##### Table of Contents



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 July 2, 2005
    
    Commission File No. 0-12640
 KAYDON CORPORATION
  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    13-3186040
(I.R.S. Employer Identification No.)Suite 300, 315 E. Eisenhower Parkway, Ann Arbor, Michigan
(Address of principal executive offices)
    
    48108
(Zip Code)
 (734) 747-7025
 þ o
 þ o




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Page No.Part I  Financial Information:Item 1. Financial StatementsConsolidated
Condensed Balance Sheets 
July 2, 2005 (Unaudited) and December 31, 2004
    
    
    1Consolidated
Condensed Statements of Operations (Unaudited) 
Quarter and First Half Ended July 2, 2005 and July 3, 2004
    
    
    2Consolidated
Condensed Statements of Cash Flows (Unaudited) 
First Half Ended July 2, 2005 and July 3, 2004
    
    
    3Notes to Consolidated Condensed Financial Statements (Unaudited)
    
    
    4-17Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    18-31Item 3. Quantitative and Qualitative Disclosures About
Market Risk
    
    
    31Item 4. Controls and Procedures
    
    
    31-32Part II  Other Information:Item 1. Legal Proceedings
    
    
    32Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 4. Submission of Matters to a Vote of Security Holders
    
    
    33Item 6. Exhibits
    
    
    33Signatures
    
    
    34Statement Re: Computation of Ratio of Earnings to Fixed ChargesCertification Pursuant to Rule 13a-14(a)Certification Pursuant to 18 U.S.C. Section 1350




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ITEM 1. FINANCIAL STATEMENTS
 KAYDON CORPORATION
 
 CONSOLIDATED CONDENSED BALANCE SHEETS
 
 July 2, 2005
    
    December 31, 2004(Unaudited)Assets:Cash and cash equivalents
    
    $
    240,195,000
    
    
    $
    278,586,000Accounts receivable, net
    
    
    58,792,000
    
    
    
    48,786,000Inventories, net
    
    
    59,829,000
    
    
    
    55,730,000Other current assets
    
    
    11,440,000
    
    
    
    9,925,000Total current assets
    
    
    370,256,000
    
    
    
    393,027,000Property, plant and equipment, net
    
    
    87,183,000
    
    
    
    86,028,000Goodwill, net
    
    
    129,905,000
    
    
    
    113,375,000Other intangible assets, net
    
    
    25,929,000
    
    
    
    9,200,000Other assets
    
    
    14,170,000
    
    
    
    17,494,000Total assets
    
    $
    627,443,000
    
    
    $
    619,124,000Liabilities and Shareholders Equity:Accounts payable
    
    $
    18,022,000
    
    
    $
    17,735,000Taxes payable
    
    
    5,446,000
    
    
    
    5,797,000Salaries and wages
    
    
    8,034,000
    
    
    
    7,516,000Other accrued expenses
    
    
    13,748,000
    
    
    
    12,648,000Total current liabilities
    
    
    45,250,000
    
    
    
    43,696,000Long-term debt
    
    
    200,034,000
    
    
    
    200,066,000Long-term liabilities
    
    
    65,589,000
    
    
    
    66,681,000Total long-term liabilities
    
    
    265,623,000
    
    
    
    266,747,000Shareholders equity:Common stock
    
    
    3,693,000
    
    
    
    3,693,000Paid-in capital
    
    
    47,838,000
    
    
    
    47,399,000Retained earnings
    
    
    465,985,000
    
    
    
    450,456,000Less  treasury stock, at cost
    
    
    (187,163,000
    )
    
    
    (184,781,000
    )Less  restricted stock awards
    
    
    (9,193,000
    )
    
    
    (6,908,000
    )Accumulated other comprehensive loss
    
    
    (4,590,000
    )
    
    
    (1,178,000
    )316,570,000
    
    
    
    308,681,000Total liabilities and shareholders equity
    
    $
    627,443,000
    
    
    $
    619,124,000
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KAYDON CORPORATION
 
 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 
 Quarter Ended
    
    First Half EndedJuly 2, 2005
    
    July 3, 2004
    
    July 2, 2005
    
    July 3, 2004Net sales
    
    $
    104,409,000
    
    
    $
    84,386,000
    
    
    $
    198,891,000
    
    
    $
    167,709,000Cost of sales
    
    
    65,317,000
    
    
    
    51,548,000
    
    
    
    124,198,000
    
    
    
    103,097,000Gross profit
    
    
    39,092,000
    
    
    
    32,838,000
    
    
    
    74,693,000
    
    
    
    64,612,000Selling, general and
administrative expenses
    
    
    19,266,000
    
    
    
    15,729,000
    
    
    
    38,730,000
    
    
    
    31,940,000Operating income
    
    
    19,826,000
    
    
    
    17,109,000
    
    
    
    35,963,000
    
    
    
    32,672,000Interest income
    
    
    1,733,000
    
    
    
    802,000
    
    
    
    3,260,000
    
    
    
    1,568,000Interest expense
    
    
    (2,396,000
    )
    
    
    (2,374,000
    )
    
    
    (4,814,000
    )
    
    
    (4,793,000
    )Income before income taxes
    
    
    19,163,000
    
    
    
    15,537,000
    
    
    
    34,409,000
    
    
    
    29,447,000Provision for income taxes
    
    
    6,745,000
    
    
    
    5,593,000
    
    
    
    12,112,000
    
    
    
    10,601,000Net income
    
    $
    12,418,000
    
    
    $
    9,944,000
    
    
    $
    22,297,000
    
    
    $
    18,846,000Weighted average common shares:Basic
    
    
    27,778,000
    
    
    
    27,881,000
    
    
    
    27,832,000
    
    
    
    27,891,000Diluted
    
    
    34,696,000
    
    
    
    34,796,000
    
    
    
    34,757,000
    
    
    
    34,800,000Earnings per share:Basic
    
    
    $0.45
    
    
    
    $0.36
    
    
    
    $0.80
    
    
    
    $0.68Diluted
    
    
    $0.40
    
    
    
    $0.33
    
    
    
    $0.73
    
    
    
    $0.63Dividends declared per share
    
    
    $0.12
    
    
    
    $0.12
    
    
    
    $0.24
    
    
    
    $0.24
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KAYDON CORPORATION
 
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 
 First Half EndedJuly 2, 2005
    
    July 3, 2004Cash flows from operating activities
    
    $
    21,770,000
    
    
    $
    25,713,000Cash flows used in investing activities:Additions to property, plant and equipment, net
    
    
    (5,378,000
    )
    
    
    (5,091,000
    )Acquisition of business, net of cash acquired
    
    
    (42,668,000
    )
    
    
    Cash used in investing activities
    
    
    (48,046,000
    )
    
    
    (5,091,000
    )Cash flows used in financing activities:Cash dividends paid
    
    
    (6,770,000
    )
    
    
    (6,766,000
    )Purchase of treasury stock
    
    
    (6,102,000
    )
    
    
    (768,000
    )Proceeds from exercise of stock options
    
    
    494,000
    
    
    
    Payments on debt
    
    
    (30,000
    )
    
    
    (60,000
    )Cash used in financing activities
    
    
    (12,408,000
    )
    
    
    (7,594,000
    )Effect of exchange rate changes on cash and
cash equivalents
    
    
    293,000
    
    
    
    327,000Net increase (decrease) in cash and cash equivalents
    
    
    (38,391,000
    )
    
    
    13,355,000Cash and
cash equivalents  Beginning of period
    
    
    278,586,000
    
    
    
    255,756,000Cash and
cash equivalents  End of period
    
    $
    240,195,000
    
    
    $
    269,111,000Cash expended for income taxes
    
    $
    9,155,000
    
    
    $
    9,355,000Cash expended for interest
    
    $
    4,000,000
    
    
    $
    4,000,000
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KAYDON CORPORATION
 
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 (1)
    
    The accompanying unaudited consolidated condensed financial statements of Kaydon Corporation
and subsidiaries (Kaydon or the Company) have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered necessary for
a fair presentation have been included, and such adjustments are of a normal recurring nature.
The December 31, 2004 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, 2004.
 (2)
    
    Inventories are summarized as follows:
 July 2, 2005
    
    December 31, 2004Raw Material
    
    $
    21,738,000
    
    
    $
    18,019,000Work in Process
    
    
    17,367,000
    
    
    
    17,015,000Finished Goods
    
    
    20,724,000
    
    
    
    20,696,000$
    59,829,000
    
    
    $
    55,730,000
 (3)
    
    Comprehensive income reflects the change in equity of a business enterprise during a period
from transactions and other events, and from circumstances involving nonowner sources. For
the Company, comprehensive income consists primarily of net income, foreign currency
translation adjustments and minimum pension liability adjustments. Other comprehensive income
(loss), net of tax, was approximately $(2.6) million and $0.2 million, resulting in
comprehensive income of $9.8 million and $10.1 million for the quarters ended July 2, 2005,
and July 3, 2004. On a first half basis, other comprehensive income (loss), net of tax, was
approximately $(3.4) million and $0.8 million, resulting in comprehensive income of $18.9
million and $19.6 million for the first halves ended July 2, 2005 and July 3, 2004.
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(4)
    
    The following table reconciles the numerators and denominators used in the calculation of
basic and diluted earnings per share for the periods presented.
 Quarter EndedJuly 2, 2005
    
    July 3, 2004Numerators:Numerators for basic earnings per
share, net income
    
    $
    12,418,000
    
    
    $
    9,944,000Interest and debt issuance costs
amortization related to Contingent
Convertible Notes, net of taxes
    
    
    1,507,000
    
    
    
    1,489,000Numerators for diluted earnings per
share
    
    $
    13,925,000
    
    
    $
    11,433,000Denominators:Denominators for basic earnings
per share, weighted average
common shares outstanding
    
    
    27,778,000
    
    
    
    27,881,000Potential dilutive shares resulting
from stock options, restricted
stock awards and phantom stock
units
    
    
    59,000
    
    
    
    56,000Dilutive shares resulting from
Contingent Convertible Notes
    
    
    6,859,000
    
    
    
    6,859,000Denominators for diluted
earnings per share
    
    
    34,696,000
    
    
    
    34,796,000Earnings per share:Basic
    
    
    $0.45
    
    
    
    $0.36Diluted
    
    
    $0.40
    
    
    
    $0.33
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First Half EndedJuly 2, 2005
    
    July 3, 2004Numerators:Numerators for basic earnings per
share, net income
    
    $
    22,297,000
    
    
    $
    18,846,000Interest and debt issuance costs
amortization related to Contingent
Convertible Notes, net of taxes
    
    
    3,014,000
    
    
    
    2,977,000Numerators for diluted earnings per
share
    
    $
    25,311,000
    
    
    $
    21,823,000Denominators:Denominators for basic earnings
per share, weighted average
common shares outstanding
    
    
    27,832,000
    
    
    
    27,891,000Potential dilutive shares resulting
from stock options, restricted
stock awards and phantom stock
units
    
    
    66,000
    
    
    
    50,000Dilutive shares resulting from
Contingent Convertible Notes
    
    
    6,859,000
    
    
    
    6,859,000Denominators for diluted
earnings per share
    
    
    34,757,000
    
    
    
    34,800,000Earnings per share:Basic
    
    
    $0.80
    
    
    
    $0.68Diluted
    
    
    $0.73
    
    
    
    $0.63
 Options to purchase 63,000 shares of common stock at prices ranging from $28.35 to
$33.31 per share were outstanding during the second quarter of 2004, but were not included in
the computation of diluted earnings per share because the options exercise price was greater
than the average market price of the common shares during that period.In May of 2003, the Company completed the sale of $200.0 million of 4% Contingent Convertible
Senior Subordinated Notes due 2023 (the Notes). The Notes are convertible into a total of
6,858,710 shares of Company common stock at a conversion price of $29.16 per share, provided
certain contingencies are met including that Company common stock has traded above $34.99 for
20 out of 30 trading days for specified periods of time. The Notes are discussed further in
Note 6.
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In October 2004, the Financial Accounting Standards Board ratified the final consensus of the
Emerging Issues Task Force (EITF) on EITF 04-8, The Effects of Contingently Convertible
Instruments on Diluted Earnings per Share, which states that the impact of contingently
convertible instruments that are convertible into common stock upon the achievement of a
specified market price of the issuers shares, such as the Companys Notes, should be
included in diluted earnings per share computations regardless of whether or not the market
price trigger has been met. Accordingly, the diluted earnings per share amounts for the
second quarter and first half ended July 3, 2004 previously reported as $.36 and $.67, have
been restated to adjust net income by adding back the after tax interest expense, including
amortization of debt issuance costs, attributable to the Notes and to increase total shares
outstanding by the number of shares that would be issuable upon conversion.5)
    
    The Company operates through operating segments 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. Certain of the operating segments have similar economic characteristics, as
well as other common attributes, including nature of the products and production processes,
distribution patterns and classes of customers. The Company aggregates these operating
segments for reporting purposes. Certain other operating segments do not exhibit the
common attributes mentioned above and, therefore, information about them is reported
separately. Still other operating segments do not meet the quantitative thresholds for
separate disclosure and their information is combined and disclosed as Other.The Company has four reportable segments and other operating segments engaged in the
manufacture and sale of the following:Friction and Motion Control Products complex components used in specialized medical,
aerospace, defense, security, electronic, material handling, construction and other
industrial applications. Products include anti-friction bearings, split roller bearings,
specialty balls and retaining devices.Velocity Control Products complex components used in specialized robotics, material
handling, machine tool, medical, amusement and other industrial applications. Products
include industrial shock absorbers, safety shock absorbers, velocity controls, gas springs
and rotary dampers.Sealing Products complex and standard ring and seal products used in demanding
industrial, aerospace and defense applications. Products include engine rings, sealing
rings and shaft seals.Power and Data Transmission Productscomplex and standard electrical and
fiber optic products used in demanding industrial, aerospace, defense, security, medical,
electronic and marine equipment applications. Products include slip-rings, slip-ring
assemblies, video and data multiplexers, fiber optic rotary joints
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and printed circuit
boards. This segment was sold July 26, 2005. Refer to Note 14 for additional information
regarding the sale of the segment.Otherfilter elements and liquid and gas-phase air filtration systems, metal alloys,
machine tool components, presses, dies and benders used in a variety of industrial
applications.The accounting policies of the operating segments are the same as those of the Company.
Segment performance is evaluated based on segment operating income (which includes an
estimated provision for state income taxes) and segment assets.Items not allocated to segment operating income include certain amortization and corporate
administrative expenses, and other amounts. Corporate assets consist of cash and cash
equivalents, fixed assets and certain prepaid expenses. The selling price for transfers
between operating segments and geographic areas is generally based on cost plus a mark-up.
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Quarter Ended
    
    First Half EndedJuly 2, 2005
    
    July 3, 2004
    
    July 2, 2005
    
    July 3, 2004Net salesFriction and Motion Control
ProductsExternal customers
    
    $
    50,687,000
    
    
    $
    42,575,000
    
    
    $
    95,357,000
    
    
    $
    81,379,000Intersegment
    
    
    230,000
    
    
    
    95,000
    
    
    
    360,000
    
    
    
    165,00050,917,000
    
    
    
    42,670,000
    
    
    
    95,717,000
    
    
    
    81,544,000Velocity Control ProductsExternal customers
    
    
    14,434,000
    
    
    
    12,497,000
    
    
    
    29,172,000
    
    
    
    26,091,000Intersegment
    
    
    (1,000
    )
    
    
    
    
    
    
    (1,000
    )
    
    
    14,433,000
    
    
    
    12,497,000
    
    
    
    29,171,000
    
    
    
    26,091,000Sealing ProductsExternal customers
    
    
    10,471,000
    
    
    
    9,728,000
    
    
    
    19,161,000
    
    
    
    19,331,000Intersegment
    
    
    (28,000
    )
    
    
    (35,000
    )
    
    
    (47,000
    )
    
    
    (45,000
    )10,443,000
    
    
    
    9,693,000
    
    
    
    19,114,000
    
    
    
    19,286,000Power and Data Transmission
ProductsExternal customers
    
    
    10,130,000
    
    
    
    7,608,000
    
    
    
    20,154,000
    
    
    
    16,326,000Intersegment
    
    
    (194,000
    )
    
    
    (53,000
    )
    
    
    (298,000
    )
    
    
    (113,000
    )9,936,000
    
    
    
    7,555,000
    
    
    
    19,856,000
    
    
    
    16,213,000OtherExternal customers
    
    
    18,687,000
    
    
    
    11,978,000
    
    
    
    35,047,000
    
    
    
    24,582,000Intersegment
    
    
    (7,000
    )
    
    
    (7,000
    )
    
    
    (14,000
    )
    
    
    (7,000
    )18,680,000
    
    
    
    11,971,000
    
    
    
    35,033,000
    
    
    
    24,575,000Total consolidated net sales
    
    $
    104,409,000
    
    
    $
    84,386,000
    
    
    $
    198,891,000
    
    
    $
    167,709,000
 Quarter Ended
    
    First Half EndedJuly 2, 2005
    
    July 3, 2004
    
    July 2, 2005
    
    July 3, 2004Operating income (loss)Friction and Motion Control Products
    
    $
    12,675,000
    
    
    $
    11,086,000
    
    
    $
    23,284,000
    
    
    $
    20,080,000Velocity Control Products
    
    
    3,734,000
    
    
    
    3,439,000
    
    
    
    7,175,000
    
    
    
    7,397,000Sealing Products
    
    
    1,724,000
    
    
    
    1,543,000
    
    
    
    2,915,000
    
    
    
    2,960,000Power and Data Transmission Products
    
    
    1,203,000
    
    
    
    (110,000
    )
    
    
    1,699,000
    
    
    
    (469,000
    )Other
    
    
    1,897,000
    
    
    
    (787,000
    )
    
    
    2,935,000
    
    
    
    783,000Total segment operating income
    
    
    21,233,000
    
    
    
    15,171,000
    
    
    
    38,008,000
    
    
    
    30,751,000State income tax provision
included in segment operating
income
    
    
    289,000
    
    
    
    279,000
    
    
    
    784,000
    
    
    
    553,000Items not allocated to segment
operating income
    
    
    (1,696,000
    )
    
    
    1,659,000
    
    
    
    (2,829,000
    )
    
    
    1,368,000Interest expense
    
    
    (2,396,000
    )
    
    
    (2,374,000
    )
    
    
    (4,814,000
    )
    
    
    (4,793,000
    )Interest income
    
    
    1,733,000
    
    
    
    802,000
    
    
    
    3,260,000
    
    
    
    1,568,000Income before income taxes
    
    $
    19,163,000
    
    
    $
    15,537,000
    
    
    $
    34,409,000
    
    
    $
    29,447,000
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Quarter Ended
    
    First Half EndedJuly 2, 2005
    
    July 3, 2004
    
    July 2, 2005
    
    July 3, 2004Depreciation and amortizationFriction and Motion Control Products
    
    $
    1,880,000
    
    
    $
    1,867,000
    
    
    $
    3,672,000
    
    
    $
    3,761,000Velocity Control Products
    
    
    472,000
    
    
    
    423,000
    
    
    
    951,000
    
    
    
    836,000Sealing Products
    
    
    269,000
    
    
    
    298,000
    
    
    
    537,000
    
    
    
    558,000Power and Data Transmission Products
    
    
    404,000
    
    
    
    405,000
    
    
    
    818,000
    
    
    
    809,000Other
    
    
    1,043,000
    
    
    
    279,000
    
    
    
    1,794,000
    
    
    
    554,000Corporate
    
    
    630,000
    
    
    
    432,000
    
    
    
    1,291,000
    
    
    
    830,000Total consolidated depreciation and
amortization
    
    $
    4,698,000
    
    
    $
    3,704,000
    
    
    $
    9,063,000
    
    
    $
    7,348,000
 Quarter Ended
    
    First Half EndedJuly 2, 2005
    
    July 3, 2004
    
    July 2, 2005
    
    July 3, 2004Additions to net property, plant
and equipmentFriction and Motion Control Products
    
    $
    1,367,000
    
    
    $
    2,256,000
    
    
    $
    2,747,000
    
    
    $
    3,735,000Velocity Control Products
    
    
    360,000
    
    
    
    (118,000
    )
    
    
    563,000
    
    
    
    (54,000
    )Sealing Products
    
    
    56,000
    
    
    
    127,000
    
    
    
    112,000
    
    
    
    205,000Power and Data Transmission Products
    
    
    (3,000
    )
    
    
    211,000
    
    
    
    163,000
    
    
    
    339,000Other
    
    
    722,000
    
    
    
    316,000
    
    
    
    1,001,000
    
    
    
    603,000Corporate
    
    
    367,000
    
    
    
    34,000
    
    
    
    792,000
    
    
    
    263,000Total consolidated additions to net
property, plant and
equipment
    
    $
    2,869,000
    
    
    $
    2,826,000
    
    
    $
    5,378,000
    
    
    $
    5,091,000
 July 2, 2005
    
    December 31, 2004Total assetsFriction and Motion Control Products
    
    $
    158,305,000
    
    
    $
    162,275,000Velocity Control Products
    
    
    80,707,000
    
    
    
    80,213,000Sealing Products
    
    
    19,853,000
    
    
    
    18,034,000Power and Data Transmission Products
    
    
    40,868,000
    
    
    
    42,165,000Other
    
    
    95,793,000
    
    
    
    46,586,000Corporate
    
    
    231,917,000
    
    
    
    269,851,000Total consolidated assets
    
    $
    627,443,000
    
    
    $
    619,124,000
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July 2, 2005
    
    December 31, 20044% Contingent Convertible Senior
Subordinated Notes due 2023
    
    $
    200,000,000
    
    
    $
    200,000,000Other
    
    
    98,000
    
    
    
    128,000Total debt
    
    
    200,098,000
    
    
    
    200,128,000Less current maturities
    
    
    64,000
    
    
    
    62,000Long-term debt
    
    $
    200,034,000
    
    
    $
    200,066,000
  11




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th
     12




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##### Table of Contents



Friction and
    
    
    
    
    
    
    
    
    
    Power andMotion
    
    Velocity
    
    
    
    
    
    DataControl
    
    Control
    
    Sealing
    
    TransmissionProducts
    
    Products
    
    Products
    
    Products
    
    Other
    
    TotalBalance as of
December 31, 2004
    
    $
    32,040,000
    
    
    $
    42,879,000
    
    
    $
    186,000
    
    
    $
    13,115,000
    
    
    $
    25,155,000
    
    
    $
    113,375,000Effect of foreign
currency exchange
rate changes
    
    
    (376,000
    )
    
    
    
    
    
    
    
    
    
    
    (138,000
    )
    
    
    
    
    
    
    (514,000
    )Goodwill acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,124,000
    
    
    
    18,124,000Balance as of
April 2, 2005
    
    $
    31,664,000
    
    
    $
    42,879,000
    
    
    $
    186,000
    
    
    $
    12,977,000
    
    
    $
    43,279,000
    
    
    $
    130,985,000Effect of foreign
currency exchange
rate changes
    
    
    (1,242,000
    )
    
    
    
    
    
    
    
    
    
    
    (205,000
    )
    
    
    
    
    
    
    (1,447,000
    )Goodwill acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    367,000
    
    
    
    367,000Balance as of
July 2, 2005
    
    $
    30,422,000
    
    
    $
    42,879,000
    
    
    $
    186,000
    
    
    $
    12,772,000
    
    
    $
    43,646,000
    
    
    $
    129,905,000
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July 2, 2005
    
    December 31, 2004Gross Carrying
    
    Accumulated
    
    Gross Carrying
    
    AccumulatedAmortized Intangible Assets
    
    Amount
    
    Amortization
    
    Amount
    
    AmortizationCustomer relationships and lists
    
    $
    18,694,000
    
    
    $
    3,939,000
    
    
    $
    7,834,000
    
    
    $
    2,970,000Patents and developed technology
    
    
    6,374,000
    
    
    
    621,000
    
    
    
    1,233,000
    
    
    
    263,000Backlog
    
    
    351,000
    
    
    
    181,000
    
    
    
    11,000
    
    
    
    11,000Distributor agreements
    
    
    374,000
    
    
    
    31,000
    
    
    
    374,000
    
    
    
    12,000Product names
    
    
    320,000
    
    
    
    16,000
    
    
    
    
    
    
    
    $
    26,113,000
    
    
    $
    4,788,000
    
    
    $
    9,452,000
    
    
    $
    3,256,000
  July 2, 2005
    
    December 31, 2004Carrying
    
    CarryingUnamortized Intangible Assets
    
    Amount
    
    AmountTrademarks
    
    $
    4,604,000
    
    
    $
    3,004,000
 Aggregate
Intangible Assets Amortization ExpenseFor the first half ended July 2, 2005
    
    1,532,000For the first half ended July 3, 2004
    
    420,000Estimated
Intangible Assets Amortization ExpenseFor the year ending December 31, 2005
    
    3,106,000For the year ending December 31, 2006
    
    3,093,000For the year ending December 31, 2007
    
    3,039,000For the year ending December 31, 2008
    

    2,968,000For the year ending December 31, 2009
    
    2,645,000
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Pension Benefits
    
    Quarter Ended
    
    First Half EndedJuly 2, 2005
    
    July 3, 2004
    
    July 2, 2005
    
    July 3, 2004Service cost
    
    $
    636,000
    
    
    $
    589,000
    
    
    $
    1,272,000
    
    
    $
    1,178,000Interest cost
    
    
    1,270,000
    
    
    
    1,243,000
    
    
    
    2,540,000
    
    
    
    2,487,000Expected return on plan assets
    
    
    (1,083,000
    )
    
    
    (951,000
    )
    
    
    (2,166,000
    )
    
    
    (1,903,000
    )Amortization of:Unrecognized net prior
service cost
    
    
    49,000
    
    
    
    190,000
    
    
    
    98,000
    
    
    
    380,000Unrecognized net loss
    
    
    220,000
    
    
    
    274,000
    
    
    
    440,000
    
    
    
    548,000Total
    
    $
    1,092,000
    
    
    $
    1,345,000
    
    
    $
    2,184,000
    
    
    $
    2,690,000
 Postretirement Benefits
    
    Quarter Ended
    
    First Half EndedJuly 2, 2005
    
    July 3, 2004
    
    July 2, 2005
    
    July 3, 2004Service cost
    
    $
    111,000
    
    
    $
    187,000
    
    
    $
    222,000
    
    
    $
    377,000Interest cost
    
    
    221,000
    
    
    
    368,000
    
    
    
    442,000
    
    
    
    742,000Amortization of:Unrecognized net prior
service cost
    
    
    (359,000
    )
    
    
    (269,000
    )
    
    
    (717,000
    )
    
    
    (542,000
    )Unrecognized net gain
    
    
    (176,000
    )
    
    
    (44,000
    )
    
    
    (352,000
    )
    
    
    (89,000
    )Total
    
    $
    (203,000
    )
    
    $
    242,000
    
    
    $
    (405,000
    )
    
    $
    488,000
   Quarter Ended
    
    First Half EndedJuly 2, 2005
    
    July 3, 2004
    
    July 2, 2005
    
    July 3, 2004Reported net income
    
    $
    12,418,000
    
    
    $
    9,944,000
    
    
    $
    22,297,000
    
    
    $
    18,846,000Add: Total stock-based compensation
expense included in reported net
income, net of tax
    
    
    434,000
    
    
    
    205,000
    
    
    
    868,000
    
    
    
    410,000Deduct: Total stock-based
compensation expense
determined
under fair value method for all
awards, net of tax
    
    
    (457,000
    )
    
    
    (236,000
    )
    
    
    (912,000
    )
    
    
    (472,000
    )Pro-forma net income
    
    $
    12,395,000
    
    
    $
    9,913,000
    
    
    $
    22,253,000
    
    
    $
    18,784,000Earnings per share- Basic:As reported
    
    
    $0.45
    
    
    
    $0.36
    
    
    
    $0.80
    
    
    
    $0.68Pro-forma
    
    
    $0.45
    
    
    
    $0.35
    
    
    
    $0.80
    
    
    
    $0.67Earnings per share- Diluted:As reported
    
    
    $0.40
    
    
    
    $0.33
    
    
    
    $0.73
    
    
    
    $0.63Pro-forma
    
    
    $0.40
    
    
    
    $0.33
    
    
    
    $0.73
    
    
    
    $0.63
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July 2, 2005(Unaudited)Assets:Current Assets
    
    $
    18,669,000Property, plant and equipment, net
    
    
    9,232,000Goodwill, net
    
    
    12,772,000Other intangible assets, net
    
    
    137,000Other assets
    
    
    58,000Total assets
    
    $
    40,868,000Liabilities:Current liabilities
    
    $
    3,424,000Long-term liabilities
    
    
    50,000Total liabilities
    
    $
    3,474,000
  17




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
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Loss
Contingencies and Legal Costs
   23




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Valuation of Goodwill and Indefinite-Lived Intangible Assets-
      24




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Valuation
of Long-Lived Assets
    Retirement
Benefits
   25




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4%
Contingent Convertible Senior Subordinated Notes
   26




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Income Taxes 
   Inventories

  27




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Forward-Looking
Statements
   The Companys customers economic cycles may affect Kaydons operating results.
  Increased competition in the Companys key markets could result in a reduction in Kaydons revenues
and earnings and adversely affect the Companys financial condition.
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Future acquisitions may require Kaydon to incur costs and liabilities which may adversely affect
the Companys operating results.
  Political, economic and regulatory conditions inherent in the international markets in which Kaydon
participates could adversely affect the Companys financial condition.
   29




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Kaydons manufactured critical performance products expose the Company to potential
litigation-related costs which may adversely affect the Companys financial position and operating
results.
   Failing to continue to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of
2002 may adversely affect investor perceptions and the market value of Company common stock.
  30




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
  31




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PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 See the discussion in Notes to Consolidated Condensed Financial
Statements (Note 7), which discussion is incorporated herein by
reference.
 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 The following table provides the information with respect to
purchases made by the Company of shares of its common stock
during each month in the second quarter of 2005:
 Total Number ofTotal
    
    Average
    
    Shares Purchased
    
    Maximum Number ofNumber
    
    Price
    
    as
    
    Shares that MayOf Shares
    
    Paid
    
    Part of Publicly
    
    Yet be PurchasedPeriod
    
    Purchased
    
    Per Share
    
    Announced Plan
    
    Under the Plan (1)April 3 to April 30
    
    
    30,000
    
    
    $
    28.01
    
    
    
    30,000
    
    
    
    878,565May 1 to May 28
    
    
    40,000
    
    
    $
    27.42
    
    
    
    40,000
    
    
    
    5,000,000May 29 to July 2
    
    
    20,500
    
    
    $
    27.36
    
    
    
    20,500
    
    
    
    4,979,500Total
    
    
    90,500
    
    
    $
    27.65
    
    
    
    90,500
 
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 The Company held its Annual Meeting of Shareholders on May 6, 2005, at which
the shareholders voted on the election of Directors and ratification of the
appointment of Ernst & Young LLP as the Companys independent registered
public accounting firm for 2005. The results were as follows:Each of the nominees for Director was an incumbent and all nominees were
elected. The following table sets forth the number of shares voted for and
withheld with respect to each nominee.
 Nominee
    
    Votes For
    
    Votes WithheldDavid A. Brandon
    
    
    24,889,593
    
    
    
    195,761Brian P. Campbell
    
    
    24,755,556
    
    
    
    329,798James OLeary
    
    
    25,003,834
    
    
    
    81,520Thomas C. Sullivan
    
    
    24,548,800
    
    
    
    536,554B. Joseph White
    
    
    24,980,669
    
    
    
    104,685
 The stockholders approved the appointment of Ernst & Young LLP as the
Companys independent registered public accounting firm for 2005 with the following
vote: 24,989,052 votes for, 69,881 votes against, and 26,421 votes abstained.
 
 ITEM 6. EXHIBITS
 Exhibit No.
    
    Description12
    
    
    Statement Re: Computation of Ratio of Earnings to Fixed Charges31
    
    
    Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 33




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KAYDON CORPORATIONAugust 10, 2005
    /s/ Brian P. CampbellBrian P. CampbellChairman, President, Chief Executive
Officer and Chief Financial Officer August 10, 2005
    /s/ Kenneth W. CrawfordKenneth W. CrawfordVice President and Corporate Controller
(Principal Accounting Officer) 34




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Exhibit No.
    
    Description12
    
    
    Statement Re: Computation of Ratio of Earnings to Fixed Charges31
    
    
    Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 35