##### 



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 1, 2006
 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
    
    (IRS EmployerIncorporation or Organization)
    
    Identification No.)13800 South Lakes DriveCharlotte, North Carolina
    
    28273(Address of Principal Executive Offices)
    
    (Zip Code)
 (704) 587-8409
 
  þ o
  o o þ
 o þ




---



##### 



Polypore
International, Inc.
Index to Quarterly Report on Form 10-Q
For the Quarter Ended July 1, 2006
 PagePART I FINANCIAL INFORMATIONItem 1.Financial Statements
    
    
    4Item 2.Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    15Item 3.Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4.Controls and Procedures
    
    
    26PART II OTHER INFORMATIONItem 1.Legal Proceedings
    
    
    27Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 6.Exhibits
    
    
    27SIGNATURES
  2




---



##### 



Forward-looking Statements
 10-Q
  
    
    the highly competitive nature of the markets in which we sell our products;
    
    the failure to continue to develop innovative products;
    
    the failure to successfully manage the transition in hemodialysis from cellulosic to
synthetic filtration membranes;
    
    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.
  3




---



##### 



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Polypore International, Inc.
Condensed Consolidated Balance Sheets
 July 1, 2006(in thousands)
    
    (unaudited)
    
    December 31, 2005*AssetsCurrent assets:Cash and equivalents
    
    $
    40,483
    
    
    $
    28,060Accounts receivable, net
    
    
    103,197
    
    
    
    88,347Inventories
    
    
    67,144
    
    
    
    60,539Prepaid and other
    
    
    9,544
    
    
    
    9,035Total current assets
    
    
    220,368
    
    
    
    185,981Property, plant and equipment, net
    
    
    380,867
    
    
    
    370,871Goodwill
    
    
    567,587
    
    
    
    567,587Intangibles and loan acquisition costs, net
    
    
    214,191
    
    
    
    222,666Environmental indemnification receivable
    
    
    17,720
    
    
    
    16,366Other
    
    
    1,166
    
    
    
    1,105Total assets
    
    $
    1,401,899
    
    
    $
    1,364,576Liabilities and shareholders equityCurrent liabilities:Revolving credit obligations
    
    $
    
    
    
    $
    Accounts payable
    
    
    26,555
    
    
    
    23,209Accrued liabilities
    
    
    39,980
    
    
    
    32,804Income taxes payable
    
    
    5,061
    
    
    
    4,284Current portion of debt
    
    
    3,048
    
    
    
    1,224Current portion of capital lease obligation
    
    
    1,349
    
    
    
    1,326Total current liabilities
    
    
    75,993
    
    
    
    62,847Debt, less current portion
    
    
    1,021,179
    
    
    
    994,270Capital lease obligation, less current portion
    
    
    5,449
    
    
    
    6,018Pension and postretirement benefits
    
    
    55,765
    
    
    
    51,386Postemployment benefits
    
    
    4,701
    
    
    
    7,096Environmental reserve, less current portion
    
    
    23,416
    
    
    
    22,264Deferred income taxes
    
    
    120,338
    
    
    
    125,501Other
    
    
    1,114
    
    
    
    1,862Commitments and contingencies
    
    
    
    
    
    
    Shareholders equity:Common stock
    
    
    2
    
    
    
    2Paid-in capital
    
    
    125,026
    
    
    
    124,924Retained deficit
    
    
    (24,910
    )
    
    
    (22,207
    )Accumulated other comprehensive loss
    
    
    (6,174
    )
    
    
    (9,387
    )93,944
    
    
    
    93,332Total liabilities and shareholders equity
    
    $
    1,401,899
    
    
    $
    1,364,576
 
 *
    
    Derived from audited consolidated financial statements See notes to condensed consolidated financial statements
 4




---



##### 



Polypore International, Inc .  Condensed Consolidated Statements of Income (Unaudited)
 Three Months Ended
    
    Six Months Ended(in thousands, except share and per
share data)
    
    July 1, 2006
    
    July 2, 2005
    
    July 1, 2006
    
    July 2, 2005Net sales
    
    $
    123,094
    
    
    $
    112,614
    
    
    $
    238,387
    
    
    $
    225,112Cost of goods sold
    
    
    78,461
    
    
    
    72,105
    
    
    
    153,441
    
    
    
    145,714Gross profit
    
    
    44,633
    
    
    
    40,509
    
    
    
    84,946
    
    
    
    79,398Selling, general and administrative expenses
    
    
    22,018
    
    
    
    18,567
    
    
    
    44,516
    
    
    
    37,006Business restructuring
    
    
    553
    
    
    
    5,402
    
    
    
    1,325
    
    
    
    5,402Operating income
    
    
    22,062
    
    
    
    16,540
    
    
    
    39,105
    
    
    
    36,990Other (income) expense:Interest expense, net
    
    
    23,662
    
    
    
    20,340
    
    
    
    45,762
    
    
    
    40,598Change in accounting principle related to
postemployment benefits
    
    
    
    
    
    
    
    
    
    
    (2,593
    )
    
    
    Foreign currency and other
    
    
    1,282
    
    
    
    (1,834
    )
    
    
    1,981
    
    
    
    (3,405
    )24,944
    
    
    
    18,506
    
    
    
    45,150
    
    
    
    37,193Loss before income taxes and the cumulative
effect of a change in accounting principle
    
    
    (2,882
    )
    
    
    (1,966
    )
    
    
    (6,045
    )
    
    
    (203
    )Income taxes
    
    
    (1,508
    )
    
    
    (51
    )
    
    
    (3,111
    )
    
    
    71Loss before the cumulative effect of a change
in accounting principle
    
    
    (1,374
    )
    
    
    (1,915
    )
    
    
    (2,934
    )
    
    
    (274
    )Cumulative effect of a change in accounting
principle related to stock compensation, net of
income taxes of $139
    
    
    
    
    
    
    
    
    
    
    231
    
    
    
    Net loss
    
    $
    (1,374
    )
    
    $
    (1,915
    )
    
    $
    (2,703
    )
    
    $
    (274
    )Net loss per share  basic and diluted:Loss before cumulative effect of a change
in accounting principle
    
    $
    (8.01
    )
    
    $
    (11.17
    )
    
    $
    (17.11
    )
    
    $
    (1.60
    )Cumulative effect of a change in accounting
principle related to stock compensation, net
of income taxes
    
    
    
    
    
    
    
    
    
    
    1.35
    
    
    
    Net loss per share
    
    $
    (8.01
    )
    
    $
    (11.17
    )
    
    $
    (15.76
    )
    
    $
    (1.60
    )Weighted average shares outstanding  basic and
diluted
    
    
    171,507
    
    
    
    171,421
    
    
    
    171,464
    
    
    
    171,421
 See notes to condensed consolidated financial statements
 5




---



##### 



Polypore International, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
 Six Months Ended(in thousands)
    
    July 1, 2006
    
    July 2, 2005Operating activities:Net loss
    
    $
    (2,703
    )
    
    $
    (274
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation expense
    
    
    20,319
    
    
    
    19,459Amortization expense
    
    
    8,824
    
    
    
    8,903Amortization of loan acquisition costs
    
    
    1,496
    
    
    
    1,348Amortization of debt discount
    
    
    11,929
    
    
    
    10,822Stock compensation
    
    
    73
    
    
    
    191Loss (gain) on disposal of property, plant and equipment
    
    
    772
    
    
    
    (18
    )Foreign currency and other
    
    
    87
    
    
    
    (3,515
    )Deferred income taxes
    
    
    (8,089
    )
    
    
    (1,537
    )Business restructuring
    
    
    1,325
    
    
    
    5,402Change in accounting principle related to postemployment benefits
    
    
    (2,593
    )
    
    
    Cumulative effect of change in accounting principle related to
stock compensation
    
    
    (370
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (10,904
    )
    
    
    9,557Inventories
    
    
    (3,319
    )
    
    
    (2,651
    )Prepaid and other current assets
    
    
    168
    
    
    
    (2,284
    )Accounts payable and accrued liabilities
    
    
    6,007
    
    
    
    (12,064
    )Income taxes payable
    
    
    (1,245
    )
    
    
    1,557Other, net
    
    
    627
    
    
    
    1,254Net cash provided by operating activities
    
    
    22,404
    
    
    
    36,150Investing activities:Purchases of property, plant and equipment
    
    
    (11,128
    )
    
    
    (6,617
    )Proceeds from sale of property, plant and equipment
    
    
    
    
    
    
    24Net cash used in investing activities
    
    
    (11,128
    )
    
    
    (6,593
    )Financing activities:Principal payments on debt
    
    
    (698
    )
    
    
    (27,393
    )Loan acquisition costs
    
    
    (15
    )
    
    
    (663
    )Issuance of common stock
    
    
    399
    
    
    
    Net cash used in financing activities
    
    
    (314
    )
    
    
    (28,056
    )Effect of exchange rate changes on cash and equivalents
    
    
    1,461
    
    
    
    (2,845
    )Net increase (decrease) in cash and equivalents
    
    
    12,423
    
    
    
    (1,344
    )Cash and equivalents at beginning of period
    
    
    28,060
    
    
    
    33,149Cash and equivalents at end of the period
    
    $
    40,483
    
    
    $
    31,805
 See notes to condensed consolidated financial statements
 6




---



##### 



Polypore International, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 1. Description of Business and Basis of Presentation
 Description of Business 
  Basis
of Presentation
 2. 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)
 7




---



##### 



Polypore International, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 Inventory Costs Inventory Pricing
 Share-Based Payment Accounting for Stock Based Compensation
 Accounting for Uncertainty in Income
Taxesan Interpretation of FASB Statement 109
 3. Inventories
  (in thousands)
    
    July 1, 2006
    
    December 31, 2005Raw materials
    
    $
    21,770
    
    
    $
    21,485Work-in-process
    
    
    9,257
    
    
    
    7,171Finished goods
    
    
    36,117
    
    
    
    31,883Total
    
    $
    67,144
    
    
    $
    60,539
 8




---



##### 



Polypore International, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 4. Debt
  (in thousands)
    
    July 1, 2006
    
    December 31, 2005Senior credit facilities:Revolving credit facility
    
    $
    
    
    
    $
    Term loan facilities
    
    
    368,679
    
    
    
    365,7358.75% senior subordinated notes
    
    
    415,815
    
    
    
    401,95510.50% senior discount notes, net of
unamortized original issue discount of
$61,560 and $73,489, respectively
    
    
    238,440
    
    
    
    226,511Other
    
    
    1,293
    
    
    
    1,2931,024,227
    
    
    
    995,494Less current maturities
    
    
    3,048
    
    
    
    1,224Long-term debt
    
    $
    1,021,179
    
    
    $
    994,270
 5. Pension and Other Postretirement Benefits
   Pension PlansThree Months Ended
    
    Six Months Ended(in thousands)
    
    July 1, 2006
    
    July 2, 2005
    
    July 1, 2006
    
    July 2, 2005Service cost
    
    $
    759
    
    
    $
    652
    
    
    $
    1,478
    
    
    $
    1,230Interest cost
    
    
    805
    
    
    
    857
    
    
    
    1,568
    
    
    
    1,616Expected return on plan assets
    
    
    (200
    )
    
    
    (245
    )
    
    
    (392
    )
    
    
    (458
    )Recognized net actuarial loss
    
    
    8
    
    
    
    16
    
    
    
    17
    
    
    
    30Net periodic benefit cost
    
    $
    1,372
    
    
    $
    1,280
    
    
    $
    2,671
    
    
    $
    2,418
 Other Postretirement BenefitsThree Months Ended
    
    Six Months Ended(in thousands)
    
    July 1, 2006
    
    July 2, 2005
    
    July 1, 2006
    
    July 2, 2005Service cost
    
    $
    8
    
    
    $
    7
    
    
    $
    16
    
    
    $
    14Interest cost
    
    
    28
    
    
    
    29
    
    
    
    57
    
    
    
    58Recognized net actuarial loss
    
    
    3
    
    
    
    
    
    
    
    4
    
    
    
    Net periodic benefit cost
    
    $
    39
    
    
    $
    36
    
    
    $
    77
    
    
    $
    72
 6. Environmental Matters
   9




---



##### 



Polypore International, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
    7. Business Restructuring
 2005 Restructuring Plan
  Accounting for Costs Associated with Exit or Disposal Activities
 2004 Restructuring Plan
  , ,
 10




---



##### 



Polypore International, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
  Balance at
    
    
    
    
    
    
    
    
    
    ForeignDecember 31,
    
    Restructuring
    
    Cash
    
    Currency
    
    Balance at(in thousands)
    
    2005
    
    Charges
    
    Payments
    
    Translation
    
    July 1, 20062005 Restructuring Plan:Severance and benefit costs
    
    $
    1,506
    
    
    $
    338
    
    
    $
    (882
    )
    
    $
    114
    
    
    $
    1,076Other
    
    
    
    
    
    
    393
    
    
    
    (393
    )
    
    
    
    
    
    
    1,506
    
    
    
    731
    
    
    
    (1,275
    )
    
    
    114
    
    
    
    1,0762004 Restructuring Plan:Severance and benefit costs
    
    
    4,069
    
    
    
    
    
    
    
    (2,528
    )
    
    
    187
    
    
    
    1,728Raw materials
    
    
    32
    
    
    
    
    
    
    
    (33
    )
    
    
    1
    
    
    
    Other
    
    
    265
    
    
    
    594
    
    
    
    (806
    )
    
    
    8
    
    
    
    614,366
    
    
    
    594
    
    
    
    (3,367
    )
    
    
    196
    
    
    
    1,789Total
    
    $
    5,872
    
    
    $
    1,325
    
    
    $
    (4,642
    )
    
    $
    310
    
    
    $
    2,865
  ForeignBalance at
    
    Restructuring
    
    Non-cash
    
    Cash
    
    Currency
    
    Balance at(in thousands)
    
    January 1, 2005
    
    Charges
    
    Charges
    
    Payments
    
    Translation
    
    July 2, 20052005 Restructuring Plan:Severance and benefit costs
    
    $
    
    
    
    $
    3,849
    
    
    $
    
    
    
    $
    (10
    )
    
    $
    (149
    )
    
    $
    3,690Asset disposals and impairments
    
    
    
    
    
    
    1,278
    
    
    
    (1,278
    )
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    5,148
    
    
    
    (1,278
    )
    
    
    (31
    )
    
    
    (149
    )
    
    
    3,6902004 Restructuring Plan:Severance and benefit costs
    
    
    14,944
    
    
    
    
    
    
    
    
    
    
    
    (7,649
    )
    
    
    (1,082
    )
    
    
    6,213Raw materials
    
    
    1,256
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (139
    )
    
    
    1,117Other
    
    
    
    
    
    
    254
    
    
    
    
    
    
    
    (254
    )
    
    
    
    
    
    
    16,200
    
    
    
    254
    
    
    
    
    
    
    
    (7,903
    )
    
    
    (1,221
    )
    
    
    7,330Total
    
    $
    16,200
    
    
    $
    5,402
    
    
    $
    (1,278
    )
    
    $
    (7,934
    )
    
    $
    (1,370
    )
    
    $
    11,020
 8. Share-based Compensation Plans
    11




---



##### 



Polypore International, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
    Weighted-
    
    Weighted AverageAverage
    
    Remaining
    
    AggregateExercise
    
    Contractual
    
    Instrinsic ValueOptions
    
    Price
    
    Term (Years)
    
    (in thousands)2004 PlanOutstanding at December 31, 2005
    
    
    8,741
    
    
    $
    800
    
    
    
    9.0
    
    
    $
    814Forfeited
    
    
    (1,060
    )
    
    
    725Unvested options forfeited upon grant
of
options under the 2006 Plan
    
    
    (5,566
    )
    
    
    814Outstanding at July 1, 2006
    
    
    2,115
    
    
    
    749
    
    
    
    8.5
    
    
    
    66Vested and exercisable at July 1, 2006
    
    
    1,389
    
    
    
    761
    
    
    
    8.8
    
    
    
    262006 PlanOutstanding at December 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issued
    
    
    13,219
    
    
    
    772Outstanding at July 1, 2006
    
    
    13,219
    
    
    
    772
    
    
    
    10.0
    
    
    
    96Vested and exercisable at July 1, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
   Weighted Average Assumptions2006
    
    2005
    
    2004Weighted-average expected life (years)
    
    
    3.50
    
    
    
    4.00
    
    
    
    5.00Risk-free interest rate
    
    
    5.10
    %
    
    
    3.86
    %
    
    
    3.96
    %Expected volatility
    
    
    23.00
    %
    
    
    20.00
    %
    
    
    20.00
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    12




---



##### 



Polypore International, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
   9. Income Taxes
  10. Comprehensive Income
  Three Months Ended
    
    Six Months Ended(in thousands)
    
    July 1, 2006
    
    July 2, 2005
    
    July 1, 2006
    
    July 2, 2005Net loss
    
    $
    (1,374
    )
    
    $
    (1,915
    )
    
    $
    (2,703
    )
    
    $
    (274
    )Other comprehensive income (loss),
primarily foreign currency translation
    
    
    1,673
    
    
    
    (3,127
    )
    
    
    3,213
    
    
    
    (5,499
    )Comprehensive income (loss)
    
    $
    299
    
    
    $
    (5,042
    )
    
    $
    510
    
    
    $
    (5,773
    )
 11. Related Party Transactions
  13




---



##### 



Polypore International, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 12.
    
    Segment Information
    Three Months Ended
    
    Six Months Ended(in thousands)
    
    July 1, 2006
    
    July 2, 2005
    
    July 1, 2006
    
    July 2, 2005Net sales to external customers:Energy storage
    
    $
    87,807
    
    
    $
    81,657
    
    
    $
    170,962
    
    
    $
    157,916Separations media
    
    
    35,287
    
    
    
    30,957
    
    
    
    67,425
    
    
    
    67,196Total net sales to external customers
    
    $
    123,094
    
    
    $
    112,614
    
    
    $
    238,387
    
    
    $
    225,112Operating income:Energy storage
    
    $
    20,122
    
    
    $
    18,574
    
    
    $
    35,479
    
    
    $
    31,488Separations media
    
    
    2,571
    
    
    
    3,733
    
    
    
    5,029
    
    
    
    11,318Corporate
    
    
    (78
    )
    
    
    (365
    )
    
    
    (78
    )
    
    
    (414
    )Segment operating income
    
    
    22,615
    
    
    
    21,942
    
    
    
    40,430
    
    
    
    42,392Business restructuring
    
    
    553
    
    
    
    5,402
    
    
    
    1,325
    
    
    
    5,402Total operating income
    
    
    22,062
    
    
    
    16,540
    
    
    
    39,105
    
    
    
    36,990Reconciling items:Interest expense, net
    
    
    23,662
    
    
    
    20,340
    
    
    
    45,762
    
    
    
    40,598Change in accounting principle
related to postemployment benefits
    
    
    
    
    
    
    
    
    
    
    (2,593
    )
    
    
    Foreign currency and other
    
    
    1,282
    
    
    
    (1,834
    )
    
    
    1,981
    
    
    
    (3,405
    )Total consolidated loss before
income taxes and cumulative effect
of a change in accounting principle
    
    $
    (2,882
    )
    
    $
    (1,966
    )
    
    $
    (6,045
    )
    
    $
    (203
    )Depreciation and amortization:Energy storage
    
    $
    7,721
    
    
    $
    8,282
    
    
    $
    15,727
    
    
    $
    16,682Separations media
    
    
    6,862
    
    
    
    5,764
    
    
    
    13,416
    
    
    
    11,680Total depreciation and amortization
    
    $
    14,583
    
    
    $
    14,046
    
    
    $
    29,143
    
    
    $
    28,362
 14




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 The following discussion 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 Annual Report on Form 10-K for the fiscal year ended December
31, 2005.
 Overview
   Wards Motor Vehicles Facts and Figures,
     15




---



##### 



Critical accounting policies
  Results of Operations
  Three months ended
    
    Three months ended($s in millions)
    
    July 1, 2006
    
    July 2, 2005
    
    July 1, 2006
    
    July 2, 2005Net sales
    
    $
    123.1
    
    
    $
    112.6
    
    
    
    100.0
    %
    
    
    100.0
    %Gross profit
    
    
    44.6
    
    
    
    40.5
    
    
    
    36.3
    %
    
    
    36.0
    %Selling, general and administrative
expenses
    
    
    22.0
    
    
    
    18.6
    
    
    
    17.9
    %
    
    
    16.5
    %Business restructuring
    
    
    0.6
    
    
    
    5.4
    
    
    
    0.4
    %
    
    
    4.8
    %Operating income
    
    
    22.1
    
    
    
    16.5
    
    
    
    17.9
    %
    
    
    14.7
    %Interest expense, net
    
    
    23.7
    
    
    
    20.3
    
    
    
    19.2
    %
    
    
    18.1
    %Foreign currency and other
    
    
    1.3
    
    
    
    (1.8
    )
    
    
    1.0
    %
    
    
    (1.6
    )%24.9
    
    
    
    18.5
    
    
    
    20.3
    %
    
    
    16.4
    %Loss before income taxes
    
    
    (2.9
    )
    
    
    (2.0
    )
    
    
    (2.3
    )%
    
    
    (1.7
    )%Income taxes
    
    
    (1.5
    )
    
    
    (0.1
    )
    
    
    (1.2
    )%
    
    
    
    %Net loss
    
    $
    (1.4
    )
    
    $
    (1.9
    )
    
    
    (1.1
    )%
    
    
    (1.7
    )%
 16




---



##### 



Six months ended
    
    Six months ended($s in millions)
    
    July 1, 2006
    
    July 2, 2005
    
    July 1, 2006
    
    July 2, 2005Net sales
    
    $
    238.4
    
    
    $
    225.1
    
    
    
    100.0
    %
    
    
    100.0
    %Gross profit
    
    
    84.9
    
    
    
    79.4
    
    
    
    35.6
    %
    
    
    35.3
    %Selling, general and administrative
expenses
    
    
    44.5
    
    
    
    37.0
    
    
    
    18.7
    %
    
    
    16.4
    %Business restructuring
    
    
    1.3
    
    
    
    5.4
    
    
    
    0.6
    %
    
    
    2.4
    %Operating income
    
    
    39.1
    
    
    
    37.0
    
    
    
    16.4
    %
    
    
    16.4
    %Interest expense, net
    
    
    45.8
    
    
    
    40.6
    
    
    
    19.2
    %
    
    
    18.0
    %Change in accounting principle related to
postemployment benefits
    
    
    (2.6
    )
    
    
    
    
    
    
    (1.1
    )%
    
    
    
    %Foreign currency and other
    
    
    2.0
    
    
    
    (3.4
    )
    
    
    0.8
    %
    
    
    (1.5
    )%45.2
    
    
    
    37.2
    
    
    
    18.9
    %
    
    
    16.5
    %Loss before income taxes and the
cumulative effect of a change in
accounting principle
    
    
    (6.0
    )
    
    
    (0.2
    )
    
    
    (2.5
    )%
    
    
    (0.1
    )%Income taxes
    
    
    (3.1
    )
    
    
    0.1
    
    
    
    (1.3
    )%
    
    
    
    %Loss before the cumulative effect of a
change in accounting principle
    
    
    (2.9
    )
    
    
    (0.3
    )
    
    
    (1.2
    )%
    
    
    (0.1
    )%Cumulative effect of a change in
accounting
principle, net of tax
    
    
    0.2
    
    
    
    
    
    
    
    0.1
    %
    
    
    
    %Net loss
    
    $
    (2.7
    )
    
    $
    (0.3
    )
    
    
    (1.1
    )%
    
    
    (0.1
    )%
 Comparison of the three months ended July 1, 2006 with the three months ended July 2, 2005
 Net sales
   Gross Profit
  17




---



##### 



Selling, general and administrative expenses
  Interest expense
  Income taxes
  Comparison
of the six months ended July 1, 2006 with the six months ended July 2, 2005
 Net sales
   Gross Profit
  18




---



##### 



Selling, general and administrative expenses
  Interest expense
  Income taxes
  Business restructuring
 2005 Restructuring Plan
  2004 Restructuring Plan
  19




---



##### 



Balance at
    
    
    
    
    
    
    
    
    
    ForeignDecember 31,
    
    Restructuring
    
    Cash
    
    Currency
    
    Balance at(in millions)
    
    2005
    
    Charges
    
    Payments
    
    Translation
    
    July 1, 20062005 Restructuring Plan:Severance and benefit costs
    
    $
    1.5
    
    
    $
    0.3
    
    
    $
    (0.9
    )
    
    $
    0.1
    
    
    $
    1.1Other
    
    
    
    
    
    
    0.4
    
    
    
    (0.4
    )
    
    
    
    
    
    
    1.5
    
    
    
    0.7
    
    
    
    (1.3
    )
    
    
    
    
    
    
    1.12004 Restructuring Plan:Severance and benefit costs
    
    
    4.1
    
    
    
    
    
    
    
    (2.5
    )
    
    
    0.2
    
    
    
    1.7Other
    
    
    0.3
    
    
    
    0.6
    
    
    
    (0.8
    )
    
    
    
    
    
    
    0.14.4
    
    
    
    0.6
    
    
    
    (3.4
    )
    
    
    0.2
    
    
    
    1.8Total
    
    $
    5.9
    
    
    $
    1.3
    
    
    $
    (4.6
    )
    
    $
    0.3
    
    
    $
    2.9
  ForeignBalance at
    
    Restructuring
    
    Non-cash
    
    Cash
    
    Currency
    
    Balance at(in millions)
    
    January 1, 2005
    
    Charges
    
    Charges
    
    Payments
    
    Translation
    
    July 2, 20052005 Restructuring Plan:Severance and benefit costs
    
    $
    
    
    
    $
    3.8
    
    
    $
    
    
    
    $
    
    
    
    $
    (0.1
    )
    
    $
    3.7Asset disposals and impairments
    
    
    
    
    
    
    1.3
    
    
    
    (1.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.1
    
    
    
    (1.3
    )
    
    
    
    
    
    
    (0.1
    )
    
    
    3.72004 Restructuring Plan:Severance and benefit costs
    
    
    14.9
    
    
    
    
    
    
    
    
    
    
    
    (7.6
    )
    
    $
    (1.1
    )
    
    $
    6.2Raw materials
    
    
    1.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    1.1Other
    
    
    
    
    
    
    0.3
    
    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    
    
    16.2
    
    
    
    0.3
    
    
    
    
    
    
    
    (7.9
    )
    
    $
    (1.2
    )
    
    $
    7.3Total
    
    $
    16.2
    
    
    $
    5.4
    
    
    $
    (1.3
    )
    
    $
    (7.9
    )
    
    $
    (1.4
    )
    
    $
    11.0
 Liquidity and Capital Resources
  Operating activities
  20




---



##### 



Investing activities
 Financing activities
     Twelve Months
    
    Three MonthsEnded
    
    Ended(in millions)
    
    July 1, 2006
    
    July 1, 2006Net income
    
    $
    12.5
    
    
    $
    4.0Add:Depreciation and amortization
    
    
    54.9
    
    
    
    14.6Interest expense, net
    
    
    64.0
    
    
    
    17.5Provision for income taxes
    
    
    (5.7
    )
    
    
    (0.6
    )EBITDA
    
    
    125.7
    
    
    
    35.5Add:Foreign currency loss
    
    
    1.1
    
    
    
    1.1Operating lease payments on lease that was terminated (1)
    
    
    2.0
    
    
    
    Other non-cash charges (2)
    
    
    (1.9
    )
    
    
    0.3Business restructuring
    
    
    4.7
    
    
    
    0.6Loss on disposal of property, plant, and equipment
    
    
    1.3
    
    
    
    0.7Adjusted EBITDA
    
    $
    132.9
    
    
    $
    38.2
 
 (1)
    
    Represents payments under an operating lease agreement that the Company terminated during the
second quarter of 2006 and purchased the equipment from the lessor.(2)
    
    Represents other income of $2.6 million resulting from a reduction of the postemployment
benefits accrual upon adoption of EITF 05-5 and compensation expense recorded under EITF 05-5
of $0.3 million and $0.7 million during the three and twelve months periods ended July 1,
2006, respectively. 21




---



##### 



Twelve MonthsEnded(in millions)
    
    July 1, 2006Adjusted EBITDA
    
    $
    132.9Consolidated interest expense, as defined in the Credit Agreement
    
    
    61.1Actual interest coverage ratio
    
    
    2.18
    xPermitted minimum interest coverage ratio
    
    
    1.70
    x
  Date or Period
    
    RatioApril 1, 2006 through March 31, 2007
    
    
    1.70 to 1.00June 30, 2007
    
    
    1.75 to 1.00September 29, 2007 through June 28, 2008
    
    
    1.90 to 1.00September 27, 2008 through January 3, 2009
    
    
    2.00 to 1.00January 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 1, 2006Indebtedness, as defined in the Credit Agreement
    
    $
    792.6Adjusted EBITDA
    
    
    132.9Actual leverage ratio
    
    
    5.96
    xPermitted maximum leverage ratio
    
    
    6.90
    x
  Date or Period
    
    RatioApril 1, 2006 through March 31, 2007
    
    
    6.90 to 1.00June 30, 2007
    
    
    6.75 to 1.00September 29, 2007
    
    
    6.50 to 1.00December 29, 2007
    
    
    6.25 to 1.00March 29, 2008
    
    
    6.00 to 1.00June 28, 2008
    
    
    5.75 to 1.00September 27, 2008 through January 3, 2009
    
    
    5.50 to 1.00January 4, 2009 through October 3, 2009
    
    
    4.25 to 1.00January 2, 2010 and each fiscal quarter thereafter
    
    
    4.00 to 1.00
   22




---



##### 



Foreign Operations
  Environmental matters
   23




---



##### 



Off-Balance Sheet Arrangements
  New Accounting Standards
 Accounting Changes and Error
Corrections
  24




---



##### 



Inventory Costs Inventory Pricing
 Share-Based Payment Accounting for Stock Based Compensation
 Accounting for Uncertainty in Income
Taxesan Interpretation of FASB Statement 109
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Interest rate risk
  25




---



##### 



Currency risk
   July 1, 2006
    
    July 2, 2005Period end rate
    
    
    1.2721
    
    
    
    1.2111Period average rate for the three months ended
    
    
    1.2561
    
    
    
    1.2907Period average rate for the six months ended
    
    
    1.2295
    
    
    
    1.3077
  
 Item 4. Controls and Procedures
   26




---



##### 



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 6. Exhibits
 Exhibit No.
    
    Exhibit Description10.1
    
    Employment Agreement, dated as of April 17, 2006, by and between Polypore, Inc., a subsidiary of
Polypore International, Inc., and Mitchell J. Pulwer10.2
    
    Agreement and Release, dated as of April 17, 2006, by and between Celgard, LLC, an indirect
subsidiary of Polypore International, Inc., and Bradley W. Reed10.3
    
    Employment Agreement, dated as of April 4, 2006, by and between Membrana, GmbH, an indirect
subsidiary of Polypore International, Inc., and Josef Sauer10.4
    
    Polypore International, Inc. 2006 Stock Option Plan10.5
    
    Form of Option Agreement pursuant to the Polypore International, Inc. 2006 Stock Option Plan31.1
    
    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
 27




---



##### 



SIGNATURES
  Date: August 15, 2006
    
    
    
    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)
 28