##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT of 1934
 For the quarterly period ended October 3, 2009
 Commission File No. 1-11333
 KAYDON CORPORATION
  Delaware
    
    13-3186040(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)Suite 300, 315 E. Eisenhower Parkway, Ann Arbor, Michigan
(Address of principal executive offices)
    
    48108
(Zip Code)
 (734) 747-7025
  þ o
  o o
  Large accelerated filer þAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o  o þ




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##### 



Page No.Part I  Financial Information:Item 1. Financial Statements.
    
    
    1Consolidated Condensed Balance Sheets 
October 3, 2009 (Unaudited) and December 31, 2008
    
    
    1Consolidated Condensed Statements of Operations (Unaudited) 
Quarter and First Three Quarters Ended October 3, 2009 and September 27, 2008
    
    
    2Consolidated Condensed Statements of Cash Flows (Unaudited) 
First Three Quarters Ended
October 3, 2009 and September 27, 2008
    
    
    3Notes to Consolidated Condensed Financial Statements (Unaudited)
    
    
    4Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations.
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk.
    
    
    22Item 4. Controls and Procedures.
    
    
    22Part II  Other Information:Item 6. Exhibits.
    
    
    23Signatures
    
    
    24EX-10.1EX-31.1EX-31.2EX-32




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##### Table of Contents



ITEM 1. FINANCIAL STATEMENTS.
 KAYDON CORPORATION
 
 CONSOLIDATED CONDENSED BALANCE SHEETS
 (Unaudited)October 3, 2009
    
    December 31, 2008ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    247,841,000
    
    
    $
    232,998,000Accounts receivable, net
    
    
    75,907,000
    
    
    
    78,918,000Inventories, net
    
    
    95,070,000
    
    
    
    97,748,000Other current assets
    
    
    15,256,000
    
    
    
    18,395,000Total current assets
    
    
    434,074,000
    
    
    
    428,059,000Property, plant and equipment, net
    
    
    178,101,000
    
    
    
    185,642,000Goodwill, net
    
    
    143,868,000
    
    
    
    142,424,000Other intangible assets, net
    
    
    22,584,000
    
    
    
    25,746,000Other assets
    
    
    1,602,000
    
    
    
    7,911,000Total assets
    
    $
    780,229,000
    
    
    $
    789,782,000LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    21,380,000
    
    
    $
    35,080,000Salaries and wages
    
    
    5,990,000
    
    
    
    8,302,000Taxes payable
    
    
    6,657,000
    
    
    
    2,843,000Other accrued expenses
    
    
    17,865,000
    
    
    
    16,537,000Total current liabilities
    
    
    51,892,000
    
    
    
    62,762,000Long-term postretirement and
postemployment benefit obligations
    
    
    35,565,000
    
    
    
    53,478,000Other long-term liabilities
    
    
    4,299,000
    
    
    
    912,000Total long-term liabilities
    
    
    39,864,000
    
    
    
    54,390,000Shareholders Equity:Common stock
    
    
    3,693,000
    
    
    
    3,693,000Other shareholders equity
    
    
    684,780,000
    
    
    
    668,937,000Total shareholders equity
    
    
    688,473,000
    
    
    
    672,630,000Total liabilities and shareholders equity
    
    $
    780,229,000
    
    
    $
    789,782,000
  1




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KAYDON CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
 Third Quarter Ended
    
    First Three Quarters EndedAs Adjusted
    
    
    
    
    
    As Adjusted(Note 1)
    
    
    
    
    
    (Note 1)October 3, 2009
    
    September 27, 2008
    
    October 3, 2009
    
    September 27, 2008Net sales
    
    $
    123,637,000
    
    
    $
    126,803,000
    
    
    $
    332,290,000
    
    
    $
    389,992,000Cost of sales
    
    
    85,590,000
    
    
    
    82,270,000
    
    
    
    226,113,000
    
    
    
    243,969,000Gross profit
    
    
    38,047,000
    
    
    
    44,533,000
    
    
    
    106,177,000
    
    
    
    146,023,000Selling, general and
administrative expenses
    
    
    13,418,000
    
    
    
    19,754,000
    
    
    
    52,800,000
    
    
    
    62,942,000Operating income
    
    
    24,629,000
    
    
    
    24,779,000
    
    
    
    53,377,000
    
    
    
    83,081,000Interest expense
    
    
    (62,000
    )
    
    
    (1,393,000
    )
    
    
    (185,000
    )
    
    
    (9,302,000
    )Interest income
    
    
    190,000
    
    
    
    1,520,000
    
    
    
    429,000
    
    
    
    5,198,000Income before income taxes
    
    
    24,757,000
    
    
    
    24,906,000
    
    
    
    53,621,000
    
    
    
    78,977,000Provision for income taxes
    
    
    8,690,000
    
    
    
    8,571,000
    
    
    
    19,071,000
    
    
    
    27,691,000Net income
    
    $
    16,067,000
    
    
    $
    16,335,000
    
    
    $
    34,550,000
    
    
    $
    51,286,000Earnings per share:Basic
    
    $
    0.48
    
    
    $
    0.54
    
    
    $
    1.03
    
    
    $
    1.80Diluted
    
    $
    0.48
    
    
    $
    0.50
    
    
    $
    1.03
    
    
    $
    1.65Dividends declared per share
    
    $
    0.18
    
    
    $
    0.17
    
    
    $
    0.52
    
    
    $
    0.47
  2




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KAYDON CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 First Three Quarters EndedOctober 3, 2009
    
    September 27, 2008Cash flows from operating activities:Net income
    
    $
    34,550,000
    
    
    $
    51,286,000Adjustments to reconcile net income to net cash from
operating activities:Depreciation
    
    
    14,635,000
    
    
    
    11,844,000Amortization of intangible assets
    
    
    3,211,000
    
    
    
    4,097,000Amortization of stock awards
    
    
    3,104,000
    
    
    
    3,353,000Stock option compensation expense
    
    
    981,000
    
    
    
    901,000Excess tax benefits from stock-based compensation
    
    
    61,000
    
    
    
    (179,000
    )Deferred financing fees
    
    
    186,000
    
    
    
    728,000Net change in receivables, inventories and trade payables
    
    
    (6,744,000
    )
    
    
    (30,261,000
    )Contributions to qualified pension plans
    
    
    (14,846,000
    )
    
    
    Net change in other assets and liabilities
    
    
    8,989,000
    
    
    
    7,929,000Net cash from operating activities
    
    
    44,127,000
    
    
    
    49,698,000Cash flows from investing activities:Capital expenditures
    
    
    (9,585,000
    )
    
    
    (45,949,000
    )Dispositions of property, plant, and equipment
    
    
    1,186,000
    
    
    
    99,000Proceeds from sales of investments
    
    
    4,063,000
    
    
    
    63,408,000Acquisition of business, net of cash received
    
    
    
    
    
    
    489,000Net cash from (used in) investing activities
    
    
    (4,336,000
    )
    
    
    18,047,000Cash flows from financing activities:Cash dividends paid
    
    
    (17,164,000
    )
    
    
    (12,485,000
    )Purchase of treasury stock
    
    
    (8,871,000
    )
    
    
    (21,837,000
    )Excess tax benefits from stock-based compensation
    
    
    (61,000
    )
    
    
    179,000Proceeds from exercise of stock options
    
    
    24,000
    
    
    
    242,000Cash used in financing activities
    
    
    (26,072,000
    )
    
    
    (33,901,000
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    1,124,000
    
    
    
    (1,106,000
    )Net increase in cash and cash equivalents
    
    
    14,843,000
    
    
    
    32,738,000Cash and cash equivalents  Beginning of period
    
    
    232,998,000
    
    
    
    229,993,000Cash and cash equivalents  End of period
    
    $
    247,841,000
    
    
    $
    262,731,000Cash paid for income taxes
    
    $
    8,296,000
    
    
    $
    23,511,000Cash paid for interest
    
    
    
    
    
    $
    4,000,000
  3




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KAYDON CORPORATION
 
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
 (1) Basis of Presentation:
    (2) Cash and Cash Equivalents:
  October 3, 2009
    
    December 31, 2008Cash and cash equivalents:Money market and other short-term funds
    
    $
    241,333,000
    
    
    $
    221,604,000Time deposits, other interest bearing accounts, and other cash
    
    
    6,508,000
    
    
    
    11,394,000Cash and cash equivalents
    
    $
    247,841,000
    
    
    $
    232,998,000
 4




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##### Table of Contents



(3) Inventories:
 October 3, 2009
    
    December 31, 2008Raw material
    
    $
    36,670,000
    
    
    $
    41,158,000Work in process
    
    
    24,765,000
    
    
    
    24,852,000Finished goods
    
    
    33,635,000
    
    
    
    31,738,000$
    95,070,000
    
    
    $
    97,748,000
 (4) Comprehensive Income:
  (5) Earnings per Share:
  Third Quarter EndedAs adjusted(Note 1)October 3, 2009
    
    September 27, 2008Earnings per share  BasicNet income
    
    $
    16,067,000
    
    
    $
    16,335,000Less: Net earnings allocated to participating securities  Basic
    
    
    (174,000
    )
    
    
    (218,000
    )Income available to common shareholders  Basic
    
    $
    15,893,000
    
    
    $
    16,117,000Weighted average common shares outstanding  Basic
    
    
    33,226,000
    
    
    
    29,679,000Earnings per share  Basic
    
    $
    0.48
    
    
    $
    0.54Earnings per share  DilutedNet income
    
    $
    16,067,000
    
    
    $
    16,335,000Less: Net earnings allocated to participating securities  Diluted
    
    
    (174,000
    )
    
    
    (210,000
    )Plus: Interest and debt issuance costs amortization related to
Contingent Convertible Notes, net of tax
    
    
    
    
    
    
    852,000Income available to common shareholders  Diluted
    
    $
    15,893,000
    
    
    $
    16,977,000Weighted average common shares outstanding  DilutedWeighted average common shares outstanding  Basic
    
    
    33,226,000
    
    
    
    29,679,000Potential dilutive shares resulting from stock options
    
    
    19,000
    
    
    
    57,000Dilutive shares resulting from Contingent Convertible Notes
    
    
    
    
    
    
    4,255,000Weighted average common shares outstanding  Diluted
    
    
    33,245,000
    
    
    
    33,991,000Earnings per share  Diluted
    
    $
    0.48
    
    
    $
    0.50
 5




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First Three Quarters EndedAs adjusted(Note 1)October 3, 2009
    
    September 27, 2008Earnings per share  BasicNet income
    
    $
    34,550,000
    
    
    $
    51,286,000Less: Net earnings allocated to participating securities  Basic
    
    
    (395,000
    )
    
    
    (767,000
    )Income available to common shareholders  Basic
    
    $
    34,155,000
    
    
    $
    50,519,000Weighted average common shares outstanding  Basic
    
    
    33,258,000
    
    
    
    28,118,000Earnings per share  Basic
    
    $
    1.03
    
    
    $
    1.80Earnings per share  DilutedNet income
    
    $
    34,550,000
    
    
    $
    51,286,000Less: Net earnings allocated to participating securities  Diluted
    
    
    (395,000
    )
    
    
    (742,000
    )Plus: Interest and debt issuance costs amortization related to
Contingent Convertible Notes, net of tax
    
    
    
    
    
    
    5,833,000Income available to common shareholders  Diluted
    
    $
    34,155,000
    
    
    $
    56,377,000Weighted average common shares outstanding  DilutedWeighted average common shares outstanding  Basic
    
    
    33,258,000
    
    
    
    28,118,000Potential dilutive shares resulting from stock options
    
    
    15,000
    
    
    
    46,000Dilutive shares resulting from Contingent Convertible Notes
    
    
    
    
    
    
    5,979,000Weighted average common shares outstanding  Diluted
    
    
    33,273,000
    
    
    
    34,143,000Earnings per share  Diluted
    
    $
    1.03
    
    
    $
    1.65
   6




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##### Table of Contents



(6) Business Segment Information:
  Third Quarter Ended
    
    First Three Quarters EndedOctober 3, 2009
    
    September 27, 2008
    
    October 3, 2009
    
    September 27, 2008Net salesFriction Control Products
    
    $
    87,076,000
    
    
    $
    79,255,000
    
    
    $
    223,491,000
    
    
    $
    240,159,000Velocity Control Products
    
    
    12,202,000
    
    
    
    17,114,000
    
    
    
    34,602,000
    
    
    
    55,832,000Sealing Products
    
    
    8,835,000
    
    
    
    10,782,000
    
    
    
    28,998,000
    
    
    
    34,007,000Other businesses
    
    
    15,524,000
    
    
    
    19,652,000
    
    
    
    45,199,000
    
    
    
    59,994,000Total consolidated net sales
    
    $
    123,637,000
    
    
    $
    126,803,000
    
    
    $
    332,290,000
    
    
    $
    389,992,000
 Third Quarter Ended
    
    First Three Quarters EndedOctober 3, 2009
    
    September 27, 2008
    
    October 3, 2009
    
    September 27, 2008Operating incomeFriction Control Products
    
    $
    15,392,000
    
    
    $
    16,431,000
    
    
    $
    37,633,000
    
    
    $
    56,130,000Velocity Control Products
    
    
    2,124,000
    
    
    
    4,516,000
    
    
    
    5,191,000
    
    
    
    16,197,000Sealing Products
    
    
    845,000
    
    
    
    990,000
    
    
    
    2,209,000
    
    
    
    4,031,000Other businesses
    
    
    1,383,000
    
    
    
    1,849,000
    
    
    
    3,258,000
    
    
    
    7,309,000Total segment operating
income
    
    
    19,744,000
    
    
    
    23,786,000
    
    
    
    48,291,000
    
    
    
    83,667,000Items not allocated to segment
operating income
    
    
    4,885,000
    
    
    
    993,000
    
    
    
    5,086,000
    
    
    
    (586,000
    )Interest expense
    
    
    (62,000
    )
    
    
    (1,393,000
    )
    
    
    (185,000
    )
    
    
    (9,302,000
    )Interest income
    
    
    190,000
    
    
    
    1,520,000
    
    
    
    429,000
    
    
    
    5,198,000Income before income taxes
    
    $
    24,757,000
    
    
    $
    24,906,000
    
    
    $
    53,621,000
    
    
    $
    78,977,000
 (7) Goodwill and Other Intangible Assets:
   7




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Friction
Control
    
    Velocity
Control
    
    Sealing
    
    OtherProducts
    
    Products
    
    Products
    
    businesses
    
    TotalBalance as of
January 1, 2009
    
    $
    55,392,000
    
    
    $
    43,200,000
    
    
    $
    186,000
    
    
    $
    43,646,000
    
    
    $
    142,424,000Effect of foreign currency
exchange rate changes
    
    
    280,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    280,000Balance as of
April 4, 2009
    
    $
    55,672,000
    
    
    $
    43,200,000
    
    
    $
    186,000
    
    
    $
    43,646,000
    
    
    $
    142,704,000Effect of foreign currency
exchange rate changes
    
    
    1,620,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,620,000Balance as of
July 4, 2009
    
    $
    57,292,000
    
    
    $
    43,200,000
    
    
    $
    186,000
    
    
    $
    43,646,000
    
    
    $
    144,324,000Effect of foreign currency
exchange rate changes
    
    
    (456,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (456,000
    )Balance as of
October 3, 2009
    
    $
    56,836,000
    
    
    $
    43,200,000
    
    
    $
    186,000
    
    
    $
    43,646,000
    
    
    $
    143,868,000
  October 3, 2009
    
    December 31, 2008Gross
    
    
    
    GrossCarrying
    
    Accumulated
    
    Carrying
    
    AccumulatedAmortized Intangible Assets
    
    Amount
    
    Amortization
    
    Amount
    
    AmortizationCustomer relationships and lists
    
    $
    28,194,000
    
    
    $
    13,942,000
    
    
    $
    28,194,000
    
    
    $
    11,761,000Patents and developed technology
    
    
    6,476,000
    
    
    
    3,380,000
    
    
    
    6,427,000
    
    
    
    3,004,000Backlog
    
    
    3,300,000
    
    
    
    3,046,000
    
    
    
    3,300,000
    
    
    
    2,519,000Distributor agreements
    
    
    374,000
    
    
    
    189,000
    
    
    
    374,000
    
    
    
    162,000Product names
    
    
    320,000
    
    
    
    154,000
    
    
    
    320,000
    
    
    
    130,000Trademarks
    
    
    200,000
    
    
    
    173,000
    
    
    
    200,000
    
    
    
    97,000$
    38,864,000
    
    
    $
    20,884,000
    
    
    $
    38,815,000
    
    
    $
    17,673,000
  October 3, 2009
    
    December 31, 2008Unamortized Intangible Assets
    
    Carrying Amount
    
    Carrying AmountUnamortized Intangible AssetsTrademarks
    
    $
    4,604,000
    
    
    $
    4,604,000Aggregate Intangible Assets Amortization ExpenseFor the first three quarters ended October 3, 2009
    
    
    
    
    
    $
    3,211,000For the first three quarters ended September 27, 2008
    
    
    
    
    
    $
    4,097,000Estimated Intangible Assets Amortization ExpenseFor the year ending December 31, 2009
    
    
    
    
    
    $
    4,317,000For the year ending December 31, 2010
    
    
    
    
    
    $
    3,574,000For the year ending December 31, 2011
    
    
    
    
    
    $
    2,263,000For the year ending December 31, 2012
    
    
    
    
    
    $
    1,981,000For the year ending December 31, 2013
    
    
    
    
    
    $
    1,713,000
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##### Table of Contents



(8) Employee Benefit Plans:
  Third Quarter Ended
    
    First Three Quarters EndedPension Benefits
    
    October 3, 2009
    
    September 27, 2008
    
    October 3, 2009
    
    September 27, 2008Service cost
    
    $
    826,000
    
    
    $
    647,000
    
    
    $
    2,409,000
    
    
    $
    2,154,000Interest cost
    
    
    1,743,000
    
    
    
    1,355,000
    
    
    
    5,167,000
    
    
    
    4,781,000Expected return on plan assets
    
    
    (1,293,000
    )
    
    
    (1,637,000
    )
    
    
    (4,201,000
    )
    
    
    (5,849,000
    )Amortization of:Unrecognized net prior
service cost
    
    
    38,000
    
    
    
    6,000
    
    
    
    44,000
    
    
    
    20,000Unrecognized net loss
    
    
    1,257,000
    
    
    
    
    
    
    
    3,787,000
    
    
    
    2,000Total
    
    $
    2,571,000
    
    
    $
    371,000
    
    
    $
    7,206,000
    
    
    $
    1,108,000
 Third Quarter Ended
    
    First Three Quarters EndedPostretirement Benefits
    
    October 3, 2009
    
    September 27, 2008
    
    October 3, 2009
    
    September 27, 2008Service cost
    
    $
    23,000
    
    
    $
    72,000
    
    
    $
    224,000
    
    
    $
    218,000Interest cost
    
    
    110,000
    
    
    
    165,000
    
    
    
    486,000
    
    
    
    493,000Amortization of:Unrecognized net prior
service cost
    
    
    (203,000
    )
    
    
    (429,000
    )
    
    
    (770,000
    )
    
    
    (1,288,000
    )Unrecognized net gain
    
    
    (157,000
    )
    
    
    (228,000
    )
    
    
    (414,000
    )
    
    
    (682,000
    )Curtailment gain
    
    
    (5,395,000
    )
    
    
    
    
    
    
    (6,305,000
    )
    
    
    Total
    
    $
    (5,622,000
    )
    
    $
    (420,000
    )
    
    $
    (6,779,000
    )
    
    $
    (1,259,000
    )
   9




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##### Table of Contents



(9) Stock-Based Compensation:
  First Three Quarters EndedOctober 3, 2009Wtd.-Avg.Restricted
    
    Grant DateStock
    
    Fair ValueOutstanding at January 1, 2009
    
    
    391,580
    
    
    $
    38.33Granted
    
    
    86,750
    
    
    $
    25.43Vested
    
    
    (139,008
    )
    
    $
    35.91Canceled
    
    
    (1,108
    )
    
    $
    35.64Outstanding at April 4, 2009
    
    
    338,214
    
    
    $
    36.02Granted
    
    
    6,000
    
    
    $
    32.69Canceled
    
    
    (511
    )
    
    $
    33.17Outstanding at July 4, 2009
    
    
    343,703
    
    
    $
    35.97Granted
    
    
    5,000
    
    
    $
    35.04Canceled
    
    
    (3,268
    )
    
    $
    35.52Outstanding at October 3, 2009
    
    
    345,435
    
    
    $
    35.96
   First Three Quarters EndedOctober 3, 2009Wtd.-Avg.Options
    
    Ex. PriceOutstanding at January 1, 2009
    
    
    443,750
    
    
    $
    41.87Granted
    
    
    99,500
    
    
    $
    25.43Outstanding at April 4, 2009
    
    
    543,250
    
    
    $
    38.86Granted
    
    
    21,000
    
    
    $
    32.69Canceled
    
    
    (13,500
    )
    
    $
    38.24Outstanding at July 4, 2009
    
    
    550,750
    
    
    $
    38.64Exercised
    
    
    (1,000
    )
    
    $
    24.25Outstanding at October 3, 2009
    
    
    549,750
    
    
    $
    38.67Exercisable at October 3, 2009
    
    
    186,000
    
    
    $
    41.31Weighted-Avg. Remaining Contractual Life (years)Outstanding at October 3, 2009
    
    
    7.8Exercisable at October 3, 2009
    
    
    7.1
  (10) Fair Value Measurement:
  10




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##### Table of Contents



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 October 3, 2009 Using:Total
    
    Quoted Prices in
    
    SignificantFair Value
    
    Active Markets
    
    Other
    
    SignificantMeasurement at
    
    for Identical
    
    Observable
    
    UnobservableOctober 3, 2009
    
    Assets (Level 1)
    
    Inputs (Level 2)
    
    Inputs (Level 3)Long-term investment
    
    $
    1,101,000
    
    
    
    
    
    
    
    
    
    
    $
    1,101,000
  Fair Value MeasurementsUsing SignificantUnobservable Inputs(Level 3)Balance at January 1, 2009
    
    $
    4,940,000Redemptions  cash received
    
    
    (1,416,000
    )Gain on investment redemptions above book value included in interest income
    
    
    2,000Unrealized gain on investment recorded to accumulated other comprehensive
income
    
    
    28,000Balance at April 4, 2009
    
    $
    3,554,000Redemptions  cash received
    
    
    (477,000
    )Gain on investment redemptions above book value included in interest income
    
    
    19,000Unrealized gain on investment recorded to accumulated other comprehensive
income
    
    
    148,000Balance at July 4, 2009
    
    $
    3,244,000Redemptions  cash received
    
    
    (2,170,000
    )Gain on investment redemptions above book value included in interest income
    
    
    133,000Change in unrealized gain on investment recorded to accumulated other
comprehensive income
    
    
    (106,000
    )Balance at October 3, 2009
    
    $
    1,101,000
  11




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##### Table of Contents



(11) Other Matters:
  (12) Impact of Recently Issued Accounting Pronouncements:
     12




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 Overview
      Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations
 13




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##### Table of Contents



Results of Operations
  Third Quarter Results
 For the third quarter endedOctober 3,
    
    % of
    
    September 27,
    
    % ofDollars in millions, except per share amounts
    
    2009
    
    Sales
    
    2008
    
    SalesNet sales
    
    $
    123.6
    
    
    
    
    
    
    $
    126.8Cost of sales
    
    
    85.6
    
    
    
    
    
    
    
    82.3Gross profit
    
    
    38.0
    
    
    
    30.8
    %
    
    
    44.5
    
    
    
    35.1
    %Selling, general and administrative expenses
    
    
    13.4
    
    
    
    10.9
    %
    
    
    19.7
    
    
    
    15.6
    %Operating income
    
    
    24.6
    
    
    
    19.9
    %
    
    
    24.8
    
    
    
    19.5
    %Interest, net
    
    
    0.2
    
    
    
    
    
    
    
    0.1Income before income taxes
    
    
    24.8
    
    
    
    
    
    
    
    24.9Provision for income taxes
    
    
    8.7
    
    
    
    
    
    
    
    8.6Net income
    
    $
    16.1
    
    
    
    
    
    
    $
    16.3Earnings per share:Basic
    
    $
    0.48
    
    
    
    
    
    
    $
    0.54Diluted
    
    $
    0.48
    
    
    
    
    
    
    $
    0.50
      14




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##### Table of Contents



First Three Quarters Results
 For the first three quarters endedOctober 3,
    
    % of
    
    September 27,
    
    % ofDollars in millions, except per share amounts
    
    2009
    
    Sales
    
    2008
    
    SalesNet sales
    
    $
    332.3
    
    
    
    
    
    
    $
    390.0Cost of sales
    
    
    226.1
    
    
    
    
    
    
    
    244.0Gross profit
    
    
    106.2
    
    
    
    32.0
    %
    
    
    146.0
    
    
    
    37.4
    %Selling, general and administrative expenses
    
    
    52.8
    
    
    
    15.9
    %
    
    
    62.9
    
    
    
    16.1
    %Operating income
    
    
    53.4
    
    
    
    16.1
    %
    
    
    83.1
    
    
    
    21.3
    %Interest, net
    
    
    0.2
    
    
    
    
    
    
    
    (4.1
    )Income before income taxes
    
    
    53.6
    
    
    
    
    
    
    
    79.0Provision for income taxes
    
    
    19.0
    
    
    
    
    
    
    
    27.7Net income
    
    $
    34.6
    
    
    
    
    
    
    $
    51.3Earnings per share:Basic
    
    $
    1.03
    
    
    
    
    
    
    $
    1.80Diluted
    
    $
    1.03
    
    
    
    
    
    
    $
    1.65
      15




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##### Table of Contents



Results of Business Segments
   Friction Control Products
 For the third quarter ended
    
    For the first three quarters endedOctober 3,
    
    September 27,
    
    %
    
    October 3,
    
    September 27,
    
    %Dollars in millions
    
    2009
    
    2008
    
    Change
    
    2009
    
    2008
    
    ChangeSales
    
    $
    87.1
    
    
    $
    79.3
    
    
    
    9.9
    %
    
    $
    223.5
    
    
    $
    240.2
    
    
    
    (6.9
    )%Operating Income
    
    $
    15.4
    
    
    $
    16.4
    
    
    
    (6.3
    )%
    
    $
    37.6
    
    
    $
    56.1
    
    
    
    (33.0
    )%Operating Margin
    
    
    17.7
    %
    
    
    20.7
    %
    
    
    
    
    
    
    16.8
    %
    
    
    23.4
    %
  16




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##### Table of Contents



Velocity Control Products
 For the third quarter ended
    
    For the first three quarters endedOctober 3,
    
    September 27,
    
    %
    
    October 3,
    
    September 27,
    
    %Dollars in millions
    
    2009
    
    2008
    
    Change
    
    2009
    
    2008
    
    ChangeSales
    
    $
    12.2
    
    
    $
    17.1
    
    
    
    (28.7
    )%
    
    $
    34.6
    
    
    $
    55.8
    
    
    
    (38.0
    )%Operating Income
    
    $
    2.1
    
    
    $
    4.5
    
    
    
    (53.0
    )%
    
    $
    5.2
    
    
    $
    16.2
    
    
    
    (68.0
    )%Operating Margin
    
    
    17.4
    %
    
    
    26.4
    %
    
    
    
    
    
    
    15.0
    %
    
    
    29.0
    %
     17




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##### Table of Contents



Sealing Products
 For the third quarter ended
    
    For the first three quarters endedOctober 3,
    
    September 27,
    
    %
    
    October 3,
    
    September 27,
    
    %Dollars in millions
    
    2009
    
    2008
    
    Change
    
    2009
    
    2008
    
    ChangeSales
    
    $
    8.8
    
    
    $
    10.8
    
    
    
    (18.1
    )%
    
    $
    29.0
    
    
    $
    34.0
    
    
    
    (14.7
    )%Operating Income
    
    $
    0.8
    
    
    $
    1.0
    
    
    
    (14.6
    )%
    
    $
    2.2
    
    
    $
    4.0
    
    
    
    (45.2
    )%Operating Margin
    
    
    9.6
    %
    
    
    9.2
    %
    
    
    
    
    
    
    7.6
    %
    
    
    11.9
    %
     Other businesses
 For the third quarter ended
    
    For the first three quarters endedOctober 3,
    
    September 27,
    
    %
    
    October 3,
    
    September 27,
    
    %Dollars in millions
    
    2009
    
    2008
    
    Change
    
    2009
    
    2008
    
    ChangeSales
    
    $
    15.5
    
    
    $
    19.7
    
    
    
    (21.0
    )%
    
    $
    45.2
    
    
    $
    60.0
    
    
    
    (24.7
    )%Operating Income
    
    $
    1.4
    
    
    $
    1.8
    
    
    
    (25.2
    )%
    
    $
    3.3
    
    
    $
    7.3
    
    
    
    (55.4
    )%Operating Margin
    
    
    8.9
    %
    
    
    9.4
    %
    
    
    
    
    
    
    7.2
    %
    
    
    12.2
    %
     18




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Liquidity and Capital Resources
         19




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##### Table of Contents



Outlook
        Critical Accounting Policies and Estimates
  Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-Looking Statements
  20




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21




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
  
 ITEM 4. CONTROLS AND PROCEDURES.
  22




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 6. EXHIBITS.
 Exhibit No.
    
    Description10.1*
    
    Twelfth Amendment to the Kaydon Corporation Employee Stock Ownership and Thrift Plan dated
September 14, 200931.1
    
    Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
  23




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##### Table of Contents



KAYDON CORPORATIONNovember 3, 2009
    /s/ Peter C. DeChantsPeter C. DeChantsSenior Vice President, Chief Financial OfficerNovember 3, 2009
    /s/ Donald I. BuzinkaiDonald I. BuzinkaiVice President, Controller and Chief Accounting Officer 24




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##### Table of Contents



Exhibit No.
    
    Description10.1*
    
    Twelfth Amendment to the Kaydon Corporation Employee Stock Ownership and Thrift Plan dated
September 14, 200931.1
    
    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
  25