Kaydon Corporation Reports Second Quarter 2005 Results

Highlights - Second Quarter 2005 compared with Second Quarter 2004

-- Sales, including recent acquisitions, increased 23.7 percent, to $104.4 million, on strengthened demand across most key product lines.

-- Net income increased 24.9 percent to $12.4 million.

-- Diluted earnings per share increased 21.2 percent to $.40.

-- Order entry increased 20.1 percent to $103.8 million, reflecting continued strength in the manufacturing economy.

-- Quarter-end backlog increased 33.2 percent to $143.3 million.

-- EBITDA, a non-GAAP measure, increased 17.8 percent to $24.5 million, equal to 23.5 percent of sales, and covered interest expense by 10.2 times.

-- Cash and cash equivalents equaled $240.2 million at the end of the second quarter.

Subsequent to the end of the quarter, as previously announced, onJuly 26, 2005 Kaydon Corporation sold its Power and Data TransmissionProducts Group to Moog, Inc. for $72.4 million cash. The sale willresult in an after tax gain of approximately $0.70 per diluted share,which will be reported as a component of discontinued operations inKaydon's third quarter ending October 1, 2005. On a net income basis,before the gain on the sale of the Group, the transaction is expectedto be approximately earnings neutral for fiscal 2005.

Commenting on the quarter, Brian P. Campbell, Kaydon's Presidentand Chief Executive Officer said, "We continue to experience strongdemand in our key product markets as evidenced by our increased salesand orders during the second quarter. Our strong order intake duringthe quarter, and the resultant $143.3 million backlog we enjoyed atthe end of the quarter are further evidence that we continue tobenefit from a strong manufacturing economy, and we are positionedwell to continue to improve our financial results throughout theyear."

Commenting further, Mr. Campbell said, "Although gross marginsduring the quarter continued to be affected by material costs, therecent moderation in raw material pricing, strong backlogs, increasedproduct pricing, and continuing efficiencies from Kaydon Six-Sigmainitiatives, should have a beneficial impact on margins during thethird and fourth quarters".

Additional Data on Second Quarter and Year-To-Date Results

Second quarter 2005 sales of $104.4 million increased 23.7 percentcompared to sales of $84.4 million in 2004's second quarter. Increasedsales across most of the Company's product lines, including specialtybearings, linear deceleration and sealing products, and metal formingequipment, along with incremental sales of $5.8 million from recentacquisitions were only partially offset by decreases totaling $1.5million related to lower demand for certain filtration productsutilized in military applications and lower prices on sales ofspecialty metal alloys reflecting lower raw material pricing.

Gross profit equaled $39.1 million or 37.4 percent of sales duringthe second quarter of 2005 as compared to $32.8 million or 38.9percent of sales during the second quarter of 2004. Similar to thisyear's first quarter, the second quarter gross margin continued to beaffected by increases in material costs and a shift in product mix,particularly in the specialty bearings business. Increased rawmaterial costs relate to both higher prices for raw material andincreased outsourcing of components during new program productionramp-up. Recent capital equipment additions to increase capacity, andproduct price increases, should positively affect the second half of2005.

Selling, general, and administrative ("SG&A") expenses, equaled$19.3 million or 18.5 percent of sales during the second quarter of2005 as compared to $15.7 million or 18.6 percent of sales during thesecond quarter of 2004. The increase in SG&A expenses resulted fromhigher sales volumes, additional amortization costs associated withrecent acquisitions, and foreign currency translation losses onseveral foreign currency denominated accounts due to the strengtheningof the U.S. Dollar against certain currencies during the quarter.

Operating income equaled $19.8 million in the second quarter of2005, as compared to $17.1 million in the second quarter of 2004.

As a result of higher investment interest rates, interest incomeearned on cash and cash equivalent balances increased to $1.7 millionduring this year's second quarter, compared with $0.8 million duringlast year's second quarter.

Primarily due to reduced taxes on foreign earnings andremittances, and additional deductions available for the first timeunder the American Jobs Creation Act of 2004, the effective tax rateduring the second quarter of 2005 was 35.2 percent, compared with 36.0percent for the second quarter of 2004.

Net income for the second quarter 2005 was $12.4 million or $.40per common share on a diluted basis, based on 34.7 million commonshares outstanding. During the second quarter 2004 Kaydon generatednet income of $9.9 million or $.33 per common share on a dilutedbasis, based on 34.8 million common shares outstanding. As previouslydisclosed, second quarter 2004 diluted earnings per share, previouslyreported as $.36, have been restated in accordance with the finalconsensus of the Emerging Issues Task Force on EITF 04-8.

Reflecting increased orders for specialty bearings, including newprogram introductions, continued strength in the manufacturingeconomy, and aided by recent acquisitions, order entry during thesecond quarter of 2005 equaled $103.8 million, an increase of 20.1percent compared to the second quarter of 2004. Backlog equaled $143.3million at the end of the second quarter 2005, a 33.2 percent increasecompared to a backlog of $107.6 million at the end of the secondquarter 2004.

Net cash flow from operating activities during the second quarter2005 equaled $14.5 million, compared to second quarter 2004 cash flowfrom operations of $7.1 million, as a result of increased net incomeand reduced working capital levels. During the second quarter 2005,the Company paid common stock dividends of $3.4 million, repurchased atotal of 90,500 shares of Company common stock for $2.5 million, andinvested $2.9 million in net capital expenditures. The Company's cashand cash equivalents equaled $240.2 million at July 2, 2005.

Depreciation and amortization equaled $4.7 million during thesecond quarter of 2005, compared to $3.7 million during the comparableperiod last year, due principally to the increased amortization ofintangible assets associated with recent acquisitions.

EBITDA, or earnings before interest, taxes, depreciation andamortization, a non-GAAP measure, equaled $24.5 million during thesecond quarter 2005 as compared to $20.8 million during the secondquarter 2004, and covered second quarter interest expense by 10.2times. For the twelve months ended July 2, 2005, EBITDA totaled $85.2million, and covered interest expense by 8.9 times. Readers shouldrefer to the attached Reconciliation of Non-GAAP Measures exhibit forthe calculation of EBITDA and the reconciliation of EBITDA to the mostcomparable GAAP measure.

Sales during the first half of 2005 increased $31.2 million, or18.6 percent, to $198.9 million, compared with the first half of 2004.Recent acquisitions accounted for $11.4 million of the increase. Firsthalf operating income increased $3.3 million, or 10.1 percent, to$36.0 million. As a result of higher interest income and a lowereffective tax rate, first half net income and earnings per commonshare on a diluted basis were up 18.3 percent and 15.9 percent,respectively, compared with the first half of 2004.

Segment Discussion

During the second quarter of 2005, sales of the Friction andMotion Control Products segment increased $8.2 million or 19.3percent, to $50.9 million, when compared with second quarter 2004.This segment benefited from increased demand for specialty bearingsutilized in defense, heavy equipment, and wind power markets, and forsplit roller bearing products used globally in various industrialmarkets. Operating income increased 14.3 percent, to $12.7 million.The growth of second quarter operating income was affected by highermaterial costs, including both higher raw material pricing and thecost of outsourcing certain production processes associated with theramp-up phase of several new product programs in the military and windpower markets.

Second quarter 2005 sales of the Velocity Control Products segmentincreased $1.9 million or 15.5 percent, to $14.4 million, whencompared with second quarter 2004. Segment operating income, alsoaffected by higher material costs, increased $0.3 million in thesecond quarter of 2005 to $3.7 million.

Second quarter 2005 sales of the Sealing Products segmentincreased 7.7 percent, to $10.4 million, and operating incomeincreased 11.8 percent, to $1.7 million, when compared with 2004,primarily as a result of some business shifting from the first quarterto the second quarter as a result of the previously disclosed workstoppage at the Baltimore, Maryland facility, which ended in lateJanuary.

During the second quarter of 2005, sales of the Power and DataTransmission Products segment increased $2.4 million, to $9.9 million,when compared with second quarter 2004. This segment was positivelyaffected by increased demand for traditional rotary and electronicproducts, along with slip-ring products utilized in aerospaceapplications. Aided by the increase in sales, operating income equaled$1.2 million during the second quarter of 2005 as compared to anoperating loss of $(0.1) million during the second quarter of 2004.

Sales of the Company's remaining businesses equaled $18.7 millionduring the second quarter of 2005, an increase from second quarter2004 of $6.7 million. $5.1 million of the increase related to a recentacquisition. Additionally, a $2.9 million increase in sales of metalforming equipment, in part due to customer-initiated shipping delaysfrom the first quarter, was partially offset by decreased sales ofcertain filtration products, primarily due to a decrease in militaryspending for these items, and by lower prices on sales of specialtymetal alloys reflecting lower raw material pricing. Operating incomefor these businesses, benefiting from higher sales of metal formingequipment and from the contribution of a recent acquisition, totaled$1.9 million in the second quarter of 2005 compared to a $(0.8)million operating loss during the second quarter 2004, which includeda $1.9 million goodwill impairment loss.

Information regarding the Company's reportable segments for thesecond quarters of 2005 and 2004 can be found on the KaydonCorporation website at: http://www.kaydon.com at the "ReportableSegment Information" icon.

About Kaydon

Kaydon Corporation is a leading designer and manufacturer ofcustom-engineered, performance-critical products, supplying a broadand diverse group of industrial, aerospace, medical and electronicequipment, and aftermarket customers.

Conference call information: At 10:30 a.m. Eastern time today,Kaydon will host a second quarter 2005 earnings conference call. Theconference call can be accessed telephonically in a listen-only modeby dialing 1-866-330-6338 and providing the following passcode number:147258. Participants are asked to dial in 10 minutes prior to thescheduled start time of the call.

Alternatively, interested parties are invited to listen to theconference call via the Internet by logging on the web at thefollowing address:https://cis.premconf.com/sc/scw.dll/usr?cid=vlllrsdwlznvsxmdx or bylogging on to the Kaydon Corporation website at: http://www.kaydon.comand accessing the conference call at the "2Q 2005 Earnings ConferenceCall" icon.

To accommodate those that are unable to listen at the scheduledstart time, a replay of the conference call will be availabletelephonically beginning at 1:30 p.m. Eastern time today throughThursday, August 4, 2005 at 5:00 p.m. Eastern time. The replay isaccessible by dialing 1-888-203-1112 and providing the followingpasscode number: 6229294.

Additionally, interested parties can access an archive of theconference call on the Kaydon Corporation website athttp://www.kaydon.com.

Certain statements in this press release are forward-lookingwithin the meaning of the federal securities laws regarding theCompany's plans, expectations, estimates and beliefs. Forward-lookingstatements are typically identified by words such as "believes,""anticipates," "intends," "will," "may," "potential," "expects,""projects", "approximately" and other similar expressions. Theseforward-looking statements may include, among other things,projections of the Company's financial performance, anticipatedgrowth, characterization of and the Company's ability to controlcontingent liabilities, and anticipated trends in the Company'sbusinesses. These statements are only predictions, based on theCompany's current expectations about future events. While the Companybelieves any forward-looking statements made are reasonable, actualresults could differ materially since the statements are based on theCompany's current expectations and are subject to risks anduncertainties beyond the control of the Company. These risks anduncertainties include, but are not limited to, risks and uncertaintiesrelating to general economic conditions, geopolitical factors, futurelevels of general industrial manufacturing activity, future financialperformance, market acceptance of new or enhanced versions of theCompany's products, the pricing of raw materials, changes in thecompetitive environments in which the Company's businesses operate,the outcome of pending and future litigation and governmentalproceedings, estimated legal costs, the estimated fair value of theCompany's assets, purchase price adjustments in sale contracts, theultimate satisfaction of the Company's debt obligations, and risks anduncertainties listed or disclosed in the Company's reports filed withthe Securities and Exchange Commission. The Company does notundertake, and expressly disclaims any obligation, to update or alterits forward-looking statements whether as a result of new information,future events or otherwise, except as required by applicable law.Readers are cautioned to consider these factors when relying on suchforward-looking information.

Certain non-GAAP performance measures are presented in this pressrelease. These measures should be viewed as supplemental data, ratherthan as substitutes or alternatives to the most comparable GAAPperformance measures.
KAYDON CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
--------------------------------------- --------------------------
Second Quarter Ended First Half Ended
------------------------- --------------------------
(unaudited) (unaudited)
July 2, July 3, July 2, July 3,
2005 2004 2005 2004
------------ ----------- ------------ ------------
Net sales $104,409,000 $84,386,000 $198,891,000 $167,709,000

Cost of sales 65,317,000 51,548,000 124,198,000 103,097,000
------------ ----------- ------------ ------------

Gross profit 39,092,000 32,838,000 74,693,000 64,612,000

Selling,
general, and
administrative
expenses 19,266,000 15,729,000 38,730,000 31,940,000
------------ ----------- ------------ ------------

Operating
income 19,826,000 17,109,000 35,963,000 32,672,000

Interest income 1,733,000 802,000 3,260,000 1,568,000

Interest
expense (2,396,000) (2,374,000) (4,814,000) (4,793,000)
------------ ----------- ------------ ------------

Income before
income taxes 19,163,000 15,537,000 34,409,000 29,447,000

Provision for
income taxes 6,745,000 5,593,000 12,112,000 10,601,000
------------ ----------- ------------ ------------

Net income $12,418,000 $9,944,000 $22,297,000 $18,846,000
============ =========== ============ ============

Weighted average
common shares
outstanding
Basic 27,778,000 27,881,000 27,832,000 27,891,000
Diluted 34,696,000 34,796,000 34,757,000 34,800,000


Earnings per
share
Basic $0.45 $0.36 $0.80 $0.68
Diluted $0.40(1) $0.33(1) $0.73(1) $0.63(1)

Dividends
declared per
share $0.12 $0.12 $0.24 $0.24

(1) Diluted earnings per common share calculations reflect the
provisions of the final consensus of the Emerging Issues Task
Force (EITF) on EITF 04-8, "The Effects of Contingently
Convertible Instruments on Diluted Earnings per Share," which
states that the impact of contingently convertible instruments
that are convertible into common stock upon the achievement of a
specified market price of the issuer's shares, such as the
Company's 4% Contingent Convertible Senior Subordinated Notes due
2023, should be included in diluted earnings per share
computations regardless of whether or not the market price trigger
has been met.



KAYDON CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
----------------------------------------------------------------------
July 2, December 31,
2005 2004
------------- -------------
Assets: (unaudited)
Cash and cash equivalents $240,195,000 $278,586,000
Accounts receivable, net 58,792,000 48,786,000
Inventories, net 59,829,000 55,730,000
Other current assets 11,440,000 9,925,000
------------- -------------

Total current assets 370,256,000 393,027,000


Plant and equipment, net 87,183,000 86,028,000

Goodwill, net 129,905,000 113,375,000
Other intangible assets, net 25,929,000 9,200,000
Other assets 14,170,000 17,494,000
------------- -------------

Total assets $627,443,000 $619,124,000
============= =============

Liabilities and Shareholders' Equity:

Accounts payable $18,022,000 $17,735,000
Accrued expenses 27,228,000 25,961,000
------------- -------------
Total current liabilities 45,250,000 43,696,000

Long-term debt 200,034,000 200,066,000
Long-term liabilities 65,589,000 66,681,000
------------- -------------
Total long-term liabilities 265,623,000 266,747,000

Shareholders' equity 316,570,000 308,681,000
------------- -------------

Total liabilities and shareholders'
equity $627,443,000 $619,124,000
============= =============



Reportable Segment Information
(Amounts in thousands)

Quarter Ended First Half Ended
July 2, July 3, July 2, July 3,
2005 2004 2005 2004
--------- -------- --------- ---------
Net sales

Friction and Motion Control
Products
External customers $50,687 $42,575 $95,357 $81,379
Intersegment 230 95 360 165
--------- -------- --------- ---------
50,917 42,670 95,717 81,544

Velocity Control Products
External customers 14,434 12,497 29,172 26,091
Intersegment (1) - (1) -
--------- -------- --------- ---------
14,433 12,497 29,171 26,091

Sealing Products
External customers 10,471 9,728 19,161 19,331
Intersegment (28) (35) (47) (45)
--------- -------- --------- ---------
10,443 9,693 19,114 19,286

Power and Data Transmission
Products
External customers 10,130 7,608 20,154 16,326
Intersegment (194) (53) (298) (113)
--------- -------- --------- ---------
9,936 7,555 19,856 16,213

Other
External customers 18,687 11,978 35,047 24,582
Intersegment (7) (7) (14) (7)
--------- -------- --------- ---------
18,680 11,971 35,033 24,575

Total consolidated net
sales $104,409 $84,386 $198,891 $167,709
========= ======== ========= =========



Quarter Ended First Half Ended
Operating income (loss) July 2, July 3, July 2, July 3,
2005 2004 2005 2004
--------- -------- --------- ---------

Friction and Motion Control
Products $12,675 $11,086 $23,284 $20,080
Velocity Control Products 3,734 3,439 7,175 7,397
Sealing Products 1,724 1,543 2,915 2,960
Power and Data Transmission
Products 1,203 (110) 1,699 (469)
Other 1,897 (787) 2,935 783
--------- -------- --------- ---------
Total segment
operating income 21,233 15,171 38,008 30,751
State income tax provision
included in segment operating
income 289 279 784 553
Items not allocated to segment
operating income (1,696) 1,659 (2,829) 1,368
Interest expense (2,396) (2,374) (4,814) (4,793)
Interest income 1,733 802 3,260 1,568
--------- -------- --------- ---------
Income from operations
before income taxes $19,163 $15,537 $34,409 $29,447
========= ======== ========= =========



Kaydon Corporation
Reconciliation of Non-GAAP Measures


Free cash flow (non-GAAP)
Second Quarter Ended LTM
------------------------- ------------
July 2, July 3, July 2,
2005 2004 2005
------------ ------------ ------------
Net cash from operating
activities (GAAP) $14,465,000 $7,146,000 $50,040,000
Capital expenditures (2,869,000) (2,826,000) (12,652,000)
------------ ------------ ------------


Free cash flow (non-GAAP) $11,596,000 $4,320,000 $37,388,000
============ ============ ============



Kaydon's management believes free cash flow, a non-GAAP measure, is an
important indicator of the Company's ability to generate excess cash
above levels required for capital investment to support future growth.
However, it should be viewed as supplemental data, rather than as a
substitute or alternative to the GAAP performance measure.


Earnings before interest,
taxes, depreciation and
amortization- EBITDA
(non-GAAP)
Second Quarter Ended LTM
------------------------- ------------
July 2, July 3, July 2,
2005 2004 2005
------------ ------------ ------------
Net income (GAAP) $12,418,000 $9,944,000 $41,809,000
Net interest expense 663,000 1,572,000 3,931,000
Income tax expense 6,745,000 5,593,000 23,088,000
Depreciation and amortization 4,698,000 3,704,000 16,380,000
------------ ------------ ------------

Earnings before interest, taxes,
depreciation and amortization-
EBITDA (non-GAAP) $24,524,000 $20,813,000 $85,208,000
============ ============ ============

Kaydon's management believes EBITDA, or earnings before interest,
taxes, depreciation and amortization, is a gauge of financial strength
from continuing operations before financing costs, investment income,
taxes on income and non-cash charges. In addition, EBITDA is widely
used by financial analysts and investors, and is utilized in measuring
compliance with financial covenants in the Company's credit agreement.
Accordingly, EBITDA is a determinant of the Company's capacity to
incur additional senior capital to enhance future profit growth and
cash flow growth. However, it should be viewed as supplemental data,
rather than as a substitute or alternative to the GAAP performance
measure.