<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                              ---------------------

                                    FORM 10-Q



         [X]      Quarterly Report Pursuant to Section 13 or 15(d) of the
                  Securities Exchange Act of 1934

         [ ]      Transition Report Pursuant to Section 13 or 15(d) of the
                  Securities Exchange Act of 1934



For Quarter Ended July 3, 1999                 Commission File No. 0-12640
------------------------------                 ---------------------------


                               KAYDON CORPORATION


         A Delaware Corporation          IRS Employer ID No. 13-3186040
         --------------------------------------------------------------
         315 E. Eisenhower Pkwy., Suite 300, Ann Arbor, Michigan 48108
         --------------------------------------------------------------
                              Phone: 734-747-7025
         --------------------------------------------------------------

Kaydon Corporation:

         (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.

                                    Yes   X    No
                                       -------   -------
         (2)   has been subject to such filing requirements for the past 90
               days.

                                    Yes   X    No
                                       -------   -------

Common Stock Outstanding at August 10, 1999 - 31,858,888 shares, $.10 par value.


<PAGE>   2


                          KAYDON CORPORATION FORM 10-Q

                       FOR THE QUARTER ENDED July 3, 1999


                                      INDEX


                                                                      Page No.
                                                                      --------

Part I - Financial Information:

         Consolidated Condensed Balance Sheets -
         July 3, 1999 and December 31, 1998                               1

         Consolidated Condensed Statements of Income -
         Quarter and First Half Ended July 3, 1999 and July
         4, 1998                                                          2

         Consolidated Condensed Statements of Cash Flows -
         First Half Ended July 3, 1999 and July 4, 1998                   3

         Notes to Consolidated Condensed Financial Statements           4 - 10

         Management's Discussion and Analysis of
         Financial Condition and Results of Operations                 11 - 14



Part II - Other Information:


         Item 6. - Exhibits and Reports on Form 8-K                          15


         Signatures                                                          16



<PAGE>   3


                               KAYDON CORPORATION

                      CONSOLIDATED CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                       July 3, 1999               December 31,1998
                                                       ------------               ----------------
                                                        (Unaudited)
<S>                                                  <C>                           <C>
Assets:
Cash and cash equivalents                             $ 106,458,000                 $  96,203,000
Accounts receivable, net                                 48,591,000                    48,957,000
Inventories, net                                         65,359,000                    68,176,000
Other current assets                                     17,537,000                    16,464,000
                                                      -------------                 -------------

Total current assets                                    237,945,000                   229,800,000

Plant and equipment, net                                 97,278,000                    99,259,000
Cost in excess of net tangible
  assets of purchased businesses, net                    61,737,000                    64,717,000
Other assets                                             19,303,000                    20,032,000
                                                      -------------                 -------------
Total assets                                          $ 416,263,000                 $ 413,808,000
                                                      =============                 =============



Liabilities and Shareholders' Equity :
Accounts payable                                      $  10,817,000                 $  14,853,000
Accrued expenses                                         49,144,000                    56,347,000
                                                      -------------                 -------------
Total current liabilities                                59,961,000                    71,200,000

Long-term liabilities                                    31,687,000                    30,952,000

Shareholders' equity:
Common stock                                              3,651,000                     3,646,000
Paid-in capital                                          36,724,000                    35,969,000
Retained earnings                                       380,921,000                   355,233,000
Less - treasury stock, at cost                          (91,228,000)                  (80,711,000)
Accumulated other comprehensive loss                     (5,453,000)                   (2,481,000)
                                                      -------------                 -------------
                                                        324,615,000                   311,656,000
                                                      -------------                 -------------
Total liabilities and
    shareholders' equity                              $ 416,263,000                 $ 413,808,000
                                                      =============                 =============
</TABLE>


See accompanying notes to consolidated condensed financial statements.

                                       1
<PAGE>   4


                               KAYDON CORPORATION

                   CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                                   (UNAUDITED)
<TABLE>
<CAPTION>


                                                         QUARTER ENDED                                FIRST HALF ENDED
                                               July 3, 1999         July 4, 1998             July 3, 1999         July 4, 1998
                                               ------------         ------------             ------------         ------------

<S>                                             <C>                  <C>                     <C>                  <C>
Net sales                                       $85,524,000          $99,548,000             $173,644,000         $198,657,000
                                                ===========          ===========             ============         ============

Gross profit                                    $33,573,000          $40,614,000             $ 68,029,000         $ 81,082,000
                                                ===========          ===========             ============         ============

Operating income                                $24,334,000          $29,190,000             $ 49,082,000         $ 57,450,000

Interest income, net                              1,175,000            1,198,000                2,225,000           2,447,000
                                                -----------          -----------             ------------         ------------

Income before income taxes                       25,509,000           30,388,000               51,307,000           59,897,000
Provision for income taxes                        9,566,000           11,547,000               19,240,000           22,761,000
                                                -----------          -----------             ------------         ------------


Net income                                      $15,943,000          $18,841,000             $ 32,067,000         $ 37,136,000
                                                ===========          ===========             ============         ============

Weighted Average Common Shares:
  Basic                                          31,855,000           32,912,000               31,954,000           32,939,000
  Diluted                                        32,047,000           33,169,000               32,157,000           33,195,000


Earnings Per Share:
  Basic                                                $.50                 $.57                    $1.00                $1.13
  Diluted                                              $.50                 $.57                    $1.00                $1.12
</TABLE>


See accompanying notes to consolidated condensed financial statements.


                                       2
<PAGE>   5

                               KAYDON CORPORATION

                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                             FIRST HALF ENDED
                                                                                             ----------------

                                                                                   July 3, 1999         July 4, 1998
                                                                                   ------------        -------------
<S>                                                                                <C>                  <C>
Cash flows from operating activities                                               $  32,318,000        $ 24,161,000
                                                                                   -------------        ------------
Cash flows from (used in) investing activities:
  Purchases of marketable securities                                                                     (44,956,000)
  Maturities of marketable securities                                                                     22,451,000
  Capital expenditures, net                                                           (5,585,000)        (16,725,000)
  Other                                                                                                       82,000
                                                                                   -------------        ------------
Cash used in investing activities                                                     (5,585,000)        (39,148,000)
                                                                                   -------------        ------------


Cash flows from (used in) financing activities:
  Proceeds from issuance of common stock                                                 760,000           4,110,000
  Dividends paid                                                                      (6,405,000)         (5,941,000)
  Purchase of treasury stock                                                         (10,517,000)         (6,667,000)
                                                                                   -------------        ------------
Cash used in financing activities                                                    (16,162,000)         (8,498,000)
                                                                                   -------------        ------------

Effect of exchange rate changes on cash
 and cash equivalents                                                                   (316,000)            868,000
                                                                                   -------------        ------------

Net increase (decrease) in cash and cash equivalents                                  10,255,000         (22,617,000)

Cash and cash equivalents - Beginning of period                                       96,203,000          74,735,000
                                                                                   -------------        ------------

Cash and cash equivalents - End of period                                          $ 106,458,000        $ 52,118,000
                                                                                   =============        ============

Cash expended for income taxes                                                     $  18,850,000        $ 23,388,000
                                                                                   =============        ============
</TABLE>


See accompanying notes to consolidated condensed financial statements.

                                       3
<PAGE>   6



                               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, 1998.

(2)      Inventories are summarized as follows:
<TABLE>
<CAPTION>

                                                   July 3, 1999                 December 31, 1998
                                                   ------------                 -----------------
<S>                                               <C>                            <C>
         Raw Material                              $25,662,000                    $26,570,000
         Work in Process                            15,038,000                     20,352,000
         Finished Goods                             24,659,000                     21,254,000
                                                   -----------                   ------------
                                                   $65,359,000                    $68,176,000
                                                   ===========                    ===========
</TABLE>

(3)      In 1998, the Company adopted Statement of Financial Accounting
         Standards No. 130, "Reporting Comprehensive Income". This statement
         establishes standards for reporting and display of comprehensive income
         and its components. 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 (loss), net of tax, was approximately
         $(2,049,000) and $118,000, resulting in comprehensive income of
         $13,894,000 and $18,959,000 for the quarters ended July 3, 1999 and
         July 4, 1998. On a first half basis, other comprehensive income (loss),
         net of tax, was approximately ($2,972,000) and $1,092,000, resulting in
         year to date comprehensive income of $29,095,000 and $38,228,000 for
         the first halves ended July 3, 1999 and July 4, 1998.


                                       4
<PAGE>   7


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

<TABLE>
<CAPTION>

                                                                       Quarter Ended
                                                                       -------------

                                                           July 3, 1999             July 4, 1998
                                                           ------------             ------------
<S>                                                        <C>                      <C>
         Numerators:
           Numerators for both
           basic and diluted earnings
           per share, net income                           $15,943,000               $18,841,000
                                                           ===========               ===========

         Denominators:
           Denominators for basic earnings
           per share, weighted average
           common shares outstanding                        31,855,000                32,912,000

           Potential dilutive shares resulting
           from stock option plans                             192,000                   257,000
                                                           -----------               -----------

         Denominators for dilutive
         earnings per share                                 32,047,000                33,169,000
                                                           ===========               ===========

         Earnings per share:
         Basic                                                    $.50                      $.57
                                                                  ====                      ====
         Diluted                                                  $.50                      $.57
                                                                  ====                      ====

                                                                        First Half Ended
                                                                        ----------------

                                                           July 3, 1999              July 4, 1998
                                                           ------------              ------------
         Numerators:
           Numerators for both
           basic and diluted earnings
           per share, net income                           $32,067,000               $37,136,000
                                                           ===========               ===========

         Denominators:
           Denominators for basic earnings
           per share, weighted average
           common shares outstanding                        31,954,000                32,939,000

           Potential dilutive shares resulting
           from stock option plans                             203,000                   256,000
                                                           -----------               -----------

         Denominators for dilutive
         earnings per share                                 32,157,000                33,195,000
                                                           ===========               ===========

         Earnings per share:
         Basic                                                   $1.00                     $1.13
                                                                 =====                     =====
         Diluted                                                 $1.00                     $1.12
                                                                 =====                     =====
</TABLE>


                                       5

<PAGE>   8

         Options to purchase 12,000 shares of common stock at $33.3125 per share
         were outstanding during the second quarter of 1999, 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. 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 for the first
         half of 1999 are based on an average of the potential dilutive shares
         resulting from stock option plans in the first and second quarter of
         1999.

         All outstanding options to purchase shares of common stock were
         included in the 1998 diluted earnings per share computations because
         the options' exercise price was less than the average market price of
         common shares during those periods.

 (5)     In 1998, the Company adopted the provisions of Statement of Financial
         Accounting Standards No. 131, "Disclosures about Segments of an
         Enterprise and Related Information". This statement establishes new
         standards for reporting information about operating segments and
         related disclosures. All prior period information has been restated to
         conform to this statement.

         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 regards 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.


                                       6

<PAGE>   9


         Segment financial data (in thousands):

<TABLE>
<CAPTION>
                                                                  Quarter Ended
                                                                  -------------
                                            July 3, 1999                               July 4, 1998
                                            ------------                               ------------
                                  Custom-                                     Custom-
                               Engineered                Consolidated      Engineered              Consolidated
                                 Products    Corporate         Totals        Products    Corporate       Totals
                                 --------    ---------         ------        --------    ---------       ------

<S>                             <C>          <C>            <C>             <C>          <C>         <C>
         Sales                   $86,843      $      0       $86,843         $100,601     $      0    $100,601
         Elimination of
           intercompany
           sales                  (1,319)            0        (1,319)          (1,053)           0      (1,053)
                                 -------      --------       -------         --------     --------    --------
         Total net sales         $85,524      $      0       $85,524         $ 99,548     $      0    $ 99,548
                                 =======      ========       =======         ========     ========    ========

         Segment earnings
           before interest
           and tax               $24,768      $      0       $24,768         $ 29,781     $      0    $ 29,781
         Unallocated
           amounts                     0           741           741                0          607         607
                                 -------      --------       -------         --------     --------    --------
         Income before
           income taxes          $24,768      $    741       $25,509         $ 29,781     $    607    $ 30,388
                                 =======      ========       =======         ========     ========    ========
</TABLE>

<TABLE>
<CAPTION>
                                                               First Half Ended
                                                               ----------------
                                            July 3, 1999                               July 4, 1998
                                            ------------                               ------------
                                  Custom-                                     Custom-
                               Engineered                Consolidated      Engineered              Consolidated
                                 Products    Corporate         Totals        Products    Corporate       Totals
                                 --------    ---------         ------        --------    ---------       ------

<S>                             <C>          <C>           <C>             <C>          <C>          <C>
         Sales                  $176,592      $      0      $176,592        $200,428     $       0    $200,428
         Elimination of
           intercompany
           sales                  (2,948)            0        (2,948)         (1,771)            0      (1,771)
                                --------      --------      --------        --------     ---------    --------
         Total net sales        $173,644      $      0      $173,644        $198,657     $       0    $198,657
                                ========      ========      ========        ========     =========    ========
         Segment earnings
           before interest
           and tax              $ 49,875      $      0      $ 49,875        $ 58,364     $       0    $ 58,364
         Unallocated
           amounts                     0         1,432         1,432               0         1,533       1,533
                                --------      --------      --------        --------     ---------    --------
         Income before
           income taxes         $ 49,875      $  1,432      $ 51,307        $ 58,364     $   1,533    $ 59,897
                                ========      ========      ========        ========     =========    ========
</TABLE>

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

(6)      In June of 1999, the Company entered into a five-year $300.0 million
         revolving credit facility with a group of seven banks. The new facility
         permits the Company to borrow under several different interest rate
         options. The new credit facility replaces the Company's former $100.0
         million revolving credit facility. There were no borrowings associated
         with the new


                                       7
<PAGE>   10

         credit facility as of July 3, 1999.

(7)      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
         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'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.


                                       8
<PAGE>   11

         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
         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.

         In June 1996, the Company received a subpoena 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 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


                                       9
<PAGE>   12

         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 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. The findings contained in the JAG Report, management
         believes, reaffirm the position that the bearing was not the causative
         action in the May 9, 1996 accident. The JAG Report states, "...the
         Sikorsky investigation process was flawed." It goes on to say that,
         "NADEP" (Naval Aviation Depot) "Cherry Point personnel were not fully
         utilized in the investigative process, nor did they contribute to the
         conclusion reached." Furthermore, the report states, "...the Sikorsky
         investigative process erred in failing to fully exploit the expertise
         of Kaydon engineers in developing causal factors for the mishap." The
         JAG Report also states "...future investigations of this kind are much
         less likely to produce a conclusion that is self-serving to the
         contractor if the investigation agenda and investigative participants
         are not controlled by the contractor..." Management believes it has
         meritorious defenses against any claims. Management further believes
         the outcome of this matter will not have a material adverse effect on
         the Company's financial position or results of operations.

         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 or results of
         operations.


                                       10
<PAGE>   13

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



Results of Operations

During the second quarter of 1999, Kaydon Corporation and subsidiaries (the
"Company") achieved sales of $85,524,000, down 14.1 percent from $99,548,000 in
the second quarter of 1998. The Company was negatively impacted by lower sales
levels to construction equipment, mining, offshore oil equipment, government
spare parts, military, railroad, and aerospace markets, as well as lower sales
levels of specialty bearing products in the United Kingdom. As a result of the
lower sales volume, gross profit during the 1999 second quarter of $33,573,000
was 39.3 percent of sales, compared with $40,614,000 or 40.8 percent of sales in
the 1998 second quarter.

Selling and administrative expenses were $9,239,000 or 10.8 percent of sales
during the 1999 second quarter, down $2,185,000 from $11,424,000 or 11.5 percent
of sales during last year's comparable quarter. The decrease is attributed to
management's emphasis on spending controls during this period of lower sales.

Net interest income of $1,175,000 was down $23,000 from $1,198,000 last year as
higher average cash balances were offset by lower prevailing investment rates by
25 to 50 basis points.

Second quarter 1999 net income was $15,943,000, or 18.6 percent of sales.
Earnings per share on a diluted basis equaled $.50. Second quarter 1998 net
income and diluted earnings per share were $18,841,000 and $.57.

The effective tax rate during the 1999 second quarter was 37.5 percent compared
to 38.0 percent in the second quarter 1998. The lower rate is due to a
combination of lower foreign rates and higher export sales.

Sales for the first half of 1999 were $173,644,000, a decrease of 12.6 percent
over last year's $198,657,000 reflecting the softness in major markets served by
Kaydon. As a result of the lower sales volume, gross profit for the first half
of 1999 decreased to $68,029,000 or 39.2 percent of sales as compared to
$81,082,000 or 40.8 percent of sales during the first half of 1998.

Selling and administrative expenses during the first half of 1999 decreased by
$4,685,000 to $18,947,000 or 10.9 percent of sales during the first half of 1999
as compared to $23,632,000 or 11.9 percent of sales during the first half of
1998. This decrease is attributed to management's continued emphasis on spending
controls during this period of lower sales.


                                       11

<PAGE>   14

Net income for the first half of 1999 was $32,067,000 or 18.5 percent of sales,
while earnings per share on a diluted basis equaled $1.00. First half 1998 net
income was $37,136,000 or 18.7 percent of sales, while earnings per share on a
diluted basis equaled $1.12.

Liquidity and Capital Resources

Working capital was $177,984,000 at the end of the first half reflecting a
current ratio of 4.0 to 1 compared to $158,600,000 and a current ratio of 3.2 to
1 at year-end 1998. Cash flow from operations was a record $32,318,000 during
the first half, up from $24,161,000 for the same period in 1998, reflecting
better control of working capital during this period of lower sales.

Depreciation and amortization for the first half of 1999 totaled $8,266,000
compared to $7,427,000 in the first half of 1998.

Cash and cash equivalents equaled $106,458,000 at the end of the first half, up
$10,255,000 over the balance at year-end 1998 of $96,203,000. This increase
reflects strong operating cash flow offset by capital expenditures of $5,585,000
and the repurchase of 338,880 shares of common stock for $10,517,000.

Management expects that the Company's planned capital requirements for the
remainder of 1999, which consists of capital expenditures, dividend payments and
its stock repurchase program will be financed by operations. In June of 1999,
the Company entered in to a five-year $300.0 million revolving credit facility
with a group of seven banks. The new credit facility replaces the Company's
former $100.0 million revolving credit facility. The Company is currently debt
free.

Year 2000

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

The Company has a plan in place to manage 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. The
costs for these modifications were expensed as routine internal programming
costs during the period incurred and were not material. Any additional expenses
will also be expensed as incurred and are not expected to be material.

As part of the Company's long-term objectives for continued operational
improvements and cost management, investments in information technology have
already begun and are estimated to be $2.5 to $3.0 million over the next 15-18
months. As part of any investment in information systems, year 2000 compliance


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<PAGE>   15

will be assured. The incremental costs associated with year 2000 modifications
related to these investments, if any, will be expensed as incurred and are not
expected to be material.

Embedded technology in facilities systems, machinery and equipment is currently
being inventoried and assessed. No significant year 2000 compliance issues are
anticipated and completion of all remediation is expected to be completed by
December 31, 1999.

A component of the Company's year 2000 readiness plan is to address any
remaining open issues anticipated in 1999 and early 2000. As a precautionary
measure, the Company will be developing contingency plans for systems not
expected to be year 2000 compliant. A variety of automated as well as manual
fallback plans are under consideration.

The Company is also working with its customers, vendors and suppliers to assess
the year 2000 readiness of their systems. It is anticipated this activity will
be completed by December 31, 1999. Any costs for remediation of third party
system issues are expected to be borne by those third parties.

At this time, the Company would characterize as "worst case" any scenario that
involves potential disruptions in which the Company's operations may rely on
such third parties whose systems may not work properly after December 31, 1999.
Possible consequences of year 2000 interruptions include, but are not limited
to, a temporary inability to manufacture or ship product; process transactions;
communicate with customers, suppliers, subsidiary locations and employees; or
conduct other similar corporate activities in a normal business environment.
While such failures could affect the Company either directly or indirectly, the
Company cannot at the present time estimate either the likelihood or the
potential cost of such failures.

Outlook

The Company's backlog at the end of the first half of 1999 was $123,524,000
compared to $145,311,000 at the end of 1998. Based upon current business
indications, including quoting activity and future business forecasts for Kaydon
customers' end-markets, we believe that order entry should increase during
1999's second half. The new credit facility, together with the Company's current
cash reserves, will provide substantial resources to fund our ongoing business
development efforts.

Certain information in this Form 10-Q is forward looking, such as the Company's
expectations regarding future financial performance, business development
activity, and year 2000 readiness. 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.


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<PAGE>   16

These risks and uncertainties include, but are not limited to, uncertainties 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.


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<PAGE>   17

Item 6.  Exhibits and Reports on Form 8-K
        ---------------------------------
     A.    Exhibit No.      Description
           -----------      -----------

               (10)         Credit Agreement dated as of June 17, 1999
                            among Kaydon Corporation, certain domestic
                            subsidiaries, and various lenders including
                            Bank One, Michigan as Administrative Agent.
               (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 July 3,
           1999.


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<PAGE>   18


                                   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



August 13, 1999                 /s/ Brian P. Campbell
                                ---------------------------------------------
                                Brian P. Campbell
                                (Chairman, President & Chief Executive Officer)



August 13, 1999                 /s/ Kenneth W. Crawford
                                ------------------------------------------------
                                Kenneth W. Crawford
                                (Vice President & Corporate Controller)






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<PAGE>   19

                                 EXHIBIT INDEX


           Exhibit No.      Description
           -----------      -----------

               (10)         Credit Agreement dated as of June 17, 1999
                            among Kaydon Corporation, certain domestic
                            subsidiaries, and various lenders including
                            Bank One, Michigan as Administrative Agent.
               (27)         Financial Data Schedule (for SEC use only)






                                       17