##### 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 April 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: 333-119224
 POLYPORE, INC.
  Delaware
    
    57-1006871(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 Large accelerated filer
    
    o Accelerated filer
    
    þ Non-accelerated filer
 o þ




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##### 



Polypore, Inc.
Index to Quarterly Report on Form 10-Q
For the Quarter Ended April 1, 2006
 PagePART I FINANCIAL INFORMATIONItem 1.Financial Statements
    
    
    4Item 2.Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    18Item 3.Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4.Controls and Procedures
    
    
    26PART II OTHER INFORMATIONItem 1.Legal Proceedings
    
    
    27Item 6.Exhibits
    
    
    27SIGNATURESEx-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 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




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Polypore, Inc.
Condensed Consolidated Balance Sheets
 April 1, 2006(in thousands)
    
    (unaudited)
    
    December 31, 2005*AssetsCurrent assets:Cash and equivalents
    
    $
    40,030
    
    
    $
    27,580Accounts receivable, net
    
    
    97,688
    
    
    
    88,347Inventories
    
    
    63,803
    
    
    
    60,539Prepaid and other
    
    
    10,555
    
    
    
    8,937Total current assets
    
    
    212,076
    
    
    
    185,403Property, plant and equipment, net
    
    
    372,832
    
    
    
    370,871Goodwill
    
    
    567,587
    
    
    
    567,587Intangibles and loan acquisition costs, net
    
    
    217,560
    
    
    
    222,006Environmental indemnification receivable
    
    
    16,046
    
    
    
    16,366Other
    
    
    1,400
    
    
    
    1,105Total assets
    
    $
    1,387,501
    
    
    $
    1,363,338Liabilities and shareholders equityCurrent liabilities:Revolving credit obligations
    
    $
    
    
    
    $
    Accounts payable
    
    
    23,095
    
    
    
    23,209Accrued liabilities
    
    
    48,294
    
    
    
    31,873Income taxes payable
    
    
    6,147
    
    
    
    4,255Current portion of debt
    
    
    2,087
    
    
    
    1,224Current portion of capital lease obligation
    
    
    1,335
    
    
    
    1,326Total current liabilities
    
    
    80,958
    
    
    
    61,887Debt, less current portion
    
    
    772,991
    
    
    
    767,759Capital lease obligation, less current portion
    
    
    5,792
    
    
    
    6,018Pension and postretirement benefits
    
    
    52,373
    
    
    
    51,386Postemployment benefits
    
    
    4,654
    
    
    
    7,096Environmental reserve, less current portion
    
    
    21,933
    
    
    
    22,264Deferred income taxes
    
    
    131,497
    
    
    
    133,785Other
    
    
    1,119
    
    
    
    1,864Commitments and contingencies
    
    
    
    
    
    
    Shareholders equity:Common stock
    
    
    
    
    
    
    Paid-in capital
    
    
    321,516
    
    
    
    321,516Retained earnings (deficit)
    
    
    2,515
    
    
    
    (850
    )Accumulated other comprehensive loss
    
    
    (7,847
    )
    
    
    (9,387
    )316,184
    
    
    
    311,279Total liabilities and shareholders equity
    
    $
    1,387,501
    
    
    $
    1,363,338
 
 *
    
    Derived from audited consolidated financial statementsSee notes to condensed consolidated financial statements 4




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Polypore, Inc .  Condensed Consolidated Statements of Income (Unaudited)
 Three Months Ended(in thousands)
    
    April 1, 2006
    
    April 2, 2005Net sales
    
    $
    115,293
    
    
    $
    112,498Cost of goods sold
    
    
    74,980
    
    
    
    73,609Gross profit
    
    
    40,313
    
    
    
    38,889Selling, general and administrative expenses
    
    
    22,498
    
    
    
    18,390Business restructuring
    
    
    772
    
    
    
    Operating income
    
    
    17,043
    
    
    
    20,499Other (income) expense:Interest expense, net
    
    
    16,283
    
    
    
    14,930Change in accounting principle related to postemployment benefits
    
    
    (2,593
    )
    
    
    Foreign currency and other
    
    
    699
    
    
    
    (1,571
    )14,389
    
    
    
    13,359Income before income taxes
    
    
    2,654
    
    
    
    7,140Income taxes
    
    
    (711
    )
    
    
    1,687Net income
    
    $
    3,365
    
    
    $
    5,453
 See notes to condensed consolidated financial statements
 5




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Polypore, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
 Three Months Ended(in thousands)
    
    April 1, 2006
    
    April 2, 2005Operating activities:Net income
    
    $
    3,365
    
    
    $
    5,453Adjustments to reconcile net income to net cash provided by operating activities:Depreciation expense
    
    
    10,160
    
    
    
    9,856Amortization expense
    
    
    4,400
    
    
    
    4,460Amortization of loan acquisition costs
    
    
    725
    
    
    
    657Loss on disposal of property, plant and equipment
    
    
    33
    
    
    
    Foreign currency and other
    
    
    (1,068
    )
    
    
    (1,618
    )Deferred income taxes
    
    
    (2,561
    )
    
    
    (797
    )Business restructuring
    
    
    772
    
    
    
    Change in accounting principle related to postemployment benefits
    
    
    (2,593
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (7,701
    )
    
    
    4,638Inventories
    
    
    (2,097
    )
    
    
    (1,702
    )Prepaid and other current assets
    
    
    (1,510
    )
    
    
    (1,852
    )Accounts payable and accrued liabilities
    
    
    13,485
    
    
    
    3,455Income taxes payable
    
    
    508
    
    
    
    5,740Other, net
    
    
    452
    
    
    
    930Net cash provided by operating activities
    
    
    16,370
    
    
    
    29,220Investing activities:Purchases of property, plant and equipment
    
    
    (3,989
    )
    
    
    (3,097
    )Net cash used in investing activities
    
    
    (3,989
    )
    
    
    (3,097
    )Financing activities:Principal payments on debt
    
    
    (303
    )
    
    
    (26,924
    )Net cash used in financing activities
    
    
    (303
    )
    
    
    (26,924
    )Effect of exchange rate changes on cash and equivalents
    
    
    372
    
    
    
    (1,305
    )Net increase (decrease) in cash and equivalents
    
    
    12,450
    
    
    
    (2,106
    )Cash and equivalents at beginning of period
    
    
    27,580
    
    
    
    31,684Cash and equivalents at end of the period
    
    $
    40,030
    
    
    $
    29,578
 See notes to condensed consolidated financial statements
 6




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Polypore, 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




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Polypore, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 Inventory Costs Inventory Pricing
 3. Inventories
  (in thousands)
    
    April 1, 2006
    
    December 31, 2005Raw materials
    
    $
    21,946
    
    
    $
    21,485Work-in-process
    
    
    9,594
    
    
    
    7,171Finished goods
    
    
    32,263
    
    
    
    31,883Total
    
    $
    63,803
    
    
    $
    60,539
 4. Debt
  (in thousands)
    
    April 1, 2006
    
    December 31, 2005Senior credit facilities:Revolving credit facility
    
    $
    
    
    
    $
    Term loan facilities
    
    
    366,812
    
    
    
    365,7358.75% senior subordinated notes
    
    
    407,025
    
    
    
    401,955Other
    
    
    1,241
    
    
    
    1,293775,078
    
    
    
    768,983Less current maturities
    
    
    2,087
    
    
    
    1,224Long-term debt
    
    $
    772,991
    
    
    $
    767,759
 5. Pension and Other Postretirement Benefits
   Pension Plans
    
    Other Postretirement BenefitsThree Months Ended
    
    Three Months Ended(in thousands)
    
    April 1, 2006
    
    April 2, 2005
    
    April 1, 2006
    
    April 2, 2005Service cost
    
    $
    719
    
    
    $
    578
    
    
    $
    8
    
    
    $
    7Interest cost
    
    
    763
    
    
    
    759
    
    
    
    29
    
    
    
    29Expected return on plan assets
    
    
    (192
    )
    
    
    (213
    )
    
    
    
    
    
    
    Recognized net actuarial loss
    
    
    9
    
    
    
    14
    
    
    
    1
    
    
    
    Net periodic benefit cost
    
    $
    1,299
    
    
    $
    1,138
    
    
    $
    38
    
    
    $
    36
 8




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Polypore, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 6. Environmental Matters
      7. Business Restructuring
 2005 Restructuring Plan
  Accounting for Costs Associated with
 9




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Polypore, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 Exit or Disposal Activities
 2004 Restructuring Plan
  , ,
  Balance at
    
    
    
    
    
    
    
    
    
    Foreign
    
    Balance atDecember 31,
    
    Restructuring
    
    Cash
    
    Currency
    
    April 1,(in thousands)
    
    2005
    
    Charges
    
    Payments
    
    Translation
    
    20062005 Restructuring Plan:Severance and benefit costs
    
    $
    1,506
    
    
    $
    163
    
    
    $
    (198
    )
    
    $
    42
    
    
    $
    1,513Other
    
    
    
    
    
    
    127
    
    
    
    (127
    )
    
    
    
    
    
    
    1,506
    
    
    
    290
    
    
    
    (325
    )
    
    
    42
    
    
    
    1,5132004 Restructuring Plan:Severance and benefit costs
    
    
    4,069
    
    
    
    
    
    
    
    (2,212
    )
    
    
    97
    
    
    
    1,954Raw materials
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    33Other
    
    
    265
    
    
    
    482
    
    
    
    (693
    )
    
    
    5
    
    
    
    594,366
    
    
    
    482
    
    
    
    (2,905
    )
    
    
    103
    
    
    
    2,046Total
    
    $
    5,872
    
    
    $
    772
    
    
    $
    (3,230
    )
    
    $
    145
    
    
    $
    3,559
  Balance at
    
    
    
    
    
    Foreign
    
    Balance atJanuary 1,
    
    Cash
    
    Currency
    
    April 2,(in thousands)
    
    2005
    
    Payments
    
    Translation
    
    20052004 Restructuring Plan:Severance and benefit costs
    
    $
    14,944
    
    
    $
    (4,249
    )
    
    $
    (562
    )
    
    $
    10,133Raw materials
    
    
    1,256
    
    
    
    
    
    
    
    (53
    )
    
    
    1,203Total
    
    $
    16,200
    
    
    $
    (4,249
    )
    
    $
    (615
    )
    
    $
    11,336
 10




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##### Table of Contents



Polypore, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 8. Income Taxes
  9. Comprehensive Income
  Three Months Ended(in thousands)
    
    April 1, 2006
    
    April 2, 2005Net income
    
    $
    3,365
    
    
    $
    5,453Other comprehensive income (loss),
primarily foreign currency translation
    
    
    1,540
    
    
    
    (2,372
    )Comprehensive income
    
    $
    4,905
    
    
    $
    3,081
 10. Related Party Transactions
  11. Segment Information
   11




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Polypore, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
  Three Months Ended(in thousands)
    
    April 1, 2006
    
    April 2, 2005Net sales to external customers:Energy storage
    
    $
    83,155
    
    
    $
    76,259Separations media
    
    
    32,138
    
    
    
    36,239Total net sales to external customers
    
    $
    115,293
    
    
    $
    112,498Operating income:Energy storage
    
    $
    15,357
    
    
    $
    12,914Separations media
    
    
    2,458
    
    
    
    7,585Segment operating income
    
    
    17,815
    
    
    
    20,499Business restructuring
    
    
    772
    
    
    
    Total operating income
    
    
    17,043
    
    
    
    20,499Reconciling items:Interest expense, net
    
    
    16,283
    
    
    
    14,930Change in accounting principle related to postemployment benefits
    
    
    (2,593
    )
    
    
    Foreign currency and other
    
    
    699
    
    
    
    (1,571
    )Total consolidated income before income taxes and cumulative
effect of a change in accounting principle
    
    $
    2,654
    
    
    $
    7,140Depreciation and amortization:Energy storage
    
    $
    8,006
    
    
    $
    8,400Separations media
    
    
    6,554
    
    
    
    5,916Total depreciation and amortization
    
    $
    14,560
    
    
    $
    14,316
 12. Financial Statements of Guarantors
   12




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Polypore, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 12. Financial Statements of Guarantors (continued)
 Condensed Consolidating Balance Sheet
As of April 1, 2006
 CombinedCombined
    
    Non-
    
    
    
    
    
    ReclassificationsGuarantor
    
    Guarantor
    
    The
    
    and(in thousands)
    
    Subsidiaries
    
    Subsidiaries
    
    Company
    
    Eliminations
    
    ConsolidatedAssetsCash and cash equivalents
    
    $
    63
    
    
    $
    21,411
    
    
    $
    18,556
    
    
    $
    
    
    
    $
    40,030Accounts receivable, net
    
    
    34,156
    
    
    
    63,532
    
    
    
    
    
    
    
    
    
    
    
    97,688Inventories
    
    
    14,630
    
    
    
    49,173
    
    
    
    
    
    
    
    
    
    
    
    63,803Other
    
    
    3,902
    
    
    
    6,617
    
    
    
    36
    
    
    
    
    
    
    
    10,555Total current assets
    
    
    52,751
    
    
    
    140,733
    
    
    
    18,592
    
    
    
    
    
    
    
    212,076Due from affiliates
    
    
    187,012
    
    
    
    239,796
    
    
    
    294,155
    
    
    
    (720,963
    )
    
    
    Investment in subsidiaries
    
    
    248,570
    
    
    
    320,458
    
    
    
    193,230
    
    
    
    (762,258
    )
    
    
    Property, plant and equipment,
net
    
    
    107,031
    
    
    
    265,801
    
    
    
    
    
    
    
    
    
    
    
    372,832Goodwill
    
    
    
    
    
    
    
    
    
    
    567,587
    
    
    
    
    
    
    
    567,587Intangibles and loan
acquisition costs, net
    
    
    66
    
    
    
    
    
    
    
    217,494
    
    
    
    
    
    
    
    217,560Other
    
    
    1,199
    
    
    
    16,247
    
    
    
    
    
    
    
    
    
    
    
    17,446Total assets
    
    $
    596,629
    
    
    $
    983,035
    
    
    $
    1,291,058
    
    
    $
    (1,483,221
    )
    
    $
    1,387,501Liabilities and shareholders
equityAccounts payable and accrued
liabilities
    
    $
    18,819
    
    
    $
    38,995
    
    
    $
    13,575
    
    
    $
    
    
    
    $
    71,389Income taxes payable
    
    
    1,320
    
    
    
    4,827
    
    
    
    
    
    
    
    
    
    
    
    6,147Current portion of debt
    
    
    
    
    
    
    208
    
    
    
    1,879
    
    
    
    
    
    
    
    2,087Current portion of capital
lease obligation
    
    
    1,335
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,335Total current liabilities
    
    
    21,474
    
    
    
    44,030
    
    
    
    15,454
    
    
    
    
    
    
    
    80,958Due to affiliates
    
    
    295,776
    
    
    
    237,725
    
    
    
    187,462
    
    
    
    (720,963
    )
    
    
    Debt, less current portion
    
    
    
    
    
    
    1,033
    
    
    
    771,958
    
    
    
    
    
    
    
    772,991Capital lease obligation, less
current portion
    
    
    5,792
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,792Pension and postretirement
benefits
    
    
    2,154
    
    
    
    50,219
    
    
    
    
    
    
    
    
    
    
    
    52,373Postemployment benefits
    
    
    
    
    
    
    4,654
    
    
    
    
    
    
    
    
    
    
    
    4,654Environmental reserve, less
current portion
    
    
    
    
    
    
    21,933
    
    
    
    
    
    
    
    
    
    
    
    21,933Deferred income taxes and other
    
    
    63,456
    
    
    
    69,160
    
    
    
    
    
    
    
    
    
    
    
    132,616Shareholders equity
    
    
    207,977
    
    
    
    554,281
    
    
    
    316,184
    
    
    
    (762,258
    )
    
    
    316,184Total liabilities and
shareholders equity
    
    $
    596,629
    
    
    $
    983,035
    
    
    $
    1,291,058
    
    
    $
    (1,483,221
    )
    
    $
    1,387,501
 13




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##### Table of Contents



Polypore, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 12. Financial Statements of Guarantors (continued)
 Condensed Consolidating Balance Sheet
As of December 31, 2005
 CombinedCombined
    
    Non-Guarantor
    
    Guarantor
    
    The
    
    Reclassifications(in thousands)
    
    Subsidiaries
    
    Subsidiaries
    
    Company
    
    and Eliminations
    
    ConsolidatedAssetsCash and cash equivalents
    
    $
    20
    
    
    $
    18,173
    
    
    $
    9,387
    
    
    $
    
    
    
    $
    27,580Accounts receivable, net
    
    
    31,049
    
    
    
    57,298
    
    
    
    
    
    
    
    
    
    
    
    88,347Inventories
    
    
    17,248
    
    
    
    43,291
    
    
    
    
    
    
    
    
    
    
    
    60,539Other
    
    
    4,523
    
    
    
    4,396
    
    
    
    18
    
    
    
    
    
    
    
    8,937Total current assets
    
    
    52,840
    
    
    
    123,158
    
    
    
    9,405
    
    
    
    
    
    
    
    185,403Due from affiliates
    
    
    177,296
    
    
    
    220,628
    
    
    
    294,385
    
    
    
    (692,309
    )
    
    
    Investment in subsidiaries
    
    
    244,560
    
    
    
    317,381
    
    
    
    169,117
    
    
    
    (731,058
    )
    
    
    Property, plant and equipment,
net
    
    
    107,009
    
    
    
    263,862
    
    
    
    
    
    
    
    
    
    
    
    370,871Goodwill
    
    
    
    
    
    
    
    
    
    
    567,587
    
    
    
    
    
    
    
    567,587Intangibles and loan
acquisition costs, net
    
    
    70
    
    
    
    
    
    
    
    221,936
    
    
    
    
    
    
    
    222,006Other
    
    
    900
    
    
    
    16,571
    
    
    
    
    
    
    
    
    
    
    
    17,471Total assets
    
    $
    582,675
    
    
    $
    941,600
    
    
    $
    1,262,430
    
    
    $
    (1,423,367
    )
    
    $
    1,363,338Liabilities and shareholders equityAccounts payable and accrued
liabilities
    
    $
    13,689
    
    
    $
    36,653
    
    
    $
    4,740
    
    
    $
    
    
    
    $
    55,082Income taxes payable
    
    
    1,321
    
    
    
    2,934
    
    
    
    
    
    
    
    
    
    
    
    4,255Current portion of debt
    
    
    86
    
    
    
    203
    
    
    
    935
    
    
    
    
    
    
    
    1,224Current portion of capital
lease obligation
    
    
    1,326
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,326Total current liabilities
    
    
    16,422
    
    
    
    39,790
    
    
    
    5,675
    
    
    
    
    
    
    
    61,887Due to affiliates
    
    
    296,605
    
    
    
    216,983
    
    
    
    178,721
    
    
    
    (692,309
    )
    
    
    Debt, less current portion
    
    
    
    
    
    
    1,004
    
    
    
    766,755
    
    
    
    
    
    
    
    767,759Capital lease obligations,
less current portion
    
    
    6,018
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,018Pension and postretirement
benefits
    
    
    2,112
    
    
    
    49,274
    
    
    
    
    
    
    
    
    
    
    
    51,386Post employment benefits
    
    
    
    
    
    
    7,096
    
    
    
    
    
    
    
    
    
    
    
    7,096Environmental reserve, less
current portion
    
    
    
    
    
    
    22,264
    
    
    
    
    
    
    
    
    
    
    
    22,264Deferred income taxes and other
    
    
    63,456
    
    
    
    72,193
    
    
    
    
    
    
    
    
    
    
    
    135,649Shareholders equity
    
    
    198,062
    
    
    
    532,996
    
    
    
    311,279
    
    
    
    (731,058
    )
    
    
    311,279Total liabilities and
shareholders equity
    
    $
    582,675
    
    
    $
    941,600
    
    
    $
    1,262,430
    
    
    $
    (1,423,367
    )
    
    $
    1,363,338
 14




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##### Table of Contents



Polypore, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 12. Financial Statements of Guarantors (continued)
 Condensed Consolidating Statement of Income
For the three months ended April 1, 2006
 CombinedCombined
    
    Non-Guarantor
    
    Guarantor
    
    The
    
    Reclassifications(in thousands)
    
    Subsidiaries
    
    Subsidiaries
    
    Company
    
    and Eliminations
    
    ConsolidatedNet sales
    
    $
    45,848
    
    
    $
    69,445
    
    
    $
    
    
    
    $
    
    
    
    $
    115,293Cost of goods sold
    
    
    22,458
    
    
    
    52,522
    
    
    
    
    
    
    
    
    
    
    
    74,980Gross profit
    
    
    23,390
    
    
    
    16,923
    
    
    
    
    
    
    
    
    
    
    
    40,313Selling, general and
administrative expenses
    
    
    13,598
    
    
    
    8,900
    
    
    
    
    
    
    
    
    
    
    
    22,498Business restructuring
    
    
    
    
    
    
    772
    
    
    
    
    
    
    
    
    
    
    
    772Operating income
    
    
    9,792
    
    
    
    7,251
    
    
    
    
    
    
    
    
    
    
    
    17,043Other (income) expense, net
    
    
    (636
    )
    
    
    (1,627
    )
    
    
    16,652
    
    
    
    
    
    
    
    14,389Equity in earnings of
subsidiaries
    
    
    
    
    
    
    
    
    
    
    (13,412
    )
    
    
    13,412
    
    
    
    Income (loss) before
income taxes
    
    
    10,428
    
    
    
    8,878
    
    
    
    (3,240
    )
    
    
    (13,412
    )
    
    
    2,654Income taxes
    
    
    6,625
    
    
    
    (731
    )
    
    
    (6,605
    )
    
    
    
    
    
    
    (711
    )Net income
    
    $
    3,803
    
    
    $
    9,609
    
    
    $
    3,365
    
    
    $
    (13,412
    )
    
    $
    3,365
 Condensed Consolidating Statement of Income
For the three months ended April 2, 2005
 CombinedCombined
    
    Non-Guarantor
    
    Guarantor
    
    The
    
    Reclassifications(in thousands)
    
    Subsidiaries
    
    Subsidiaries
    
    Company
    
    and Eliminations
    
    ConsolidatedNet sales
    
    $
    40,392
    
    
    $
    72,106
    
    
    $
    
    
    
    $
    
    
    
    $
    112,498Cost of goods sold
    
    
    21,695
    
    
    
    51,914
    
    
    
    
    
    
    
    
    
    
    
    73,609Gross profit
    
    
    18,697
    
    
    
    20,192
    
    
    
    
    
    
    
    
    
    
    
    38,889Selling, general and
administrative expenses
    
    
    11,010
    
    
    
    7,380
    
    
    
    
    
    
    
    
    
    
    
    18,390Operating income
    
    
    7,687
    
    
    
    12,812
    
    
    
    
    
    
    
    
    
    
    
    20,499Other (income) expense, net
    
    
    (517
    )
    
    
    (59
    )
    
    
    13,935
    
    
    
    
    
    
    
    13,359Equity in earnings of
subsidiaries
    
    
    
    
    
    
    
    
    
    
    (15,364
    )
    
    
    15,364
    
    
    
    Income before income taxes
    
    
    8,204
    
    
    
    12,871
    
    
    
    1,429
    
    
    
    (15,364
    )
    
    
    7,140Income taxes
    
    
    4,211
    
    
    
    1,500
    
    
    
    (4,024
    )
    
    
    
    
    
    
    1,687Net income
    
    $
    3,993
    
    
    $
    11,371
    
    
    $
    5,453
    
    
    $
    (15,364
    )
    
    $
    5,453
 15




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##### Table of Contents



Polypore, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 12. Financial Statements of Guarantors (continued)
 Condensed Consolidating Statement of Cash Flows
For the three months ended April 1, 2006
 CombinedCombined
    
    Non-Guarantor
    
    Guarantor
    
    The
    
    Reclassifications and(in thousands)
    
    Subsidiaries
    
    Subsidiaries
    
    Company
    
    Eliminations
    
    ConsolidatedNet cash provided by
operating activities
    
    $
    11,587
    
    
    $
    5,357
    
    
    $
    12,838
    
    
    $
    (13,412
    )
    
    $
    16,370Investing activities:Purchases of property, plant
and equipment
    
    
    (2,235
    )
    
    
    (1,754
    )
    
    
    
    
    
    
    
    
    
    
    (3,989
    )Net cash used in investing
activities
    
    
    (2,235
    )
    
    
    (1,754
    )
    
    
    
    
    
    
    
    
    
    
    (3,989
    )Financing activities:Principal payments on debt
    
    
    (303
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (303
    )Intercompany transactions, net
    
    
    (9,003
    )
    
    
    (740
    )
    
    
    (3,669
    )
    
    
    13,412
    
    
    
    Net cash provided by (used
in) financing activities
    
    
    (9,306
    )
    
    
    (740
    )
    
    
    (3,669
    )
    
    
    13,412
    
    
    
    (303
    )Effect of exchange rate
changes on cash and
equivalents
    
    
    (3
    )
    
    
    375
    
    
    
    
    
    
    
    
    
    
    
    372Net increase in cash and
equivalents
    
    
    43
    
    
    
    3,238
    
    
    
    9,169
    
    
    
    
    
    
    
    12,450Cash and equivalents at
beginning of period
    
    
    20
    
    
    
    18,173
    
    
    
    9,387
    
    
    
    
    
    
    
    27,580Cash and equivalents at end
of period
    
    $
    63
    
    
    $
    21,411
    
    
    $
    18,556
    
    
    $
    
    
    
    $
    40,030
 16




---



##### Table of Contents



Polypore, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 12. Financial Statements of Guarantors (continued)
 Condensed Consolidating Statement of Cash Flows
For the three months ended April 2, 2005
 CombinedCombined
    
    Non-Guarantor
    
    Guarantor
    
    The
    
    Reclassifications(in thousands)
    
    Subsidiaries
    
    Subsidiaries
    
    Company
    
    and Eliminations
    
    ConsolidatedNet cash provided by operating
activities
    
    $
    12,075
    
    
    $
    18,562
    
    
    $
    
    
    
    $
    (1,417
    )
    
    $
    29,220Investing activities:Purchases of property, plant
and equipment
    
    
    (794
    )
    
    
    (2,303
    )
    
    
    
    
    
    
    
    
    
    
    (3,097
    )Net cash used in investing
activities
    
    
    (794
    )
    
    
    (2,303
    )
    
    
    
    
    
    
    
    
    
    
    (3,097
    )Financing activities:Principal payments on debt
    
    
    (313
    )
    
    
    (1,592
    )
    
    
    (25,019
    )
    
    
    
    
    
    
    (26,924
    )Intercompany transactions, nets
    
    
    (13,109
    )
    
    
    (17,547
    )
    
    
    29,239
    
    
    
    1,417
    
    
    
    Net cash provided by (used in)
financing activities
    
    
    (13,422
    )
    
    
    (19,139
    )
    
    
    4,220
    
    
    
    1,417
    
    
    
    (26,924
    )Effect of exchange rate
changes on cash and
equivalents
    
    
    53
    
    
    
    (1,358
    )
    
    
    
    
    
    
    
    
    
    
    (1,305
    )Net increase (decrease) in
cash and equivalents
    
    
    (2,088
    )
    
    
    (4,238
    )
    
    
    4,220
    
    
    
    
    
    
    
    (2,106
    )Cash and equivalents at
beginning of period
    
    
    2,174
    
    
    
    20,334
    
    
    
    9,176
    
    
    
    
    
    
    
    31,684Cash and equivalents at end of
period
    
    $
    86
    
    
    $
    16,096
    
    
    $
    13,396
    
    
    $
    
    
    
    $
    29,578
 
 17




---



##### Table of Contents



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,
     18




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##### Table of Contents



Critical accounting policies
  Results of Operations
  Percentage of SalesThree months ended
    
    Three months ended(in millions)
    
    April 1, 2006
    
    April 2, 2005
    
    April 1, 2006
    
    April 2, 2005Net sales
    
    $
    115.3
    
    
    $
    112.5
    
    
    
    100.0
    %
    
    
    100.0
    %Gross profit
    
    
    40.3
    
    
    
    38.9
    
    
    
    35.0
    %
    
    
    34.6
    %Selling, general and administrative
expenses
    
    
    22.5
    
    
    
    18.4
    
    
    
    19.5
    %
    
    
    16.4
    %Business restructuring
    
    
    0.8
    
    
    
    
    
    
    
    0.7
    %
    
    
    
    %Operating income
    
    
    17.0
    
    
    
    20.5
    
    
    
    14.7
    %
    
    
    18.2
    %Interest expense, net
    
    
    16.3
    
    
    
    14.9
    
    
    
    14.1
    %
    
    
    13.2
    %Change in accounting principle related to
postemployment benefits
    
    
    (2.6
    )
    
    
    
    
    
    
    (2.3
    )%
    
    
    
    %Foreign currency and other
    
    
    0.7
    
    
    
    (1.6
    )
    
    
    0.6
    %
    
    
    (1.4
    )%14.4
    
    
    
    13.3
    
    
    
    12.5
    %
    
    
    11.8
    %Income before income taxes
    
    
    2.7
    
    
    
    7.2
    
    
    
    2.3
    %
    
    
    6.4
    %Income taxes
    
    
    (0.7
    )
    
    
    1.7
    
    
    
    (0.6
    )%
    
    
    1.5
    %Net income
    
    $
    3.4
    
    
    $
    5.5
    
    
    
    2.9
    %
    
    
    4.9
    %
 Comparison of the three months ended April 1, 2006 with the three months ended April 2, 2005
 Net sales
   19




---



##### Table of Contents



Gross Profit
   Selling, general and administrative expenses
  Interest expense
  Income taxes
  Business restructuring
 2005 Restructuring Plan
  2004 Restructuring Plan
  20




---



##### Table of Contents



Balance at
    
    
    
    
    
    
    
    
    
    ForeignDecember 31,
    
    Restructuring
    
    Cash
    
    Currency
    
    Balance at(in millions)
    
    2005
    
    Charges
    
    Payments
    
    Translation
    
    April 1,20062005 Restructuring Plan:Severance and benefit costs
    
    $
    1.5
    
    
    $
    0.2
    
    
    $
    (0.2
    )
    
    $
    
    
    
    $
    1.5Other
    
    
    
    
    
    
    0.1
    
    
    
    (0.1
    )
    
    
    
    
    
    
    1.5
    
    
    
    0.3
    
    
    
    (0.3
    )
    
    
    
    
    
    
    1.52004 Restructuring Plan:Severance and benefit costs
    
    
    4.1
    
    
    
    
    
    
    
    (2.2
    )
    
    
    0.1
    
    
    
    2.0Raw materials
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    0.3
    
    
    
    0.5
    
    
    
    (0.7
    )
    
    
    
    
    
    
    0.14.4
    
    
    
    0.5
    
    
    
    (2.9
    )
    
    
    0.1
    
    
    
    2.1Total
    
    $
    5.9
    
    
    $
    0.8
    
    
    $
    (3.2
    )
    
    $
    0.1
    
    
    $
    3.6
  ForeignBalance at
    
    Cash
    
    Currency
    
    Balance at(in millions)
    
    January 1, 2005
    
    Payments
    
    Translation
    
    April 2, 20052004 Restructuring Plan:Severance and benefit costs
    
    $
    14.9
    
    
    $
    (4.2
    )
    
    $
    (0.6
    )
    
    $
    10.1Raw materials
    
    
    1.3
    
    
    
    
    
    
    
    (0.1
    )
    
    
    1.2Total
    
    $
    16.2
    
    
    $
    (4.2
    )
    
    $
    (0.7
    )
    
    $
    11.3
 Liquidity and Capital Resources
  Operating activities
  Investing activities
 21




---



##### Table of Contents



Financing activities
      Twelve Months
    
    Three MonthsEnded
    
    Ended(in millions)
    
    April 1, 2006
    
    April 1, 2006Net income
    
    $
    11.8
    
    
    $
    3.3Add:Depreciation and amortization
    
    
    54.4
    
    
    
    14.6Interest expense, net
    
    
    61.3
    
    
    
    16.3Provision for income taxes
    
    
    (4.5
    )
    
    
    (0.7
    )EBITDA
    
    
    123.0
    
    
    
    33.5Add:Foreign currency (gain) loss
    
    
    (1.8
    )
    
    
    0.6Operating lease payments on lease to be refinanced (1)
    
    
    2.7
    
    
    
    0.6Other non-cash charges (2)
    
    
    (2.2
    )
    
    
    (2.2
    )Business restructuring
    
    
    9.5
    
    
    
    0.8Loss on disposal of property, plant, and equipment
    
    
    0.6
    
    
    
    Adjusted EBITDA
    
    $
    131.8
    
    
    $
    33.3
 
 (1)
    
    Represents payments under an operating lease agreement that the Company intends to terminate
and purchase the equipment from the lessor during the second quarter of 2006.(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 of $0.4 million recorded
under EITF 05-5 during the three and twelve months periods ended April 1, 2006. 22




---



##### Table of Contents



Twelve MonthsEnded(in millions)
    
    April 1, 2006Adjusted EBITDA
    
    $
    131.8Consolidated interest expense, as defined in the Credit Agreement
    
    
    58.5Actual interest coverage ratio
    
    
    2.25
    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)
    
    April 1, 2006Indebtedness, as defined in the Credit Agreement
    
    $
    782.2Adjusted EBITDA
    
    
    131.8Actual leverage ratio
    
    
    5.93
    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
   23




---



##### Table of Contents



Foreign Operations
  Environmental matters
      24




---



##### Table of Contents



Off-Balance Sheet Arrangements
  New Accounting Standards
 Accounting Changes and Error
Corrections
  Inventory Costs Inventory Pricing
 25




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Interest rate risk
  Currency risk
   Three Months EndedApril 1, 2006
    
    April 2, 2005Period end rate
    
    
    1.2135
    
    
    
    1.3050Period average rate
    
    
    1.2028
    
    
    
    1.3248
  
 Item 4. Controls and Procedures
   26




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 6. Exhibits
 Exhibit No.
    
    Exhibit Description31.1
    
    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




---



##### Table of Contents



SIGNATURES
  Date: May 16, 2006
    
    
    
    POLYPORE, 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)