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 April 1, 2000 |  | Commission File No. 0-12640
|                                |  |                            

KAYDON CORPORATION

(Exact name of registrant as
specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 13-3186040                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification No.)

|                                                                                                   |  |                 
|-------------------------------------------------------------------------------------------------- |  | ----------------
|315 E. Eisenhower Parkway, Suite 300, Ann Arbor, Michigan
(Address of principal executive offices) |  | 48108
(Zip Code)

Registrants telephone number, including area code (734) 747-7025

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]

Common Stock Outstanding at May 4, 2000  30,120,891 shares, $.10 par value.





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KAYDON CORPORATION FORM 10-Q

FOR THE QUARTER ENDED April 1, 2000

INDEX

|                                |                                                                                       |  |          |        | 
|------------------------------- | ------------------------------------------------------------------------------------- |  | -------- | ------ | 
|                                |                                                                                       |  | Page No.
|                                |                                                                                       |  |         
|Part I  Financial Information:
|                               
|                               
|                               
|                               
|                                | Consolidated Condensed Balance Sheets -                                              
|                               
|                               
|                               
|                               
|                                | April 1, 2000 and December 31, 1999                                                   |  |          | 1      | 
|                               
|                               
|                               
|                               
|                                | Consolidated Condensed Statements of Income -                                        
|                               
|                               
|                               
|                               
|                                | Quarter Ended April 1, 2000 and April 3, 1999                                         |  |          | 2      | 
|                               
|                               
|                               
|                               
|                                | Consolidated Condensed Statements of Cash Flows -                                    
|                               
|                               
|                               
|                               
|                                | Quarter Ended April 1, 2000 and April 3, 1999                                         |  |          | 3      | 
|                               
|                               
|                               
|                               
|                                | Notes to Consolidated Condensed Financial Statements                                  |  |          | 4 - 9  | 
|                               
|                               
|                               
|                               
|                                | Managements Discussion and Analysis of
Financial Condition and Results of Operations |  |          | 10- 13 | 
|                               
|                               
|                               
|                               
|                                | Quantitative and Qualitative Disclosures about Market Risk                            |  |          | 13     | 
|                               
|                               
|                               
|                               
|Part II  Other Information:   
|                               
|                               
|                               
|                               
|                                | Item 1.  Legal Proceedings                                                           |  |          | 14     | 
|                               
|                               
|                               
|                               
|                                | Item 6.  Exhibits and Reports on Form 8-K                                            |  |          | 14     | 
|                               
|                               
|                               
|                               
|                                | Signatures                                                                            |  |          | 15     | 





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KAYDON CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

|                                                                   |                                            |   |               |             |              |   |              |             |  |  |  |  | 
|------------------------------------------------------------------ | ------------------------------------------ | - | ------------- | ----------- | ------------ | - | ------------ | ----------- |  |  |  |  | 
|                                                                   |                                            |   | April 1, 2000 |             | Dec. 31,1999
|                                                                   |                                            |   |               |             |             
|                                                                   |                                            |   | (Unaudited    | )          
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Assets:                                                           
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Cash and cash equivalents                                          |                                            | $ | 93,577,000    |             |              | $ | 89,749,000   |            
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Accounts receivable, net                                           |                                            |   | 56,363,000    |             |              |   | 48,776,000   |            
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Inventories, net                                                   |                                            |   | 61,617,000    |             |              |   | 61,008,000   |            
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Other current assets                                               |                                            |   | 12,227,000    |             |              |   | 12,020,000   |            
|                                                                   |                                            |   |               |             |              |   |              |            
|Total current assets                                               |                                            |   | 223,784,000   |             |              |   | 211,553,000  |            
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Plant and equipment, net                                           |                                            |   | 98,298,000    |             |              |   | 98,844,000   |            
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Cost in excess of net tangible
assets of purchased businesses, net |                                            |   | 75,055,000    |             |              |   | 75,081,000   |            
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Other assets                                                       |                                            |   | 20,922,000    |             |              |   | 21,271,000   |            
|                                                                   |                                            |   |               |             |              |   |              |            
|Total assets                                                       |                                            | $ | 418,059,000   |             |              | $ | 406,749,000  |            
|                                                                   |                                            |   |               |             |              |   |              |            
|Liabilities and Shareholders' Equity :                            
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Accounts payable                                                   |                                            | $ | 16,819,000    |             |              | $ | 11,360,000   |            
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Accrued expenses                                                   |                                            |   | 50,353,000    |             |              |   | 42,823,000   |            
|                                                                   |                                            |   |               |             |              |   |              |            
|Total current liabilities                                          |                                            |   | 67,172,000    |             |              |   | 54,183,000   |            
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Long-term liabilities                                              |                                            |   | 37,199,000    |             |              |   | 35,616,000   |            
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Shareholders' equity:                                             
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Common stock                                                       |                                            |   | 3,670,000     |             |              |   | 3,667,000    |            
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Paid-in capital                                                    |                                            |   | 41,471,000    |             |              |   | 40,942,000   |            
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Retained earnings                                                  |                                            |   | 410,922,000   |             |              |   | 401,024,000  |            
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Less  treasury stock, at cost                                     |                                            |   | (128,451,000  | )           |              |   | (114,794,000 | )          
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Less  restricted stock awards                                     |                                            |   | (10,393,000   | )           |              |   | (10,833,000  | )          
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Accumulated other comprehensive loss                               |                                            |   | (3,531,000    | )           |              |   | (3,056,000   | )          
|                                                                   |                                            |   |               |             |              |   |              |            
|                                                                   |                                            |   | 313,688,000   |             |              |   | 316,950,000  |            
|                                                                   |                                            |   |               |             |              |   |              |            
|                                                                   | Total liabilities and
shareholders' equity |   | $             | 418,059,000 |              |   | $            | 406,749,000 | 
|                                                                   |                                            |   |               |             |              |   |              |            

See accompanying notes to consolidated condensed financial statements.

1



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KAYDON CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(UNAUDITED)

|                                |         |   |               |            |              |   |            |            |  |  |  |  | 
|------------------------------- | ------- | - | ------------- | ---------- | ------------ | - | ---------- | ---------- |  |  |  |  | 
|                                |         |   | Quarter Ended
|                                |         |   |              
|                                |         |   | April 1, 2000 |            | April 3,1999
|                                |         |   |               |            |             
|Net sales                       |         | $ | 84,920,000    |            |              | $ | 88,120,000 |           
|                               
|                               
|                               
|                               
|Cost of sales                   |         |   | 52,808,000    |            |              |   | 53,664,000 |           
|                                |         |   |               |            |              |   |            |           
|Gross profit                    |         |   | 32,112,000    |            |              |   | 34,456,000 |           
|                               
|                               
|                               
|                               
|Operating expenses              |         |   | 12,553,000    |            |              |   | 9,708,000  |           
|                                |         |   |               |            |              |   |            |           
|Operating income                |         |   | 19,559,000    |            |              |   | 24,748,000 |           
|                               
|                               
|                               
|                               
|Interest income, net            |         |   | 1,547,000     |            |              |   | 1,050,000  |           
|                                |         |   |               |            |              |   |            |           
|Income before income taxes      |         |   | 21,106,000    |            |              |   | 25,798,000 |           
|                               
|                               
|                               
|                               
|Provision for income taxes      |         |   | 7,810,000     |            |              |   | 9,674,000  |           
|                                |         |   |               |            |              |   |            |           
|Net income                      |         | $ | 13,296,000    |            |              | $ | 16,124,000 |           
|                                |         |   |               |            |              |   |            |           
|Weighted Average Common Shares:
|                               
|                               
|                               
|                               
|                                | Basic   |   |               | 30,461,000 |              |   |            | 32,001,000 | 
|                               
|                               
|                               
|                               
|                                | Diluted |   |               | 30,521,000 |              |   |            | 32,209,000 | 
|                               
|                               
|                               
|                               
|Earnings Per Share:            
|                               
|                               
|                               
|                               
|                                | Basic   |   | $             | .44        |              |   | $          | .50        | 
|                               
|                               
|                               
|                               
|                                | Diluted |   | $             | .44        |              |   | $          | .50        | 

See accompanying notes to consolidated condensed financial statements.

2



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KAYDON CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

|                                                             |  |   |             |               |  |              |             |   |  |  |  |  |  | 
|------------------------------------------------------------ |  | - | ----------- | ------------- |  | ------------ | ----------- | - |  |  |  |  |  | 
|                                                             |  |   |             | Quarter Ended
|                                                             |  |   |             |              
|                                                             |  |   |             | April 1, 2000 |  | April 3,1999
|                                                             |  |   |             |               |  |             
|Cash flows from operating activities                         |  | $ | 24,264,000  |               |  | $            | 19,343,000  |  
|                                                             |  |   |             |               |  |              |             |   |  | 
|Cash flows from (used in) investing activities:             
|                                                            
|                                                            
|                                                            
|                                                            
|Capital expenditures, net                                    |  |   | (3,075,000  | )             |  |              | (2,571,000  | )
|                                                            
|                                                            
|                                                            
|                                                            
|Acquisition of business                                      |  |   | (1,008,000  | )            
|                                                             |  |   |             |               |  |              |             |   |  | 
|Cash from (used in) investing activities                     |  |   | (4,083,000  | )             |  |              | (2,571,000  | )
|                                                             |  |   |             |               |  |              |             |   |  | 
|Cash flows from (used in) financing activities:             
|                                                            
|                                                            
|                                                            
|                                                            
|Proceeds from issuance of common stock                       |  |   | 452,000     |               |  |              | 339,000     |  
|                                                            
|                                                            
|                                                            
|                                                            
|Dividends paid                                               |  |   | (3,427,000  | )             |  |              | (3,216,000  | )
|                                                            
|                                                            
|                                                            
|                                                            
|Net payments on debt                                         |  |   | (18,000     | )             |  |              |             |  
|                                                            
|                                                            
|                                                            
|                                                            
|Purchase of treasury stock                                   |  |   | (13,242,000 | )             |  |              | (9,781,000  | )
|                                                             |  |   |             |               |  |              |             |   |  | 
|Cash used in financing activities                            |  |   | (16,235,000 | )             |  |              | (12,658,000 | )
|                                                             |  |   |             |               |  |              |             |   |  | 
|Effect of exchange rate changes on cash
and cash equivalents |  |   | (118,000    | )             |  |              | (15,000     | )
|                                                             |  |   |             |               |  |              |             |   |  | 
|Net increase in cash and cash equivalents                    |  |   | 3,828,000   |               |  |              | 4,099,000   |  
|                                                            
|                                                            
|                                                            
|                                                            
|Cash and cash equivalents  Beginning of period              |  |   | 89,749,000  |               |  |              | 96,203,000  |  
|                                                             |  |   |             |               |  |              |             |   |  | 
|Cash and cash equivalents  End of period                    |  | $ | 93,577,000  |               |  | $            | 100,302,000 |  
|                                                             |  |   |             |               |  |              |             |   |  | 
|Cash expended for income taxes                               |  | $ | 515,000     |               |  | $            | 1,600,000   |  
|                                                             |  |   |             |               |  |              |             |   |  | 

See accompanying notes to consolidated condensed financial statements.

3



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KAYDON CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS



|(1) |  | The accompanying unaudited consolidated condensed financial statements of
Kaydon Corporation and subsidiaries (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 year- end condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles. For further information, refer
to the consolidated financial statements and footnotes thereto included in
the Companys annual report on Form 10-K for the year ended December 31,
1999.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Inventories are summarized as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

|                |  |               |            |               |  |   |            |  |  |  |  | 
|--------------- |  | ------------- | ---------- | ------------- |  | - | ---------- |  |  |  |  | 
|                |  | April 1, 2000 |            | Dec. 31, 1999
|                |  |               |            |              
|Raw Material    |  | $             | 22,383,000 |               |  | $ | 22,970,000 | 
|               
|               
|               
|               
|Work in Process |  |               | 16,166,000 |               |  |   | 15,372,000 | 
|               
|               
|               
|               
|Finished Goods  |  |               | 23,068,000 |               |  |   | 22,666,000 | 
|                |  |               |            |               |  |   |            | 
|                |  | $             | 61,617,000 |               |  | $ | 61,008,000 | 
|                |  |               |            |               |  |   |            | 



|(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 of net income, minimum pension liability adjustments and
foreign currency translation adjustments. Other comprehensive income, net
of tax, was approximately ($475,000) and ($923,000) resulting in
comprehensive income of $12,821,000 and $15,201,000 for the quarters ended
April 1, 2000 and April 3, 1999.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4



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|(4) |  | The following table reconciles the numerators and denominators used in
the calculation of basic and diluted earnings per share for the periods
presented.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|                                             |                                                                                       |   |               |            |               |   |            |            |  |  |  |  | 
|-------------------------------------------- | ------------------------------------------------------------------------------------- | - | ------------- | ---------- | ------------- | - | ---------- | ---------- |  |  |  |  | 
|                                             |                                                                                       |   | Quarter Ended
|                                             |                                                                                       |   |              
|                                             |                                                                                       |   | April 1, 2000 |            | April 3, 1999
|                                             |                                                                                       |   |               |            |              
|Numerators:                                 
|                                            
|                                            
|                                            
|                                            
|                                             | Numerators for both
basic and diluted earnings
per share, net income                  |   | $             | 13,296,000 |               |   | $          | 16,124,000 | 
|                                             |                                                                                       |   |               |            |               |   |            |           
|Denominators:                               
|                                            
|                                            
|                                            
|                                            
|                                             | Denominators for basic earnings
per share, weighted average
common shares outstanding |   |               | 30,461,000 |               |   |            | 32,001,000 | 
|                                            
|                                            
|                                            
|                                            
|                                             | Potential dilutive shares resulting
from stock options and
restricted stock awards    |   |               | 60,000     |               |   |            | 208,000    | 
|                                             |                                                                                       |   |               |            |               |   |            |           
|Denominators for dilutive
earnings per share |                                                                                       |   | 30,521,000    |            |               |   | 32,209,000 |           
|                                             |                                                                                       |   |               |            |               |   |            |           
|Earnings per share:                         
|                                            
|                                            
|                                            
|                                            
|Basic                                        |                                                                                       | $ | .44           |            |               | $ | .50        |           
|                                             |                                                                                       |   |               |            |               |   |            |           
|Diluted                                      |                                                                                       | $ | .44           |            |               | $ | .50        |           
|                                             |                                                                                       |   |               |            |               |   |            |           

Options to purchase 145,850 shares of common stock at prices ranging from
$31.4375 to $33.3125 per share were outstanding during the first quarter of
2000, but were not included in the computation of diluted earnings per share
because the options exercise price was greater than the average market price
of the common shares during that period. Options to purchase 145,800 shares of
common stock at a price of $33.00 per share were outstanding during the first
quarter of 1999, but were not included in the computation of first quarter 1999
diluted earnings per share because the options exercise price was greater than
the average market price of the common shares during that period.

In accordance with the provisions of Statement of Financial Accounting
Standards No. 128, Earnings Per Share, potential dilutive shares resulting
from stock option plans used in the calculation of dilutive earnings per share
are based on an average of the potential dilutive shares resulting from stock
option plans for the periods presented.

5



---





|(5) |  | The Company operates through individual operating units which serve four
key market sectors. The market sectors served by the Company have several
related economic characteristics and attributes, including similar
products, distribution patterns and classes of customers. As a result,
the Company
aggregates its operating units into a single segment of Custom-Engineered
Products.                                                                                                  
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The corporate component of income before taxes includes interest income,
goodwill amortization, depreciation and unallocated corporate
administrative expenses. The Company maintains an asymmetrical
allocation between its corporate office and its plants with respect to
goodwill. The goodwill associated with an operating unit is on the
balance sheet of the respective operating unit while the amortization
expense associated with the goodwill is charged to the corporate office.
|   
|    |  | Segment financial data (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                        

|                                         |  |               |        |               |  |        |     |              |  |            |        |         |  |   |        |              |  |   |     |  |  |   |        |   |  |  |  | 
|---------------------------------------- |  | ------------- | ------ | ------------- |  | ------ | --- | ------------ |  | ---------- | ------ | ------- |  | - | ------ | ------------ |  | - | --- |  |  | - | ------ | - |  |  |  | 
|                                         |  | Quarter Ended |        |               |  |        |     |              |  |            |       
|                                         |  |               |        |               |  |        |     |              |  |            |       
|                                         |  | April 1, 2000 |        | April 3, 1999 |  |        |     |              |  |            |        |         | 
|                                         |  |               |        |               |  |        |     |              |  |            |        |         | 
|                                         |  | Custom-       |        |               |  |        |     |              |  |            |        | Custom- |  |   |        |              |  |  
|                                         |  | Engineered    |        |               |  |        |     | Consolidated |  | Engineered |        |         |  |   |        | Consolidated | 
|                                         |  | Products      |        | Corporate     |  | Totals |     | Products     |  | Corporate  |        | Totals  | 
|                                         |  |               |        |               |  |        |     |              |  |            |        |         | 
|Sales                                    |  | $             | 85,425 |               |  |        |     |              |  | $          | 85,425 |         |  | $ | 89,749 |              |  |   |     |  |  | $ | 89,749 |  
|                                        
|                                        
|                                        
|                                        
|Elimination of
intercompany
sales        |  |               | (505   | )             |  |        |     |              |  |            | (505   | )       |  |   | (1,629 | )            |  |   |     |  |  |   | (1,629 | )
|                                         |  |               |        |               |  |        |     |              |  |            |        |         |  |   |        |              |  |   |     |  |  |   |        |  
|Total net sales                          |  | $             | 84,920 |               |  |        |     |              |  | $          | 84,920 |         |  | $ | 88,120 |              |  |   |     |  |  | $ | 88,120 |  
|                                         |  |               |        |               |  |        |     |              |  |            |        |         |  |   |        |              |  |   |     |  |  |   |        |  
|Segment earnings
before interest
and tax |  | $             | 20,249 |               |  |        |     |              |  | $          | 20,249 |         |  | $ | 25,107 |              |  |   |     |  |  | $ | 25,107 |  
|                                        
|                                        
|                                        
|                                        
|Unallocated
amounts                      |  |               | 0      |               |  | $      | 857 |              |  |            | 857    |         |  |   | 0      |              |  | $ | 691 |  |  |   | 691    |  
|                                         |  |               |        |               |  |        |     |              |  |            |        |         |  |   |        |              |  |   |     |  |  |   |        |  
|Income before
income taxes               |  | $             | 20,249 |               |  | $      | 857 |              |  | $          | 21,106 |         |  | $ | 25,107 |              |  | $ | 691 |  |  | $ | 25,798 |  
|                                         |  |               |        |               |  |        |     |              |  |            |        |         |  |   |        |              |  |   |     |  |  |   |        |  



| |                                                                                                   
| | --------------------------------------------------------------------------------------------------
| | There has been no change in the basis or measurement of segmentation
since the last annual report.



|(6) |  | In June of 1995, the Company, along with certain former officers and
directors of the Company and certain other companies and organizations,
was named as a defendant in a lawsuit commenced in Bankruptcy Court in the
Southern District of New York. The plaintiff was the Creditors Committee
formed in connection with the Chapter 11 Bankruptcy
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6



---





| |  | Proceeding of Keene
Corporation (Keene). That action, identified as the Transactions
Lawsuit, asserted claims against the Company arising from the Companys
1983 acquisition of certain assets of Keene, and Bairnco Corporations
1984 spin-off of the Companys common stock. As originally filed, the
Transactions Lawsuit alleged claims against the Company under state
fraudulent conveyance laws, tort claims under successor liability law, and
civil RICO claims. The Transactions Lawsuit seeks damages alleged by
plaintiffs to be an amount of $700 million, plus interest and punitive
damages against the defendants collectively. The RICO claims sought
trebling
of those damages. The claims asserted in the Transactions Lawsuit are
similar to, and supplant, claims previously asserted in certain class
actions brought against the Company in 1993, purportedly on behalf of
certain persons with asbestos-related claims against Keene.                
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In 1997, in connection with the Bankruptcy
Courts confirmation of
Keenes Plan of Reorganization, the Keene Creditors Trust was created to,
among other things, prosecute this lawsuit, and the Trustees of that
Trust were substituted as the plaintiffs in place of the Keene Creditors
Committee. In addition, the case was transferred from the Bankruptcy
Court to the United States District Court for the Southern District of
New York. Subsequently, the Company and certain other defendants filed
motions to dismiss the complaint for failure to state a claim, and for
summary judgment on the grounds that the fraudulent conveyance claims and
certain related causes of action were barred by the statute of
limitations.                                                                                                                                                                                                                                         
|
| |  | On October 13, 1998, the Court granted in part and denied in part the
Companys motion to dismiss the complaint, and denied the
Companys
motion for summary judgment. With respect to the motion for summary
judgment, the Court found that certain groups of asbestos claimants had
claims that were not time-barred, and therefore the plaintiffs could
assert claims against the Company for both actual fraudulent conveyance
and constructive fraudulent conveyance. With respect to the motion to
dismiss, the Court granted the Companys motion to dismiss the fraudulent
conveyance claim against it in connection with Bairnco Corporations 1984
spin-off of the Companys common stock, and dismissed all the RICO claims
asserted against the Company. The Court denied the Companys motion to
dismiss the successor liability claim, but noted the plaintiffs ability
to pursue such a claim was subject to their ability to pursue a
fraudulent conveyance claim.
|
| |  | On October 29, 1998, the Company filed a motion for reargument of the
Courts ruling that the plaintiffs claims for actual and constructive
fraudulent conveyance against the Company are not barred by the
applicable statute of limitations. On January 5, 1999, the Court issued
a decision on the Companys motion for reargument, which granted the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

7



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| |  | Companys motion for reargument with
regard to the plaintiffs claims for
constructive fraudulent conveyance, and, with one minor exception, held
those claims were barred by the applicable statute of limitations and
dismissed them. However, the Court denied the Companys motion to
dismiss the actual fraudulent conveyance claims. Accordingly, as a
result of the Companys motions, the only claims remaining against the
Company are plaintiffs claims for actual fraudulent conveyance and for
successor liability. In addition, there is, on behalf of certain
individual judgment creditors, a limited claim for constructive
fraudulent conveyance. The Company does not believe any recovery on this
limited claim will be material. The discovery stay previously in place
has been lifted, and discovery is in its preliminary stages.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In other decisions, the Court also dismissed the claims against all the
individual defendants except one, and against the professional
organizations that had been named as defendants in the case. However,
Bairnco and its other subsidiaries and former subsidiaries remain as
defendants in the case.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Management believes it has meritorious defenses to the claims pending
against it in this litigation. Accordingly, no provision has been
reflected in the consolidated financial statements for any alleged
damages. Management further believes that the outcome of this litigation
will not have a material adverse effect on the Companys financial
position.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Since June 1996, the Company and certain employees have received
subpoenas issued by the U.S. District Court in Bridgeport, Connecticut on
behalf of a grand jury investigating a May 9, 1996 accident involving a
Sikorsky helicopter (CH-53E) in which four persons died. The grand jury
requested and received documents and records, and Kaydon employee
testimony relating to bearings manufactured by Kaydon and used in the
Sikorsky helicopter. In addition, a Mishap Board led by Sikorsky
Aircraft Corporation personnel alleged that product quality problems or
deficiencies existed with respect to the Kaydon bearing used in the
Sikorsky helicopter described above. Kaydon personnel were excluded from
participation on this Mishap Board. However, Kaydon has independently
evaluated the available evidence and refuted the Mishap Board findings
in reports submitted to the Navy. Subsequent incidents have occurred in
the helicopter fleet even though the bearings used were newly
manufactured, inspected and approved by Sikorsky and Navy personnel,
reinforcing the Companys position that the bearing quality was not the
causative action in the May 9, 1996 accident. During the first half of
1997, the estates of the four deceased individuals filed civil suits
against the Company. On July 6, 1998, Sikorsky filed a claim against the
Company in those same civil cases claiming damages which they are alleged
to have incurred following the May 9, 1996 accident. In October 1998,
Kaydons insurance company reached

8



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| |  | settlement agreements with the estates
of each plaintiff in the four civil suits. All settlement amounts were
fully covered under Company insurance. In September 1998, Kaydon
received the Judge Advocate Generals Report (the JAG Report) and the
Naval Air Systems Command First Endorsement to the JAG Report dated July
28, 1998 wherein the U.S. Navy reviewed the crash of the Sikorsky CH-53E
on May 9, 1996. A supplemental review dated November 30, 1999 with a
First Endorsement dated December 10, 1999 further reviewed the JAG
investigation and the Sikorsky Mishap Board investigation. The
Supplemental Review and related First Endorsement contradict certain
findings contained in the earlier JAG Report and related First
Endorsement. Management believes that none of the findings contained in
these reviews are conclusive, and management further believes it has
meritorious defenses against any claims relating to alleged quality
problems or deficiencies in its products. Management also believes that
the outcome of this matter will not have a material adverse effect on the
Companys financial position.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Various other claims, lawsuits and environmental matters arising in the
normal
course of business are pending against the Company. Management believes
that the outcome of these matters will not have a material adverse effect
on the Companys financial position.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

9



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MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

During the first quarter of 2000, Kaydon Corporation and subsidiaries (the
Company) achieved sales of $84,920,000, down 3.6 percent from $88,120,000 in
the first quarter of 1999. Results for the quarter reflect recent acquisitions
and modest recoveries in certain markets served by Kaydon including
semiconductor equipment, railroad, industrial repair, and the specialty ball
market. However, these improvements were offset by the absence of recoveries
in certain other key industrial markets including heavy construction equipment,
offshore oil, and aerospace.

Gross profit during the first quarter of 2000 of $32,112,000 was 37.8 percent
of sales, compared with $34,456,000 or 39.1 percent of sales in the first
quarter of 1999. While below the 1999 first quarter levels, the gross profit
percentage achieved in the first quarter of 2000 was relatively consistent with
gross profit percentages achieved during the third and fourth quarters of 1999.
Operating income during the first quarter of 2000 was $19,559,000 or 23.0
percent of sales as compared to $24,748,000 or 28.1 percent of sales in the
1999 first quarter.

The first quarter 2000 gross profit and operating income results were
negatively impacted by the decrease in sales from 1999, as well as several
unusual charges associated with product line and facility consolidations.
Charges of approximately $1.1 million were recorded at the Cooper Roller
Bearing subsidiary in the United Kingdom related to headcount reductions, and
for fixed asset write-offs related to the discontinuance of the subsidiarys
power transmission parts business. In addition, beginning in the second
quarter of 2000, the Company will begin a restructuring of its Fluid Power
Products division. This restructuring involves the closing of one of the
divisions four facilities with its operations integrated into the other three
divisional locations. The restructuring of the Fluid Power Products division,
involving total estimated expenditures of approximately $2.0 million, is
expected to result in future annualized cost savings in excess of $2.0 million.
The changes described at the Cooper and Fluid Power locations follow senior
management changes at these locations that took place during the fourth quarter
of 1999.

Legal expenses incurred in connection with ongoing litigation matters also
negatively impacted first quarter results when compared to the same period in
1999. Amortization expense related to goodwill generated as a result of the
two strategic acquisitions completed by the Company in late 1999 also
negatively affected the first quarter compared to the same period last year.
The 1999

10



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acquisitions on a whole, while currently adding sales volume have yet
to have a comparable operating income impact as the Company is in the process
of fully integrating the new businesses.

Net interest income in the first quarter of 2000 of $1,547,000 increased
$497,000 from $1,050,000 in last years comparable period due to marginally
higher interest rates as well as $311,000 related to interest earned on a
federal tax refund.

First quarter 2000 net income was $13,296,000, or 15.7 percent of sales.
Earnings per share on a diluted basis equaled $.44. First quarter 1999 net
income was $16,124,000, or 18.3 percent of sales, while earnings per share on a
diluted basis equaled $.50.

The effective tax rate during the first quarter of 2000 was 37.0 percent
compared to 37.5 percent in the first quarter 1999. The lower rate is due to
more state tax planning efforts.

Liquidity and Capital Resources

Working capital was $156,612,000 as of April 1, 2000, reflecting a current
ratio of 3.3 to 1 compared to $157,370,000 and a current ratio of 3.9 to 1 at
year-end 1999. The Company realized an increase in accounts receivable during
the first quarter of $7,587,000. This was mainly due to an increase in sales
volumes of 8.4 percent during the first quarter of 2000 compared to the fourth
quarter of 1999. Offsetting this increase in accounts receivable was an
increase in the Companys accounts payable balance of $5,459,000, which
reflects more aggressive payment terms the Company has negotiated with its
suppliers.

Cash flow from operations was a first quarter record $24,264,000, up from
$19,343,000 for the same period in 1999. The record cash flow in the first
quarter of 2000 continues the trend the Company experienced during 1999s
record operating cash flow year.

Depreciation and amortization for the first quarter of 2000 totaled $4,477,000
compared to $4,125,000 in the first quarter of 1999. Quarter over quarter
increases are primarily due to the previously mentioned acquisitions completed
in late 1999.

Cash and cash equivalents equaled $93,577,000 as of April 1, 2000, up
$3,828,000 over the balance at year-end 1999 of $89,749,000. This increase
reflects strong operating cash flow offset by capital expenditures of
$3,075,000, dividend payments of $3,427,000, the repurchase of 559,542 shares
of common stock for $13,242,000, and the acquisition of the assets of a small
manufacturer of fuel cleansing systems for $1,008,000.

11



---



Management expects that the Companys planned capital requirements for the
remainder of 2000, which consists of capital expenditures, dividend payments
and its stock repurchase program will be financed by operations and existing
cash balances.

Year 2000

This year 2000 disclosure is the most current information available and
replaces all previous disclosures made by the Company in its filings with the
Securities and Exchange Commission on Form 10-Q and Form 10-K, and in any
previous Annual
Report to shareholders.

The Company believes that it has successfully managed the readiness of its
systems with respect to the requirements for transaction processing in the Year
2000. The proprietary Company internal system was modified to be Year 2000
compliant in 1997. Review and testing of the modifications was completed
during 1998. All modifications were reviewed a final time during 1999. The
costs for these modifications were expensed as routine internal programming
costs during the period incurred and were not material. No material additional
costs were incurred by the Company. Embedded technology in facilities systems
and machinery and equipment were inventoried and assessed. Also, in accordance
with the Companys Year 2000 readiness plan, the Company assessed the Year 2000
systems readiness of its customers, vendors and suppliers and developed
contingency plans as needed for those who were not expected to be Year 2000
compliant. Any costs for remediation of third party systems issues were borne
by those third parties. The Company has experienced no material adverse effects
related to the readiness of its systems for the Year 2000. Furthermore, any
impact on the financial condition or results of operations for periods
presented as a result of the advent of Year 2000 is not material.

Outlook

The Companys backlog at April 1, 2000 was $119,052,000 compared to
$117,621,000 at the end of 1999. This is the first quarterly increase in
backlog registered by the Company since the first quarter of 1998. Based upon
current business indications, including quoting activity and future business
forecasts for Kaydon customers end-markets, the Company believes that orders
will increase only slightly for the second quarter of 2000, but should rebound
during the second half of this year especially in the Fluid Power Products
division and the Cooper Bearings subsidiary in the United Kingdom. The actions
taken at the Cooper facility and future actions to be completed at the Fluid
Power Products division should position these operations to take advantage of
the expected rebound in their businesses during the second half of this year.
Expected operating cash flows coupled with the Companys current cash reserves
and the Companys $300,000,000 credit facility will provide substantial
resources to fund the Companys ongoing business development efforts which
include internal and

12



---



external growth initiatives as well as selected stock
repurchases.

Certain information in this Form 10-Q is forward looking, such as the Companys
expectations regarding future financial performance and business development
activity. The Company may not update these expectations to reflect subsequent
events. Such forward-looking information involves risks and uncertainties that
could significantly affect expected results. These risks and uncertainties
include, but are not limited to, uncertainties as to economic conditions,
market acceptance of new enhanced versions of the Companys products, the
pricing of raw materials and changes in the competitive environments in which
the Companys businesses operate. Readers are cautioned to consider these
factors when relying on such forward-looking information.

Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to certain market risks which exist as part of its
ongoing business operations including interest rates and foreign currency
exchange rates. The Company believes that the potential effect of these risks
in the near term should not materially affect the Companys financial position.

13



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PART II. OTHER INFORMATION

Item 1. Legal Proceedings. See the discussion in
the Notes to Consolidated Condensed
Financial Statements.

Item 6. Exhibits and Reports on Form 8-K



| |                     |            
| | ------------------- | -----------
| | A.      Exhibit No. | Description



| |      |                                           
| | ---- | ------------------------------------------
| | (27) | Financial Data Schedule (for SEC use only)



| |                            
| | ---------------------------
| | B.      Reports on Form 8-K



| |                                                                          
| | -------------------------------------------------------------------------
| | No reports on Form 8-K were filed during the quarter ended April 1,
2000.

14



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



| | KAYDON CORPORATION
| | ------------------

|             |  |                                                                                                                                       
|------------ |  | --------------------------------------------------------------------------------------------------------------------------------------
|May 11, 2000 |  | /s/ Brian P. Campbell                                                                                                                 
|             |  |                                                                                                                                       
|             |  | Brian P. Campbell                                                                                                                     
|            
|            
|            
|            
|             |  | Chairman, President, Chief Executive
Officer and
Chief Financial Officer
(Principal Executive Officer
and Principal
Financial Officer)
|            
|            
|            
|            
|            
|May 11, 2000 |  | /s/ Kenneth W. Crawford                                                                                                               
|             |  |                                                                                                                                       
|             |  | Kenneth W. Crawford
Vice President and Corporate
Controller(Principal Accounting Officer)                                             

















15



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Exhibit Index

|            |  |                        
|----------- |  | -----------------------
|Exhibit No. |  | Description            
|            |  |                        
|27          |  | Financial Data Schedule