Polypore International, Inc. - FORM 10-Q

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EX-31.1 - EX-31.1 - Polypore International, Inc.	a11-9467_1ex31d1.htm
EX-10.3 - EX-10.3 - Polypore International, Inc.	a11-9467_1ex10d3.htm
EX-31.2 - EX-31.2 - Polypore International, Inc.	a11-9467_1ex31d2.htm
EX-32.2 - EX-32.2 - Polypore International, Inc.	a11-9467_1ex32d2.htm
EX-10.1 - EX-10.1 - Polypore International, Inc.	a11-9467_1ex10d1.htm
EX-32.1 - EX-32.1 - Polypore International, Inc.	a11-9467_1ex32d1.htm
EX-10.2 - EX-10.2 - Polypore International, Inc.	a11-9467_1ex10d2.htm

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended April 2, 2011

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.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		43-2049334
(State or Other Jurisdiction of		(IRS Employer
Incorporation or Organization)		Identification No.)

11430 North Community House Road, Suite 350
Charlotte, North Carolina		28277
(Address of Principal Executive Offices)		(Zip Code)

(704) 587-8409

(Registrant’s Telephone Number, Including Area Code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer x

Non-accelerated filer o		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

There were 45,976,764 shares of the registrant’s common stock outstanding as of May 2, 2011.

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Polypore International, Inc.

Index to Quarterly Report on Form 10-Q

For the Three Months Ended April 2, 2011

		Page

PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4.	Controls and Procedures	20

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	21
Item 6.	Exhibits	22

SIGNATURES		23

In this Quarterly Report on Form 10-Q, the words “Polypore International,” “Company,” “we,” “us” and “our” refer to Polypore International, Inc. together with its subsidiaries, unless the context indicates otherwise.

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Forward-looking Statements

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements, including, in particular, the statements about Polypore International’s plans, objectives, strategies and prospects regarding, among other things, the financial condition, results of operations and business of Polypore International and its subsidiaries. We have identified some of these forward-looking statements with words like “believe,” “may,” “will,” “should,” “expect,” “intend,” “plan,” “predict,” “anticipate,” “estimate” or “continue” and other words and terms of similar meaning. These forward-looking statements may be contained under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations” or “Controls and Procedures,” the Company’s financial statements or the notes thereto or elsewhere in this Quarterly Report on Form 10-Q.

These forward-looking statements are based on current expectations about future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Many factors mentioned in our discussion in this Quarterly Report on Form 10-Q, including the risks outlined under the caption entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 1, 2011, will be important in determining future results. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including with respect to Polypore International, the following, among other things:

·	the highly competitive nature of the markets in which we sell our products;
·	the failure to continue to develop innovative products;
·	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;
·	our substantial indebtedness;
·	interest rate risk related to our variable rate indebtedness;
·	our inability to generate cash;
·	restrictions related to the senior secured credit agreement;
·	employee slowdowns, strikes or similar actions;
·	product liability claims exposure;
·	risks in connection with our operations outside the United States, including compliance with applicable anti-corruption laws;
·	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 loss of senior management;
·	the incurrence of additional debt, contingent liabilities and expenses in connection with future acquisitions;
·	the failure to effectively integrate newly acquired operations;
·	the absence of expected returns from the intangible assets we have recorded;
·	the adverse impact from legal proceedings on our financial condition; and
·	natural disasters, epidemics, terrorist acts and other events beyond our control.

Because our actual results, performance or achievements could differ materially from those expressed in, or implied by, the forward-looking statements, we cannot give any assurance that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on Polypore International’s results of operations and financial condition. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We do not undertake any obligation to update these forward-looking statements to reflect new information, future events or otherwise, except as may be required under federal securities laws.

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Polypore International, Inc.

Condensed consolidated balance sheets

(in thousands, except share data)	April 2, 2011 (unaudited)			January 1, 2011*
Assets
Current assets:
Cash and cash equivalents	$	102,867		$	89,955
Accounts receivable, net	131,835			116,716
Inventories	79,825			76,954
Deferred income taxes	2,126			2,241
Prepaid and other	16,843			14,958
Total current assets	333,496			300,824
Property, plant and equipment, net	448,582			415,297
Goodwill	469,319			469,319
Intangibles and loan acquisition costs, net	148,665			152,556
Environmental indemnification receivable	8,421			7,249
Other	3,454			3,251
Total assets	$	1,411,937		$	1,348,496

Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	36,499		$	29,585
Accrued liabilities	68,213			67,099
Income taxes payable	6,431			5,262
Current portion of debt	3,725			3,696
Total current liabilities	114,868			105,642
Debt, less current portion	712,665			711,636
Pension and postretirement benefits, less current portion	77,259			71,986
Environmental reserve, less current portion	2,449			2,517
Deferred income taxes	75,944			66,158
Other	12,360			12,507
Commitments and contingencies

Shareholders’ equity:
Preferred stock — 15,000,000 shares authorized, no shares issued and outstanding	—			—
Common stock, $.01 par value — 200,000,000 shares authorized, 45,971,420 and 45,582,557 issued and outstanding at April 2, 2011 and January 1, 2011	460			456
Paid-in capital	500,486			497,160
Accumulated deficit	(94,742		)	(120,423		)
Accumulated other comprehensive income	9,608			269
Total Polypore shareholders’ equity	415,812			377,462
Noncontrolling interest	580			588
Total shareholders’ equity	416,392			378,050
Total liabilities and shareholders’ equity	$	1,411,937		$	1,348,496

* Derived from audited consolidated financial statements

See notes to condensed consolidated financial statements

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Polypore International, Inc.

Condensed consolidated statements of income (unaudited)

	Three Months Ended
(in thousands, except per share data)	April 2, 2011		April 3, 2010
Net sales	$	185,674	$	145,339
Cost of goods sold	106,208		87,000
Gross profit	79,466		58,339
Selling, general and administrative expenses	30,550		27,267
Business restructuring	—		455
Operating income	48,916		30,617
Other (income) expense:
Interest expense, net	8,899		12,277
Gain on sale of Italian subsidiary	—		(3,327		)
Foreign currency and other	1,598		(452		)
	10,497		8,498
Income before income taxes	38,419		22,119
Income taxes	12,738		4,571
Net income	$	25,681	$	17,548

Net income per share:
Basic	$	0.56	$	0.39
Diluted	$	0.55	$	0.38

Weighted average shares outstanding:
Basic	45,685,520		44,445,282
Diluted	46,797,646		45,681,835

See notes to condensed consolidated financial statements

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Polypore International, Inc.

Condensed consolidated statements of cash flows (unaudited)

	Three Months Ended
(in thousands)	April 2, 2011			April 3, 2010
Operating activities:
Net income	$	25,681		$	17,548
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	7,962			8,074
Amortization expense	4,121			4,131
Amortization of loan acquisition costs	608			647
Stock-based compensation	1,035			528
Loss on disposal of property, plant and equipment	163			33
Foreign currency (gain) loss	1,726			(588		)
Deferred income taxes	6,778			338
Business restructuring	—			455
Gain on sale of Italian subsidiary	—			(3,327		)
Changes in operating assets and liabilities:
Accounts receivable	(11,998		)	6,491
Inventories	(784		)	(1,020		)
Prepaid and other current assets	(2,126		)	(1,059		)
Accounts payable and accrued liabilities	5,532			13,499
Income taxes payable	956			815
Other, net	(1,574		)	1,187
Net cash provided by operating activities	38,080			47,752
Investing activities:
Purchases of property, plant and equipment, net	(29,677		)	(11,963		)
Payments associated with the stock sale of Italian subsidiary, net	—			(14,908		)
Net cash used in investing activities	(29,677		)	(26,871		)
Financing activities:
Payments for loan acquisition costs	(275		)	—
Principal payments on debt	(1,738		)	(8,056		)
Proceeds from stock option exercises	2,295			637
Noncontrolling interest	(14		)	—
Net cash provided by (used in) financing activities	268			(7,419		)
Effect of exchange rate changes on cash and cash equivalents	4,241			(1,692		)
Net increase in cash and cash equivalents	12,912			11,770
Cash and cash equivalents at beginning of period	89,955			114,975
Cash and cash equivalents at end of period	$	102,867		$	126,745

See notes to condensed consolidated financial statements

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Polypore International, Inc.

Notes to condensed consolidated financial statements

(unaudited)

1. Description of Business and Basis of Presentation

Description of Business

Polypore International, Inc. (the “Company”) is a leading global high technology filtration company that develops, manufactures and markets specialized microporous membranes used in separation and filtration processes. The Company has a global presence in the major geographic markets of North America, South America, Europe and Asia.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company are prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, the unaudited condensed consolidated financial statements and notes do not contain certain information included in the Company’s annual financial statements. In the opinion of management, all normal and recurring adjustments that are necessary for a fair presentation have been made. Certain amounts previously presented in the condensed consolidated financial statements for prior periods have been reclassified to conform to current classifications. Operating results for the three months ended April 2, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2011. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2011.

2. Inventories

Inventories are carried at the lower of cost or market using the first-in, first-out method of accounting and consist of:

(in thousands)	April 2, 2011		January 1, 2011
Raw materials	$	32,303	$	31,304
Work-in-process	12,759		13,434
Finished goods	34,763		32,216
	$	79,825	$	76,954

3. Debt

Debt, in order of priority, consists of:

(in thousands)	April 2, 2011		January 1, 2011
Senior credit agreement:
Revolving credit facility	$	—	$	—
Term loan facilities	351,390		350,332
7.5% senior notes	365,000		365,000
	716,390		715,332
Less current maturities	3,725		3,696
Long-term debt	$	712,665	$	711,636

4. Fair Value of Financial Instruments

The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and long-term debt. The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximates their fair value due to the short-term maturities of these assets and liabilities. The carrying amount of borrowings under the senior secured credit agreement approximates fair value because the interest rate adjusts to market interest rates. The fair value of the 7.5% senior notes, based on a quoted market price, was $374,581,000 at April 2, 2011.

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Polypore International, Inc.

Notes to condensed consolidated financial statements

(unaudited)

5. Income Taxes

The income tax provision for the interim periods presented is computed at the effective rate expected to be applicable in each respective full year using the statutory rates on a country-by-country basis. Income tax expense recorded in the financial statements differs from the federal statutory income tax rate due to a variety of factors, including state income taxes, the mix of income between U.S. and foreign jurisdictions taxed at varying rates and changes in estimates of permanent differences and valuation allowances. In the three months ended April 3, 2010, the Company’s effective tax rate was also impacted by the sale of its Italian subsidiary, Daramic S.r.l. (Note 10).

6. Employee Benefit Plans

The Company and its subsidiaries sponsor multiple defined benefit pension plans and an other postretirement benefit plan. The Company’s pension plans are based in subsidiaries located outside of the United States. The following table provides the components of net periodic benefit cost:

	Pension Plans						Other Postretirement Benefits
	Three Months Ended						Three Months Ended
(in thousands)	April 2, 2011			April 3, 2010			April 2, 2011		April 3, 2010
Service cost	$	380		$	351		$	4	$	3
Interest cost	1,230			1,155			34		34
Expected return on plan assets	(223		)	(199		)	—		—
Amortization of prior service cost	(13		)	(13		)	—		—
Recognized net actuarial (gain) loss	19			(6		)	5		3
Net periodic benefit cost	$	1,393		$	1,288		$	43	$	40

7. Environmental Matters

Environmental obligations are accrued when such expenditures are probable and reasonably estimable. The amount of liability recorded is based on currently available information, including the progress of remedial investigations, current status of discussions with regulatory authorities regarding the method and extent of remediation, presently enacted laws and existing technology. Accruals for estimated losses from environmental obligations are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental obligations are not discounted to their present value. The Company does not currently anticipate any material loss in excess of the amounts accrued. However, the Company’s future remediation expenses may be affected by a number of uncertainties including, but not limited to, the difficulty in estimating the extent and method of remediation, the evolving nature of environmental regulations and the availability and application of technology. The Company does not expect the resolution of such uncertainties to have a material adverse effect on its consolidated financial position or liquidity. Recoveries of environmental costs from other parties are recognized as assets when their receipt is deemed probable. Environmental reserves, which are predominately euro-denominated, were $16,043,000 and $15,575,000 as of April 2, 2011 and January 1, 2011, respectively.

In connection with the acquisition of Membrana GmbH (“Membrana”) in 2002, the Company recorded a reserve for environmental obligations. The reserve provides for costs to remediate known environmental issues and operational upgrades which are required in order for the Company to remain in compliance with local regulations. The initial estimate and subsequent finalization of the reserve was included in the allocation of purchase price at the date of acquisition. The environmental reserve for the Membrana facility was $15,670,000 and $15,202,000 at April 2, 2011 and January 1, 2011, respectively. The Company anticipates that expenditures will be made over the next three to five years.

The Company has indemnification agreements for certain environmental matters from Acordis A.G. (“Acordis”) and Akzo Nobel N.V. (“Akzo”), the prior owners of Membrana. Akzo originally provided broad environmental protections to Acordis with the right to assign such indemnities to Acordis’s successors. Akzo’s indemnifications relate to conditions existing prior to December 1999, which is the date that Membrana was sold to Acordis. In addition to the Akzo indemnification, Acordis provides separate indemnification of claims incurred from December 1999 through February 2002, the acquisition date. The Company receives indemnification payments under the indemnification agreements as expenditures are made against approved claims. At April 2, 2011 and January 1, 2011, amounts receivable under the indemnification agreements were $13,239,000 and $12,465,000, respectively. The current portion of the indemnification receivable is included in “Prepaid and other” in the accompanying condensed consolidated balance sheets.

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Polypore International, Inc.

Notes to condensed consolidated financial statements

(unaudited)

8. Comprehensive Income

Comprehensive income is as follows:

	Three Months Ended
(in thousands)	April 2, 2011			April 3, 2010
Net income	$	25,681		$	17,548
Foreign currency translation adjustment, net of deferred taxes	9,707			7,388
Net actuarial gain (loss) and prior service credit, net of deferred taxes	(368		)	45
Comprehensive income	$	35,020		$	24,981

9. Government Grants

On February 1, 2010, the Company finalized an agreement with the U.S. Department of Energy (“DOE”), formally awarding the Company a grant of $49,264,000 to help fund an estimated $102,000,000 expansion of its U.S. lithium battery separator production capacity. The Company also received state and local grants beginning in 2010 in connection with its U.S. expansions. Grant awards are recognized when there is reasonable assurance that the Company will receive the grant and comply with the conditions attached to the grant. For capital expenditures, the Company deducts grant awards from the cost of the related asset. For expense reimbursements, the Company deducts grant awards from the related expenses.

The Company recognized grant awards for capital expenditures of $6,416,000 and $2,384,000 for the three months ended April 2, 2011 and April 3, 2010, respectively. The Company recognized grant awards for expenses of $532,000 and $873,000 for the three months ended April 2, 2011 and April 3, 2010, respectively. Amounts due from government agencies were $3,405,000 and $2,546,000 at April 2, 2011 and January 1, 2011, respectively, and are classified as “Prepaid and other” in the accompanying condensed consolidated balance sheets.

10. Sale of Italian Subsidiary

On March 9, 2010, the Company sold 100% of the stock of its wholly-owned Italian subsidiary, Daramic S.r.l., for €13,385,000 ($18,175,000 at March 9, 2010). The Company recognized a gain of $3,327,000 on the sale, net of direct transaction costs. As a result of the stock sale, the buyer acquired all of the assets and liabilities of Daramic S.r.l., including the Potenza, Italy facility, which was closed in 2008, and environmental and restructuring obligations associated with the Potenza site. In addition to assuming all assets and liabilities, the buyer fully indemnified the Company with regard to all environmental, health and safety matters related to this site. In connection with the sale, the Company was required to make net cash payments to the buyer of €16,047,000, consisting of the settlement of an acquired intercompany receivable due to Daramic S.r.l. from affiliates of the Company, reduced by the purchase price of Daramic S.r.l. due from the buyer. The Company paid €11,047,000 ($14,908,000) at closing and paid the remaining €5,000,000 ($6,611,000) on December 15, 2010.

11. Related Party Transactions

The Company’s German subsidiary has a 33% equity investment in a patent and trademark service provider and a 25% equity investment in a research company. The investments are accounted for under the equity method of accounting and were $743,000 and $585,000 at April 2, 2011 and January 1, 2011, respectively. Charges from the affiliates for work performed were $281,000 and $381,000 for the three months ended April 2, 2011 and April 3, 2010, respectively. Amounts due to the affiliates were $47,000 and $99,000 at April 2, 2011 and January 1, 2011, respectively.

12. Noncontrolling Interest

In 2010, the Company entered into a joint venture agreement with a customer, Camel Group Co., Ltd (“Camel”), a leading battery manufacturer in China, to produce lead-acid battery separators primarily for Camel’s use. The joint venture, Daramic Xiangfan Battery Separator Co., Ltd. (“Daramic Xiangfan”), will be located at Camel’s facility and is expected to start production in 2012. The Company will contribute redeployed production assets from its former facility in Potenza, Italy and cash for a 65% ownership interest in the joint venture. Camel will contribute land, buildings, utilities and cash for a 35% ownership interest.

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Polypore International, Inc.

Notes to condensed consolidated financial statements

(unaudited)

13. Segment Information

The Company’s operations are principally managed on a products basis and are comprised of three operating segments that have been aggregated into two reportable segments: energy storage and separations media. The energy storage segment produces and markets membranes that provide the critical function of separating the cathode and anode in a variety of battery markets, including transportation, industrial and consumer electronics applications. The separations media segment produces and markets membranes used as the high technology filtration element in various medical and industrial applications.

The Company evaluates the performance of segments and allocates resources to segments based on operating income before depreciation and amortization. In addition, it evaluates business segment performance before non-recurring costs. Financial information relating to the reportable operating segments is presented below:

	Three Months Ended
(in thousands)	April 2, 2011			April 3, 2010
Net sales to external customers (by major product group):
Lead-acid battery separators	$	94,440		$	71,013
Lithium battery separators	42,144			30,399
Energy storage	136,584			101,412
Healthcare	30,531			28,925
Filtration and specialty	18,559			15,002
Separations media	49,090			43,927
Total net sales to external customers	$	185,674		$	145,339

Operating income:
Energy storage	$	34,895		$	19,368
Separations media	15,306			12,482
Corporate	(1,035		)	(528		)
Segment operating income	49,166			31,322
Non-recurring costs	250			705
Total operating income	48,916			30,617
Reconciling items:
Interest expense, net	8,899			12,277
Gain on sale of Italian subsidiary	—			(3,327		)
Foreign currency and other	1,598			(452		)
Income before income taxes	$	38,419		$	22,119

Depreciation and amortization:
Energy storage	$	8,322		$	8,539
Separations media	3,761			3,666
Total depreciation and amortization	$	12,083		$	12,205

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Polypore International, Inc.

Notes to condensed consolidated financial statements

(unaudited)

14. Financial Statements of Guarantors

The Company’s senior notes are unconditionally guaranteed, jointly and severally, on a senior basis by certain of the Company’s 100% owned subsidiaries (“Guarantors”). Management has determined that separate complete financial statements of the Guarantors would not be material to users of the financial statements.

The following sets forth condensed consolidating financial statements of the Guarantors and non-Guarantor subsidiaries.

Condensed consolidating balance sheet
April 2, 2011

(in thousands)	Combined Guarantor Subsidiaries		Combined Non-Guarantor Subsidiaries		The Company		Eliminations			Consolidated
Assets
Cash and cash equivalents	$	—	$	70,072	$	32,795	$	—		$	102,867
Accounts receivable, net	46,789		85,046		—		—			131,835
Inventories	26,602		53,223		—		—			79,825
Prepaid and other	6,586		12,191		192		—			18,969
Total current assets	79,977		220,532		32,987		—			333,496
Due from affiliates	437,533		296,891		310,364		(1,044,788		)	—
Investment in subsidiaries	161,329		315,072		496,884		(973,285		)	—
Property, plant and equipment, net	151,062		297,520		—		—			448,582
Goodwill	—		—		469,319		—			469,319
Intangibles and loan acquisition costs, net	2		—		148,663		—			148,665
Other	151		11,724		—		—			11,875
Total assets	$	830,054	$	1,141,739	$	1,458,217	$	(2,018,073	)	$	1,411,937

Liabilities and shareholders’ equity
Accounts payable and accrued liabilities	$	35,839	$	58,766	$	10,107	$	—		$	104,712
Income taxes payable	—		6,032		399		—			6,431
Current portion of debt	—		496		3,229		—			3,725
Total current liabilities	35,839		65,294		13,735		—			114,868
Due to affiliates	421,744		260,526		362,518		(1,044,788		)	—
Debt, less current portion	—		47,239		665,426		—			712,665
Pension and postretirement benefits, less current portion	2,677		74,582		—		—			77,259
Deferred income taxes and other	38,721		51,886		146		—			90,753
Shareholders’ equity	331,073		642,212		416,392		(973,285		)	416,392
Total liabilities and shareholders’ equity	$	830,054	$	1,141,739	$	1,458,217	$	(2,018,073	)	$	1,411,937

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Polypore International, Inc.

Notes to condensed consolidated financial statements

(unaudited)

Condensed consolidating balance sheet
January 1, 2011

(in thousands)	Combined Guarantor Subsidiaries		Combined Non-Guarantor Subsidiaries		The Company		Eliminations			Consolidated
Assets
Cash and cash equivalents	$	—	$	58,172	$	31,783	$	—		$	89,955
Accounts receivable, net	45,695		71,021		—		—			116,716
Inventories	29,571		47,383		—		—			76,954
Prepaid and other	7,296		9,804		99		—			17,199
Total current assets	82,562		186,380		31,882		—			300,824
Due from affiliates	409,124		270,060		301,211		(980,395		)	—
Investment in subsidiaries	177,296		302,297		455,914		(935,507		)	—
Property, plant and equipment, net	174,717		240,580		—		—			415,297
Goodwill	—		—		469,319		—			469,319
Intangibles and loan acquisition costs, net	5		—		152,551		—			152,556
Other	1,769		8,731		—		—			10,500
Total assets	$	845,473	$	1,008,048	$	1,410,877	$	(1,915,902	)	$	1,348,496

Liabilities and shareholders’ equity
Accounts payable and accrued liabilities	$	38,286	$	54,555	$	3,843	$	—		$	96,684
Income taxes payable	—		5,032		230		—			5,262
Current portion of debt	—		467		3,229		—			3,696
Total current liabilities	38,286		60,054		7,302		—			105,642
Due to affiliates	413,554		214,588		352,253		(980,395		)	—
Debt, less current portion	—		44,595		667,041		—			711,636
Pension and postretirement benefits, less current portion	3,544		68,442		—		—			71,986
Deferred income taxes and other	26,012		48,939		6,231		—			81,182
Shareholders’ equity	364,077		571,430		378,050		(935,507		)	378,050
Total liabilities and shareholders’ equity	$	845,473	$	1,008,048	$	1,410,877	$	(1,915,902	)	$	1,348,496

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Polypore International, Inc.

Notes to condensed consolidated financial statements

(unaudited)

Condensed consolidating statement of income
For the three months ended April 2, 2011

(in thousands)	Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries		The Company			Eliminations			Consolidated
Net sales	$	61,745		$	123,929	$	—		$	—		$	185,674
Cost of goods sold	19,390			86,818		—			—			106,208
Gross profit	42,355			37,111		—			—			79,466
Selling, general and administrative expenses	17,015			12,431		1,104			—			30,550
Operating income (loss)	25,340			24,680		(1,104		)	—			48,916
Interest expense and other	(837		)	2,505		8,829			—			10,497
Equity in earnings of subsidiaries	—			—		(33,515		)	33,515			—
Income before income taxes	26,177			22,175		23,582			(33,515		)	38,419
Income taxes	8,964			5,873		(2,099		)	—			12,738
Net income	$	17,213		$	16,302	$	25,681		$	(33,515	)	$	25,681

Condensed consolidating statement of income
For the three months ended April 3, 2010

(in thousands)	Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			The Company			Eliminations			Consolidated
Net sales	$	46,193		$	99,146		$	—		$	—		$	145,339
Cost of goods sold	20,824			66,176			—			—			87,000
Gross profit	25,369			32,970			—			—			58,339
Selling, general and administrative expenses	16,024			10,715			528			—			27,267
Business restructuring	201			254			—			—			455
Operating income (loss)	9,144			22,001			(528		)	—			30,617
Interest expense and other	(2,970		)	2,361			12,434			—			11,825
Gain on sale of Italian subsidiary	—			(3,327		)	—			—			(3,327		)
Equity in earnings of subsidiaries	—			—			(23,574		)	23,574			—
Income before income taxes	12,114			22,967			10,612			(23,574		)	22,119
Income taxes	6,353			5,154			(6,936		)	—			4,571
Net income	$	5,761		$	17,813		$	17,548		$	(23,574	)	$	17,548

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Polypore International, Inc.

Notes to condensed consolidated financial statements

(unaudited)

Condensed consolidating statement of cash flows
For the three months ended April 2, 2011

(in thousands)	Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			The Company			Eliminations			Consolidated
Net cash provided by (used in) operating activities	$	29,374		$	9,990		$	(2,466	)	$	1,182		$	38,080
Investing activities:
Purchases of property, plant and equipment, net	(20,615		)	(9,062		)	—			—			(29,677		)
Net cash used in investing activities	(20,615		)	(9,062		)	—			—			(29,677		)
Financing activities:
Principal payments on debt	—			(123		)	(1,615		)	—			(1,738		)
Proceeds from stock option exercises	—			—			2,295			—			2,295
Intercompany transactions, net	(8,759		)	6,854			3,087			(1,182		)	—
Other	—			—			(289		)	—			(289		)
Net cash provided by (used in) financing activities	(8,759		)	6,731			3,478			(1,182		)	268
Effect of exchange rate changes on cash and cash equivalents	—			4,241			—			—			4,241
Net increase in cash and cash equivalents	—			11,900			1,012			—			12,912
Cash and cash equivalents at beginning of period	—			58,172			31,783			—			89,955
Cash and cash equivalents at end of period	$	—		$	70,072		$	32,795		$	—		$	102,867

Condensed consolidating statement of cash flows
For the three months ended April 3, 2010

(in thousands)	Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			The Company			Eliminations			Consolidated
Net cash provided by (used in) operating activities	$	23,802		$	21,422		$	(2,888	)	$	5,416		$	47,752
Investing activities:
Purchases of property, plant and equipment, net	(10,300		)	(1,663		)	—			—			(11,963		)
Payments associated with the stock sale of Italian subsidiary, net	—			(14,908		)	—			—			(14,908		)
Net cash used in investing activities	(10,300		)	(16,571		)	—			—			(26,871		)
Financing activities:
Principal payments on debt	—			(119		)	(7,937		)	—			(8,056		)
Proceeds from stock option exercises	—			—			637			—			637
Intercompany transactions, net	(13,488		)	5,684			13,220			(5,416		)	—
Net cash provided by (used in) financing activities	(13,488		)	5,565			5,920			(5,416		)	(7,419		)
Effect of exchange rate changes on cash and cash equivalents	(14		)	(1,678		)	—			—			(1,692		)
Net increase in cash and cash equivalents	—			8,738			3,032			—			11,770
Cash and cash equivalents at beginning of period	—			45,585			69,390			—			114,975
Cash and cash equivalents at end of period	$	—		$	54,323		$	72,422		$	—		$	126,745

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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 condensed 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 January 1, 2011.

Overview

We are a leading global high technology filtration company that develops, manufactures and markets specialized microporous membranes used in separation and filtration processes. In fiscal 2010, we generated total net sales of $616.6 million. We operate in two business segments: (i) the energy storage segment, which accounted for approximately 72% of our fiscal 2010 net sales; and (ii) the separations media segment, which accounted for approximately 28% of our fiscal 2010 net sales. We manufacture our products at facilities in North America, Europe and Asia. Net sales from foreign locations were $415.3 million for fiscal 2010.

We are experiencing strong demand in both of our business segments and operating at high rates of capacity utilization. During 2010, we announced significant investments in new capacity and on March 14, 2011, announced an additional $65.0 million lithium battery separator expansion targeted at electric drive vehicle (“EDV”) applications at our Concord, NC facility under construction. During the first quarter of 2011, the first phase of new lithium battery separator capacity began to ramp up and additional capacity across both business segments will come online in the second half of 2011 and in 2012. We believe long-term demand drivers in our businesses remain positive, and we will continue to assess capacity needs and make investments to capitalize on these future growth opportunities.

Energy Storage Segment

In the energy storage segment, our membrane separators are a critical performance component in lithium batteries, which are primarily used in consumer electronics and EDV applications, and lead-acid batteries, which are used globally in transportation and numerous industrial applications. We believe that the long-term growth drivers for the energy storage business — growth in Asia, strong demand for consumer electronics and growing demand for EDVs — are positive.

Lithium batteries are the power source in a wide variety of applications, including consumer electronics applications such as notebook computers, tablets, mobile phones and cordless power tools, and emerging applications such as EDVs and electricity grid storage or energy storage systems (“ESS”). Growth in lithium batteries is being driven by strong demand in consumer electronic applications and accelerating demand in EDVs. In order to meet the growing demand, we have announced the following capacity expansions:

Facility	Amount (millions)			Expected Start-up Time	Target Applications
Charlotte, NC/Concord, NC	$	102.0	*	1st quarter 2011/Mid-2012	EDV
Charlotte, NC	32.0			Late 2011	EDV
Concord, NC	65.0			Late 2012	EDV
Ochang, Korea	30.0			Late 2011	Consumer electronics

* Partially funded by a $49.3 million grant from the U.S. Department of Energy (“DOE”).

In the lead-acid battery market, the high proportion of aftermarket replacement sales and the steady growth of the worldwide fleet of motor vehicles provide us with a growing recurring revenue base in lead-acid battery separators. Worldwide demand for lead-acid battery separators is expected to continue to grow at slightly more than annual economic growth. The Asia-Pacific region is the fastest growing market for lead-acid battery separators. Growth in this region is driven by the increasing penetration of automobile ownership, growth in industrial and manufacturing sectors, export incentives and ongoing conversion to the polyethylene-based membrane separators we produce. We have positioned ourselves to benefit from growth in Asia by expanding capacity at our Prachinburi, Thailand facility; acquiring battery separator manufacturing assets and subsequently expanding our operations in Bangalore, India; acquiring a production facility in Tianjin, China; and establishing an Asian Technical Center in Thailand. In 2010, we reached an agreement to enter into a joint venture with a customer, Camel Group Co., Ltd. (“Camel”), a leading battery manufacturer in China, to produce lead-acid battery separators primarily for Camel’s use. The joint venture, Daramic Xiangfan Battery Separator Co., Ltd. (“Daramic Xiangfan”), will be located at

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Camel’s facility in Xiangyang (formerly known as Xiangfan), China and is expected to start production in 2012. In February 2011, we approved an additional expansion at our Prachinburi, Thailand facility to be completed by mid-2012.

Separations Media Segment

In the separations media segment, our filtration membranes and modules are used in healthcare and high-performance filtration and specialty applications. We believe that the separations media segment will continue to benefit from continued growth in demand for higher levels of purity in a growing number of applications.

Healthcare applications include hemodialysis, blood oxygenation and plasmapheresis. Growth in demand for hemodialysis membranes is driven by the increasing worldwide population of end-stage renal disease patients. We believe that conversion to single-use dialyzers and increasing treatment frequency will result in additional dialyzer market growth. In the third quarter of 2010, we began a $25.0 million expansion of PUREMA ® hemodialysis membrane production capacity at our Wuppertal, Germany facility and expect to start production in the second half of 2011.

We produce a wide range of membranes and membrane-based elements for micro-, ultra- and nanofiltration and gasification/degasification of liquids. Micro-, ultra- and nanofiltration membrane element market growth is being driven by several factors, including end-market growth in applications such as water treatment and pharmaceutical processing, displacement of conventional filtration media by membrane filtration due to membranes’ superior cost and performance attributes and increasing purity requirements in industrial and other applications.

Critical accounting policies

Critical accounting policies are those accounting policies that can have a significant impact on the presentation of our financial condition and results of operations, and that require the use of complex and subjective estimates based on past experience and management’s judgment. Because of the uncertainty inherent in such estimates, actual results may differ from these estimates. These policies are critical to the understanding of our operating results and financial condition and include the policies related to the allowance for doubtful accounts, the impairment of intangibles and goodwill, pension and other postretirement benefits and environmental matters. For a discussion of each of these policies, please see the discussion entitled “Critical Accounting Policies” under Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended January 1, 2011.

Results of Operations

The following table sets forth, for the periods indicated, certain operating data in amount and as a percentage of net sales:

						Percentage of Net Sales
	Three Months Ended					Three Months Ended
($’s in millions)	April 2, 2011		April 3, 2010			April 2, 2011		April 3, 2010
Net sales	$	185.7	$	145.3		100.0	%	100.0	%

Gross profit	79.5		58.3			42.8		40.1
Selling, general and administrative expenses	30.6		27.2			16.5		18.7
Business restructuring	—		0.5			—		0.3
Operating income	48.9		30.6			26.3		21.1
Interest expense, net	8.9		12.3			4.8		8.5
Other	1.6		(3.8		)	0.8		(2.6	)
Income before income taxes	38.4		22.1			20.7		15.2
Income taxes	12.7		4.6			6.9		3.2
Net income	$	25.7	$	17.5		13.8	%	12.0	%

Comparison of the three months ended April 2, 2011 with the three months ended April 3, 2010

Net sales. Net sales for the three months ended April 2, 2011 were $185.7 million, an increase of $40.4 million, or 27.8%, from the same period in the prior year. Energy storage sales for the three months ended April 2, 2011 were $136.6 million, an

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increase of $35.2 million, or 34.7%. Lithium battery separator sales increased by $11.7 million due to strong demand in consumer electronics, growing demand in EDVs and the incremental benefit of the first phase of new capacity ramping up during the quarter. Lead-acid battery separator sales increased by $23.5 million due to strong demand across all geographic regions. The impact of foreign currency translation was not significant for the three months ended April 2, 2011. In the energy storage segment, we operated at high capacity utilization rates and expect that to continue in the near term. The first phase of lithium battery separator capacity will continue to ramp up and additional capacity will come online in the second half of 2011 and in 2012. The lead-acid expansion at our Thailand facility is expected to start production in mid-2012.

Separations media sales for the three months ended April 2, 2011 were $49.1 million, an increase of $5.2 million, or 11.8%, from the same period in the prior year. Healthcare sales increased by $1.6 million, or 5.5%, due to strong demand in hemodialysis and blood oxygenation applications. We operated at high capacity utilization rates and expect that to continue until new capacity comes online in the second half of 2011. Filtration and specialty product sales increased by $3.6 million, or 24.0%, due to economic improvement and strong demand in all key applications.

Gross profit. Gross profit as a percent of net sales was 42.8% for the three months ended April 2, 2011, as compared to 40.1% in the same period of the prior year. Energy storage gross profit as a percent of sales was 41.4% for the three months ended April 2, 2011, as compared to 37.0% in the same period of the prior year. The increase in gross profit margin was due to higher production volumes and production efficiencies. Separations media gross profit as a percent of net sales was 46.6% for the three months ended April 2, 2011, consistent with the same period of the prior year.

Selling, general and administrative expenses. Selling, general and administrative expenses increased by $3.4 million for the three months ended April 2, 2011 as compared to the prior year, primarily due to growth investments.

Interest expense. Interest expense for the three months ended April 2, 2011 decreased by $3.4 million compared to the prior year primarily due to the repayment and refinancing of our senior notes in late 2010.

Income taxes. The income tax provision for the interim periods presented is computed at the effective rate expected to be applicable in each respective full year using the statutory rates on a country-by-country basis. The effective tax rate was 33.2% for the three months ended April 2, 2011, as compared to 20.7% for the same period in the prior year. The effective tax rate fluctuates due to a variety of factors, including state income taxes, the mix of income between U.S. and foreign jurisdictions taxed at varying rates and changes in estimates of permanent differences and valuation allowances.

The mix of earnings between the tax jurisdictions has a significant impact on the effective tax rate. Each tax jurisdiction has its own set of tax laws and tax rates and income earned by our subsidiaries is taxed independently by these various jurisdictions. Currently, the applicable statutory income tax rates in the jurisdictions in which we operate range from 0% to 39%. Therefore, the amount of income tax expense in each jurisdiction as compared to our consolidated income before income taxes has a significant impact on our annual effective tax rate.

The effect of each of these items on our effective tax rate is quantified in the table below:

	Three Months Ended
	April 2, 2011		April 3, 2010
U.S. federal statutory rate	35.0	%	35.0	%
State income taxes	1.2		0.4
Mix of income in taxing jurisdictions	(3.3	)	(8.9	)
Other permanent differences and valuation allowances	0.3		1.2
Sale of Italian subsidiary	—		(7.0	)
Total effective tax rate	33.2	%	20.7	%

Liquidity and Capital Resources

Cash and cash equivalents increased to $102.9 million at April 2, 2011 from $90.0 million at January 1, 2011. The increase in cash primarily consists of net cash provided by operating activities somewhat offset by capital expenditures.

Operating activities. Net cash provided by operating activities was $38.1 million in the three months ended April 2, 2011, consisting of cash generated from operations partially offset by a net increase in working capital. Accounts receivable increased due to higher sales associated with strong demand across both business segments. Days sales outstanding was consistent with the prior year, and we have not experienced significant changes in accounts receivable aging or customer

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payment terms and believe that we have adequately provided for potential bad debts. Inventory levels remained consistent and we continued to operate at high capacity utilization rates. Inventory is generally not subject to obsolescence and does not have a shelf life, and we do not believe there is a significant risk of inventory impairment. Accounts payable and accrued liabilities increased due to timing of payments.

Investing activities. In the three months ended April 2, 2011, total capital expenditures were $29.7 million (net of DOE grant awards of $6.4 million). Total capital spending for fiscal year 2011, based on currently approved projects, is expected to be approximately $150.0 million, net of DOE grant awards.

Financing activities. During the three months ended April 2, 2011, financing activities consisted primarily of scheduled principal payments under our credit agreement and proceeds from the exercise of stock options. During the same period of the prior year, we made a $7.1 million mandatory prepayment associated with the 2009 excess cash flow calculation as defined in our credit agreement.

We intend to fund our ongoing operations with cash on hand, cash generated by operations and borrowings under the senior secured credit agreement.

Our senior secured credit agreement provides for a U.S. dollar term loan facility ($303.7 million outstanding at April 2, 2011), a euro term loan facility ($47.7 million outstanding at April 2, 2011) and a $90.0 million revolving credit facility. At April 2, 2011, we had $87.3 million of borrowings available under the revolving credit facility, consisting of the $90.0 million facility less undrawn standby letters of credit. The term loans mature in July 2014 and the revolving credit facility matures in July 2013. Interest rates under the senior secured credit agreement are, at our option, equal to either an alternate base rate or Eurocurrency base rate plus a specified margin. At April 2, 2011, interest rates on the U.S. dollar term loan and euro term loan were 2.25% and 2.90%, respectively.

When loans are outstanding under the revolving credit facility, we are required to maintain a senior leverage ratio of indebtedness to Adjusted EBITDA of less than 3.00 to 1.00. At April 2, 2011, our senior leverage ratio was 1.48 to 1.00 and therefore, had no effect on borrowings available under the revolving credit facility. Adjusted EBITDA, as defined under the senior secured credit agreement, was as follows:

(in millions)	Twelve Months Ended April 2, 2011
Net income	$	71.7
Add/Subtract:
Depreciation and amortization expense	47.8
Interest expense, net	43.4
Income taxes	33.1
Stock-based compensation	2.8
Foreign currency loss	1.4
Loss on disposal of property, plant and equipment	1.3
Business restructuring	(1.3		)
Costs related to purchase of 8.75% senior subordinated notes	2.3
Costs related to the FTC litigation	1.0
Other non-cash or non-recurring charges	(0.3		)
Adjusted EBITDA	$	203.2

The calculation of the senior leverage ratio, as defined under the senior secured credit agreement, as of April 2, 2011 was as follows:

(in millions)
Indebtedness (1)	$	301.4
Adjusted EBITDA	$	203.2
Actual leverage ratio	1.48x

(1) Calculated as the sum of outstanding borrowings under the senior secured credit agreement, less cash on hand (not to exceed $50.0 million).

The senior secured credit agreement contains certain restrictive covenants which, among other things, limit capital spending, the incurrence of additional indebtedness, investments, dividends, transactions with affiliates, asset sales, acquisitions, mergers and consolidations, prepayments of other indebtedness, liens and encumbrances and other matters customarily restricted in such agreements. The agreement also contains certain customary events of default, subject to grace periods, as appropriate. We believe that limitations imposed by the senior credit agreement will not significantly inhibit us from meeting our ongoing capital expenditure needs.

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The 7.5% senior notes mature on November 15, 2017 and are guaranteed by most of our existing and future domestic restricted subsidiaries, subject to certain exceptions. Except under certain circumstances, the 7.5% senior notes do not require principal payments prior to their maturity in 2017. Interest on the 7.5% senior notes is payable semi-annually on May 15 and November 15. The 7.5% senior notes contain customary covenants and events of default, including covenants that limit our ability to incur debt, pay dividends and make investments.

Future debt service payments are expected to be paid out of cash flows from operations, borrowings on our revolving credit facility and future refinancing of our debt. Our cash interest requirements for the next twelve months are estimated to be $35.4 million.

We believe we have sufficient liquidity to meet our cash requirements over both the short (next twelve months) and long term (in relation to our debt service requirements). In evaluating the sufficiency of our liquidity, we considered cash on hand, expected cash flow to be generated from operations and available borrowings under our senior secured credit agreement compared to our anticipated cash requirements for debt service, working capital, cash taxes and capital expenditures and funding requirements for long-term liabilities. We anticipate that our cash on hand and operating cash flow, together with borrowings under the revolving credit facility, will be sufficient to meet our anticipated future operating expenses, capital expenditures and debt service obligations as they become due for at least the next twelve months. However, our ability to make scheduled payments of principal, to pay interest on or to refinance our indebtedness and to satisfy our other debt obligations will depend upon our future operating performance, which will be affected by general economic, financial, competitive, legislative, regulatory, business and other factors beyond our control. See “Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K.

From time to time, we may explore additional financing methods and other means to lower our cost of capital, which could include equity or debt financings and the application of the proceeds therefrom to the repayment of bank debt or other indebtedness. In addition, in connection with any future acquisitions, we may require additional funding which may be provided in the form of additional debt or equity financing or a combination thereof. There can be no assurance that any additional financing will be available to us on acceptable terms or at all.

Foreign Operations

As of April 2, 2011, we manufacture our products at 14 strategically located facilities in North America, Europe and Asia. Net sales from the foreign locations were approximately $123.9 million and $101.2 million for the three months ended April 2, 2011 and April 3, 2010, respectively. Typically, we sell our products in the currency of the country where the manufacturing facility that produces the product is located. Sales to foreign customers are subject to numerous additional risks, including the impact of foreign government regulations, currency fluctuations, political uncertainties and differences in business practices. There can be no assurance that foreign governments will not adopt regulations or take other action that would have a direct or indirect adverse impact on our business or market opportunities within such governments’ countries. Furthermore, there can be no assurance that the political, cultural and economic climate outside the United States will be favorable to our operations and growth strategy.

Environmental matters

Environmental obligations are accrued when such expenditures are probable and reasonably estimable. The amount of liability recorded is based on currently available information, including the progress of remedial investigations, current status of discussions with regulatory authorities regarding the method and extent of remediation, presently enacted laws and existing technology. Accruals for estimated losses from environmental obligations are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental obligations are not discounted to their present value. We do not currently anticipate any material loss in excess of the amounts accrued. Future remediation expenses may be affected by a number of uncertainties including, but not limited to, the difficulty in estimating the extent and method of remediation, the evolving nature of environmental regulations and the availability and application of technology. We do not expect the resolution of such uncertainties to have a material adverse effect on our consolidated financial position or liquidity. Recoveries of environmental costs from other parties are recognized as assets when their receipt is deemed probable. At April 2, 2011, environmental reserves, which are predominately euro-denominated, were $16.0 million.

In connection with the acquisition of Membrana GmbH (“Membrana”) in 2002, we recorded a reserve for environmental obligations. The reserve provides for costs to remediate known environmental issues and operational upgrades which are required in order for us to remain in compliance with local regulations. The initial estimate and subsequent finalization of the reserve was included in the allocation of purchase price at the date of acquisition. At April 2, 2011, the environmental reserve for the Membrana facility was $15.7 million. We anticipate that expenditures will be made over the next three to five years.

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We have indemnification agreements for certain environmental matters from Acordis A.G. (“Acordis”) and Akzo Nobel N.V. (“Akzo”), the prior owners of Membrana. Akzo originally provided broad environmental protections to Acordis with the right to assign such indemnities to Acordis’s successors. Akzo’s indemnifications relate to conditions existing prior to December 1999, which is the date that Membrana was sold to Acordis. In addition to the Akzo indemnification, Acordis provides separate indemnification of claims incurred from December 1999 through February 2002, the acquisition date. We will receive indemnification payments under the indemnification agreements as expenditures are made against approved claims. At April 2, 2011, amounts receivable under the indemnification agreements were $13.2 million.

Off-Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to various market risks, which are potential losses arising from adverse changes in market rates and prices, such as interest rates and foreign exchange fluctuations. We do not enter into derivatives or other financial instruments for trading or speculative purposes.

Interest rate risk

At April 2, 2011, we had fixed rate debt of $365.0 million and variable rate debt of $351.4 million. To reduce the interest rate risk inherent in our variable rate debt, we may utilize interest rate derivatives. As of April 2, 2011, there were no outstanding interest rate derivatives. The pre-tax earnings and cash flow impact resulting from a 100 basis point increase in interest rates on our variable rate debt, holding other variables constant, would be $3.5 million per year.

Currency risk

Outside of the United States, we maintain assets and operations in Europe and Asia. The results of operations and financial position of our foreign operations are principally measured in their respective currency and translated into U.S. dollars. As a result, exposure to foreign currency fluctuations exists. The reported income of these subsidiaries will be higher or lower depending on a weakening or strengthening of the U.S. dollar against the respective foreign currency. Our subsidiaries and affiliates also purchase and sell products and services in various currencies. As a result, we may be exposed to cost increases relative to the local currencies in the markets in which we sell. Because the percentage of our sales in foreign currencies differs from the percentage of our costs in foreign currencies, a change in the relative value of the U.S. dollar could have a disproportionate impact on our sales compared to our costs, which could impact our margins. A portion of our assets are based in our foreign locations and are translated into U.S. dollars at foreign currency exchange rates in effect as of the end of each period, with the effect of such translation reflected in accumulated other comprehensive income. Accordingly, our consolidated shareholders’ equity will fluctuate depending upon the weakening or strengthening of the U.S. dollar against the respective foreign currency, primarily the euro.

The dollar/euro exchange rates used in our financial statements for the periods ended as set forth below were as follows:

	April 2, 2011	April 3, 2010
Period end rate	1.4170	1.3541
Period average rate for the three months ended	1.3659	1.3856

Our strategy for management of currency risk relies primarily on conducting our operations in a country’s respective currency and may, from time to time, involve foreign currency derivatives. As of April 2, 2011, we did not have any foreign currency derivatives outstanding.

Item 4. Controls and Procedures

An evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) promulgated under the Exchange Act) was performed under the supervision, and with the participation of, our management, including our Chief Executive Officer and Chief Financial Officer. Our disclosure controls are designed to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of April 2, 2011 to ensure that information required to be disclosed in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities

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and Exchange Commission’s rules and forms, and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

During the three months ended April 2, 2011, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) promulgated under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

On March 20, 2008, we received a letter from the United States Federal Trade Commission (the “FTC” or the “Commission”) requesting that we voluntarily provide certain documents and information to the FTC regarding our acquisition of Microporous Holding Corporation, the parent company of Microporous Products L.P. (“Microporous”), which was completed on February 29, 2008. The letter stated that the FTC was conducting an investigation to determine whether the Microporous acquisition will substantially lessen competition in any relevant market and thereby violate federal antitrust laws. We voluntarily responded to the letter in writing and through supplemental telephone conversations and meetings.

On April 7, 2008, we and our wholly-owned subsidiary, Daramic LLC, each received from the FTC a subpoena and interrogatories requesting substantially similar documents and information as requested in the FTC’s initial letter, as well as additional documents and information. We responded fully to this request and met on several occasions with various members of the FTC staff and Commissioners in an effort to answer their questions and resolve the investigation.

On September 9, 2008, the FTC issued an administrative complaint against us alleging that our actions and the acquisition of Microporous have substantially lessened competition in North American markets for lead-acid battery separators. We filed an answer to the complaint on October 15, 2008 denying the material allegations of the complaint. The matter was presented before an Administrative Law Judge (“ALJ”) of the FTC and the hearing concluded on June 12, 2009. In October 2009, the ALJ granted our request to re-open the record to take additional evidence. On February 22, 2010, the FTC’s ALJ issued an initial decision in which he recommended to the FTC that it order us to divest substantially all of the acquired Microporous assets, which include the manufacturing facilities located in Piney Flats, Tennessee and Feistritz, Austria and restore the competitive environment to that which existed prior to the acquisition, while ruling in our favor on other portions of the complaint. On March 15, 2010, we filed a Notice of Appeal with the FTC. On November 5, 2010, we were notified that the FTC commissioners affirmed the relief initially granted by the FTC’s ALJ issued on February 22, 2010. The Commissioners ordered that we proceed with the ALJ’s recommendations to divest substantially all of the Microporous assets acquired in February 2008.

We believe that this decision is inconsistent with the law and the facts presented at the hearing and that the Microporous acquisition is and will continue to be beneficial to our customers and the industry. On January 28, 2011, we filed a petition with the U.S. Court of Appeals for the 11th Circuit to review the FTC’s November 5, 2010 order and opinion. It is not possible to predict with certainty whether we will be successful in the appellate process or the timing of a final decision. If the appellate court affirms the FTC’s decision, and we choose not to seek Supreme Court review or the Supreme Court denies our petition seeking review of the case, then we will be required to divest substantially all of the assets acquired in the Microporous acquisition, and we will be subject to some prospective restrictions on our future conduct.

We believe that a final judicial resolution to the challenge by the FTC to the Microporous acquisition could take one or more years. We believe that the final resolution of this matter will not have a material adverse impact on our business, financial condition or results of operations.

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Item 6. Exhibits

Exhibit No.		Exhibit Description

10.1		Employment Agreement, dated April 1, 2011, by and among Daramic LLC and certain of its affiliates, Polypore International, Inc. and Pierre Hauswald
10.2		Employment Contract, dated April 1, 2011, between Daramic SAS and Pierre Hauswald
10.3		Agreement Organizing the Extension of the Expatriation of Mr. Pierre Hauswald in P.R. China with a Local Employment Contract, dated April 1, 2011, between Daramic SAS and Pierre Hauswald
10.4		Underwriting Agreement, dated March 17, 2011, among Polypore International, Inc., Barclays Capital Inc., as underwriter, and certain selling stockholders named therein (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K, filed on March 23, 2011)
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 6, 2011		POLYPORE INTERNATIONAL, INC.
		(Registrant)


	By:	/s/ Robert B. Toth
		Robert B. Toth
		President and Chief Executive Officer
		(principal executive officer)


	By:	/s/ Lynn Amos
		Lynn Amos
		Chief Financial Officer
		(principal financial officer and principal accounting officer)

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