##### 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 October 1, 2005
    
    Commission File No. 0-12640
 KAYDON CORPORATION
  Delaware
    
    13-3186040(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)Suite 300, 315 E. Eisenhower Parkway, Ann Arbor, Michigan
    
    48108(Address of principal executive offices)
    
    (Zip Code)
 (734) 747-7025
 þ o
 þ o
 o  þ




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Page No.Part I  Financial Information:Item 1. Financial StatementsConsolidated Condensed Balance Sheets-October 1, 2005 (Unaudited) and December 31, 2004
    
    
    1Consolidated Condensed Statements of Operations (Unaudited) - Quarter and First Three Quarters Ended October 1, 2005 and October 2, 2004
    
    
    2Consolidated Condensed Statements of Cash Flows (Unaudited) - First Three Quarters Ended October 1, 2005 and October 2, 2004
    
    
    3Notes to Consolidated Condensed Financial Statements (Unaudited)
    
    
    4 - 17Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18-29Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    29Item 4. Controls and Procedures
    
    
    29-30Part II  Other Information:Item 1. Legal Proceedings
    
    
    30Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 6. Exhibits
    
    
    31Signatures
    
    
    32Statement 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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##### Table of Contents



ITEM 1. FINANCIAL STATEMENTS
 KAYDON CORPORATION
 
 CONSOLIDATED CONDENSED BALANCE SHEETS
 October 1, 2005
    
    
    December 31, 2004(Unaudited)
    
    
    (As Reclassified)Assets:Cash and cash equivalents
    
    $
    321,671,000
    
    
    $
    278,586,000Accounts receivable, net
    
    
    52,401,000
    
    
    
    41,641,000Inventories, net
    
    
    53,327,000
    
    
    
    49,303,000Assets of discontinued operations
    
    
    
    
    
    
    14,245,000Other current assets
    
    
    10,001,000
    
    
    
    9,252,000Total current assets
    
    
    437,400,000
    
    
    
    393,027,000Property, plant and equipment, net
    
    
    77,023,000
    
    
    
    76,039,000Goodwill, net
    
    
    117,506,000
    
    
    
    100,260,000Other intangible assets, net
    
    
    25,051,000
    
    
    
    9,053,000Assets of discontinued operations
    
    
    
    
    
    
    23,251,000Other assets
    
    
    15,115,000
    
    
    
    17,494,000Total assets
    
    $
    672,095,000
    
    
    $
    619,124,000Liabilities and Shareholders Equity:Accounts payable
    
    $
    14,609,000
    
    
    $
    15,626,000Taxes payable
    
    
    20,118,000
    
    
    
    5,797,000Salaries and wages
    
    
    7,295,000
    
    
    
    6,874,000Liabilities of discontinued operations
    
    
    
    
    
    
    3,632,000Interest payable
    
    
    2,867,000
    
    
    
    844,000Other accrued expenses
    
    
    13,100,000
    
    
    
    10,923,000Total current liabilities
    
    
    57,989,000
    
    
    
    43,696,000Long-term debt
    
    
    200,017,000
    
    
    
    200,066,000Liabilities of discontinued operations
    
    
    
    
    
    
    139,000Long-term liabilities
    
    
    64,319,000
    
    
    
    66,542,000Total long-term liabilities
    
    
    264,336,000
    
    
    
    266,747,000Shareholders equity:Common stock
    
    
    3,693,000
    
    
    
    3,693,000Paid-in capital
    
    
    47,558,000
    
    
    
    47,399,000Retained earnings
    
    
    499,790,000
    
    
    
    450,456,000Less  treasury stock, at cost
    
    
    (186,538,000
    )
    
    
    (184,781,000
    )Less  restricted stock awards
    
    
    (8,326,000
    )
    
    
    (6,908,000
    )Accumulated other comprehensive loss
    
    
    (6,407,000
    )
    
    
    (1,178,000
    )349,770,000
    
    
    
    308,681,000Total liabilities and shareholders equity
    
    $
    672,095,000
    
    
    $
    619,124,000
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KAYDON CORPORATION
 
 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 Quarter Ended
    
    
    First Three Quarters EndedOctober 1, 2005
    
    
    October 2, 2004
    
    
    October 1, 2005
    
    
    October 2, 2004Net sales
    
    $
    85,870,000
    
    
    $
    73,014,000
    
    
    $
    264,905,000
    
    
    $
    224,510,000Cost of sales
    
    
    53,532,000
    
    
    
    43,495,000
    
    
    
    163,051,000
    
    
    
    133,234,000Gross profit
    
    
    32,338,000
    
    
    
    29,519,000
    
    
    
    101,854,000
    
    
    
    91,276,000Selling, general and
administrative expenses
    
    
    14,921,000
    
    
    
    15,049,000
    
    
    
    51,211,000
    
    
    
    44,567,000Operating income from
continuing operations
    
    
    17,417,000
    
    
    
    14,470,000
    
    
    
    50,643,000
    
    
    
    46,709,000Interest income
    
    
    2,442,000
    
    
    
    1,040,000
    
    
    
    5,702,000
    
    
    
    2,608,000Interest expense
    
    
    (2,389,000
    )
    
    
    (2,397,000
    )
    
    
    (7,203,000
    )
    
    
    (7,190,000
    )Income from continuing
operations before income
taxes
    
    
    17,470,000
    
    
    
    13,113,000
    
    
    
    49,142,000
    
    
    
    42,127,000Provision for income taxes
    
    
    5,825,000
    
    
    
    4,721,000
    
    
    
    17,020,000
    
    
    
    15,166,000Income from continuing
operations
    
    
    11,645,000
    
    
    
    8,392,000
    
    
    
    32,122,000
    
    
    
    26,961,000Income from discontinued
operations (including in
2005 gain on disposal of
$41.0 million)
    
    
    41,206,000
    
    
    
    1,737,000
    
    
    
    43,943,000
    
    
    
    2,170,000Provision for income taxes
    
    
    15,667,000
    
    
    
    625,000
    
    
    
    16,584,000
    
    
    
    781,000Income from discontinued
operations
    
    
    25,539,000
    
    
    
    1,112,000
    
    
    
    27,359,000
    
    
    
    1,389,000Net income
    
    $
    37,184,000
    
    
    $
    9,504,000
    
    
    $
    59,481,000
    
    
    $
    28,350,000Weighted average common shares:Basic
    
    
    27,763,000
    
    
    
    27,862,000
    
    
    
    27,809,000
    
    
    
    27,881,000Diluted
    
    
    34,663,000
    
    
    
    34,779,000
    
    
    
    34,726,000
    
    
    
    34,793,000Earnings per share  continuing operations:Basic
    
    
    $0.42
    
    
    
    $0.30
    
    
    
    $1.16
    
    
    
    $0.97Diluted
    
    
    $0.38
    
    
    
    $0.28
    
    
    
    $1.06
    
    
    
    $0.90Earnings per share  discontinued operations:Basic
    
    
    $0.92
    
    
    
    $0.04
    
    
    
    $0.98
    
    
    
    $0.05Diluted
    
    
    $0.74
    
    
    
    $0.03
    
    
    
    $0.79
    
    
    
    $0.04Earnings per share:Basic
    
    
    $1.34
    
    
    
    $0.34
    
    
    
    $2.14
    
    
    
    $1.02Diluted
    
    
    $1.12
    
    
    
    $0.32
    
    
    
    $1.84
    
    
    
    $0.94Dividends declared per share
    
    
    $0.12
    
    
    
    $0.12
    
    
    
    $0.36
    
    
    
    $0.36
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KAYDON CORPORATION
 
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 First Three Quarters EndedOctober 1, 2005
    
    
    October 2, 2004Cash flows from operating activities
    
    $
    31,120,000
    
    
    $
    33,372,000Cash flows used in investing activities:Additions to property, plant and equipment, net
    
    
    (6,843,000
    )
    
    
    (6,630,000
    )Acquisition of business, net of cash acquired
    
    
    (42,668,000
    )
    
    
    (3,964,000
    )Cash used in investing activities
    
    
    (49,511,000
    )
    
    
    (10,594,000
    )Cash flows used in financing activities:Cash dividends paid
    
    
    (10,149,000
    )
    
    
    (10,152,000
    )Purchase of treasury stock
    
    
    (6,102,000
    )
    
    
    (1,818,000
    )Proceeds from exercise of stock options
    
    
    1,000,000
    
    
    
    42,000Payments on debt
    
    
    (46,000
    )
    
    
    (75,000
    )Cash used in financing activities
    
    
    (15,297,000
    )
    
    
    (12,003,000
    )Effect of exchange rate changes on cash and
cash equivalents
    
    
    544,000
    
    
    
    210,000Proceeds from sale of discontinued operations
    
    
    72,400,000
    
    
    
    Cash from discontinued operations
    
    
    3,829,000
    
    
    
    2,607,000Net increase in cash and cash equivalents
    
    
    43,085,000
    
    
    
    13,592,000Cash and
cash equivalents  Beginning of period
    
    
    278,586,000
    
    
    
    255,756,000Cash and
cash equivalents  End of period
    
    $
    321,671,000
    
    
    $
    269,348,000Cash expended for income taxes
    
    $
    15,987,000
    
    
    $
    13,516,000Cash 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. The December 31, 2004 condensed balance sheet has been reclassified for
discontinued operations. 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:
 October 1, 2005
    
    
    December 31, 2004Raw Material
    
    $
    19,417,000
    
    
    $
    15,062,000Work in Process
    
    
    13,404,000
    
    
    
    14,048,000Finished Goods
    
    
    20,506,000
    
    
    
    20,193,000$
    53,327,000
    
    
    $
    49,303,000
 (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 $(1.8) million and $(0.3) million, resulting in
comprehensive income of $35.4 million and $9.2 million for the quarters ended October 1, 2005,
and October 2, 2004. On a first three quarter basis, other comprehensive income (loss), net
of tax, was approximately $(5.2) million and $0.5 million, resulting in comprehensive income
of $54.3 million and $28.9 million for the first three quarters ended October 1, 2005 and
October 2, 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 from continuing operations for the periods presented.
 Quarter EndedOctober 1, 2005
    
    
    October 2, 2004Numerators:Numerators for basic
earnings per share from
continuing operations,
income from continuing
operations
    
    $
    11,645,000
    
    
    $
    8,392,000Interest and debt issuance
costs amortization related
to Contingent Convertible
Notes, net of taxes
    
    
    1,551,000
    
    
    
    1,488,000Numerators for diluted
earnings per share from
continuing operations
    
    $
    13,196,000
    
    
    $
    9,880,000Denominators:Denominators for basic
earnings per share from
continuing operations,
weighted average common
shares outstanding
    
    
    27,763,000
    
    
    
    27,862,000Potential dilutive shares
resulting from stock
options, restricted stock
awards and phantom stock
units
    
    
    41,000
    
    
    
    58,000Dilutive shares resulting
from Contingent Convertible
Notes
    
    
    6,859,000
    
    
    
    6,859,000Denominators for diluted
earnings per share from
continuing operations
    
    
    34,663,000
    
    
    
    34,779,000Earnings per share from
continuing operations:Basic
    
    
    $0.42
    
    
    
    $0.30Diluted
    
    
    $0.38
    
    
    
    $0.28
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First Three Quarters EndedOctober 1, 2005
    
    
    October 2, 2004Numerators:Numerators for basic
earnings per share from
continuing operations,
income from continuing
operations
    
    $
    32,122,000
    
    
    $
    26,961,000Interest and debt issuance
costs amortization related
to Contingent Convertible
Notes, net of taxes
    
    
    4,565,000
    
    
    
    4,465,000Numerators for diluted
earnings per share from
continuing operations
    
    $
    36,687,000
    
    
    $
    31,426,000Denominators:Denominators for basic
earnings per share from
continuing operations,
weighted average common
shares outstanding
    
    
    27,809,000
    
    
    
    27,881,000Potential dilutive shares
resulting from stock
options, restricted stock
awards and phantom stock
units
    
    
    58,000
    
    
    
    53,000Dilutive shares resulting
from Contingent Convertible
Notes
    
    
    6,859,000
    
    
    
    6,859,000Denominators for diluted
earnings per share from
continuing operations
    
    
    34,726,000
    
    
    
    34,793,000Earnings per share from
continuing operations:Basic
    
    
    $1.16
    
    
    
    $0.97Diluted
    
    
    $1.06
    
    
    
    $0.90
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(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.Following the sale of its Power and Data Transmission Products segment on July 26, 2005, the
Company has three 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.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.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 and printed circuit boards. This segment was
sold July 26, 2005. Refer to Note 13 for additional information regarding the sale of this
segment.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.
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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 Three Quarters EndedOctober 1, 2005
    
    
    October 2, 2004
    
    
    October 1, 2005
    
    
    October 2, 2004Net salesFriction and Motion Control ProductsExternal customers
    
    $
    48,284,000
    
    
    $
    40,715,000
    
    
    $
    143,641,000
    
    
    $
    122,094,000Intersegment
    
    
    28,000
    
    
    
    85,000
    
    
    
    388,000
    
    
    
    250,00048,312,000
    
    
    
    40,800,000
    
    
    
    144,029,000
    
    
    
    122,344,000Velocity Control ProductsExternal customers
    
    
    13,655,000
    
    
    
    12,642,000
    
    
    
    42,827,000
    
    
    
    38,733,000Intersegment
    
    
    
    
    
    
    
    
    
    
    (1,000
    )
    
    
    13,655,000
    
    
    
    12,642,000
    
    
    
    42,826,000
    
    
    
    38,733,000Sealing ProductsExternal customers
    
    
    9,402,000
    
    
    
    8,767,000
    
    
    
    28,563,000
    
    
    
    28,098,000Intersegment
    
    
    (8,000
    )
    
    
    (20,000
    )
    
    
    (55,000
    )
    
    
    (65,000
    )9,394,000
    
    
    
    8,747,000
    
    
    
    28,508,000
    
    
    
    28,033,000OtherExternal customers
    
    
    14,525,000
    
    
    
    10,829,000
    
    
    
    49,572,000
    
    
    
    35,411,000Intersegment
    
    
    (16,000
    )
    
    
    (4,000
    )
    
    
    (30,000
    )
    
    
    (11,000
    )14,509,000
    
    
    
    10,825,000
    
    
    
    49,542,000
    
    
    
    35,400,000Power and Data Transmission ProductsExternal customers
    
    
    2,245,000
    
    
    
    10,384,000
    
    
    
    22,399,000
    
    
    
    26,710,000Intersegment
    
    
    (4,000
    )
    
    
    (61,000
    )
    
    
    (302,000
    )
    
    
    (174,000
    )2,241,000
    
    
    
    10,323,000
    
    
    
    22,097,000
    
    
    
    26,536,000Total segment net sales
    
    
    88,111,000
    
    
    
    83,337,000
    
    
    
    287,002,000
    
    
    
    251,046,000Net sales of discontinued operations
    
    
    (2,241,000
    )
    
    
    (10,323,000
    )
    
    
    (22,097,000
    )
    
    
    (26,536,000
    )Total consolidated net sales
    
    $
    85,870,000
    
    
    $
    73,014,000
    
    
    $
    264,905,000
    
    
    $
    224,510,000
 Quarter Ended
    
    
    First Three Quarters EndedOctober 1, 2005
    
    
    October 2, 2004
    
    
    October 1, 2005
    
    
    October 2, 2004Operating incomeFriction and Motion Control Products
    
    $
    11,598,000
    
    
    $
    10,152,000
    
    
    $
    34,882,000
    
    
    $
    30,232,000Velocity Control Products
    
    
    3,197,000
    
    
    
    3,174,000
    
    
    
    10,372,000
    
    
    
    10,571,000Sealing Products
    
    
    909,000
    
    
    
    2,643,000
    
    
    
    3,824,000
    
    
    
    5,603,000Other
    
    
    367,000
    
    
    
    247,000
    
    
    
    3,302,000
    
    
    
    1,030,000Power and Data Transmission Products
    
    
    237,000
    
    
    
    1,737,000
    
    
    
    2,974,000
    
    
    
    2,170,000Total segment operating income
    
    
    16,308,000
    
    
    
    17,953,000
    
    
    
    55,354,000
    
    
    
    49,606,000State income tax provision included
in segment operating income
    
    
    466,000
    
    
    
    289,000
    
    
    
    1,250,000
    
    
    
    842,000Items not allocated to segment
operating income
    
    
    880,000
    
    
    
    (2,035,000
    )
    
    
    (2,987,000
    )
    
    
    (1,569,000
    )Interest expense
    
    
    (2,389,000
    )
    
    
    (2,397,000
    )
    
    
    (7,203,000
    )
    
    
    (7,190,000
    )Interest income
    
    
    2,442,000
    
    
    
    1,040,000
    
    
    
    5,702,000
    
    
    
    2,608,000Operating income of
discontinued operations
    
    
    (237,000
    )
    
    
    (1,737,000
    )
    
    
    (2,974,000
    )
    
    
    (2,170,000
    )Income from continuing operations
before income taxes
    
    $
    17,470,000
    
    
    $
    13,113,000
    
    
    $
    49,142,000
    
    
    $
    42,127,000
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Quarter
Ended
    
    

First
Three Quarters EndedOctober 1, 2005
    
    
    October 2, 2004
    
    
    October 1, 2005
    
    
    October 2, 2004Depreciation and amortizationFriction and Motion Control Products
    
    $
    1,742,000
    
    
    $
    1,666,000
    
    
    $
    5,414,000
    
    
    $
    5,427,000Velocity Control Products
    
    
    466,000
    
    
    
    434,000
    
    
    
    1,417,000
    
    
    
    1,270,000Sealing Products
    
    
    253,000
    
    
    
    248,000
    
    
    
    790,000
    
    
    
    806,000Other
    
    
    923,000
    
    
    
    265,000
    
    
    
    2,717,000
    
    
    
    819,000Corporate
    
    
    666,000
    
    
    
    646,000
    
    
    
    1,957,000
    
    
    
    1,476,000Power and Data Transmission Products
    
    
    130,000
    
    
    
    327,000
    
    
    
    948,000
    
    
    
    1,136,0004,180,000
    
    
    
    3,586,000
    
    
    
    13,243,000
    
    
    
    10,934,000Depreciation and amortization of
discontinued operations
    
    
    (130,000
    )
    
    
    (327,000
    )
    
    
    (948,000
    )
    
    
    (1,136,000
    )Total consolidated depreciation and
amortization of continuing operations
    
    $
    4,050,000
    
    
    $
    3,259,000
    
    
    $
    12,295,000
    
    
    $
    9,798,000
 Quarter Ended
    
    
    First Three Quarters EndedOctober 1, 2005
    
    
    October 2, 2004
    
    
    October 1, 2005
    
    
    October 2, 2004Additions to net property, plant and
equipmentFriction and Motion Control Products
    
    $
    797,000
    
    
    $
    1,493,000
    
    
    $
    3,544,000
    
    
    $
    5,228,000Velocity Control Products
    
    
    137,000
    
    
    
    76,000
    
    
    
    700,000
    
    
    
    22,000Sealing Products
    
    
    433,000
    
    
    
    161,000
    
    
    
    545,000
    
    
    
    366,000Other
    
    
    551,000
    
    
    
    189,000
    
    
    
    1,552,000
    
    
    
    792,000Corporate
    
    
    (290,000
    )
    
    
    (41,000
    )
    
    
    502,000
    
    
    
    222,000Power and Data Transmission Products
    
    
    111,000
    
    
    
    248,000
    
    
    
    274,000
    
    
    
    587,0001,739,000
    
    
    
    2,126,000
    
    
    
    7,117,000
    
    
    
    7,217,000Additions to net property, plant and
equipment of discontinued operations
    
    
    (111,000
    )
    
    
    (248,000
    )
    
    
    (274,000
    )
    
    
    (587,000
    )Total consolidated additions to net
property, plant and equipment
of continuing operations
    
    $
    1,628,000
    
    
    $
    1,878,000
    
    
    $
    6,843,000
    
    
    $
    6,630,000
 October 1, 2005
    
    
    December 31, 2004Total assetsFriction and Motion Control Products
    
    $
    158,042,000
    
    
    $
    162,275,000Velocity Control Products
    
    
    81,846,000
    
    
    
    80,213,000Sealing Products
    
    
    19,499,000
    
    
    
    18,034,000Other
    
    
    96,004,000
    
    
    
    46,586,000Corporate
    
    
    316,704,000
    
    
    
    274,520,000Power and Data Transmission Products
    
    
    
    
    
    
    37,496,000Total consolidated assets
    
    $
    672,095,000
    
    
    $
    619,124,000
 10




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October 1, 2005
    
    
    December 31, 20044% Contingent Convertible Senior
Subordinated Notes due 2023
    
    $
    200,000,000
    
    
    $
    200,000,000Other
    
    
    82,000
    
    
    
    128,000Total debt
    
    
    200,082,000
    
    
    
    200,128,000Less current maturities
    
    
    65,000
    
    
    
    62,000Long-term debt
    
    $
    200,017,000
    
    
    $
    200,066,000
 11




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th
     12




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##### Table of Contents



Friction andMotion
    
    
    VelocityControl
    
    
    Control
    
    
    SealingProducts
    
    
    Products
    
    
    Products
    
    
    Other
    
    
    TotalBalance as of
December 31, 2004
    
    $
    32,040,000
    
    
    $
    42,879,000
    
    
    $
    186,000
    
    
    $
    25,155,000
    
    
    $
    100,260,000Effect of foreign
currency exchange
rate changes
    
    
    (376,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (376,000
    )Goodwill acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,124,000
    
    
    
    18,124,000Balance as of April
2, 2005
    
    $
    31,664,000
    
    
    $
    42,879,000
    
    
    $
    186,000
    
    
    $
    43,279,000
    
    
    $
    118,008,000Effect of foreign
currency exchange
rate changes
    
    
    (1,242,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,242,000
    )Goodwill acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    367,000
    
    
    
    367,000Balance as of July
2, 2005
    
    $
    30,422,000
    
    
    $
    42,879,000
    
    
    $
    186,000
    
    
    $
    43,646,000
    
    
    $
    117,133,000Effect of foreign
currency exchange
rate changes
    
    
    52,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,000Goodwill acquired
    
    
    
    
    
    
    321,000
    
    
    
    
    
    
    
    
    
    
    
    321,000Balance as of
October 1, 2005
    
    $
    30,474,000
    
    
    $
    43,200,000
    
    
    $
    186,000
    
    
    $
    43,646,000
    
    
    $
    117,506,000
 13




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##### Table of Contents



October 1, 2005
    
    
    December 31, 2004Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    AccumulatedAmortized Intangible Assets
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationCustomer
relationships and lists
    $
    18,694,000
    
    
    $
    4,440,000
    
    
    $
    7,834,000
    
    
    $
    2,970,000Patents and developed
technology
    
    6,216,000
    
    
    
    738,000
    
    
    
    1,033,000
    
    
    
    210,000Backlog
    
    351,000
    
    
    
    266,000
    
    
    
    11,000
    
    
    
    11,000Distributor agreements
    
    374,000
    
    
    
    40,000
    
    
    
    374,000
    
    
    
    12,000Product names
    
    320,000
    
    
    
    24,000
    
    
    
    
    
    
    
    $
    25,955,000
    
    
    $
    5,508,000
    
    
    $
    9,252,000
    
    
    $
    3,203,000
  October 1, 2005
    
    
    December 31, 2004Unamortized Intangible Assets
    
    Carrying Amount
    
    
    Carrying AmountTrademarks
    
    $
    4,604,000
    
    
    $
    3,004,000
 Aggregate Intangible Assets Amortization ExpenseFor the first three quarters ended October 1, 2005
    
    $
    2,305,000For the first three quarters ended October 2, 2004
    
    $
    638,000Estimated Intangible Assets Amortization ExpenseFor the year ending December 31, 2005
    
    $
    3,086,000For the year ending December 31, 2006
    
    $
    3,073,000For the year ending December 31, 2007
    
    $
    3,019,000For the year ending December 31, 2008
    
    $
    2,948,000For the year ending December 31, 2009
    
    $
    2,625,000
 14




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Pension Benefits
    
    Quarter Ended
    
    
    First Three Quarters EndedOctober 1, 2005
    
    
    October 2, 2004
    
    
    October 1, 2005
    
    
    October 2, 2004Service cost
    
    $
    636,000
    
    
    $
    590,000
    
    
    $
    1,908,000
    
    
    $
    1,768,000Interest cost
    
    
    1,270,000
    
    
    
    1,244,000
    
    
    
    3,810,000
    
    
    
    3,731,000Expected return on plan assets
    
    
    (1,083,000
    )
    
    
    (951,000
    )
    
    
    (3,249,000
    )
    
    
    (2,854,000
    )Amortization of:Unrecognized net prior
service cost
    
    
    49,000
    
    
    
    193,000
    
    
    
    147,000
    
    
    
    573,000Unrecognized net loss
    
    
    220,000
    
    
    
    273,000
    
    
    
    660,000
    
    
    
    821,000Total
    
    $
    1,092,000
    
    
    $
    1,349,000
    
    
    $
    3,276,000
    
    
    $
    4,039,000
 Postretirement Benefits
    
    Quarter Ended
    
    
    First Three Quarters EndedOctober 1, 2005
    
    
    October 2, 2004
    
    
    October 1, 2005
    
    
    October 2, 2004Service cost
    
    $
    111,000
    
    
    $
    145,000
    
    
    $
    333,000
    
    
    $
    522,000Interest cost
    
    
    221,000
    
    
    
    294,000
    
    
    
    663,000
    
    
    
    1,036,000Amortization of:Unrecognized net prior
service cost
    
    
    (359,000
    )
    
    
    (281,000
    )
    
    
    (1,076,000
    )
    
    
    (823,000
    )Unrecognized net gain
    
    
    (176,000
    )
    
    
    (198,000
    )
    
    
    (528,000
    )
    
    
    (287,000
    )Total
    
    $
    (203,000
    )
    
    $
    (40,000
    )
    
    $
    (608,000
    )
    
    $
    448,000
   Quarter Ended
    
    
    First Three Quarters EndedOctober 1, 2005
    
    
    October 2, 2004
    
    
    October 1, 2005
    
    
    October 2, 2004Reported income from continuing operations
    
    $
    11,645,000
    
    
    $
    8,392,000
    
    
    $
    32,122,000
    
    
    $
    26,961,000Add: Total stock-based compensation
expense included in reported
income from continuing operations,
net of tax
    
    
    456,000
    
    
    
    378,000
    
    
    
    1,308,000
    
    
    
    766,000Deduct: Total stock-based compensation
expense determined
under fair value method for all
awards, net of tax
    
    
    (478,000
    )
    
    
    (409,000
    )
    
    
    (1,374,000
    )
    
    
    (859,000
    )Pro-forma income from continuing operations
    
    $
    11,623,000
    
    
    $
    8,361,000
    
    
    $
    32,056,000
    
    
    $
    26,868,000Earnings per share from continuing
operations- Basic:As reported
    
    
    $0.42
    
    
    
    $0.30
    
    
    
    $1.16
    
    
    
    $0.97Pro-forma
    
    
    $0.42
    
    
    
    $0.30
    
    
    
    $1.15
    
    
    
    $0.96Earnings per share from continuing
operations- Diluted:As reported
    
    
    $0.38
    
    
    
    $0.28
    
    
    
    $1.06
    
    
    
    $0.90Pro-forma
    
    
    $0.38
    
    
    
    $0.28
    
    
    
    $1.06
    
    
    
    $0.90
 15




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16




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Quarter Ended
    
    
    First Three Quarters EndedOctober 1, 2005
    
    
    October 2, 2004
    
    
    October 1, 2005
    
    
    October 2, 2004Net sales
    
    $
    2,241,000
    
    
    $
    10,323,000
    
    
    $
    22,097,000
    
    
    $
    26,536,000Operating income
    
    $
    237,000
    
    
    $
    1,737,000
    
    
    $
    2,974,000
    
    
    $
    2,170,000Gain on disposal
    
    
    40,969,000
    
    
    
    
    
    
    
    40,969,000
    
    
    
    Provision for income taxes
    
    
    (15,667,000
    )
    
    
    (625,000
    )
    
    
    (16,584,000
    )
    
    
    (781,000
    )Income from discontinued
operations
    
    $
    25,539,000
    
    
    $
    1,112,000
    
    
    $
    27,359,000
    
    
    $
    1,389,000
   17




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
        18




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19




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20




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21




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22




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23




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Loss Contingencies and Legal Costs-
   Valuation of Goodwill and Indefinite-Lived Intangible Assets-
   24




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Valuation of Long-Lived Assets
   25




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Retirement Benefits-
      4% Contingent Convertible Senior Subordinated Notes-
 26




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Income
Taxes -
  27




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Inventories 
  Forward-Looking Statements
   28




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
  29




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PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  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)July 3 to July 30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,979,500July 31 to August 27
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,979,500August 28 to October 1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,979,500Total
    
    
    
    
    
    
    
    
    
    
    
 
 (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. 30




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ITEM
6. EXHIBITS
 Exhibit No.
    
    Description10.1
    
    Amended and Restated Credit Agreement dated as of July 12, 2005
among Kaydon Corporation, the subsidiary borrowers from time to time party
thereto, the alternate currency borrowers from time to time party thereto,
JPMorgan Chase Bank, N.A., as Administrative Agent, Wachovia Bank, National
Association, as Syndication Agent, and Bank of America, N.A., Comerica Bank and
SunTrust Bank, as Documentation Agents, J.P. Morgan Securities, Inc., as Joint
Lead Arranger and Sole Book Runner and Wachovia Capital Markets, LLC, as Joint
Lead Arranger (previously filed as Exhibit 10 to the Companys Current Report
on Form 8-K filed July 15, 2005 and incorporated herein by reference)10.2
    
    Stock Purchase Agreement dated as of July 26, 2005 by and among
Kaydon Corporation, Kaydon Corporation Limited, Kaydon Acquisition IX, Inc.,
Moog, Inc., Moog Controls Limited and Moog Canada Corporation (previously filed
as Exhibit 10 to the Companys Current Report on Form 8-K filed July 27, 2005
and incorporated herein by reference)12
    
    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
 31




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##### Table of Contents



KAYDON CORPORATIONNovember 9, 2005
    
    /s/ Brian P. CampbellBrian P. CampbellChairman, President, Chief ExecutiveOfficer and Chief Financial OfficerNovember 9, 2005
    
    /s/ Kenneth W. CrawfordKenneth W. CrawfordVice President and Corporate Controller(Principal Accounting Officer)
 32




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Exhibit No.
    
    Description10.1
    
    Amended and Restated Credit Agreement dated as of July 12, 2005 among Kaydon Corporation, the
subsidiary borrowers from time to time party thereto, the alternate currency borrowers from
time to time party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Wachovia Bank,
National Association, as Syndication Agent, and Bank of America, N.A., Comerica Bank and
SunTrust Bank, as Documentation Agents, J.P. Morgan Securities, Inc., as Joint Lead Arranger
and Sole Book Runner and Wachovia Capital Markets, LLC, as Joint Lead Arranger (previously
filed as Exhibit 10 to the Companys Current Report on Form 8-K filed July 15, 2005 and
incorporated herein by reference)10.2
    
    Stock Purchase Agreement dated as of July 26, 2005 by and among Kaydon Corporation, Kaydon
Corporation Limited, Kaydon Acquisition IX, Inc., Moog, Inc., Moog Controls Limited and Moog
Canada Corporation (previously filed as Exhibit 10 to the Companys Current Report on Form 8-K
filed July 27, 2005 and incorporated herein by reference)12
    
    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