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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 29, 2002 |  | Commission File No. 0-12640

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

|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization) |  | 13-3186040
(I.R.S. Employer Identification No.)

|                                                          |  |  |            | 
|--------------------------------------------------------- |  |  | ---------- | 
|315 E. Eisenhower Parkway, Suite 300, 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

Common Stock Outstanding at July 22, 2002  30,476,818 shares, $.10 par value.





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|                                              |                                                                                                            |  |  |  |  |  |  | 
|--------------------------------------------- | ---------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|Part I  Financial Information:              
|                                              | Item 1. Financial Statements                                                                              
|                                              | Consolidated Condensed Balance Sheets  June 29, 2002 and December 31, 2001                               
|                                              | Consolidated Condensed Statements of Income  Quarter and First Half Ended June 29, 2002 and June 30, 2001
|                                              | Consolidated Condensed Statements of Cash Flows  First Half Ended June 29, 2002 and June 30, 2001        
|                                              | 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                                        
|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-99.1 Certification Pursuant to Section 906



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KAYDON CORPORATION FORM 10-Q

FOR THE QUARTER ENDED JUNE 29, 2002

INDEX

|                                |                                                                                                            |  |          |         | 
|------------------------------- | ---------------------------------------------------------------------------------------------------------- |  | -------- | ------- | 
|                                |                                                                                                            |  | Page No. |        
|                                |                                                                                                            |  |          |        
|Part I  Financial Information: |                                                                                                            |  |          |        
|                                | Item 1. Financial Statements                                                                               |  |          |         | 
|                                | Consolidated Condensed Balance Sheets -
June 29, 2002 and December 31, 2001                                |  |          | 1       | 
|                                | Consolidated Condensed Statements of Income -
Quarter and First Half Ended June 29, 2002
and June 30, 2001 |  |          | 2       | 
|                                | Consolidated Condensed Statements of Cash Flows -
First Half Ended June 29, 2002 and June 30, 2001         |  |          | 3       | 
|                                | Notes to Consolidated Condensed Financial Statements                                                       |  |          | 4 - 16  | 
|                                | Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations              |  |          | 17 - 23 | 
|                                | Item 3. Quantitative and Qualitative Disclosures About Market Risk                                         |  |          | 23 - 24 | 
|Part II  Other Information:    |                                                                                                            |  |          |        
|                                | Item 1.  Legal Proceedings                                                                                |  |          | 25      | 
|                                | Item 4.  Submission of Matters to a Vote of Security Holders                                              |  |          | 25      | 
|                                | Item 6.  Exhibits and Reports on Form 8-K                                                                 |  |          | 25      | 
|                                | Signatures                                                                                                 |  |          | 26      | 





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ITEM 1. FINANCIAL STATEMENTS
KAYDON CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS

|                                                                       |  |               |              |   |                   |   |              |  
|---------------------------------------------------------------------- |  | ------------- | ------------ | - | ----------------- | - | ------------ | -
|                                                                       |  | June 29, 2002 |              |   | December 31, 2001 |  
|                                                                       |  |               |              |   |                   |  
|                                                                       |  | (UNAUDITED)   |              |   |                   |  
|Assets:                                                                |  |               |              |   |                   |   |              |  
|Cash and cash equivalents                                              |  | $             | 123,295,000  |   |                   | $ | 152,570,000  |  
|Accounts receivable, net                                               |  |               | 45,680,000   |   |                   |   | 38,432,000   |  
|Inventories, net                                                       |  |               | 52,148,000   |   |                   |   | 55,066,000   |  
|Other current assets                                                   |  |               | 17,462,000   |   |                   |   | 15,706,000   |  
|                                                                       |  |               |              |   |                   |  
|Total current assets                                                   |  |               | 238,585,000  |   |                   |   | 261,774,000  |  
|                                                                       |  |               |              |   |                   |  
|Property, plant and equipment, net                                     |  |               | 84,922,000   |   |                   |   | 84,273,000   |  
|Cost in excess of net assets
of purchased businesses, net (Goodwill) |  |               | 124,960,000  |   |                   |   | 121,708,000  |  
|Other intangible assets                                                |  |               | 10,164,000   |   |                   |   | 11,066,000   |  
|Other assets                                                           |  |               | 19,445,000   |   |                   |   | 18,977,000   |  
|                                                                       |  |               |              |   |                   |  
|Total assets                                                           |  | $             | 478,076,000  |   |                   | $ | 497,798,000  |  
|                                                                       |  |               |              |   |                   |  
|Liabilities and Shareholders Equity:                                  |  |               |              |   |                   |   |              |  
|Accounts payable                                                       |  | $             | 10,626,000   |   |                   | $ | 10,117,000   |  
|Accrued expenses                                                       |  |               | 37,899,000   |   |                   |   | 21,528,000   |  
|                                                                       |  |               |              |   |                   |  
|Total current liabilities                                              |  |               | 48,525,000   |   |                   |   | 31,645,000   |  
|                                                                       |  |               |              |   |                   |  
|Long-term debt                                                         |  |               | 72,161,000   |   |                   |   | 112,194,000  |  
|Long-term liabilities                                                  |  |               | 49,123,000   |   |                   |   | 50,155,000   |  
|                                                                       |  |               |              |   |                   |  
|Total long-term liabilities                                            |  |               | 121,284,000  |   |                   |   | 162,349,000  |  
|                                                                       |  |               |              |   |                   |  
|Shareholders equity:                                                  |  |               |              |   |                   |   |              |  
|Common stock                                                           |  |               | 3,693,000    |   |                   |   | 3,691,000    |  
|Paid-in capital                                                        |  |               | 45,713,000   |   |                   |   | 45,017,000   |  
|Retained earnings                                                      |  |               | 409,121,000  |   |                   |   | 408,058,000  |  
|Less  treasury stock, at cost                                         |  |               | (135,157,000 | ) |                   |   | (135,782,000 | )
|Less  restricted stock awards                                         |  |               | (9,995,000   | ) |                   |   | (9,619,000   | )
|Accumulated other comprehensive loss                                   |  |               | (5,108,000   | ) |                   |   | (7,561,000   | )
|                                                                       |  |               |              |   |                   |  
|                                                                       |  |               | 308,267,000  |   |                   |   | 303,804,000  |  
|                                                                       |  |               |              |   |                   |  
|Total liabilities and
shareholders equity                             |  | $             | 478,076,000  |   |                   | $ | 497,798,000  |  
|                                                                       |  |               |              |   |                   |  

See accompanying notes to consolidated condensed financial statements.

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KAYDON CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)

|                                                                   |         |   |               |            |  |                  |            |            |               |   |             |               |  |   |             |            |  
|------------------------------------------------------------------ | ------- | - | ------------- | ---------- |  | ---------------- | ---------- | ---------- | ------------- | - | ----------- | ------------- |  | - | ----------- | ---------- | -
|                                                                   |         |   | Quarter Ended |            |  | First Half Ended |           
|                                                                   |         |   |               |            |  |                  |           
|                                                                   |         |   | June 29, 2002 |            |  | June 30, 2001    |            |            | June 29, 2002 |   |             | June 30, 2001 | 
|                                                                   |         |   |               |            |  |                  |            |            |               |   |             |               | 
|Net sales                                                          |         | $ | 73,243,000    |            |  | $                | 74,074,000 |            |               | $ | 139,388,000 |               |  | $ | 150,670,000 |           
|Cost of sales                                                      |         |   | 48,619,000    |            |  |                  | 48,086,000 |            |               |   | 92,529,000  |               |  |   | 96,823,000  |           
|                                                                   |         |   |               |            |  |                  |            |            |               |   |             |              
|Gross profit                                                       |         |   | 24,624,000    |            |  |                  | 25,988,000 |            |               |   | 46,859,000  |               |  |   | 53,847,000  |           
|Selling, general, and
administrative expenses                      |         |   | 13,482,000    |            |  |                  | 12,714,000 |            |               |   | 26,462,000  |               |  |   | 24,151,000  |           
|Unusual litigation-related charge                                  |         |   | 7,500,000     |            |  |                  |           |            |               |   | 7,500,000   |               |  |   |            |           
|                                                                   |         |   |               |            |  |                  |            |            |               |   |             |              
|Operating income from
continuing operations                        |         |   | 3,642,000     |            |  |                  | 13,274,000 |            |               |   | 12,897,000  |               |  |   | 29,696,000  |           
|Interest income (expense), net,
from continuing operations         |         |   | 144,000       |            |  |                  | (302,000   | )          |               |   | 189,000     |               |  |   | 270,000     |           
|                                                                   |         |   |               |            |  |                  |            |            |               |   |             |              
|Income from continuing
operations before income taxes              |         |   | 3,786,000     |            |  |                  | 12,972,000 |            |               |   | 13,086,000  |               |  |   | 29,966,000  |           
|Provision for income taxes                                         |         |   | 1,363,000     |            |  |                  | 4,800,000  |            |               |   | 4,711,000   |               |  |   | 11,087,000  |           
|                                                                   |         |   |               |            |  |                  |            |            |               |   |             |              
|Net income from continuing
operations                              |         |   | 2,423,000     |            |  |                  | 8,172,000  |            |               |   | 8,375,000   |               |  |   | 18,879,000  |           
|                                                                   |         |   |               |            |  |                  |            |            |               |   |             |              
|Discontinued Operations                                            |         |   |               |            |  |                  |            |            |               |   |             |               |  |   |             |           
|(Loss) from operations of
discontinued segment before
income taxes |         |   |              |            |  |                  | (2,666,000 | )          |               |   |            |               |  |   | (3,161,000  | )         
|(Credit) for income taxes                                          |         |   |              |            |  |                  | (986,000   | )          |               |   |            |               |  |   | (1,169,000  | )         
|                                                                   |         |   |               |            |  |                  |            |            |               |   |             |              
|Net (loss) from discontinued
operations                            |         |   |              |            |  |                  | (1,680,000 | )          |               |   |            |               |  |   | (1,992,000  | )         
|                                                                   |         |   |               |            |  |                  |            |            |               |   |             |              
|Net income                                                         |         | $ | 2,423,000     |            |  | $                | 6,492,000  |            |               | $ | 8,375,000   |               |  | $ | 16,887,000  |           
|                                                                   |         |   |               |            |  |                  |            |            |               |   |             |              
|Weighted Average Common Shares:                                    |         |   |               |            |  |                  |            |            |               |   |             |               |  |   |             |           
|                                                                   | Basic   |   |               | 29,987,000 |  |                  |            | 29,973,000 |               |   |             | 29,982,000    |  |   |             | 29,951,000 |  
|                                                                   | Diluted |   |               | 30,015,000 |  |                  |            | 30,030,000 |               |   |             | 30,001,000    |  |   |             | 29,994,000 |  
|Earnings Per Share-Continuing Operations                           |         |   |               |            |  |                  |            |            |               |   |             |               |  |   |             |           
|                                                                   | Basic   |   | $             | 0.08       |  |                  | $          | .27        |               |   | $           | 0.28          |  |   | $           | .63        |  
|                                                                   | Diluted |   | $             | 0.08       |  |                  | $          | .27        |               |   | $           | 0.28          |  |   | $           | .63        |  
|(Loss) Per Share  Discontinued Operations                         |         |   |               |            |  |                  |            |            |               |   |             |               |  |   |             |           
|                                                                   | Basic   |   |              |            |  | $                | (0.06      | )          |               |   |            |               |  | $ | (0.07       | )         
|                                                                   | Diluted |   |               |           |  |                  | $          | (0.06      | )             |   |             |              |  |   | $           | (0.07      | )
|Earnings Per Share                                                 |         |   |               |            |  |                  |            |            |               |   |             |               |  |   |             |           
|                                                                   | Basic   |   | $             | 0.08       |  |                  | $          | .22        |               |   | $           | 0.28          |  |   | $           | .56        |  
|                                                                   | Diluted |   | $             | 0.08       |  |                  | $          | .22        |               |   | $           | 0.28          |  |   | $           | .56        |  
|Dividends Declared 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 29, 2002    |             |             | June 30, 2001 |           
|                                                             |                                                 |                 |             |             |                  |             |             |               |           
|Cash flows from operating activities                         |                                                 | $               | 26,579,000  |             |                  | $           | 18,449,000  |              
|                                                             |                                                 |                 |             |             |                  |            
|Cash flows used in investing activities:                     |                                                 |                 |             |             |                  |             |             |              
|                                                             | Capital expenditures, net                       |                 |             | (4,479,000  | )                |             |             | (5,732,000    | )         
|                                                             | Acquisition of businesses, net                  |                 |             | (4,401,000  | )                |             |             | (70,584,000   | )         
|                                                             |                                                 |                 |             |             |                  |            
|Cash used in investing activities                            |                                                 |                 | (8,880,000  | )           |                  |             | (76,316,000 | )            
|                                                             |                                                 |                 |             |             |                  |            
|                                                             | Cash flows from (used in) financing activities: |                 |             |             |                  |             |             |               |           
|                                                             |                                                 | Dividends paid  |             |             | (7,300,000       | )           |             |               | (7,287,000 | )         
|                                                             |                                                 | Long-term debt: |             |             |                  |             |             |               |            |           
|                                                             |                                                 |                 | Issuance    |             |                  |            |             |               |            | 70,750,000 |  
|                                                             |                                                 |                 | Retirement  |             |                  | (40,034,000 | )           |               |            | (33,000    | )
|Proceeds from issuance of common stock                       |                                                 |                 | 475,000     |             |                  |             | 1,096,000   |              
|Purchase of treasury stock                                   |                                                 |                 | (20,000     | )           |                  |             | (546,000    | )            
|                                                             |                                                 |                 |             |             |                  |            
|                                                             | Cash from (used in) financing activities        |                 |             | (46,879,000 | )                |             |             | 63,980,000    |           
|                                                             |                                                 |                 |             |             |                  |            
|Cash (used in) discontinued operations                       |                                                 |                 |            |             |                  |             | (1,885,000  | )            
|Effect of exchange rate changes on cash
and cash equivalents |                                                 |                 | (95,000     | )           |                  |             | (566,000    | )            
|                                                             |                                                 |                 |             |             |                  |            
|Net increase (decrease) in cash and cash equivalents         |                                                 |                 | (29,275,000 | )           |                  |             | 3,662,000   |              
|Cash and cash equivalents  Beginning of period              |                                                 |                 | 152,570,000 |             |                  |             | 114,965,000 |              
|                                                             |                                                 |                 |             |             |                  |            
|Cash and cash equivalents  End of period                    |                                                 | $               | 123,295,000 |             |                  | $           | 118,627,000 |              
|                                                             |                                                 |                 |             |             |                  |            
|Cash expended for income taxes                               |                                                 | $               | 6,431,000   |             |                  | $           | 13,865,000  |              
|                                                             |                                                 |                 |             |             |                  |            
|Cash expended for interest                                   |                                                 | $               | 1,066,000   |             |                  | $           | 1,975,000   |              
|                                                             |                                                 |                 |             |             |                  |            

See accompanying notes to consolidated condensed financial statements.

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KAYDON CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS



|(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,
2001.                                              
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards (SFAS) No. 142 Goodwill and Other
Intangible Assets. This pronouncement amends the accounting for goodwill
and intangible assets. SFAS No. 142 no longer permits amortization of
goodwill and indefinite-lived intangible assets. Separable intangible
assets that are not deemed to have an indefinite life will continue to be
amortized over their useful lives. In addition, SFAS No. 142 establishes
a new method of testing goodwill for impairment by using a fair-value
approach. The amortization provisions of SFAS No. 142 apply to goodwill
and intangible assets acquired after June 30, 2001. With respect to
goodwill and intangible assets acquired prior to July 1, 2001, Kaydon, as
required, adopted the pronouncement in the fiscal year beginning January
1, 2002. Please refer to Notes to Consolidated Condensed Financial
Statements (Note 9) in this quarterly report on Form 10-Q for additional
information on the implementation status of SFAS No. 142 at Kaydon.
|   
|    |  | Also, the Financial Accounting Standards Board has issued SFAS No. 143,
Accounting for Asset Retirement Obligations. The pronouncement
requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. Companies
are required to adopt the pronouncement in their fiscal year beginning
after June 15, 2002. The Company is currently assessing the effect of
the new pronouncement, but at this time can not estimate the impact, if
any, on the consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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|(2) |  | Inventories are summarized as follows:
|--- |  | --------------------------------------

|                |  |               |            |  |                   |   |            | 
|--------------- |  | ------------- | ---------- |  | ----------------- | - | ---------- | 
|                |  | June 29, 2002 |            |  | December 31, 2001 |  
|                |  |               |            |  |                   |  
|Raw Material    |  | $             | 17,958,000 |  |                   | $ | 17,482,000 | 
|Work in Process |  |               | 12,875,000 |  |                   |   | 11,227,000 | 
|Finished Goods  |  |               | 21,315,000 |  |                   |   | 26,357,000 | 
|                |  |               |            |  |                   |  
|                |  | $             | 52,148,000 |  |                   | $ | 55,066,000 | 
|                |  |               |            |  |                   |  



|(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 of net income, foreign currency translation adjustments,
minimum pension liability adjustments and unrealized loss on derivative
financial instruments. Other comprehensive income, net of tax, was
approximately $3.3 million and $0.1 million, resulting in comprehensive
income of $5.7 million and $6.6 million for the quarters ended June 29,
2002 and June 30, 2001. On a first half basis, other comprehensive
income (loss), net of tax, was approximately $2.5 million and $(2.1)
million, resulting in year to date comprehensive income of $10.8 million
and $14.7 million for the first halves ended June 29, 2002 and June 30,
2001.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(4) |  | The following table reconciles the numerators and denominators used in
the calculation of basic and diluted earnings per share from continuing
operations for the periods presented.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|              |                                                                                                                  |  |   |               |  |  |               |            |  | 
|------------- | ---------------------------------------------------------------------------------------------------------------- |  | - | ------------- |  |  | ------------- | ---------- |  | 
|              |                                                                                                                  |  |   | Quarter Ended | 
|              |                                                                                                                  |  |   |               | 
|              |                                                                                                                  |  |   | June 29, 2002 |  |  | June 30, 2001 |           
|              |                                                                                                                  |  |   |               |  |  |               |           
|Numerators:   |                                                                                                                  |  |   |               |  |  |               |           
|              | Numerators for both
basic and diluted earnings
per share, net income from
continuing operations                  |  | $ | 2,423,000     |  |  | $             | 8,172,000  | 
|              |                                                                                                                  |  |   |               |  | 
|Denominators: |                                                                                                                  |  |   |               |  |  |               |           
|              | Denominators for basic earnings
per share from continuing operations,
weighted average common
shares outstanding |  |   | 29,987,000    |  |  |               | 29,973,000 | 
|              | Potential dilutive shares resulting
from stock options and
restricted stock awards                               |  |   | 28,000        |  |  |               | 57,000     | 
|              |                                                                                                                  |  |   |               |  | 
|              | Denominators for dilutive
earnings per share from continuing
operations                                          |  |   | 30,015,000    |  |  |               | 30,030,000 | 
|              |                                                                                                                  |  |   |               |  | 

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|                                               |         |  |   |     |  |  |   |     | 
|---------------------------------------------- | ------- |  | - | --- |  |  | - | --- | 
|Earnings per share from continuing operations: |         |  |   |     |  |  |   |    
|                                               | Basic   |  | $ | .08 |  |  | $ | .27 | 
|                                               |         |  |   |     |  | 
|                                               | Diluted |  | $ | .08 |  |  | $ | .27 | 
|                                               |         |  |   |     |  | 

|                                                                        |                                                                                                                  |   |                  |            |  |               |            |            | 
|----------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- | - | ---------------- | ---------- |  | ------------- | ---------- | ---------- | 
|                                                                        |                                                                                                                  |   | First Half Ended |           
|                                                                        |                                                                                                                  |   |                  |           
|                                                                        |                                                                                                                  |   | June 29, 2002    |            |  | June 30, 2001 |           
|                                                                        |                                                                                                                  |   |                  |            |  |               |           
|Numerators:                                                             |                                                                                                                  |   |                  |            |  |               |            |           
|                                                                        | Numerators for both
basic and diluted earnings
per share, net income from
continuing operations                  |   | $                | 8,375,000  |  |               | $          | 18,879,000 | 
|                                                                        |                                                                                                                  |   |                  |            |  |              
|Denominators:                                                           |                                                                                                                  |   |                  |            |  |               |            |           
|                                                                        | Denominators for basic earnings
per share from continuing operations,
weighted average common
shares outstanding |   |                  | 29,982,000 |  |               |            | 29,951,000 | 
|                                                                        | Potential dilutive shares resulting
from stock options and
restricted stock awards                               |   |                  | 19,000     |  |               |            | 43,000     | 
|                                                                        |                                                                                                                  |   |                  |            |  |              
|Denominators for dilutive
earnings per share from continuing
operations |                                                                                                                  |   | 30,001,000       |            |  |               | 29,994,000 |           
|                                                                        |                                                                                                                  |   |                  |            |  |              
|Earnings per share from continuing operations:                          |                                                                                                                  |   |                  |            |  |               |            |           
|Basic                                                                   |                                                                                                                  | $ | .28              |            |  | $             | .63        |           
|                                                                        |                                                                                                                  |   |                  |            |  |              
|Diluted                                                                 |                                                                                                                  | $ | .28              |            |  | $             | .63        |           
|                                                                        |                                                                                                                  |   |                  |            |  |              



| |  | 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. Options to purchase
115,300 shares of common stock at prices ranging from $26.01 to $33.3125
per share were outstanding during the second quarter of 2001, 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 accordance with the provisions of Statement of Financial Accounting
Standards No. 128, Earnings Per Share, potential dilutive shares
resulting from stock option plans used in the calculation of dilutive
earnings per share are based on an average of the potential dilutive
shares resulting from stock option plans for the periods presented.                                                                                                                                                                                                                                                                                                                                                         

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|(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. 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 four reportable segments. Prior to the fourth
quarter of 2001 the Company aggregated its operating segments into a
single reportable segment referred to as Custom-Engineered Products. Due
to changes in economic conditions affecting certain operating segments,
during the fourth quarter of 2001 the Company changed the way it
aggregates operating segments for purposes of reporting segment
information. Prior year amounts have been reclassified to reflect the
current year presentation.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Company has three continuing reportable segments and one discontinued
reportable segment engaged in the manufacture and sale of the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | Specialty Metal Formed Products complex metal products used in
specialized industrial and aerospace equipment applications. Products
include anti-friction bearings, split roller bearings, specialty balls,
industrial shock absorbers and metal retaining devices.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    |  | Ring, Seal and Filtration Products complex and standard ring, seal and
filtration products used in demanding industrial, aerospace, medical,
electronic and marine equipment applications. Products include engine
rings, sealing rings, shaft seals, slip-rings, slip-ring assemblies,
fiber optic rotary joints, filter elements and filtration systems.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | Fluid Power Products standard and custom-made hydraulic cylinders used
in heavy industrial equipment applications. The Fluid Power Products
business was sold on December 31, 2001. Its results have been presented
separately in the consolidated financial statements in accordance with
the requirements of SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |  | 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 depreciation of
corporate fixed assets, 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 29, 2002 |            |   | June 30, 2001    |            |            | June 29, 2002 |             |            | June 30, 2001 |  
|                                     |                    |                         |            |               |            |   |                  |            |            |               |             |            |               |  
|Net Sales                            |                    |                         |            |               |            |   |                  |            |            |               |             |            |               |   |             |           
|Specialty Metal Formed Products      |                    |                         |            |               |            |   |                  |            |            |               |             |            |               |   |             |           
|                                     | External customers |                         | $          | 42,546,000    |            |   | $                | 45,351,000 |            |               | $           | 81,243,000 |               |   | $           | 91,529,000 |            
|                                     | Intersegment       |                         |            | 74,000        |            |   |                  | 107,000    |            |               |             | 144,000    |               |   |             | 231,000    |            
|                                     |                    |                         |            |               |            |   |                  |            |            |               |             |           
|                                     |                    |                         | 42,620,000 |               |            |   | 45,458,000       |            |            |               | 81,387,000  |            |               |   | 91,760,000  |           
|Ring, Seal and Filtration Products   |                    |                         |            |               |            |   |                  |            |            |               |             |            |               |   |             |           
|                                     | External customers |                         |            | 24,071,000    |            |   |                  | 22,632,000 |            |               |             | 46,522,000 |               |   |             | 45,556,000 |            
|                                     | Intersegment       |                         |            | (74,000       | )          |   |                  | (107,000   | )          |               |             | (144,000   | )             |   |             | (231,000   | )          
|                                     |                    |                         |            |               |            |   |                  |            |            |               |             |           
|                                     |                    |                         | 23,997,000 |               |            |   | 22,525,000       |            |            |               | 46,378,000  |            |               |   | 45,325,000  |           
|Fluid Power Products                 |                    |                         |           |               |            |   | 15,526,000       |            |            |               |            |            |               |   | 30,284,000  |           
|Other Metal Products                 |                    |                         | 6,626,000  |               |            |   | 6,091,000        |            |            |               | 11,623,000  |            |               |   | 13,585,000  |           
|                                     |                    |                         |            |               |            |   |                  |            |            |               |             |           
|                                     |                    | Total segment net sales |            |               | 73,243,000 |   |                  |            | 89,600,000 |               |             |            | 139,388,000   |   |             |            | 180,954,000 | 
|Net sales of discontinued
operations |                    |                         |           |               |            |   | (15,526,000      | )          |            |               |            |            |               |   | (30,284,000 | )         
|                                     |                    |                         |            |               |            |   |                  |            |            |               |             |           
|Total consolidated net sales         |                    | $                       | 73,243,000 |               |            | $ | 74,074,000       |            |            | $             | 139,388,000 |            |               | $ | 150,670,000 |           
|                                     |                    |                         |            |               |            |   |                  |            |            |               |             |           

|                                                                         |                                |   |               |            |  |                  |            |            |               |   |            |               |  |   |            |            | 
|------------------------------------------------------------------------ | ------------------------------ | - | ------------- | ---------- |  | ---------------- | ---------- | ---------- | ------------- | - | ---------- | ------------- |  | - | ---------- | ---------- | 
|                                                                         |                                |   | Quarter Ended |            |  | First Half Ended |           
|                                                                         |                                |   |               |            |  |                  |           
|                                                                         |                                |   | June 29, 2002 |            |  | June 30, 2001    |            |            | June 29, 2002 |   |            | June 30, 2001 | 
|                                                                         |                                |   |               |            |  |                  |            |            |               |   |            |               | 
|Operating income (loss)                                                  |                                |   |               |            |  |                  |            |            |               |   |            |               |  |   |            |           
|Specialty Metal Formed Products                                          |                                | $ | 7,059,000     |            |  | $                | 9,627,000  |            |               | $ | 12,522,000 |               |  | $ | 22,864,000 |           
|Ring, Seal and Filtration Products                                       |                                |   | 2,988,000     |            |  |                  | 3,142,000  |            |               |   | 6,318,000  |               |  |   | 6,575,000  |           
|Fluid Power Products                                                     |                                |   |              |            |  |                  | (2,666,000 | )          |               |   |           |               |  |   | (3,161,000 | )         
|Other Metal Products                                                     |                                |   | 549,000       |            |  |                  | 168,000    |            |               |   | 908,000    |               |  |   | 924,000    |           
|                                                                         |                                |   |               |            |  |                  |            |            |               |   |            |              
|                                                                         | Total segment operating income |   |               | 10,596,000 |  |                  |            | 10,271,000 |               |   |            | 19,748,000    |  |   |            | 27,202,000 | 
|State income tax provision
included in segment operating
income          |                                |   | 403,000       |            |  |                  | 130,000    |            |               |   | 752,000    |               |  |   | 485,000    |           
|Items not allocated to segment
operating income                          |                                |   | (7,357,000    | )          |  |                  | 207,000    |            |               |   | (7,603,000 | )             |  |   | (1,152,000 | )         
|Interest expense                                                         |                                |   | (441,000      | )          |  |                  | (1,524,000 | )          |               |   | (1,040,000 | )             |  |   | (2,571,000 | )         
|Interest income                                                          |                                |   | 585,000       |            |  |                  | 1,222,000  |            |               |   | 1,229,000  |               |  |   | 2,841,000  |           
|Operating loss of discontinued
operations                                |                                |   |              |            |  |                  | 2,666,000  |            |               |   |           |               |  |   | 3,161,000  |           
|                                                                         |                                |   |               |            |  |                  |            |            |               |   |            |              
|Total
consolidated income from
continuing operations before
income taxes |                                | $ | 3,786,000     |            |  | $                | 12,972,000 |            |               | $ | 13,086,000 |               |  | $ | 29,966,000 |           
|                                                                         |                                |   |               |            |  |                  |            |            |               |   |            |              

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|                                                                          |  |               |           |  |                  |   |            |               |  |   |               |  |  |   |            |  
|------------------------------------------------------------------------- |  | ------------- | --------- |  | ---------------- | - | ---------- | ------------- |  | - | ------------- |  |  | - | ---------- | -
|                                                                          |  | Quarter Ended |           |  | First Half Ended |  
|                                                                          |  |               |           |  |                  |  
|                                                                          |  | June 29, 2002 |           |  | June 30, 2001    |   |            | June 29, 2002 |  |   | June 30, 2001 | 
|                                                                          |  |               |           |  |                  |   |            |               |  |   |               | 
|Depreciation and amortization                                             |  |               |           |  |                  |   |            |               |  |   |               |  |  |   |            |  
|Specialty Metal Formed Products                                           |  | $             | 2,891,000 |  |                  | $ | 2,735,000  |               |  | $ | 5,205,000     |  |  | $ | 5,003,000  |  
|Ring, Seal and Filtration Products                                        |  |               | 908,000   |  |                  |   | 845,000    |               |  |   | 1,594,000     |  |  |   | 1,687,000  |  
|Fluid Power Products                                                      |  |               |          |  |                  |   | 1,453,000  |               |  |   |              |  |  |   | 2,921,000  |  
|Other Metal Products                                                      |  |               | 139,000   |  |                  |   | 391,000    |               |  |   | 277,000       |  |  |   | 782,000    |  
|Corporate                                                                 |  |               | 243,000   |  |                  |   | 215,000    |               |  |   | 481,000       |  |  |   | 345,000    |  
|                                                                          |  |               |           |  |                  |   |            |               |  |   |               | 
|                                                                          |  |               | 4,181,000 |  |                  |   | 5,639,000  |               |  |   | 7,557,000     |  |  |   | 10,738,000 |  
|Depreciation and amortization of
discontinued operations                  |  |               |          |  |                  |   | (1,453,000 | )             |  |   |              |  |  |   | (2,921,000 | )
|                                                                          |  |               |           |  |                  |   |            |               |  |   |               | 
|Total consolidated depreciation and
amortization of continuing operations |  | $             | 4,181,000 |  |                  | $ | 4,186,000  |               |  | $ | 7,557,000     |  |  | $ | 7,817,000  |  
|                                                                          |  |               |           |  |                  |   |            |               |  |   |               | 

|                                                                                             |  |               |           |  |                  |   |           |               |  |   |               |  |  |   |            |  
|-------------------------------------------------------------------------------------------- |  | ------------- | --------- |  | ---------------- | - | --------- | ------------- |  | - | ------------- |  |  | - | ---------- | -
|                                                                                             |  | Quarter Ended |           |  | First Half Ended |  
|                                                                                             |  |               |           |  |                  |  
|                                                                                             |  | June 29, 2002 |           |  | June 30, 2001    |   |           | June 29, 2002 |  |   | June 30, 2001 | 
|                                                                                             |  |               |           |  |                  |   |           |               |  |   |               | 
|Additions to property, plant and
equipment, net                                              |  |               |           |  |                  |   |           |               |  |   |               |  |  |   |            |  
|Specialty Metal Formed Products                                                              |  | $             | 1,433,000 |  |                  | $ | 1,402,000 |               |  | $ | 2,028,000     |  |  | $ | 3,342,000  |  
|Ring, Seal and Filtration Products                                                           |  |               | 1,136,000 |  |                  |   | 570,000   |               |  |   | 1,991,000     |  |  |   | 1,099,000  |  
|Fluid Power Products                                                                         |  |               |          |  |                  |   | 845,000   |               |  |   |              |  |  |   | 1,677,000  |  
|Other Metal Products                                                                         |  |               | 86,000    |  |                  |   | 150,000   |               |  |   | 147,000       |  |  |   | 168,000    |  
|Corporate                                                                                    |  |               | 133,000   |  |                  |   | (11,000   | )             |  |   | 313,000       |  |  |   | 1,123,000  |  
|                                                                                             |  |               |           |  |                  |   |           |               |  |   |               | 
|                                                                                             |  |               | 2,788,000 |  |                  |   | 2,956,000 |               |  |   | 4,479,000     |  |  |   | 7,409,000  |  
|Additions to property, plant and
equipment, net, of discontinued
operations                  |  |               |          |  |                  |   | (845,000  | )             |  |   |              |  |  |   | (1,677,000 | )
|                                                                                             |  |               |           |  |                  |   |           |               |  |   |               | 
|Total consolidated additions to property,
plant and equipment, net, of
continuing operations |  | $             | 2,788,000 |  |                  | $ | 2,111,000 |               |  | $ | 4,479,000     |  |  | $ | 5,732,000  |  
|                                                                                             |  |               |           |  |                  |   |           |               |  |   |               | 

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|                                   |                           |   |               |             |  |               |             |             | 
|---------------------------------- | ------------------------- | - | ------------- | ----------- |  | ------------- | ----------- | ----------- | 
|                                   |                           |   | Period Ended  |            
|                                   |                           |   |               |            
|                                   |                           |   | June 29, 2002 |             |  | Dec. 31, 2001 |            
|                                   |                           |   |               |             |  |               |            
|Total assets                       |                           |   |               |             |  |               |             |            
|Specialty Metal Formed Products    |                           | $ | 213,752,000   |             |  | $             | 211,769,000 |            
|Ring, Seal and Filtration Products |                           |   | 78,256,000    |             |  |               | 71,285,000  |            
|Other Metal Products               |                           |   | 44,700,000    |             |  |               | 45,723,000  |            
|Corporate                          |                           |   | 141,368,000   |             |  |               | 169,021,000 |            
|                                   |                           |   |               |             |  |              
|                                   | Total consolidated assets |   | $             | 478,076,000 |  |               | $           | 497,798,000 | 
|                                   |                           |   |               |             |  |              



|(6) |  | At June 29, 2002, borrowings under the Companys revolving credit
facility totaled $72.2 million. The revolving credit facility permits the
Company to borrow under several different interest rate options. The
interest rate on borrowings equaled a weighted average 2.4 percent during
the second quarter of 2002 based on the London Interbank Offered Rate
(LIBOR). The revolving credit facility contains certain restrictive
covenants. The Company is in compliance with all restrictive covenants
contained in the revolving credit facility at June 29, 2002. After
consideration of the facilitys covenants, and of outstanding standby
letters of credit, the Company has available credit under its revolving
credit facility of $73.4 million at June 29, 2002.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(7) |  | On March 1, 2001, the Company purchased for $70.6 million, all of
the outstanding stock of ACE Controls, Inc. and its affiliated company
ACE Controls International, Inc. (collectively, ACE) headquartered in
Farmington Hills, Michigan, with additional facilities in Germany, the
United Kingdom and Japan. ACE manufacturers a wide range of linear
deceleration products serving various industrial markets. The Company
utilized its revolving credit facility to finance the acquisition. The
acquisition has been accounted for using the purchase method of
accounting and accordingly the results of operations have been included
in the financial statements since the effective acquisition date.                                                              
|   
|    |  | On a pro forma, unaudited basis, as if the ACE acquisition had occurred
as of January 1, 2001, net sales, net income from continuing operations,
basic earnings per share from continuing operations and diluted earnings
per share from continuing operations for the first half of 2001 would
have been $156.9 million, $19.0 million, $.63 and $.63.                                                                                                                                                                                                                                                                                                                                                                                                                        

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|(8) |  | As previously reported, the Company, along with certain other companies,
is a defendant in a lawsuit filed in 1995 and pending in the United States
District Court for the Southern District of New York captioned Richard A.
Lippe, et al. v. Bairnco Corporation, et al.(the Transactions
Lawsuit). The Transactions Lawsuit seeks damages alleged by plaintiffs to be an amount of $700
million, plus interest and punitive damages against the defendants
collectively. The current status of the Transactions Lawsuit is that fact
depositions and discovery were completed during April 2002, and expert
discovery was completed in May 2002. On July 15, 2002, the Company filed
a motion for summary judgment dismissing all the claims against it. This
motion will not be fully briefed before October 25, 2002. The Court has
set January 13, 2003 as the trial date for the entire action, but it is
very likely that the trial date will be adjourned until some later point
in 2003. Management continues to believe that it has meritorious
defenses to the claims pending against it in this litigation.
Accordingly, no provision has been reflected in the consolidated
financial statements for any alleged damages. Expenditures to litigate
this matter equaled $0.9 million in 1999, $2.8 million in 2000, $3.9
million in 2001, and $2.8 million during the first half of 2002. During
the second quarter of 2002, a $7.5 million provision was recorded in
order to support the Companys most current and best estimate of the cost
to continue to litigate the Transactions Lawsuit. The change in the
estimate during the second quarter resulted from recent spending levels
and new information regarding forecasted spending levels to complete the
trial phase. Accordingly, as of June 29, 2002, a $9.1 million accrual is
recorded as a current liability in the consolidated financial statements,
reflecting the estimated costs to litigate this matter through the trial
phase. While management currently believes the amount of the ultimate
liability, if any, with respect to this action will not materially affect
the financial condition, results of operations, or liquidity of the
Company, management realizes that the ultimate outcome of this litigation
is uncertain. Were an unfavorable outcome to occur, the impact could be
material to the Company.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | As previously reported, in April 2001, the Company reached a settlement
with the U.S. government regarding its grand jury investigation of
inspection and product certification procedures at the Companys
Muskegon, Michigan facility. The settlement included the payment of $7.5
million to the U.S. government, including a $1.0 million fine. The
payment to the U.S. government was completed during April 2001 and was
offset by previously recorded provisions without any impact on year 2001
earnings. In addition to the U.S. government settlement, Kaydon entered
into a three-year agreement with the U.S. Department of Navy, on behalf
of the U.S. Department of Defense, which confirms that Kaydon is
presently eligible to contract with the U.S. government, insures that
Kaydon has, and will continue to have, a program of acceptable
contracting policies and procedures, and establishes and implements a
program of compliance reviews, audits and reports.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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|    |  | 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. Kaydons portion of the settlement payment was offset by
amounts previously recorded to litigate this legal matter. 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 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 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(9) |  | As required, on January 1, 2002, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 142 Goodwill and Other
Intangible Assets. As a result, Kaydon is no longer amortizing
goodwill and indefinite-lived intangible assets beginning in 2002, but
is required to subject these assets to an annual impairment analysis.
During the first quarter of 2002, intangible assets deemed to have
indefinite useful lives were tested for impairment as of January 1,
2002, with no impairment loss being realized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

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| |  | During the second quarter of 2002, the Company completed the first step of
the two-step transitional goodwill impairment test required by SFAS No. 142.
Step one is designed to identify potential impairment by comparing the fair
value of each of the Companys reporting units, as that term is defined by
SFAS No. 142, with the reporting units carrying amount. As required by SFAS
No. 142, the comparison was done as of January 1, 2002. As a result of
completing step one, the Company identified two reporting units whose
carrying amount exceeded their fair value, which indicates potential
goodwill impairment. Both reporting units are part of the Companys Other
Metal Products reporting segment. The Company has engaged a valuation
specialist to assist it in completing step two of the transitional goodwill
impairment test, which measures the amount of any impairment loss by
comparing the implied fair value of the reporting units goodwill with the carrying
amount of that goodwill as of January 1, 2002. The aggregate total carrying
amount of goodwill at these two reporting units was $19.3 million as of
January 1, 2002. The Company expects to complete step two of the impairment
test during the third quarter of 2002. In accordance with SFAS No. 142, any
goodwill impairment loss measured during the completion of step two of the
transitional goodwill impairment test will be recognized as the effect of a
change in accounting principle as of January 1, 2002. Therefore, as needed,
previously reported first quarter and cumulative year-to-date results will
be restated once step two is completed.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | For comparability purposes, the following table is presented as if goodwill
and indefinite-lived intangible assets were no longer amortized as of
January 1, 2001:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|                                                                                      |  |               |           |  |                  |   |           |               |  |   |               |  |  |   |            | 
|------------------------------------------------------------------------------------- |  | ------------- | --------- |  | ---------------- | - | --------- | ------------- |  | - | ------------- |  |  | - | ---------- | 
|                                                                                      |  | Quarter Ended |           |  | First Half Ended |  
|                                                                                      |  |               |           |  |                  |  
|                                                                                      |  | June 29, 2002 |           |  | June 30, 2001    |   |           | June 29, 2002 |  |   | June 30, 2001 | 
|                                                                                      |  |               |           |  |                  |   |           |               |  |   |               | 
|Net income from continuing operations:                                                |  |               |           |  |                  |   |           |               |  |   |               |  |  |   |            | 
|Reported net income from continuing operations                                        |  | $             | 2,423,000 |  |                  | $ | 8,172,000 |               |  | $ | 8,375,000     |  |  | $ | 18,879,000 | 
|Goodwill amortization from continuing operations,
net of tax                          |  |               |          |  |                  |   | 539,000   |               |  |   |              |  |  |   | 1,040,000  | 
|Indefinite-lived intangible asset amortization from
continuing operations, net of tax |  |               |          |  |                  |   | 20,000    |               |  |   |              |  |  |   | 26,000     | 
|                                                                                      |  |               |           |  |                  |   |           |               |  |   |               | 
|Adjusted net income from continuing operations                                        |  | $             | 2,423,000 |  |                  | $ | 8,731,000 |               |  | $ | 8,375,000     |  |  | $ | 19,945,000 | 
|                                                                                      |  |               |           |  |                  |   |           |               |  |   |               | 
|Basic earnings per share from continuing operations:                                  |  |               |           |  |                  |   |           |               |  |   |               |  |  |   |            | 
|Reported net income from continuing operations                                        |  | $             | 0.08      |  |                  | $ | 0.27      |               |  | $ | 0.28          |  |  | $ | 0.63       | 
|Goodwill amortization from continuing operations,
net of tax                          |  |               |          |  |                  |   | 0.02      |               |  |   |              |  |  |   | 0.03       | 
|Indefinite-lived intangible asset amortization from
continuing operations, net of tax |  |               |          |  |                  |   |          |               |  |   |              |  |  |   |           | 
|                                                                                      |  |               |           |  |                  |   |           |               |  |   |               | 
|Adjusted net income from continuing operations                                        |  | $             | 0.08      |  |                  | $ | 0.29      |               |  | $ | 0.28          |  |  | $ | 0.66       | 
|                                                                                      |  |               |           |  |                  |   |           |               |  |   |               | 
|Diluted earnings per share from continuing operations:                                |  |               |           |  |                  |   |           |               |  |   |               |  |  |   |            | 
|Reported net income from continuing operations                                        |  | $             | 0.08      |  |                  | $ | 0.27      |               |  | $ | 0.28          |  |  | $ | 0.63       | 
|Goodwill amortization from continuing operations,
net of tax                          |  |               |          |  |                  |   | 0.02      |               |  |   |              |  |  |   | 0.03       | 
|Indefinite-lived intangible asset amortization from
continuing operations, net of tax |  |               |          |  |                  |   |          |               |  |   |              |  |  |   |           | 
|                                                                                      |  |               |           |  |                  |   |           |               |  |   |               | 
|Adjusted net income from continuing operations                                        |  | $             | 0.08      |  |                  | $ | 0.29      |               |  | $ | 0.28          |  |  | $ | 0.66       | 
|                                                                                      |  |               |           |  |                  |   |           |               |  |   |               | 

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|                                                           |  |               |           |  |                  |   |           |               |  |   |               |  |  |   |           
|---------------------------------------------------------- |  | ------------- | --------- |  | ---------------- | - | --------- | ------------- |  | - | ------------- |  |  | - | ----------
|                                                           |  | Quarter Ended |           |  | First Half Ended
|                                                           |  |               |           |  |                 
|                                                           |  | June 29, 2002 |           |  | June 30, 2001    |   |           | June 29, 2002 |  |   | June 30, 2001
|                                                           |  |               |           |  |                  |   |           |               |  |   |              
|Net income:                                                |  |               |           |  |                  |   |           |               |  |   |               |  |  |   |           
|Reported net income                                        |  | $             | 2,423,000 |  |                  | $ | 6,492,000 |               |  | $ | 8,375,000     |  |  | $ | 16,887,000
|Goodwill amortization, net of tax                          |  |               |          |  |                  |   | 747,000   |               |  |   |              |  |  |   | 1,456,000 
|Indefinite-lived intangible asset amortization, net of
tax |  |               |          |  |                  |   | 20,000    |               |  |   |              |  |  |   | 26,000    
|                                                           |  |               |           |  |                  |   |           |               |  |   |              
|Adjusted net income                                        |  | $             | 2,423,000 |  |                  | $ | 7,259,000 |               |  | $ | 8,375,000     |  |  | $ | 18,369,000
|                                                           |  |               |           |  |                  |   |           |               |  |   |              
|Basic earnings per share:                                  |  |               |           |  |                  |   |           |               |  |   |               |  |  |   |           
|Reported net income                                        |  | $             | 0.08      |  |                  | $ | 0.22      |               |  | $ | 0.28          |  |  | $ | 0.56      
|Goodwill amortization, net of tax                          |  |               |          |  |                  |   | 0.02      |               |  |   |              |  |  |   | 0.05      
|Indefinite-lived intangible asset amortization, net of
tax |  |               |          |  |                  |   |          |               |  |   |              |  |  |   |          
|                                                           |  |               |           |  |                  |   |           |               |  |   |              
|Adjusted net income                                        |  | $             | 0.08      |  |                  | $ | 0.24      |               |  | $ | 0.28          |  |  | $ | 0.61      
|                                                           |  |               |           |  |                  |   |           |               |  |   |              
|Diluted earnings per share:                                |  |               |           |  |                  |   |           |               |  |   |               |  |  |   |           
|Reported net income                                        |  | $             | 0.08      |  |                  | $ | 0.22      |               |  | $ | 0.28          |  |  | $ | 0.56      
|Goodwill amortization, net of tax                          |  |               |          |  |                  |   | 0.02      |               |  |   |              |  |  |   | 0.05      
|Indefinite-lived intangible asset amortization, net of
tax |  |               |          |  |                  |   |          |               |  |   |              |  |  |   |          
|                                                           |  |               |           |  |                  |   |           |               |  |   |              
|Adjusted net income                                        |  | $             | 0.08      |  |                  | $ | 0.24      |               |  | $ | 0.28          |  |  | $ | 0.61      
|                                                           |  |               |           |  |                  |   |           |               |  |   |              

Other intangible assets are summarized as follows:

|                            |  |                     |            |  |                         |   |           |                |  |   |              |  |  |   |           | 
|--------------------------- |  | ------------------- | ---------- |  | ----------------------- | - | --------- | -------------- |  | - | ------------ |  |  | - | --------- | 
|                            |  | As of June 29, 2002 |            |  | As of December 31, 2001 |  
|                            |  |                     |            |  |                         |  
|                            |  | Gross Carrying      |            |  | Accumulated             |   |           | Gross Carrying |  |   | Accumulated  | 
|Amortized Intangible Assets |  | Amount              |            |  | Amortization            |   |           | Amount         |  |   | Amortization | 
|                            |  |                     |            |  |                         |   |           |                |  |   |              | 
|Customer lists              |  | $                   | 8,140,000  |  |                         | $ | 1,432,000 |                |  | $ | 8,140,000    |  |  | $ | 862,000   | 
|Patents                     |  |                     | 1,553,000  |  |                         |   | 493,000   |                |  |   | 1,353,000    |  |  |   | 395,000   | 
|Other                       |  |                     | 950,000    |  |                         |   | 950,000   |                |  |   | 950,000      |  |  |   | 516,000   | 
|                            |  |                     |            |  |                         |   |           |                |  |   |              | 
|                            |  | $                   | 10,643,000 |  |                         | $ | 2,875,000 |                |  | $ | 10,443,000   |  |  | $ | 1,773,000 | 
|                            |  |                     |            |  |                         |   |           |                |  |   |              | 

|                              |  |          |           |  |          |   |           | 
|----------------------------- |  | -------- | --------- |  | -------- | - | --------- | 
|                              |  | 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 29, 2002           |  | $ | 1,102,000 | 
|Estimated Intangible Assets Amortization Expense |  |   |           | 
|For the year ended December 31, 2002             |  | $ | 1,522,000 | 
|For the year ended December 31, 2003             |  | $ | 840,000   | 
|For the year ended December 31, 2004             |  | $ | 840,000   | 
|For the year ended December 31, 2005             |  | $ | 840,000   | 
|For the year ended December 31, 2006             |  | $ | 840,000   | 

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During the second quarter of 2002, the Company acquired the net assets of a
small, privately-held manufacturing company for $4.4 million, of which $0.2
million was assigned to a patent acquired, and $1.8 million was recognized as
goodwill. The patent is being amortized over its estimated useful life of 10
years. The goodwill will be reported as part of the Companys Ring, Seal and
Filtration Products reporting segment, and will not be amortized.

(10)  During the second quarter of 2002, the Company entered into derivative
financial instruments in the form of forward foreign exchange contracts to
reduce the effect of fluctuations in foreign exchange rates on short-term,
foreign-currency denominated 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, and related amendments, 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 29, 2002, forward foreign
exchange contracts representing a notional amount of $2.1 million were
outstanding with maturities of less than one year. The currency hedged by the
Company as of June 29, 2002 is the European Euro. The forward foreign exchange
contracts entered into by the Company are accounted for as cash flow hedges.
The fair value of these forward foreign exchange contracts recorded on the
consolidated balance sheet as of June 29, 2002 was approximately ($0.1)
million. As of June 29, 2002, the net loss related to the derivative
instrument and hedging activities recorded in accumulated other comprehensive
income was $0.1 million. The Company was not a party to any derivative
financial instruments for the quarter or first half ended June 30, 2001.

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

Results of Operations

During the second quarter of 2002, Kaydon Corporation and subsidiaries (the
Company) achieved sales from continuing operations of $73.2 million, down 1.1
percent from $74.1 million in the second quarter of 2001. Company sales
figures continue to be negatively impacted by inventory liquidations by its
customers and the general economic slowdown in industrial manufacturing
activity in this country and abroad. Specifically, the Company experienced
reduced demand for custom engineered bearings sold to the specialty electronic
manufacturing equipment market, construction equipment markets and other heavy
industrial equipment markets as compared to the second quarter of 2001. Sales
of these products both to original equipment manufacturers and distribution
networks declined compared to the second quarter of 2001. In addition, demand
for specialty ball products and linear deceleration products sold into various
industrial markets were down as compared to last years comparable period.
These declines were partially offset by stronger demand for certain slip ring
products sold in the medical, marine and industrial markets.

Gross profit during the second quarter of 2002 of $24.6 million was 33.6
percent of sales, compared with $26.0 million or 35.1 percent of sales in the
second quarter of 2001. The gross profit percentage achieved in the second
quarter of 2002 was negatively impacted by reduced sales volumes, unfavorable
sales mix, and inventory reserve adjustments related to the prolonged slowdown
in industrial manufacturing activity. The gross profit percentage achieved
during the second quarter equaled the gross profit percentage achieved in the
first quarter of 2002.

Selling, general and administrative expenses during the second quarter of 2002,
were $13.5 million or 18.4 percent of sales as compared to $12.7 million or
17.2 percent of sales during the second quarter of 2001. Reductions in
goodwill amortization during the quarter of $0.9 million due to the adoption of
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and
Other Intangible Assets partially offset increases in selling, general and
administrative expenses related to higher insurance costs and increased
amortization associated with other intangible assets.

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As previously reported, the Company, along with certain other companies, is a
defendant in a lawsuit filed in 1995 and pending in the United States District
Court for the Southern District of New York captioned Richard A. Lippe, et al.
v. Bairnco Corporation, et al. (the Transactions Lawsuit). The Transactions
Lawsuit seeks damages alleged by plaintiffs to be an amount of $700 million,
plus interest and punitive damages against the defendants collectively. The
current status of the Transactions Lawsuit is that fact depositions and
discovery were completed during April 2002, and expert discovery was completed
in May 2002. On July 15, 2002, the Company filed a motion for summary judgment
dismissing all the claims against it. This motion will not be fully briefed
before October 25, 2002. The Court has set January 13, 2003 as the trial date
for the entire action, but it is very likely that the trial date will be
adjourned until some later point in 2003. Management continues to believe
that it has meritorious defenses to the claims pending against it in this
litigation. Accordingly, no provision has been reflected in the consolidated
financial statements for any alleged damages. Expenditures to litigate this
matter equaled $0.9 million in 1999, $2.8 million in 2000, $3.9 million in 2001,
and $2.8 million during the first half of 2002.

During the second quarter, a $7.5 million provision was recorded in order to
support the Companys most current and best estimate of the cost to continue to
litigate the Transactions Lawsuit. The change in the estimate during the second
quarter resulted from recent spending levels and new information regarding
forecasted spending levels to complete the trial phase. Accordingly, as of June
29, 2002, a $9.1 million accrual is recorded as a current liability in the
consolidated financial statements, reflecting the estimated costs to litigate
this matter through the trial phase. While management currently believes the
amount of the ultimate liability, if any, with respect to this action will not
materially affect the financial condition, results of operations, or liquidity
of the Company, management realizes that the ultimate outcome of this
litigation is uncertain. Were an unfavorable outcome to occur, the impact
could be material to the Company.

Operating income from continuing operations, including the pre-tax $7.5 million
provision for litigation costs recorded during the second quarter, was $3.6
million or 5.0 percent of sales as compared to $13.3 million or 17.9 percent of
sales in the second quarter of 2001.

The effective income tax rate in the second quarter of 2002 was 36.0 percent as
compared to a 37.0 percent tax rate realized during 2001. This slight
reduction relates primarily to the adoption of SFAS 142 as goodwill is no
longer amortized for book purposes. The decrease in the effective tax rate was
minimized as the majority of goodwill amortization expense is deductible for
tax purposes. The Company expects the effective tax rate for the 2002 year to
remain approximately 36.0 percent.

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Second quarter 2002 net income from continuing operations and diluted earnings
per share from continuing operations, including the after tax effect ($4.8
million or $.16 per share on a diluted basis) of the $7.5 million provision for
litigation costs, were $2.4 million and $.08. Second quarter 2001 net income
from continuing operations and diluted earnings per share from continuing
operations were $8.2 million and $.27. Excluding goodwill and indefinite-lived
intangible asset amortization, second quarter 2001 net income from continuing
operations and diluted earnings per share from
continuing operations would have been $8.7 million and $.29.

Sales from continuing operations for the first half of 2002 were $139.4
million, a decrease of 7.5 percent over last years first half sales of $150.7
million. Excluding the positive impact of the ACE Controls, Inc. acquisition
completed in March 2001, sales during the first half of 2002 for the remaining
Kaydon divisions were down $15.0 million or 10.9 percent from the first half of
2001 reflecting the broad based slowdown in industrial manufacturing activity.
As a result of the lower sales volume and mix of products sold, gross profit
for the first half of 2002 decreased to $46.9 million or 33.6 percent of sales
as compared to $53.8 million or 35.7 percent of sales during the first half of
2001. Operating income, including the pre-tax $7.5 million provision for
litigation costs recorded during the second quarter of 2002, was $12.9 million
or 9.3 percent of sales. Operating income for the first half of 2001 was $29.7
million, or 19.7 percent of sales.

First half 2002 net income from continuing operations and diluted earnings per
share from continuing operations, including the after tax effect ($4.8 million
or $.16 per share on a diluted basis) of the $7.5 million provision for
litigation costs, were $8.4 million and $.28. First half 2001 net income from
continuing operations and diluted earnings per share from continuing operations
were $18.9 million and $.63. Excluding goodwill and indefinite-lived
intangible asset amortization, first half 2001 net income from continuing
operations and diluted earnings per share from continuing operations would have
been $19.9 million and $.66.

Liquidity and Capital Resources

Working capital was $190.1 million at June 29, 2002 reflecting a current ratio
of 4.9 to 1 compared to $230.1 million and a current ratio of 8.3 to 1 at
year-end 2001. The reduction in working capital is primarily due to a $40.0
million debt reduction payment that lowered the Companys cash and cash
equivalents balance during the first quarter of 2002. Cash flow from
continuing operations during the first half of 2002, including a tax refund of
$10.1 million relating to the Fluid Power Products Group disposition completed
at year-end 2001, was $26.6 million compared to cash flow from continuing
operations of $18.4 million achieved during the first half last year.

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Depreciation and amortization for the first half of 2002 totaled $7.6 million
compared to $7.8 million in the first half of 2001. The decrease was due to
reduced levels of goodwill amortization during the first half of $1.7 million
due to the adoption of SFAS 142, offset by increases in other intangible
amortization as well as increases in depreciation primarily due to the ACE
Controls, Inc. acquisition completed in March 2001.

Cash and cash equivalents equaled $123.3 million at June 29, 2002 as compared
to the year-end 2001 balance of $152.6 million. Operating cash flow during the
first half, including the tax receipt of $10.1 million, was offset by debt
reduction payments of $40.0 million, dividend payments of $7.3 million, and net
capital expenditures of $4.5 million. The debt reduction payment in the first
quarter of 2002 was in response to an increasing negative spread between the
interest rate incurred on debt and the interest rate earned on invested cash.

Management expects that the Companys planned capital requirements for the
remainder of 2002, which consists of capital expenditures, dividend payments
and its stock repurchase program, will be financed by operations and existing
cash balances.

Outlook

The Companys backlog at June 29, 2002 was $93.6 million compared to $91.6
million at the end of 2001. Based upon current business indications, including
quoting activity and future business forecasts for Kaydon customers
end-markets, management believes that the Company, along with most industrial
companies, has seen or is near the bottom of the recent economic downturn that
has been evident in the United States and abroad. Management expects orders to
be relatively consistent with current levels in the third and fourth quarters
of 2002. Expected operating cash flows coupled with the Companys current cash
reserves and available credit under the Companys $300.0 million revolving
credit facility will provide substantial resources to fund the Companys
ongoing business development efforts which include internal and external growth
initiatives as well as selected stock repurchases.

New Accounting Standards

The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 142 Goodwill and Other Intangible Assets.
This pronouncement amends the accounting for goodwill and intangible assets.
SFAS No. 142 no longer permits amortization of goodwill and indefinite-lived
intangible assets. Separable intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful lives. In
addition, SFAS No. 142 establishes a new method of testing goodwill for
impairment by using a fair-value approach. The amortization provisions of SFAS
No. 142 apply to goodwill and intangible assets acquired after June 30, 2001.
With respect to goodwill and

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intangible assets acquired prior to July 1, 2001,
Kaydon, as required, adopted the pronouncement in the fiscal year beginning
January 1, 2002. Please refer to Notes to Consolidated Condensed Financial
Statements (Note 9) in this quarterly report on Form 10-Q for additional
information on the implementation of SFAS No. 142.

Also, the Financial Accounting Standards Board has issued SFAS No. 143,
Accounting for Asset Retirement Obligations. The pronouncement requires
entities to record the fair value of a liability for an asset retirement
obligation in the period in which it is incurred. Companies are required to
adopt the pronouncement in their fiscal year beginning after June 15, 2002.
The Company is currently assessing the effect of the new pronouncement, but at
this time can not estimate the impact, if any, on the consolidated financial
statements.

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Forward-Looking Statements

This form 10-Q contains forward-looking statements within the meaning of the
federal securities laws. While the Company believes any forward-looking
statements made are reasonable, actual results could differ materially since
the statements are based on our current expectations, estimates, forecasts and
projections about the markets in which the Company operates, managements
beliefs, and assumptions made by
management. Words such as expects, anticipates, intends, plans,
believes, seeks, estimates, should,

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going forward, and variations of
such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions (Business
Risks), which are difficult to predict. Therefore, actual outcomes and
results may differ materially from what is expressed or forecasted in such
forward-looking statements.

Business Risks include increasing price and product competition by foreign and
domestic competitors, including new entrants; the Companys ability to continue
to introduce competitive new products on a timely, cost-effective basis; the
mix of products; the achievement of lower costs and expenses; the reliance on
large customers; the cyclical nature of the markets served by the Company; the
outcome of pending and future litigation and governmental proceedings; the
accuracy of estimated legal costs; and continued availability of financing and
financial resources in the amounts, at the times and on the terms required to
support the Companys future business and growth strategies. These are
representative of the Business Risks that could affect the outcome of the
forward-looking statements. In addition, such forward-looking statements could
be affected by general industry and market conditions, including interest rate
fluctuations and other Business Risks. The Company does not undertake, and
expressly disclaims any obligation, to update or alter its forward-looking
statements whether as a result of new information, future events or otherwise,
except as required by applicable law. Readers are cautioned to consider these
factors when relying on such forward-looking information.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The 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 the Companys long-term debt borrowings under the
revolving credit facility and investments in cash and cash equivalents. The
interest rate on the long-term debt borrowings under the credit facility is
variable and is based on the London Interbank Offered Rate (LIBOR). A 24 basis
point increase in interest rates (10 percent of the Companys weighted average
long-term debt interest rate for the second quarter of 2002) would have an
immaterial effect on the Companys pre-tax earnings. All highly liquid
investments, including highly liquid debt 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. An 18 basis point
decrease in interest rates (10 percent of the Companys weighted average
investment interest rate for the second quarter of 2002) would have an
immaterial impact on the Companys pre-tax earnings. The Company conducts
business in various foreign currencies, primarily in Europe, Canada, 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

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continue to mitigate a portion of its
currency exposure through operation of decentralized foreign operating
companies in which all costs are local currency based. 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.
In addition, please see the discussion in Notes to Consolidated Condensed
Financial Statements (Note 10) in this quarterly report on Form 10-Q for a
discussion of the current derivative and hedging activity of the Company as of
June 29, 2002.

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|         |  |                                                                                                                                                                                                                                                                                                                             
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|PART II. |  | OTHER INFORMATION                                                                                                                                                                                                                                                                                                           
|         |  |                                                                                                                                                                                                                                                                                                                             
|Item 1.  |  | Legal Proceedings   See the discussion in Notes to Consolidated Condensed Financial
Statements (Note 8), which discussion is incorporated herein by reference.                                                                                                                                                              
|         |  |                                                                                                                                                                                                                                                                                                                             
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                                                                                                                                                                                                                                         
|         |  | The Company held its Annual Meeting of Shareholders on May 2, 2002, at which the
shareholders voted on the election of Directors. 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    |  |           | 27,428,539 |  |                |  | 503,520   | 
|Brian P. Campbell  |  |           | 23,037,998 |  |                |  | 4,894,061 | 
|Thomas C. Sullivan |  |           | 25,152,186 |  |                |  | 2,779,873 | 
|Robert M. Teeter   |  |           | 27,425,559 |  |                |  | 506,500   | 
|B. Joseph White    |  |           | 27,424,179 |  |                |  | 507,880   | 

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

|   |  |            |  |            
|-- |  | ---------- |  | -----------
|A. |  | Exhibit No |  | Description

|     |  |                                                                                                                        
|---- |  | -----------------------------------------------------------------------------------------------------------------------
|99.1 |  | Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.

|   |  |                                                                                                                                                                   
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|B. |  | Reports on Form 8-K                                                                                                                                               
|  
|   |  | On May 13, 2002, the Company filed a Form 8-K under Item 4
reporting a change in the Companys independent auditors to Ernst &
Young LLP from Arthur Andersen LLP.

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##### Table of Contents






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 9, 2002 |  | /s/ Brian P. CampbellBrian P. Campbell                                  
|               |  | Chairman, President, Chief Executive
Officer and Chief Financial Officer
|               |  | (Principal Executive Officer and Principal Financial
Officer)           
|              
|August 9, 2002 |  | /s/ Kenneth W. CrawfordKenneth W. Crawford                              
|               |  | Vice President and Corporate Controller
(Principal Accounting Officer)  

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##### Table of Contents



EXHIBIT INDEX

|            |  |                                                                                                                        
|----------- |  | -----------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                            
|            |  |                                                                                                                        
|99.1        |  | Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 Of the Sarbanes-Oxley Act of 2002.