    $
    533
    
    
    $
    453
    
    
    $
    1,763
    
    
    $
    755
    
    
    $
    604Interest cost
    
    
    699
    
    
    
    668
    
    
    
    2,315
    
    
    
    1,113
    
    
    
    891Expected return on plan
assets
    
    
    (192
    )
    
    
    (196
    )
    
    
    (650
    )
    
    
    (327
    )
    
    
    (261
    )Amortization of prior
service cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57Recognized net actuarial
loss
    
    
    13
    
    
    
    36
    
    
    
    43
    
    
    
    60
    
    
    
    48Net periodic benefit cost
    
    $
    1,053
    
    
    $
    961
    
    
    $
    3,471
    
    
    $
    1,601
    
    
    $
    1,339
 10




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Other Postretirement BenefitsSuccessor
    
    PredecessorThree Months
    
    Three Months
    
    Nine Months
    
    May 2, 2004
    
    January 4, 2004Ended
    
    Ended
    
    Ended
    
    through
    
    through(in thousands)
    
    October 1, 2005
    
    October 2, 2004
    
    October 1, 2005
    
    October 2, 2004
    
    May 1, 2004Service cost
    
    $
    7
    
    
    $
    7
    
    
    $
    21
    
    
    $
    12
    
    
    $
    9Interest cost
    
    
    29
    
    
    
    29
    
    
    
    86
    
    
    
    48
    
    
    
    38Amortization of prior
service cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15
    )Recognized net actuarial
loss
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    2
    
    
    
    1Net periodic benefit cost
    
    $
    36
    
    
    $
    37
    
    
    $
    108
    
    
    $
    62
    
    
    $
    33
 7. Income Taxes
     8. Segment Information
   11




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Successor
    
    PredecessorThree Months
    
    Three Months
    
    Nine Months
    
    May 2, 2004
    
    January 4, 2004Ended
    
    Ended
    
    Ended
    
    through
    
    through(in thousands)
    
    October 1, 2005
    
    October 2, 2004
    
    October 1, 2005
    
    October 2, 2004
    
    May 1, 2004Net sales to external
customers:Energy storage
    
    $
    76,018
    
    
    $
    78,608
    
    
    $
    233,934
    
    
    $
    138,812
    
    
    $
    119,436Separations media
    
    
    29,746
    
    
    
    38,888
    
    
    
    96,942
    
    
    
    67,413
    
    
    
    59,837Total net sales to
external customers
    
    $
    105,764
    
    
    $
    117,496
    
    
    $
    330,876
    
    
    $
    206,225
    
    
    $
    179,273Operating income:Energy storage
    
    $
    13,842
    
    
    $
    15,215
    
    
    $
    45,330
    
    
    $
    33,504
    
    
    $
    35,146Separations media
    
    
    60
    
    
    
    3,380
    
    
    
    11,378
    
    
    
    11,546
    
    
    
    10,580Corporate
    
    
    (908
    )
    
    
    (318
    )
    
    
    (1,322
    )
    
    
    (366
    )
    
    
    Segment operating
income
    
    
    12,994
    
    
    
    18,277
    
    
    
    55,386
    
    
    
    44,684
    
    
    
    45,726Business restructuring
    
    
    (1,453
    )
    
    
    (15,369
    )
    
    
    (6,855
    )
    
    
    (15,369
    )
    
    
    In-process research
and development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,280
    )
    
    
    Inventory purchase
accounting
    
    
    
    
    
    
    (10,015
    )
    
    
    
    
    
    
    (18,505
    )
    
    
    Total operating
income (loss)
    
    
    11,541
    
    
    
    (7,107
    )
    
    
    48,531
    
    
    
    5,530
    
    
    
    45,726Reconciling items:Interest expense
    
    
    20,580
    
    
    
    13,602
    
    
    
    61,178
    
    
    
    21,974
    
    
    
    6,048Other
    
    
    (126
    )
    
    
    506
    
    
    
    (3,531
    )
    
    
    782
    
    
    
    (840
    )Total consolidated
income before income
taxes
    
    $
    (8,913
    )
    
    $
    (21,215
    )
    
    $
    (9,116
    )
    
    $
    (17,226
    )
    
    $
    40,518Depreciation and
amortization:Energy storage
    
    $
    8,363
    
    
    $
    6,531
    
    
    $
    25,045
    
    
    $
    10,869
    
    
    $
    7,208Separations media
    
    
    5,529
    
    
    
    4,301
    
    
    
    17,209
    
    
    
    7,095
    
    
    
    8,009Total depreciation
and amortization
    
    $
    13,892
    
    
    $
    10,832
    
    
    $
    42,254
    
    
    $
    17,964
    
    
    $
    15,217
 9. Related Party Transactions
   12




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.
 10. Comprehensive Income
  Successor
    
    PredecessorThree Months
    
    Three Months
    
    Nine Months
    
    May 2, 2004
    
    January 4, 2004Ended
    
    Ended
    
    Ended
    
    through
    
    through(in thousands)
    
    October 1, 2005
    
    October 2, 2004
    
    October 1, 2005
    
    October 2, 2004
    
    May 1, 2004Net income (loss)
    
    $
    (2,308
    )
    
    $
    (12,436
    )
    
    $
    (2,582
    )
    
    $
    (9,761
    )
    
    $
    26,833Other comprehensive
income (loss),
primarily foreign
currency
translation
    
    
    195
    
    
    
    2,669
    
    
    
    (5,304
    )
    
    
    7,847
    
    
    
    (19,848
    )Comprehensive
income (loss)
    
    $
    (2,113
    )
    
    $
    (9,767
    )
    
    $
    (7,886
    )
    
    $
    (1,914
    )
    
    $
    6,985
 11. Environmental Matters
    13




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##### Table of Contents



12. Business Restructuring
 2005 Restructuring Plan
   Accounting for the Impairment or
Disposal of Long-Lived Assets
 Accounting for Costs Associated with Exit or Disposal Activities
 14




---



##### Table of Contents



2004 Restructuring Plan
    Balance at
    
    
    
    
    
    
    
    
    
    
    
    
    
    Foreign
    
    Balance atJanuary 1,
    
    Restructuring
    
    Non-cash
    
    Cash
    
    Currency
    
    October 1,(in thousands)
    
    2005
    
    Charges
    
    Charges
    
    Payments
    
    Translation
    
    20052004 Restructuring PlanSeverance and benefit costs
    
    $
    14,944
    
    
    $
    (112
    )
    
    $
    
    
    
    $
    (8,950
    )
    
    $
    (921
    )
    
    $
    4,961Raw materials
    
    
    1,256
    
    
    
    
    
    
    
    
    
    
    
    (881
    )
    
    
    (129
    )
    
    
    246Other
    
    
    
    
    
    
    1,530
    
    
    
    
    
    
    
    (1,151
    )
    
    
    
    
    
    
    3792005 Restructuring PlanSeverance and benefit costs
    
    
    
    
    
    
    3,938
    
    
    
    
    
    
    
    (186
    )
    
    
    (116
    )
    
    
    3,636Asset disposals and impairments
    
    
    
    
    
    
    1,278
    
    
    
    (1,278
    )
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    221
    
    
    
    
    
    
    
    (221
    )
    
    
    
    
    
    
    Total
    
    $
    16,200
    
    
    $
    6,855
    
    
    $
    (1,278
    )
    
    $
    (11,389
    )
    
    $
    (1,166
    )
    
    $
    9,222
  15




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 The following discussions of our financial condition and results of operations should be read
together with our unaudited consolidated financial statements and the related notes included
elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements
and the related notes included in our Registration Statement on Form S-4 filed with the SEC on June
13, 2005 (File No. 333-124142).
 Overview
  Wards Motor Vehicles Facts and Figures,
     16




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##### Table of Contents



Business Combinations Goodwill and Other Intangible
Assets
 Critical accounting policies
  Allowance for doubtful accounts
  Impairment of intangibles and goodwill
  Pension and other postretirement benefits
  17




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##### Table of Contents



Environmental matters
    18




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##### Table of Contents



Results of operations
  Three months ended
    
    
    Nine months ended(in millions)
    
    October 1, 2005
    
    
    October 2, 2004
    
    
    October 1, 2005
    
    
    October 2, 2004(1)Net sales
    
    $
    105.8
    
    
    $
    117.5
    
    
    $
    330.9
    
    
    $
    385.5Gross profit
    
    
    31.4
    
    
    
    25.7
    
    
    
    110.8
    
    
    
    144.4Selling, general and administrative expenses
    
    
    18.4
    
    
    
    19.2
    
    
    
    55.4
    
    
    
    60.4Business restructuring
    
    
    1.5
    
    
    
    13.6
    
    
    
    6.9
    
    
    
    13.6Operating income
    
    
    11.4
    
    
    
    (7.1
    )
    
    
    48.5
    
    
    
    70.4Interest expense, net
    
    
    20.6
    
    
    
    13.6
    
    
    
    61.2
    
    
    
    40.8Foreign currency and other
    
    
    (0.2
    )
    
    
    0.5
    
    
    
    (3.6
    )
    
    
    1.3Income before income taxes
    
    
    (8.9
    )
    
    
    (21.2
    )
    
    
    (9.1
    )
    
    
    28.3Income taxes
    
    
    (6.6
    )
    
    
    (8.8
    )
    
    
    (6.5
    )
    
    
    10.8Net income
    
    $
    (2.3
    )
    
    $
    (12.4
    )
    
    $
    (2.6
    )
    
    $
    17.5
 19




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##### Table of Contents



Three months ended
    
    
    Nine months ended(in millions)
    
    October 1, 2005
    
    
    October 2, 2004
    
    
    October 1, 2005
    
    
    October 2, 2004(1)Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Gross profit
    
    
    29.7
    %
    
    
    21.9
    %
    
    
    33.5
    %
    
    
    37.5
    %Selling, general and administrative expenses
    
    
    17.4
    %
    
    
    16.3
    %
    
    
    16.7
    %
    
    
    15.7
    %Business restructuring
    
    
    1.4
    %
    
    
    11.6
    %
    
    
    2.1
    %
    
    
    3.5
    %Operating income
    
    
    10.9
    %
    
    
    (6.0
    )%
    
    
    14.7
    %
    
    
    18.3
    %Interest expense, net
    
    
    19.5
    %
    
    
    11.6
    %
    
    
    18.5
    %
    
    
    10.6
    %Foreign currency and other
    
    
    (0.2
    )%
    
    
    0.4
    %
    
    
    (1.1
    )%
    
    
    0.3
    %Income before income taxes
    
    
    (8.4
    )%
    
    
    (18.0
    )%
    
    
    (2.8
    )%
    
    
    7.3
    %Income taxes
    
    
    (6.2
    )%
    
    
    (7.5
    )%
    
    
    (2.0
    )%
    
    
    2.8
    %Net income
    
    
    (2.2
    )%
    
    
    (10.6
    )%
    
    
    (0.8
    )%
    
    
    4.5
    %
 
 (1)
    
    Unaudited pro forma financial information as if the Transactions had occurred on January 4,
2004, the first day of the nine month period ending October 2, 2004. Three month period ended October 1, 2005 with the three month period ended October 2, 2004
 Net sales.
 Gross profit
 20




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##### Table of Contents



Selling, general and administrative expenses
 Interest expense, net
 Income taxes.
 Nine month period ended October 1, 2005 with the pro forma nine month period ended October 2, 2004
 Net sales.
 Gross profit
 21




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##### Table of Contents



Selling, general and administrative expenses
 Interest expense, net.
 Income taxes.
 Business restructuring
  2005 restructuring.
  Accounting for the
Impairment or Disposal of Long-Lived Assets
 Accounting for Costs Associated with Exit or Disposal Activities
 22




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##### Table of Contents



2004 restructuring.
  Balance at
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Foreign
    
    
    Balance atJanuary
    
    
    Restructuring
    
    
    Non-cash
    
    
    Cash
    
    
    Currency
    
    
    October 1,(in millions)
    
    1, 2005
    
    
    Charges
    
    
    Charges
    
    
    Payments
    
    
    Translation
    
    
    20052004 Restructuring PlanSeverance and benefit costs
    
    $
    14.9
    
    
    $
    (0.1
    )
    
    $
    
    
    
    $
    (8.9
    )
    
    $
    (0.9
    )
    
    $
    5.0Raw materials
    
    
    1.3
    
    
    
    
    
    
    
    
    
    
    
    (0.9
    )
    
    
    (0.1
    )
    
    
    0.3Other
    
    
    
    
    
    
    1.5
    
    
    
    
    
    
    
    (1.2
    )
    
    
    
    
    
    
    0.32005 Restructuring PlanSeverance and benefit costs
    
    
    
    
    
    
    3.9
    
    
    
    
    
    
    
    (0.2
    )
    
    
    (0.1
    )
    
    
    3.6Asset disposals and impairments
    
    
    
    
    
    
    1.3
    
    
    
    (1.3
    )
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    (0.2
    )
    
    
    
    
    
    
    Total
    
    $
    16.2
    
    
    $
    6.8
    
    
    $
    (1.3
    )
    
    $
    (11.4
    )
    
    $
    (1.1
    )
    
    $
    9.2
 Liquidity and capital resources
 Operating activities
  23




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##### Table of Contents



Investing activities
 Financing activities
      24




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##### Table of Contents



Twelve Months
    
    
    Nine months
    
    
    Three MonthsEnded
    
    
    Ended
    
    
    Ended(in millions)
    
    October 1, 2005
    
    
    October 1, 2005
    
    
    October 1, 2005Net income
    
    $
    5.2
    
    
    $
    10.5
    
    
    $
    1.7Add:Depreciation and amortization
    
    
    58.1
    
    
    
    42.3
    
    
    
    13.9Interest expense, net
    
    
    60.7
    
    
    
    44.8
    
    
    
    15.1Income taxes
    
    
    (1.3
    )
    
    
    (2.0
    )
    
    
    (4.3
    )EBITDA
    
    
    122.7
    
    
    
    95.6
    
    
    
    26.4Add:Foreign currency (gain) loss
    
    
    (1.2
    )
    
    
    (3.1
    )
    
    
    Inventory purchase accounting adjustments (1)
    
    
    .5
    
    
    
    
    
    
    
    Transactions costs (2)
    
    
    .4
    
    
    
    
    
    
    
    Operating lease payments on lease to be refinanced (3)
    
    
    2.8
    
    
    
    2.1
    
    
    
    .7Business restructuring (4)
    
    
    7.2
    
    
    
    6.9
    
    
    
    1.5Loss on disposal of property, plant, and equipment
    
    
    .8
    
    
    
    .3
    
    
    
    .3Adjusted EBITDA
    
    $
    133.2
    
    
    $
    101.8
    
    
    $
    28.9
 
 (1)
    
    Represents the write-off of the inventory purchase accounting adjustment for inventory that
was sold during the period.(2)
    
    Represents non-recurring costs incurred in connection with the Transactions.(3)
    
    Represents payments under an operating lease agreement that we intend to terminate and
purchase the equipment from the lessor.(4)
    
    Represents business restructuring costs associated with the 2004 and 2005
restructuring, including severance and benefit costs for employee layoffs, loss on an
inventory purchase commitment, asset impairment and other related expenses.(5)  TwelveMonthsEndedOctober 1,(in millions)
    
    2005Adjusted EBITDA
    
    $
    133.2Consolidated interest expense, as defined in the Credit Agreement
    
    $
    58.1Actual interest coverage ratio
    
    
    2.29
    xPermitted minimum interest coverage ratio
    
    
    2.25
    x
 25




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##### Table of Contents



Date or Period
    
    RatioOctober 2, 2004 through July 1, 2006
    
    
    2.25 to 1.00September 30, 2006 through January 3, 2009
    
    
    2.50 to 1.00April 4, 2009 through January 2, 2010
    
    
    2.75 to 1.00April 3, 2010 and each fiscal quarter thereafter
    
    
    3.00 to 1.00
  TwelveMonthsEndedOctober 1,(in millions)
    
    2005Indebtedness, as defined in the Credit Agreement
    
    $
    784.5Adjusted EBITDA
    
    $
    133.2Actual leverage ratio
    
    
    5.89
    xPermitted maximum leverage ratio
    
    
    6.00
    x
  Date or Period
    
    RatioOctober 1, 2005
    
    
    6.00 to 1.00December 31, 2005 through July 1, 2006
    
    
    5.75 to 1.00September 30, 2006 through December 30, 2006
    
    
    5.50 to 1.00March 31, 2007 through June 30, 2007
    
    
    5.25 to 1.00September 29, 2007
    
    
    5.00 to 1.00December 29, 2007 through March 29, 2008
    
    
    4.75 to 1.00June 28, 2008 through September 27, 2008
    
    
    4.50 to 1.00January 3, 2009 through October 3, 2009
    
    
    4.25 to 1.00January 2, 2010 and each fiscal quarter thereafter
    
    
    4.00 to 1.00
     26




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##### Table of Contents



Foreign operations
  Seasonality
  27




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##### Table of Contents



Off-balance sheet arrangements
  New accounting standards
 Accounting Changes and Error Corrections
 Accounting for
Early Retirement or Postemployment Programs with Specific Features (Such As Terms Specified in
Altersteilzeit Early Retirement Arrangements)
 Exchanges of Nonmonetary Assets, Accounting for Nonmonetary Transactions
 Share-Based Payment Accounting for Stock
Issued to Employees
 Share-Based Payment
 Inventory Costs Inventory Pricing
 28




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Interest rate risk
  Accounting for Derivatives and Hedging Activity
   Currency risk
  29




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##### Table of Contents



Three Months Ended
    
    Nine Months EndedOctober 1,
    
    October 2,
    
    October 1,
    
    October 2,2005
    
    2004
    
    2005
    
    2004Period end rate
    
    
    1.2225
    
    
    
    1.2245
    
    
    
    1.2225
    
    
    
    1.2245Period average rate
    
    
    1.2128
    
    
    
    1.2238
    
    
    
    1.2761
    
    
    
    1.2312
  
 Item 4. Controls and Procedures
   
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
   30




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##### Table of Contents



Item 6. Exhibits
 Exhibit No.
    
    Exhibit Description10.1
    
    Employment Agreement, dated as of July 6, 2005, by and between
Polypore International, Inc. and Robert B. Toth10.2
    
    Employment Agreement, dated as of August 15, 2005, by and
between Polypore International, Inc. and Frank Nasisi31.1
    
    Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
 31




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##### Table of Contents



SIGNATURES
  Date: November 15, 2005
    
    
    
    POLYPORE INTERNATIONAL, INC.(Registrant)By:
    
    /s/ Robert B. Toth

      Robert B. TothPresident and Chief Executive Officer(principal executive officer)By:
    
    /s/ Lynn Amos

      Lynn AmosChief Financial Officer(principal financial officer and principal accounting
      officer)
 32