----

----

| x | QUARTERLY      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT      OF 1934 |
|---|-------------------------------------------------------------------------------------------------------|

| ¨ | TRANSITION      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT      OF 1934 |
|--------|--------------------------------------------------------------------------------------------------------|

| Delaware                                                                | 33-0055414                                    |
|-------------------------------------------------------------------------|-----------------------------------------------|
| (State      or other jurisdictionof      incorporation or organization) | (I.R.S.      EmployerIdentification      No.) |
|                                                                    |                                          |
| 3169      Red Hill Avenue, Costa Mesa, CA                               | 92626                                         |
| (Address      of principal executive)                                   | (Zip      Code)                               |
|                                                                    |                                          |

|             Large      accelerated filer  x | Accelerated      filer  ¨ | Non-accelerated      filer  ¨ | Smaller      reporting company  ¨ |
|-------------------------------------------------------------------------------------------------------------------|------------------------------------------|----------------------------------------------|---------------------------------------------|

| Class                              |   | Outstanding      as of October 23, 2009 |
|------------------------------------|--------|-----------------------------------------|
| Common      Stock, $0.01 par value |   |   25,680,354      Shares           |

----

|          |                                                                                                        |   | PAGE NO. |   |
|---------------|-------------------------------------------------------------------------------------------------------------|--------|---------------|--------|
| PART I.  | FINANCIAL      INFORMATION                                                                                  |   |          |   |
|          |                                                                                                        |   |          |   |
| Item 1.  | Unaudited      Consolidated Financial Statements                                                            |   |          | 3      |   |
|          |                                                                                                        |   |          |   |   |
|          | Consolidated      Balance Sheets – September 30, 2009 and December 31, 2008                           |   |          | 3      |   |
|          |                                                                                                        |   |          |   |   |
|          | Consolidated      Statements of Income – Three and Nine Months Ended September 30, 2009 and      2008 |   |          | 4      |   |
|          |                                                                                                        |   |          |   |   |
|          | Consolidated      Statements of Cash Flows – Nine Months Ended September 30, 2009 and      2008       |   |          | 5      |   |
|          |                                                                                                        |   |          |   |   |
|          | Notes      to Consolidated Financial Statements                                                             |   |          | 6-24   |   |
|          |                                                                                                        |   |          |   |   |
| Item 2.  | Management’s      Discussion and Analysis of Financial Condition and Results of      Operations       |   |          | 25-39  |   |
|          |                                                                                                        |   |          |   |   |
| Item 3.  | Quantitative      and Qualitative Disclosures About Market Risk                                             |   |          | 40-41  |   |
|          |                                                                                                        |   |          |   |   |
| Item 4.  | Controls      and Procedures                                                                                |   |          | 42     |   |
|          |                                                                                                        |   |          |   |   |
| PART II. | OTHER      INFORMATION                                                                                      |   |          |   |   |
|          |                                                                                                        |   |          |   |   |
| Item 1.  | Legal      Proceedings                                                                                      |   |          | 42     |   |
|          |                                                                                                        |   |          |   |   |
| Item 1A. | Risk      Factors                                                                                           |   |          | 42     |   |
|          |                                                                                                        |   |          |   |   |
| Item 2.  | Unregistered      Sales of Equity Securities and Use of Proceeds                                            |   |          | 42-43  |   |
|          |                                                                                                        |   |          |   |   |
| Item 3.  | Not      applicable                                                                                         |   |          | 43     |   |
|          |                                                                                                        |   |          |   |   |
| Item 4.  | Not      applicable                                                                                         |   |          | 43     |   |
|          |                                                                                                        |   |          |   |   |
| Item 5.  | Not      applicable                                                                                         |   |          | 43     |   |
|          |                                                                                                        |   |          |   |   |
| Item 6.  | Exhibits                                                                                                    |   |          | 43     |   |
|          |                                                                                                        |   |          |   |
| SIGNATURE     |                                                                                                        |   | 44            |   |

----

| Item 1. | Unaudited Consolidated      Financial Statements |
|--------------|--------------------------------------------------|

|                                                                     |   | September      30, 2009 |    |   | December      31, 2008 |   |
|--------------------------------------------------------------------------|--------|-------------------------|---------|--------|------------------------|--------|
|                                                                     |   | (Unaudited)             |    |
| CURRENT      ASSETS                                                      |   |                    |    |   |                   |   |
| Cash      and cash equivalents                                           |   | $                       | 143,718 |   |                   | $      | 215,282 |   |
| Restricted      cash                                                     |   |                    | 3,130   |   |                   |   | 2,702 |   |
| Short-term      investments                                              |   |                    | 78,739  |   |                   |   | 6,140 |   |
| Accounts      receivable, net of allowances for doubtful accounts of$840 |   |                    |    |   |                   |   |   |   |
| and      $686 at September 30, 2009 and December 31, 2008, respectively  |   |                    | 65,618  |   |                   |   | 64,631 |   |
| Other      receivables                                                   |   |                    | 4,094   |   |                   |   | 5,316 |   |
| Inventories,      net                                                    |   |                    | 98,751  |   |                   |   | 101,017 |   |
| Production      tooling, net                                             |   |                    | 13,620  |   |                   |   | 14,563 |   |
| Prepaid      expenses and other                                          |   |                    | 24,100  |   |                   |   | 24,170 |   |
| Deferred      tax asset                                                  |   |                    | 15,290  |   |                   |   | 11,967 |   |
| TOTAL      CURRENT ASSETS                                                |   |                    | 447,060 |   |                   |   | 445,788 |   |
| PROPERTY,      PLANT AND EQUIPMENT, net                             |   |                    | 247,363 |   |                   |   | 251,928 |   |
| LONG      TERM INVESTMENTS                                               |   |                    | 24,978  |   |                   |   | 24,434 |   |
| INTANGIBLE      ASSETS, net                                              |   |                    | 90,380  |   |                   |   | 84,384 |   |
| GOODWILL                                                                 |   |                    | 44,096  |   |                   |   | 45,324 |   |
| OTHER      ASSETS                                                        |   |                    | 2,512   |   |                   |   | 2,669 |   |
| TOTAL      ASSETS                                                        |   | $                       | 856,389 |   |                   | $      | 854,527 |   |
|                                                                     |   |                    |    |   |                   |   |   |   |

| CURRENT      LIABILITIES                                                                                                                                                                |   |   |    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|
| Accounts      payable                                                                                                                                                                   |   | $      | 30,577  |   |   | $ | 22,954 |   |
| Accrued      expenses                                                                                                                                                                   |   |   | 23,400  |   |   |   | 21,999 |   |
| Income      taxes payable                                                                                                                                                               |   |   | 2,142   |   |   |   | - |   |
|          TOTAL      CURRENT LIABILITIES                                                                                                    |   |   | 56,119  |   |   |   | 44,953 |   |
| LONG-TERM      DEBT                                                                                                                                                                     |   |   | 81,338  |   |   |   | 102,631 |   |
| EMPLOYEE      BENEFITS                                                                                                                                                                  |   |   | 21,071  |   |   |   | 19,088 |   |
| OTHER      LONG TERM LIABILITY                                                                                                                                                          |   |   | 46,406  |   |   |   | 41,816 |   |
| DEFERRED      TAX LIABILITY                                                                                                                                                             |   |   | 6,967   |   |   |   | 7,045 |   |
| TOTAL      LIABILITIES                                                                                                                                                                  |   |   | 211,901 |   |   |   | 215,533 |   |
| COMMITMENTS      AND CONTINGENCIES (Note 15)                                                                                                                                            |   |   |    |   |   |   |   |   |
| SHAREHOLDERS’      EQUITY                                                                                                                                                         |   |   |    |   |   |   |   |   |
| Common      stock, $0.01 par value, 100,000,000 authorized, 25,680,354 and 25,830,374      shares issued and outstanding at September 30, 2009 and December 31, 2008,      respectively |   |   | 257     |   |   |   | 259 |   |
| Additional      paid-in capital                                                                                                                                                         |   |   | 163,089 |   |   |   | 163,291 |   |
| Retained      earnings                                                                                                                                                                  |   |   | 456,175 |   |   |   | 461,741 |   |
| Accumulated      other comprehensive income                                                                                                                                             |   |   | 24,967  |   |   |   | 13,703 |   |
| TOTAL      SHAREHOLDERS’ EQUITY                                                                                                                                                   |   |   | 644,488 |   |   |   | 638,994 |   |
| TOTAL      LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                                                   |   | $      | 856,389 |   |   | $ | 854,527 |   |
|                                                                                                                                                                                    |   |   |    |   |   |   |   |   |

----

|                                                      |   | Three Months Ended      September    30, |    |   | Nine      Months Ended September      30, |   |
|-----------------------------------------------------------|--------|------------------------------------------|---------|--------|-------------------------------------------|--------|
|                                                      |   | 2009                                     |    |   | 2008                                      |   |   | 2009 |   |   | 2008 |   |
|                                                      |   | (Unaudited)                              |    |   | (Unaudited)                               |   |
| NET      SALES                                            |   | $                                        | 107,954 |   |                                      | $      | 167,746 |   |   | $ | 302,993 |   |   | $ | 541,258 |   |
| COST      OF GOODS SOLD                                   |   |                                     | 79,329  |   |                                      |   | 101,082 |   |   |   | 227,717 |   |   |   | 327,504 |   |
| Gross      profit                                         |   |                                     | 28,625  |   |                                      |   | 66,664 |   |   |   | 75,276 |   |   |   | 213,754 |   |
| OPERATING      EXPENSES                                   |   |                                     |    |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Selling                                                   |   |                                     | 6,758   |   |                                      |   | 8,443 |   |   |   | 20,643 |   |   |   | 24,966 |   |
| General      and administrative                           |   |                                     | 10,779  |   |                                      |   | 11,703 |   |   |   | 30,976 |   |   |   | 35,208 |   |
| Acquisition      related charge (credit)                  |   |                                     | (795    | )      |                                      |   | 9,783 |   |   |   | (795 | ) |   |   | 9,783 |   |
| Research      and development                             |   |                                     | 2,862   |   |                                      |   | 4,527 |   |   |   | 9,512 |   |   |   | 10,979 |   |
| Restructuring      - plant closure and severance          |   |                                     | 88      |   |                                      |   | - |   |   |   | 11,931 |   |   |   | - |   |
| Goodwill      impairment                                  |   |                                     | -       |   |                                      |   | - |   |   |   | 3,832 |   |   |   | - |   |
|                                                      |   |                                     | 19,692  |   |                                      |   | 34,456 |   |   |   | 76,099 |   |   |   | 80,936 |   |
| INCOME      (LOSS) FROM OPERATIONS                        |   |                                     | 8,933   |   |                                      |   | 32,208 |   |   |   | (823 | ) |   |   | 132,818 |   |
| OTHER      INCOME (EXPENSE):                              |   |                                     |    |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Interest      income                                      |   |                                     | 901     |   |                                      |   | 1,772 |   |   |   | 2,424 |   |   |   | 6,273 |   |
| Interest      expense                                     |   |                                     | (1,520  | )      |                                      |   | (1,977 | ) |   |   | (5,469 | ) |   |   | (5,891 | ) |
| Gain      on early extinguishment of debt                 |   |                                     | 96      |   |                                      |   | - |   |   |   | 1,881 |   |   |   | - |   |
| Loss      on auction rate securities                      |   |                                     | (1,849  | )      |                                      |   | (2,958 | ) |   |   | (3,480 | ) |   |   | (3,545 | ) |
| Miscellaneous                                             |   |                                     | (197    | )      |                                      |   | 382 |   |   |   | (694 | ) |   |   | 1,702 |   |
|                                                      |   |                                     | (2,569  | )      |                                      |   | (2,781 | ) |   |   | (5,338 | ) |   |   | (1,461 | ) |
| INCOME      (LOSS) BEFORE PROVISION FOR INCOME TAXES |   |                                     | 6,364   |   |                                      |   | 29,427 |   |   |   | (6,161 | ) |   |   | 131,357 |   |
| PROVISION      (BENEFIT) FOR INCOME TAXES                 |   |                                     | 1,428   |   |                                      |   | 10,609 |   |   |   | (595 | ) |   |   | 47,546 |   |
| NET      INCOME (LOSS)                                    |   | $                                        | 4,936   |   |                                      | $      | 18,818 |   |   | $ | (5,566 | ) |   | $ | 83,811 |   |
| BASIC      INCOME (LOSS) PER SHARE                        |   | $                                        | 0.19    |   |                                      | $      | 0.72 |   |   | $ | (0.22 | ) |   | $ | 3.15 |   |
| DILUTED      INCOME (LOSS) PER SHARE                      |   | $                                        | 0.19    |   |                                      | $      | 0.71 |   |   | $ | (0.22 | ) |   | $ | 3.12 |   |
| WEIGHTED      AVERAGE SHARES OUTSTANDING:                 |   |                                     |    |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| BASIC                                                     |   |                                     | 25,681  |   |                                      |   | 26,272 |   |   |   | 25,737 |   |   |   | 26,568 |   |
| DILUTED                                                   |   |                                     | 25,798  |   |                                      |   | 26,563 |   |   |   | 25,737 |   |   |   | 26,888 |   |

----

|                                                                                               |   | Nine      Months Ended September      30, |     |
|----------------------------------------------------------------------------------------------------|--------|-------------------------------------------|----------|
|                                                                                               |   | 2009                                      |     |   | 2008 |   |
|                                                                                               |   | (Unaudited)                               |     |
| CASH      FLOWS FROM OPERATING ACTIVITIES:                                                         |   |                                      |     |   |   |   |
| Net      (loss) income                                                                             |   | $                                         | (5,566   | ) |   | $ | 83,811 |   |
| ADJUSTMENTS      TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING      ACTIVITIES: |   |                                      |     |   |   |   |   |   |
| Depreciation      and amortization                                                                 |   |                                      | 28,649   |   |   |   | 30,122 |   |
| Non      cash interest expense on convertible debt                                                 |   |                                      | 2,817    |   |   |   | 2,887 |   |
| Gain      on early extinguishment of debt                                                          |   |                                      | (1,880   | ) |   |   | - |   |
| Payments      of accreted interest on repurchased convertible debt                                 |   |                                      | (2,956   | ) |   |   | - |   |
| Deferred      income taxes                                                                         |   |                                      | (3,047   | ) |   |   | (656 | ) |
| Stock      compensation                                                                            |   |                                      | 2,906    |   |   |   | 2,233 |   |
| Loss      on marketable securities                                                                 |   |                                      | 3,480    |   |   |   | 3,545 |   |
| Goodwill      impairment                                                                           |   |                                      | 3,832    |   |   |   | - |   |
| Loss      on equipment disposal                                                                    |   |                                      | 425      |   |   |   | 125 |   |
| Change      in operating assets and liabilities (net of effect of businesses      acquired):       |   |                                      |     |   |   |   |   |   |
| Accounts      receivable, net                                                                      |   |                                      | 94       |   |   |   | 22,680 |   |
| Other      receivables                                                                             |   |                                      | 1,352    |   |   |   | (3,597 | ) |
| Inventories,      net                                                                              |   |                                      | 5,387    |   |   |   | (5,079 | ) |
| Production      tooling, net                                                                       |   |                                      | 995      |   |   |   | 2,597 |   |
| Prepaid      expenses and other assets                                                             |   |                                      | 476      |   |   |   | (18,129 | ) |
| Accounts      payable and accrued expenses                                                         |   |                                      | 8,985    |   |   |   | (5,456 | ) |
| Income      taxes payable                                                                          |   |                                      | 1,900    |   |   |   | 549 |   |
| Other      long term liability                                                                     |   |                                      | (510     | ) |   |   | 10,350 |   |
| Employee      benefits                                                                             |   |                                      | 1,071    |   |   |   | 1,014 |   |
| NET      CASH PROVIDED BY OPERATING ACTIVITES                                                      |   |                                      | 48,410   |   |   |   | 126,996 |   |
| CASH      FLOWS FROM INVESTING ACTIVITIES:                                                         |   |                                      |     |   |   |   |   |   |
| Purchases      of property, plant and equipment                                                    |   |                                      | (13,588  | ) |   |   | (35,938 | ) |
| Changes      in restricted cash                                                                    |   |                                      | (428     | ) |   |   | (39 | ) |
| Purchases      of marketable securities                                                            |   |                                      | (136,173 | ) |   |   | - |   |
| Proceeds      from sales and maturities of marketable securities                                   |   |                                      | 64,051   |   |   |   | 21,700 |   |
| Cash      paid for acquisitions                                                                    |   |                                      | (9,655   | ) |   |   | (26,855 | ) |
| Proceeds      from sale of equipment                                                               |   |                                      | 72       |   |   |   | 24 |   |
| NET      CASH USED IN INVESTING ACTIVITIES                                                         |   |                                      | (95,721  | ) |   |   | (41,108 | ) |
| CASH      FLOWS FROM FINANCING ACTIVITIES:                                                         |   |                                      |     |   |   |   |   |   |
| Proceeds      from issuance of stock due to exercise of options                                    |   |                                      | 14       |   |   |   | 302 |   |
| Excess      tax benefit due to exercise of stock options                                           |   |                                      | 24       |   |   |   | 287 |   |
| Shares      repurchased                                                                            |   |                                      | (5,099   | ) |   |   | (34,919 | ) |
| Reduction      on long term debt                                                                   |   |                                      | (20,239  | ) |   |   | - |   |
| NET      CASH USED IN FINANCING ACTIVITIES                                                         |   |                                      | (25,300  | ) |   |   | (34,330 | ) |
| EFFECT      OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS                                         |   |                                      | 1,047    |   |   |   | (2,175 | ) |
| (DECREASE)      INCREASE IN CASH AND CASH EQUIVALENTS                                              |   |                                      | (71,564  | ) |   |   | 49,383 |   |
| CASH      AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                |   |                                      | 215,282  |   |   |   | 155,103 |   |
| CASH      AND CASH EQUIVALENTS, END OF PERIOD                                                      |   | $                                         | 143,718  |   |   | $ | 204,486 |   |
| SUPPLEMENTAL      DISCLOSURES OF CASH FLOW ACTIVITIES:                                             |   |                                      |     |   |   |   |   |   |
| Interest      paid                                                                                 |   | $                                         | 1,555    |   |   | $ | 1,744 |   |
| Income      taxes paid                                                                             |   | $                                         | 692      |   |   | $ | 62,692 |   |

----

| 1.   | Basis of      Presentation |
|----------------|----------------------------|

| 2.   | Share Based      Compensation |
|----------------|-------------------------------|

----

|                                                    |   | Three      Months Ended September      30, |   |   | Nine      Months Ended September      30, |   |
|---------------------------------------------------------|--------|--------------------------------------------|--------|--------|-------------------------------------------|--------|
|                                                    |   | 2009                                       |   |   | 2008                                      |   |   | 2009 |   |   | 2008 |   |
| Share-based      compensation expense recognized:       |   |                                       |   |   |                                      |   |   |   |   |   |   |   |
| General      and administrative, options                |   | $                                          | 45     |   |                                      | $      | 112 |   |   | $ | 185 |   |   | $ | 345 |   |
| General      and administrative, restricted stock units |   |                                       | 1,085  |   |                                      |   | 728 |   |   |   | 2,722 |   |   |   | 1,887 |   |
| Related      deferred income tax benefit                |   |                                       | (450   | )      |                                      |   | (305 | ) |   |   | (1,158 | ) |   |   | (810 | ) |
| Decrease      in net income                             |   | $                                          | 680    |   |                                      | $      | 535 |   |   | $ | 1,749 |   |   | $ | 1,422 |   |
| Decrease      in basic earnings per share               |   | $                                          | 0.03   |   |                                      | $      | 0.02 |   |   | $ | 0.07 |   |   | $ | 0.05 |   |
| Decrease      in diluted earnings per share             |   | $                                          | 0.03   |   |                                      | $      | 0.02 |   |   | $ | 0.07 |   |   | $ | 0.05 |   |

|                                 |   | Nine      Months Ended September      30, 2009 |    |
|--------------------------------------|--------|------------------------------------------------|---------|
|                                 |   | Number      ofOptions                          |    |   | Weighted      AverageExercisePrice |   |
| Outstanding,      December 31, 2008  |   |                                           | 462,900 |   |   | $ | 12.14 |   |
| Options      granted                 |   |                                           | -       |   |   | $ | - |   |
| Options      exercised               |   |                                           | (3,400  | ) |   | $ | 3.55 |   |
| Options      cancelled               |   |                                           | -       |   |   | $ | - |   |
| Outstanding,      September 30, 2009 |   |                                           | 459,500 |   |   | $ | 12.28 |   |
| Exercisable,      September 30, 2009 |   |                                           | 453,500 |   |   | $ | 12.19 |   |

|                                        |   | Nine      Months Ended September      30, 2009 |    |
|---------------------------------------------|--------|------------------------------------------------|---------|
|                                        |   | Number      ofUnits                            |    |   | Weighted      AverageGrant      Fair Value |   |
| Non-vested      Units at December 31, 2008  |   |                                           | 271,264 |   |   | $ | 45.90 |   |
| Granted                                     |   |                                           | 181,350 |   |   | $ | 19.48 |   |
| Forfeited                                   |   |                                           | (23,350 | ) |   | $ | 44.98 |   |
| Vested                                      |   |                                           | (81,640 | ) |   | $ | 41.48 |   |
| Non-vested      Units at September 30, 2009 |   |                                           | 347,624 |   |   | $ | 33.22 |   |

----

|                          |               | Outstanding           |   | Exercisable                                  |   |
|-------------------------------|--------------------|-----------------------|--------|----------------------------------------------|--------|
| Range      of Exercise Prices |               | Number ofOptions |   | AverageRemainingContractualLife      (Years) |   |   | WeightedAverageExercisePrice |   |   | AggregateIntrinsicValue(000s) |   | Number ofOptions |   | AverageRemainingContractualLife      (Years) |   |   | WeightedAverageExercisePrice |   |   | AggregateIntrinsicValue(000s) |   |
| $                             | 2.98 - $4.58  |                  |   | 211,475                                      |   |   | 2.34 |   |   | $ | 4.12 |   |   | $ | 3,005 |   |   | 211,475 |   |   | 2.34 |   |   | $ | 4.12 |   |   | $ | 3,005 |   |
| $                             | 10.53 - $16.89     |                  |   | 122,025                                      |   |   | 3.95 |   |   | $ | 16.89 |   |   | $ | 176 |   |   | 122,025 |   |   | 3.95 |   |   | $ | 16.89 |   |   | $ | 176 |   |
| $                             | 18.80 - $24.07     |                  |   | 126,000                                      |   |   | 4.97 |   |   | $ | 21.51 |   |   | $ | - |   |   | 120,000 |   |   | 4.94 |   |   | $ | 21.63 |   |   | $ | - |   |
|                          |               |                  |   | 459,500                                      |   |   | 3.49 |   |   | $ | 12.28 |   |   | $ | 3,181 |   |   | 453,500 |   |   | 3.46 |   |   | $ | 12.19 |   |   | $ | 3,181 |   |

|                                                     |   |   | Outstanding         |    |
|----------------------------------------------------------|--------|--------|---------------------|---------|
| Range      of Grant Prices                               |   |   | Number ofUnits |    |   | AverageRemainingContractualLife      (Years) |   |   | WeightedAverageGrantFair      Value |   |
| $16.53      - $22.68                                     |   |   |                | 176,150 |   |   |   | 3.82 |   |   | $       19.80 |   |
| $37.41 -      $39.43       |   |   |                | 80,084  |   |   |   | 3.47 |   |   | $       38.60 |   |
| $42.28      - $45.70                                     |   |   |                | 44,900  |   |   |   | 3.38 |   |   | $       44.51 |   |
| $52.47      - $62.07                                     |   |   |                | 26,220  |   |   |   | 1.97 |   |   | $       58.70 |   |
| $66.35      - $81.18                                     |   |   |                | 20,270  |   |   |   | 2.42 |   |   | $       70.56 |   |
|                                                     |   |   |                | 347,624 |   |   |   | 3.46 |   |   | $       33.22 |   |

| 3.   | Net Income Per      Share |
|----------------|---------------------------|

|                                                     |   | Three      Months Ended September 30, |       |   | Nine      Months Ended September 30, |   |
|----------------------------------------------------------|--------|---------------------------------------|------------|--------|--------------------------------------|--------|
|                                                     |   | 2009                                  |       |   | 2008                                 |   |   | 2009 |   |   | 2008 |   |
| Weighted      average number of shares outstanding       |   |                                  | 25,680,741 |   |                                 |   | 26,271,812 |   |   |   | 25,737,162 |   |   |   | 26,568,011 |   |
| Dilutive      stock options                              |   |                                  | 117,247    |   |                                 |   | 261,487 |   |   |   | - |   |   |   | 256,585 |   |
| Dilutive      restricted stock units                     |   |                                  | -          |   |                                 |   | 30,066 |   |   |   | - |   |   |   | 63,655 |   |
| Dilutive      contingent convertible debt common shares  |   |                                  | -          |   |                                 |   | - |   |   |   | - |   |   |   | - |   |
| Number      of shares used in fully diluted computations |   |                                  | 25,797,988 |   |                                 |   | 26,563,365 |   |   |   | 25,737,162 |   |   |   | 26,888,251 |   |

----

| 4.   | Composition of Certain      Financial Statement Captions |
|----------------|----------------------------------------------------------|

|                |   | September      30, 2009 |   |   | December      31, 2008 |   |
|---------------------|--------|-------------------------|--------|--------|------------------------|--------|
| Raw      materials  |   | $                       | 15,823 |   |                   | $      | 18,377 |   |
| Work-in-process     |   |                    | 46,544 |   |                   |   | 45,180 |   |
| Finished      goods |   |                    | 36,384 |   |                   |   | 37,460 |   |
|                |   | $                       | 98,751 |   |                   | $      | 101,017 |   |

|                                                |   | September      30, 2009 |     |   | December      31, 2008 |   |
|-----------------------------------------------------|--------|-------------------------|----------|--------|------------------------|--------|
| Land                                                |   | $                       | 19,518   |   |                   | $      | 17,073 |   |
| Buildings      and improvements                     |   |                    | 101,165  |   |                   |   | 97,234 |   |
| Machinery      and equipment                        |   |                    | 220,174  |   |                   |   | 202,963 |   |
| Leasehold      improvements                         |   |                    | 10,384   |   |                   |   | 8,241 |   |
| Office      equipment                               |   |                    | 28,851   |   |                   |   | 26,175 |   |
| Construction      in progress                       |   |                    | 8,058    |   |                   |   | 13,469 |   |
|                                                |   |                    | 388,150  |   |                   |   | 365,155 |   |
| Less      accumulated depreciation and amortization |   |                    | (140,787 | )      |                   |   | (113,227 | ) |
|                                                |   | $                       | 247,363  |   |                   | $      | 251,928 |   |

|                              |   | September      30, 2009 |    |   | December      31, 2008  |   |
|-----------------------------------|--------|-------------------------|---------|--------|-------------------------|--------|
|                              |   | GrossAmount             |    |   | AccumulatedAmortization |   |   | NetAmount |   |   | GrossAmount |   |   | AccumulatedAmortization |   |   | NetAmount |   |
| Amortizing      Intangible Assets |   |                    |    |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Backlog                           |   | $                       | 1,284   |   |                    | $      | 1,284 |   |   | $ | - |   |   | $ | 1,795 |   |   | $ | 1,795 |   |   | $ | - |   |
| Developed      technology         |   |                    | 51,893  |   |                    |   | 5,009 |   |   |   | 46,884 |   |   |   | 42,489 |   |   |   | 3,106 |   |   |   | 39,383 |   |
| Tradename                         |   |                    | 1,110   |   |                    |   | 418 |   |   |   | 692 |   |   |   | 1,110 |   |   |   | 302 |   |   |   | 808 |   |
| Customer      relationships       |   |                    | 47,604  |   |                    |   | 6,858 |   |   |   | 40,746 |   |   |   | 46,604 |   |   |   | 4,465 |   |   |   | 42,139 |   |
| Non-compete      agreement        |   |                    | 500     |   |                    |   | 500 |   |   |   | - |   |   |   | 500 |   |   |   | 500 |   |   |   | - |   |
| Non-amortizing      tradename     |   |                    | 2,058   |   |                    |   | - |   |   |   | 2,058 |   |   |   | 2,054 |   |   |   | - |   |   |   | 2,054 |   |
| Total                             |   | $                       | 104,449 |   |                    | $      | 14,069 |   |   | $ | 90,380 |   |   | $ | 94,552 |   |   | $ | 10,168 |   |   | $ | 84,384 |   |

| Identified Intangible Asset |   | Estimated Useful Life in Years or      Months |
|-----------------------------|--------|-----------------------------------------------|
| Developed      technology   |   | 10      years – 12.5 years              |
| Tradename                   |   | 10      years                                 |
| Customer      relationships |   | 10      years – 12.5 years              |
| Backlog                     |   | 1      month – 3 months                 |
| Non-compete      agreement  |   | 15      months                                |

----

|                                   |   | ACO    |   |   | Semicon |   |   | Thermo |   |   | ESK    |   |   | Canada |   |   | Boron  |   |   | Total  |   |
|----------------------------------------|--------|--------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Balance      at December 31, 2008 |   |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Goodwill                               |   | $      | 2,608  |   |    | $      | 603    |   |   | $      | 10,331 |   |   | $      | 9,699  |   |   | $      | 3,832  |   |   | $ | 18,251 |   |   | $ | 45,324 |   |
| Accumulated      Impairment Losses     |   |   | -      |   |    |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | - |   |   |   | - |   |
|                                   |   |   | 2,608  |   |    |   | 603    |   |   |   | 10,331 |   |   |   | 9,699  |   |   |   | 3,832  |   |   |   | 18,251 |   |   |   | 45,324 |   |
| Acquisition      of Diaphorm           |   |   | 2,100  |   |    |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | - |   |   |   | 2,100 |   |
| Goodwill      impairment               |   |   | -      |   |    |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | (3,832 | )      |   |   | - |   |   |   | (3,832 | ) |
| Translation                            |   |   | -      |   |    |   | -      |   |   |   | -      |   |   |   | 504    |   |   |   | -      |   |   |   | - |   |   |   | 504 |   |
| Balance      at September 30, 2009     |   |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Goodwill                               |   |   | 4,708  |   |    |   | 603    |   |   |   | 10,331 |   |   |   | 10,203 |   |   |   | 3,832  |   |   |   | 18,251 |   |   |   | 44,096 |   |
| Accumulated      Impairment Losses     |   |   | -      |   |    |   | -      |   |   |   | -      |   |   |   | -      |   |   |   | (3,832 | )      |   |   | - |   |   |   | - |   |
|                                   |   | $      | 4,708  |   |    | $      | 603    |   |   | $      | 10,331 |   |   | $      | 10,203 |   |   | $      | -      |   |   | $ | 18,251 |   |   | $ | 44,096 |   |

| Cash      consideration paid at closing        |   | $      | 9,654  |   |
|------------------------------------------------|--------|--------|--------|--------|
| Accrued      contingent purchase consideration |   |   | 5,100  |   |
| Total      purchase price                      |   | $      | 14,754 |   |

| Accounts      receivable, net               |   | $      | 466    |   |
|---------------------------------------------|--------|--------|--------|--------|
| Inventories                                 |   |   | 1,602  |   |
| Other      current assets                   |   |   | 221    |   |
| Property,      plant and equipment          |   |   | 1,225  |   |
| Intangible      assets                      |   |   | 9,414  |   |
| Goodwill                                    |   |   | 2,100  |   |
| Accounts      payable and other liabilities |   |   | (274   | )      |
|                                        |   | $      | 14,754 |   |

----

----

| 5.   | Stock      Repurchases |
|----------------|------------------------|

| 6.   | Fair Value      Measurements |
|----------------|------------------------------|

----

    -  Probability  of earning maximum rate until maturity 
    -  Probability  of passing auction at some point in the future 
    -  Probability  of default at some point in the future (with appropriate loss severity  assumptions) 

----

|                                                       |   | Fair      Value Measurements at September      30, 2009 Using |                                                                            |   |                                                   |   |
|------------------------------------------------------------|--------|--------------------------------------------------------------------|---------------------------------------------------------------------------------|--------|--------------------------------------------------------|--------|
| (In      thousands)                                        |   | Quoted      Prices in Active Markets (Level      1)           |                                                                            |   | Significant      Other Observable Inputs(Level      2) |   |   | Significant      Unobservable Inputs(Level      3) |   |   | Total      Carrying Value at September      30, 2009 |   |
| Cash      and cash equivalents (including restricted cash) |   | $                                                                  | 146,848                                                                         |   |                                                   | $      | - |   |   | $ | - |   |   | $ | 146,848 |   |
| Short      term investments                                |   |                                                               |       78,739                                      |   |                                                   |   |  - |   |   |   |  - |   |   |   | 78,739 |   |
| Long      term investments                                 |   |                                                               |              - |   |                                                   |   |  - |   |   |   | 24,978 |   |   |   | 24,978 |   |
| Other      long term financial asset                       |   |                                                               |       1,902                                       |   |                                                   |   |  - |   |   |   | - |   |   |   | 1,902 |   |
| Derivative      instrument                                 |   |                                                               |       7,307                                       |   |                                                   |   |        - |   |   |   | - |   |   |   |            7,307 |   |

|                                                       |   | Fair      Value Measurements at December      31, 2008 Using |                                                          |   |                                                   |   |
|------------------------------------------------------------|--------|-------------------------------------------------------------------|---------------------------------------------------------------|--------|--------------------------------------------------------|--------|
| (In      thousands)                                        |   | Quoted      Prices in Active Markets (Level      1)          |                                                          |   | Significant      Other Observable Inputs(Level      2) |   |   | Significant      Unobservable Inputs(Level      3) |   |   | Total      Carrying Value at December      31, 2008 |   |
| Cash      and cash equivalents (including restricted cash) |   | $                                                                 | 217,984                                                       |   |                                                   | $      | - |   |   | $ | - |   |   | $ | 217,984 |   |
| Short      term investments                                |   |                                                              |    6,140                                       |   |                                                   |   |  - |   |   |   |  - |   |   |   |    6,140 |   |
| Long      term investments                                 |   |                                                              |           - |   |                                                   |   |  - |   |   |   | 24,434 |   |   |   | 24,434 |   |
| Other      long term financial asset                       |   |                                                              |    1,355                                       |   |                                                   |   |  - |   |   |   | - |   |   |   |    1,355 |   |

|                                                               |   | Three      Months Ended September      30, |   |   | Nine Months EndedSeptember30, |   |
|--------------------------------------------------------------------|--------|--------------------------------------------|--------|--------|-------------------------------|--------|
|                                                               |   | 2009                                       |   |   | 2008                          |   |   | 2009 |   |   | 2008 |   |
| Balance      at beginning of period                                |   | $                                          | 25,383 |   |                          | $      | 35,041 |   |   | $ | 24,434 |   |   | $ | 38,089 |   |
| Unrealized      loss included in net earnings                      |   |                                       | (1,849 | )      |                          |   | (2,958 | ) |   |   | (3,480 | ) |   |   | (3,545 | ) |
| Unrealized      gain (loss) included in other comprehensive income |   |                                       | 1,444  |   |                          |   | (2,594 | ) |   |   | 4,024 |   |   |   | (5,055 | ) |
| Balance      at end of period                                      |   | $                                          | 24,978 |   |                          | $      | 29,489 |   |   | $ | 24,978 |   |   | $ | 29,489 |   |

----

| 7.   | Recent Accounting      Pronouncements |
|----------------|---------------------------------------|

----

| 8.   | Convertible Debt and      Credit Facility |
|----------------|-------------------------------------------|

|                                                                                                                                   |   | Net      Increase (Decrease) |    |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|---------|
|                                                                                                                                   |   | Long-Term      Debt          |    |   | Debt      Issuance      Costs |   |   | Deferred      Tax      Liability |   |   | Additional      Paid      In Capital |   |   | Retained      Earnings |   |
| Allocation      of long term debt proceeds and issuance costs  to      equity component on issuance date                     |   | $                            | (29,261 | ) |   | $ | (1,018 | ) |   | $ | 11,015 |   |   | $ | 17,228 |   |   | $ | - |   |
| Cumulative      retrospective impact from amortization of  discount      on liability component and debt issuance costs      |   |                         | 7,009   |   |   |   | 385 |   |   |   | (2,584 | ) |   |   | - |   |   |   | (4,040 | ) |
| Cumulative      retrospective impact at January 1, 2008                                                                                |   |                         | (22,252 | ) |   |   | (633 | ) |   |   | 8,431 |   |   |   | 17,228 |   |   |   | (4,040 | ) |
| Retrospective      impact from amortization of discount on  liability      component and debt issuance costs during the year |   |                         | 3,883   |   |   |   | 163 |   |   |   | (1,450 | ) |   |   | - |   |   |   | (2,270 | ) |
| Cumulative      retrospective impact at December 31, 2008                                                                              |   | $                            | (18,369 | ) |   | $ | (470 | ) |   | $ | 6,981 |   |   | $ | 17,228 |   |   | $ | (6,310 | ) |

----

|                                                         |   | September      30, 2009 |    |   | December      31, 2008 |   |
|--------------------------------------------------------------|--------|-------------------------|---------|--------|------------------------|--------|
| Long-term      debt                                          |   |                    |    |   |                   |   |
|   Principal      amount                            |   | $                       | 93,100  |   |                   | $      | 121,000 |   |
|   Unamortized      discount                        |   |                    | (11,762 | )      |                   |   | (18,369 | ) |
|       Net      carrying amount |   | $                       | 81,338  |   |                   | $      | 102,631 |   |
| Equity      component, net of income tax benefit             |   | $                       | 18,233  |   |                   | $      | 17,228 |   |

----

| 9.   | Disclosure About      Segments of an Enterprise and Related  Information |
|----------------|--------------------------------------------------------------------------|

----

|                                                         |   | Three      Months Ended September      30, |    |   | Nine      Months Ended September      30, |   |
|--------------------------------------------------------------|--------|--------------------------------------------|---------|--------|-------------------------------------------|--------|
|                                                         |   | 2009                                       |    |   | 2008                                      |   |   | 2009 |   |   | 2008 |   |
| Revenue from External    Customers                           |   |                                       |    |   |                                      |   |   |   |   |   |   |   |
| ACO                                                          |   | $                                          | 60,591  |   |                                      | $      | 110,115 |   |   | $ | 169,453 |   |   | $ | 359,438 |   |
| ESK      Ceramics                                            |   |                                       | 27,971  |   |                                      |   | 38,032 |   |   |   | 75,636 |   |   |   | 122,961 |   |
| Semicon      Associates                                      |   |                                       | 1,834   |   |                                      |   | 2,264 |   |   |   | 5,854 |   |   |   | 6,609 |   |
| Thermo      Materials                                        |   |                                       | 16,446  |   |                                      |   | 20,675 |   |   |   | 47,970 |   |   |   | 59,707 |   |
| Ceradyne      Canada                                         |   |                                       | 300     |   |                                      |   | 91 |   |   |   | 618 |   |   |   | 4,899 |   |
| Boron                                                        |   |                                       | 5,748   |   |                                      |   | 4,308 |   |   |   | 19,200 |   |   |   | 14,548 |   |
| Inter-segment      elimination                               |   |                                       | (4,936  | )      |                                      |   | (7,739 | ) |   |   | (15,738 | ) |   |   | (26,904 | ) |
| Total                                                        |   | $                                          | 107,954 |   |                                      | $      | 167,746 |   |   | $ | 302,993 |   |   | $ | 541,258 |   |
| Depreciation and    Amortization                             |   |                                       |    |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| ACO                                                          |   | $                                          | 2,583   |   |                                      | $      | 3,134 |   |   | $ | 7,851 |   |   | $ | 8,125 |   |
| ESK      Ceramics                                            |   |                                       | 3,907   |   |                                      |   | 3,434 |   |   |   | 10,905 |   |   |   | 9,944 |   |
| Semicon      Associates                                      |   |                                       | 84      |   |                                      |   | 465 |   |   |   | 270 |   |   |   | 640 |   |
| Thermo      Materials                                        |   |                                       | 1,161   |   |                                      |   | 1,465 |   |   |   | 3,411 |   |   |   | 4,051 |   |
| Ceradyne      Canada                                         |   |                                       | 347     |   |                                      |   | 256 |   |   |   | 988 |   |   |   | 749 |   |
| Boron                                                        |   |                                       | 1,298   |   |                                      |   | 3,300 |   |   |   | 5,224 |   |   |   | 6,613 |   |
| Total                                                        |   | $                                          | 9,380   |   |                                      | $      | 12,054 |   |   | $ | 28,649 |   |   | $ | 30,122 |   |
| Segment Income (Loss) before Provision for Income      Taxes |   |                                       |    |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| ACO                                                          |   | $                                          | 6,365   |   |                                      | $      | 34,449 |   |   | $ | 15,456 |   |   | $ | 118,837 |   |
| ESK      Ceramics                                            |   |                                       | (3,002  | )      |                                      |   | (79 | ) |   |   | (23,081 | ) |   |   | 5,302 |   |
| Semicon      Associates                                      |   |                                       | 114     |   |                                      |   | 341 |   |   |   | 587 |   |   |   | 1,079 |   |
| Thermo      Materials                                        |   |                                       | 3,644   |   |                                      |   | 6,815 |   |   |   | 10,842 |   |   |   | 15,833 |   |
| Ceradyne      Canada                                         |   |                                       | (667    | )      |                                      |   | (344 | ) |   |   | (6,278 | ) |   |   | 362 |   |
| Boron                                                        |   |                                       | (83     | )      |                                      |   | (12,836 | ) |   |   | (3,735 | ) |   |   | (12,503 | ) |
| Inter-segment      elimination                               |   |                                       | (7      | )      |                                      |   | 1,081 |   |   |   | 48 |   |   |   | 2,447 |   |
| Total                                                        |   | $                                          | 6,364   |   |                                      | $      | 29,427 |   |   | $ | (6,161 | ) |   | $ | 131,357 |   |
| Segment Assets                                               |   |                                       |    |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| ACO                                                          |   | $                                          | 399,021 |   |                                      | $      | 388,011 |   |   | $ | 399,021 |   |   | $ | 388,011 |   |
| ESK      Ceramics                                            |   |                                       | 214,064 |   |                                      |   | 231,745 |   |   |   | 214,064 |   |   |   | 231,745 |   |
| Semicon      Associates                                      |   |                                       | 5,724   |   |                                      |   | 6,008 |   |   |   | 5,724 |   |   |   | 6,008 |   |
| Thermo      Materials                                        |   |                                       | 107,104 |   |                                      |   | 91,234 |   |   |   | 107,104 |   |   |   | 91,234 |   |
| Ceradyne      Canada                                         |   |                                       | 17,038  |   |                                      |   | 22,548 |   |   |   | 17,038 |   |   |   | 22,548 |   |
| Boron                                                        |   |                                       | 113,438 |   |                                      |   | 121,915 |   |   |   | 113,438 |   |   |   | 121,915 |   |
| Total                                                        |   | $                                          | 856,389 |   |                                      | $      | 861,461 |   |   | $ | 856,389 |   |   | $ | 861,461 |   |
| Expenditures for Property, Plant &      Equipment        |   |                                       |    |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| ACO                                                          |   | $                                          | 629     |   |                                      | $      | 1,780 |   |   | $ | 2,761 |   |   | $ | 4,247 |   |
| ESK      Ceramics                                            |   |                                       | (426    | )      |                                      |   | 3,266 |   |   |   | 2,568 |   |   |   | 18,609 |   |
| Semicon      Associates                                      |   |                                       | 49      |   |                                      |   | 391 |   |   |   | 124 |   |   |   | 508 |   |
| Thermo      Materials                                        |   |                                       | 795     |   |                                      |   | 2,383 |   |   |   | 7,512 |   |   |   | 9,042 |   |
| Ceradyne      Canada                                         |   |                                       | (44     | )      |                                      |   | 275 |   |   |   | 119 |   |   |   | 1,761 |   |
| Boron                                                        |   |                                       | 184     |   |                                      |   | 1,507 |   |   |   | 504 |   |   |   | 1,771 |   |
| Total                                                        |   | $                                          | 1,187   |   |                                      | $      | 9,602 |   |   | $ | 13,588 |   |   | $ | 35,938 |   |
|                                                         |   |                                       |    |   |                                      |   |   |   |   |   |   |   |   |   |   |   |

----

|                                                               |   | Three      Months Ended September      30, |   |   | Nine      Months Ended September      30, |   |
|--------------------------------------------------------------------|--------|--------------------------------------------|--------|--------|-------------------------------------------|--------|
|                                                               |   | 2009                                       |   |   | 2008                                      |   |   | 2009 |   |   | 2008 |   |
| Percentage of U.S. net sales from external      customers          |   |                                       |   |   |                                      |   |   |   |   |   |   |   |
| ACO                                                                |   |                                       | 55     | %      |                                      |   | 62 | % |   |   | 55 | % |   |   | 63 | % |
| ESK      Ceramics                                                  |   |                                       | 2      | %      |                                      |   | 3 | % |   |   | 3 | % |   |   | 2 | % |
| Semicon      Associates                                            |   |                                       | 1      | %      |                                      |   | 1 | % |   |   | 1 | % |   |   | 1 | % |
| Thermo      Materials                                              |   |                                       | 6      | %      |                                      |   | 4 | % |   |   | 6 | % |   |   | 4 | % |
| Ceradyne      Canada                                               |   |                                       | 0      | %      |                                      |   | 0 | % |   |   | 0 | % |   |   | 1 | % |
| Boron                                                              |   |                                       | 4      | %      |                                      |   | 1 | % |   |   | 3 | % |   |   | 2 | % |
| Total      percentage of U.S. net sales from external customers    |   |                                       | 68     | %      |                                      |   | 71 | % |   |   | 68 | % |   |   | 73 | % |
| Percentage of foreign net sales from external      customers       |   |                                       |   |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| ACO                                                                |   |                                       | 2      | %      |                                      |   | 3 | % |   |   | 2 | % |   |   | 3 | % |
| ESK      Ceramics                                                  |   |                                       | 21     | %      |                                      |   | 17 | % |   |   | 19 | % |   |   | 16 | % |
| Semicon      Associates                                            |   |                                       | 0      | %      |                                      |   | 0 | % |   |   | 0 | % |   |   | 0 | % |
| Thermo      Materials                                              |   |                                       | 8      | %      |                                      |   | 8 | % |   |   | 8 | % |   |   | 7 | % |
| Ceradyne      Canada                                               |   |                                       | 0      | %      |                                      |   | 0 | % |   |   | 0 | % |   |   | 0 | % |
| Boron                                                              |   |                                       | 1      | %      |                                      |   | 1 | % |   |   | 3 | % |   |   | 1 | % |
| Total      percentage of foreign net sales from external customers |   |                                       | 32     | %      |                                      |   | 29 | % |   |   | 32 | % |   |   | 27 | % |
|  Percentage of total net sales from      external customers   |   |                                       |   |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| ACO                                                                |   |                                       | 57     | %      |                                      |   | 65 | % |   |   | 57 | % |   |   | 66 | % |
| ESK      Ceramics                                                  |   |                                       | 23     | %      |                                      |   | 20 | % |   |   | 22 | % |   |   | 18 | % |
| Semicon      Associates                                            |   |                                       | 1      | %      |                                      |   | 1 | % |   |   | 1 | % |   |   | 1 | % |
| Thermo      Materials                                              |   |                                       | 14     | %      |                                      |   | 12 | % |   |   | 14 | % |   |   | 11 | % |
| Ceradyne      Canada                                               |   |                                       | 0      | %      |                                      |   | 0 | % |   |   | 0 | % |   |   | 1 | % |
| Boron                                                              |   |                                       | 5      | %      |                                      |   | 2 | % |   |   | 6 | % |   |   | 3 | % |
| Total      percentage of total net sales from external customers   |   |                                       | 100    | %      |                                      |   | 100 | % |   |   | 100 | % |   |   | 100 | % |

|         |   | Three      Months Ended September      30, |   |   | Nine      Months Ended September      30, |   |
|--------------|--------|--------------------------------------------|--------|--------|-------------------------------------------|--------|
|         |   | 2009                                       |   |   | 2008                                      |   |   | 2009 |   |   | 2008 |   |
| Armor        |   | $                                          | 54,022 |   |                                      | $      | 99,887 |   |   | $ | 151,222 |   |   | $ | 328,376 |   |
| Automotive   |   |                                       | 1,213  |   |                                      |   | 4,912 |   |   |   | 4,042 |   |   |   | 13,381 |   |
| Orthodontics |   |                                       | 2,375  |   |                                      |   | 2,148 |   |   |   | 7,446 |   |   |   | 8,136 |   |
| Industrial   |   |                                       | 2,981  |   |                                      |   | 3,168 |   |   |   | 6,743 |   |   |   | 9,545 |   |
|         |   | $                                          | 60,591 |   |                                      | $      | 110,115 |   |   | $ | 169,453 |   |   | $ | 359,438 |   |

| 10.   | Pension and Other      Post-retirement Benefit Plans |
|-----------------|------------------------------------------------------|

----

|                                   |   | Three      Months Ended September      30, |   |   | Nine      Months Ended September      30, |   |
|----------------------------------------|--------|--------------------------------------------|--------|--------|-------------------------------------------|--------|
|                                   |   | 2009                                       |   |   | 2008                                      |   |   | 2009 |   |   | 2008 |   |
| Service      cost                      |   | $                                          | 182    |   |                                      | $      | 140 |   |   | $ | 526 |   |   | $ | 423 |   |
| Interest      cost                     |   |                                       | 304    |   |                                      |   | 253 |   |   |   | 891 |   |   |   | 764 |   |
| Expected      return on plan assets    |   |                                       | (124   | )      |                                      |   | (174 | ) |   |   | (372 | ) |   |   | (522 | ) |
| Amortization      of unrecognized loss |   |                                       | 69     |   |                                      |   | — |   |   |   | 204 |   |   |   | — |   |
| Net      periodic benefit cost         |   | $                                          | 431    |   |                                      | $      | 219 |   |   | $ | 1,249 |   |   | $ | 665 |   |

| 11.   | Financial      Instruments |
|-----------------|----------------------------|

| 12.   | Income      Taxes |
|-----------------|-------------------|

|                                                                           |   | September      30, 2009 |   |   | December      31, 2008 |   |
|--------------------------------------------------------------------------------|--------|-------------------------|--------|--------|------------------------|--------|
| Federal,      state and foreign unrecognized tax benefits (“UTBs”) |   | $                       | 7,444  |   |                   | $      | 7,227 |   |
| Interest                                                                       |   |                    | 1,940  |   |                   |   | 1,903 |   |
| Federal/State      Benefit of Interest                                         |   |                    | (569   | )      |                   |   | (580 | ) |
| Total      reserve for UTBs                                                    |   | $                       | 8,815  |   |                   | $      | 8,550 |   |

----

| 13.   | Commitments and      Contingencies |
|-----------------|------------------------------------|

| 2009       |   | $      | 896   |   |
|------------|--------|--------|-------|--------|
| 2010       |   |   | 3,139 |   |
| 2011       |   |   | 1,134 |   |
| 2012       |   |   | 549   |   |
| 2013       |   |   | 229   |   |
| Thereafter |   |   | 35    |   |
|       |   | $      | 5,982 |   |

----

| 14.   | Comprehensive      Income |
|-----------------|---------------------------|

|                                |   | Three      Months Ended September      30, |   |   | Nine      Months Ended September      30, |   |
|-------------------------------------|--------|--------------------------------------------|--------|--------|-------------------------------------------|--------|
|                                |   | 2009                                       |   |   | 2008                                      |   |   | 2009 |   |   | 2008 |   |
| Net      income (loss)              |   | $                                          | 4,936  |   |                                      | $      | 18,818 |   |   | $ | (5,566 | ) |   | $ | 83,811 |   |
| Foreign      currency translation   |   |                                       | 7,790  |   |                                      |   | (23,139 | ) |   |   | 8,521 |   |   |   | (6,515 | ) |
| Unrealized      gain on investments |   |                                       | 1,050  |   |                                      |   | (1,582 | ) |   |   | 2,743 |   |   |   | (3,076 | ) |
| Comprehensive      income (loss)    |   | $                                          | 13,776 |   |                                      | $      | (5,322 | ) |   | $ | 5,698 |   |   | $ | 74,220 |   |

| 15.   | Restructuring – Plant      Closure and Severance |
|-----------------|--------------------------------------------------------|

----

|                                                                      |   | CostsIncurred |   |   | CashPayments |   |    | Non-CashAdjustments |   |   | Balance atSeptember      30,2009 |   |
|---------------------------------------------------------------------------|--------|---------------|--------|--------|--------------|--------|---------|---------------------|--------|--------|---------------------------------------|--------|
| Severance,      retention bonuses and other one-time termination benefits |   | $             | 11,520 |   |         | $      | (1,513  | )                   |   | $      | 670                                   |   |   | $ | 10,677 |   |
| Termination      of redundant supplier contracts                          |   |          | 151    |   |         |   | — |                |   |   | 7                                     |   |   |   | 158 |   |
| Legal      fees and other shutdown costs                                  |   |          | 260    |   |         |   | (92     | )                   |   |   | 7                                     |   |   |   | 175 |   |
|                                                                      |   | $             | 11,931 |   |         | $      | (1,605  | )                   |   | $      | 684                                   |   |   | $ | 11,010 |   |

| 16.   | Subsequent      Events |
|-----------------|------------------------|

----

|  Item      2. | Management's Discussion and Analysis of      Financial Condition and Results ofOperations |
|--------------------|-------------------------------------------------------------------------------------------|

| Preliminary Note      Regarding Forward-LookingStatements |
|-----------------------------------------------------------|

| Overview |
|----------|

|   | • | lightweight      ceramic armor and enhanced combat helmets for soldiers and other military      applications; |
|--------|---------|---------------------------------------------------------------------------------------------------------------|

|   | • | ceramic      industrial components for erosion and corrosion resistant      applications; |
|--------|---------|-------------------------------------------------------------------------------------------|

|   | • | ceramic      powders, including boron carbide, boron nitride, titanium diboride,      calcium hexaboride, zirconium diboride and fused silica, which are used in      manufacturing armor and a broad range of industrial products      and  consumer products; |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | evaporation      boats for metallization of materials for food packaging and other      products; |
|--------|---------|---------------------------------------------------------------------------------------------------|

|   | • | durable,      reduced friction, ceramic diesel engine  components; |
|--------|---------|--------------------------------------------------------------------|

|   | • | functional      and frictional coatings primarily for automotive    applications; |
|--------|---------|-----------------------------------------------------------------------------------|

|   | • | translucent      ceramic orthodontic brackets; |
|--------|---------|------------------------------------------------|

|   | • | ceramic-impregnated      dispenser cathodes for microwave tubes, lasers and cathode ray      tubes; |
|--------|---------|-----------------------------------------------------------------------------------------------------|

|   | • | ceramic      crucibles for melting silicon in the photovoltaic solar cell manufacturing      process; |
|--------|---------|-------------------------------------------------------------------------------------------------------|

|   | • | ceramic      missile radomes (nose cones) for the defense  industry; |
|--------|---------|----------------------------------------------------------------------|

|   | • | fused      silica powders for precision investment casting (PIC) and ceramic      crucibles; |
|--------|---------|----------------------------------------------------------------------------------------------|

|   | • | neutron      absorbing materials, structural and non-structural, in combination with      aluminum metal matrix composite that serve as part of a barrier system for      spent fuel wet and dry storage in the nuclear industry, and non-structural      neutron absorbing materials for use in the transport of nuclear fresh fuel      rods; |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | nuclear      chemistry products for use in pressurized water reactors and boiling water      reactors; |
|--------|---------|--------------------------------------------------------------------------------------------------------|

|   | • | boron      dopant chemicals for semiconductor silicon manufacturing and for ion      implanting of silicon wafers; and |
|--------|---------|------------------------------------------------------------------------------------------------------------------------|

|   | • | ceramic      bearings and bushings for oil drilling and fluid handling      pumps. |
|--------|---------|------------------------------------------------------------------------------------|

----

|                           |   | Three      Months Ended September      30, |   |   | Nine      Months Ended September      30, |   |
|--------------------------------|--------|--------------------------------------------|--------|--------|-------------------------------------------|--------|
|                           |   | 2009                                       |   |   | 2008                                      |   |   | 2009 |   |   | 2008 |   |
| ACO                            |   | $                                          | 60.6   |   |                                      | $      | 110.1 |   |   | $ | 169.5 |   |   | $ | 359.4 |   |
| ESK      Ceramics              |   |                                       | 28.0   |   |                                      |   | 38.0 |   |   |   | 75.6 |   |   |   | 123.0 |   |
| Semicon      Associates        |   |                                       | 1.8    |   |                                      |   | 2.2 |   |   |   | 5.9 |   |   |   | 6.6 |   |
| Thermo      Materials          |   |                                       | 16.4   |   |                                      |   | 20.7 |   |   |   | 48.0 |   |   |   | 59.7 |   |
| Ceradyne      Canada           |   |                                       | 0.3    |   |                                      |   | 0.1 |   |   |   | 0.6 |   |   |   | 4.9 |   |
| Boron                          |   |                                       | 5.8    |   |                                      |   | 4.3 |   |   |   | 19.2 |   |   |   | 14.5 |   |
| Inter-segment      elimination |   |                                       | (4.9   | )      |                                      |   | (7.7 | ) |   |   | (15.8 | ) |   |   | (26.8 | ) |
| Total                          |   | $                                          | 108.0  |   |                                      | $      | 167.7 |   |   | $ | 303.0 |   |   | $ | 541.3 |   |

| ACO                            |   | $      | 6.4  |   |   | $      | 34.4  |   |   | $      | 15.5  |   |   | $      | 118.9 |   |
|--------------------------------|--------|--------|------|--------|--------|--------|-------|--------|--------|--------|-------|--------|--------|--------|-------|--------|
| ESK      Ceramics              |   |   | (3.0 | )      |   |   | (0.1  | )      |   |   | (23.1 | )      |   |   | 5.3   |   |
| Semicon      Associates        |   |   | 0.1  |   |   |   | 0.3   |   |   |   | 0.6   |   |   |   | 1.1   |   |
| Thermo      Materials          |   |   | 3.7  |   |   |   | 6.8   |   |   |   | 10.8  |   |   |   | 15.8  |   |
| Ceradyne      Canada           |   |   | (0.7 | )      |   |   | (0.3  | )      |   |   | (6.3  | )      |   |   | 0.4   |   |
| Boron                          |   |   | (0.1 | )      |   |   | (12.8 | )      |   |   | (3.7  | )      |   |   | (12.5 | )      |
| Inter-segment      elimination |   |   | -    |   |   |   | 1.1   |   |   |   | -     |   |   |   | 2.4   |   |
| Total                          |   | $      | 6.4  |   |   | $      | 29.4  |   |   | $      | (6.2  | )      |   | $      | 131.4 |   |

|              |   | Three      Months Ended September      30, |   |   | Nine      Months Ended September      30, |   |
|-------------------|--------|--------------------------------------------|--------|--------|-------------------------------------------|--------|
|              |   | 2009                                       |   |   | 2008                                      |   |   | 2009 |   |   | 2008 |   |
| Defense           |   |                                       | 52.4   | %      |                                      |   | 60.8 | % |   |   | 52.5 | % |   |   | 62.0 | % |
| Industrial        |   |                                       | 38.6   |   |                                      |   | 31.1 |   |   |   | 38.6 |   |   |   | 30.2 |   |
| Automotive/Diesel |   |                                       | 6.3    |   |                                      |   | 6.4 |   |   |   | 5.9 |   |   |   | 5.9 |   |
| Commercial        |   |                                       | 2.7    |   |                                      |   | 1.7 |   |   |   | 3.0 |   |   |   | 1.9 |   |
| Total             |   |                                       | 100.0  | %      |                                      |   | 100.0 | % |   |   | 100.0 | % |   |   | 100.0 | % |

----

----

----

|                                                                                                                                   |   | Net      Increase (Decrease) |    |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|---------|
|                                                                                                                                   |   | Long-Term      Debt          |    |   | Debt      Issuance Costs |   |   | Deferred      Tax      Liability |   |   | Additional      Paid      In Capital |   |   | Retained      Earnings |   |
| Allocation      of long term debt proceeds and issuance costs  to      equity component on issuance date                     |   | $                            | (29,261 | ) |   | $ | (1,018 | ) |   | $ | 11,015 |   |   | $ | 17,228 |   |   | $ | - |   |
| Cumulative      retrospective impact from amortization of  discount      on liability component and debt issuance costs      |   |                         | 7,009   |   |   |   | 385 |   |   |   | (2,584 | ) |   |   | - |   |   |   | (4,040 | ) |
| Cumulative      retrospective impact at January 1, 2008                                                                                |   |                         | (22,252 | ) |   |   | (633 | ) |   |   | 8,431 |   |   |   | 17,228 |   |   |   | (4,040 | ) |
| Retrospective      impact from amortization of discount on  liability      component and debt issuance costs during the year |   |                         | 3,883   |   |   |   | 163 |   |   |   | (1,450 | ) |   |   | - |   |   |   | (2,270 | ) |
| Cumulative      retrospective impact at December 31, 2008                                                                              |   | $                            | (18,369 | ) |   | $ | (470 | ) |   | $ | 6,981 |   |   | $ | 17,228 |   |   | $ | (6,310 | ) |

----

----

----

----

----

----

----

| Liquidity and Capital      Resources |
|--------------------------------------|

----

|                                              |   | September      30, 2009 |    |   | December      31, 2008 |   |
|---------------------------------------------------|--------|-------------------------|---------|--------|------------------------|--------|
| Long-term      debt                               |   |                    |    |   |                   |   |
|     Principal      amount     |   | $                       | 93,100  |   |                   | $      | 121,000 |   |
|     Unamortized      discount |   |                    | (11,762 | )      |                   |   | (18,369 | ) |
|     Net      carrying amount  |   | $                       | 81,338  |   |                   | $      | 102,631 |   |
| Equity      component, net of income tax benefit  |   | $                       | 18,233  |   |                   | $      | 17,228 |   |

----

----

----

| Item      3. | Quantitative and      Qualitative Disclosures About MarketRisk |
|--------------|----------------------------------------------------------------|

    -  · Probability  of earning maximum rate until maturity 
    -  · Probability  of passing auction at some point in the future 
    -  · Probability  of default at some point in the future (with appropriate loss severity  assumptions) 

----

----

| Item 4. | Controls and      Procedures |
|--------------|------------------------------|

|   PART II. | OTHER      INFORMATION |
|----------------------|------------------------|

| Item 1. | Legal      Proceedings |
|--------------|------------------------|

----

| Period                                 |   | (a)Total      Number of Shares      Purchased |   |   | (b)Average      Price Paid per      Share |   |   | (c)Total      Number of Shares      Purchased as Part      of Publicly Announced      Plans or Programs |   |   | (d)Maximum      Number (or      Approximate Dollar      Value) of Shares      that May Yet Be      Purchased Under the      Plans or Programs |   |
|----------------------------------------|--------|-----------------------------------------------|--------|--------|-------------------------------------------|--------|--------|---------------------------------------------------------------------------------------------------------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|
| July      1 to July 31, 2009           |   |                                          | -      |   |                                      |   | -      |                                                                                                    |   |   | 1,835,237                                                                                                                                     |   |   | $ | 50,646,991 |   |
| August      1 to August 31, 2009       |   |                                          | 25,000 |   |                                      | $      | 18.01  |                                                                                                    |   |   | 1,860,237                                                                                                                                     |   |   | $ | 50,196,703 |   |
| September      1 to September 30, 2009 |   |                                          | -      |   |                                      |   | -      |                                                                                                    |   |   | 1,860,237                                                                                                                                     |   |   | $ | 50,196,703 |   |
| Total                                  |   |                                          | 25,000 |   |                                      | $      | 18.01  |                                                                                                    |   |   | 1,860,237                                                                                                                                     |   |   | $ | 50,196,703 |   |

| (1) | On      March 4, 2008, we announced that our board of directors had authorized the      repurchase and retirement of up to $100 million of our common stock in      open market transactions, including block purchases, or in privately      negotiated transactions. We did not set a time limit for completion of      this repurchase program, and we may suspend or terminate it at any      time. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Item 3. | Defaults Upon Senior      Securities |
|--------------|--------------------------------------|

| Item 4. | Submission of Matters      to a Vote of SecurityHolders |
|--------------|---------------------------------------------------------|

| Item 5. | Other      Information |
|--------------|------------------------|

| Item 6. | Exhibits |
|--------------|----------|

| (a)   | Exhibits: |
|-----------------|-----------|

|                   |   |                                                                                                          |
|------------------------|--------|---------------------------------------------------------------------------------------------------------------|
|    31.1 |   | Certification      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley      Act of 2002. |
|                   |   |                                                                                                          |
| 31.2                   |   | Certification      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley      Act of 2002. |
|                   |   |                                                                                                          |
| 32.1                   |   | Certification      of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley      Act of 2002. |
|                   |   |                                                                                                          |
| 32.2                   |   | Certification      of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley      Act of 2002. |

----

|                                               |   | CERADYNE,      INC. |
|----------------------------------------------------|--------|---------------------|
|                                               |   |                |   |
| Date:    October      27, 2009 |   | By:                 | /s/      JERROLD J. PELLIZZON |
|                                               |   |                |   | Jerrold      J. Pellizzon |
|                                               |   |                |   | Vice      PresidentChief      Financial Officer(Principal      Financial and Accounting Officer) |

----

| Exhibit                |   | Description                                                                                                   |
|------------------------|--------|---------------------------------------------------------------------------------------------------------------|
|                   |   |                                                                                                          |
|    31.1 |   | Certification      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley      Act of 2002. |
|                   |   |                                                                                                          |
| 31.2                   |   | Certification      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley      Act of 2002. |
|                   |   |                                                                                                          |
| 32.1                   |   | Certification      of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley      Act of 2002. |
|                   |   |                                                                                                          |
| 32.2                   |   | Certification      of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley      Act of 2002. |

----