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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, 2003 |  | Commission File No. 0-12640

KAYDON CORPORATION
(Exact name of registrant as specified in its charter)

|                                |  |                                     
|------------------------------- |  | ------------------------------------
|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)

Registrants telephone number, including area code: (734) 747-7025

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. YES x NO o

Indicate by check mark whether the registrant is an accelerated filer.
YES x NO o

Common Stock Outstanding at August 1, 2003  28,042,759 shares, $.10 par value.





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|                                            |                                                                                                                |  |  |  |  |  |  | 
|------------------------------------------- | -------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|Part I  Financial Information:            
|                                            | Item 1. Financial Statements                                                                                  
|                                            | Consolidated Condensed Balance Sheets  June 28, 2003 and December 31, 2002                                   
|                                            | Consolidated Condensed Statements of Operations  Quarter and First Half Ended June 28, 2003 and June 29, 2002
|                                            | Consolidated Condensed Statements of Cash Flows  First Half Ended June 28, 2003 and June 29, 2002            
|                                            | Notes to Consolidated Condensed Financial Statements                                                          
|                                            | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations                 
|                                            | Item 3. Quantitative and Qualitative Disclosures About Market Risk                                            
|                                            | Item 4. Controls and Procedures                                                                               
|Part II  Other Information:               
|                                            | Item 1. Legal Proceedings                                                                                     
|                                            | Item 4. Submission of Matters to a Vote of Security Holders                                                   
|                                            | Item 6. Exhibits and Reports on Form 8-K                                                                      
|                                            | Signatures                                                                                                    
|EX-4.1 Indenture dated as of May 23, 2003  
|EX-4.2 Registration Rights Agreement       
|EX-10.1 Purchase Agreement                 
|EX-31 Certification Pursuant to Section 302
|EX-32 Certification Pursuant to Section 906



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##### Table of Contents



KAYDON CORPORATION FORM 10-Q

FOR THE QUARTER ENDED JUNE 28, 2003

INDEX

|                                |                                                                                                                |  |          |        | 
|------------------------------- | -------------------------------------------------------------------------------------------------------------- |  | -------- | ------ | 
|                                |                                                                                                                |  | Page No. |       
|                                |                                                                                                                |  |          |       
|Part I  Financial Information: |                                                                                                                |  |          |       
|                                |                                                                                                                |  |          |       
|                                | Item 1. Financial Statements                                                                                   |  |          |        | 
|                                |                                                                                                                |  |          |       
|                                | Consolidated Condensed Balance Sheets -
June 28, 2003 and December 31, 2002                                    |  |          | 1      | 
|                                |                                                                                                                |  |          |       
|                                | Consolidated Condensed Statements of Operations -
Quarter and First Half Ended June 28, 2003
and June 29, 2002 |  |          | 2      | 
|                                |                                                                                                                |  |          |       
|                                | Consolidated Condensed Statements of Cash Flows -
First Half Ended June 28, 2003 and
June 29, 2002             |  |          | 3      | 
|                                |                                                                                                                |  |          |       
|                                | Notes to Consolidated Condensed Financial Statements                                                           |  |          | 4 - 17 | 
|                                |                                                                                                                |  |          |       
|                                | Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations                  |  |          | 18-29  | 
|                                |                                                                                                                |  |          |       
|                                | Item 3. Quantitative and Qualitative Disclosures About
Market Risk                                             |  |          | 30     | 
|                                |                                                                                                                |  |          |       
|                                | Item 4. Controls and Procedures                                                                                |  |          | 30     | 
|                                |                                                                                                                |  |          |       
|Part II  Other Information:    |                                                                                                                |  |          |       
|                                |                                                                                                                |  |          |       
|                                | Item 1. Legal Proceedings                                                                                      |  |          | 31     | 
|                                |                                                                                                                |  |          |       
|                                | Item 4. Submission of Matters to a Vote of Security Holders                                                    |  |          | 31     | 
|                                |                                                                                                                |  |          |       
|                                | Item 6. Exhibits and Reports on Form 8-K                                                                       |  |          | 32-33  | 
|                                |                                                                                                                |  |          |       
|                                | Signatures                                                                                                     |  |          | 34     | 





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ITEM 1. FINANCIAL STATEMENTS
KAYDON CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS

|                                           |  |               |              |   |                   |   |              |  
|------------------------------------------ |  | ------------- | ------------ | - | ----------------- | - | ------------ | -
|                                           |  | June 28, 2003 |              |   | December 31, 2002 |  
|                                           |  |               |              |   |                   |  
|                                           |  | (Unaudited)   |              |   |                   |   |             
|Assets:                                    |  |               |              |   |                   |   |              |  
|Cash and cash equivalents                  |  | $             | 228,084,000  |   |                   | $ | 146,301,000  |  
|Accounts receivable, net                   |  |               | 46,454,000   |   |                   |   | 38,334,000   |  
|Inventories, net                           |  |               | 47,901,000   |   |                   |   | 47,019,000   |  
|Other current assets                       |  |               | 15,459,000   |   |                   |   | 12,396,000   |  
|                                           |  |               |              |   |                   |  
|Total current assets                       |  |               | 337,898,000  |   |                   |   | 244,050,000  |  
|                                           |  |               |              |   |                   |  
|Property, plant and equipment, net         |  |               | 83,692,000   |   |                   |   | 84,380,000   |  
|Goodwill, net                              |  |               | 110,423,000  |   |                   |   | 108,770,000  |  
|Other intangible assets, net               |  |               | 9,323,000    |   |                   |   | 9,744,000    |  
|Other assets                               |  |               | 36,014,000   |   |                   |   | 30,203,000   |  
|                                           |  |               |              |   |                   |  
|Total assets                               |  | $             | 577,350,000  |   |                   | $ | 477,147,000  |  
|                                           |  |               |              |   |                   |  
|Liabilities and Shareholders Equity:      |  |               |              |   |                   |   |              |  
|Accounts payable                           |  | $             | 11,896,000   |   |                   | $ | 10,724,000   |  
|Taxes payable                              |  |               | 9,174,000    |   |                   |   | 4,194,000    |  
|Salaries and wages                         |  |               | 7,292,000    |   |                   |   | 5,549,000    |  
|Accrued legal costs                        |  |               | 3,276,000    |   |                   |   | 5,328,000    |  
|Other accrued expenses                     |  |               | 17,283,000   |   |                   |   | 14,638,000   |  
|                                           |  |               |              |   |                   |  
|Total current liabilities                  |  |               | 48,921,000   |   |                   |   | 40,433,000   |  
|                                           |  |               |              |   |                   |  
|Long-term debt                             |  |               | 200,161,000  |   |                   |   | 72,367,000   |  
|Long-term liabilities                      |  |               | 68,123,000   |   |                   |   | 65,598,000   |  
|                                           |  |               |              |   |                   |  
|Total long-term liabilities                |  |               | 268,284,000  |   |                   |   | 137,965,000  |  
|                                           |  |               |              |   |                   |  
|Shareholders equity:                      |  |               |              |   |                   |   |              |  
|Common stock                               |  |               | 3,693,000    |   |                   |   | 3,693,000    |  
|Paid-in capital                            |  |               | 46,115,000   |   |                   |   | 46,014,000   |  
|Retained earnings                          |  |               | 414,080,000  |   |                   |   | 405,633,000  |  
|Less  treasury stock, at cost             |  |               | (187,941,000 | ) |                   |   | (139,446,000 | )
|Less  restricted stock awards             |  |               | (6,071,000   | ) |                   |   | (5,380,000   | )
|Accumulated other comprehensive loss       |  |               | (9,731,000   | ) |                   |   | (11,765,000  | )
|                                           |  |               |              |   |                   |  
|                                           |  |               | 260,145,000  |   |                   |   | 298,749,000  |  
|                                           |  |               |              |   |                   |  
|Total liabilities and shareholders equity |  | $             | 577,350,000  |   |                   | $ | 477,147,000  |  
|                                           |  |               |              |   |                   |  

See accompanying notes to consolidated condensed financial statements.

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KAYDON CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)

|                                                                                                     |         |   |               |            |  |                  |            |            |               |   |             |               |  |   |             |            |  
|---------------------------------------------------------------------------------------------------- | ------- | - | ------------- | ---------- |  | ---------------- | ---------- | ---------- | ------------- | - | ----------- | ------------- |  | - | ----------- | ---------- | -
|                                                                                                     |         |   | Quarter Ended |            |  | First Half Ended |           
|                                                                                                     |         |   |               |            |  |                  |           
|                                                                                                     |         |   | June 28, 2003 |            |  | June 29, 2002    |            |            | June 28, 2003 |   |             | June 29, 2002 | 
|                                                                                                     |         |   |               |            |  |                  |            |            |               |   |             |               | 
|Net sales                                                                                            |         | $ | 76,143,000    |            |  | $                | 73,243,000 |            |               | $ | 146,958,000 |               |  | $ | 139,388,000 |           
|Cost of sales                                                                                        |         |   | 49,215,000    |            |  |                  | 48,619,000 |            |               |   | 96,018,000  |               |  |   | 92,529,000  |           
|                                                                                                     |         |   |               |            |  |                  |            |            |               |   |             |              
|Gross profit                                                                                         |         |   | 26,928,000    |            |  |                  | 24,624,000 |            |               |   | 50,940,000  |               |  |   | 46,859,000  |           
|Selling, general and
administrative expenses                                                         |         |   | 13,844,000    |            |  |                  | 13,482,000 |            |               |   | 27,132,000  |               |  |   | 26,462,000  |           
|Litigation-related charge                                                                            |         |   |              |            |  |                  | 7,500,000  |            |               |   |            |               |  |   | 7,500,000   |           
|                                                                                                     |         |   |               |            |  |                  |            |            |               |   |             |              
|Operating income                                                                                     |         |   | 13,084,000    |            |  |                  | 3,642,000  |            |               |   | 23,808,000  |               |  |   | 12,897,000  |           
|Net interest income (expense)                                                                        |         |   | (291,000      | )          |  |                  | 144,000    |            |               |   | (101,000    | )             |  |   | 189,000     |           
|                                                                                                     |         |   |               |            |  |                  |            |            |               |   |             |              
|Income from operations before income
taxes                                                           |         |   | 12,793,000    |            |  |                  | 3,786,000  |            |               |   | 23,707,000  |               |  |   | 13,086,000  |           
|Provision for income taxes                                                                           |         |   | 4,477,000     |            |  |                  | 1,363,000  |            |               |   | 8,297,000   |               |  |   | 4,711,000   |           
|                                                                                                     |         |   |               |            |  |                  |            |            |               |   |             |              
|Income from operations before
cumulative effect of accounting
change                                 |         |   | 8,316,000     |            |  |                  | 2,423,000  |            |               |   | 15,410,000  |               |  |   | 8,375,000   |           
|Cumulative effect of accounting change
(goodwill impairment), net of
income tax credit of $3,544,000 |         |   |              |            |  |                  |           |            |               |   |            |               |  |   | (13,222,000 | )         
|                                                                                                     |         |   |               |            |  |                  |            |            |               |   |             |              
|Net income (loss)                                                                                    |         | $ | 8,316,000     |            |  | $                | 2,423,000  |            |               | $ | 15,410,000  |               |  | $ | (4,847,000  | )         
|                                                                                                     |         |   |               |            |  |                  |            |            |               |   |             |              
|Weighted average common shares:                                                                      |         |   |               |            |  |                  |            |            |               |   |             |               |  |   |             |           
|                                                                                                     | Basic   |   |               | 28,845,000 |  |                  |            | 29,987,000 |               |   |             | 29,387,000    |  |   |             | 29,982,000 |  
|                                                                                                     | Diluted |   |               | 28,860,000 |  |                  |            | 30,015,000 |               |   |             | 29,399,000    |  |   |             | 30,001,000 |  
|Earnings per share from operations-before
cumulative effect
of accounting change                     |         |   |               |            |  |                  |            |            |               |   |             |               |  |   |             |           
|                                                                                                     | Basic   |   | $             | 0.29       |  |                  | $          | 0.08       |               |   | $           | 0.52          |  |   | $           | 0.28       |  
|                                                                                                     | Diluted |   | $             | 0.29       |  |                  | $          | 0.08       |               |   | $           | 0.52          |  |   | $           | 0.28       |  
|(Loss) per share  cumulative effect of
accounting change                                            |         |   |               |            |  |                  |            |            |               |   |             |               |  |   |             |           
|                                                                                                     | Basic   |   |               |           |  |                  |            |           |               |   |             |              |  |   | $           | (0.44      | )
|                                                                                                     | Diluted |   |               |           |  |                  |            |           |               |   |             |              |  |   | $           | (0.44      | )
|Earnings (loss) per share                                                                            |         |   |               |            |  |                  |            |            |               |   |             |               |  |   |             |           
|                                                                                                     | Basic   |   | $             | 0.29       |  |                  | $          | 0.08       |               |   | $           | 0.52          |  |   | $           | (0.16      | )
|                                                                                                     | Diluted |   | $             | 0.29       |  |                  | $          | 0.08       |               |   | $           | 0.52          |  |   | $           | (0.16      | )
|Dividends per share                                                                                  |         | $ | 0.12          |            |  | $                | 0.12       |            |               | $ | 0.24        |               |  | $ | 0.24        |           

See accompanying notes to consolidated condensed financial statements.

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KAYDON CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)

|                                                             |  |                  |             |   |              |   |             |  
|------------------------------------------------------------ |  | ---------------- | ----------- | - | ------------ | - | ----------- | -
|                                                             |  | First Half Ended |            
|                                                             |  |                  |            
|                                                             |  | June 28, 2003    |             |   | June 29,2002 |  
|                                                             |  |                  |             |   |              |  
|Cash flows from operating activities                         |  | $                | 22,949,000  |   |              | $ | 26,579,000  |  
|Cash flows used in investing activities:                     |  |                  |             |   |              |   |             |  
|Capital expenditures, net                                    |  |                  | (5,417,000  | ) |              |   | (4,479,000  | )
|Acquisition of business, net                                 |  |                  |            |   |              |   | (4,401,000  | )
|                                                             |  |                  |             |   |              |  
|Cash used in investing activities                            |  |                  | (5,417,000  | ) |              |   | (8,880,000  | )
|                                                             |  |                  |             |   |              |  
|Cash flows from (used in) financing activities:              |  |                  |             |   |              |   |             |  
|Retirement of long-term debt                                 |  |                  | (72,218,000 | ) |              |   | (40,034,000 | )
|Net proceeds from convertible notes                          |  |                  | 194,000,000 |   |              |   |            |  
|Dividends paid                                               |  |                  | (7,282,000  | ) |              |   | (7,300,000  | )
|Proceeds from issuance of common stock                       |  |                  |            |   |              |   | 475,000     |  
|Purchase of treasury stock                                   |  |                  | (49,788,000 | ) |              |   | (20,000     | )
|                                                             |  |                  |             |   |              |  
|Cash from (used in) financing activities                     |  |                  | 64,712,000  |   |              |   | (46,879,000 | )
|Effect of exchange rate changes on cash and
cash equivalents |  |                  | (461,000    | ) |              |   | (95,000     | )
|                                                             |  |                  |             |   |              |  
|Net increase (decrease) in cash and cash equivalents         |  |                  | 81,783,000  |   |              |   | (29,275,000 | )
|Cash and cash equivalents  Beginning of period              |  |                  | 146,301,000 |   |              |   | 152,570,000 |  
|                                                             |  |                  |             |   |              |  
|Cash and cash equivalents  End of period                    |  | $                | 228,084,000 |   |              | $ | 123,295,000 |  
|                                                             |  |                  |             |   |              |  
|Cash expended for income taxes                               |  | $                | 3,749,000   |   |              | $ | 6,431,000   |  
|                                                             |  |                  |             |   |              |  
|Cash expended for interest                                   |  | $                | 603,000     |   |              | $ | 1,066,000   |  
|                                                             |  |                  |             |   |              |  

See accompanying notes to consolidated condensed financial statements.

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KAYDON CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)



|(1) |  | The accompanying unaudited consolidated condensed financial statements of
Kaydon Corporation and subsidiaries (Kaydon or the Company) have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation
have been included, and such adjustments are of a normal recurring nature.
The year-end condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles. For further information, refer
to the consolidated financial statements and footnotes thereto included in
the Companys annual report on Form 10-K for the year ended December 31,
2002.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Inventories are summarized as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

|                |  |               |            |  |                   |   |            | 
|--------------- |  | ------------- | ---------- |  | ----------------- | - | ---------- | 
|                |  | June 28, 2003 |            |  | December 31, 2002 |  
|                |  |               |            |  |                   |  
|Raw Material    |  | $             | 18,380,000 |  |                   | $ | 16,089,000 | 
|Work in Process |  |               | 12,145,000 |  |                   |   | 10,976,000 | 
|Finished Goods  |  |               | 17,376,000 |  |                   |   | 19,954,000 | 
|                |  |               |            |  |                   |  
|                |  | $             | 47,901,000 |  |                   | $ | 47,019,000 | 
|                |  |               |            |  |                   |  



|(3) |  | Comprehensive income reflects the change in equity of a business
enterprise during a period from transactions and other events, and from
circumstances involving nonowner sources. For the Company, comprehensive
income consists primarily of net income, foreign currency translation
adjustments and minimum pension liability adjustments. Other
comprehensive income, net of tax, was approximately $2.4 million and $3.3
million, resulting in comprehensive income of $10.7 million and $5.7
million for the quarters ended June 28, 2003, and June 29, 2002. On a
first half basis, other comprehensive income, net of tax, was
approximately $2.0 million and $2.5 million, resulting in comprehensive
income (loss) of $17.4 million and $(2.4) million for the first halves
ended June 28, 2003 and June 29, 2002.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|(4) |  | The following table reconciles the numerators and denominators used in
the calculation of basic and diluted earnings per share from operations
before cumulative effect of accounting change for the periods presented.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                  |                                                                                                                                                                                              |   |               |            |  |               |      |            | 
|--------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------- | ---------- |  | ------------- | ---- | ---------- | 
|                                                                                  |                                                                                                                                                                                              |   | Quarter Ended |           
|                                                                                  |                                                                                                                                                                                              |   |               |           
|                                                                                  |                                                                                                                                                                                              |   | June 28, 2003 |            |  | June 29, 2002 |     
|                                                                                  |                                                                                                                                                                                              |   |               |            |  |               |     
|Numerators:                                                                       |                                                                                                                                                                                              |   |               |            |  |               |      |           
|                                                                                  | Numerators for both basic and
diluted earnings per share from
operations before cumulative
effect of accounting change,
income from operations
before cumulative effect of
accounting change |   | $             | 8,316,000  |  |               | $    | 2,423,000  | 
|                                                                                  |                                                                                                                                                                                              |   |               |            |  |              
|Denominators:                                                                     |                                                                                                                                                                                              |   |               |            |  |               |      |           
|                                                                                  | Denominator for basic earnings
per share from operations before
cumulative effect of accounting
change, weighted average
common shares outstanding                                           |   |               | 28,845,000 |  |               |      | 29,987,000 | 
|                                                                                  | Potential dilutive shares resulting
from stock options, restricted
stock awards and phantom stock
units                                                                                      |   |               | 15,000     |  |               |      | 28,000     | 
|                                                                                  |                                                                                                                                                                                              |   |               |            |  |              
|                                                                                  | Denominator for diluted
earnings per share from operations
before cumulative effect of
accounting change                                                                                     |   |               | 28,860,000 |  |               |      | 30,015,000 | 
|                                                                                  |                                                                                                                                                                                              |   |               |            |  |              
|Earnings per share from operations before
cumulative effect
of accounting change: |                                                                                                                                                                                              |   |               |            |  |               |      |           
|Basic                                                                             |                                                                                                                                                                                              | $ | 0.29          |            |  | $             | 0.08 |           
|                                                                                  |                                                                                                                                                                                              |   |               |            |  |              
|Diluted                                                                           |                                                                                                                                                                                              | $ | 0.29          |            |  | $             | 0.08 |           
|                                                                                  |                                                                                                                                                                                              |   |               |            |  |              

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|                                                                                  |                                                                                                                                                                                              |   |                  |            |  |               |      |            | 
|--------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------------- | ---------- |  | ------------- | ---- | ---------- | 
|                                                                                  |                                                                                                                                                                                              |   | First Half Ended |           
|                                                                                  |                                                                                                                                                                                              |   |                  |           
|                                                                                  |                                                                                                                                                                                              |   | June 28, 2003    |            |  | June 29, 2002 |     
|                                                                                  |                                                                                                                                                                                              |   |                  |            |  |               |     
|Numerators:                                                                       |                                                                                                                                                                                              |   |                  |            |  |               |      |           
|                                                                                  | Numerators for both basic and
diluted earnings per share from
operations before cumulative
effect of accounting change,
income from operations
before cumulative effect of
accounting change |   | $                | 15,410,000 |  |               | $    | 8,375,000  | 
|                                                                                  |                                                                                                                                                                                              |   |                  |            |  |              
|Denominators:                                                                     |                                                                                                                                                                                              |   |                  |            |  |               |      |           
|                                                                                  | Denominator for basic earnings
per share from operations before
cumulative effect of accounting
change, weighted average
common shares outstanding                                           |   |                  | 29,387,000 |  |               |      | 29,982,000 | 
|                                                                                  | Potential dilutive shares resulting
from stock options, restricted
stock awards and phantom stock
units                                                                                      |   |                  | 12,000     |  |               |      | 19,000     | 
|                                                                                  |                                                                                                                                                                                              |   |                  |            |  |              
|                                                                                  | Denominator for diluted
earnings per share from operations
before cumulative effect of
accounting change                                                                                     |   |                  | 29,399,000 |  |               |      | 30,001,000 | 
|                                                                                  |                                                                                                                                                                                              |   |                  |            |  |              
|Earnings per share from operations before
cumulative effect
of accounting change: |                                                                                                                                                                                              |   |                  |            |  |               |      |           
|Basic                                                                             |                                                                                                                                                                                              | $ | 0.52             |            |  | $             | 0.28 |           
|                                                                                  |                                                                                                                                                                                              |   |                  |            |  |              
|Diluted                                                                           |                                                                                                                                                                                              | $ | 0.52             |            |  | $             | 0.28 |           
|                                                                                  |                                                                                                                                                                                              |   |                  |            |  |              



| |  | Options to purchase 382,200 shares of common stock at prices ranging from
$22.60 to $33.3125 per share were outstanding during the second quarter
of 2003, but were not included in the computation of diluted earnings per
share because the options exercise price was greater than the average
market price of the common shares during that period. Options to purchase
125,850 shares of common stock at prices ranging from $28.35 to $33.3125
per share were outstanding during the second quarter of 2002, but were
not included in the computation of diluted earnings per share because the
options exercise price was greater than the average market price of the
common shares during that period.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In May of 2003, the Company completed the sale of $200.0 million of 4%
Contingent Convertible Senior Subordinated Notes due 2023 (the Notes).
The Notes are convertible into a total of 6,858,710 shares of Company
common stock provided certain contingencies are met including that Kaydon
common stock has traded above $34.99 for 20 out of 30 trading days for
specified periods of time. Unless and until this contingency or other                                                                                                                                                                                                                                                                     

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|    |  | conversion contingencies are met, the above mentioned shares of the
Companys common stock underlying the Notes will not be included in the
Companys basic or diluted earnings per share calculations. Should this
contingency be met, diluted earnings per share would, depending on the
relationship between the interest on the Notes and the earnings per share
of Kaydon common stock, be expected to decrease as a result of the
inclusion of the underlying shares in the diluted earnings per share
calculation. Volatility in the Companys stock price could cause this
condition to be met in one quarter and not in a subsequent quarter,
increasing the volatility of diluted earnings per share. For more
information on the Notes, readers should refer to Notes to Consolidated
Financial Statements (Note 6), and Managements Discussion and Analysis
of Financial Condition and Results of Operations in this quarterly report
on Form 10-Q.            
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(5) |  | The Company operates through individual operating units for which
separate financial information is available, and for which operating
results are evaluated regularly by the Companys chief operating decision
maker in determining resource allocation and assessing performance
(operating segments). The Companys operating segments manufacture
complex and standard metal products that are sold primarily to equipment
manufacturers and other assemblers or integrators and distributors.
Certain of the operating segments have similar long-term average gross
margins and all of them exhibit other common attributes, including the
nature of the products and production processes, distribution patterns and
classes of customers. As a result, based upon current and expected future
long-term financial performance, the Company aggregates its operating
segments into three reportable segments engaged in the manufacture and
sale of the following:
|   
|    |  | Specialty Metal Formed Products complex metal products used in
specialized medical, aerospace, defense, security, electronic, material
handling, construction and other industrial applications. Products
include anti-friction bearings, split roller bearings, specialty balls,
linear deceleration products and metal retaining devices.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | Ring, Seal and Filtration Products complex and standard ring, seal and
filtration products used in demanding industrial, aerospace, defense,
security, medical, electronic and marine equipment applications. Products
include engine rings, sealing rings, shaft seals, slip-rings, slip-ring
assemblies, video and data multiplexers, fiber optic rotary joints,
printed circuit boards, filter elements and filtration systems.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    |  | Other Metal Products- metal alloys, machine tool components, presses,
dies and benders used in a variety of industrial applications.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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| |  | The accounting policies of the operating segments are the same as those
of the Company. Segment performance is evaluated based on segment
operating income (which includes an estimated provision for state income
taxes) and segment assets.                                                                                                                      
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Items not allocated to segment operating income include certain
amortization and corporate administrative expenses, and other amounts.
Corporate assets consist of cash and cash equivalents, fixed assets and
certain prepaid expenses. The selling price for transfers between
operating segments and geographic
areas is generally based on cost plus a mark-up.

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|                                   |                    |   |               |            |   |                  |            |            |               |   |             |               |   |   |             |            |  
|---------------------------------- | ------------------ | - | ------------- | ---------- | - | ---------------- | ---------- | ---------- | ------------- | - | ----------- | ------------- | - | - | ----------- | ---------- | -
|                                   |                    |   | Quarter Ended |            |   | First Half Ended |           
|                                   |                    |   |               |            |   |                  |           
|                                   |                    |   | June 28, 2003 |            |   | June 29, 2002    |            |            | June 28, 2003 |   |             | June 29, 2002 |  
|                                   |                    |   |               |            |   |                  |            |            |               |   |             |               |  
|Net sales                          |                    |   |               |            |   |                  |            |            |               |   |             |               |   |   |             |           
|Specialty Metal Formed Products    |                    |   |               |            |   |                  |            |            |               |   |             |               |   |   |             |           
|                                   | External customers |   | $             | 46,546,000 |   |                  | $          | 42,546,000 |               |   | $           | 91,381,000    |   |   | $           | 81,243,000 |  
|                                   | Intersegment       |   |               | 98,000     |   |                  |            | 74,000     |               |   |             | 172,000       |   |   |             | 144,000    |  
|                                   |                    |   |               |            |   |                  |            |            |               |   |             |              
|                                   |                    |   | 46,644,000    |            |   |                  | 42,620,000 |            |               |   | 91,553,000  |               |   |   | 81,387,000  |           
|Ring, Seal and Filtration Products |                    |   |               |            |   |                  |            |            |               |   |             |               |   |   |             |           
|                                   | External customers |   |               | 24,142,000 |   |                  |            | 24,071,000 |               |   |             | 45,784,000    |   |   |             | 46,522,000 |  
|                                   | Intersegment       |   |               | (98,000    | ) |                  |            | (74,000    | )             |   |             | (172,000      | ) |   |             | (144,000   | )
|                                   |                    |   |               |            |   |                  |            |            |               |   |             |              
|                                   |                    |   | 24,044,000    |            |   |                  | 23,997,000 |            |               |   | 45,612,000  |               |   |   | 46,378,000  |           
|Other Metal Products               |                    |   | 5,455,000     |            |   |                  | 6,626,000  |            |               |   | 9,793,000   |               |   |   | 11,623,000  |           
|                                   |                    |   |               |            |   |                  |            |            |               |   |             |              
|Total consolidated net sales       |                    | $ | 76,143,000    |            |   | $                | 73,243,000 |            |               | $ | 146,958,000 |               |   | $ | 139,388,000 |           
|                                   |                    |   |               |            |   |                  |            |            |               |   |             |              

|                                                                |  |   |               |   |  |                  |            |   |               |   |            |               |  |   |            |   | 
|--------------------------------------------------------------- |  | - | ------------- | - |  | ---------------- | ---------- | - | ------------- | - | ---------- | ------------- |  | - | ---------- | - | 
|                                                                |  |   | Quarter Ended |   |  | First Half Ended |           
|                                                                |  |   |               |   |  |                  |           
|                                                                |  |   | June 28, 2003 |   |  | June 29, 2002    |            |   | June 28, 2003 |   |            | June 29, 2002 | 
|                                                                |  |   |               |   |  |                  |            |   |               |   |            |               | 
|Operating income                                                |  |   |               |   |  |                  |            |   |               |   |            |               |  |   |            |  
|Specialty Metal Formed Products                                 |  | $ | 9,425,000     |   |  | $                | 7,059,000  |   |               | $ | 17,111,000 |               |  | $ | 12,522,000 |  
|Ring, Seal and Filtration Products                              |  |   | 2,681,000     |   |  |                  | 2,988,000  |   |               |   | 4,018,000  |               |  |   | 6,318,000  |  
|Other Metal Products                                            |  |   | 482,000       |   |  |                  | 549,000    |   |               |   | 666,000    |               |  |   | 908,000    |  
|                                                                |  |   |               |   |  |                  |            |   |               |   |            |              
|Total segment operating income                                  |  |   | 12,588,000    |   |  |                  | 10,596,000 |   |               |   | 21,795,000 |               |  |   | 19,748,000 |  
|State income tax provision
included in segment operating
income |  |   | 412,000       |   |  |                  | 403,000    |   |               |   | 699,000    |               |  |   | 752,000    |  
|Items not allocated to segment
operating income                 |  |   | 84,000        |   |  |                  | (7,357,000 | ) |               |   | 1,314,000  |               |  |   | (7,603,000 | )
|Interest expense                                                |  |   | (886,000      | ) |  |                  | (441,000   | ) |               |   | (1,215,000 | )             |  |   | (1,040,000 | )
|Interest income                                                 |  |   | 595,000       |   |  |                  | 585,000    |   |               |   | 1,114,000  |               |  |   | 1,229,000  |  
|                                                                |  |   |               |   |  |                  |            |   |               |   |            |              
|Income from operations before income
taxes                      |  | $ | 12,793,000    |   |  | $                | 3,786,000  |   |               | $ | 23,707,000 |               |  | $ | 13,086,000 |  
|                                                                |  |   |               |   |  |                  |            |   |               |   |            |              

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|                                                 |  |               |           |  |                  |   |           |               |  |   |               |  |  |   |           | 
|------------------------------------------------ |  | ------------- | --------- |  | ---------------- | - | --------- | ------------- |  | - | ------------- |  |  | - | --------- | 
|                                                 |  | Quarter Ended |           |  | First Half Ended |  
|                                                 |  |               |           |  |                  |  
|                                                 |  | June 28, 2003 |           |  | June 29, 2002    |   |           | June 28, 2003 |  |   | June 29, 2002 | 
|                                                 |  |               |           |  |                  |   |           |               |  |   |               | 
|Depreciation and amortization                    |  |               |           |  |                  |   |           |               |  |   |               |  |  |   |           | 
|Specialty Metal Formed Products                  |  | $             | 2,365,000 |  |                  | $ | 2,891,000 |               |  | $ | 4,715,000     |  |  | $ | 5,205,000 | 
|Ring, Seal and Filtration Products               |  |               | 871,000   |  |                  |   | 908,000   |               |  |   | 1,721,000     |  |  |   | 1,594,000 | 
|Other Metal Products                             |  |               | 146,000   |  |                  |   | 139,000   |               |  |   | 290,000       |  |  |   | 277,000   | 
|Corporate                                        |  |               | 480,000   |  |                  |   | 243,000   |               |  |   | 847,000       |  |  |   | 481,000   | 
|                                                 |  |               |           |  |                  |   |           |               |  |   |               | 
|Total consolidated depreciation and
amortization |  | $             | 3,862,000 |  |                  | $ | 4,181,000 |               |  | $ | 7,573,000     |  |  | $ | 7,557,000 | 
|                                                 |  |               |           |  |                  |   |           |               |  |   |               | 

|                                                                  |  |               |           |  |                  |   |           |               |  |   |               |  |  |   |           | 
|----------------------------------------------------------------- |  | ------------- | --------- |  | ---------------- | - | --------- | ------------- |  | - | ------------- |  |  | - | --------- | 
|                                                                  |  | Quarter Ended |           |  | First Half Ended |  
|                                                                  |  |               |           |  |                  |  
|                                                                  |  | June 28, 2003 |           |  | June 29, 2002    |   |           | June 28, 2003 |  |   | June 29, 2002 | 
|                                                                  |  |               |           |  |                  |   |           |               |  |   |               | 
|Additions to net property, plant and equipment                    |  |               |           |  |                  |   |           |               |  |   |               |  |  |   |           | 
|Specialty Metal Formed Products                                   |  | $             | 1,854,000 |  |                  | $ | 1,433,000 |               |  | $ | 3,989,000     |  |  | $ | 2,028,000 | 
|Ring, Seal and Filtration Products                                |  |               | 714,000   |  |                  |   | 1,136,000 |               |  |   | 1,126,000     |  |  |   | 1,991,000 | 
|Other Metal Products                                              |  |               | 147,000   |  |                  |   | 86,000    |               |  |   | 196,000       |  |  |   | 147,000   | 
|Corporate                                                         |  |               | 71,000    |  |                  |   | 133,000   |               |  |   | 106,000       |  |  |   | 313,000   | 
|                                                                  |  |               |           |  |                  |   |           |               |  |   |               | 
|Total consolidated additions to net
property, plant and equipment |  | $             | 2,786,000 |  |                  | $ | 2,788,000 |               |  | $ | 5,417,000     |  |  | $ | 4,479,000 | 
|                                                                  |  |               |           |  |                  |   |           |               |  |   |               | 

|                                   |                           |   |               |             |  |               |             |             | 
|---------------------------------- | ------------------------- | - | ------------- | ----------- |  | ------------- | ----------- | ----------- | 
|                                   |                           |   | Period Ended  |            
|                                   |                           |   |               |            
|                                   |                           |   | June 28, 2003 |             |  | Dec. 31, 2002 |            
|                                   |                           |   |               |             |  |               |            
|Total assets                       |                           |   |               |             |  |               |             |            
|Specialty Metal Formed Products    |                           | $ | 215,864,000   |             |  | $             | 205,989,000 |            
|Ring, Seal and Filtration Products |                           |   | 77,167,000    |             |  |               | 74,813,000  |            
|Other Metal Products               |                           |   | 25,738,000    |             |  |               | 25,642,000  |            
|Corporate                          |                           |   | 258,581,000   |             |  |               | 170,703,000 |            
|                                   |                           |   |               |             |  |              
|                                   | Total consolidated assets |   | $             | 577,350,000 |  |               | $           | 477,147,000 | 
|                                   |                           |   |               |             |  |              

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|(6) |  | On May 23, 2003, the Company completed the sale of $170.0 million of 4%
Contingent Convertible Senior Subordinated Notes due 2023 (the Notes) in a
private placement to a group of qualified institutional investors pursuant to
Rule 144A under the Securities Act of 1933, as amended. On May 30, 2003, the
Company completed the sale of an additional $30.0 million of Notes. The Notes
bear interest at 4 percent per year, payable semi-annually, and under certain
circumstances beginning in 2008, contingent interest of 0.50 percent per year.
The Notes are convertible into a total of 6,858,710 shares of the Companys
common stock at a conversion price of $29.16 per share, provided certain
contingencies are met including that Kaydon common stock has traded above
$34.99 for 20 out of 30 trading days for specified periods of time. The
conversion price represents a 34 percent premium based on the closing price of
$21.76 per share for the common stock on May 19, 2003. The Notes may not be
redeemed by the Company for five years, but are redeemable at any time
thereafter at par, plus accrued and unpaid interest. Holders of the Notes will
have the option to require Kaydon to purchase their Notes at par for one day
each at the end of 5, 10, and 15 years. In addition, the holders have the
right to require redemption of the Notes before the specified maturity dates in
the event of a change of control of the Company, as identified in the Notes
Indenture, or other defined redemption events.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | A portion of the net proceeds from the Notes was utilized to repay the
outstanding balance on the Companys $300.0 million revolving credit facility,
which was then cancelled. Prior to repayment, the weighted average interest
rate on borrowings on the revolving credit facility during the second quarter
of 2003 was 1.8 percent. Interest expense on the Notes equaled $0.7 million
for the portion of the second quarter of 2003 during which they were
outstanding, and will equal $2.0 million beginning in the third quarter of
2003. Fees paid in connection with the issuance of the Notes of approximately
$6.0 million are being amortized over a five-year period and are included in
other assets in the Consolidated Condensed Balance Sheet as of June 28, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | On July 28, 2003, the Company entered into a new three-year $200.0 million
unsecured revolving credit facility with seven banks. The new revolving credit
facility provides for borrowings by the Company and its subsidiaries in various
currencies for general corporate purposes including acquisitions. Interest
expense incurred on borrowings under the new revolving credit facility will be
based on the London Interbank Offered Rate (LIBOR).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | The Companys outstanding debt as of June 28, 2003, and December 31, 2002, was
as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|                                 |  |               |             |  |                   |   |            | 
|-------------------------------- |  | ------------- | ----------- |  | ----------------- | - | ---------- | 
|                                 |  | June 28, 2003 |             |  | December 31, 2002 |  
|                                 |  |               |             |  |                   |  
|4% Contingent Convertible Senior |  |               |             |  |                   |   |            | 
|Subordinated Notes due 2023      |  | $             | 200,000,000 |  |                   | $ |           | 
|Bank revolving credit facility   |  |               |            |  |                   |   | 72,150,000 | 
|Other                            |  |               | 282,000     |  |                   |   | 346,000    | 
|                                 |  |               |             |  |                   |  
|Total debt                       |  |               | 200,282,000 |  |                   |   | 72,496,000 | 
|Less current maturities          |  |               | 121,000     |  |                   |   | 129,000    | 
|                                 |  |               |             |  |                   |  
|Long-term debt                   |  | $             | 200,161,000 |  |                   | $ | 72,367,000 | 
|                                 |  |               |             |  |                   |  

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|(7) |  | As previously reported, the Company, along with certain other companies,
was
named as a defendant in a lawsuit filed in 1996 in the United States District
Court for the Southern District of New York (the Transactions Lawsuit).
Captioned Richard A. Lippe, et al. v. Bairnco Corporation, et al.,the
Transactions Lawsuit sought damages alleged by plaintiffs to be an amount of
$700 million, plus interest and punitive damages against the defendants
collectively.                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | On March 14, 2003, the Court granted the motion of Kaydon and the other
defendants for summary judgment, dismissing the case in its entirety against
all defendants. In its ruling, the Court held, among other things, that
plaintiffs had failed to support their fraudulent conveyance claims against the
Company with any concrete evidence, so that no reasonable jury could find
against the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    |  | On April 14, 2003, the plaintiffs filed a notice of appeal from the Courts
order granting summary judgment and dismissing the action. Management has
always believed that the Company had meritorious defenses to the claims pending
against it in this litigation and believes the Courts dismissal of the action
will be upheld on appeal. Accordingly, no provision has been reflected in the
consolidated financial statements for any alleged damages. Expenditures to
litigate this matter equaled $2.1 million in the first half of 2003, $6.6
million in 2002, $3.9 million in 2001, and $2.8 million in 2000. As of June 28,
2003, a $3.3 million accrual is included as a current liability in the
consolidated financial statements, reflecting the estimated remaining costs to
litigate this matter, including consideration of the aforementioned recent
events.
|   
|    |  | As previously reported, in July 2001, Kaydon, Kaydons insurance provider and
the plaintiff agreed to a settlement of a lawsuit which involved one of
Kaydons subsidiaries as the defendant, with the settlement payment to the
plaintiff being shared between Kaydon and Kaydons insurance provider. The
Company believes that the loss sustained in the settlement of the lawsuit is
covered under Kaydons commercial general liability policy, and that the
ultimate resolution of the current litigation related to this matter between
Kaydon and Kaydons insurance provider will not have a material effect on the
Companys consolidated financial statements.                                                                                                                                                                                                       
|   
|    |  | In August 2000, an accident involving a MH53E helicopter manufactured by
Sikorsky Aircraft Corporation, resulted in four deaths and two injuries during
a military training mission. The Company manufactures and sells swashplate
bearings used on MH53E helicopters. In May 2002, the Company, along with
Sikorsky Aircraft Corporation, The Armoloy Corporation, Armoloy of Illinois,
Inc., Armoloy of Connecticut, Inc. and Investment Holdings, Inc., was named as
a                                                                                                                                                                                                                                                                                                                                                                                                       

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|    |  | defendant in a lawsuit filed by the relatives and the estates of the four
deceased individuals, and by the two injured individuals, in the United States
District Court for the Southern District of Texas. Currently, the Companys
insurance provider is in the process of responding to the claim. The Company
believes that the alleged damages claimed in this lawsuit, and the associated
legal costs, will be fully covered under the Companys insurance policy.
Further, the Company believes it has meritorious defenses to these claims
including, but not limited to, the fact that the bearing utilized in the
helicopter involved in the accident was inspected and approved prior to
shipment by both U.S. government inspectors and Sikorsky Aircraft Corporation.
Accordingly, an accrual is not recorded in the consolidated financial
statements related to this legal action.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Various other claims, lawsuits and environmental matters arising in the normal
course of business are pending against the Company. An accrual is recorded in
the consolidated financial statements equal to the Companys most current and
best estimates to litigate these legal actions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(8) |  | The changes in the carrying amount of goodwill for the first half ended
June 28, 2003, are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

|                                                 |  |                 |            |   |                     |   |            |                      |  |   |            |  |  |   |             | 
|------------------------------------------------ |  | --------------- | ---------- | - | ------------------- | - | ---------- | -------------------- |  | - | ---------- |  |  | - | ----------- | 
|                                                 |  | Specialty Metal |            |   | Ring, Seal and      |   |            |                      |  |   |            |  |  |  
|                                                 |  | Formed Products |            |   | Filtration Products |   |            | Other Metal Products |  |   | Total      | 
|                                                 |  |                 |            |   |                     |   |            |                      |  |   |            | 
|Balance as of
December 31, 2002                  |  | $               | 70,731,000 |   |                     | $ | 23,265,000 |                      |  | $ | 14,774,000 |  |  | $ | 108,770,000 | 
|Effect of foreign
currency exchange
rate
changes |  |                 | (354,000   | ) |                     |   | 503,000    |                      |  |   |           |  |  |   | 149,000     | 
|                                                 |  |                 |            |   |                     |   |            |                      |  |   |            | 
|Balance as of
March 29, 2003                     |  | $               | 70,377,000 |   |                     | $ | 23,768,000 |                      |  | $ | 14,774,000 |  |  | $ | 108,919,000 | 
|Effect of foreign
currency
exchange rate
changes |  |                 | 752,000    |   |                     |   | 752,000    |                      |  |   |           |  |  |   | 1,504,000   | 
|                                                 |  |                 |            |   |                     |   |            |                      |  |   |            | 
|Balance as of
June 28, 2003                      |  | $               | 71,129,000 |   |                     | $ | 24,520,000 |                      |  | $ | 14,774,000 |  |  | $ | 110,423,000 | 
|                                                 |  |                 |            |   |                     |   |            |                      |  |   |            | 



| |  | Other intangible assets are summarized as follows:
| |  | --------------------------------------------------

|                            |  |                |            |  |                   |   |           |                |  |   |              |  |  |   |           | 
|--------------------------- |  | -------------- | ---------- |  | ----------------- | - | --------- | -------------- |  | - | ------------ |  |  | - | --------- | 
|                            |  | June 28, 2003  |            |  | December 31, 2002 |  
|                            |  |                |            |  |                   |  
|                            |  | Gross Carrying |            |  | Accumulated       |   |           | Gross Carrying |  |   | Accumulated  | 
|Amortized Intangible Assets |  | Amount         |            |  | Amortization      |   |           | Amount         |  |   | Amortization | 
|                            |  |                |            |  |                   |   |           |                |  |   |              | 
|Customer lists              |  | $              | 8,140,000  |  |                   | $ | 2,205,000 |                |  | $ | 8,140,000    |  |  | $ | 1,818,000 | 
|Patents                     |  |                | 1,553,000  |  |                   |   | 561,000   |                |  |   | 1,553,000    |  |  |   | 527,000   | 
|Other                       |  |                | 950,000    |  |                   |   | 950,000   |                |  |   | 950,000      |  |  |   | 950,000   | 
|                            |  |                |            |  |                   |   |           |                |  |   |              | 
|                            |  | $              | 10,643,000 |  |                   | $ | 3,716,000 |                |  | $ | 10,643,000   |  |  | $ | 3,295,000 | 
|                            |  |                |            |  |                   |   |           |                |  |   |              | 

The intangible assets are being amortized on a straight-line basis over periods of 10 to 20 years.

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|                              |  |               |           |  |          |              |           | 
|----------------------------- |  | ------------- | --------- |  | -------- | ------------ | --------- | 
|                              |  |               |           |  |          | December 31, |          
|                              |  | June 28, 2003 |           |  | 2002     |             
|                              |  | Carrying      |           |  | Carrying |             
|Unamortized Intangible Assets |  | Amount        |           |  | Amount   |             
|                              |  |               |           |  |          |             
|Trademarks                    |  | $             | 2,396,000 |  |          | $            | 2,396,000 | 
|                              |  |               |           |  |          |             

|                                                 |  |   |           | 
|------------------------------------------------ |  | - | --------- | 
|Aggregate Intangible Assets Amortization Expense |  |   |           | 
|For the first half ended June 28, 2003           |  | $ | 420,000   | 
|For the first half ended June 29, 2002           |  | $ | 1,102,000 | 
|Estimated Intangible Assets Amortization Expense |  |   |           | 
|For the year ending December 31, 2003            |  | $ | 840,000   | 
|For the year ending December 31, 2004            |  | $ | 840,000   | 
|For the year ending December 31, 2005            |  | $ | 840,000   | 
|For the year ending December 31, 2006            |  | $ | 840,000   | 
|For the year ending December 31, 2007            |  | $ | 840,000   | 

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##### Table of Contents





|(9) |  | During the fourth quarter of 2002, the Company initiated a
restructuring plan to enhance operating performance and balance the
manufacturing capacity among three plants in the Specialty Metal Formed
Products reporting segment. The restructuring plan reserve equaled $0.5 million at
December 31, 2002. During the first quarter of 2003, the
Company increased the reserve by $0.4 million related to employee
termination and severance costs for 57 hourly and 11 salaried employees.
Activity related to this restructuring plan reserve for the first half of 2003 is
as follows:
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                     |  |             |         |   |       |   |          |       |  |   |          |  
|------------------------------------ |  | ----------- | ------- | - | ----- | - | -------- | ----- |  | - | -------- | -
|                                     |  | Employee    |         |   |       |   |          |       |  |   |         
|                                     |  | Termination |         |   |       |   |          |       |  |   |         
|                                     |  | and         |         |   |       |   |          |       |  |   |         
|                                     |  | Severance   |         |   |       |   |          |       |  |   |         
|                                     |  | Costs       |         |   | Other |   |          | Total | 
|                                     |  |             |         |   |       |   |          |       | 
|Reserve balance at
December 31, 2002 |  | $           |        |   |       | $ | 450,000  |       |  | $ | 450,000  |  
|Restructuring charges                |  |             | 436,182 |   |       |   |         |       |  |   | 436,182  |  
|Cash paid                            |  |             | (25,071 | ) |       |   | (22,181  | )     |  |   | (47,252  | )
|                                     |  |             |         |   |       |   |          |       | 
|Reserve balance at
March 29, 2003    |  |             | 411,111 |   |       |   | 427,819  |       |  |   | 838,930  |  
|Cash
paid/reclassification           |  |             | (30,263 | ) |       |   | (273,796 | )     |  |   | (304,059 | )
|                                     |  |             |         |   |       |   |          |       | 
|Reserve balance at
June 28, 2003     |  | $           | 380,848 |   |       | $ | 154,023  |       |  | $ | 534,871  |  
|                                     |  |             |         |   |       |   |          |       | 



| |  | During the second quarter of 2003, the Company incurred $0.3 million in
equipment relocation costs which are expensed as incurred. In addition,
the Company expects to incur and record $1.1 million of additional costs throughout
the remainder of 2003 related primarily to equipment relocation expenses.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents





|(10) |  | The Company accounts for stock-based compensation granted to employees
and Directors using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25. The following table details the effect
on net income (loss) and earnings (loss) per share had compensation cost
for stock-based awards been recognized based on the fair value method
prescribed under Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation:
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                             |             |   |               |      |  |                  |           |      |               |   |            |               |  |   |            |       |  
|------------------------------------------------------------------------------------------------------------ | ----------- | - | ------------- | ---- |  | ---------------- | --------- | ---- | ------------- | - | ---------- | ------------- |  | - | ---------- | ----- | -
|                                                                                                             |             |   | Quarter Ended |      |  | First Half Ended |          
|                                                                                                             |             |   |               |      |  |                  |          
|                                                                                                             |             |   | June 28, 2003 |      |  | June 29, 2002    |           |      | June 28, 2003 |   |            | June 29, 2002 | 
|                                                                                                             |             |   |               |      |  |                  |           |      |               |   |            |               | 
|Reported net income (loss)                                                                                   |             | $ | 8,316,000     |      |  | $                | 2,423,000 |      |               | $ | 15,410,000 |               |  | $ | (4,847,000 | )    
|Add: Total stock-based
compensation expense included in
reported net income (loss), net of
tax               |             |   | 210,000       |      |  |                  | 145,000   |      |               |   | 420,000    |               |  |   | 288,000    |      
|Deduct: Total stock-based
compensation expense determined
under fair value method for all
awards, net of tax |             |   | (255,000      | )    |  |                  | (281,000  | )    |               |   | (508,000   | )             |  |   | (560,000   | )    
|                                                                                                             |             |   |               |      |  |                  |           |      |               |   |            |              
|Pro-forma net income (loss)                                                                                  |             | $ | 8,271,000     |      |  | $                | 2,287,000 |      |               | $ | 15,322,000 |               |  | $ | (5,119,000 | )    
|                                                                                                             |             |   |               |      |  |                  |           |      |               |   |            |              
|Earnings (loss) per share  Basic:                                                                           |             |   |               |      |  |                  |           |      |               |   |            |               |  |   |            |      
|                                                                                                             | As reported |   | $             | 0.29 |  |                  | $         | 0.08 |               |   | $          | 0.52          |  |   | $          | (0.16 | )
|                                                                                                             | Pro-forma   |   | $             | 0.29 |  |                  | $         | 0.08 |               |   | $          | 0.52          |  |   | $          | (0.17 | )
|Earnings (loss) per share  Diluted:                                                                         |             |   |               |      |  |                  |           |      |               |   |            |               |  |   |            |      
|                                                                                                             | As reported |   | $             | 0.29 |  |                  | $         | 0.08 |               |   | $          | 0.52          |  |   | $          | (0.16 | )
|                                                                                                             | Pro-forma   |   | $             | 0.29 |  |                  | $         | 0.08 |               |   | $          | 0.52          |  |   | $          | (0.17 | )



|(11) |  | During the second quarter of 2003, the Company entered into derivative
financial instruments in the form of forward exchange contracts to reduce the
effect of fluctuations in exchange rates on short-term intercompany
transactions. Gains and losses on the derivative instruments are intended to
offset gains and losses on the hedged transaction in an effort to reduce the
earnings volatility resulting from fluctuations in foreign exchange rates. The
Company is not a party to leveraged derivatives. Based on the provisions of
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, the Company formally documents its hedge
relationships, including the identification of the hedging instrument and
hedged items, as well as its risk management objectives and strategies for
undertaking the hedge transaction. As of June 28, 2003, forward exchange
contracts representing a notional amount of $1.0 million were outstanding with
maturities of less than one year. The currency hedged by the Company as of
June 28, 2003, is the United States Dollar and the forward exchange contracts
relate to a foreign division with a functional currency of the European Euro.
The forward exchange contracts entered
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | into by the Company are accounted for as
cash flow hedges. The fair value of these exchange contracts recorded in the
consolidated balance sheet as of June 28, 2003, was a liability of
approximately $40,000. As of June 28, 2003, the net loss related to the
derivative instrument and hedging activities recorded in accumulated other
comprehensive income was approximately $40,000.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents






ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

During the second quarter of 2003, Kaydon Corporation and subsidiaries
(Kaydon or the Company) achieved sales of $76.1 million, as compared to
$73.2 million in the second quarter of 2002. Sales during the quarter
benefited from increased demand for various Kaydon products including specialty
bearings, rings and seals, and filtration elements from the defense and
aerospace markets as well as increased demand for the Companys linear
deceleration products utilized in industrial applications. Other key markets,
including specialty electronic manufacturing equipment, construction equipment,
power generation equipment, and specialty ball markets, continued to display
modest demand, reflecting customers cautious capital spending programs.

Specifically, Kaydon experienced increased demand during the second quarter of
2003 compared to the second quarter of last year for various products sold by
the Specialty Metal Formed Products reporting segment. Sales of this reporting
segment of $46.6 million during the second quarter of 2003 increased $4.0
million from second quarter 2002 sales of $42.6 million, or by 9.4 percent, as
a result of increased sales of custom-engineered bearings to various markets in
the amount of $1.9 million, and increased sales of linear deceleration products
of $2.2 million, partially offset by reduced sales to specialty ball markets.

The Ring, Seal and Filtration Products reporting segment achieved sales of
$24.0 million during both the second quarter of 2003 and the second quarter
2002. This segment experienced increased sales of filtration elements of $1.0
million, and increased sales of rings and seals to defense markets of $1.9
million. These gains were offset by reduced sales of slip-ring products to the
security markets of $1.7 million, and reduced sales of marine products of $0.5
million. In addition, reduced capital equipment demand for filtration systems
from industrial markets caused sales to decrease $0.7 million.

The Other Metal Products reporting segment achieved sales of $5.5 million
during the second quarter of 2003, which was down $1.2 million from the second
quarter 2002 sales figure. Reduced sales of metal forming equipment of $0.8
million and reductions of $0.3 million related to metal alloy products
contributed to the decline in sales.

Gross profit during the second quarter of 2003 of $26.9 million was 35.4
percent of sales, compared with $24.6 million or 33.6 percent of sales in the
second quarter of 2002. Compared to the second quarter of 2002, the second
quarter 2003 gross margin was positively impacted by increased sales volume and
lower

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##### Table of Contents



inventory reserve adjustments of $0.5 million.

Selling, general and administrative expenses during the second quarter of 2003
were $13.8 million, or 18.2 percent of sales, as compared to $13.5 million or
18.4 percent of sales during the second quarter of 2002. Second quarter 2003
selling, general and
administrative expenses include $0.3 million of equipment relocation charges in
connection with the previously discussed restructuring plan to enhance
manufacturing utilization in the Specialty Bearings Product Group.

Both gross profit margin and selling, general and administrative expenses were
negatively affected during the second quarter of 2003 by increased pension and
insurance costs. These costs have increased by approximately $3.2 million on an
annual basis compared with 2002, and these increased costs will affect the
Companys financial performance throughout 2003.

Also, as previously disclosed, the Company has begun to incur incremental costs
associated directly with certain new requirements imposed by the Sarbanes-Oxley
Act of 2002 (the Act). Initially these costs will be associated with the
further documentation and review of the Companys system of internal controls
as required by Section 404 of the Act. These costs were negligible during the
first half of 2003, but could be as much as $0.5 million during the second half
of 2003.

During the second quarter of 2002, a pre-tax $7.5 million provision ($4.8
million or $0.16 per share on a diluted basis after tax) was recorded in order
to support the Companys then most current and best estimate of the cost to
continue to litigate the previously disclosed Transactions Lawsuit. The change
in the estimate during the second quarter of 2002 resulted from then current
spending levels and information provided by the Companys outside attorneys
regarding forecasted spending levels to complete the trial phase.

Operating income during the second quarter was $13.1 million or 17.2 percent of
sales as compared to $3.6 million or 5.0 percent of sales in the second quarter
of 2002.

Specifically, on a reporting segment basis, operating income from the Specialty
Metal Formed Products reporting segment was $9.4 million during the second
quarter of 2003 as compared to $7.1 million during the comparable period last
year. The increase in operating income is primarily due to the increased
top-line in this reporting segment as the profit metrics for this segment are
very volume sensitive.

The Ring, Seal and Filtration Products reporting segment contributed $2.7
million to the Companys operating income during the second quarter of 2003 as
compared to $3.0 million during the comparable period last year. The reduced
operating income in this reporting segment was primarily due to unfavorable
sales mix.

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##### Table of Contents



Also, the Other Metal Products reporting segment contributed $0.5 million
during the second quarter of 2003 as compared to $0.6 million during the
comparable period last year, primarily due to reduced sales volume.

As previously mentioned, during the fourth quarter of 2002 the Company
initiated a restructuring plan to enhance operating performance and balance the
manufacturing capacity in the Specialty Bearings Product Group, part of the
Specialty Metal Formed Products reporting segment. This restructuring plan
resulted in a $0.3 million charge in the second quarter of 2003 primarily
related to equipment relocation expenses. The Company expects to incur and
record $1.1 million of additional costs during 2003
related primarily to equipment relocation expenses. In addition, capital
expenditures for the first half of 2003 related to the restructuring totaled
$1.8 million. The Company expects to invest an additional $1.1 million in
capital expenditures related to the restructuring during the remainder of 2003.
The restructuring plan is expected to provide annualized cost savings of
approximately $2.0 million per year beginning in 2004.

Net interest expense of $0.3 million during the second quarter of 2003 compares
to net interest income of $0.1 million during the second quarter of 2002. Net
interest expense increased from last years comparable period due to interest
expense on the Companys $200.0 million 4% Contingent Convertible Senior
Subordinated Notes due 2023 (the Notes) issued in late May 2003, partially
offset by interest earned on higher average cash balances during the quarter.
Interest expense on the Notes equaled $0.7 million for the portion of the
second quarter of 2003 during which they were outstanding, and will equal $2.0
million beginning in the third quarter of 2003. Please see the Liquidity and
Capital Resources section of this Managements Discussion and Analysis of
Financial Condition and Results of Operations and Notes to Consolidated
Condensed Financial Statements (Note 6) in this Form 10-Q for further
information on the Notes.

The effective income tax rate in the second quarter of 2003 was 35.0 percent as
compared to a 36.0 percent tax rate in the second quarter of 2002 and a 35.1
percent tax rate during the 2002 year. The effective tax rate may increase
during the second half of 2003 as a result of the issuance of the Notes,
however, the ultimate impact has not yet been quantified.

Second quarter 2003 net income and diluted earnings per share were $8.3 million
and $0.29, based on 28.9 million common shares outstanding. Second quarter
2002 net income and diluted earnings per share were $2.4 million and $0.08,
based on 30.0 million common shares outstanding.

Sales during the first half of 2003 were $147.0 million, an increase of 5.4
percent over last years first half sales of $139.4 million. As a result of
the higher sales volume, gross profit for the first half of 2003 increased to
$50.9 million or 34.7 percent of sales as compared to $46.9 million or 33.6
percent of sales during the
20Table of Contents

first half of 2002. Operating income for the first
half of 2003 was $23.8 million or 16.2 percent of sales. Operating income for
the first half of 2002 was $12.9 million, or 9.3 percent of sales. First half
2002 operating income includes the pre-tax $7.5 million provision for
litigation costs recorded during the second quarter of 2002.

As previously disclosed, the Company adopted Statement of Financial Accounting
Standards No. 142 as of January 1, 2002. As a result, a $16.8 million goodwill
impairment loss, $13.2 million or $0.44 per share on an after tax, diluted
basis, was recognized as the cumulative effect of a change in accounting
principle as of January 1, 2002. The goodwill impairment loss recorded in the
first quarter of 2002 related to two operating units within the Other Metal
Products reporting segment.

Net income for the first half of 2003 was $15.4 million or $0.52 per common
share on a diluted basis. First half 2002 net loss and diluted loss per
common share were $(4.8)
million and $(0.16). First half 2002 results include the after tax effect
($4.8 million or $0.16 per share on a diluted basis) of the $7.5 million
provision for litigation costs and the after tax charge of $13.2 million, or
$0.44 per common share on a diluted basis, for the cumulative effect of an
accounting change related to goodwill impairment.

Liquidity and Capital Resources

On May 23, 2003, the Company completed the sale of $170.0 million of 4%
Contingent Convertible Senior Subordinated Notes due 2023 in a private
placement to a group of qualified institutional investors pursuant to Rule 144A
under the Securities Act of 1933, as amended. On May 30, 2003, the Company
completed the sale of an additional $30.0 million of Notes. The Notes bear
interest at 4 percent per year, payable semi-annually, and under certain
circumstances beginning in 2008, contingent interest of 0.50 percent per year.
The Notes are convertible into a total of 6,858,710 shares of the Companys
common stock at a conversion price of $29.16 per share, provided certain
contingencies are met including that Kaydon common stock has traded above
$34.99 for 20 out of 30 trading days for specified periods of time. The
conversion price represents a 34 percent premium based on the closing price of
$21.76 per share for the common stock on May 19, 2003. The Notes may not be
redeemed by the Company for five years, but are redeemable at any time
thereafter at par, plus accrued and unpaid interest. Holders of the Notes will
have the option to require Kaydon to purchase their Notes at par for one day
each at the end of 5, 10, and 15 years. In addition, the holders have the
right to require redemption of the Notes before the specified maturity dates in
the event of a change of control of the Company, as identified in the Notes
Indenture, or other defined redemption events.

Net proceeds received from the Notes were $194.0 million. The Company used
$72.2 million of the net proceeds to repay the full amount outstanding on the
21Table of ContentsCompanys $300.0 million revolving credit facility. The revolving credit
facility was then cancelled. Net proceeds were also used to repurchase 2.0
million shares of Company common stock for $43.5 million, concurrent with the
offering of the Notes.  The remaining proceeds of $78.3 million will be utilized for general corporate
purposes. Fees paid in connection with the issuance of the Notes of
approximately $6.0 million are being amortized over a five-year period and are
included in other assets in the Consolidated Condensed Balance Sheet as of June
28, 2003.Working capital was $289.0 million at June 28, 2003, reflecting a current ratio
of 6.9 to 1 compared to $203.6 million and a current ratio of 6.0 to 1 at
year-end 2002. Cash flow from operations during the first half of 2003 was
$22.9 million compared to cash flow from operations of $26.6 million achieved
during the first half of last year. First half 2002 cash flow included a tax
refund of $10.1 million.Depreciation and amortization was $7.6 million for both the first half of 2003
and the first half of 2002. Cash and cash equivalents equaled $228.1 million
at June 28, 2003, as compared to the year-end 2002 balance of $146.3 million.
During the first half of 2003, the Company repurchased a total of 2,332,900
shares of Company common stock (including the 2.0 million shares concurrent
with the issuance of the Notes) for
$49.8 million, paid common stock dividends of $7.3 million, and invested $5.4
million in net capital expenditures. Common shares outstanding at the end of
the second quarter 2003 were 28.0 million.Management expects that the Companys planned capital requirements, which
consist of capital expenditures, dividend payments and its stock repurchase
program, will be financed by operations and existing cash balances. In
addition, on July 28, 2003, the Company entered into a new three-year $200.0
million unsecured revolving credit facility. The new revolving credit facility
was entered into with seven banks and provides for borrowings by the Company
and its subsidiaries in various currencies for general corporate purposes
including acquisitions.OutlookThe Companys backlog, increasingly affected by shorter lead-time order trends,
was $94.4 million at the end of the second quarter 2003 as compared to $88.3
million at the end of 2002. The Company has seen some evidence of increases in
order entry levels for specific projects and some end-markets including defense
projects, but the Company has yet to see a full fledged meaningful broad-based
recovery in order entry across all markets at this time. The near-term outlook
is further clouded by continued geopolitical uncertainties affecting corporate
purchasing confidence. Expected operating cash flows coupled with the Companys
current cash reserves will provide substantial resources to fund the22Table of ContentsCompanys
ongoing business development efforts which include internal and external growth
initiatives as well as selected stock repurchases.Critical Accounting Policies and EstimatesThe Companys consolidated financial statements are prepared in conformity with
accounting principles generally accepted in the United States. The preparation
of these financial statements requires the use of estimates, judgments, and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the periods
presented.The Company continually evaluates the estimates, judgments, and assumptions
used to prepare the consolidated financial statements. In general, the
Companys estimates are based on historical experience, on information from
third party professionals and on various other judgments and assumptions that
are believed to be reasonable under the current facts and circumstances.
Actual results could differ from the current estimates made by the Company.
The Company has identified certain accounting policies and estimates, described
below, that are the most critical to the portrayal of the Companys current
financial condition and results of operations.Loss Contingencies and Legal Costs The Company records loss contingencies as
a liability when it is probable that a liability has been incurred and the
amount of the loss is reasonably estimable. Estimated legal costs expected to
be incurred in connection with loss contingencies are accrued in the
consolidated financial statements.The Company believes the accounting estimates related to loss contingencies and
legal costs to be a critical accounting estimate as contingent liabilities are
often resolved over long time periods and estimation of probable losses and
costs to litigate requires forecasts that often depend on judgments from third
party experts and are based on potential actions by other third parties such as
plaintiffs, juries, and regulators.To better understand this accounting policy and its historic impact on the
Company, readers should refer to the Notes to Consolidated Condensed Financial
Statements (Note 7) in this quarterly report on Form 10-Q as well as the
Companys Notes to Consolidated Financial Statements (Note 11) in the 2002
Annual Report on Form 10-K for additional information regarding loss
contingencies and legal costs.Impairment of Goodwill and Indefinite-Lived Intangible Assets The Company
annually, or more frequently if events or changes in circumstances indicate a
need, tests the carrying amounts of goodwill and indefinite-lived intangible
assets for impairment.23Table of ContentsThe Company identifies impairment of goodwill by comparing the fair value of
each of the Companys reporting units with the reporting units carrying
amount. The fair value of each of the Companys reporting units is derived
from an estimate of future discounted cash flows including an estimate for
terminal value. Potential goodwill impairment is identified if a reporting
units carrying amount is more than a reporting units fair value. If this
occurs, a third-party valuation specialist is utilized to assist the Company in
determining the implied fair value of the reporting units goodwill. The
amount of any actual impairment loss is calculated by comparing the implied
fair value of the reporting units goodwill with the carrying amount of the
reporting units goodwill.A trademark is the Companys only indefinite-lived intangible asset. The
Company identifies impairment of this trademark by comparing its fair value to
its carrying amount. The fair value of the trademark is calculated based on an
estimate of future discounted cash flows including an estimate for terminal
value related to the net amount of royalty expense avoided due to the existence
of the trademark.The Company believes the accounting estimates related to impairment of goodwill
and indefinite-lived intangible assets to be critical accounting estimates
because: the estimate of future discounted cash flows and terminal values,
while based on reasonable and supportable assumptions and projections, requires
the Companys subjective judgments; the time periods for estimating future cash
flows is often lengthy which increases the sensitivity to assumptions made;
projected outcomes based on the assumptions made can vary; and the calculation
of implied fair value is inherently subject to estimates.To better understand this accounting policy and its impact on the Company,
readers should refer to Notes to Consolidated Condensed Financial Statements
(Note 8) in this quarterly report on Form 10-Q as well as the Companys Notes
to Consolidated Financial Statements (Note 12) in the 2002 Annual Report on
Form 10-K for additional information regarding goodwill and intangible assets.Impairment of Long-Lived Assets The Company continually evaluates whether
events and circumstances have occurred that indicate the remaining estimated
useful lives of long-lived assets including fixed assets and amortizable
intangible assets may warrant revision or that remaining balances may not be
recoverable. When factors indicate that such costs should be evaluated for
possible impairment, the Company uses an estimate of future undiscounted cash
flows over the remaining lives of the long-lived assets that are compared to
the carrying value of the asset to evaluate whether the asset costs are
recoverable.The Company believes the accounting estimates related to long-lived asset
impairment to be a critical accounting estimate because: the estimate of future
undiscounted cash flows, while based on reasonable and supportable assumptions
and projections, requires the Companys subjective judgments; the time periods
for estimating future cash flows is often lengthy which increases the
sensitivity to24Table of Contentsassumptions made; and projected outcomes based on the
assumptions made can vary.To better understand this accounting policy and its impact on the Company,
readers should refer to Notes to Consolidated Condensed Financial Statements
(Note 8) in this quarterly report on Form 10-Q as well as the Companys Notes
to Consolidated Financial Statements (Note 1 and Note 12) in the 2002 Annual
Report on Form 10-K for additional information regarding long-lived assets.Retirement Benefits The Companys employee pension and postretirement benefit
costs and obligations recorded in the financial statements are dependent on the
Companys estimates provided to and used by the Companys actuaries in
calculating such amounts.The Company believes the accounting estimates related to retirement benefits to
be critical accounting estimates because of the wide range of assumptions used
in deriving the amounts recorded for retirement benefits in the Companys
financial statements. Significant assumptions include judgments regarding
discount rates, health care cost trend rates, inflation rates, salary growth
rates, long-term return on plan assets, retirement rates, mortality rates and
other factors.The Company has developed estimates based on historical experience, on
information from third party professionals and on various other judgments and
assumptions that are believed to be reasonable under the current facts and
circumstances. Discount rate assumptions are based on investment yields
available on AA-rated corporate long-term bond yields. Health care cost trend
assumptions are developed based on historical data, the near-term outlook, and
on an assessment of likely long-term trends. Inflation assumptions are based
on an evaluation of external market indicators. Salary growth assumptions
reflect the Companys long-term experience, the near-term outlook and assumed
inflation. Retirement and mortality rates are based primarily on actual plan
experience and mortality tables.Actual results that differ from the Companys assumptions are accumulated and
amortized over future periods and, therefore, generally affect the Companys
recognized expense and recorded obligation in such future periods. While the
Company believes that the assumptions used are appropriate, significant
differences in
actual experience or significant changes in assumptions would affect the
Companys pension and postretirement benefits costs and obligations.To better understand this accounting policy and its historic impact on the
Company, readers should refer to the Companys Notes to Consolidated Financial
Statements (Note 8) in the 2002 Annual Report on Form 10-K for additional
information regarding costs, obligations, and assumptions for employee pension
and postretirement benefits.25Table of Contents4% Contingent Convertible Senior Subordinated Notes In May of 2003, the
Company completed the sale of $200.0 million of 4% Contingent Convertible
Senior Subordinated Notes due 2023 (the Notes). The Notes are convertible
into a total of 6,858,710 shares of Company common stock provided certain
contingencies are met including that Kaydon common stock has traded above
$34.99 for 20 out of 30 trading days for specified periods of time. Unless and
until this contingency or other conversion contingencies are met, the above
mentioned shares of the Companys common stock underlying the Notes will not be
included in the Companys basic or diluted earnings per share calculations.
Should this contingency be met, diluted earnings per share would, depending on
the relationship between the interest on the Notes and the earnings per share
of Kaydon common stock, be expected to decrease as a result of the inclusion of
the underlying shares in the diluted earnings per share calculation.In addition, the Company is deducting for tax purposes an amount of interest
expense that is greater than the stated coupon rate on the Notes. The
deductibility for tax purposes of the additional interest beyond the stated
coupon rate may have to be recaptured, in part or in whole, after the first put
date (five years after the issuance of the Notes) if the Notes are redeemed for
cash instead of converted into Company common stock. Should this happen,
depending on other factors, tax payments would be expected to increase.The Company believes that the current and potential future impact the Notes
have on the accounting for the Companys diluted earnings per share
calculations, and tax-related account balances as discussed above are
critical to the understanding of the Companys current financial condition and
results of operations. Volatility in the Companys stock price could cause the
underlying shares to be included in the diluted earnings per share calculation
in one quarter, and not in a subsequent quarter. In addition, while the
Company expects the Notes to be converted into Company common stock, redemption
for cash would cause volatility in tax payments, cash flows and the liquidity
of the Company.To better understand the Notes and
their impact on the Companys financial reporting, readers should refer to
Notes to Consolidated Condensed Financial Statements (Note 4 and Note 6) as
well as the Liquidity and Capital Resources section of this Managements
Discussion and Analysis of Financial Condition and Results of Operations in
this quarterly report on Form 10-Q.Forward-Looking StatementsThis Form 10-Q contains forward-looking statements within the meaning of the
Securities Exchange Act of 1934 regarding the Companys plans, expectations,
estimates and beliefs. Forward-looking statements are typically identified by
words such as believes, anticipates, estimates, expects, intends,
will, may and other similar expressions. These forward-looking statements
may26Table of Contentsinclude, among other things, projections of the Companys financial
performance, anticipated growth, characterization of and the Companys ability
to control contingent liabilities, and anticipated trends in the Companys
businesses. These statements are only predictions, based on the Companys
current expectation about future events. Although the Company believes the
expectations reflected in the forward-looking statements are reasonable, it
cannot guarantee future results, performance or achievements or that
predictions or current expectations will be accurate. These forward-looking
statements involve risks and uncertainties, including those specifically listed
below, that could cause the Companys actual results, performance or
achievements to differ materially from those expressed or implied by the
forward-looking statements.In addition, the Company or persons acting on its behalf may from time to time
publish or communicate other items that could also be construed to be
forward-looking statements. Statements of this sort are or will be based on
the Companys estimates, assumptions, and projections and are subject to risks
and uncertainties, including those specifically listed below, that could cause
actual results to differ materially from those included in the forward-looking
statements. Kaydon does not undertake any responsibility to update its
forward-looking statements or risk factors to reflect future events or
circumstances. The following risk factors could affect the Companys operating
results.Many of the Companys customers operate in cyclical industries that have
experienced downward economic cycles which have adversely affected Kaydons
business.Many of the Companys customers are in industries that are cyclical in nature
and sensitive to changes in general economic conditions and other factors,
including capital spending levels. As a result, the demand for the Companys
products by these customers depends, in part, upon general economic conditions.
Downward economic cycles have reduced customers demand for the Companys
products, thereby reducing sales of the Companys products and resulting in
reductions to the Companys revenues and net earnings.Kaydon operates in highly competitive industries and may be unable to compete
effectively with other companies.The industries in which the Company operates are fragmented and the Company
faces competition from multiple companies across its diverse product lines.
Kaydon expects competitive pressures from new products and aggressive pricing
to increase, which may cause the Company to lose market share or compel the
Company to reduce prices to remain competitive, which could result in reduced
levels of revenues and earnings. The Companys competitors include U.S. and
non-U.S. companies, some of which benefit from lower labor costs and fewer
regulatory burdens. In addition, certain competitors, including Perkin Elmer,
Timken, SKF, and FAG, are larger than Kaydon and may have access to greater
financial, technical, development, marketing, manufacturing, sales and
distribution services and other resources. Increased competition with these
companies or new27Table of Contentsentrants to the Companys key markets could
prevent price increases for the Companys products or could require price
reductions for the Companys products, which could adversely affect the
Companys financial condition, results of operations, growth or liquidity.The Companys current strategy involves growth through acquisitions, which may
require the Company to incur substantial costs and potential liabilities for
which the Company may never realize the anticipated benefits.In addition to internal growth, Kaydons current strategy involves growth
through acquisitions of complementary businesses as well as acquisitions that
diversify the Companys product offerings. Like other companies with similar
growth strategies, Kaydon may be unable to continue to implement its growth
strategy, and this strategy may be ultimately unsuccessful. A portion of the
Companys expected future growth in revenues may result from acquisitions. The
Company frequently engages in evaluations of potential acquisitions and
negotiations for possible acquisitions, certain of which, if consummated, could
be significant to the Company. Although it is the Companys policy only to
acquire companies in transactions which are accretive to both earnings and cash
flow, any potential acquisitions may result in material transaction expenses,
increased interest and amortization expense, increased depreciation expense and
increased operating expense, any of which could have a material adverse effect
on the Companys operating results. Acquisitions may entail integration and
management of the new businesses to realize economies of scale and control
costs. In addition, acquisitions may involve other risks, including diversion
of management resources otherwise available for ongoing development of our
business and risks associated with entering new markets. The Company may not
be able to identify suitable acquisition candidates in the future, obtain
acceptable financing or consummate any future acquisitions. In addition, as a
result of the Companys acquisitions of other businesses, the Company may be
subject to the risk of unanticipated business uncertainties or legal
liabilities relating to those acquired businesses for which the sellers of the
acquired businesses may not indemnify the Company. Future acquisitions may
also result in potentially dilutive issuances of securities.The Company is exposed to a variety of risks relating to the Companys
international sales and operations, including local economic and political
conditions, fluctuations in exchange rates and delays in collection of accounts
receivable.Sales of the Companys products from the Companys foreign subsidiaries and
from the Companys domestic subsidiaries selling to foreign locations accounted
for approximately 29.9% of net sales for the fiscal year ended December 31,
2002. These foreign sales could be adversely affected by changes in various
foreign countries political and economic conditions, trade protection
measures, differing intellectual property rights and changes in regulatory
requirements that restrict the sales of the Companys products or increase the
Companys costs.The Company generates significant revenues outside the United States. Currency
fluctuations between the U.S. dollar and the currencies in which those
customers28Table of Contentsdo business may have an impact on the demand for the Companys
products in foreign countries where the U.S. dollar has increased in value
compared to the local currency. The Company cannot predict the effects of
exchange rate fluctuations upon the
Companys future operating results because of the number of currencies
involved, the variability of currency exposure and the potential volatility of
currency exchange rates.Relationships with customers and effective terms of sale frequently vary by
country, often with longer-term receivables than are typical in the United
States.Kaydons manufactured critical performance products expose the Company to
potential significant litigation-related costs.As a provider of critical performance products in a variety of industries
including aerospace, defense, construction, marine, medical, material handling,
machine tool positioning and other industrial applications, the Company faces a
risk of exposure to claims in the event that the failure, use or misuse of the
Companys products results, or is alleged to result, in bodily injury and/or
property damage. The Company, along with certain other companies, are named as
a defendant in a lawsuit arising from an August 2000 fatal accident involving a
MH53E helicopter manufactured by Sikorsky Aircraft Corporation. The Company
believes that the alleged damages claimed in this lawsuit, and the associated
legal costs, will be covered under the Companys insurance policy, but it is
possible that such costs will not be covered by insurance and, if so, the
Company will incur unknown additional direct costs. These claims have not been
finally resolved or settled.In the past, costs related to legal proceedings and settlements have had a
material effect on the Companys business, financial condition, results of
operations and liquidity. The Company cannot assure you that the ultimate cost
of current known or future unknown litigation and claims will not exceed
managements current expectations and it is possible that such costs could have
a material adverse effect on the Company. In addition, litigation is time
consuming and could divert management attention and resources away from the
Companys business.The Transactions Lawsuit could materially adversely affect the Company if the
trial courts dismissal of the claims in such suit is reversed on appeal and if
an adverse ruling is entered on appeal.As described in the Companys Annual Report on Form 10-K, the Company, along
with certain other companies, was a defendant in a lawsuit filed in 1996
asserting claims for fraudulent conveyance and successor liability relating to
the Companys acquisition of certain assets in 1983 and the Companys 1984
spin-off from Bairnco Corporation (the Transactions Lawsuit). The plaintiffs
in the Transactions Lawsuit alleged and sought damages of $700 million, plus
interest and punitive damages against the defendants collectively. As
previously disclosed, the plaintiffs claims were dismissed with prejudice by
the trial court on March 14, 2003. On April 14, 2003, the plaintiffs filed a
notice of appeal. If an unfavorable outcome were to occur, the impact could be
material to the Company.29Table of Contents
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKThe Company is exposed to certain market risks which exist as part of its
ongoing business operations including interest rates and foreign currency
exchange rates. The exposure to market risk for changes in interest rates
relates primarily to investments in cash and cash equivalents. All highly
liquid investments, including highly liquid debt and investment instruments
purchased with an original maturity of three months or less, are considered
cash equivalents. The Company places its investments in cash equivalents with
high credit quality issuers and limits the amount of exposure to any one
issuer. A 12 basis point decrease in interest rates (10 percent of the
Companys weighted average investment interest rate for the second quarter of
2003) would have an immaterial impact on the Companys pre-tax earnings. The
Company conducts business in various foreign currencies, primarily in Europe,
Canada, Mexico, and Japan. Therefore, changes in the value of currencies of
these countries affect the Companys financial position and cash flows when
translated into U.S. dollars. The Company has mitigated and will continue to
mitigate a portion of its currency exposure through operation of decentralized
foreign operating companies in which many costs are local currency based. In
addition, periodically the Company enters into derivative financial instruments
in the form of forward foreign exchange contracts to reduce the effect of
fluctuations in foreign exchange rates. A 10 percent change in the value of
all foreign currencies would have an immaterial effect on the Companys
financial position and cash flows.
ITEM 4. CONTROLS AND PROCEDURESAs of the end of the period covered by this report, the Company carried out an
evaluation, under the supervision and with the participation of the Companys
management, including its Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of the Companys disclosure
controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act
of 1934. Based upon that evaluation, the Companys Chief Executive Officer and
Chief Financial Officer concluded that the Companys disclosure controls and
procedures are effective to cause the material information required to be
disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act of 1934 to be recorded, processed, summarized and
reported within the time periods specified in the Commissions rules and forms.
There have been no significant changes in the Companys internal controls or in
other factors which could significantly affect internal controls subsequent to
the date the Company carried out its evaluation.30Table of Contents






PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings See the discussion in Notes to Consolidated Condensed
Financial Statements (Note 7), which discussion is incorporated herein by
reference.Item 4.
    
    Submission of Matters to a Vote of Security HoldersThe Company held its Annual Meeting of Shareholders on May 9, 2003, at which
the shareholders voted on the election of Directors, approval of the Kaydon
Corporation 2003 Non-Employee Directors Equity Plan, and ratification of the
appointment of Ernst & Young LLP as the Companys independent accountants for
2003. The results were as follows:Each of the nominees for Director was an incumbent and all nominees were
elected. The following table sets forth the number of shares voted for and
withheld with respect to each nominee.

|                   |  |           |            |  |                |  |         | 
|------------------ |  | --------- | ---------- |  | -------------- |  | ------- | 
|Nominee            |  | Votes For |            |  | Votes Withheld | 
|                   |  |           |            |  |                | 
|Gerald J. Breen    |  |           | 26,411,327 |  |                |  | 994,309 | 
|Brian P. Campbell  |  |           | 26,748,587 |  |                |  | 657,049 | 
|Thomas C. Sullivan |  |           | 26,405,693 |  |                |  | 999,943 | 
|Robert M. Teeter   |  |           | 26,743,903 |  |                |  | 661,733 | 
|B. Joseph White    |  |           | 26,410,357 |  |                |  | 995,279 | 



| |  | The stockholders approved the Kaydon Corporation 2003 Non-Employee
Directors Equity Plan with the following vote: 22,158,200 votes for,
4,807,017 votes against, and 440,419 votes abstained.                       
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The stockholders approved the appointment of Ernst & Young LLP as the
Companys independent accountants for 2003 with the following vote:
26,343,562 votes for, 1,017,744 votes against, and 44,330 votes
abstained.

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|Item 6. |  | Exhibits and Reports on Form 8-K
|------- |  | --------------------------------

|    |  |             |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|--- |  | ----------- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|(a) |  | Exhibit No. |  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |  |             |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |  | 4.1         |  |  | Indenture dated as of May 23, 2003, between the
Company and SunTrust Bank, as Trustee                                                                                                                                                                                                                                                                                                                                                       
|    |  |             |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|    |  | 4.2         |  |  | Registration Rights Agreement dated as of May 23,
2003, among the Company, Deutsche Bank Securities Inc., Banc
One Capital Markets, Inc. and SunTrust Capital Markets, Inc.                                                                                                                                                                                                                                                                 
|    |  |             |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|    |  | 10.1        |  |  | Purchase Agreement dated May 20, 2003, among the
Company, Deutsche Bank Securities Inc., Banc One Capital
Markets, Inc. and SunTrust Capital Markets, Inc.                                                                                                                                                                                                                                                                                  
|    |  |             |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|    |  | 10.2        |  |  | Credit Agreement dated as of July 28, 2003, among
the Company, the subsidiary borrowers from time to time
parties thereto, the alternate currency borrowers from time to
time parties thereto, the institutions from time to time
parties thereto as Lenders, and Bank One, NA as administrative
agent (previously filed as Exhibit 10 to the Companys Current
Report on Form 8-K filed July 29, 2003 and incorporated herein
by reference)
|    |  |             |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|    |  | 10.3        |  |  | Kaydon Corporation 2003 Non-Employee Directors
Equity Plan (previously filed as Exhibit 99.2 to the Companys
Registration Statement on Form S-8 filed May 9, 2003, and
incorporated herein by reference)                                                                                                                                                                                                                                   
|    |  |             |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|    |  | 31          |  |  | 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 2002                                                                                                                                                                                                                                                                                       
|    |  |             |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|    |  | 32          |  |  | Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002                                                                                                                                                                                                                                                                                                                      

32



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|(b) |  | Reports on Form 8-K                                                                                                                                                                                                                                                                                                                      
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Company filed a current report on Form 8-K pursuant to Items 7 and 9,
dated March 31, 2003, reporting that the Company issued a press release
summarizing the remarks of President and Chief Executive Officer Brian P.
Campbell which were made at the Deutsche Bank Basic Industries conference
held in New York City on that date.
|   
|    |  | The Company filed a current report on Form 8-K pursuant to Items 7 and 9,
dated April 29, 2003, reporting that the Company issued a press release
reporting
increased first quarter 2003 results and announcing a conference call.                                                                                                       
|   
|    |  | The Company filed a current report on Form 8-K pursuant to Item 5, dated
May 27, 2003, reporting the sale of $170 million 4.0% Contingent
Convertible Senior Subordinated Notes due 2023.                                                                                                                                                
|   
|    |  | The Company filed a current report on Form 8-K pursuant to Item 5, dated
June 2, 2003, reporting the sale of an additional $30 million 4.0%
Contingent Convertible Senior Subordinated Notes due 2023.                                                                                                                                   

33



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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.

|               |  |                                                                         
|-------------- |  | ------------------------------------------------------------------------
|               |  | KAYDON CORPORATION                                                      
|               |  |                                                                         
|August 8, 2003 |  | /s/ Brian P. Campbell                                                   
|               |  |                                                                         
|               |  | Brian P. Campbell                                                       
|               |  | Chairman, President, Chief Executive
Officer and Chief Financial
Officer
|               |  | (Principal Executive Officer and
Principal Financial Officer)           
|               |  |                                                                         
|August 8, 2003 |  | /s/ Kenneth W. Crawford                                                 
|               |  |                                                                         
|               |  | Kenneth W. Crawford                                                     
|               |  | Vice President and Corporate Controller                                 
|               |  | (Principal Accounting Officer)                                          

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EXHIBIT INDEX

|    |  |             |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|--- |  | ----------- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|(a) |  | Exhibit No. |  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |  |             |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |  | 4.1         |  |  | Indenture dated as of May 23, 2003, between the
Company and SunTrust Bank, as Trustee                                                                                                                                                                                                                                                                                                                                                       
|    |  |             |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|    |  | 4.2         |  |  | Registration Rights Agreement dated as of May 23,
2003, among the Company, Deutsche Bank Securities Inc., Banc
One Capital Markets, Inc. and SunTrust Capital Markets, Inc.                                                                                                                                                                                                                                                                 
|    |  |             |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|    |  | 10.1        |  |  | Purchase Agreement dated May 20, 2003, among the
Company, Deutsche Bank Securities Inc., Banc One Capital
Markets, Inc. and SunTrust Capital Markets, Inc.                                                                                                                                                                                                                                                                                  
|    |  |             |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|    |  | 10.2        |  |  | Credit Agreement dated as of July 28, 2003, among
the Company, the subsidiary borrowers from time to time
parties thereto, the alternate currency borrowers from time to
time parties thereto, the institutions from time to time
parties thereto as Lenders, and Bank One, NA as administrative
agent (previously filed as Exhibit 10 to the Companys Current
Report on Form 8-K filed July 29, 2003 and incorporated herein
by reference)
|    |  |             |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|    |  | 10.3        |  |  | Kaydon Corporation 2003 Non-Employee Directors
Equity Plan (previously filed as Exhibit 99.2 to the Companys
Registration Statement on Form S-8 filed May 9, 2003, and
incorporated herein by reference)                                                                                                                                                                                                                                   
|    |  |             |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|    |  | 31          |  |  | 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 2002                                                                                                                                                                                                                                                                                       
|    |  |             |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|    |  | 32          |  |  | Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002