##### Table of Contents



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 July 2, 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




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Polypore
International, Inc.
 Index to Quarterly Report on Form 10-Q
For the Quarter Ended July 2, 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
    
    
    27Item 4.Controls and Procedures
    
    
    28PART II OTHER INFORMATIONItem 1.Legal Proceedings
    
    
    28Item 6.Exhibits
    
    
    29SIGNATURESEx-10.1Ex-31.1Ex-31.2Ex-32.1Ex-32.2
   2




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##### Table of Contents



Forward-looking statements
 Form
10-Q
 
    
    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
 July 2, 2005
    

January 1, 2005*(in thousands)
    
    (unaudited)AssetsCurrent assets:Cash and equivalents
    
    $
    31,805
    
    
    $
    33,149Accounts receivable, net
    
    
    90,455
    
    
    
    106,296Inventories
    
    
    59,831
    
    
    
    61,789Refundable income taxes
    
    
    7,878
    
    
    
    8,850Deferred income taxes
    
    
    3,252
    
    
    
    7,954Prepaid and other
    
    
    7,116
    
    
    
    5,288Total current assets
    
    
    200,337
    
    
    
    223,326Property, plant and equipment, net
    
    
    393,548
    
    
    
    441,350Goodwill
    
    
    537,517
    
    
    
    535,844Intangibles and loan acquisition costs, net
    
    
    231,776
    
    
    
    244,629Environmental indemnification receivable, less current portion
    
    
    17,894
    
    
    
    20,125Other
    
    
    1,589
    
    
    
    1,142Total assets
    
    $
    1,382,661
    
    
    $
    1,466,416Liabilities and shareholders equityCurrent liabilities:Revolving credit obligations
    
    $
    
    
    
    $
    Accounts payable
    
    
    19,586
    
    
    
    20,581Accrued liabilities
    
    
    40,727
    
    
    
    51,229Current portion of debt-optional prepayment
    
    
    
    
    
    
    25,000Current portion of debt
    
    
    4,390
    
    
    
    2,260Current portion of capital lease obligation
    
    
    1,299
    
    
    
    1,272Total current liabilities
    
    
    66,002
    
    
    
    100,342Debt, less current portion
    
    
    1,007,932
    
    
    
    1,029,391Capital lease obligations, less current portion
    
    
    6,688
    
    
    
    7,344Pension and postretirement benefits
    
    
    45,551
    
    
    
    48,652Post employment benefits
    
    
    8,212
    
    
    
    10,119Environmental reserve, less current portion
    
    
    23,115
    
    
    
    24,394Deferred income taxes
    
    
    123,301
    
    
    
    137,240Other
    
    
    1,540
    
    
    
    3,033Commitments and contingenciesShareholders equity:Common stock
    
    
    2
    
    
    
    2Paid-in capital
    
    
    124,659
    
    
    
    124,468Retained (deficit)
    
    
    (19,538
    )
    
    
    (19,265
    )Accumulated other comprehensive income (loss)
    
    
    (4,803
    )
    
    
    696100,320
    
    
    
    105,901Total liabilities and shareholders equity
    
    $
    1,382,661
    
    
    $
    1,466,416
  See notes to condensed consolidated financial statements
 4




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##### Table of Contents



Polypore International, Inc .
 Condensed Consolidated Statements of Operations (Unaudited)
 Successor
    
    Predecessor
    
    Successor
    
    PredecessorThree
    
    
    
    
    
    
    
    
    
    January 4,Months
    
    May 2, 2004
    
    April 4, 2004
    
    Six Months
    
    May 2, 2004
    
    2004Ended
    
    through
    
    through
    
    Ended
    
    through
    
    through(in thousands)
    
    July 2, 2005
    
    July 3, 2004
    
    May 1, 2004
    
    July 2, 2005
    
    July 3, 2004
    
    May 1, 2004Net sales
    
    $
    112,614
    
    
    $
    88,729
    
    
    $
    39,153
    
    
    $
    225,112
    
    
    $
    88,729
    
    
    $
    179,273Cost of goods sold
    
    
    72,105
    
    
    
    58,150
    
    
    
    23,905
    
    
    
    145,714
    
    
    
    58,150
    
    
    
    110,166Gross profit
    
    
    40,509
    
    
    
    30,579
    
    
    
    15,248
    
    
    
    79,398
    
    
    
    30,579
    
    
    
    69,107Selling, general and administrative expenses
    
    
    18,567
    
    
    
    12,662
    
    
    
    5,888
    
    
    
    37,006
    
    
    
    12,662
    
    
    
    23,381Business restructuring
    
    
    5,402
    
    
    
    
    
    
    
    
    
    
    
    5,402
    
    
    
    
    
    
    
    In process research and development
    
    
    
    
    
    
    5,280
    
    
    
    
    
    
    
    
    
    
    
    5,280
    
    
    
    Operating income
    
    
    16,540
    
    
    
    12,637
    
    
    
    9,360
    
    
    
    36,990
    
    
    
    12,637
    
    
    
    45,726Other (income) expense:Interest expense, net
    
    
    20,340
    
    
    
    8,372
    
    
    
    1,517
    
    
    
    40,598
    
    
    
    8,372
    
    
    
    6,048Foreign currency and other
    
    
    (1,834
    )
    
    
    276
    
    
    
    54
    
    
    
    (3,405
    )
    
    
    276
    
    
    
    481Unrealized gain on derivative instrument
    
    
    
    
    
    
    
    
    
    
    (1,308
    )
    
    
    
    
    
    
    
    
    
    
    (1,321
    )18,506
    
    
    
    8,648
    
    
    
    263
    
    
    
    37,193
    
    
    
    8,648
    
    
    
    5,208Income (loss) before income taxes
    
    
    (1,966
    )
    
    
    3,989
    
    
    
    9,097
    
    
    
    (203
    )
    
    
    3,989
    
    
    
    40,518Income taxes
    
    
    (51
    )
    
    
    1,314
    
    
    
    3,002
    
    
    
    71
    
    
    
    1,314
    
    
    
    13,685Net income (loss)
    
    
    (1,915
    )
    
    
    2,675
    
    
    
    6,095
    
    
    
    (274
    )
    
    
    2,675
    
    
    
    26,833Redeemable preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    (101
    )
    
    
    
    
    
    
    
    
    
    
    (424
    )Net income (loss) applicable to common stock
    
    $
    (1,915
    )
    
    $
    2,675
    
    
    $
    5,994
    
    
    $
    (274
    )
    
    $
    2,675
    
    
    $
    26,409Net income (loss) per common share-basic
and diluted
    
    $
    (11.17
    )
    
    $
    15.66
    
    
    $
    38.65
    
    
    $
    (1.60
    )
    
    $
    15.66
    
    
    $
    170.29Weighted average shares outstanding
    
    
    171,421
    
    
    
    170,870
    
    
    
    155,086
    
    
    
    171,421
    
    
    
    170,870
    
    
    
    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
    
    PredecessorSix Months
    
    May 2, 2004
    
    January 4, 2004Ended
    
    through
    
    through(in thousands)
    
    July 2, 2005
    
    July 3, 2004
    
    May 1, 2004Operating activities:Net income (loss)
    
    $
    (274
    )
    
    $
    2,675
    
    
    $
    26,833Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation expense
    
    
    19,459
    
    
    
    4,224
    
    
    
    14,409Amortization expense
    
    
    8,903
    
    
    
    2,908
    
    
    
    808Amortization of debt discount
    
    
    10,822
    
    
    
    
    
    
    
    Amortization of loan acquisition costs
    
    
    1,348
    
    
    
    425
    
    
    
    632Stock compensation
    
    
    191
    
    
    
    48
    
    
    
    Gain on disposal of property, plant and equipment
    
    
    (18
    )
    
    
    
    
    
    
    (1,432
    )Business restructuring
    
    
    5,402
    
    
    
    
    
    
    
    Foreign currency and other
    
    
    (3,515
    )
    
    
    (2,038
    )
    
    
    (3.067
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    9,557
    
    
    
    (6,423
    )
    
    
    (13,189
    )Inventories
    
    
    (2,651
    )
    
    
    5,144
    
    
    
    (1,434
    )Prepaid and other current assets
    
    
    (2,284
    )
    
    
    (89
    )
    
    
    (107
    )Accounts payable and accrued liabilities
    
    
    (10,507
    )
    
    
    1,353
    
    
    
    4,160Other, net
    
    
    (283
    )
    
    
    (3,920
    )
    
    
    1,298Net cash provided by operating activities
    
    
    36,150
    
    
    
    4,307
    
    
    
    28,911Investing activities:Purchases of property, plant and equipment
    
    
    (6,617
    )
    
    
    (2,187
    )
    
    
    (5,497
    )Proceeds from sale of property, plant and equipment
    
    
    24
    
    
    
    
    
    
    
    1,923Acquisitions, net of cash acquired
    
    
    
    
    
    
    (867,369
    )
    
    
    Net cash used in investing activities
    
    
    (6,593
    )
    
    
    (869,556
    )
    
    
    (3,574
    )Financing activities:Proceeds from debt
    
    
    
    
    
    
    819,335
    
    
    
    610Principal payments on debt
    
    
    (27,393
    )
    
    
    (262,015
    )
    
    
    (7,923
    )Borrowings on revolving credit agreement
    
    
    
    
    
    
    1,500
    
    
    
    Payments on revolving credit agreement
    
    
    
    
    
    
    (10,000
    )
    
    
    Loan acquisition costs
    
    
    (663
    )
    
    
    (19,405
    )
    
    
    (59
    )Issuance of common stock
    
    
    
    
    
    
    171,351
    
    
    
    Issuance of nonconvertible preferred stock
    
    
    
    
    
    
    150,000
    
    
    
    Net cash (used in) provided by financing activities
    
    
    (28,056
    )
    
    
    850,766
    
    
    
    (7,372
    )Effect of exchange rate changes on cash and equivalents
    
    
    (2,845
    )
    
    
    (563
    )
    
    
    (2,156
    )Net increase (decrease) in cash and equivalents
    
    
    (1,344
    )
    
    
    (15,046
    )
    
    
    15,809Cash and equivalents at beginning of period
    
    
    33,149
    
    
    
    35,872
    
    
    
    20,063Cash and equivalents at end of period
    
    $
    31,805
    
    
    $
    20,826
    
    
    $
    35,872
 See notes to condensed consolidated financial statements
 6




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##### Table of Contents



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




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##### Table of Contents



Three Months
    
    Six MonthsEnded
    
    Ended(in thousands)
    
    July 3, 2004
    
    July 3, 2004Net sales
    
    $
    127,882
    
    
    $
    268,002Net income
    
    $
    12,759
    
    
    $
    25,636Net income per common share  basic and diluted
    
    $
    74.74
    
    
    $
    150.32
 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)
    
    July 2, 2005
    
    
    January 1, 2005Raw materials
    
    $
    20,720
    
    
    $
    22,243Work-in-process
    
    
    6,934
    
    
    
    6,395Finished goods
    
    
    32,177
    
    
    
    33,151Total
    
    $
    59,831
    
    
    $
    61,789
 9




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##### Table of Contents



5. Debt
  (in thousands)
    
    July 2, 2005
    
    
    January 1, 2005Senior credit facilities:Revolving credit facility
    
    $
    
    
    
    $
    Term loan facilities
    
    
    386,715
    
    
    
    416,9418.75% senior subordinated notes
    
    
    406,665
    
    
    
    429,31510.5% senior discount notes
(net of unamortized discount
of $84,726 and $95,548)
    
    
    215,274
    
    
    
    204,452Other
    
    
    3,668
    
    
    
    5,9431,012,322
    
    
    
    1,056,651Less optional prepayment
    
    
    
    
    
    
    25,000Less current maturities
    
    
    4,390
    
    
    
    2,260Long-term debt
    
    $
    1,007,932
    
    
    $
    1,029,391
  6. Pension and Other Postretirement Benefits
   Pension PlansSuccessor
    
    
    Predecessor
    
    
    Successor
    
    
    PredecessorThree
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    January 4,Months
    
    
    May 2, 2004
    
    
    April 4, 2004
    
    
    Six Months
    
    
    May 2, 2004
    
    
    2004Ended
    
    
    through
    
    
    through
    
    
    Ended
    
    
    through
    
    
    through(in thousands)
    
    July 2, 2005
    
    
    July 3, 2004
    
    
    May 1, 2004
    
    
    July 2, 2005
    
    
    July 3, 2004
    
    
    May 1, 2004Service cost
    
    $
    652
    
    
    $
    302
    
    
    $
    151
    
    
    $
    1,230
    
    
    $
    302
    
    
    $
    604Interest cost
    
    
    857
    
    
    
    445
    
    
    
    223
    
    
    
    1,616
    
    
    
    445
    
    
    
    891Expected return on plan
assets
    
    
    (245
    )
    
    
    (131
    )
    
    
    (65
    )
    
    
    (458
    )
    
    
    (131
    )
    
    
    (261
    )Amortization of prior
service cost
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    57Recognized net actuarial
loss
    
    
    16
    
    
    
    24
    
    
    
    12
    
    
    
    30
    
    
    
    24
    
    
    
    48Net periodic benefit cost
    
    $
    1,280
    
    
    $
    640
    
    
    $
    335
    
    
    $
    2,418
    
    
    $
    640
    
    
    $
    1,339
 10




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##### Table of Contents



Other Postretirement BenefitsSuccessor
    
    
    Predecessor
    
    
    Successor
    
    
    PredecessorThree
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    January 4,Months
    
    
    May 2, 2004
    
    
    April 4, 2004
    
    
    Six Months
    
    
    May 2, 2004
    
    
    2004Ended
    
    
    through
    
    
    through
    
    
    Ended
    
    
    through
    
    
    through(in thousands)
    
    July 2, 2005
    
    
    July 3, 2004
    
    
    May 1, 2004
    
    
    July 2, 2005
    
    
    July 3, 2004
    
    
    May 1, 2004Service cost
    
    $
    7
    
    
    $
    5
    
    
    $
    2
    
    
    $
    14
    
    
    $
    5
    
    
    $
    9Interest cost
    
    
    29
    
    
    
    19
    
    
    
    9
    
    
    
    58
    
    
    
    19
    
    
    
    38Amortization of prior
service cost
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    (15
    )Recognized net actuarial
loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Net periodic benefit cost
    
    $
    36
    
    
    $
    24
    
    
    $
    8
    
    
    $
    72
    
    
    $
    24
    
    
    $
    33
 7. Income Taxes
     8. Segment Information
   11




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##### Table of Contents



Successor
    
    
    Predecessor
    
    
    Successor
    
    
    PredecessorThree
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    January 4,Months
    
    
    May 2, 2004
    
    
    April 4, 2004
    
    
    Six Months
    
    
    May 2,2004
    
    
    2004Ended
    
    
    through
    
    
    through
    
    
    Ended
    
    
    through
    
    
    through(in thousands)
    
    July 2, 2005
    
    
    July 3, 2004
    
    
    May 1, 2004
    
    
    July 2, 2005
    
    
    July 3,2004
    
    
    May 1, 2004Net sales to external
customers:Energy storage
    
    $
    81,657
    
    
    $
    60,204
    
    
    $
    24,513
    
    
    $
    157,916
    
    
    $
    60,204
    
    
    $
    119,436Separations media
    
    
    30,957
    
    
    
    28,525
    
    
    
    14,640
    
    
    
    67,196
    
    
    
    28,525
    
    
    
    59,837Total net sales to
external customers
    
    $
    112,614
    
    
    $
    88,729
    
    
    $
    39,153
    
    
    $
    225,112
    
    
    $
    88,729
    
    
    $
    179,273Operating income:Energy storage
    
    $
    13,426
    
    
    $
    6,217
    
    
    $
    6,693
    
    
    $
    26,340
    
    
    $
    6,217
    
    
    $
    35,146Separations media
    
    
    3,479
    
    
    
    6,468
    
    
    
    2,667
    
    
    
    11,064
    
    
    
    6,468
    
    
    
    10,580Corporate
    
    
    (365
    )
    
    
    (48
    )
    
    
    
    
    
    
    (414
    )
    
    
    (48
    )
    
    
    Total operating income
    
    
    16,540
    
    
    
    12,637
    
    
    
    9,360
    
    
    
    36,990
    
    
    
    12,637
    
    
    
    45,726Reconciling items:Interest expense
    
    
    20,340
    
    
    
    8,372
    
    
    
    1,517
    
    
    
    40,598
    
    
    
    8,372
    
    
    
    6,048Other
    
    
    (1,834
    )
    
    
    276
    
    
    
    (1,254
    )
    
    
    (3,405
    )
    
    
    276
    
    
    
    (840
    )Total consolidated
income before income
taxes
    
    $
    (1,966
    )
    
    $
    3,989
    
    
    $
    9,097
    
    
    $
    (203
    )
    
    $
    3,989
    
    
    $
    40,518Depreciation and
amortization:Energy storage
    
    $
    8,282
    
    
    $
    4,338
    
    
    $
    1,994
    
    
    $
    16,682
    
    
    $
    4,338
    
    
    $
    7,208Separations media
    
    
    5,764
    
    
    
    2,794
    
    
    
    1,683
    
    
    
    11,680
    
    
    
    2,794
    
    
    
    8,009Total depreciation
and amortization
    
    $
    14,046
    
    
    $
    7,132
    
    
    $
    3,677
    
    
    $
    28,362
    
    
    $
    7,132
    
    
    $
    15,217
 9. Related Party Transactions
   12




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##### Table of Contents



10. Comprehensive Income
  Successor
    
    
    Predecessor
    
    
    Successor
    
    
    PredecessorThree
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    January 4,Months
    
    
    May 2, 2004
    
    
    April 4, 2004
    
    
    Six Months
    
    
    May 2, 2004
    
    
    2004Ended
    
    
    through
    
    
    through
    
    
    Ended
    
    
    through
    
    
    through(in thousands)
    
    July 2, 2005
    
    
    July 3, 2004
    
    
    May 1, 2004
    
    
    July 2, 2005
    
    
    July 3, 2004
    
    
    May 1, 2004Net income (loss)
    
    $
    (1,915
    )
    
    $
    2,675
    
    
    $
    6,095
    
    
    $
    (274
    )
    
    $
    2,675
    
    
    $
    26,833Other comprehensive
income (loss),
primarily foreign
currency
translation
    
    
    (3,127
    )
    
    
    4,875
    
    
    
    (8,155
    )
    
    
    (5,499
    )
    
    
    4,875
    
    
    
    (19,848
    )Comprehensive
income (loss)
    
    $
    (5,042
    )
    
    $
    7,550
    
    
    $
    (2,060
    )
    
    $
    (5,773
    )
    
    $
    7,550
    
    
    $
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ForeignJanuary 1,
    
    
    Restructuring
    
    
    Non-cash
    
    
    Cash
    
    
    Currency
    
    
    Balance at(in thousands)
    
    2005
    
    
    Charges
    
    
    Charges
    
    
    Payments
    
    
    Translation
    
    
    July 2, 20052004 Restructuring PlanSeverance and benefit costs
    
    $
    14,944
    
    
    $
    
    
    
    $
    
    
    
    $
    (7,649
    )
    
    $
    (1,082
    )
    
    $
    6,213Raw materials
    
    
    1,256
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (139
    )
    
    
    1,117Other
    
    
    
    
    
    
    254
    
    
    
    
    
    
    
    (254
    )
    
    
    
    
    
    
    2005 Restructuring PlanSeverance and benefit costs
    
    
    
    
    
    
    3,849
    
    
    
    
    
    
    
    (10
    )
    
    
    (149
    )
    
    
    3,690Asset disposals and impairments
    
    
    
    
    
    
    1,278
    
    
    
    (1,278
    )
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    (21
    )
    
    
    
    
    
    
    Total
    
    $
    16,200
    
    
    $
    5,402
    
    
    $
    (1,278
    )
    
    $
    (7,934
    )
    
    $
    (1,370
    )
    
    $
    11,020
  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
    Results of operations
  Three months ended
    
    
    Six months endedJuly 3,
    
    
    
    
    
    
    July 3,(in millions)
    
    July 2, 2005
    
    
    2004(1)
    
    
    July 2, 2005
    
    
    2004(2)Net sales
    
    $
    112.6
    
    
    $
    127.9
    
    
    $
    225.1
    
    
    $
    268.0Gross profit
    
    
    40.5
    
    
    
    53.9
    
    
    
    79.4
    
    
    
    110.5Selling, general and administrative expenses
    
    
    18.6
    
    
    
    19.9
    
    
    
    37.0
    
    
    
    41.2Business restructuring
    
    
    5.4
    
    
    
    
    
    
    
    5.4
    
    
    
    Operating income
    
    
    16.5
    
    
    
    34.0
    
    
    
    37.0
    
    
    
    69.3Interest expense, net
    
    
    20.3
    
    
    
    13.1
    
    
    
    40.6
    
    
    
    27.2Foreign currency and other
    
    
    (1.8
    )
    
    
    0.3
    
    
    
    (3.4
    )
    
    
    0.8Income before income taxes
    
    
    (2.0
    )
    
    
    20.6
    
    
    
    (0.2
    )
    
    
    41.3Income taxes
    
    
    (0.1
    )
    
    
    7.8
    
    
    
    0.1
    
    
    
    15.7Net income
    
    $
    (1.9
    )
    
    $
    12.8
    
    
    $
    (0.3
    )
    
    $
    25.6
 18




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##### Table of Contents



Three months ended
    
    
    Six months endedJuly 3,
    
    
    
    
    
    
    July 3,(in millions)
    
    July 2, 2005
    
    
    2004(1)
    
    
    July 2, 2005
    
    
    2004(2)Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Gross profit
    
    
    36.0
    %
    
    
    42.1
    %
    
    
    35.3
    %
    
    
    41.2
    %Selling, general and administrative expenses
    
    
    16.5
    %
    
    
    15.6
    %
    
    
    16.4
    %
    
    
    15.4
    %Business restructuring
    
    
    4.8
    %
    
    
    
    
    
    
    2.4
    %
    
    
    Operating income
    
    
    14.7
    %
    
    
    26.6
    %
    
    
    16.4
    %
    
    
    25.9
    %Interest expense, net
    
    
    18.0
    %
    
    
    10.2
    %
    
    
    18.0
    %
    
    
    10.1
    %Foreign currency and other
    
    
    (1.6
    )%
    
    
    0.2
    %
    
    
    (1.5
    )%
    
    
    0.3
    %Income before income taxes
    
    
    (1.8
    )%
    
    
    16.1
    %
    
    
    (0.1
    )%
    
    
    15.4
    %Income taxes
    
    
    (0.1
    )%
    
    
    6.1
    %
    
    
    0.0
    %
    
    
    5.9
    %Net income
    
    
    (1.7
    )%
    
    
    10.0
    %
    
    
    (0.1
    )%
    
    
    9.6
    %
 
 (1)
    
    Unaudited pro forma financial information as if the Transactions had occurred on April 4,
2004, the first day of the three month period ending July 3, 2004.(2)
    
    Unaudited pro forma financial information as if the Transactions had occurred on January
4, 2004, the first day of the six month period ending July 3, 2004. Three month period ended July 2, 2005 (Successor) with the pro forma three month period ended July
3, 2004 (Predecessor)
 Net sales.
 Gross profit
 19




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##### Table of Contents



Selling, general and administrative expenses
 Interest expense, net
 Income taxes.
 Six month period ended July 2, 2005 (Successor) with the pro forma six month period ended July 3,
2004 (Predecessor)
 Net sales.
 Gross profit
 20




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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
 2004 restructuring.
 21




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##### Table of Contents



Balance at
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Foreign
    
    
    Balance atJanuary 1,
    
    
    Restructuring
    
    
    Non-cash
    
    
    Cash
    
    
    Currency
    
    
    July 2,(in thousands)
    
    2005
    
    
    Charges
    
    
    Charges
    
    
    Payments
    
    
    Translation
    
    
    20052004 Restructuring PlanSeverance and benefit costs
    
    $
    14.9
    
    
    $
    
    
    
    $
    
    
    
    $
    (7.6
    )
    
    $
    (1.0
    )
    
    $
    6.3Raw materials
    
    
    1.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.2
    )
    
    
    1.1Other
    
    
    
    
    
    
    0.3
    
    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    
    
    2005 Restructuring PlanSeverance and benefit costs
    
    
    
    
    
    
    3.8
    
    
    
    
    
    
    
    
    
    
    
    (0.2
    )
    
    
    3.6Asset disposals and impairments
    
    
    
    
    
    
    1.3
    
    
    
    (1.3
    )
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    16.2
    
    
    $
    5.4
    
    
    $
    (1.3
    )
    
    $
    (7.9
    )
    
    $
    (1.4
    )
    
    $
    11.0
 Liquidity and capital resources
 Operating activities
  Investing activities
 Financing activities
 22




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##### Table of Contents



TwelveMonths
    
    
    Six Months
    
    
    Three MonthsEnded
    
    
    Ended
    
    
    Ended(in millions)
    
    July 2, 2005
    
    
    July 2, 2005
    
    
    July 2, 2005Net income (loss)
    
    $
    (8.7
    )
    
    $
    8.8
    
    
    $
    3.3Add:Depreciation and amortization
    
    
    55.1
    
    
    
    28.4
    
    
    
    14.1Interest expense, net
    
    
    59.1
    
    
    
    29.7
    
    
    
    14.8Income taxes
    
    
    (5.7
    )
    
    
    2.3
    
    
    
    0.6EBITDA
    
    
    99.8
    
    
    
    69.2
    
    
    
    32.8Add:Foreign currency (gain) loss
    
    
    (0.6
    )
    
    
    
    
    
    
    Inventory purchase accounting adjustments (1)
    
    
    10.5
    
    
    
    
    
    
    
    Transactions costs (2)
    
    
    0.9
    
    
    
    
    
    
    
    Operating lease payments on leases to be refinanced (3)
    
    
    3.2
    
    
    
    1.4
    
    
    
    0.7Business restructuring (4)
    
    
    21.1
    
    
    
    5.4
    
    
    
    5.4Loss on disposal of property, plant, and equipment
    
    
    0.5
    
    
    
    
    
    
    
    Adjusted EBITDA
    
    $
    135.4
    
    
    $
    72.9
    
    
    $
    37.1
 
 (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. 23




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##### Table of Contents



(3)
    
    Represents payments under two operating lease agreements that we intend to refinance. On
October 29, 2004, the Company refinanced one of the operating leases through a capital lease
agreement. We intend to terminate the other operating lease 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.  Twelve MonthsEnded(in millions)
    
    July 2, 2005Adjusted EBITDA
    
    $
    135.4Consolidated interest expense, as defined in the Credit Agreement
    
    $
    56.5Actual interest coverage ratio
    
    
    2.39
    xPermitted minimum interest coverage ratio
    
    
    2.25
    x
  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
  Twelve MonthsEnded(in millions)
    
    July 2, 2005Indebtedness, as defined in the Credit Agreement
    
    $
    805.0Adjusted EBITDA
    
    $
    135.4Actual leverage ratio
    
    
    5.95
    xPermitted maximum leverage ratio
    
    
    6.25
    x
  Date or Period
    
    RatioOctober 2, 2004 through July 2, 2005
    
    
    6.25 to 1.00October 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
  24




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##### Table of Contents



Foreign operations
  25




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##### Table of Contents



Seasonality
  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
 26




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##### Table of Contents



Inventory Costs Inventory Pricing
 Share-Based Payment Accounting for Stock
Issued to Employees
 Share-Based Payment
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Interest rate risk
  Accounting for Derivatives and Hedging Activity
  27




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##### Table of Contents



Currency risk
   Three Months Ended
    
    
    Six Months EndedJuly 2, 2005
    
    July 3, 2004
    
    July 2, 2005
    
    July 3, 2004Period end rate
    
    
    1.2111
    
    
    
    1.2087
    
    
    
    1.2111
    
    
    
    1.2087Period average rate
    
    
    1.2907
    
    
    
    1.2007
    
    
    
    1.3077
    
    
    
    1.2347
  
 Item 4. Controls and Procedures
   
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
 28




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##### Table of Contents



Item 6. Exhibits
 Exhibit No.
    
    Exhibit Description10.1
    
    Second Amendment to Credit Agreement31.1
    
    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
 29




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##### Table of Contents



SIGNATURES
  Date: August 16, 2005
    POLYPORE INTERNATIONAL, INC.
          (Registrant)By:

/s/   Robert B. TothRobert
B. TothPresident and Chief Executive Officer
(principal executive officer)By:
/s/    Lynn AmosLynn
AmosChief Financial Officer
(principal financial officer and principal accounting
officer) 30