##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT of 1934
 For the quarterly period ended April 4, 2009
    
    Commission File No. 1-11333
 KAYDON CORPORATION
  Delaware
    
    13-3186040(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 Suite 300, 315 E. Eisenhower Parkway, Ann Arbor, Michigan
    
    48108(Address of principal executive offices)
    
    (Zip Code)
 (734) 747-7025
  þ o
  o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
  o þ




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Page No.Part I  Financial Information:Item 1. Financial Statements
    
    3Consolidated Condensed Balance Sheets  April 4, 2009 (Unaudited) and December 31, 2008
    
    3Consolidated Condensed Statements of Operations (Unaudited)  Quarters Ended April 4, 2009 and March 29, 2008
    
    4Consolidated Condensed Statements of Cash Flows (Unaudited)  Quarters Ended April 4, 2009 and March 29, 2008
    
    5Notes to Consolidated Condensed Financial Statements (Unaudited)
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    17Item 4. Controls and Procedures
    
    17Part II  Other Information:Item 1A. Risk Factors
    
    18Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    18Item 6. Exhibits
    
    19Signatures
    
    20EX-10.1EX-31.1EX-31.2EX-32
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ITEM 1. FINANCIAL STATEMENTS.
 KAYDON CORPORATION
 
 CONSOLIDATED CONDENSED BALANCE SHEETS
 (Unaudited)April 4, 2009
    
    December 31, 2008ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    220,347,000
    
    
    $
    232,998,000Accounts receivable, net
    
    
    66,210,000
    
    
    
    78,918,000Inventories, net
    
    
    115,062,000
    
    
    
    97,748,000Other current assets
    
    
    15,331,000
    
    
    
    18,395,000Total current assets
    
    
    416,950,000
    
    
    
    428,059,000Property, plant and equipment, net
    
    
    183,441,000
    
    
    
    185,642,000Goodwill, net
    
    
    142,704,000
    
    
    
    142,424,000Other intangible assets, net
    
    
    24,683,000
    
    
    
    25,746,000Other assets
    
    
    6,217,000
    
    
    
    7,911,000Total assets
    
    $
    773,995,000
    
    
    $
    789,782,000LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    25,816,000
    
    
    $
    35,080,000Salaries and wages
    
    
    6,208,000
    
    
    
    8,302,000Taxes payable
    
    
    4,013,000
    
    
    
    2,843,000Other accrued expenses
    
    
    16,094,000
    
    
    
    16,537,000Total current liabilities
    
    
    52,131,000
    
    
    
    62,762,000Long-term postretirement and
postemployment benefit obligations
    
    
    54,215,000
    
    
    
    53,478,000Other long-term liabilities
    
    
    912,000
    
    
    
    912,000Total long-term liabilities
    
    
    55,127,000
    
    
    
    54,390,000Shareholders Equity:Common stock
    
    
    3,693,000
    
    
    
    3,693,000Other shareholders equity
    
    
    663,044,000
    
    
    
    668,937,000Total shareholders equity
    
    
    666,737,000
    
    
    
    672,630,000Total liabilities and shareholders equity
    
    $
    773,995,000
    
    
    $
    789,782,000
  3




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KAYDON CORPORATION
 
 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 First Quarter EndedAs Adjusted(Note 1)April 4, 2009
    
    March 29, 2008Net sales
    
    $
    110,335,000
    
    
    $
    123,284,000Cost of sales
    
    
    74,557,000
    
    
    
    75,965,000Gross profit
    
    
    35,778,000
    
    
    
    47,319,000Selling, general and
administrative expenses
    
    
    20,258,000
    
    
    
    21,155,000Operating income
    
    
    15,520,000
    
    
    
    26,164,000Interest expense
    
    
    (62,000
    )
    
    
    (4,407,000
    )Interest income
    
    
    130,000
    
    
    
    1,936,000Income before income taxes
    
    
    15,588,000
    
    
    
    23,693,000Provision for income taxes
    
    
    5,464,000
    
    
    
    8,374,000Net income
    
    $
    10,124,000
    
    
    $
    15,319,000Earnings per share:Basic
    
    $
    0.30
    
    
    $
    0.55Diluted
    
    $
    0.30
    
    
    $
    0.52Dividends declared per share
    
    $
    0.17
    
    
    $
    0.15
  4




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KAYDON CORPORATION
 
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 First Quarter EndedApril 4, 2009
    
    
    March 29, 2008Net cash from operating activities
    
    $
    6,634,000
    
    
    $
    12,712,000Cash flows from investing activities:Additions to property, plant and equipment, net
    
    
    (5,376,000
    )
    
    
    (14,762,000
    )Proceeds from sales of investments
    
    
    1,416,000
    
    
    
    56,919,000Acquisition of business, net of cash received
    
    
    
    
    
    
    489,000Net cash from (used in) investing activities
    
    
    (3,960,000
    )
    
    
    42,646,000Cash flows from financing activities:Cash dividends paid
    
    
    (5,750,000
    )
    
    
    (4,171,000
    )Purchase of treasury stock
    
    
    (8,871,000
    )
    
    
    (7,599,000
    )Excess tax benefits from stock-based compensation
    
    
    (22,000
    )
    
    
    23,000Proceeds from exercise of stock options
    
    
    
    
    
    
    24,000Cash used in financing activities
    
    
    (14,643,000
    )
    
    
    (11,723,000
    )Effect of exchange rate changes on cash and
cash equivalents
    
    
    (682,000
    )
    
    
    2,531,000Net increase (decrease) in cash and cash equivalents
    
    
    (12,651,000
    )
    
    
    46,166,000Cash and cash equivalents  Beginning of period
    
    
    232,998,000
    
    
    
    229,993,000Cash and cash equivalents  End of period
    
    $
    220,347,000
    
    
    $
    276,159,000Cash paid for income taxes
    
    $
    2,391,000
    
    
    $
    2,630,000Cash paid for interest
    
    
    
    
    
    
    
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KAYDON CORPORATION
 
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
 (1) Basis of Presentation:
     (2) Cash and Cash Equivalents:
  April 4, 2009
    
    December 31, 2008Cash and cash equivalents:Money market and other short-term funds
    
    $
    214,723,000
    
    
    $
    221,604,000Time deposits, other interest bearing accounts, and other cash
    
    
    5,624,000
    
    
    
    11,394,000Cash and cash equivalents
    
    $
    220,347,000
    
    
    $
    232,998,000
 6




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(3) Inventories:
 April 4, 2009
    
    December 31, 2008Raw material
    
    $
    46,759,000
    
    
    $
    41,158,000Work in process
    
    
    27,112,000
    
    
    
    24,852,000Finished goods
    
    
    41,191,000
    
    
    
    31,738,000$
    115,062,000
    
    
    $
    97,748,000
 (4) Comprehensive Income:
  (5) Earnings per Share:
  First Quarter EndedAs adjusted(Note 1)April 4, 2009
    
    March 29, 2008Earnings per share  BasicNet income
    
    $
    10,124,000
    
    
    $
    15,319,000Less: Net earnings allocated to participating
securities  Basic
    
    
    (114,000
    )
    
    
    (232,000
    )Income available to common shareholders  Basic
    
    $
    10,010,000
    
    
    $
    15,087,000Weighted average common shares outstanding  Basic
    
    
    33,323,000
    
    
    
    27,384,000Earnings per share  Basic
    
    $
    0.30
    
    
    $
    0.55Earnings per share  DilutedNet income
    
    $
    10,124,000
    
    
    $
    15,319,000Less: Net earnings allocated to participating
securities  Diluted
    
    
    (114,000
    )
    
    
    (232,000
    )Plus: Interest and debt issuance costs amortization
related to
Contingent Convertible Notes, net of tax
    
    
    
    
    
    
    2,780,000Income available to common shareholders  Diluted
    
    $
    10,010,000
    
    
    $
    17,867,000Weighted average common shares outstanding  DilutedWeighted average common shares outstanding  Basic
    
    
    33,323,000
    
    
    
    27,384,000Potential
dilutive shares resulting from stock options
    
    
    7,000
    
    
    
    34,000Dilutive shares resulting from Contingent
Convertible Notes
    
    
    
    
    
    
    6,859,000Weighted
average common shares outstanding  Diluted
    
    
    33,330,000
    
    
    
    34,277,000Earnings per share  Diluted
    
    $
    0.30
    
    
    $
    0.52
  7




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(6) Business Segment Information:
  First Quarter EndedApril 4, 2009
    
    March 29, 2008Net salesFriction Control Products
    
    $
    72,195,000
    
    
    $
    74,109,000Velocity Control Products
    
    
    12,159,000
    
    
    
    18,752,000Sealing Products
    
    
    10,572,000
    
    
    
    11,501,000Other
    
    
    15,409,000
    
    
    
    18,922,000Total consolidated net sales
    
    $
    110,335,000
    
    
    $
    123,284,000
 First Quarter EndedApril 4, 2009
    
    March 29, 2008Operating incomeFriction Control Products
    
    $
    12,482,000
    
    
    $
    17,594,000Velocity Control Products
    
    
    2,176,000
    
    
    
    5,592,000Sealing Products
    
    
    597,000
    
    
    
    1,514,000Other
    
    
    756,000
    
    
    
    2,133,000Total segment operating income
    
    
    16,011,000
    
    
    
    26,833,000Items not allocated to segment
operating income
    
    
    (491,000
    )
    
    
    (669,000
    )Interest expense
    
    
    (62,000
    )
    
    
    (4,407,000
    )Interest income
    
    
    130,000
    
    
    
    1,936,000Income before income taxes
    
    $
    15,588,000
    
    
    $
    23,693,000
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(7) Long-term Debt:
    (8) Goodwill and Other Intangible Assets:
   Friction
    
    VelocityControl
    
    Control
    
    SealingProducts
    
    Products
    
    Products
    
    Other
    
    TotalBalance as of
January 1, 2009
    
    $
    55,392,000
    
    
    $
    43,200,000
    
    
    $
    186,000
    
    
    $
    43,646,000
    
    
    $
    142,424,000Effect of foreign
currency
exchange rate
changes
    
    
    280,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    280,000Balance as of
April 4, 2009
    
    $
    55,672,000
    
    
    $
    43,200,000
    
    
    $
    186,000
    
    
    $
    43,646,000
    
    
    $
    142,704,000
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April 4, 2009
    
    December 31, 2008GrossCarrying
    
    Accumulated
    
    Gross Carrying
    
    AccumulatedAmortized Intangible Assets
    
    Amount
    
    Amortization
    
    Amount
    
    AmortizationCustomer relationships and lists
    
    $
    28,194,000
    
    
    $
    12,485,000
    
    
    $
    28,194,000
    
    
    $
    11,761,000Patents and developed technology
    
    
    6,434,000
    
    
    
    3,130,000
    
    
    
    6,427,000
    
    
    
    3,004,000Backlog
    
    
    3,300,000
    
    
    
    2,696,000
    
    
    
    3,300,000
    
    
    
    2,519,000Distributor agreements
    
    
    374,000
    
    
    
    171,000
    
    
    
    374,000
    
    
    
    162,000Product names
    
    
    320,000
    
    
    
    138,000
    
    
    
    320,000
    
    
    
    130,000Trademarks
    
    
    200,000
    
    
    
    123,000
    
    
    
    200,000
    
    
    
    97,000$
    38,822,000
    
    
    $
    18,743,000
    
    
    $
    38,815,000
    
    
    $
    17,673,000
  December 31,April 4, 2009
    
    2008Carrying
    
    CarryingAmount
    
    AmountUnamortized Intangible AssetsTrademarks
    
    $
    4,604,000
    
    
    $
    4,604,000Aggregate Intangible Assets Amortization ExpenseFor the first quarter ended April 4, 2009
    
    
    
    
    
    $
    1,070,000For the first quarter ended March 29, 2008
    
    
    
    
    
    $
    1,365,000Estimated Intangible Assets Amortization ExpenseFor the year ending December 31, 2009
    
    
    
    
    
    $
    4,317,000For the year ending December 31, 2010
    
    
    
    
    
    $
    3,574,000For the year ending December 31, 2011
    
    
    
    
    
    $
    2,263,000For the year ending December 31, 2012
    
    
    
    
    
    $
    1,981,000For the year ending December 31, 2013
    
    
    
    
    
    $
    1,713,000
 10




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(9) Employee Benefit Plans:
  First Quarter EndedPension Benefits
    
    April 4, 2009
    
    March 29, 2008Service cost
    
    $
    791,000
    
    
    $
    671,000Interest cost
    
    
    1,712,000
    
    
    
    1,571,000Expected return on plan assets
    
    
    (1,411,000
    )
    
    
    (1,943,000
    )Amortization of:Unrecognized net prior service
cost
    
    
    3,000
    
    
    
    7,000Unrecognized net loss
    
    
    1,265,000
    
    
    
    1,000Total
    
    $
    2,360,000
    
    
    $
    307,000First Quarter EndedPostretirement Benefits
    
    April 4, 2009
    
    March 29, 2008Service cost
    
    $
    79,000
    
    
    $
    73,000Interest cost
    
    
    172,000
    
    
    
    164,000Amortization of:Unrecognized net prior
service cost
    
    
    (301,000
    )
    
    
    (429,000
    )Unrecognized net gain
    
    
    (128,000
    )
    
    
    (227,000
    )Total
    
    $
    (178,000
    )
    
    $
    (419,000
    )
  (10) Stock-Based Compensation:
  First Quarter EndedApril 4, 2009Wtd.-Avg.Restricted
    
    Grant DateStock
    
    Fair ValueOutstanding at January 1, 2009
    
    
    391,580
    
    
    $
    38.33Granted
    
    
    86,750
    
    
    $
    25.43Vested
    
    
    (139,008
    )
    
    $
    35.91Canceled
    
    
    (1,108
    )
    
    $
    35.64Outstanding at April 4, 2009
    
    
    338,214
    
    
    $
    36.02
  11




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First Quarter EndedApril 4, 2009Wtd.-Avg.Options
    
    Ex. PriceOutstanding at January 1, 2009
    
    
    443,750
    
    
    $
    41.87Granted
    
    
    99,500
    
    
    $
    25.43Outstanding at April 4, 2009
    
    
    543,250
    
    
    $
    38.86Exercisable at April 4, 2009
    
    
    160,100
    
    
    $
    39.64Weighted-Avg. Fair Value of Options Granted
    
    $
    7.22Weighted-Avg. Remaining Contractual Life (years)Outstanding at April 4, 2009
    
    
    8.2Exercisable at April 4, 2009
    
    
    7.3
   (11) Impact of Recently Issued Accounting Pronouncements:
   12




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(12) Fair Value Measurement:
  Level 1 
    
    Inputs are quoted prices in active markets for identical assets or liabilities.Level 2 
    
    Inputs are quoted prices for similar assets or liabilities in an active market,
quoted prices for
identical or similar assets or liabilities in markets that are not active, inputs
other than quoted prices that are observable and market-corroborated inputs which
are derived principally from or corroborated by observable market data.Level 3 
    
    Inputs are derived from valuation techniques in which one or more significant
inputs or value drivers are unobservable.
  Fair Value Measurement at April 4, 2009 Using:Total
    
    Quoted Prices in
    
    SignificantFair Value
    
    Active Markets
    
    Other
    
    SignificantMeasurement at
    
    for Identical
    
    Observable
    
    UnobservableApril 4, 2009
    
    Assets (Level 1)
    
    Inputs (Level 2)
    
    Inputs (Level 3)Long-term investment
    
    $
    3,554,000
    
    
    
    
    
    
    $
    3,554,000
  Fair Value MeasurementsUsing SignificantUnobservable Inputs(Level 3)Balance at December 31, 2008
    
    $
    4,940,000Redemptions  cash received
    
    
    (1,416,000
    )Gain on investment redemptions above book value included in interest income
    
    
    2,000Unrealized gain on investment recorded to accumulated other comprehensive
income
    
    
    28,000Balance at April 4, 2009
    
    $
    3,554,000
  13




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
     Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations
 Results of Operations
   14




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15




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Liquidity and Capital Resources
     Outlook
   Critical Accounting Policies and Estimates
  Item 7. Managements Discussion and
 16




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Analysis of Financial Condition and Results of Operations
 Forward-Looking Statements
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
  
 ITEM 4. CONTROLS AND PROCEDURES.
  17




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PART
II. OTHER INFORMATION
 
 ITEM
1A. RISK FACTORS.
 Part 1, Item 1A. Risk Factors
 The condition of the financial markets may impact the timing and extent that wind energy market
customers proceed with planned projects, and, if financial markets do not improve, or improve too
slowly, the Companys financial position and operating results may be adversely affected.
  
 ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
  Total Number of
    
    Maximum NumberTotal Number
    
    Average Price
    
    Shares Purchased as
    
    of Shares that MayOf Shares
    
    Paid
    
    Part of Publicly
    
    Yet be PurchasedPeriod
    
    Purchased
    
    Per Share
    
    Announced Plan
    
    Under the Plan (1)January 1 to January 31
    
    
    156,787
    
    
    $
    26.11
    
    
    
    156,787
    
    
    
    3,186,443February 1 to February 28
    
    
    90,700
    
    
    $
    34.61
    
    
    
    90,700
    
    
    
    3,095,743March 1 to April 4
    
    
    66,560
    
    
    $
    24.61
    
    
    
    66,560
    
    
    
    3,029,183Total
    
    
    314,047
    
    
    $
    28.25
    
    
    
    314,047
    
    
    
    3,029,183
 
 (1)
    
    On May 6, 2005, the Companys Board of Directors authorized management to purchase up to
5,000,000 shares of its common stock in the open market. 18




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ITEM
6. EXHIBITS.
 Exhibit No.
    
    Description10.1*
    
    Eleventh Amendment to the Kaydon Corporation Employee Stock Ownership and Thrift Plan
effective March 29, 200910.2*
    
    Employment Continuation, Consulting and Non-Compete Agreement between Kaydon Corporation and
Kenneth W. Crawford dated January 27, 2009 (previously filed as Exhibit 10.1 to the Companys
Current Report of Form 8-K filed January 29, 2009 and
incorporated herein by reference)10.3*
    
    Amended and Restated Executive Management Bonus Program effective February 19, 2009
(updated) (previously filed as Exhibit 10.2 to the Companys Annual Report on Form 10-K for
the year ended December 31, 2008 and incorporated herein by reference)31.1
    
    Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 
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KAYDON CORPORATIONMay 6, 2009
    /s/ Peter C. DeChantsPeter C. DeChantsSenior Vice President, Chief Financial OfficerMay 6, 2009
    /s/ Kenneth W. CrawfordKenneth W. CrawfordSenior Vice President, Chief Accounting Officer 20




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Exhibit No.
    
    Description10.1*
    
    Eleventh Amendment to the Kaydon Corporation Employee Stock Ownership and Thrift Plan
effective March 29, 200910.2*
    
    Employment Continuation, Consulting and Non-Compete Agreement between Kaydon Corporation and
Kenneth W. Crawford dated January 27, 2009 (previously filed as Exhibit 10.1 to the Companys
Current Report of Form 8-K filed January 29, 2009 and
incorporated herein by reference)10.3*
    
    Amended and Restated Executive Management Bonus Program effective February 19, 2009
(updated) (previously filed as Exhibit 10.2 to the Companys Annual Report on Form 10-K for
the year ended December 31, 2008 and incorporated herein by reference)31.1
    
    Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 
 21