##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT of 1934
 For Quarter Ended June 28, 2008
    
    Commission File No. 1-11333
 KAYDON CORPORATION
  Delaware
    
    13-3186040(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)Suite 300, 315 E. Eisenhower Parkway, Ann Arbor, Michigan
    
    48108(Address of principal executive offices)
    
    (Zip Code)
 (734) 747-7025
  þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
  o þ




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##### 



Page No.Part I  Financial Information:Item 1. Financial Statements
    
    1Consolidated Condensed Balance Sheets 
June 28, 2008 (Unaudited) and December 31, 2007
    
    1Consolidated Condensed Statements of Operations (Unaudited)  Quarter and First Half Ended June 28, 2008 
and June 30, 2007
    
    2Consolidated Condensed Statements of Cash Flows (Unaudited)  First Half Ended June 28, 2008 and June 30, 2007
    
    3Notes to Consolidated Condensed Financial Statements (Unaudited)
    
    4-14Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    15-19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    20Item 4. Controls and Procedures
    
    20Part II
 Other Information:Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    21Item 4. Submission of Matters to a Vote of Security Holders
    
    21Item 6. Exhibits
    
    22Signatures
    
    23Exhibit Index
    
    24Statement Re: Computation of Ratio of Earnings to Fixed ChargesCertification Pursuant to Rule 13a-14(a)Certification Pursuant to Rule 13a-14(a)Certification Pursuant to 18 U.S.C. Section 1350




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##### Table of Contents



ITEM 1. FINANCIAL STATEMENTS
 KAYDON CORPORATION
 
 CONSOLIDATED CONDENSED BALANCE SHEETS
 (Unaudited)June 28, 2008
    
    December 31, 2007ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    268,503,000
    
    
    $
    229,993,000Short-term investments
    
    
    
    
    
    
    57,000,000Accounts receivable, net
    
    
    83,015,000
    
    
    
    67,574,000Inventories, net
    
    
    86,367,000
    
    
    
    68,896,000Other current assets
    
    
    13,799,000
    
    
    
    15,411,000Total current assets
    
    
    451,684,000
    
    
    
    438,874,000Property, plant and equipment, net
    
    
    167,831,000
    
    
    
    145,826,000Goodwill, net
    
    
    147,775,000
    
    
    
    146,922,000Other intangible assets, net
    
    
    28,479,000
    
    
    
    31,162,000Other assets
    
    
    19,619,000
    
    
    
    23,781,000Total assets
    
    $
    815,388,000
    
    
    $
    786,565,000LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    30,688,000
    
    
    $
    28,498,000Salaries and wages
    
    
    9,207,000
    
    
    
    10,834,000Taxes payable
    
    
    7,328,000
    
    
    
    3,007,000Interest payable
    
    
    895,000
    
    
    
    844,000Other accrued expenses
    
    
    15,849,000
    
    
    
    15,315,000Total current liabilities
    
    
    63,967,000
    
    
    
    58,498,000Long-term debt
    
    
    188,500,000
    
    
    
    200,000,000Deferred taxes
    
    
    28,175,000
    
    
    
    26,310,000Other long-term liabilities
    
    
    19,473,000
    
    
    
    18,367,000Total long-term liabilities
    
    
    236,148,000
    
    
    
    244,677,000Shareholders Equity:Common stock
    
    
    3,693,000
    
    
    
    3,693,000Paid-in capital
    
    
    43,285,000
    
    
    
    49,859,000Retained earnings
    
    
    657,992,000
    
    
    
    629,347,000Less  Treasury stock, at cost
    
    
    (207,721,000
    )
    
    
    (218,005,000
    )Accumulated other comprehensive income
    
    
    18,024,000
    
    
    
    18,496,000Shareholders equity
    
    
    515,273,000
    
    
    
    483,390,000Total liabilities and shareholders equity
    
    $
    815,388,000
    
    
    $
    786,565,000
  1




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CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
 Second Quarter Ended
    
    First Half EndedJune 28, 2008
    
    June 30, 2007
    
    June 28, 2008
    
    June 30, 2007Net sales
    
    $
    139,905,000
    
    
    $
    113,391,000
    
    
    $
    263,189,000
    
    
    $
    220,288,000Cost of sales
    
    
    85,734,000
    
    
    
    65,423,000
    
    
    
    161,699,000
    
    
    
    127,482,000Gross profit
    
    
    54,171,000
    
    
    
    47,968,000
    
    
    
    101,490,000
    
    
    
    92,806,000Selling, general and
administrative expenses
    
    
    22,033,000
    
    
    
    19,619,000
    
    
    
    43,188,000
    
    
    
    38,166,000Operating income
    
    
    32,138,000
    
    
    
    28,349,000
    
    
    
    58,302,000
    
    
    
    54,640,000Interest expense
    
    
    (2,382,000
    )
    
    
    (2,365,000
    )
    
    
    (4,769,000
    )
    
    
    (4,752,000
    )Interest income
    
    
    1,742,000
    
    
    
    4,756,000
    
    
    
    3,678,000
    
    
    
    9,381,000Income before income taxes
    
    
    31,498,000
    
    
    
    30,740,000
    
    
    
    57,211,000
    
    
    
    59,269,000Provision for income taxes
    
    
    11,150,000
    
    
    
    11,097,000
    
    
    
    20,252,000
    
    
    
    21,396,000Net income
    
    $
    20,348,000
    
    
    $
    19,643,000
    
    
    $
    36,959,000
    
    
    $
    37,873,000Weighted-average common shares:Basic
    
    
    27,291,000
    
    
    
    27,832,000
    
    
    
    27,338,000
    
    
    
    27,853,000Diluted
    
    
    34,237,000
    
    
    
    34,789,000
    
    
    
    34,294,000
    
    
    
    34,807,000Earnings per share:Basic
    
    $
    0.75
    
    
    $
    0.71
    
    
    $
    1.35
    
    
    $
    1.36Diluted
    
    $
    0.64
    
    
    $
    0.61
    
    
    $
    1.16
    
    
    $
    1.17Dividends declared per share
    
    $
    0.15
    
    
    $
    0.12
    
    
    $
    0.30
    
    
    $
    0.24
  2




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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 First Half EndedJune 28, 2008
    
    June 30, 2007Cash flows from operating activities
    
    $
    25,932,000
    
    
    $
    37,212,000Cash flows from investing activities:Additions to property, plant and equipment, net
    
    
    (29,908,000
    )
    
    
    (20,180,000
    )Sales of investments
    
    
    60,016,000
    
    
    
    Acquisition of business, net of cash received
    
    
    489,000
    
    
    
    Cash from (used in) investing activities
    
    
    30,597,000
    
    
    
    (20,180,000
    )Cash flows from financing activities:Cash dividends paid
    
    
    (8,337,000
    )
    
    
    (6,763,000
    )Purchase of treasury stock
    
    
    (12,082,000
    )
    
    
    (7,186,000
    )Excess tax benefits from stock-based compensation
    
    
    (83,000
    )
    
    
    157,000Proceeds from exercise of stock options
    
    
    163,000
    
    
    
    75,000Cash used in financing activities
    
    
    (20,339,000
    )
    
    
    (13,717,000
    )Effect of exchange rate changes on cash and
cash equivalents
    
    
    2,320,000
    
    
    
    38,000Net increase in cash and cash equivalents
    
    
    38,510,000
    
    
    
    3,353,000Cash and cash equivalents  Beginning of period
    
    
    229,993,000
    
    
    
    370,789,000Cash and cash equivalents  End of period
    
    $
    268,503,000
    
    
    $
    374,142,000Cash paid for income taxes
    
    $
    14,078,000
    
    
    $
    12,531,000Cash paid for interest
    
    $
    4,000,000
    
    
    $
    4,000,000
  3




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KAYDON CORPORATION
 
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 
(UNAUDITED)
 (1) Basis of Presentation:
  (2) Cash and Cash Equivalents, and Short-term Investments:
  June 28, 2008
    
    December 31, 2007Cash and cash equivalents:Commercial paper
    
    $
    217,582,000
    
    
    $
    139,275,000Money market and other short-term funds
    
    
    42,431,000
    
    
    
    84,850,000Time deposits, other interest bearing accounts, and other cash
    
    
    8,490,000
    
    
    
    5,868,000Cash and cash equivalents
    
    $
    268,503,000
    
    
    $
    229,993,000Short-term investments
    
    
    
    
    
    
    57,000,000$
    268,503,000
    
    
    $
    286,993,000
 (3) Inventories:
  June 28, 2008
    
    December 31, 2007Raw material
    
    $
    37,635,000
    
    
    $
    28,311,000Work in process
    
    
    22,918,000
    
    
    
    17,991,000Finished goods
    
    
    25,814,000
    
    
    
    22,594,000$
    86,367,000
    
    
    $
    68,896,000
 (4) Comprehensive Income:
  4




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##### Table of Contents



(5) Earnings per Share:
  Second Quarter EndedJune 28, 2008
    
    June 30, 2007Numerators:Numerators for basic earnings per
share, net income
    
    $
    20,348,000
    
    
    $
    19,643,000Interest and debt issuance costs
amortization related to Contingent
Convertible Notes, net of taxes
    
    
    1,485,000
    
    
    
    1,474,000Numerators for diluted earnings per
share
    
    $
    21,833,000
    
    
    $
    21,117,000Denominators:Denominators for basic earnings
per share, weighted-average common
shares outstanding
    
    
    27,291,000
    
    
    
    27,832,000Potential dilutive shares resulting
from stock options, restricted
stock awards and phantom stock
units
    
    
    105,000
    
    
    
    98,000Dilutive shares resulting from
Contingent Convertible Notes
    
    
    6,841,000
    
    
    
    6,859,000Denominators for diluted
earnings per share
    
    
    34,237,000
    
    
    
    34,789,000Earnings per share:Basic
    
    $
    0.75
    
    
    $
    0.71Diluted
    
    $
    0.64
    
    
    $
    0.61
 5




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First Half EndedJune 28, 2008
    
    June 30, 2007Numerators:Numerators for basic earnings per
share, net income
    
    $
    36,959,000
    
    
    $
    37,873,000Interest and debt issuance costs
amortization related to Contingent
Convertible Notes, net of taxes
    
    
    2,973,000
    
    
    
    2,962,000Numerators for diluted earnings per
share
    
    $
    39,932,000
    
    
    $
    40,835,000Denominators:Denominators for basic earnings
per share, weighted-average common
shares outstanding
    
    
    27,338,000
    
    
    
    27,853,000Potential dilutive shares resulting
from stock options, restricted
stock awards and phantom stock
units
    
    
    106,000
    
    
    
    95,000Dilutive shares resulting from
Contingent Convertible Notes
    
    
    6,850,000
    
    
    
    6,859,000Denominators for diluted
earnings per share
    
    
    34,294,000
    
    
    
    34,807,000Earnings per share:Basic
    
    $
    1.35
    
    
    $
    1.36Diluted
    
    $
    1.16
    
    
    $
    1.17
  (6)
    
    Business Segment Information:
  6




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Friction Control Products 
 Velocity Control Products 
 Sealing Products 
 Other 
   Second Quarter Ended
    
    First Half EndedJune 28, 2008
    
    June 30, 2007
    
    June 28, 2008
    
    June 30, 2007Net salesFriction Control ProductsExternal customers
    
    $
    86,783,000
    
    
    $
    64,899,000
    
    
    $
    160,869,000
    
    
    $
    125,529,000Intersegment
    
    
    12,000
    
    
    
    57,000
    
    
    
    35,000
    
    
    
    114,00086,795,000
    
    
    
    64,956,000
    
    
    
    160,904,000
    
    
    
    125,643,000Velocity Control ProductsExternal customers
    
    
    19,966,000
    
    
    
    16,156,000
    
    
    
    38,718,000
    
    
    
    31,825,000Sealing ProductsExternal customers
    
    
    11,724,000
    
    
    
    11,520,000
    
    
    
    23,225,000
    
    
    
    23,553,000Intersegment
    
    
    
    
    
    
    (39,000
    )
    
    
    
    
    
    
    (79,000
    )11,724,000
    
    
    
    11,481,000
    
    
    
    23,225,000
    
    
    
    23,474,000OtherExternal customers
    
    
    21,432,000
    
    
    
    20,816,000
    
    
    
    40,377,000
    
    
    
    39,381,000Intersegment
    
    
    (12,000
    )
    
    
    (18,000
    )
    
    
    (35,000
    )
    
    
    (35,000
    )21,420,000
    
    
    
    20,798,000
    
    
    
    40,342,000
    
    
    
    39,346,000Total consolidated net sales
    
    $
    139,905,000
    
    
    $
    113,391,000
    
    
    $
    263,189,000
    
    
    $
    220,288,000
 7




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##### Table of Contents



Second Quarter Ended
    
    First Half EndedJune 28, 2008
    
    June 30, 2007
    
    June 28, 2008
    
    June 30, 2007Operating incomeFriction Control Products
    
    $
    21,489,000
    
    
    $
    18,581,000
    
    
    $
    38,595,000
    
    
    $
    34,921,000Velocity Control Products
    
    
    6,073,000
    
    
    
    4,221,000
    
    
    
    11,652,000
    
    
    
    8,314,000Sealing Products
    
    
    1,497,000
    
    
    
    1,975,000
    
    
    
    2,981,000
    
    
    
    4,431,000Other
    
    
    3,181,000
    
    
    
    3,210,000
    
    
    
    5,208,000
    
    
    
    5,818,000Total segment operating income
    
    
    32,240,000
    
    
    
    27,987,000
    
    
    
    58,436,000
    
    
    
    53,484,000State income tax provision
included in segment operating
income
    
    
    808,000
    
    
    
    822,000
    
    
    
    1,445,000
    
    
    
    1,565,000Items not allocated to segment
operating income
    
    
    (910,000
    )
    
    
    (460,000
    )
    
    
    (1,579,000
    )
    
    
    (409,000
    )Interest expense
    
    
    (2,382,000
    )
    
    
    (2,365,000
    )
    
    
    (4,769,000
    )
    
    
    (4,752,000
    )Interest income
    
    
    1,742,000
    
    
    
    4,756,000
    
    
    
    3,678,000
    
    
    
    9,381,000Income before income taxes
    
    $
    31,498,000
    
    
    $
    30,740,000
    
    
    $
    57,211,000
    
    
    $
    59,269,000
 Second Quarter Ended
    
    First Half EndedJune 28, 2008
    
    June 30, 2007
    
    June 28, 2008
    
    June 30, 2007Additions to net property, plant
and equipmentFriction Control Products
    
    $
    12,462,000
    
    
    $
    11,343,000
    
    
    $
    24,379,000
    
    
    $
    16,859,000Velocity Control Products
    
    
    1,856,000
    
    
    
    224,000
    
    
    
    3,777,000
    
    
    
    491,000Sealing Products
    
    
    50,000
    
    
    
    967,000
    
    
    
    425,000
    
    
    
    2,352,000Other
    
    
    714,000
    
    
    
    182,000
    
    
    
    1,148,000
    
    
    
    356,000Corporate
    
    
    64,000
    
    
    
    80,000
    
    
    
    179,000
    
    
    
    122,000Total consolidated additions to
net property, plant
and equipment
    
    $
    15,146,000
    
    
    $
    12,796,000
    
    
    $
    29,908,000
    
    
    $
    20,180,000
 June 28, 2008
    
    December 31, 2007Total assetsFriction Control Products
    
    $
    330,765,000
    
    
    $
    286,605,000Velocity Control Products
    
    
    107,195,000
    
    
    
    95,378,000Sealing Products
    
    
    25,849,000
    
    
    
    24,218,000Other
    
    
    93,706,000
    
    
    
    91,940,000Corporate
    
    
    257,873,000
    
    
    
    288,424,000Total consolidated assets
    
    $
    815,388,000
    
    
    $
    786,565,000
 (7) Long-term Debt:
  8




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(8) Goodwill and Other Intangible Assets:
  9




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Friction
    
    VelocityControl
    
    Control
    
    SealingProducts
    
    Products
    
    Products
    
    Other
    
    TotalBalance as of January 1, 2008
    
    $
    59,890,000
    
    
    $
    43,200,000
    
    
    $
    186,000
    
    
    $
    43,646,000
    
    
    $
    146,922,000Purchase price adjustment
    
    
    181,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    181,000Effect of foreign currency
exchange rate changes
    
    
    31,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,000Balance as of March 29, 2008
    
    $
    60,102,000
    
    
    $
    43,200,000
    
    
    $
    186,000
    
    
    $
    43,646,000
    
    
    $
    147,134,000Purchase price adjustment
    
    
    759,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    759,000Effect of foreign currency
exchange rate changes
    
    
    (118,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (118,000
    )Balance as of June 28, 2008
    
    $
    60,743,000
    
    
    $
    43,200,000
    
    
    $
    186,000
    
    
    $
    43,646,000
    
    
    $
    147,775,000
  June 28, 2008
    
    December 31, 2007Gross Carrying
    
    Accumulated
    
    Gross Carrying
    
    AccumulatedAmortized Intangible Assets
    
    Amount
    
    Amortization
    
    Amount
    
    AmortizationCustomer relationships and lists
    
    $
    28,194,000
    
    
    $
    10,664,000
    
    
    $
    28,194,000
    
    
    $
    9,567,000Patents and developed technology
    
    
    6,427,000
    
    
    
    2,643,000
    
    
    
    6,379,000
    
    
    
    2,286,000Backlog
    
    
    3,300,000
    
    
    
    1,316,000
    
    
    
    3,300,000
    
    
    
    114,000Distributor agreements
    
    
    374,000
    
    
    
    143,000
    
    
    
    374,000
    
    
    
    125,000Product names
    
    
    320,000
    
    
    
    116,000
    
    
    
    320,000
    
    
    
    99,000Trademarks
    
    
    200,000
    
    
    
    58,000
    
    
    
    200,000
    
    
    
    18,000$
    38,815,000
    
    
    $
    14,940,000
    
    
    $
    38,767,000
    
    
    $
    12,209,000
  June 28, 2008
    
    December 31, 2007Unamortized Intangible Assets
    
    Carrying Amount
    
    Carrying AmountTrademarks
    
    $
    4,604,000
    
    
    $
    4,604,000
 Aggregate Intangible Assets Amortization ExpenseFor the first half ended June 28, 2008
    
    $
    2,731,000For the first half ended June 30, 2007
    
    $
    1,514,000
 Estimated Intangible Assets Amortization ExpenseFor the year ending December 31, 2008
    
    $
    5,435,000For the year ending December 31, 2009
    
    $
    4,317,000For the year ending December 31, 2010
    
    $
    3,574,000For the year ending December 31, 2011
    
    $
    2,263,000For the year ending December 31, 2012
    
    $
    1,981,000
 (9) Other Assets:
  10




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(10) Employee Benefit Plans:
  Pension Benefits
    
    Second Quarter Ended
    
    First Half EndedJune 28, 2008
    
    June 30, 2007
    
    June 28, 2008
    
    June 30, 2007Service cost
    
    $
    836,000
    
    
    $
    693,000
    
    
    $
    1,507,000
    
    
    $
    1,386,000Interest cost
    
    
    1,855,000
    
    
    
    1,459,000
    
    
    
    3,426,000
    
    
    
    2,918,000Expected return on plan assets
    
    
    (2,269,000
    )
    
    
    (1,345,000
    )
    
    
    (4,212,000
    )
    
    
    (2,690,000
    )Amortization of:Unrecognized net prior service cost
    
    
    7,000
    
    
    
    8,000
    
    
    
    14,000
    
    
    
    16,000Unrecognized net loss
    
    
    1,000
    
    
    
    255,000
    
    
    
    2,000
    
    
    
    510,000Total
    
    $
    430,000
    
    
    $
    1,070,000
    
    
    $
    737,000
    
    
    $
    2,140,000Postretirement Benefits
    
    Second Quarter Ended
    
    First Half EndedJune 28, 2008
    
    June 30, 2007
    
    June 28, 2008
    
    June 30, 2007Service cost
    
    $
    73,000
    
    
    $
    91,000
    
    
    $
    146,000
    
    
    $
    182,000Interest cost
    
    
    164,000
    
    
    
    201,000
    
    
    
    328,000
    
    
    
    402,000Amortization of:Unrecognized net prior service cost
    
    
    (430,000
    )
    
    
    (440,000
    )
    
    
    (859,000
    )
    
    
    (880,000
    )Unrecognized net gain
    
    
    (227,000
    )
    
    
    (121,000
    )
    
    
    (454,000
    )
    
    
    (242,000
    )Total
    
    $
    (420,000
    )
    
    $
    (269,000
    )
    
    $
    (839,000
    )
    
    $
    (538,000
    )
  11




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(11) Stock-Based
Compensation:
  First Half EndedJune 28, 2008Wtd.-Avg.Restricted
    
    Grant DateStock
    
    Fair ValueOutstanding at January 1, 2008
    
    
    438,016
    
    
    $
    35.51Granted
    
    
    83,040
    
    
    $
    42.46Vested
    
    
    (142,485
    )
    
    $
    32.91Canceled
    
    
    (61
    )
    
    $
    30.15Outstanding at March 29, 2008
    
    
    378,510
    
    
    $
    38.01Granted
    
    
    6,000
    
    
    $
    52.31Canceled
    
    
    (260
    )
    
    $
    24.93Outstanding at June 28, 2008
    
    
    384,250
    
    
    $
    38.24
   First Half EndedJune 28, 2008Wtd.-Avg.Options
    
    Ex. PriceOutstanding at January 1, 2008
    
    
    346,500
    
    
    $
    40.64Granted
    
    
    85,000
    
    
    $
    42.46Exercised
    
    
    (1,000
    )
    
    $
    24.25Outstanding at March 29, 2008
    
    
    430,500
    
    
    $
    41.04Granted
    
    
    21,000
    
    
    $
    52.31Exercised
    
    
    (5,500
    )
    
    $
    25.37Outstanding at June 28, 2008
    
    
    446,000
    
    
    $
    41.76Exercisable at June 28, 2008
    
    
    88,400
    
    
    $
    36.87Weighted-Avg. Fair Value of Options Granted
    
    
    
    
    
    $
    11.59Weighted-Avg. Remaining Contractual Life (years)Outstanding at June 28, 2008
    
    
    
    
    
    
    8.5Exercisable at June 28, 2008
    
    
    
    
    
    
    7.3
   (12) Impact
of Recently Issued Accounting Pronouncements:
  12




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(13) Fair Value Measurement:
  13




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##### Table of Contents



Level 1 
    
    Inputs are quoted prices in active markets for identical assets or liabilities.Level 2 
    
    Inputs are quoted prices for similar assets or liabilities in an active market, quoted
prices for identical or similar assets or liabilities in markets that are not active, inputs
other than quoted prices that are observable and market-corroborated inputs which are derived
principally from or corroborated by observable market data.Level 3 
    
    Inputs are derived from valuation techniques in which one or more significant inputs or
value drivers are unobservable.  Fair Value Measurement at June 28, 2008 Using:SignificantTotal
    
    Quoted Prices in
    
    Other
    
    SignificantFair Value
    
    Active Markets
    
    Observable
    
    UnobservableMeasurement at
    
    for Identical Assets
    
    Inputs
    
    InputsJune 28, 2008
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Long-term investment
    
    $
    11,543,000
    
    
    
    
    
    
    
    
    
    
    $
    11,543,000
  Fair Value MeasurementsUsing SignificantUnobservable Inputs(Level 3)Balance at December 31, 2007
    
    $
    22,463,000Recognition of unrealized loss recorded to accumulated other
comprehensive income
    
    
    287,000Redemptions  cash received
    
    
    (7,559,000
    )Realized loss on investment redemptions
    
    
    (110,000
    )Unrealized loss on investment recorded as a reduction of interest income
    
    
    (464,000
    )Balance at March 29, 2008
    
    $
    14,617,000Redemptions  cash received
    
    
    (3,097,000
    )Net realized gain on investment redemptions
    
    
    6,000Unrealized gain on investment recorded to accumulated other
comprehensive income
    
    
    17,000Balance at June 28, 2008
    
    $
    11,543,000
  14




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 Overview
       Item 7. Managements Discussion and Analysis of
Results of Operations and Financial Condition
 Results of Operations
 Second Quarter Results
   15




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16




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##### Table of Contents



First Half Results
  Liquidity and Capital Resources
      17




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Outlook
     Critical Accounting Policies and Estimates
  18




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Forward-Looking Statements
   19




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
  20




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PART II.  OTHER INFORMATION
 
 ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  Total Number of
    
    Maximum Number ofTotal Number
    
    Average Price
    
    Shares Purchased as
    
    Shares that MayOf Shares
    
    Paid
    
    Part of Publicly
    
    Yet be PurchasedPeriod
    
    Purchased
    
    Per Share
    
    Announced Plan
    
    Under the Plan (1)March 30 to April 26
    
    
    400
    
    
    $
    43.06
    
    
    
    400
    
    
    
    4,104,430April 27 to May 24
    
    
    31,700
    
    
    $
    52.38
    
    
    
    31,700
    
    
    
    4,072,730May 25 to June 28
    
    
    49,700
    
    
    $
    56.45
    
    
    
    49,700
    
    
    
    4,023,030Total
    
    
    81,800
    
    
    $
    54.81
    
    
    
    81,800
 (1)
    
    On May 6, 2005, the Companys Board of Directors authorized management to purchase up to
5,000,000 shares of its common stock in the open market. 
 ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   Nominee
    
    Votes For
    
    Votes WithheldMark A. Alexander
    
    
    23,303,840
    
    
    
    271,413David A. Brandon
    
    
    12,786,886
    
    
    
    10,788,367Patrick P. Coyne
    
    
    23,376,718
    
    
    
    198,535William K. Gerber
    
    
    23,372,234
    
    
    
    203,019Timothy J. ODonovan
    
    
    23,312,240
    
    
    
    263,013James OLeary
    
    
    22,786,017
    
    
    
    789,236Thomas C. Sullivan
    
    
    22,537,769
    
    
    
    1,037,484
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ITEM
6. EXHIBITS
 Exhibit No.
    
    Description10.1
    
    Amended and Restated Executive Management Bonus Program (incorporated by reference to Exhibit
10.1 to the Registrants current report on Form 8-K filed May 12, 2008).10.2
    
    Form of Letter Agreement for Change in Control Compensation Agreements (incorporated by
reference to Exhibit 10.2 to the Registrants current report on Form 8-K filed May 12, 2008).10.3
    
    Form of Letter Agreement relating to Employment Agreement with James OLeary (incorporated by
reference to Exhibit 10.3 to the Registrants current report on Form 8-K filed May 12, 2008).10.4
    
    Amended and Restated 2003 Non-Employee Directors Equity Plan (incorporated by reference to
Exhibit 10.4 to the Registrants current report on Form 8-K filed May 12, 2008).10.5
    
    Form of option award agreement under 2003 Non-Employee Directors Equity Plan (incorporated by
reference to Exhibit 10.5 to the Registrants current report on Form 8-K filed May 12, 2008).10.6
    
    Form of restricted stock award agreement under 2003 Non-Employee Directors Equity Plan
(incorporated by reference to Exhibit 10.6 to the Registrants current report on Form 8-K
filed May 12, 2008).12
    
    Statement Re: Computation of Ratio of Earnings to Fixed Charges31.1
    
    Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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##### Table of Contents



KAYDON CORPORATIONAugust 6, 2008
    /s/ James OLearyJames OLearyChairman, President and Chief Executive Officer
(Principal Executive Officer)August 6, 2008
    /s/ Kenneth W. CrawfordKenneth W. CrawfordSenior Vice President, Chief Financial Officer and
Corporate Controller
(Principal Financial and Accounting Officer) 
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Exhibit No.
    
    Description10.1
    
    Amended and Restated Executive Management Bonus Program (incorporated by reference to Exhibit
10.1 to the Registrants current report on Form 8-K filed May 12, 2008).10.2
    
    Form of Letter Agreement for Change in Control Compensation Agreements (incorporated by
reference to Exhibit 10.2 to the Registrants current report on Form 8-K filed May 12, 2008).10.3
    
    Form of Letter Agreement relating to Employment Agreement with James OLeary (incorporated by
reference to Exhibit 10.3 to the Registrants current report on Form 8-K filed May 12, 2008).10.4
    
    Amended and Restated 2003 Non-Employee Directors Equity Plan (incorporated by reference to
Exhibit 10.4 to the Registrants current report on Form 8-K filed May 12, 2008).10.5
    
    Form of option award agreement under 2003 Non-Employee Directors Equity Plan (incorporated by
reference to Exhibit 10.5 to the Registrants current report on Form 8-K filed May 12, 2008).10.6
    
    Form of restricted stock award agreement under 2003 Non-Employee Directors Equity Plan
(incorporated by reference to Exhibit 10.6 to the Registrants current report on Form 8-K
filed May 12, 2008).12
    
    Statement Re: Computation of Ratio of Earnings to Fixed Charges31.1
    
    Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 24