##### 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
March 29, 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 þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ




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##### 



Page No.Part I  Financial Information:Item 1.  Financial StatementsConsolidated Condensed Balance Sheets  March 29, 2008 (Unaudited) and December 31, 2007
    
    1Consolidated Condensed Statements of Operations (Unaudited)  Quarters Ended March 29, 2008 and March 31, 2007
    
    2Consolidated Condensed Statements of Cash Flows (Unaudited)  Quarters Ended March 29, 2008 and March 31, 2007
    
    3Notes to Consolidated Condensed Financial Statements (Unaudited)
    
    4-13Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    14-17Item 3.  Quantitative and Qualitative Disclosures About Market Risk
    
    18Item 4. Controls and Procedures
    
    18Part II  Other Information:
    
    18Item 1A. Risk Factors
    
    18Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
    
    19Item 6.  Exhibits
    
    20Signatures
    
    21Form of Restricted Stock AgreementForm of Non-Qualified Stock Option AgreementStatement 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)March 29, 2008
    
    December 31, 2007ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    276,159,000
    
    
    $
    229,993,000Short-term investments
    
    
    
    
    
    
    57,000,000Accounts receivable, net
    
    
    75,901,000
    
    
    
    67,574,000Inventories, net
    
    
    77,204,000
    
    
    
    68,896,000Other current assets
    
    
    12,317,000
    
    
    
    15,411,000Total current assets
    
    
    441,581,000
    
    
    
    438,874,000Property, plant and equipment, net
    
    
    157,161,000
    
    
    
    145,826,000Goodwill, net
    
    
    147,134,000
    
    
    
    146,922,000Other intangible assets, net
    
    
    29,801,000
    
    
    
    31,162,000Other assets
    
    
    23,297,000
    
    
    
    23,781,000Total assets
    
    $
    798,974,000
    
    
    $
    786,565,000LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    26,487,000
    
    
    $
    28,498,000Salaries and wages
    
    
    7,793,000
    
    
    
    10,834,000Taxes payable
    
    
    8,420,000
    
    
    
    3,007,000Interest payable
    
    
    2,844,000
    
    
    
    844,000Other accrued expenses
    
    
    15,106,000
    
    
    
    15,315,000Total current liabilities
    
    
    60,650,000
    
    
    
    58,498,000Long-term debt
    
    
    200,000,000
    
    
    
    200,000,000Deferred taxes
    
    
    27,532,000
    
    
    
    26,310,000Other long-term liabilities
    
    
    18,479,000
    
    
    
    18,367,000Total long-term liabilities
    
    
    246,011,000
    
    
    
    244,677,000Shareholders Equity:Common stock
    
    
    3,693,000
    
    
    
    3,693,000Paid-in capital
    
    
    48,424,000
    
    
    
    49,859,000Retained earnings
    
    
    641,794,000
    
    
    
    629,347,000Less  Treasury stock, at cost
    
    
    (222,747,000
    )
    
    
    (218,005,000
    )Accumulated other comprehensive income
    
    
    21,149,000
    
    
    
    18,496,000Shareholders equity
    
    
    492,313,000
    
    
    
    483,390,000Total liabilities and shareholders equity
    
    $
    798,974,000
    
    
    $
    786,565,000
  1




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KAYDON CORPORATION
 
 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
 First Quarter EndedMarch 29, 2008
    
    March 31, 2007Net sales
    
    $
    123,284,000
    
    
    $
    106,897,000Cost of sales
    
    
    75,965,000
    
    
    
    62,059,000Gross profit
    
    
    47,319,000
    
    
    
    44,838,000Selling, general and
administrative expenses
    
    
    21,155,000
    
    
    
    18,547,000Operating income
    
    
    26,164,000
    
    
    
    26,291,000Interest expense
    
    
    (2,387,000
    )
    
    
    (2,387,000
    )Interest income
    
    
    1,936,000
    
    
    
    4,625,000Income before income taxes
    
    
    25,713,000
    
    
    
    28,529,000Provision for income taxes
    
    
    9,102,000
    
    
    
    10,299,000Net income
    
    $
    16,611,000
    
    
    $
    18,230,000Weighted-average common shares:Basic
    
    
    27,384,000
    
    
    
    27,874,000Diluted
    
    
    34,350,000
    
    
    
    34,815,000Earnings per share:Basic
    
    $
    0.61
    
    
    $
    0.65Diluted
    
    $
    0.53
    
    
    $
    0.57Dividends declared per share
    
    $
    0.15
    
    
    $
    0.12
  2




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KAYDON CORPORATION
 
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 First Quarter EndedMarch 29, 2008
    
    March 31, 2007Cash flows from operating activities
    
    $
    12,712,000
    
    
    $
    18,118,000Cash flows from investing activities:Additions to property, plant and equipment, net
    
    
    (14,762,000
    )
    
    
    (7,384,000
    )Proceeds from sales of short-term investments
    
    
    56,919,000
    
    
    
    Acquisition of business, net of cash received
    
    
    489,000
    
    
    
    Cash from (used in) investing activities
    
    
    42,646,000
    
    
    
    (7,384,000
    )Cash flows from financing activities:Cash dividends paid
    
    
    (4,171,000
    )
    
    
    (3,382,000
    )Purchase of treasury stock
    
    
    (7,599,000
    )
    
    
    (3,239,000
    )Excess tax benefits from stock-based compensation
    
    
    23,000
    
    
    
    64,000Proceeds from exercise of stock options
    
    
    24,000
    
    
    
    Cash used in financing activities
    
    
    (11,723,000
    )
    
    
    (6,557,000
    )Effect of exchange rate changes on cash and
cash equivalents
    
    
    2,531,000
    
    
    
    198,000Net increase in cash and cash equivalents
    
    
    46,166,000
    
    
    
    4,375,000Cash and cash equivalents  Beginning of period
    
    
    229,993,000
    
    
    
    370,789,000Cash and cash equivalents  End of period
    
    $
    276,159,000
    
    
    $
    375,164,000Cash paid for income taxes
    
    $
    2,630,000
    
    
    $
    1,479,000Cash paid for interest
    
    
    
    
    
    
    
  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:
   March 29, 2008
    
    
    December 31, 2007Cash and cash equivalents:Commercial paper
    
    $
    225,538,000
    
    
    $
    139,275,000Money market and other short-term funds
    
    
    43,264,000
    
    
    
    84,850,000Time deposits, other interest bearing accounts, and other cash
    
    
    7,357,000
    
    
    
    5,868,000Cash and cash equivalents
    
    $
    276,159,000
    
    
    $
    229,993,000Short-term investments
    
    
    
    
    
    
    57,000,000$
    276,159,000
    
    
    $
    286,993,000
 (3) Inventories:
  March 29, 2008
    
    
    December 31, 2007Raw Material
    
    $
    31,052,000
    
    
    $
    28,311,000Work in Process
    
    
    21,348,000
    
    
    
    17,991,000Finished Goods
    
    
    24,804,000
    
    
    
    22,594,000$
    77,204,000
    
    
    $
    68,896,000
 (4) Comprehensive Income:
  4




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(5) Earnings per Share:
  First Quarter EndedMarch 29, 2008
    
    
    March 31, 2007Numerators:Numerators for basic earnings per share,
net income
    
    $
    16,611,000
    
    
    $
    18,230,000Interest and debt issuance costs amortization
related to Contingent Convertible Notes, net
of taxes
    
    
    1,488,000
    
    
    
    1,488,000Numerators for diluted earnings per share
    
    $
    18,099,000
    
    
    $
    19,718,000Denominators:Denominators for basic earnings per share,
weighted-average common shares outstanding
    
    
    27,384,000
    
    
    
    27,874,000Potential dilutive shares resulting from stock
options, restricted stock awards and phantom
stock units
    
    
    107,000
    
    
    
    82,000Dilutive shares resulting from Contingent
Convertible Notes
    
    
    6,859,000
    
    
    
    6,859,000Denominators for diluted earnings per share
    
    
    34,350,000
    
    
    
    34,815,000Earnings per share:Basic
    
    $
    0.61
    
    
    $
    0.65Diluted
    
    $
    0.53
    
    
    $
    0.57
  (6) Business Segment Information:
  5




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Friction Control Products 
 Velocity Control Products 
 Sealing Products 
 Other 
   First Quarter EndedMarch 29, 2008
    
    
    March 31, 2007Net salesFriction Control ProductsExternal customers
    
    $
    74,086,000
    
    
    $
    60,630,000Intersegment
    
    
    23,000
    
    
    
    57,00074,109,000
    
    
    
    60,687,000Velocity Control ProductsExternal customers
    
    
    18,752,000
    
    
    
    15,669,000Sealing ProductsExternal customers
    
    
    11,501,000
    
    
    
    12,033,000Intersegment
    
    
    
    
    
    
    (40,000
    )11,501,000
    
    
    
    11,993,000OtherExternal customers
    
    
    18,945,000
    
    
    
    18,565,000Intersegment
    
    
    (23,000
    )
    
    
    (17,000
    )18,922,000
    
    
    
    18,548,000Total consolidated net sales
    
    $
    123,284,000
    
    
    $
    106,897,000
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First Quarter EndedMarch 29, 2008
    
    
    March 31, 2007Operating incomeFriction Control Products
    
    $
    17,106,000
    
    
    $
    16,340,000Velocity Control Products
    
    
    5,579,000
    
    
    
    4,093,000Sealing Products
    
    
    1,484,000
    
    
    
    2,456,000Other
    
    
    2,027,000
    
    
    
    2,608,000Total segment operating income
    
    
    26,196,000
    
    
    
    25,497,000State income tax provision
included in segment operating
income
    
    
    637,000
    
    
    
    743,000Items not allocated to segment
operating income
    
    
    (669,000
    )
    
    
    51,000Interest expense
    
    
    (2,387,000
    )
    
    
    (2,387,000
    )Interest income
    
    
    1,936,000
    
    
    
    4,625,000Income before income taxes
    
    $
    25,713,000
    
    
    $
    28,529,000
 First Quarter EndedMarch 29, 2008
    
    
    March 31, 2007Additions to net property, plant and
equipmentFriction Control Products
    
    $
    11,917,000
    
    
    $
    5,516,000Velocity Control Products
    
    
    1,921,000
    
    
    
    267,000Sealing Products
    
    
    375,000
    
    
    
    1,385,000Other
    
    
    434,000
    
    
    
    174,000Corporate
    
    
    115,000
    
    
    
    42,000Total consolidated additions to net
property, plant and equipment
    
    $
    14,762,000
    
    
    $
    7,384,000
 March 29, 2008
    
    
    December 31, 2007Total assetsFriction Control Products
    
    $
    304,843,000
    
    
    $
    286,605,000Velocity Control Products
    
    
    103,595,000
    
    
    
    95,378,000Sealing Products
    
    
    25,296,000
    
    
    
    24,218,000Other
    
    
    92,219,000
    
    
    
    91,940,000Corporate
    
    
    273,021,000
    
    
    
    288,424,000Total consolidated assets
    
    $
    798,974,000
    
    
    $
    786,565,000
 7




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(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
    
    
    $
    146,922,000Goodwill acquired
    
    
    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
    
    
    $
    147,134,000
  March 29, 2008
    
    December 31, 2007Gross
    
    
    
    
    
    GrossCarrying
    
    Accumulated
    
    Carrying
    
    AccumulatedAmortized Intangible Assets
    
    Amount
    
    Amortization
    
    Amount
    
    AmortizationCustomer relationships and lists
    
    $
    28,194,000
    
    
    $
    10,116,000
    
    
    $
    28,194,000
    
    
    $
    9,567,000Patents and developed technology
    
    
    6,383,000
    
    
    
    2,464,000
    
    
    
    6,379,000
    
    
    
    2,286,000Backlog
    
    
    3,300,000
    
    
    
    715,000
    
    
    
    3,300,000
    
    
    
    114,000Distributor agreements
    
    
    374,000
    
    
    
    134,000
    
    
    
    374,000
    
    
    
    125,000Product names
    
    
    320,000
    
    
    
    107,000
    
    
    
    320,000
    
    
    
    99,000Trademarks
    
    
    200,000
    
    
    
    38,000
    
    
    
    200,000
    
    
    
    18,000$
    38,771,000
    
    
    $
    13,574,000
    
    
    $
    38,767,000
    
    
    $
    12,209,000
  March 29, 2008
    
    December 31, 2007Unamortized Intangible Assets
    
    Carrying Amount
    
    Carrying AmountTrademarks
    
    $
    4,604,000
    
    
    $
    4,604,000
 Aggregate Intangible Assets Amortization ExpenseFor the first quarter ended March 29, 2008
    
    $
    1,365,000For the first quarter ended March 31, 2007
    
    $
    769,000
 Estimated Intangible Assets Amortization ExpenseFor the year ending December 31, 2008
    
    $
    5,429,000For the year ending December 31, 2009
    
    $
    4,310,000For the year ending December 31, 2010
    
    $
    3,567,000For the year ending December 31, 2011
    
    $
    2,256,000For the year ending December 31, 2012
    
    $
    1,974,000
 9




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(9) Other Assets:
  (10) Employee Benefit Plans:
  First Quarter EndedPension Benefits
    
    March 29, 2008
    
    March 31, 2007Service cost
    
    $
    671,000
    
    
    $
    693,000Interest cost
    
    
    1,571,000
    
    
    
    1,459,000Expected return on plan assets
    
    
    (1,943,000
    )
    
    
    (1,345,000
    )Amortization of:Unrecognized net prior service
cost
    
    
    7,000
    
    
    
    8,000Unrecognized net loss
    
    
    1,000
    
    
    
    255,000Total
    
    $
    307,000
    
    
    $
    1,070,000
 First Quarter EndedPostretirement Benefits
    
    March 29, 2008
    
    March 31, 2007Service cost
    
    $
    73,000
    
    
    $
    91,000Interest cost
    
    
    164,000
    
    
    
    201,000Amortization of:Unrecognized net prior
service cost
    
    
    (429,000
    )
    
    
    (440,000
    )Unrecognized net gain
    
    
    (227,000
    )
    
    
    (121,000
    )Total
    
    $
    (419,000
    )
    
    $
    (269,000
    )
  10




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(11) Stock-Based Compensation:
  First Quarter EndedMarch 29, 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
    
    
    $
    38.01
   First Quarter EndedMarch 29, 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
    
    
    $
    41.04Exercisable at March 29, 2008
    
    
    83,400
    
    
    $
    36.46Weighted-Avg. Fair Value of Options Granted
    
    $
    10.93Weighted-Avg. Remaining Contractual Life (years)Outstanding at March 29, 2008
    
    
    8.6Exercisable at March 29, 2008
    
    
    7.3
   (12) Impact of Recently Issued Accounting Pronouncements:
  11




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12




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(13) 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 March 29, 2008 Using:SignificantTotal
    
    Quoted Prices in
    
    Other
    
    SignificantFair Value
    
    Active Markets
    
    Observable
    
    UnobservableMeasurement at
    
    for Identical Assets
    
    Inputs
    
    InputsMarch 29, 2008
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Long-term investment
    
    $
    14,617,000
    
    
    
    
    
    
    
    
    
    
    $
    14,617,000
  Fair ValueMeasurements UsingSignificantUnobservable 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
    
    $
    14,617,000
  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
Results of Operations and Financial Condition
 14




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Results of Operations
            15




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Liquidity and Capital Resources
      16




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Outlook
  Critical Accounting Policies and Estimates
   Forward-Looking Statements
   17




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
  
 PART
II. OTHER INFORMATION
 
 ITEM
1A. RISK FACTORS
  18




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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 26
    
    
    26,680
    
    
    $
    51.15
    
    
    
    26,680
    
    
    
    4,254,491January 27 to February 23
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,254,491February 24 to March 29
    
    
    149,661
    
    
    $
    41.66
    
    
    
    149,661
    
    
    
    4,104,830Total
    
    
    176,341
    
    
    $
    43.10
    
    
    
    176,341
    
    
    
    4,104,830
 (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.
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ITEM
6. EXHIBITS
 Exhibit No.
    
    Description10.1
    
    Form of restricted stock agreement to be entered into by the
Company and award recipients on and after February 14, 2008 under the Kaydon
Corporation 1999 Long Term Stock Incentive Plan10.2
    
    Form of non-qualified stock option agreement to be entered into
by the Company and award recipients on and after February 14, 2008 under the
Kaydon Corporation 1999 Long Term Stock Incentive Plan12
    
    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
 20




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##### Table of Contents



KAYDON CORPORATIONMay 7, 2008
    /s/ James OLearyJames OLearyChairman, President and Chief Executive Officer
(Principal Executive Officer)May 7, 2008
    /s/ Kenneth W. CrawfordKenneth W. CrawfordSenior Vice President, Chief Financial Officer
and Corporate Controller
(Principal Financial and Accounting Officer) 21




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##### Table of Contents



Exhibit No.
    
    Description10.1
    
    Form of restricted stock agreement to be entered into by the Company and award recipients on
and after February 14, 2008 under the Kaydon Corporation 1999
Long Term Stock Incentive Plan10.2
    
    Form of non-qualified stock option agreement to be entered into by the Company and award
recipients on and after February 14, 2008 under the Kaydon
Corporation 1999 Long Term Stock
Incentive Plan12
    
    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
 22