Securities and Exchange Commission

Washington, DC 20549

FORM 10-K

Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2004

Commission file number 0-12640

Kaydon Corporation

(Exact name of Registrant as specified in its charter)

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

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

          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 o

          Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

          Indicate by check mark whether the Registrant is an accelerated filer. Yes x No o

          The aggregate market value of the Registrant’s Common Stock held by non-affiliates of the Registrant on July 3, 2004 (based on the July 2, 2004 closing sales price of $30.49 of the Registrant’s Common Stock, as reported on the New York Stock Exchange Composite Tape on such date) was approximately $629,150,000.

          Number of shares outstanding of the Registrant’s Common Stock at March 3, 2005:

28,255,932 Shares of Common Stock, par value $0.10 per share.

          Portions of the Registrant’s definitive Proxy Statement to be filed for its 2005 Annual Meeting of Stockholders are incorporated by reference into Part III of this Report.

TABLE OF CONTENTS

Forward-Looking Statements

     This Form 10-K contains forward-looking statements within the meaning of the Securities Exchange Act of 1934 regarding the Company’s plans, expectations, estimates and beliefs. Forward-looking statements are typically identified by words such as “believes,” “anticipates,” “estimates,” “expects,” “intends,” “will,” “may,” “potential,” “projects” and other similar expressions. These forward-looking statements may include, among other things, projections of the Company’s financial performance, anticipated growth, characterization of and the Company’s ability to control contingent liabilities, and anticipated trends in the Company’s businesses. These statements are only predictions, based on the Company’s current expectation about future events. Although the Company believes the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, performance or achievements or that predictions or current expectations will be accurate. These forward-looking statements involve risks and uncertainties that could cause the Company’s actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements.

     In addition, the Company or persons acting on its behalf may from time to time publish or communicate other items that could also be construed to be forward-looking statements. Statements of this sort are or will be based on the Company’s estimates, assumptions, and projections and are subject to risks and uncertainties that could cause actual results to differ materially from those included in the forward-looking statements. Kaydon does not undertake any responsibility to update its forward-looking statements or risk factors to reflect future events or circumstances. For a specific discussion of the risks and uncertainties that could affect the Company’s operating results, please refer to the Forward-Looking Statements section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 herein.

PART I

ITEM 1. BUSINESS

General Development of Business

     Kaydon Corporation (the “Company” or “Kaydon”) is a leading designer and manufacturer of custom-engineered, critical performance products for a broad customer base. Kaydon was incorporated under the laws of Delaware in 1983 as a wholly owned subsidiary of Bairnco Corporation, its former parent company. The Company became a separate public company in 1984 when it was spun-out of Bairnco Corporation as a dividend to Bairnco’s shareholders. At the time of its incorporation, Kaydon was principally involved in the design and manufacture of bearing systems and components as well as filters and filter housings. Since 1984, the Company has pursued a diversified growth strategy in the manufacturing sector. The Company’s principal products now include the previously mentioned bearing systems and components and filters and filter housings, and also custom rings, shaft seals, linear deceleration products, slip-rings, video and data multiplexers, fiber optic rotary joints, printed circuit boards, specialty retaining rings, specialty balls, fuel cleansing systems, industrial presses and metal alloy products. These products are used by customers in a wide variety of medical, instrumentation, material handling, machine tool positioning, aerospace, defense, security, construction, electronic, marine and other industrial applications. The Company performs as an extension of its customers’ engineering and manufacturing functions, with a commitment to identify and provide engineered solutions to design problems through technical innovation, cost-effective manufacturing and outstanding value-added service.

Recent Developments

     On January 7, 2005 we acquired all of the outstanding capital stock of Purafil, Inc. (“Purafil”) in a cash transaction valued at $42.6 million. Purafil manufactures and distributes gas-phase air filtration systems and media for industrial and commercial applications throughout the world. On a reportable segment basis, Purafil’s results will be reported in “Other.”

     On January 19, 2005 the Securities and Exchange Commission declared effective the Company’s $400.0 million universal shelf registration statement.

Industry Segments

     We operate through operating segments for which separate financial information is available, and for which operating results are evaluated regularly by the Company’s chief operating decision maker in determining resource allocation and assessing performance. Certain of the operating segments have similar economic characteristics, as well as other common attributes, including nature of the products and production processes, distribution patterns and classes of customers. The Company aggregates these operating segments for reporting purposes. Certain other operating segments do not exhibit the common attributes mentioned above and, therefore, information about them is reported separately. Still other operating segments do not meet the quantitative thresholds for separate disclosure and their information is combined and disclosed as “Other.”

     We have four reportable segments and other operating segments engaged in the manufacture and sale of the following:

     Friction and Motion Control Products – complex components used in specialized medical, aerospace, defense, security, electronic, material handling, construction and other industrial applications. Products include anti-friction bearings, split roller bearings, specialty balls and retaining devices.

     Velocity Control Products – complex components used in specialized robotics, material handling, machine tool, medical, amusement and other industrial applications. Products include industrial shock absorbers, safety shock absorbers, velocity controls, gas springs and rotary dampers.

     Sealing Products – complex and standard ring and seal products used in demanding industrial, aerospace and defense applications. Products include engine rings, sealing rings and shaft seals.

     Power and Data Transmission Products – complex and standard electrical and fiber optic products used in demanding industrial, aerospace, defense, security, medical, electronic and marine equipment applications. Products include slip-rings, slip-ring assemblies, video and data multiplexers, fiber optic rotary joints and printed circuit boards.

     Other – filter elements and filtration systems, metal alloys, machine tool components, presses, dies and benders used in a variety of industrial applications.

     Net sales related to our four reportable segments and other operating segments during 2004, 2003 and 2002 are set forth in the following table:

     See the Notes to Consolidated Financial Statements (Note 12) contained in Item 8. Financial Statements and Supplementary Data for additional information on the Company’s reportable segments.

     Sophisticated technology plays a significant role in all of our reportable segments in the design, engineering and manufacturing of our products. Due to the custom-engineered, proprietary nature of the Company’s products, substantially all of the manufacturing is done in-house and subcontractors are utilized for occasional specialized services. Products are manufactured utilizing a variety of precision metalworking and other process technologies after working closely with customers to engineer the required solution to their design and performance challenges.

     We sell our products in each reportable segment through a sales organization consisting of salespersons and representatives located throughout North America, Europe and Asia. Salespersons are trained to provide technical assistance to customers, as well as to serve as a liaison between the factory engineering staffs of Kaydon and its customers. Also, a global network of specialized distributors and agents provides local availability of our products to serve the requirements of customers. During 2004, 2003 and 2002, sales to no single customer exceeded 10 percent of Kaydon net sales. However, during 2004, sales to one customer exceeded 10 percent (10.4 percent) of net sales in the Friction and Motion Control Products reporting segment, sales to three customers exceeded 10 percent (22.2 percent, 15.8 percent, and 10.5 percent) of net sales in the Sealing Products reporting segment, sales to one customer exceeded 10 percent (17.0 percent) of net sales in the Power and Data Transmission Products reporting segment, and sales to one customer exceeded 10 percent (16.0 percent) of net sales in the other businesses. During 2003, sales to three customers exceeded 10 percent (19.8 percent, 17.3 percent, and 10.3 percent) of net sales in the Sealing Products reporting segment, and sales to two customers exceeded 10 percent (11.7 percent and 11.4 percent) of net sales in the Power and Data Transmission Products reporting segment.

     We do not consider our business in any reportable segment to be seasonal in nature or to have special working capital requirements. Compliance with federal, state and local regulations relating to the discharge of materials into the environment, or otherwise relating to the protection of the environment, is not expected to result in material capital expenditures by us or to have a material adverse effect on our earnings or competitive position. In general, raw materials required by the Company are attainable from various sources and in the quantities desired. During 2004, the Company was negatively affected by increases in certain raw material prices, particularly steel. The Company was successful in passing some of the increases along to its customers. Various provisions of federal law and regulations require, under certain circumstances, the renegotiations of military procurement contracts or the refund of profits determined to be excessive. The Company, based on experience, believes that no material renegotiations or refunds will be required. We have not made any public announcement of, or otherwise made public information about, a new product or a new industry segment which would require the investment of a material amount of our assets or which would otherwise result in a material cost.

Backlog

     We sell certain products on a build-to-order basis that requires substantial order lead-time. This results in a backlog of unshipped, scheduled orders. In addition, certain products are manufactured on the basis of sales projections or annual blanket purchase orders. Backlog in the Friction and Motion Control Products reporting segment was $69.9 million at December 31, 2004 and $55.2 million at December 31, 2003. Backlog in the Velocity Control Products reporting segment was $4.2 million at December 31, 2004 and $5.5 million at December 31, 2003. Backlog in the Sealing Products reporting segment was $18.0 million at December 31, 2004 and $13.6 million at December 31, 2003. Backlog in the Power and Data Transmission Products reporting segment was $15.5 million at December 31, 2004 and $15.9 million at December 31, 2003. Backlog in other businesses was $9.5 million at December 31, 2004 and $6.7 million at December 31, 2003. We expect to ship approximately 90 percent of the year-end backlog over the following twelve months. Backlog has become less indicative of future results as we have made efforts to shorten manufacturing lead times, creating a faster response to customer orders.

Patents and Trademarks

     The Company holds various patents, patent applications, licenses, trademarks and trade names. The Company considers its patents, patent applications, licenses, trademarks and trade names to be valuable, but does not believe that there is any reasonable likelihood of a loss of such rights which would have a material adverse effect on our present business as a whole.

Competition

     The major domestic and foreign markets for our products in all reporting segments are highly competitive. Competition is based primarily on price, product engineering and performance, technology, quality and overall customer service, with the relative importance of such factors varying by degree among products. Our competitors include a large number of other well-established diversified manufacturers as well as other smaller companies. Although a number of companies of varying size compete with us, no single competitor is in substantial competition with the Company with respect to more than a few of its product lines and services.

Employees

     We employ approximately 2,000 people. Satisfactory relationships have generally prevailed between the Company and its employees.

International Operations

     Certain friction and motion control products are manufactured in Mexico and the United Kingdom, certain velocity control products are assembled and distributed through a facility in Germany, and certain power and data transmission products are manufactured in Canada, the United Kingdom and Mexico. In addition, within all reporting segments, we distribute a wide array of products throughout North America, Europe and Asia. Our foreign operations are subject to political, monetary, economic and other risks attendant generally to international businesses. These risks generally vary from country to country.

     See the Notes to Consolidated Financial Statements (Note 12) contained in Item 8. Financial Statements and Supplementary Data for additional information on the Company’s operations by geographic area.

Available Information

     Our internet address is www.kaydon.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to all such reports and statements are accessible at no charge on our website as soon as reasonably practicable after filing with the Securities and Exchange Commission. Also accessible on our website under “Corporate Governance” are our Corporate Governance Guidelines, our Codes of Ethics, and the charters of the various committees of our Board of Directors. These items are also available in print at no charge to those who direct a request in writing to the Company.

ITEM 2. PROPERTIES

     The following list sets forth the location of our principal manufacturing facilities for each reportable segment:

     The Company considers that its properties are generally in good condition, are well maintained, and are generally suitable and adequate to carry on the Company’s business. Substantially all of the properties are owned by the Company and are not subject to significant encumbrances. The Company’s manufacturing facilities have sufficient capacity to meet increased customer demand. The Company’s leased executive offices are located in Ann Arbor, Michigan.

     As previously reported, the Company, along with certain other companies, was named as a defendant in a lawsuit filed in 1996 in the United States District Court for the Southern District of New York (the “Transactions Lawsuit”). In April 2004, the Court of Appeals issued its Summary Order affirming in all respects an earlier judgment of the District Court, which granted the motion for summary judgment, dismissing the case in its entirety against all defendants. When the chances of this ruling being further appealed by the plaintiffs became remote, the Company reduced its previously recorded Transactions Lawsuit legal fee accrual by $1.7 million in the second quarter 2004 financial statements. This change in estimate increased second quarter 2004 net income by $1.1 million. The deadline for the plaintiffs to take action to prolong the case has expired, therefore, the case has concluded.

     As previously reported, in August 2000, an accident involving a MH53E helicopter manufactured by Sikorsky Aircraft Corporation, resulted in four deaths and two injuries during a military training mission. The Company manufactures and sells swashplate bearings used on MH53E helicopters. In May 2002, the Company, along with Sikorsky Aircraft Corporation, The Armoloy Corporation, Armoloy of Illinois, Inc., Armoloy of Connecticut, Inc. and Investment Holdings, Inc., was named as a defendant in a lawsuit filed by the relatives and the estates of the four deceased individuals, and by the two injured individuals. The litigation currently is pending in the District Court of Nueces County, Texas, 28th Judicial District. Armoloy of Connecticut, Inc. is no longer a party to the litigation. The Company believes it has meritorious defenses to these claims including, but not limited to, the fact that the bearing utilized in the helicopter involved in the accident was inspected and approved prior to shipment by both U.S. government and Sikorsky Aircraft Corporation inspectors. Accordingly, an accrual is not recorded in the consolidated financial statements related to this legal action. Further, the Company’s insurance carrier has retained legal counsel to respond to the lawsuit. The Company believes that the alleged damages claimed in this

lawsuit will be fully covered under the Company’s insurance policy.

     The Company is involved in ongoing environmental remediation activities at certain manufacturing sites as well as proceedings relating to the cleanup of waste disposal sites that provide for the allocation of costs among potentially responsible parties. One of the manufacturing sites undergoing environmental remediation is a discontinued operation sold in December 2001, where the Company retained the environmental liability. The Company is working with the appropriate regulatory agencies to complete the necessary remediation or to determine the extent of the Company’s portion of the remediation necessary. During the fourth quarter of 2004, based on the favorable results of remediation efforts to-date, the Company reduced its environmental reserves by $1.1 million. As of December 31, 2004, an undiscounted accrual in the amount of $2.1 million, representing the Company’s best estimate for ultimate resolution of these environmental matters, is recognized in the consolidated financial statements.

     Various other claims, arising in the normal course of business are pending against the Company. The Company’s estimated legal costs expected to be incurred in connection with claims, lawsuits and environmental matters are consistently accrued in the consolidated financial statements.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2004.

SUPPLEMENTARY ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
(Pursuant to Instruction 3 to Item 401(b) of Regulation S-K)

     Executive officers, who are elected by the Board of Directors, serve for a term of one year.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information and Dividends

     The New York Stock Exchange is the principal market on which our common stock is traded under the symbol KDN. The following table sets forth high and low closing sales prices of our common stock as reported on the New York Stock Exchange Composite Tape and the cash dividends declared per share for the periods indicated.

     We expect that our practice of paying quarterly dividends on our common stock will continue, although future dividends will continue to depend upon the Company’s earnings, capital requirements, financial condition and other factors.

     As of December 31, 2004, there were 916 holders of record of our common stock.

     The following table provides the information with respect to purchases made by the Company of shares of its common stock during each month in the fourth quarter of 2004:

Equity Compensation Plan Information

     The following table gives information about our common stock that may be issued upon the exercise of options, warrants and rights under all of our existing equity compensation plans as of December 31, 2004, including the 1999 Long Term Stock Incentive Plan, the 1993 Non-Employee Directors Stock Option Plan, the 2003 Non-Employee Directors Equity Plan and the Director Deferred Compensation Plan.

ITEM 6. SELECTED FINANCIAL DATA