##### 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 Quarter Ended September 27, 2008
 Commission File No. 1-11333
 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
  Large accelerated filer þAccelerated filer oNon-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
    
    
    1Consolidated Condensed Balance Sheets 
September 27, 2008 (Unaudited) and December 31, 2007
    
    
    1Consolidated Condensed Statements of Operations (Unaudited) 
Quarter and First Three Quarters Ended
September 27, 2008 and September 29, 2007
    
    
    2Consolidated Condensed Statements of Cash Flows (Unaudited) 
First Three Quarters Ended
September 27, 2008 and September 29, 2007
    
    
    3Notes to Consolidated Condensed Financial Statements (Unaudited)
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4. Controls and Procedures
    
    
    20Part II  Other Information:Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 6. Exhibits
    
    
    22Signatures
    
    
    24Exhibit Index
    
    
    25Statement Re: Computation of Ratio of Earnings to Fixed ChargesCertification Pursuant to Rule 13a-14(a)Certification 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
 
 (Unaudited)September 27, 2008
    
    December 31, 2007ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    262,731,000
    
    
    $
    229,993,000Short-term investments
    
    
    
    
    
    
    57,000,000Accounts receivable, net
    
    
    75,591,000
    
    
    
    67,574,000Inventories, net
    
    
    94,863,000
    
    
    
    68,896,000Other current assets
    
    
    15,305,000
    
    
    
    15,411,000Total current assets
    
    
    448,490,000
    
    
    
    438,874,000Property, plant and equipment, net
    
    
    178,359,000
    
    
    
    145,826,000Goodwill, net
    
    
    146,396,000
    
    
    
    146,922,000Other intangible assets, net
    
    
    27,113,000
    
    
    
    31,162,000Other assets
    
    
    15,748,000
    
    
    
    23,781,000Total assets
    
    $
    816,106,000
    
    
    $
    786,565,000LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    34,107,000
    
    
    $
    28,498,000Salaries and wages
    
    
    7,255,000
    
    
    
    10,834,000Taxes payable
    
    
    5,135,000
    
    
    
    3,007,000Interest payable
    
    
    
    
    
    
    844,000Other accrued expenses
    
    
    18,590,000
    
    
    
    15,315,000Total current liabilities
    
    
    65,087,000
    
    
    
    58,498,000Long-term debt
    
    
    
    
    
    
    200,000,000Deferred taxes
    
    
    8,472,000
    
    
    
    26,310,000Other long-term liabilities
    
    
    19,981,000
    
    
    
    18,367,000Total long-term liabilities
    
    
    28,453,000
    
    
    
    244,677,000Shareholders Equity:Common stock
    
    
    3,693,000
    
    
    
    3,693,000Paid-in capital
    
    
    77,125,000
    
    
    
    49,859,000Retained earnings
    
    
    668,630,000
    
    
    
    629,347,000Less  Treasury stock, at cost
    
    
    (38,379,000
    )
    
    
    (218,005,000
    )Accumulated other comprehensive income
    
    
    11,497,000
    
    
    
    18,496,000Shareholders equity
    
    
    722,566,000
    
    
    
    483,390,000Total liabilities and shareholders equity
    
    $
    816,106,000
    
    
    $
    786,565,000
  1




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KAYDON CORPORATION
 
 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
 Third Quarter Ended
    
    First Three Quarters EndedSeptember 27, 2008
    
    September 29, 2007
    
    September 27, 2008
    
    September 29, 2007Net sales
    
    $
    126,803,000
    
    
    $
    107,365,000
    
    
    $
    389,992,000
    
    
    $
    327,653,000Cost of sales
    
    
    82,270,000
    
    
    
    64,069,000
    
    
    
    243,969,000
    
    
    
    191,551,000Gross profit
    
    
    44,533,000
    
    
    
    43,296,000
    
    
    
    146,023,000
    
    
    
    136,102,000Selling, general and
administrative expenses
    
    
    19,754,000
    
    
    
    18,840,000
    
    
    
    62,942,000
    
    
    
    57,006,000Operating income
    
    
    24,779,000
    
    
    
    24,456,000
    
    
    
    83,081,000
    
    
    
    79,096,000Interest expense
    
    
    (1,393,000
    )
    
    
    (2,390,000
    )
    
    
    (6,162,000
    )
    
    
    (7,142,000
    )Interest income
    
    
    1,520,000
    
    
    
    4,752,000
    
    
    
    5,198,000
    
    
    
    14,133,000Income before income taxes
    
    
    24,906,000
    
    
    
    26,818,000
    
    
    
    82,117,000
    
    
    
    86,087,000Provision for income taxes
    
    
    8,571,000
    
    
    
    9,681,000
    
    
    
    28,823,000
    
    
    
    31,077,000Net income
    
    $
    16,335,000
    
    
    $
    17,137,000
    
    
    $
    53,294,000
    
    
    $
    55,010,000Weighted-average common shares:Basic
    
    
    29,679,000
    
    
    
    27,659,000
    
    
    
    28,118,000
    
    
    
    27,789,000Diluted
    
    
    34,072,000
    
    
    
    34,655,000
    
    
    
    34,213,000
    
    
    
    34,786,000Earnings per share:Basic
    
    $
    0.55
    
    
    $
    0.62
    
    
    $
    1.90
    
    
    $
    1.98Diluted
    
    $
    0.50
    
    
    $
    0.54
    
    
    $
    1.67
    
    
    $
    1.71Dividends declared per share
    
    $
    0.17
    
    
    $
    0.15
    
    
    $
    0.47
    
    
    $
    0.39
  2




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KAYDON CORPORATION
 
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
 First Three Quarters EndedSeptember 27, 2008
    
    September 29, 2007Cash flows from operating activities
    
    $
    49,698,000
    
    
    $
    47,362,000Cash flows from investing activities:Additions to property, plant and equipment, net
    
    
    (45,850,000
    )
    
    
    (37,001,000
    )Purchase of investments
    
    
    
    
    
    
    (162,606,000
    )Sales of investments
    
    
    63,408,000
    
    
    
    72,606,000Acquisition of business, net of cash received
    
    
    489,000
    
    
    
    Cash from (used in) investing activities
    
    
    18,047,000
    
    
    
    (127,001,000
    )Cash flows from financing activities:Cash dividends paid
    
    
    (12,485,000
    )
    
    
    (10,154,000
    )Purchase of treasury stock
    
    
    (21,837,000
    )
    
    
    (22,612,000
    )Excess tax benefits from stock-based compensation
    
    
    179,000
    
    
    
    232,000Proceeds from exercise of stock options
    
    
    242,000
    
    
    
    99,000Cash used in financing activities
    
    
    (33,901,000
    )
    
    
    (32,435,000
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (1,106,000
    )
    
    
    1,634,000Net increase (decrease) in cash and cash equivalents
    
    
    32,738,000
    
    
    
    (110,440,000
    )Cash and cash equivalents  Beginning of period
    
    
    229,993,000
    
    
    
    370,789,000Cash and cash equivalents  End of period
    
    $
    262,731,000
    
    
    $
    260,349,000Cash paid for income taxes
    
    $
    23,511,000
    
    
    $
    15,862,000Cash paid for interest
    
    $
    4,000,000
    
    
    $
    4,000,000
  3




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KAYDON CORPORATION
 
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
 (1) Basis of Presentation:
  (2) Cash and Cash Equivalents, and Short-term Investments:
  September 27, 2008
    
    December 31, 2007Cash and cash equivalents:Commercial paper
    
    $
    99,791,000
    
    
    $
    139,275,000Money market and other short-term funds
    
    
    153,321,000
    
    
    
    84,850,000Time deposits, other interest bearing accounts, and other cash
    
    
    9,619,000
    
    
    
    5,868,000Cash and cash equivalents
    
    $
    262,731,000
    
    
    $
    229,993,000Short-term investments
    
    
    
    
    
    
    57,000,000$
    262,731,000
    
    
    $
    286,993,000
 (3) Inventories:
  September 27, 2008
    
    December 31, 2007Raw material
    
    $
    42,457,000
    
    
    $
    28,311,000Work in process
    
    
    24,472,000
    
    
    
    17,991,000Finished goods
    
    
    27,934,000
    
    
    
    22,594,000$
    94,863,000
    
    
    $
    68,896,000
 (4) Comprehensive Income:
  4




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(5) Earnings per Share:
  Third Quarter EndedSeptember 27, 2008
    
    September 29, 2007Numerators:Numerators for basic earnings per share, net income
    
    $
    16,335,000
    
    
    $
    17,137,000Interest and debt issuance costs amortization
related to Contingent Convertible
Notes, net of taxes
    
    
    852,000
    
    
    
    1,488,000Numerators for diluted earnings per share
    
    $
    17,187,000
    
    
    $
    18,625,000Denominators:Denominators for basic earnings per share,
weighted average common shares
outstanding
    
    
    29,679,000
    
    
    
    27,659,000Potential dilutive shares resulting from stock
options, restricted stock awards and
phantom stock units
    
    
    138,000
    
    
    
    137,000Dilutive shares resulting from Contingent
Convertible Notes
    
    
    4,255,000
    
    
    
    6,859,000Denominators for diluted earnings per share
    
    
    34,072,000
    
    
    
    34,655,000Earnings per share:Basic
    
    $
    0.55
    
    
    $
    0.62Diluted
    
    $
    0.50
    
    
    $
    0.54
 First Three Quarters EndedSeptember 27, 2008
    
    September 29, 2007Numerators:Numerators for basic earnings per share, net income
    
    $
    53,294,000
    
    
    $
    55,010,000Interest and debt issuance costs amortization
related to Contingent Convertible
Notes, net of taxes
    
    
    3,825,000
    
    
    
    4,451,000Numerators for diluted earnings per share
    
    $
    57,119,000
    
    
    $
    59,461,000Denominators:Denominators for basic earnings per share,
weighted average common shares
outstanding
    
    
    28,118,000
    
    
    
    27,789,000Potential dilutive shares resulting from stock
options, restricted stock awards and
phantom stock units
    
    
    116,000
    
    
    
    138,000Dilutive shares resulting from Contingent
Convertible Notes
    
    
    5,979,000
    
    
    
    6,859,000Denominators for diluted earnings per share
    
    
    34,213,000
    
    
    
    34,786,000Earnings per share:Basic
    
    $
    1.90
    
    
    $
    1.98Diluted
    
    $
    1.67
    
    
    $
    1.71
  5




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(6) Business Segment Information:
   Friction Control Products 
 Velocity Control Products 
 Sealing Products 
 Other 
   6




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##### Table of Contents



Third Quarter Ended
    
    First Three Quarters EndedSeptember 27, 2008
    
    September 29, 2007
    
    September 27, 2008
    
    September 29, 2007Net salesFriction Control ProductsExternal customers
    
    $
    79,243,000
    
    
    $
    59,990,000
    
    
    $
    240,112,000
    
    
    $
    185,519,000Intersegment
    
    
    12,000
    
    
    
    31,000
    
    
    
    47,000
    
    
    
    145,00079,255,000
    
    
    
    60,021,000
    
    
    
    240,159,000
    
    
    
    185,664,000Velocity Control ProductsExternal customers
    
    
    17,114,000
    
    
    
    16,534,000
    
    
    
    55,832,000
    
    
    
    48,359,000Sealing ProductsExternal customers
    
    
    10,782,000
    
    
    
    12,018,000
    
    
    
    34,007,000
    
    
    
    35,571,000Intersegment
    
    
    
    
    
    
    (18,000
    )
    
    
    
    
    
    
    (97,000
    )10,782,000
    
    
    
    12,000,000
    
    
    
    34,007,000
    
    
    
    35,474,000OtherExternal customers
    
    
    19,664,000
    
    
    
    18,823,000
    
    
    
    60,041,000
    
    
    
    58,204,000Intersegment
    
    
    (12,000
    )
    
    
    (13,000
    )
    
    
    (47,000
    )
    
    
    (48,000
    )19,652,000
    
    
    
    18,810,000
    
    
    
    59,994,000
    
    
    
    58,156,000Total consolidated net sales
    
    $
    126,803,000
    
    
    $
    107,365,000
    
    
    $
    389,992,000
    
    
    $
    327,653,000
 Third Quarter Ended
    
    First Three Quarters EndedSeptember 27, 2008
    
    September 29, 2007
    
    September 27, 2008
    
    September 29, 2007Operating incomeFriction Control Products
    
    $
    15,921,000
    
    
    $
    14,977,000
    
    
    $
    54,516,000
    
    
    $
    49,898,000Velocity Control Products
    
    
    4,504,000
    
    
    
    4,478,000
    
    
    
    16,156,000
    
    
    
    12,792,000Sealing Products
    
    
    970,000
    
    
    
    2,182,000
    
    
    
    3,951,000
    
    
    
    6,613,000Other
    
    
    1,764,000
    
    
    
    2,158,000
    
    
    
    6,972,000
    
    
    
    7,976,000Total segment operating income
    
    
    23,159,000
    
    
    
    23,795,000
    
    
    
    81,595,000
    
    
    
    77,279,000State income tax provision
included in segment operating
income
    
    
    627,000
    
    
    
    664,000
    
    
    
    2,072,000
    
    
    
    2,229,000Items not allocated to segment
operating income
    
    
    993,000
    
    
    
    (3,000
    )
    
    
    (586,000
    )
    
    
    (412,000
    )Interest expense
    
    
    (1,393,000
    )
    
    
    (2,390,000
    )
    
    
    (6,162,000
    )
    
    
    (7,142,000
    )Interest income
    
    
    1,520,000
    
    
    
    4,752,000
    
    
    
    5,198,000
    
    
    
    14,133,000Income before income taxes
    
    $
    24,906,000
    
    
    $
    26,818,000
    
    
    $
    82,117,000
    
    
    $
    86,087,000
 7




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Third Quarter Ended
    
    First Three Quarters EndedSeptember 27, 2008
    
    September 29, 2007
    
    September 27, 2008
    
    September 29, 2007Additions to net property, plant
and equipmentFriction Control Products
    
    $
    12,732,000
    
    
    $
    15,822,000
    
    
    $
    37,111,000
    
    
    $
    32,681,000Velocity Control Products
    
    
    2,603,000
    
    
    
    175,000
    
    
    
    6,380,000
    
    
    
    666,000Sealing Products
    
    
    114,000
    
    
    
    386,000
    
    
    
    539,000
    
    
    
    2,738,000Other
    
    
    474,000
    
    
    
    344,000
    
    
    
    1,622,000
    
    
    
    700,000Corporate
    
    
    19,000
    
    
    
    94,000
    
    
    
    198,000
    
    
    
    216,000Total consolidated additions to
net property, plant
and equipment
    
    $
    15,942,000
    
    
    $
    16,821,000
    
    
    $
    45,850,000
    
    
    $
    37,001,000
 September 27, 2008
    
    December 31, 2007Total assetsFriction Control Products
    
    $
    338,079,000
    
    
    $
    286,605,000Velocity Control Products
    
    
    106,492,000
    
    
    
    95,378,000Sealing Products
    
    
    24,446,000
    
    
    
    24,218,000Other
    
    
    94,132,000
    
    
    
    91,940,000Corporate
    
    
    252,957,000
    
    
    
    288,424,000Total consolidated assets
    
    $
    816,106,000
    
    
    $
    786,565,000
 (7) Long-term Debt:
    8




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(8) Goodwill and Other Intangible Assets:
    Friction
    
    VelocityControl
    
    Control
    
    SealingProducts
    
    Products
    
    Products
    
    Other
    
    TotalBalance as of January 1, 2008
    
    $
    59,890,000
    
    
    $
    43,200,000
    
    
    $
    186,000
    
    
    $
    43,646,000
    
    
    $
    146,922,000Purchase price adjustment
    
    
    181,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    181,000Effect of foreign currency
exchange rate changes
    
    
    31,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,000Balance as of March 29, 2008
    
    $
    60,102,000
    
    
    $
    43,200,000
    
    
    $
    186,000
    
    
    $
    43,646,000
    
    
    $
    147,134,000Purchase price adjustment
    
    
    759,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    759,000Effect of foreign currency
exchange rate changes
    
    
    (118,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (118,000
    )Balance as of June 28, 2008
    
    $
    60,743,000
    
    
    $
    43,200,000
    
    
    $
    186,000
    
    
    $
    43,646,000
    
    
    $
    147,775,000Purchase price adjustment
    
    
    125,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125,000Effect of foreign currency
exchange rate changes
    
    
    (1,504,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,504,000
    )Balance as of September 27, 2008
    
    $
    59,364,000
    
    
    $
    43,200,000
    
    
    $
    186,000
    
    
    $
    43,646,000
    
    
    $
    146,396,000
 9




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September 27, 2008
    
    December 31, 2007Gross Carrying
    
    Accumulated
    
    Gross Carrying
    
    AccumulatedAmortized Intangible Assets
    
    Amount
    
    Amortization
    
    Amount
    
    AmortizationCustomer relationships and lists
    
    $
    28,194,000
    
    
    $
    11,213,000
    
    
    $
    28,194,000
    
    
    $
    9,567,000Patents and developed technology
    
    
    6,427,000
    
    
    
    2,822,000
    
    
    
    6,379,000
    
    
    
    2,286,000Backlog
    
    
    3,300,000
    
    
    
    1,917,000
    
    
    
    3,300,000
    
    
    
    114,000Distributor agreements
    
    
    374,000
    
    
    
    152,000
    
    
    
    374,000
    
    
    
    125,000Product names
    
    
    320,000
    
    
    
    124,000
    
    
    
    320,000
    
    
    
    99,000Trademarks
    
    
    200,000
    
    
    
    78,000
    
    
    
    200,000
    
    
    
    18,000$
    38,815,000
    
    
    $
    16,306,000
    
    
    $
    38,767,000
    
    
    $
    12,209,000
  September 27, 2008
    
    December 31, 2007Unamortized Intangible Assets
    
    Carrying Amount
    
    Carrying AmountTrademarks
    
    $
    4,604,000
    
    
    $
    4,604,000
 Aggregate Intangible Assets Amortization ExpenseFor the first three quarters ended September 27, 2008
    
    $
    4,097,000For the first three quarters ended September 29, 2007
    
    $
    2,272,000Estimated Intangible Assets Amortization ExpenseFor the year ending December 31, 2008
    
    $
    5,435,000For 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
    
    $
    1,981,000
 (9) Other Assets:
  10




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(10) Employee Benefit Plans:
  Third Quarter Ended
    
    First Three Quarters EndedPension Benefits
    
    September 27, 2008
    
    September 29, 2007
    
    September 27, 2008
    
    September 29, 2007Service cost
    
    $
    647,000
    
    
    $
    693,000
    
    
    $
    2,154,000
    
    
    $
    2,079,000Interest cost
    
    
    1,355,000
    
    
    
    1,460,000
    
    
    
    4,781,000
    
    
    
    4,378,000Expected return on plan assets
    
    
    (1,637,000
    )
    
    
    (1,421,000
    )
    
    
    (5,849,000
    )
    
    
    (4,111,000
    )Amortization of:Unrecognized net prior service cost
    
    
    6,000
    
    
    
    8,000
    
    
    
    20,000
    
    
    
    24,000Unrecognized net loss
    
    
    
    
    
    
    255,000
    
    
    
    2,000
    
    
    
    765,000Total
    
    $
    371,000
    
    
    $
    995,000
    
    
    $
    1,108,000
    
    
    $
    3,135,000
 Third Quarter Ended
    
    First Three Quarters EndedPostretirement Benefits
    
    September 27, 2008
    
    September 29, 2007
    
    September 27, 2008
    
    September 29, 2007Service cost
    
    $
    72,000
    
    
    $
    92,000
    
    
    $
    218,000
    
    
    $
    274,000Interest cost
    
    
    165,000
    
    
    
    199,000
    
    
    
    493,000
    
    
    
    601,000Amortization of:Unrecognized net prior service cost
    
    
    (429,000
    )
    
    
    (439,000
    )
    
    
    (1,288,000
    )
    
    
    (1,319,000
    )Unrecognized net gain
    
    
    (228,000
    )
    
    
    (122,000
    )
    
    
    (682,000
    )
    
    
    (364,000
    )Total
    
    $
    (420,000
    )
    
    $
    (270,000
    )
    
    $
    (1,259,000
    )
    
    $
    (808,000
    )
  (11) Stock-Based Compensation
  First Three Quarters EndedSeptember 27, 2008Wtd.-Avg.Restricted
    
    Grant DateStock
    
    Fair ValueOutstanding at January 1, 2008
    
    
    438,016
    
    
    $
    35.51Granted
    
    
    83,040
    
    
    $
    42.46Vested
    
    
    (142,485
    )
    
    $
    32.91Canceled
    
    
    (61
    )
    
    $
    30.15Outstanding at March 29, 2008
    
    
    378,510
    
    
    $
    38.01Granted
    
    
    6,000
    
    
    $
    52.31Canceled
    
    
    (260
    )
    
    $
    24.93Outstanding at June 28, 2008
    
    
    384,250
    
    
    $
    38.24Granted
    
    
    4,000
    
    
    $
    54.20Outstanding at September 27, 2008
    
    
    388,250
    
    
    $
    38.41
 
 11




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##### Table of Contents



First Three Quarters EndedSeptember 27, 2008Wtd.-Avg.Options
    
    Ex. PriceOutstanding at January 1, 2008
    
    
    346,500
    
    
    $
    40.64Granted
    
    
    85,000
    
    
    $
    42.46Exercised
    
    
    (1,000
    )
    
    $
    24.25Outstanding at March 29, 2008
    
    
    430,500
    
    
    $
    41.04Granted
    
    
    21,000
    
    
    $
    52.31Exercised
    
    
    (5,500
    )
    
    $
    25.37Outstanding at June 28, 2008
    
    
    446,000
    
    
    $
    41.76Exercised
    
    
    (3,500
    )
    
    $
    22.60Outstanding at September 27, 2008
    
    
    442,500
    
    
    $
    41.91Exercisable at September 27, 2008
    
    
    87,900
    
    
    $
    37.69Weighted-Avg. Fair Value of Options Granted
    
    
    
    
    
    $
    11.59Weighted-Avg. Remaining Contractual Life (years)Outstanding at September 27, 2008
    
    
    
    
    
    
    8.3Exercisable at September 27, 2008
    
    
    
    
    
    
    7.4
   (12) Impact of Recently Issued Accounting Pronouncements
   12




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(13) Fair Value Measurement:
     13




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##### Table of Contents



Fair Value Measurement at September 27, 2008 Using:Quoted Prices in
    
    SignificantTotal
    
    Active Markets
    
    Other
    
    SignificantFair Value
    
    for Identical
    
    Observable
    
    UnobservableMeasurement at
    
    Assets
    
    Inputs
    
    InputsSeptember 27, 2008
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Long-term investment
    
    $
    8,031,000
    
    
    
    
    
    
    
    
    
    
    $
    8,031,000
  Fair Value MeasurementsUsing SignificantUnobservable Inputs(Level 3)Balance at December 31, 2007
    
    $
    22,463,000Recognition of unrealized loss recorded to accumulated other
comprehensive income
    
    
    287,000Redemptions  cash received
    
    
    (7,559,000
    )Realized loss on investment redemptions
    
    
    (110,000
    )Unrealized loss on investment recorded as a reduction of interest income
    
    
    (464,000
    )Balance at March 29, 2008
    
    $
    14,617,000Redemptions  cash received
    
    
    (3,097,000
    )Net realized gain on investment redemptions
    
    
    6,000Unrealized gain on investment recorded to accumulated other
comprehensive income
    
    
    17,000Balance at June 28, 2008
    
    $
    11,543,000Redemptions  cash received
    
    
    (3,392,000
    )Recognition of unrealized gain recorded to accumulated other
comprehensive income
    
    
    (17,000
    )Net realized loss on investment redemptions
    
    
    (20,000
    )Unrealized loss on investment recorded as a reduction of interest income
    
    
    (83,000
    )Balance at September 27, 2008
    
    $
    8,031,000
  14




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
        Item 7. Managements Discussion and Analysis of
Results of Operations and Financial Condition
 15




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##### Table of Contents



Results of Operations
 Third Quarter Results
            16




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##### Table of Contents



First Three Quarters Results
 
 Liquidity and Capital Resources
   17




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##### Table of Contents



Outlook
    Critical Accounting Policies and Estimates
   18




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##### Table of Contents



Forward-Looking Statements
   19




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
  20




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  Total Number of
    
    Maximum Number ofTotal Number
    
    Average Price
    
    Shares Purchased as
    
    Shares that MayOf Shares
    
    Paid
    
    Part of Publicly
    
    Yet be PurchasedPeriod
    
    Purchased
    
    Per Share
    
    Announced Plan
    
    Under the Plan (1)June 29 to July 26
    
    
    115,800
    
    
    $
    50.54
    
    
    
    115,800
    
    
    
    3,907,230July 27 to August 23
    
    
    80,300
    
    
    $
    48.60
    
    
    
    80,300
    
    
    
    3,826,930August 24 to September 27
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,826,930Total
    
    
    196,100
    
    
    $
    49.75
    
    
    
    196,100
 (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. 21




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##### Table of Contents



ITEM 6. EXHIBITS
 Exhibit No.
    
    Description10.1
    
    Employment Agreements entered into March 23, 2007 effective March 26, 2007, as amended
February 14, 2008 and October 23, 2008 by and between Kaydon Corporation and James OLeary
(incorporated by reference to Exhibit 10.1 to the Registrants current report on Form 8-K filed
October 28, 2008).10.2
    
    Kaydon Corporation Supplemental Executive Retirement Plan, as amended and restated
(incorporated by reference to Exhibit 10.2 to the Registrants current report on Form 8-K filed
October 28, 2008).10.3
    
    First Amendment of the Kaydon Corporation Supplemental Executive Retirement Trust
(incorporated by reference to Exhibit 10.3 to the Registrants current report on Form 8-K filed
October 28, 2008).10.4
    
    Kaydon Corporation Director Deferred Compensation Plan Amended and Restated effective October
23, 2008 (incorporated by reference to Exhibit 10.4 to the Registrants current report on Form
8-K filed October 28, 2008).10.5.1
    
    Amended and Restated Kaydon Corporation Change in Control Compensation Agreement dated as of
October 23, 2008 between the Company and Anthony T. Behrman10.5.2
    
    Amended and Restated Kaydon Corporation Change in Control Compensation Agreement dated as of
October 23, 2008 between the Company and Debra K. Crane10.5.3
    
    Amended and Restated Kaydon Corporation Change in Control Compensation Agreement dated as of
October 23, 2008 between the Company and Kenneth W. Crawford10.5.4
    
    Amended and Restated Kaydon Corporation Change in Control Compensation Agreement dated as of
October 23, 2008 between the Company and Peter C. DeChants10.5.5
    
    Amended and Restated Kaydon Corporation Change in Control Compensation Agreement dated as of
October 23, 2008 between the Company and John R. Emling10.6
    
    Kaydon Corporation 1999 Long Term Stock Incentive Plan, Amended and Restated effective
October 23, 2008 (incorporated by reference to Exhibit 10.6 to the Registrants current report
on Form 8-K filed October 28, 2008).10.7
    
    Kaydon Corporation 2003 Non-Employee Directors Equity Plan Amended and Restated effective
October 23, 2008 (incorporated by reference to Exhibit 10.7 to the Registrants current report
on Form 8-K filed October 28, 2008).10.8
    
    Form of 2003 Non-Employee Directors Equity Plan Restricted Stock Agreement (incorporated by
reference to Exhibit 10.8 to the Registrants current report on Form 8-K filed October 28,
2008).10.9
    
    Form of 2003 Non-Employee Directors Equity Plan Nonstatutory Stock Option Agreement
(incorporated by reference to Exhibit 10.9 to the Registrants current report on Form 8-K filed
October 28, 2008).10.10
    
    Form of Restricted Stock Agreement for Kaydon Corporation 1999 Long Term Stock Incentive
Plan (other than for CEO) (incorporated by reference to Exhibit 10.10 to the Registrants
current report on Form 8-K filed October 28, 2008).10.11
    
    Form of Kaydon Corporation 1999 Long Term Stock Incentive Plan Non-Qualified Stock Option
Agreement (incorporated by reference to Exhibit 10.11 to the Registrants current report on
Form 8-K filed October 28, 2008).10.12
    
    Form of Restricted Stock Agreement for Kaydon Corporation 1999 Long Term Stock Incentive
Plan for James OLeary (incorporated by reference to Exhibit 10.12 to the Registrants current
report on Form 8-K filed October 28, 2008).
 22




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##### Table of Contents



Exhibit No.
    
    Description10.13
    
    Form of Phantom Share Award Agreement for 1999 Long Term Stock Incentive Plan (incorporated
by reference to Exhibit 10.13 to the Registrants current report on Form 8-K filed October 28,
2008).12
    
    Statement Re: Computation of Ratio of Earnings to Fixed Charges31.1
    
    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
 23




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##### Table of Contents



KAYDON CORPORATIONNovember 5, 2008
    /s/ James OLearyJames OLearyChairman, President and Chief Executive Officer
(Principal Executive Officer) November 5, 2008
    /s/ Kenneth W. CrawfordKenneth W. CrawfordSenior Vice President, Chief Financial Officer
and Corporate Controller
(Principal Financial and Accounting Officer) 24




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##### Table of Contents



Exhibit No.
    
    Description10.1
    
    Employment Agreements entered into March 23, 2007 effective March 26, 2007, as amended
February 14, 2008 and October 23, 2008 by and between Kaydon Corporation and James OLeary
(incorporated by reference to Exhibit 10.1 to the Registrants current report on Form 8-K filed
October 28, 2008).10.2
    
    Kaydon Corporation Supplemental Executive Retirement Plan, as amended and restated
(incorporated by reference to Exhibit 10.2 to the Registrants current report on Form 8-K filed
October 28, 2008).10.3
    
    First Amendment of the Kaydon Corporation Supplemental Executive Retirement Trust
(incorporated by reference to Exhibit 10.3 to the Registrants current report on Form 8-K filed
October 28, 2008).10.4
    
    Kaydon Corporation Director Deferred Compensation Plan Amended and Restated effective October
23, 2008 (incorporated by reference to Exhibit 10.4 to the Registrants current report on Form
8-K filed October 28, 2008).10.5.1
    
    Amended and Restated Kaydon Corporation Change in Control Compensation Agreement dated as of
October 23, 2008 between the Company and Anthony T. Behrman10.5.2
    
    Amended and Restated Kaydon Corporation Change in Control Compensation Agreement dated as of
October 23, 2008 between the Company and Debra K. Crane10.5.3
    
    Amended and Restated Kaydon Corporation Change in Control Compensation Agreement dated as of
October 23, 2008 between the Company and Kenneth W. Crawford10.5.4
    
    Amended and Restated Kaydon Corporation Change in Control Compensation Agreement dated as of
October 23, 2008 between the Company and Peter C. DeChants10.5.5
    
    Amended and Restated Kaydon Corporation Change in Control Compensation Agreement dated as of
October 23, 2008 between the Company and John R. Emling10.6
    
    Kaydon Corporation 1999 Long Term Stock Incentive Plan, Amended and Restated effective
October 23, 2008 (incorporated by reference to Exhibit 10.6 to the Registrants current report
on Form 8-K filed October 28, 2008).10.7
    
    Kaydon Corporation 2003 Non-Employee Directors Equity Plan Amended and Restated effective
October 23, 2008 (incorporated by reference to Exhibit 10.7 to the Registrants current report
on Form 8-K filed October 28, 2008).10.8
    
    Form of 2003 Non-Employee Directors Equity Plan Restricted Stock Agreement (incorporated by
reference to Exhibit 10.8 to the Registrants current report on Form 8-K filed October 28,
2008).10.9
    
    Form of 2003 Non-Employee Directors Equity Plan Nonstatutory Stock Option Agreement
(incorporated by reference to Exhibit 10.9 to the Registrants current report on Form 8-K filed
October 28, 2008).10.10
    
    Form of Restricted Stock Agreement for Kaydon Corporation 1999 Long Term Stock Incentive
Plan (other than for CEO) (incorporated by reference to Exhibit 10.10 to the Registrants
current report on Form 8-K filed October 28, 2008).10.11
    
    Form of Kaydon Corporation 1999 Long Term Stock Incentive Plan Non-Qualified Stock Option
Agreement (incorporated by reference to Exhibit 10.11 to the Registrants current report on
Form 8-K filed October 28, 2008).10.12
    
    Form of Restricted Stock Agreement for Kaydon Corporation 1999 Long Term Stock Incentive
Plan for James OLeary(incorporated by reference to Exhibit 10.12 to the Registrants current
report on Form 8-K filed October 28, 2008).
 25




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##### Table of Contents



Exhibit No.
    
    Description10.13
    
    Form of Phantom Share Award Agreement for 1999 Long Term Stock Incentive Plan (incorporated
by reference to Exhibit 10.13 to the Registrants current report on Form 8-K filed October 28,
2008).12
    
    Statement Re: Computation of Ratio of Earnings to Fixed Charges31.1
    
    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
 26