##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT of 1934
 For the quarterly period ended April 3, 2010
    
    Commission File No. 1-11333
 KAYDON CORPORATION
  Delaware
    
    13-3186040(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)Suite 300, 315 E. Eisenhower Parkway, Ann Arbor, Michigan
    
    48108(Address of principal executive offices)
    
    (Zip Code)
 (734) 747-7025
  þ o
  o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ




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##### 



Page No.Part I  Financial Information:Item 1. Financial Statements.
    
    
    1Consolidated Condensed Balance Sheets  April 3, 2010 (Unaudited) and December 31, 2009
    
    
    1Consolidated
Condensed Statements of Income (Unaudited)  Quarters Ended
April 3, 2010 and April 4, 2009
    
    
    2Consolidated Condensed Statements of Cash Flows (Unaudited)  Quarters Ended April 3, 2010 and April 4, 2009
    
    
    3Notes to Consolidated Condensed Financial Statements (Unaudited)
    
    
    4Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations.
    
    
    11Item 3. Quantitative and Qualitative Disclosures About Market Risk.
    
    
    16Item 4. Controls and Procedures.
    
    
    16Part II  Other Information:
    
    
    16Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
    
    
    16Item 6. Exhibits.
    
    
    17Signatures
    
    
    18EX-10.1EX-31.1EX-31.2EX-32




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##### Table of Contents



ITEM 1. FINANCIAL STATEMENTS.
 KAYDON CORPORATION
 
 CONSOLIDATED CONDENSED BALANCE SHEETS
 (Unaudited)April 3, 2010
    
    December 31, 2009ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    275,013,000
    
    
    $
    262,403,000Accounts receivable, net
    
    
    83,983,000
    
    
    
    77,977,000Inventories, net
    
    
    87,083,000
    
    
    
    88,796,000Other current assets
    
    
    14,716,000
    
    
    
    16,601,000Total current assets
    
    
    460,795,000
    
    
    
    445,777,000Property, plant and equipment, net
    
    
    171,981,000
    
    
    
    175,716,000Goodwill, net
    
    
    143,199,000
    
    
    
    143,891,000Other intangible assets, net
    
    
    20,601,000
    
    
    
    21,552,000Other assets
    
    
    1,040,000
    
    
    
    1,008,000Total assets
    
    $
    797,616,000
    
    
    $
    787,944,000LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    22,568,000
    
    
    $
    21,353,000Salaries and wages
    
    
    7,390,000
    
    
    
    5,087,000Taxes payable
    
    
    6,743,000
    
    
    
    2,473,000Other accrued expenses
    
    
    21,357,000
    
    
    
    19,171,000Total current liabilities
    
    
    58,058,000
    
    
    
    48,084,000Long-term postretirement and
postemployment benefit obligations
    
    
    29,297,000
    
    
    
    28,669,000Other long-term liabilities
    
    
    11,395,000
    
    
    
    11,226,000Total long-term liabilities
    
    
    40,692,000
    
    
    
    39,895,000Shareholders Equity:Common stock
    
    
    3,693,000
    
    
    
    3,693,000Other shareholders equity
    
    
    695,173,000
    
    
    
    696,272,000Total shareholders equity
    
    
    698,866,000
    
    
    
    699,965,000Total liabilities and shareholders equity
    
    $
    797,616,000
    
    
    $
    787,944,000
  1




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##### Table of Contents



KAYDON CORPORATION


CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
 First Quarter EndedApril 3, 2010
    
    April 4, 2009Net sales
    
    $
    119,245,000
    
    
    $
    110,335,000Cost of sales
    
    
    77,476,000
    
    
    
    74,557,000Gross profit
    
    
    41,769,000
    
    
    
    35,778,000Selling, general and
administrative expenses
    
    
    22,087,000
    
    
    
    20,258,000Operating income
    
    
    19,682,000
    
    
    
    15,520,000Interest expense
    
    
    (62,000
    )
    
    
    (62,000
    )Interest income
    
    
    24,000
    
    
    
    130,000Income before income taxes
    
    
    19,644,000
    
    
    
    15,588,000Provision for income taxes
    
    
    5,817,000
    
    
    
    5,464,000Net income
    
    $
    13,827,000
    
    
    $
    10,124,000Earnings per share:Basic
    
    $
    0.41
    
    
    $
    0.30Diluted
    
    $
    0.41
    
    
    $
    0.30Dividends declared per share
    
    $
    0.18
    
    
    $
    0.17
  2




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KAYDON CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 First Quarter EndedApril 3, 2010
    
    April 4, 2009Cash flows from operating activities:Net income
    
    $
    13,827,000
    
    
    $
    10,124,000Adjustments to reconcile net income to net cash from
operating activities:Depreciation
    
    
    5,031,000
    
    
    
    4,694,000Amortization of intangible assets
    
    
    971,000
    
    
    
    1,070,000Amortization of stock awards
    
    
    1,072,000
    
    
    
    1,035,000Stock option compensation expense
    
    
    297,000
    
    
    
    330,000Excess tax benefits from stock-based compensation
    
    
    (62,000
    )
    
    
    22,000Deferred financing fees
    
    
    62,000
    
    
    
    62,000Net change in receivables, inventories and trade payables
    
    
    (3,805,000
    )
    
    
    (14,119,000
    )Net change in other assets and liabilities
    
    
    12,234,000
    
    
    
    3,416,000Net cash from operating activities
    
    
    29,627,000
    
    
    
    6,634,000Cash flows from investing activities:Capital expenditures
    
    
    (1,700,000
    )
    
    
    (5,382,000
    )Dispositions of property, plant and equipment
    
    
    21,000
    
    
    
    6,000Proceeds from sales of investments
    
    
    0
    
    
    
    1,416,000Net cash used in investing activities
    
    
    (1,679,000
    )
    
    
    (3,960,000
    )Cash flows from financing activities:Cash dividends paid
    
    
    (6,043,000
    )
    
    
    (5,750,000
    )Purchase of treasury stock
    
    
    (7,515,000
    )
    
    
    (8,871,000
    )Excess tax benefits from stock-based compensation
    
    
    62,000
    
    
    
    (22,000
    )Proceeds from exercise of stock options
    
    
    7,000
    
    
    
    0Cash used in financing activities
    
    
    (13,489,000
    )
    
    
    (14,643,000
    )Effect of exchange rate changes on cash and
cash equivalents
    
    
    (1,849,000
    )
    
    
    (682,000
    )Net increase (decrease) in cash and cash equivalents
    
    
    12,610,000
    
    
    
    (12,651,000
    )Cash and cash equivalents  Beginning of period
    
    
    262,403,000
    
    
    
    232,998,000Cash and cash equivalents  End of period
    
    $
    275,013,000
    
    
    $
    220,347,000Cash paid for income taxes
    
    $
    745,000
    
    
    $
    2,391,000Cash paid for interest
    
    
    0
    
    
    
    0
  3




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KAYDON CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
 (1) Basis of Presentation:
  (2) Cash and Cash Equivalents:
  April 3, 2010
    
    December 31, 2009Cash and cash equivalents:Money market and other short-term funds
    
    $
    245,735,000
    
    
    $
    248,091,000Time deposits, other interest bearing accounts, and other cash
    
    
    29,278,000
    
    
    
    14,312,000Cash and cash equivalents
    
    $
    275,013,000
    
    
    $
    262,403,000(3) Inventories:April 3, 2010
    
    December 31, 2009Raw material
    
    $
    32,912,000
    
    
    $
    32,933,000Work in process
    
    
    24,885,000
    
    
    
    22,857,000Finished goods
    
    
    29,286,000
    
    
    
    33,006,000$
    87,083,000
    
    
    $
    88,796,000
 (4) Comprehensive Income:
  4




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(5) Earnings per Share:
  First Quarter EndedApril 3, 2010
    
    April 4, 2009Earnings per share  BasicNet income
    
    $
    13,827,000
    
    
    $
    10,124,000Less: Net earnings allocated to participating
securities  Basic
    
    
    (147,000
    )
    
    
    (114,000
    )Income available to common shareholders  Basic
    
    $
    13,680,000
    
    
    $
    10,010,000Weighted average common shares outstanding  Basic
    
    
    33,273,000
    
    
    
    33,323,000Earnings per share  Basic
    
    $
    0.41
    
    
    $
    0.30Earnings per share  DilutedNet income
    
    $
    13,827,000
    
    
    $
    10,124,000Less: Net earnings allocated to participating
securities  Diluted
    
    
    (147,000
    )
    
    
    (114,000
    )Income available to common shareholders  Diluted
    
    $
    13,680,000
    
    
    $
    10,010,000Weighted average common shares outstanding  DilutedWeighted average common shares outstanding  Basic
    
    
    33,273,000
    
    
    
    33,323,000Potential dilutive shares resulting from stock options
    
    
    24,000
    
    
    
    7,000Weighted average common shares outstanding  Diluted
    
    
    33,297,000
    
    
    
    33,330,000Earnings per share  Diluted
    
    $
    0.41
    
    
    $
    0.30
  (6) Business Segment Information:
  5




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First Quarter EndedApril 3, 2010
    
    April 4, 2009Net salesFriction Control Products
    
    $
    79,782,000
    
    
    $
    72,195,000Velocity Control Products
    
    
    14,233,000
    
    
    
    12,159,000Other Industrial Products
    
    
    25,230,000
    
    
    
    25,981,000Total consolidated net sales
    
    $
    119,245,000
    
    
    $
    110,335,000
 First Quarter EndedApril 3, 2010
    
    April 4, 2009Operating incomeFriction Control Products
    
    $
    16,544,000
    
    
    $
    12,482,000Velocity Control Products
    
    
    3,375,000
    
    
    
    2,176,000Other Industrial Products
    
    
    1,306,000
    
    
    
    1,353,000Total segment operating income
    
    
    21,225,000
    
    
    
    16,011,000Items not allocated to segment
operating income
    
    
    (1,543,000
    )
    
    
    (491,000
    )Interest expense
    
    
    (62,000
    )
    
    
    (62,000
    )Interest income
    
    
    24,000
    
    
    
    130,000Income before income taxes
    
    $
    19,644,000
    
    
    $
    15,588,000
 (7) Long-term Debt:
  (8) Goodwill and Other Intangible Assets:
   6




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Friction
    
    Velocity
    
    OtherControl
    
    Control
    
    IndustrialProducts
    
    Products
    
    Products
    
    TotalBalance as of January 1, 2010Goodwill
    
    $
    56,859,000
    
    
    $
    43,200,000
    
    
    $
    62,532,000
    
    
    $
    162,591,000Accumulated impairment losses
    
    
    0
    
    
    
    0
    
    
    
    (18,700,000
    )
    
    
    (18,700,000
    )$
    56,859,000
    
    
    $
    43,200,000
    
    
    $
    43,832,000
    
    
    $
    143,891,000Effect of foreign currency
exchange rate changes
    
    
    (692,000
    )
    
    
    0
    
    
    
    0
    
    
    
    (692,000
    )Balance as of April 3, 2010Goodwill
    
    $
    56,167,000
    
    
    $
    43,200,000
    
    
    $
    62,532,000
    
    
    $
    161,899,000Accumulated impairment losses
    
    
    0
    
    
    
    0
    
    
    
    (18,700,000
    )
    
    
    (18,700,000
    )$
    56,167,000
    
    
    $
    43,200,000
    
    
    $
    43,832,000
    
    
    $
    143,199,000
   April 3, 2010
    
    December 31, 2009Gross
    
    
    
    
    
    GrossCarrying
    
    Accumulated
    
    Carrying
    
    AccumulatedAmortized Intangible Assets
    
    Amount
    
    Amortization
    
    Amount
    
    AmortizationCustomer relationships and lists
    
    $
    28,194,000
    
    
    $
    15,488,000
    
    
    $
    28,194,000
    
    
    $
    14,672,000Patents and developed technology
    
    
    6,536,000
    
    
    
    3,622,000
    
    
    
    6,516,000
    
    
    
    3,503,000Backlog
    
    
    3,300,000
    
    
    
    3,239,000
    
    
    
    3,300,000
    
    
    
    3,219,000Distributor agreements
    
    
    374,000
    
    
    
    208,000
    
    
    
    374,000
    
    
    
    199,000Product names
    
    
    320,000
    
    
    
    170,000
    
    
    
    320,000
    
    
    
    163,000$
    38,724,000
    
    
    $
    22,727,000
    
    
    $
    38,704,000
    
    
    $
    21,756,000
  April 3, 2010
    
    December 31, 2009Unamortized Intangible Assets
    
    Carrying Amount
    
    Carrying AmountTrademarks
    
    $
    4,604,000
    
    
    $
    4,604,000
 7




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Aggregate Intangible Assets Amortization ExpenseFor the first quarter ended April 3, 2010
    
    $
    971,000For the first quarter ended April 4, 2009
    
    $
    1,070,000
 Estimated Intangible Assets Amortization ExpenseFor the year ending December 31, 2010
    
    $
    3,577,000For the year ending December 31, 2011
    
    $
    2,265,000For the year ending December 31, 2012
    
    $
    1,983,000For the year ending December 31, 2013
    
    $
    1,716,000For the year ending December 31, 2014
    
    $
    1,418,000
 (9) Employee Benefit Plans:
  First Quarter EndedPension Benefits
    
    April 3, 2010
    
    April 4, 2009Service cost
    
    $
    831,000
    
    
    $
    791,000Interest cost
    
    
    1,738,000
    
    
    
    1,712,000Expected return on plan assets
    
    
    (1,921,000
    )
    
    
    (1,411,000
    )Amortization of:Unrecognized net prior service
cost
    
    
    16,000
    
    
    
    3,000Unrecognized net loss
    
    
    870,000
    
    
    
    1,265,000Total
    
    $
    1,534,000
    
    
    $
    2,360,000
 First Quarter EndedPostretirement Benefits
    

April 3, 2010
    

April 4, 2009Service cost
    
    $
    62,000
    
    
    $
    79,000Interest cost
    
    
    136,000
    
    
    
    172,000Amortization of:Unrecognized net prior
service cost
    
    
    (289,000
    )
    
    
    (301,000
    )Unrecognized net gain
    
    
    (75,000
    )
    
    
    (128,000
    )Total
    
    $
    (166,000
    )
    
    $
    (178,000
    )
  8




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(10) Stock-Based Compensation:
  First Quarter EndedApril 3, 2010Wtd.-Avg.Restricted
    
    Grant DateStock
    
    Fair ValueOutstanding at January 1, 2010
    
    
    345,970
    
    
    $
    35.93Granted
    
    
    119,500
    
    
    $
    34.70Vested
    
    
    (131,486
    )
    
    $
    35.04Canceled
    
    
    (5,003
    )
    
    $
    34.38Outstanding at April 3, 2010
    
    
    328,981
    
    
    $
    35.87
   First  Quarter EndedApril 3, 2010Wtd.-Avg.Options
    
    
    Ex. PriceOutstanding at January 1, 2010
    
    
    549,750
    
    
    $
    38.67Granted
    
    
    67,500
    
    
    $
    34.70Canceled
    
    
    (21,000
    )
    
    $
    25.58Exercised
    
    
    (250
    )
    
    $
    28.41Outstanding at April 3, 2010
    
    
    596,000
    
    
    $
    38.68Exercisable at April 3, 2010
    
    
    271,400
    
    
    $
    40.60Weighted-Avg. Fair Value of Options Granted
    
    $
    10.42Weighted-Avg. Remaining Contractual Life (years)Outstanding at April 3, 2010
    
    
    7.5Exercisable at April 3, 2010
    
    
    6.8
   9




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(11) Fair Value Measurement:
  (12) Other Matters:
  (13) Taxes:
  (14) Impact of Recently Issued Accounting Pronouncements:
  10




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
     Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations
 Results of Operations
 For the first quarters endedApril 3,
    
    % of
    
    April 4,
    
    % ofDollars in millions, except per share amounts
    
    2010
    
    Sales
    
    2009
    
    SalesNet sales
    
    $
    119.2
    
    
    
    
    
    
    $
    110.3Cost of sales
    
    
    77.5
    
    
    
    
    
    
    
    74.6Gross profit
    
    
    41.8
    
    
    
    35.0
    %
    
    
    35.8
    
    
    
    32.4
    %Selling, general and administrative expenses
    
    
    22.1
    
    
    
    18.5
    %
    
    
    20.3
    
    
    
    18.4
    %Operating income
    
    
    19.7
    
    
    
    16.5
    %
    
    
    15.5
    
    
    
    14.1
    %Interest, net
    
    
    0.0
    
    
    
    
    
    
    
    0.1Income before income taxes
    
    
    19.6
    
    
    
    
    
    
    
    15.6Provision for income taxes
    
    
    5.8
    
    
    
    
    
    
    
    5.5Net income
    
    $
    13.8
    
    
    
    
    
    
    $
    10.1Earnings per share:Basic
    
    $
    0.41
    
    
    
    
    
    
    $
    0.30Diluted
    
    $
    0.41
    
    
    
    
    
    
    $
    0.30
   11




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Results of Business Segments
  12




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Friction Control Products
 For the first quarter endedApril 3,
    
    April 4,
    
    %Dollars in millions
    
    2010
    
    2009
    
    ChangeSales
    
    $
    79.8
    
    
    $
    72.2
    
    
    
    10.5
    %Operating Income
    
    $
    16.5
    
    
    $
    12.5
    
    
    
    32.5
    %Operating Margin
    
    
    20.7
    %
    
    
    17.3
    %
   Velocity Control Products
 For the first quarter endedApril 3,
    
    April 4,
    
    %Dollars in millions
    
    2010
    
    2009
    
    ChangeSales
    
    $
    14.2
    
    
    $
    12.2
    
    
    
    17.1
    %Operating Income
    
    $
    3.4
    
    
    $
    2.2
    
    
    
    55.1
    %Operating Margin
    
    
    23.7
    %
    
    
    17.9
    %
   Other Industrial Products
 For the first quarter endedApril 3,
    
    April 4,
    
    %Dollars in millions
    
    2010
    
    2009
    
    ChangeSales
    
    $
    25.2
    
    
    $
    26.0
    
    
    
    (2.9
    )%Operating Income
    
    $
    1.3
    
    
    $
    1.4
    
    
    
    (3.5
    )%Operating Margin
    
    
    5.2
    %
    
    
    5.2
    %
   13




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Liquidity and Capital Resources
        Outlook
  14




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Critical Accounting Policies and Estimates
  Item 7. Managements Discussion and Analysis of Financial Condition
and Results of Operations
 Forward-Looking Statements
   15




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
  
 ITEM 4. CONTROLS AND PROCEDURES.
  
 PART II. OTHER INFORMATION
 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
  Total Number of
    
    Maximum NumberTotal Number
    
    Average Price
    
    Shares Purchased as
    
    of Shares that MayOf Shares
    
    Paid
    
    Part of Publicly
    
    Yet be PurchasedPeriod
    
    Purchased
    
    Per Share
    
    Announced Plan
    
    Under the Plan (1)January 1 to January 30
    
    
    35,574
    
    
    $
    36.17
    
    
    
    35,574
    
    
    
    2,993,609January 31 to February 27
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    2,993,609February 28 to April 3
    
    
    171,863
    
    
    $
    36.24
    
    
    
    171,863
    
    
    
    2,821,746Total
    
    
    207,437
    
    
    $
    36.23
    
    
    
    207,437
    
    
    
    2,821,746
  (1)
    
    On May 6, 2005, the Companys Board of Directors authorized management to purchase up to
5,000,000 shares of its common stock in the open market. 16




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ITEM 6. EXHIBITS.
 Exhibit No.
    
    Description10.1*
    
    Fourteenth Amendment to the Amended and Restated Kaydon Employee Stock Ownership and Thrift
Plan Effective January 4, 201031.1
    
    Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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##### Table of Contents



KAYDON CORPORATIONMay 5, 2010
    /s/ Peter C. DeChantsPeter C. DeChantsSenior Vice President, Chief Financial OfficerMay 5, 2010
    /s/ Donald I. BuzinkaiDonald I. BuzinkaiVice President, Chief Accounting Officer 18