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

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

| Delaware                                                            | 33-0055414                                |
|---------------------------------------------------------------------|-------------------------------------------|
| (State      or other jurisdiction of Incorporation or organization) | (I.R.S.      Employer Identification No.) |
| 3169      Red Hill Avenue, Costa Mesa, California                   | 92626                                     |
| (Address      of principal executive offices)                       | (Zip      Code)                           |

| Securities      registered pursuant to Section 12(b) of the Act: |
|------------------------------------------------------------------|
| Title      of Each Class:                                        | Name      of Each Exchange on Which Registered: |
| Common      Stock, par value $0.01 per share                     | The      NASDAQ Stock Market LLC |

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

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|                                                                                  |                                                                                                                         |   | Page   |   |
|---------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
| PART      I                                                                           |                                                                                                                         |   |   | 3      |   |
|             ITEM 1.  | Business                                                                                                                     |   |   | 3      |   |
|             ITEM 1A. | Risk      Factors                                                                                                            |   |   | 26     |   |
|             ITEM 1B. | Unresolved      Staff Comments                                                                                               |   |   | 34     |   |
|             ITEM      2.  | Properties                                                                                                                   |   |   | 35     |   |
|             ITEM      3.  | Legal      Proceedings                                                                                                       |   |   | 35     |   |
|             ITEM      4.  | Submission      of Matters to a Vote of Security Holders                                                                     |   |   | 35     |   |
|                                                                                  |                                                                                                                         |   |   |   |   |
| PART      II                                                                          |                                                                                                                         |   |   | 36     |   |
|             ITEM      5.  | Market      for Registrant’s Common Equity, Related Stockholder Matters and Issuer      Purchases of Equity Securities |   |   | 36     |   |
|             ITEM      6.  | Selected      Financial Data                                                                                                 |   |   | 37     |   |
|             ITEM      7.  | Management’s      Discussion and Analysis of Financial Condition and Results of      Operations                        |   |   | 38     |   |
|             ITEM 7A. | Quantitative      and Qualitative Disclosures About Market Risk                                                              |   |   | 59     |   |
|             ITEM      8.  | Financial      Statements and Supplementary Data                                                                             |   |   | 60     |   |
|             ITEM      9.  | Changes      in and Disagreements with Accountants on Accounting and Financial      Disclosure                               |   |   | 60     |   |
|             ITEM 9A. | Controls      and Procedures                                                                                                 |   |   | 60     |   |
|             ITEM 9B. | Other      information                                                                                                       |   |   | 60     |   |
|                                                                                  |                                                                                                                         |   |   |   |   |
| PART      III                                                                         |                                                                                                                         |   |   | 61     |   |
|             ITEM      10. | Directors,      Executive Officers and Corporate Governance                                                                  |   |   | 61     |   |
|             ITEM      11. | Executive      Compensation                                                                                                  |   |   | 62     |   |
|             ITEM      12. | Security      Ownership of Certain Beneficial Owners and Management and Related      Stockholder Matters                     |   |   | 62     |   |
|             ITEM      13. | Certain      Relationships and Related Transactions, and Director      Independence                                          |   |   | 62     |   |
|             ITEM      14. | Principal      Accountant Fees and Services                                                                                  |   |   | 62     |   |
|                                                                                  |                                                                                                                         |   |   |   |   |
| PART      IV                                                                          |                                                                                                                         |   |   | 63     |   |
|             ITEM      15. | Exhibits      and Financial Statement Schedules                                                                              |   |   | 63     |   |
|                                                                                  |                                                                                                                         |   |   |   |
|             FINANCIALS    |                                                                                                                         |   | F-1    |   |

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|   | • | 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); |
|--------|---------|--------------------------------------------------------------------|

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|   | • | 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. |
|--------|---------|------------------------------------------------------------------------------------|

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|   | • | lightweight      ceramic armor for military helmets, vehicles, boats and      aircraft; |
|--------|---------|-----------------------------------------------------------------------------------------|

|   | • | ceramic      components that have the potential to facilitate the extraction of oil      from oil sands on a cost-effectivebasis; |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------|

|   | • | ceramic      materials that have the potential to reduce significantly the cost of      producing molten aluminum; |
|--------|---------|--------------------------------------------------------------------------------------------------------------------|

|   | • | chemical      micro reactors, heat exchangers and hydraulic trim valves produced with      our proprietary technology that have the potential to provide an      economical substitute for steel in extreme  environments; |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|    |  • | high      purity fused silica ceramic crucibles used by several photovoltaic cell      manufacturers in their silicon melting operation in order to produce      polycrystalline silicon; |
|--------------|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |  • | storage      containers made with our boron carbide powder that have the potential to      be used for long-term containment of nuclear waste from nuclear power      plants; |
|--------|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | small      complicated ceramic components made using our injection molding technology      that have the potential to be used as medical  implants; |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | ceramic      bearing and bushing assemblies designed for longer life due to their      rugged construction and the erosion, corrosion and lubricity      characteristics of the ceramic bearing surface;  and |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | cluster      chemicals such as B18H22 and      cluster ion implantation hardware required to facilitate the manufacture      of advanced semiconductor chips. |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   Materials                 |   | Melting      Point(DegreesFahrenheit) |   | Hardness(VickersScale) |   | ChemicalResistanceto      Acids |   | ElectricalProperties                                        |   | Density(Gramsper      CubicCentimeter) |
|---------------------------------------|--------|---------------------------------------|--------|------------------------|--------|---------------------------------|--------|-------------------------------------------------------------|--------|----------------------------------------|
| Advanced technical ceramics |   | 2,500 to 6,900              |   | Up to 3,200  |   | Excellent                       |   | From excellent insulators to conductors |   | 2.5 to 4.5                   |
| High      strength alloy steel        |   | 2,500      to 2,700                   |   | Up      to 900         |   | Fair                            |   | Conductors                                                  |   | 7.0      to 9.0                        |
| High      performance plastics        |   | 275      to 750                       |   | Up      to 10          |   | Good to Excellent     |   | Good      to excellent insulators                           |   | 1.0      to 2.0                        |

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| Market      Opportunity                                                                    |   | Demands      of the Market                                                                                                                                                                                                                                                            |   | Our      Solution                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Defense                                                                                    |
|                                                                                       |   |                                                                                                                                                                                                                                                                                  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Lightweight      ceramic body armor and boron carbide powders                              |   | Due      to the proliferation of automatic weapons in tactical operations and      terrorist conflicts, it has become necessary for vests or other armor to      stop machine gun bullets while being light enough in weight to allow      freedom of movement without undue fatigue. |   | We      have developed lightweight bullet resistant ceramic body armor solutions,      including SAPI (small arms protective inserts), ESAPI (enhanced small arms      protective inserts), ESBI (enhanced side ballistic inserts) and other      systems. These products generally consist of hot pressed Ceralloy®      546 (boron carbide) or hot pressed Ceralloy®      146 (silicon carbide) and other ceramic coupled with backings such as      Dyneema®,      Spectra Shield®      or Kevlar®      purchased from third parties. Our subsidiary, ESK Ceramics, is a      major manufacturer of boron carbide powders, which are used by us and our      competitors to manufacture lightweight ceramic body  armor. |
|                                                                                       |   |                                                                                                                                                                                                                                                                                  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Lightweight      ceramic armor for military ground-based vehicles, boats and      aircraft |   | Military      ground-based vehicles, boats and aircraft require protection against      automatic weapons. Weight, cost and vehicle compatibility are critical      technical parameters.                                                                                             |   | We      have developed a series of lightweight, cost effective ceramic armor      systems and attachment mechanisms that have multi-hit protection at      various threat levels and can be added to an existing vehicle or designed      into new vehicles, boats andaircraft.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

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| Market      Opportunity |   | Demands      of the Market |   | Our      Solution |
|-------------------------|--------|----------------------------|--------|-------------------|

| Missile      radomes (nose cones)                                                               |   | Defensive      tactical missile systems such as the PAC-3 (Patriot Advanced Capability)      are designed to fly at extremely high velocities, survive tight turning      radii and operate in severe weather conditions. These operating conditions      preclude the use of conventional polymer materials for      radomes.                                                                                                                                      |   | We      have developed advanced technical ceramic radomes made of fused silica      ceramics which meet certain specifications of these tactical defensive      missile systems, and have developed a modified silicon nitride radomes for      more demanding requirements. We have also established a precision diamond      grinding capability to finish these radomes.                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|-------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Lightweight      ballistic rated helmets that provide increased protection for our      troops. |   | In      order to meet survivability goals without affecting the soldier’s      functionality, improvements in head gear are needed for soldiers.      Unfortunately, combat helmets have only seen small incremental      improvements during the last twenty years.The      ballistic material, generally thermo-set Aramid based, used in these      legacy helmets have remained very similar and have reached their maximum      performance.   |   | We      are manufacturing and demonstrating the new ECH (Enhanced Combat Helmet)      that offers over a 35% improvement against fragmentation threats for the      U.S. Marines and Army. This      is accomplished by utilizing new thermoplastic UHMWPE (Ultra High Molecule      Weight Poly Ethylene) materials recently developed by both Dyneema and      Honeywell which offer improved ballistic performance at lighter weights      vs. thermo-set Aramids.   Our      proprietary Seamless BallisticTM      processing technique enhances the performance of the ballistic material      while cost effectively manufacturing it to the required  protective      helmet shape and meeting other legacy specifications of the U.S. military      for head gear protection.    |
|                                                                                            |
| Industrial                                                                                      |
|                                                                                            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Advanced      ceramic structural parts                                                          |   | Applications      such as high performance pump seals, blast nozzles, chemical processing,      and pulp and paper manufacturing, require components with corrosion and      wear resistant properties, mechanical strength, hardness, favorable      friction properties and the ability to withstand extreme temperature      fluctuations.                                                                                                                       |   | We      have developed products for each of these applications which have      excellent wear resistant properties, lightness, hardness and the ability      to withstand extremely high temperatures. We manufacture these products      using primarily our Ekasic®      silicon carbide, silicon nitride and boron carbide  ceramic.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Boron      compounds and metallurgy                                                             |   | Increasing      productivity requirements in primary industries are met with boron nitride      powders, which are used as high temperature lubricants and release agents.      As filler material in polymers and silicones, boron nitride is used for      heat conducting and insulating films in the electronic industry. Aluminum      and steel foundries increasingly require consumables with longer lifetimes      to improve their overall efficiencies.  |   | In      the aluminum extrusion industry, boron nitride powder, spray or suspension      is used as a release agent to keep the hot metal away from the extrusion      die. In furnace and high temperature applications it is used as an      insulation sleeve or support for graphite heaters. Boron nitride’s largely      inert behavior towards molten metals makes it an ideal material for      applications in direct contact with such materials. We supply break rings      for horizontal continuous casting and side-dams for thin strip casting. We      also supply high density and high purity silicon nitride products for      aluminum-foundries worldwide.                                                                                                                                             |

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| Market      Opportunity |   | Demands      of the Market |   | Our      Solution |
|-------------------------|--------|----------------------------|--------|-------------------|

|                                                                                          |   |                                                                                                                                                                                                                                                                                                               |   |                                                                                                                                                                                                                                                                                                                                                                              |
|-----------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Evaporation      boats                                                                        |   | Packaging      materials used for snack and other food products are often lined with an      aluminum coating to preserve shelf life. The coating, or metallization,      process requires a tool, called an evaporation boat, which can withstand      the high temperature and corrosiveness of melted aluminum. |   | We      have developed evaporation boats, typically made using boron      nitride/titanium diboride, that can withstand direct contact with highly      corrosive liquids, such as melted aluminum. These evaporation boats are      used in the metallization of various surfaces, including paper, plastic      and glass.                                                      |
|                                                                                          |   |                                                                                                                                                                                                                                                                                                               |   |                                                                                                                                                                                                                                                                                                                                                                              |
| Industrial      equipment requiring critical protection against severe wear or      corrosion |   | Failure      of industrial equipment is often caused by premature wearing out of      surfaces due to abrasive action. An example is paper making equipment      where the pulp slurry runs at 5,000 feet per minute.                                                                                              |   | Sintered      reaction bonded silicon nitride (SRBSN) industrial wear parts are designed      to replace hard metal or oxide ceramic wear surfaces, resulting in greater      productivity, quality and longer uptime. Our      proprietary advanced technical ceramic side dams are used      in  the production of steel in the continuous casting      process. |
|                                                                                          |   |                                                                                                                                                                                                                                                                                                               |   |                                                                                                                                                                                                                                                                                                                                                                              |
| Photovoltaic      (solar cell) manufacturing requiring crucibles for melting      silicon     |   | In      order to produce cost effective solar cell components, it is necessary to      melt silicon in a crucible or vessel that will be able to contain the      molten silicon yet not allow unwanted chemicals to contaminate the      melt.                                                                    |   | We      have developed a high purity fused silica ceramic crucible (receptacle)      which is being used by several photovoltaic cell manufacturers in their      silicon melting operation in order to produce polycrystalline silicon. We      also manufacture the fused silica powders that are a key material for the      production of our ceramiccrucibles.               |

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| Market      Opportunity |   | Demands      of the Market |   | Our      Solution |
|-------------------------|--------|----------------------------|--------|-------------------|

|                                                                       |   |                                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|----------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Radioactive      waste management and nuclear chemistry products           |   | Increasing      stockpiles of radioactive nuclear waste require materials that can be used      to safely transport and store items such as spent nuclear fuel rods. New      and existing nuclear power plants also require materials capable of      containing neutron radiation during day-to-day operations. |   | The      boron atom in boron carbide powder is able to capture neutrons, thus      reducing the radioactive risk associated with transportation and storage      of nuclear waste. Our Boral®      product line, which consists of a hot-rolled sheet containing a core of      uniformly distributed boron carbide and aluminum particles that is      enclosed within layers of pure aluminum, forms a solid and effective      barrier for the storage of nuclear waste. We      also manufacture the boron isotope 10B      in its pure form. This isotope is a strong neutron absorber and is used      for both nuclear waste containment and nuclear power plant neutron      radiation critical control. We also produce complementary chemical      isotopes used in the normal operation and control of nuclear power      plants. |
|                                                                       |   |                                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Semiconductor      silicon wafer manufacturing requiring 11B      isotopes |   | Silicon      based semiconductor devices require ‘p’ dopants to move the electrons      through the electronic materials.                                                                                                                                                                             |   | We      produce the boron isotope 11B      which is used in the semiconductor wafer manufacturing processes as an      additive to semiconductor grade silicon as a “doping” agent and where      ultra high purity boron is required.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                       |   |                                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Materials      for precision investment casting                            |   | The      market is demanding lower cost, thinner molds and faster mold build      times.                                                                                                                                                                                                                          |   | We      have developed fused silica refractory blends that enable the production      of highly efficient, single-use mold systems for precision investment      casting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                       |   |                                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Ceramic      bearings, bushings and seals for fluid handling               |   | In      order to make an effective transition in fluid handling pumps from the      pump itself to the exterior, it is necessary to have an interface with      excellent friction and erosion and corrosion properties.                                                                                          |   | We      have developed a number of primarily silicon carbide compositions and      shapes for a wide variety of precision components for use in contact with      rotational elements in fluid handling pumps. These are produced primarily      by our ESK Ceramics subsidiary in Kempten, Germany.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                       |   |                                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Specially      designed heavy duty bearings and bushings                   |   | It      is necessary to maintain the position and integrity of heavy duty      rotational shafts in down hole oil drilling and/or water pumps in severe      environments.                                                                                                                                        |   | In      June 2008, we acquired a series of proprietary designs for heavy duty      “stacked bearings” and bushings which utilize our advanced technical      ceramic sliding surfaceinterface.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

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| Market      Opportunity                                                                                                                                                              |   | Demands      of the Market                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | Our      Solution                                                                                                                                                                                                                                                                                                                                                                             |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| In      converting silicon wafers to semiconductors, it is necessary to introduce      atoms of the element boron into the silicon matrix.        |   | The      market has developed and generally utilizes technology known as ion      implantation. Starting materials used in ion implantation such as BF3 have      been generally utilized for many years. However, as the requirements for      higher current semiconductor chips increase and the number of chips per      unit area on the silicon wafer increases, there is a need for ion      implantation which improves the manufacturing throughput of high      boron                                         content      in semiconductor chips. |   | Our      acquisition of SemEquip, Inc. in August 2008 brought to Ceradyne the      intellectual property for the “cluster” molecule B18H22 as      well as other cluster molecules. These materials are designed to increase      the productivity of the ion implantation technology in part due to the      large numbers of atoms such as boron.                               |
|                                                                                                                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                                                                                                                                                                                                                                                                                                                          |
| Automotive/Diesel                                                                                                                                                                    |
|                                                                                                                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                                                                                                                                                                                                                                                                                                                          |
| Heavy-duty      diesel truck engines                                                                                                                                                 |   | In      order to achieve diesel engine life of 500,000 miles or more without major      maintenance, and to meet current environmental requirements, it may be      necessary to replace metal engine components with longer lasting, lighter      weight, lower friction ceramic parts at acceptable unit    costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | Our      SRBSN ceramic cam rollers replace conventional steel cam rollers in order      to allow diesel engines to run at higher internal pressures and thus meet      environmental and other requirements.                                                                                                                                                                                  |
|                                                                                                                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                                                                                                                                                                                                                                                                                                                          |
| Wear-resistant      functional and frictional coatings, surface engineered      components                                                                                           |   | Engines      generate extreme vibration during operation that can cause components      joined by nuts and bolts to loosen. Traditionally, locknut washers have      been used for this application.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | Our      wear-resistant functional and frictional coatings utilizing entrapped hard      particles, primarily diamonds, are applied to shims in lieu of using      locknut washers. These coatings increase the static friction coefficient      and minimize the effects of vibration and allow more economic and      efficient designs of engines, particularly in the auto      industry. |
|                                                                                                                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                                                                                                                                                                                                                                                                                                                          |
| Commercial                                                                                                                                                                           |
|                                                                                                                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                                                                                                                                                                                                                                                                                                                          |
| Orthodontic      brackets                                                                                                                                                            |   | Traditional      stainless steel orthodontic brackets are often considered unsightly.      Substitute clear plastic materials can be weak and may stain. Some      orthodontic patients prefer aesthetically pleasing brackets which can be      affixed to each tooth to support the arch wire.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | Our      translucent ceramic orthodontic brackets are inert, reveal the color of      the patient’s teeth, and allow the orthodontist to correct the patient’s      bite. Our marketing partner, 3M Unitek, sells this translucent ceramic      bracket under the brand name Clarity™.                                                                                      |
|                                                                                                                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                                                                                                                                                                                                                                                                                                                          |
| BORONEIGE®      boron nitride powder                                                                                                                                            |   | The      cosmetic industry utilizes very fine, white, silky, smooth powders as a      base for a wide range of products including lipstick, eye shadow, facial      creams, rouge and other related products. There is an increasing demand      for these base materials which can make up to forty percent of the end      product. Generally, the requirements include white color, controlled      chemistry and surface area.                                                                                                                                                                                                                                                                                                                                        |   | Boron      nitride, which is made by our ESK Ceramics subsidiary, is a well      controlled micro structure white powder. The use of our unique boron      nitride called BORONEIGE®      is anticipated to grow as the availability of the base powders and the use      of various cosmetic products increase.                                                               |

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| Operating      Segment and Facility Location                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | Products                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Ceradyne      Advanced Ceramic Operations Costa      Mesa and Irvine, California(1)Approximately      216,000 square feet Lexington,      Kentucky(2)Approximately      115,000 square feet Wixom,      Michigan(3)Approximately      29,000 square feet Salem,      New Hampshire(4)Approximately      16,000 square feet Mountain      Green, Utah(5)Approximately      18,000 square feet Bangalore,      India(6)Approximately      21,000 square feet  |   | Defense      Applications:        •      Lightweight ceramic armor        •      Enhanced combat helmets  Industrial      Applications:        •     Ceralloy®      147 SRBSN wear parts        •     Precision ceramics        •     Ceramic bearings and bushings Automotive/Diesel      Applications:        •     Ceralloy®      147 SRBSN automotive/diesel engine parts Commercial      Applications:        •     Ceramic orthodontic brackets        •     Components for medicaldevices                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| ESK Ceramics Kempten,      Germany(7)Approximately      599,000 square feet Bazet,      France(8)Approximately 88,000 square feet (anticipated to be soldduring the first quarter of 2010)                                                                                                                                                                                                                                                                                      |   | Defense      Applications:        •     Boron carbide powders for bodyarmor Industrial      Applications:        •     Ceramic powders: boron carbide, boron nitride,      titanium diboride,               calcium hexaboride and zirconium diboride        •     Silicon carbide parts        •     Evaporation boats for the packaging      industry        •     High performance fluid handling pump      seals Automotive/Diesel      Applications:        •     EKagrip®      functional and frictional coatings Commercial      Applications:        •     BORONEIGE®      boron nitride powder for cosmetics  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Ceradyne      Semicon Associates Lexington,      Kentucky(9)Approximately      35,000 square feet                                                                                                                                                                                                                                                                                                                                                                                         |   | Industrial      Applications:        •     Ceramic-impregnated dispenser cathodes for      microwave tubes, lasers and               cathode ray tubes        •     Samarium cobalt magnets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Ceradyne      Thermo Materials Scottdale      and Clarkston, Georgia(10)Approximately      225,000 square feet Tianjin,      China(11)Approximately      98,000 square feet Midway,      Tennessee(12)Approximately      105,000 square feet                                                                                                                                                                                                                                    |   | Defense      Applications:        •     Missile radomes (nose cones)        •     High purity fused silica used to manufacture      missile radomes (nose cones) Industrial      Applications:        •     Glass tempering rolls        •     Metallurgical tooling        •     Castable and other fused silica      products        •     Crucibles for photovoltaic solar cell      applications        •     Turbine components used in aerospace      applications                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

----

| Operating      Segment and Facility Location |   | Products |
|----------------------------------------------|--------|----------|

| Ceradyne      Canada Chicoutimi,      Quebec, Canada(13)Approximately      86,000 square feet                                                                        |   | Industrial      Applications:         •     Boral®      structural neutron absorbing materials        •     Metal matrix composite structures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| Boron Quapaw,      Oklahoma(14)Approximately      128,000 square feet North      Billerica, Massachusetts(15)Approximately      19,000 square feet    |   | Industrial      Applications:Nuclear      Applications:•    Nuclear      chemistry products for use in pressurized water reactors and boiling           water      reactors•    Radioactive      containment for use in spent fuel transport and storage•    Burnable      poisons for coating of uranium fuel pelletsSemiconductor      Applications:•    Cluster      molecules such as B18H22 for      ion implantation for next generation      P-dopants•    Ionization      chambers for ionizing cluster molecules for ion implantation•    Development      of cluster ion implantation sub-systems•    Advanced      ion source materials for the manufacture of logic and memory      chips |

| (1)  | We      have leases on our facilities in Costa Mesa, California, aggregating      approximately 99,000 square feet, all of which expire in      October 2010. We own our 40,000 square foot facility in Irvine,      California. In Irvine, California, a 76,000 square foot facility under a      lease that expires in April 2011. |
|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)  | We      own our facility in Lexington, Kentucky.                                                                                                                                                                                                                                                                                          |
| (3)  | We      have a lease on our Wixom, Michigan facility which expires in April      2010.                                                                                                                                                                                                                                                    |
| (4)  | We      have a lease on our Salem, New Hampshire facility which expires in March      2015.                                                                                                                                                                                                                                               |
| (5)  | We      have a lease on our Mountain Green, Utah facility which expires in March      2012.                                                                                                                                                                                                                                               |
| (6)  | We      have a lease on our Bangalore, India facility which expires in June      2014.                                                                                                                                                                                                                                                    |
| (7)  | We      own our facility in Kempten, Germany, as well as the 28-acre property on      which our facility is located.                                                                                                                                                                                                                      |
| (8)  | We      own our facility in Bazet, France, as well as the four-acre property on      which our facility is located. This property is in escrow to be sold on      February 28, 2010.                                                                                                                                                      |
| (9)  | We      own our facility in Lexington, Kentucky, as well as the five-acre property      on which our facility is located.                                                                                                                                                                                                                 |
| (10) | We      own an 85,000 square foot facility in Scottdale, Georgia, as well as the      five-acre property on which our facility is located. We have a lease on      our 140,000 square foot facility in Clarkson, Georgia which expires in      June 2013.                                                                                 |
| (11) | We      own our facility in Tianjin, China, as well as the four-acre property on      which our facility is located.                                                                                                                                                                                                                      |
| (12) | We      own our facility in Midway, Tennessee as well as the 40-acre property on      which our facility is located.                                                                                                                                                                                                                      |
| (13) | We      own our facility in Chicoutimi, Quebec, Canada, as well as the seven-acre      property on which our facility is located.                                                                                                                                                                                                         |
| (14) | We      own our facility in Quapaw, Oklahoma as well as the 155-acre property on      which our facility is located.                                                                                                                                                                                                                      |
| (15) | We      have a lease on our facility in North Billerica, Massachusetts which      expires in April 2012.                                                                                                                                                                                                                                  |

----

----

----

----

----

----

| Name            | Age   | Position                                                                                     |
|---------------------------|-----------------|--------------------------------------------------------------------------------------------------------|
| Joel      P. Moskowitz    | 70              | Chairman      of the Board, Chief Executive Officer and President                                      |
|                      |            |                                                                                                   |
| David      P. Reed        |  55        | Vice      President, and President of North American Operations and Assistant      Corporate Secretary |
|                      |            |                                                                                                   |
| Jerrold      J. Pellizzon | 56              | Chief      Financial Officer and Corporate Secretary                                                   |
|                      |            |                                                                                                   |
| Michael      A. Kraft     | 47              | Vice      President of Nuclear and Semiconductor Business Units                                        |
|                      |            |                                                                                                   |
| Thomas      Jüngling | 46              | Vice      President, and President of ESK Ceramics                                                |
|                      |            |                                                                                                   |
| Bruce      R. Lockhart    | 47              | Vice      President, and President of Thermo Materials                                                 |
|                      |            |                                                                                                   |
| Jeffrey      J. Waldal    | 45              | Vice      President, and President of Semicon Associates                                               |
|                      |            |                                                                                                   |
| Thomas      A. Cole       |   63  |    Vice      President, Business Development                                            |
|                      |            |                                                                                                   |

----

----

----

----

|   | • | add      manufacturing capacity andpersonnel; |
|--------|---------|-----------------------------------------------|

|   | • | implement      and improve our operational, financial and management information      systems; |
|--------|---------|------------------------------------------------------------------------------------------------|

|   | • | develop      the management skills of our managers and  supervisors; |
|--------|---------|----------------------------------------------------------------------|

|   | • | add      new management personnel; and |
|--------|---------|----------------------------------------|

|   | • | train,      motivate and manage our employees. |
|--------|---------|------------------------------------------------|

----

----

|   | • | burdens      to comply with multiple and potentially conflicting foreign laws and      regulations, including export requirements, tariffs and other barriers,      health and safety requirements, and unexpected changes in any of these      factors; |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | difficulty      in staffing and managing international  operations; |
|--------|---------|---------------------------------------------------------------------|

|   | • | differences      in intellectual propertyprotections; |
|--------|---------|-------------------------------------------------------|

|   | • | difficulty      in obtaining export licenses from the U.S. government for sales of our      defense-related products; |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------|

|   | • | potentially      adverse tax consequences due to overlapping or differing tax      structures; |
|--------|---------|------------------------------------------------------------------------------------------------|

|   | • | fluctuations      in currency exchange rates; and |
|--------|---------|---------------------------------------------------|

|   | • | risks      associated with operating a business in a potentially unstable political      climate. |
|--------|---------|---------------------------------------------------------------------------------------------------|

|   | • | we      may have difficulty integrating the purchased operations, technologies or      products; |
|--------|---------|--------------------------------------------------------------------------------------------------|

|   | • | we      may incur substantial unanticipated integration  costs; |
|--------|---------|-----------------------------------------------------------------|

|   | • | assimilating      the acquired businesses may divert significant management attention and      financial resources from our other operations and could disrupt our      ongoing business; |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | acquisitions      could result in the loss of key employees, particularly those of the      acquired operations; |
|--------|---------|------------------------------------------------------------------------------------------------------------------|

|   | • | we      may have difficulty retaining or developing the acquired businesses’      customers; |
|--------|---------|----------------------------------------------------------------------------------------------------|

|   | • | acquisitions      could adversely affect our existing business relationships with suppliers      and customers; |
|--------|---------|-----------------------------------------------------------------------------------------------------------------|

|   | • | we      may fail to realize the potential cost savings or other financial benefits      and/or the strategic benefits of the acquisitions;  and |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | we      may incur liabilities from the acquired businesses for infringement of      intellectual property rights or other claims, and we may not be successful      in seeking indemnification for such liabilities or  claims. |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | • | accidents      or mechanical failure; |
|--------|---------|---------------------------------------|

|   | • | fires      or explosions of furnaces; and |
|--------|---------|-------------------------------------------|

|   | • | employee      exposure to extreme temperatures or hazardous  substances. |
|--------|---------|--------------------------------------------------------------------------|

|   | • | manufacturing      capacity and the ability to deliverproducts; |
|--------|---------|-----------------------------------------------------------------|

|   | • | price; |
|--------|---------|--------|

|   | • | product      performance; |
|--------|---------|---------------------------|

|   | • | material      specifications; |
|--------|---------|-------------------------------|

|   | • | application      engineering capabilities; |
|--------|---------|--------------------------------------------|

|   | • | customer      support; and |
|--------|---------|----------------------------|

|   | • | reputation. |
|--------|---------|-------------|

----

----

|   | • | initiation      of coverage by securities analysts, securities analysts’ buy/sell      recommendations and any expressed beliefs of securities analysts regarding      our business prospects or estimated trading  multiples; |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | our      perceived prospects; |
|--------|---------|-------------------------------|

|   | • | variations      in our operating results and whether we have achieved our key business      targets; |
|--------|---------|------------------------------------------------------------------------------------------------------|

|   | • | the      limited number of shares of our common stock available for purchase or      sale in the public markets; |
|--------|---------|------------------------------------------------------------------------------------------------------------------|

|   | • | sales      or purchases of large blocks of ourstock; |
|--------|---------|------------------------------------------------------|

|   | • | changes      in, or our failure to meet, our earnings  estimates; |
|--------|---------|-------------------------------------------------------------------|

|   | • | differences      between our reported results and those expected by investors and      securities analysts; |
|--------|---------|-------------------------------------------------------------------------------------------------------------|

|   | • | decreases      in our trading multiples on an absolute basis or relative to comparable      companies; |
|--------|---------|--------------------------------------------------------------------------------------------------------|

|   | • | announcements      of new contracts by us or ourcompetitors; |
|--------|---------|--------------------------------------------------------------|

|   | • | market      reaction to any future acquisitions, joint ventures or strategic      investments announced by us or ourcompetitors; |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------|

|   | • | developments      in the financial markets; |
|--------|---------|---------------------------------------------|

|   | • | market      reaction to any adverse publicity or news stories;  and |
|--------|---------|---------------------------------------------------------------------|

|   | • | general      economic, political or stock marketconditions. |
|--------|---------|-------------------------------------------------------------|

----

----

|                                   |   | High   |   |   | Low    |   |
|----------------------------------------|--------|--------|--------|--------|--------|--------|
| Year      Ended December 31, 2008 |   |   |   |   |   |   |
| First      Quarter                     |   | $      | 50.15  |   |   | $      | 27.92 |   |
| Second      Quarter                    |   | $      | 43.13  |   |   | $      | 32.27 |   |
| Third      Quarter                     |   | $      | 49.70  |   |   | $      | 32.19 |   |
| Fourth      Quarter                    |   | $      | 36.06  |   |   | $      | 18.15 |   |
|                                   |   |   |   |   |   |   |   |   |
| Year      Ended December 31, 2009 |   |   |   |   |   |   |   |   |
| First      Quarter                     |   | $      | 24.84  |   |   | $      | 14.36 |   |
| Second      Quarter                    |   | $      | 23.44  |   |   | $      | 17.24 |   |
| Third      Quarter                     |   | $      | 20.25  |   |   | $      | 16.04 |   |
| Fourth      Quarter                    |   | $      | 19.60  |   |   | $      | 15.95 |   |

| 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 |   |
|----------------------------------------------------|--------|------------------------------------------|---------|--------|--------------------------------------|--------|---------|------------------------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------------------------------------------------|--------|
| Month      No. 1 (October 1 to October 31, 2009)   |   |                                     | — |   |                                 |   | — |                                                                                     |   |   | 1,860,237                                                                                                                 |   |   | $ | 50,196,703 |   |
| Month      No. 2 (November 1 to November 30, 2009) |   |                                     | 260,000 |   |                                 | $      | 16.18   |                                                                                     |   |   | 2,120,237                                                                                                                 |   |   | $ | 45,990,609 |   |
| Month      No. 3 (December 1 to December 31, 2009) |   |                                     | 25,000  |   |                                 | $      | 17.95   |                                                                                     |   |   | 2,145,237                                                                                                                 |   |   | $ | 45,541,877 |   |
| Total                                              |   |                                     | 285,000 |   |                                 | $      | 16.33   |                                                                                     |   |   | 2,145,237                                                                                                                 |   |   | $ | 45,541,877 |   |

| (1) | On      March 4, 2008, we announced that our board had authorized the repurchase      of up to $100.0 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 anytime. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ITEM 6.        SELECTED FINANCIAL DATA |
|-------------------------------------------------------|

|                                                       |   | Year      Ended December 31,                  |    |
|------------------------------------------------------------|--------|----------------------------------------------------|---------|
|                                                       |   | 2009(1)                                            |    |   | 2008(2) |   |   | 2007(3) |   |   | 2006 |   |   | 2005 |   |
|                                                       |   | (amounts      in thousands, except per share data) |    |
| Statement      of Income Data:                             |   |                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      sales                                             |   | $                                                  | 400,575 |   |   | $ | 680,197 |   |   | $ | 756,835 |   |   | $ | 662,888 |   |   | $ | 368,253 |   |
| Cost      of product sales                                 |   |                                               | 298,956 |   |   |   | 414,885 |   |   |   | 450,787 |   |   |   | 401,991 |   |   |   | 237,115 |   |
| Gross      profit                                          |   |                                               | 101,619 |   |   |   | 265,312 |   |   |   | 306,048 |   |   |   | 260,897 |   |   |   | 131,138 |   |
| Operating      expenses:                                   |   |                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling                                                    |   |                                               | 27,151  |   |   |   | 31,231 |   |   |   | 26,917 |   |   |   | 22,919 |   |   |   | 20,694 |   |
| General      and administrative                            |   |                                               | 38,492  |   |   |   | 43,889 |   |   |   | 40,801 |   |   |   | 35,293 |   |   |   | 21,014 |   |
| Acquisition      related charges                           |   |                                               | (768    | ) |   |   | 9,824 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Research      and development                              |   |                                               | 12,258  |   |   |   | 14,782 |   |   |   | 17,552 |   |   |   | 9,909 |   |   |   | 7,802 |   |
| Restructuring      - plant closure and severance           |   |                                               | 12,924  |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Goodwill      impairment                                   |   |                                               | 3,832   |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Total      operating expenses                              |   |                                               | 93,889  |   |   |   | 99,726 |   |   |   | 85,270 |   |   |   | 68,121 |   |   |   | 49,510 |   |
| Income      from operations                                |   |                                               | 7,730   |   |   |   | 165,586 |   |   |   | 220,778 |   |   |   | 192,776 |   |   |   | 81,628 |   |
|                                                       |   |                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      income (expense):                               |   |                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      income                                       |   |                                               | 4,091   |   |   |   | 7,553 |   |   |   | 12,394 |   |   |   | 6,687 |   |   |   | 434 |   |
| Interest      expense                                      |   |                                               | (7,119  | ) |   |   | (7,876 | ) |   |   | (7,618 | ) |   |   | (7,236 | ) |   |   | (9,330 | ) |
| Gain      on early extinguishment of debt                  |   |                                               | 1,881   |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Loss      on auction rate securities                       |   |                                               | (5,187  | ) |   |   | (5,870 | ) |   |   | (2,114 | ) |   |   | - |   |   |   | - |   |
| Miscellaneous,      net                                    |   |                                               | (979    | ) |   |   | 1,511 |   |   |   | (311 | ) |   |   | (799 | ) |   |   | 420 |   |
| Total      other income (expense)                          |   |                                               | (7,313  | ) |   |   | (4,682 | ) |   |   | 2,351 |   |   |   | (1,348 | )  |   |   | (8,476 | ) |
|                                                       |   |                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income      before provision for income taxes              |   |                                               | 417     |   |   |   | 160,904 |   |   |   | 223,129 |   |   |   | 191,428 |   |   |   | 73,152 |   |
| Provision      for income taxes                            |   |                                               | (8,098  | ) |   |   | 56,424 |   |   |   | 80,946 |   |   |   | 64,934 |   |   |   | 26,422 |   |
|                                                       |   |                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income                                            |   | $                                                  | 8,515   |   |   | $ | 104,480 |   |   | $ | 142,183 |   |   | $ | 126,494 |   |   | $ | 46,730 |   |
|                                                       |   |                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income per share:                                 |   |                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                      |   | $                                                  | 0.33    |   |   | $ | 3.95 |   |   | $ | 5.22 |   |   | $ | 4.70 |   |   | $ | 1.90 |   |
| Diluted                                                    |   | $                                                  | 0.33    |   |   | $ | 3.91 |   |   | $ | 5.13 |   |   | $ | 4.62 |   |   | $ | 1.86 |   |
| Weighted      average number of common shares outstanding: |   |                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                      |   |                                               | 25,684  |   |   |   | 26,446 |   |   |   | 27,252 |   |   |   | 26,924 |   |   |   | 24,635 |   |
| Diluted                                                    |   |                                               | 25,802  |   |   |   | 26,689 |   |   |   | 27,732 |   |   |   | 27,352 |   |   |   | 25,107 |   |

|                            |   | As      of December 31,     |    |
|---------------------------------|--------|-----------------------------|---------|
|                            |   | 2009                        |    |   | 2008 |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |
|                            |   | (amounts      in thousands) |    |
| Balance      Sheet Data:        |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      and cash equivalents  |   | $                           | 122,154 |   |   | $ | 215,282 |   |   | $ | 155,103 |   |   | $ | 13,547 |   |   | $ | 91,542 |   |
| Short      term investments     |   |                        | 117,666 |   |   |   | 6,140 |   |   |   | 29,582 |   |   |   | 190,565 |   |   |   | 7,839 |   |
| Working      capital            |   |                        | 406,207 |   |   |   | 400,835 |   |   |   | 353,923 |   |   |   | 332,063 |   |   |   | 212,309 |   |
| Total      assets               |   |                        | 849,704 |   |   |   | 854,527 |   |   |   | 782,654 |   |   |   | 613,001 |   |   |   | 429,184 |   |
| Total      long-term debt       |   |                        | 82,163  |   |   |   | 102,631 |   |   |   | 98,748 |   |   |   | 95,153 |   |   |   | 91,827 |   |
| Stockholders’      equity |   |                        | 649,717 |   |   |   | 638,994 |   |   |   | 591,817 |   |   |   | 421,881 |   |   |   | 267,700 |   |

| (1) | The      operations of Diaphorm have been consolidated with ours since June 1,      2009. |
|-----|-------------------------------------------------------------------------------------------|

| (2) | The      operations of SemEquip, Inc. have been consolidated with ours since August      11, 2008. |
|-----|----------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

| (3) | The      operations of Minco, Inc. have been consolidated with ours since July 10,      2007. The operations of Ceradyne Boron Products have been consolidated      with ours since September 1, 2007. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | • | 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); |
|--------|---------|--------------------------------------------------------------------|

|   | • | neutron      absorbing materials, structural and non-structural, in combination with      aluminum metal matrix composites 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. |
|--------|---------|------------------------------------------------------------------------------------|

----

| Operating      Segment and Facility Location                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | Products                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Ceradyne      Advanced Ceramic Operations                  Costa Mesa and Irvine, CaliforniaApproximately      216,000 square feet                  Lexington, KentuckyApproximately      115,000 square feet                  Wixom, MichiganApproximately      29,000 square feet                  Salem, New HampshireApproximately      16,000 square feet Mountain      Green, UtahApproximately      18,000 square feet Bangalore,      IndiaApproximately      21,000 square feet  |   | Defense      Applications:•    Lightweight      ceramic armor•    Enhanced      combat helmets  Industrial      Applications:•    Ceralloy®      147 SRBSN wear parts•    Precision      ceramics•    Ceramic      bearings and bushings Automotive/Diesel      Applications:•    Ceralloy®      147 SRBSN automotive/diesel engine parts Commercial      Applications:•    Ceramic      orthodontic brackets•    Components      for medical devices                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| ESK Ceramics                  Kempten, GermanyApproximately      599,000 square feet                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | Defense      Applications:•    Boron      carbide powders for body armor Industrial      Applications:•    Ceramic      powders: boron carbide, boron nitride, titanium diboride, calcium            hexaboride      and zirconium diboride•         Silicon carbide parts•         Evaporation boats for the packaging industry•         High performance fluid handling pump seals Automotive/Diesel      Applications:•         EKagrip®      functional and frictional coatings Commercial      Applications:•         BORONEIGE®      boron nitride powder for cosmetics                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Ceradyne      Semicon Associates                  Lexington, KentuckyApproximately      35,000 square feet                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | Industrial      Applications:•         Ceramic-impregnated dispenser cathodes for microwave tubes, lasers and      cathode ray tubes•         Samarium cobalt magnets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Ceradyne      Thermo Materials                  Scottdale and Clarkston, GeorgiaApproximately      225,000 square feet Tianjin,      ChinaApproximately      98,000 square feet                  Midway, TennesseeApproximately      105,000 square feet                                                                                                                                                                                                                                                                                                                                                                    |   | Defense      Applications:•         Missile radomes (nose cones)•         High purity fused silica used to manufacture missile radomes (nose      cones) Industrial      Applications:•         Glass tempering rolls•         Metallurgical tooling•         Castable and other fused silica products•         Crucibles for photovoltaic solar cell applications•         Turbine components used in aerospace applications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Ceradyne      Canada                  Chicoutimi, Quebec, Canada                 Approximately 86,000 square feet                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | Industrial      Applications: •         Boral®      structural neutron absorbing materials•         Metal matrix composite structures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Boron                  Quapaw, OklahomaApproximately      128,000 square feet North      Billerica, MassachusettsApproximately      19,000 square feet                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | Industrial      Applications:        Nuclear      Applications:         •    Nuclear chemistry products for use in pressurized      water reactors and boiling water                 reactors         •    Radioactive containment for use in spent fuel      transport and storage         •    Burnable poisons for coating of uranium fuel      pellets        Semiconductor Applications:         •    Cluster molecules such as B18H22 for      ion implantation for next generation P-dopants         •    Ionization chambers for ionizing cluster molecules for      ion implantation         •    Development of cluster ion implantation      sub-systems         •    Advanced ion source materials for the manufacture of      logic and memory chips |

----

|                                       |   | Year      Ended December 31, |   |
|--------------------------------------------|--------|-----------------------------------|--------|
|                                       |   | 2009                              |   |   | 2008 |   |   | 2007 |   |
| Advanced      Ceramic Operations           |   | $                                 | 214.1  |   |   | $ | 450.5 |   |   | $ | 587.3 |   |
| ESK Ceramics                          |   |                              | 105.1  |   |   |   | 152.2 |   |   |   | 160.6 |   |
| Semicon      Associates                    |   |                              | 7.7    |   |   |   | 8.6 |   |   |   | 8.0 |   |
| Thermo      Materials                      |   |                              | 66.1   |   |   |   | 80.2 |   |   |   | 32.0 |   |
| Ceradyne      Canada                       |   |                              | 1.7    |   |   |   | 5.2 |   |   |   | 3.9 |   |
| Boron                                      |   |                              | 27.3   |   |   |   | 19.0 |   |   |   | 7.7 |   |
| Inter-segment      elimination             |   |                              | (21.4  | ) |   |   | (35.5 | ) |   |   | (42.7 | ) |
| Total      revenue from external customers |   | $                                 | 400.6  |   |   | $ | 680.2 |   |   | $ | 756.8 |   |

|                                                       |   | Year      Ended December 31, |   |
|------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                       |   | 2009                              |   |   | 2008 |   |   | 2007 |   |
| Advanced      Ceramic Operations                           |   | $                                 | 22.8   |   |   | $ | 145.4 |   |   | $ | 209.2 |   |
| ESK Ceramics                                          |   |                              | (24.9  | ) |   |   | 4.2 |   |   |   | 13.4 |   |
| Semicon      Associates                                    |   |                              | 0.7    |   |   |   | 1.4 |   |   |   | 1.1 |   |
| Thermo      Materials                                      |   |                              | 12.8   |   |   |   | 23.7 |   |   |   | 2.3 |   |
| Ceradyne      Canada                                       |   |                              | (6.9   | ) |   |   | (0.1 | ) |   |   | (3.0 | ) |
| Boron                                                      |   |                              | (4.1   | ) |   |   | (15.5 | ) |   |   | 0.7 |   |
| Inter-segment      elimination                             |   |                              | -      |   |   |   | 1.8 |   |   |   | (0.6 | ) |
| Total      segment income before provision for taxes  |   | $                                 | 0.4    |   |   | $ | 160.9 |   |   | $ | 223.1 |   |

|              |   | Year      Ended December 31, |   |
|-------------------|--------|-----------------------------------|--------|
|              |   | 2009                              |   |   | 2008 |   |   | 2007 |   |
| Defense           |   |                              | 49.6   | % |   |   | 61.8 | % |   |   | 74.0 | % |
| Industrial        |   |                              | 41.2   |   |   |   | 30.6 |   |   |   | 20.1 |   |
| Automotive/Diesel |   |                              | 6.3    |   |   |   | 5.8 |   |   |   | 4.2 |   |
| Commercial        |   |                              | 2.9    |   |   |   | 1.8 |   |   |   | 1.7 |   |
| Total   |   |                              | 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      |   |                         | 3,414   |   |   |   | 204 |   |   |   | (1,252 | ) |   |   | - |   |   |   | (1,958 | ) |
| Cumulative      retrospective impact at January 1, 2007                                                                                |   |                         | (25,847 | ) |   |   | (814 | ) |   |   | 9,763 |   |   |   | 17,228 |   |   |   | (1,958 | ) |
| Retrospective      impact from amortization of discount on  liability      component and debt issuance costs during the year |   |                         | 3,595   |   |   |   | 182 |   |   |   | (1,331 | ) |   |   | - |   |   |   | (2,082 | ) |
| Cumulative      retrospective impact at December 31, 2007                                                                              |   |                         | (22,252 | ) |   |   | (632 | ) |   |   | 8,432 |   |   |   | 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 | )      |   | $      | (469 | )      |   | $      | 6,982  |   |   | $      | 17,228 |   |   | $      | (6,310 | ) |

|                                                         |   | December      31, 2009 |    |   | December      31, 2008 |   |
|--------------------------------------------------------------|--------|------------------------|---------|--------|------------------------|--------|
| Long-term      debt                                          |   |                   |    |   |                   |   |
|   Principal      amount                            |   | $                      | 93,100  |   |                   | $      | 121,000 |   |
|   Unamortized      discount                        |   |                   | (10,937 | )      |                   |   | (18,369 | ) |
|       Net      carrying amount |   | $                      | 82,163  |   |                   | $      | 102,631 |   |
| Equity      component, net of income tax benefit             |   | $                      | 16,399  |   |                   | $      | 17,228 |   |

----

|                                             |   | Year      Ended December 31, |   |
|--------------------------------------------------|--------|-----------------------------------|--------|
|                                             |   | 2009                              |   |   | 2008 |   |   | 2007 |   |
| Net      sales                                   |   |                              | 100.0  | % |   |   | 100.0 | % |   |   | 100.0 | % |
| Cost      of product sales                       |   |                              | 74.6   |   |   |   | 61.0 |   |   |   | 59.6 |   |
| Gross      profit                                |   |                              | 25.4   |   |   |   | 39.0 |   |   |   | 40.4 |   |
| Operating      expenses:                         |   |                              |   |   |   |   |   |   |   |   |   |   |
| Selling                                          |   |                              | 6.8    |   |   |   | 4.6 |   |   |   | 3.6 |   |
| General      and administrative                  |   |                              | 9.6    |   |   |   | 6.5 |   |   |   | 5.4 |   |
| Acquisition      related charges                 |   |                              | (0.2   | ) |   |   | 1.4 |   |   |   | — |   |
| Research      and development                    |   |                              | 3.1    |   |   |   | 2.2 |   |   |   | 2.3 |   |
| Restructuring      - plant closure and severance |   |                              | 3.2    |   |   |   | — |   |   |   | — |   |
| Goodwill      impairment                         |   |                              | 1.0    |   |   |   | — |   |   |   | — |   |
| Income      from operations                      |   |                              | 1.9    |   |   |   | 24.3 |   |   |   | 29.1 |   |
| Other      income (expense)                      |   |                              | (1.8   | ) |   |   | (0.7 | ) |   |   | 0.3 |   |
| Income      before provision for income taxes    |   |                              | 0.1    |   |   |   | 23.6 |   |   |   | 29.4 |   |
| Net      income                                  |   |                              | 2.1    | % |   |   | 15.4 | % |   |   | 18.8 | % |

----

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|                            |   | 2009   |    |   | 2008   |   |
|---------------------------------|--------|--------|---------|--------|--------|--------|
| Cash and cash      equivalents  |   | $      | 122,154 |   |   | $      | 215,282 |   |
| Short      term investments     |   |   | 117,666 |   |   |   | 6,140 |   |
| Accounts      receivable, net   |   |   | 53,269  |   |   |   | 64,631 |   |
| Inventories,      net           |   |   | 100,976 |   |   |   | 101,017 |   |
| Working      capital            |   |   | 406,207 |   |   |   | 400,835 |   |
| Annual      operating cash flow |   |   | 67,773  |   |   |   | 155,970 |   |

----

----

|                                       |   | Payments      Due by Period |    |
|--------------------------------------------|--------|-----------------------------|---------|
|                                       |   | Total                       |    |   | Less than1      Year |   |   | 2-3 Years |   |   | 4-5 Years |   |   | After      5Years |   |
| Debt,      principal amount                |   | $                           | 93,100  |   |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | 93,100 |   |
| Capital      lease obligations             |   |                        | 55      |   |   |   | 26 |   |   |   | 29 |   |   |   | — |   |   |   | — |   |
| Non-cancelable      leases                 |   |                        | 6,101   |   |   |   | 3,383 |   |   |   | 2,207 |   |   |   | 511 |   |   |   | — |   |
| Pension      benefits                      |   |                        | 11,093  |   |   |   | 747 |   |   |   | 1,749 |   |   |   | 2,042 |   |   |   | 6,555 |   |
| Information      technology services       |   |                        | 1,652   |   |   |   | 788 |   |   |   | 709 |   |   |   | 155 |   |   |   | — |   |
| Cash      commitments for interest expense |   |                        | 66,689  |   |   |   | 2,677 |   |   |   | 5,236 |   |   |   | 5,236 |   |   |   | 53,540 |   |
| Utility      contract                      |   |                        | 12,857  |   |   |   | 5,140 |   |   |   | 5,205 |   |   |   | 2,512 |   |   |   | — |   |
| Total      contractual obligations         |   | $                           | 191,547 |   |   | $ | 12,761 |   |   | $ | 15,135 |   |   | $ | 10,456 |   |   | $ | 153,195 |   |

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|                                                                                                                      |   | Page   |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
| Report      of Independent Registered Public Accounting Firm                                                              |   |   | F-1    |   |
| Consolidated      Balance Sheets at December 31, 2009 and 2008                                                       |   |   | F-2    |   |
| Consolidated      Statements of Income for the Years Ended December 31, 2009, 2008 and      2007                     |   |   | F-3    |   |
| Consolidated      Statements of Stockholders’ Equity for the Years Ended December 31,      2009, 2008 and 2007 |   |   | F-4    |   |
| Consolidated      Statements of Cash Flows for the Years Ended December 31, 2009, 2008      and 2007                 |   |   | F-5    |   |
| Notes      to Consolidated Financial Statements                                                                           |   |   | F-6    |   |

| ExhibitNumber          | Description                                                                                                                                                                                                                                                                                                                              |
|-----------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1                         | Sale      and Purchase Agreement dated June 26, 2007, among Ceradyne, Inc., Ceradyne      EPB, Inc., EaglePicher Boron, LLC, EaglePicher Technology Holdings, LLC      and EaglePicher Corporation. Incorporated herein by reference to Exhibit      2.1 to the Registrant’s Form 10-Q Report for the quarter ended June 30,      2007. |
|                        |                                                                                                                                                                                                                                                                                                                                          |
| 3.1                         | Restated      Certificate of Incorporation of Ceradyne, Inc., as filed with the      Secretary of State of Delaware on May 25, 1987. Incorporated herein by      reference to Exhibit 3.1 to the Registrant’s Form 10-Q Report for the      quarter ended June 30, 2006.                                                                |
|                        |                                                                                                                                                                                                                                                                                                                                          |
| 3.2                         | Certificate      of Amendment of Restated Certificate of Incorporation of Ceradyne, Inc.,      as filed with the Secretary of State of Delaware on June 8, 2006.      Incorporated herein by reference to Exhibit 3.2 to the Registrant’s Form      10-Q Report for the quarter ended June 30, 2006.                                    |
|                        |                                                                                                                                                                                                                                                                                                                                          |
| 3.3                         | Bylaws      of Registrant. Incorporated herein by reference to Exhibit 3.3 to the      Registrant’s Annual Report on Form 10-K for the year ended December 31,      2007.                                                                                                                                                               |
|                        |                                                                                                                                                                                                                                                                                                                                          |
| 3.4                         | Amendment      to Bylaws of Registrant, adopted April 29, 1996. Incorporated herein by      reference to Exhibit 3.4 to the Registrant’s Annual Report on Form 10-K      for the year ended December 31, 2007.                                                                                                                          |
|                        |                                                                                                                                                                                                                                                                                                                                          |
|    3.5  | Amendment      to Bylaws of Registrant, adopted December 18, 2007. Incorporated herein by      reference to Exhibit 3.5 to the Registrant’s Annual Report on Form 10-K      for the year ended December 31, 2007.                                                                                                                  |
|                        |                                                                                                                                                                                                                                                                                                                                          |
| 4.1                         | Indenture      dated December 19, 2005, between Ceradyne, Inc. and Union Bank of      California, N.A., as Trustee. Incorporated herein by reference to Exhibit      4.1 of Registrant’s Form 8-K Current Report dated December 13, 2005, filed      with the Commission on December 19, 2005.                                          |
|                        |                                                                                                                                                                                                                                                                                                                                          |
| 4.2                         | First      Supplemental Indenture dated December 19, 2005, between Ceradyne, Inc. and      Union Bank of California, N.A., as Trustee. Incorporated herein by      reference to Exhibit 4.2 of Registrant’s Form 8-K Current Report dated      December 13, 2005, filed with the Commission on December 19,      2005.                  |
|                        |                                                                                                                                                                                                                                                                                                                                          |
| 4.3                         | Form      of 2.875% Senior Subordinated Convertible Note due 2035. Incorporated      herein by reference to Exhibit 4.3 of Registrant’s Form 8-K Current Report      dated December 13, 2005, filed with the Commission on December 19,      2005.                                                                                      |
|                        |                                                                                                                                                                                                                                                                                                                                          |
| 10.1                        | Intentionally      omitted.                                                                                                                                                                                                                                                                                                                   |
|                        |                                                                                                                                                                                                                                                                                                                                          |
| 10.2                        | Lease      covering premises located at 3169-A Red Hill Avenue, Costa Mesa,      California dated October 28, 1985. Incorporated herein by reference to      Exhibit 10.30 to the Registrant’s Annual Report on Form 10-K for the      fiscal year ended December 31, 1985.                                                             |
|                        |                                                                                                                                                                                                                                                                                                                                          |
| 10.3                        | Lease      dated March 31, 1986 covering premises located at 3163 Red Hill Avenue,      Costa Mesa, California. Incorporated herein by reference to Exhibit 10.45      to the Registrant’s Annual Report on Form 10-K for the fiscal year ended      December 31, 1986.                                                                 |
|                        |                                                                                                                                                                                                                                                                                                                                          |

----

| 10.4   | Lease      dated August 5, 1986 covering premises located at 225 Paularino Avenue,      Costa Mesa, California. Incorporated herein by reference to Exhibit 10.46      to the Registrant’s Annual Report on Form 10-K for the fiscal year ended      December 31, 1986.                                                                                 |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                               |
| 10.5   | Short-form      Memorandum of Lease Assignment dated December 15, 1986, and Lease      dated June 23, 1980, covering premises located at 3449 Church Street,      Scottdale, Georgia. Incorporated herein by reference to Exhibit 10.47 to      the Registrant’s Annual Report on Form 10-K for the fiscal year ended      December 31, 1986. |
|   |                                                                                                                                                                                                                                                                                                                                                               |
| 10.6   | Intentionally      omitted.                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                               |
| 10.7*  | Ceradyne,      Inc. 1994 Stock Incentive Plan. Incorporated herein by reference to      Exhibit 10.31 to the Registrant’s Annual Report on Form 10-K for the      fiscal year ended December 31, 1994.                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                               |
| 10.8*  | Amendment      No. 1 to the Ceradyne, Inc. 1994 Stock Incentive Plan. Incorporated herein      by reference to Exhibit 4.2 to Registrant’s Registration Statement on Form      S-8 (File No. 33-61675).                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                               |
| 10.9   | Intentionally      omitted.                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                               |
| 10.10  | Intentionally      omitted.                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                               |
| 10.11  | Amendment      No. 2, dated June 5, 1995, to Lease covering premises located at 3169-A      Red Hill Avenue, Costa Mesa, California. Incorporated herein by reference      to Exhibit 10.33 to the Registrant’s Registration Statement on Form S-1      (File No. 33-62345).                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                               |
| 10.12  | Amendment      No. 2, dated June 5, 1995, to Lease dated March 31, 1986 covering premises      located at 3163 Red Hill Avenue, Costa Mesa, California. Incorporated      herein by reference to Exhibit 10.34 to the Registrant’s Registration      Statement on Form S-1 (File No. 33-62345).                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                               |
| 10.13  | Amendment      No. 2, dated June 5, 1995, to Lease dated August 5, 1986 covering premises      located at 225 Paularino Avenue, Costa Mesa, California. Incorporated      herein by reference to Exhibit 10.35 to the Registrant’s Registration      Statement on Form S-1 (File No. 33-62345).                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                               |
| 10.14* | Amendment      No. 2 to the Ceradyne, Inc. 1994 Stock Incentive Plan. Incorporated herein      by reference to Exhibit 10.36 to the Registrant’s Annual Report on Form      10-K for the fiscal year ended December 31, 1996.                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                               |
| 10.15* | Amendment      No. 3 to the Ceradyne, Inc. 1994 Stock Incentive Plan. Incorporated herein      by reference to Exhibit 4.4 to Registrant’s Registration Statement on Form      S-8 (File No. 333-31679).                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                               |
| 10.16* | Amendment      No. 4 to the Ceradyne, Inc. 1994 Stock Incentive Plan. Incorporated herein      by reference to Exhibit 10.29 to the Registrant’s Annual Report on Form      10-K for the fiscal year ended December 31, 1998.                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                               |
| 10.17* | Amendment      No. 5 to the Ceradyne, Inc. 1994 Stock Incentive Plan. Incorporated herein      by reference to Exhibit 10.29 to the Registrant’s Annual Report on Form      10-K for the fiscal year ended December 31, 2000.                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                               |
| 10.18* | Amendment      No. 6 to the Ceradyne, Inc. 1994 Stock Incentive Plan. Incorporate herein      by reference to Exhibit 4.7 to the Registrant’s Registration Statement on      Form S-8 (File No. 333-64094).                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                               |
| 10.19  | Intentionally      omitted.                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                               |
| 10.20  | Intentionally      omitted.                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                               |
| 10.21* | Amendment      No. 7 to the Ceradyne, Inc. 1994 Stock Incentive Plan. Incorporated herein      by referenced to Exhibit 10.34 to the Registrant’s Annual Report on Form      10-K for the year ended December 31, 2002.                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                               |
| 10.22* | Ceradyne,      Inc. 2003 Stock Incentive Plan, as Amended and Restated as of April 11,      2005. Incorporated herein by reference to Exhibit 10.1 to the Registrant’s      Form 8-K Current Report dated May 23, 2005, filed with the Commission on      May 26, 2005.                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                               |
| 10.23* | Form      of Stock Option Agreement for use under the 2003 Stock Incentive Plan.      Incorporated herein by reference to Exhibit 10.2 to the Registrant’s Form      8-K Current Report dated May 23, 2005, filed with the Commission on May      26, 2005.                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                               |

----

| 10.24* | Form      of Restricted Stock Unit Award Agreement for use under the 2003 Stock      Incentive Plan. Incorporated herein by reference to Exhibit 10.3 to the      Registrant’s Form 8-K Current Report dated May 23, 2005, filed with      the Commission on May 26, 2005.                                  |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.25  | Lease      agreement between California State Teachers’ Retirement System, as      Landlord and CERADYNE, INC., as tenant. Incorporated herein by reference      to Exhibit 10.23 to the Registrant’s Annual Report on Form 10-K for the      year ended December 31, 2003.                                     |
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.26  | Intentionally      omitted.                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.27  | Intentionally      omitted .                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.28  | Intentionally      omitted .                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.29  | Intentionally      omitted .                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.30  | Intentionally      omitted.                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.31  | Intentionally      omitted.                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.32  | Lease      dated March 11, 1997 covering premises located at 3159-A Red Hill Avenue,      Costa Mesa, California. Incorporated herein by reference to Exhibit 10.32      to the Registrant’s Annual Report on Form 10-K for the year ended December      31, 2005.                                                    |
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.33  | Extension      No. 2, dated February 2, 2005, to Lease dated March 11, 1997 covering      premises located at 3159-A Red Hill Avenue , Costa Mesa, California.      Incorporated herein by reference to Exhibit 10.33 to the Registrant’s      Annual Report on Form 10-K for the year ended December 31,      2005.  |
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.34  | Lease      dated January 24, 2001 covering premises located at 3161 Red Hill Avenue,      Costa Mesa, California. Incorporated herein by reference to Exhibit 10.34      to the Registrant’s Annual Report on Form 10-K for the year ended December      31, 2005.                                                    |
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.35  | Extension      No. 1, dated February 2, 2005, to Lease dated January 24, 2001 covering      premises located at 3161 Red Hill Avenue, Costa Mesa, California.      Incorporated herein by reference to Exhibit 10.35 to the Registrant’s      Annual Report on Form 10-K for the year ended December 31,      2005.   |
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.36  | Extension      No. 4, dated February 2, 2005, to Lease dated March 31, 1986 covering      premises located at 3163 Red Hill Avenue, Costa Mesa, California.      Incorporated herein by reference to Exhibit 10.36 to the Registrant’s      Annual Report on Form 10-K for the year ended December 31,      2005.     |
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.37  | Extension      No. 4, dated February 2, 2005, to Lease dated October 28, 1985 covering      premises located at 3169-A Red Hill Avenue, Costa Mesa, California.      Incorporated herein by reference to Exhibit 10.37 to the Registrant’s      Annual Report on Form 10-K for the year ended December 31,      2005. |
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.38  | Lease      dated October 28, 1985 covering premises located at 3169-B Red Hill      Avenue, Costa Mesa, California. Incorporated herein by reference to      Exhibit 10.38 to the Registrant’s Annual Report on Form 10-K for the year      ended December 31, 2005.                                                  |
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.39  | Extension      No. 4, dated February 2, 2005, to Lease dated October 28, 1985 covering      premises located at 3169-B Red Hill Avenue, Costa Mesa, California.      Incorporated herein by reference to Exhibit 10.39 to the Registrant’s      Annual Report on Form 10-K for the year ended December 31,      2005. |
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.40  | Extension      No. 4, dated February 4, 2005, to Lease dated August 5, 1986 covering      premises located at 225 Paularino Avenue, Costa Mesa, California.      Incorporated herein by reference to Exhibit 10.40 to the Registrant’s      Annual Report on Form 10-K for the year ended December 31,      2005.     |
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.41  | Lease      dated February 4, 2005, covering premises located at 201 Paularino Avenue,      Costa Mesa, California. Incorporated herein by reference to Exhibit 10.41      to the Registrant’s Annual Report on Form 10-K for the year ended December      31, 2005.                                                   |
|   |                                                                                                                                                                                                                                                                                                                        |
| 10.42  | Lease      dated February 4, 2005, covering premises located at 3159-B Red Hill      Avenue, Costa Mesa, California. Incorporated herein by reference to      Exhibit 10.42 to the Registrant’s Annual Report on Form 10-K for the year      ended December 31, 2005.                                                 |
|   |                                                                                                                                                                                                                                                                                                                        |

----

| 10.43  | Extension      No. 1, dated February 7, 2005, to Lease dated March 23, 2004 covering      premises located at 235 Paularino Avenue, Costa Mesa, California.      Incorporated herein by reference to Exhibit 10.43 to the Registrant’s      Annual Report on Form 10-K for the year ended December 31,      2005. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                    |
| 10.44  | Lease      dated August 6, 2001covering premises located at 3165-A Red Hill Avenue,      Costa Mesa, California. Incorporated herein by reference to Exhibit 10.44      to the Registrant’s Annual Report on Form 10-K for the year ended December      31, 2005.                                                 |
|   |                                                                                                                                                                                                                                                                                                                    |
| 10.45  | Extension      No. 1, dated March 9, 2005, to Lease dated August 6, 2001 covering      premises located at 3165-A Red Hill Avenue, Costa Mesa, California.      Incorporated herein by reference to Exhibit 10.45 to the Registrant’s      Annual Report on Form 10-K for the year ended December 31,      2005.  |
|   |                                                                                                                                                                                                                                                                                                                    |
| 10.46  | Lease      dated January 5, 2005 covering premises located at 205 Paularino      Avenue, Costa Mesa, California. Incorporated herein by reference to      Exhibit 10.46 to the Registrant’s Annual Report on Form 10-K for the year      ended December 31, 2005.                                            |
|   |                                                                                                                                                                                                                                                                                                                    |
| 10.47  | Extension      No. 1, dated July 14, 2005, to Lease dated January 5, 2005, covering      premises located at 205 Paularino Avenue, Costa Mesa, California.      Incorporated herein by reference to Exhibit 10.47 to the Registrant’s      Annual Report on Form 10-K for the year ended December 31,      2005.  |
|   |                                                                                                                                                                                                                                                                                                                    |
| 12.1   | Computation      of Ratio of Earnings to Fixed Charges.                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                    |
| 14.1   | Code      of Business Conduct and Ethics as amended and restated on March 18, 2008.      Incorporated herein by reference to Exhibit 14.1 to the Registrant’s Form      8-K Current Report dated March 18, 2008, filed with the Commission on      March 24, 2008.                                                |
|   |                                                                                                                                                                                                                                                                                                                    |
| 21.1   | Subsidiaries      of the Registrant.                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                    |
| 23.1   | Consent      of Independent Registered Public Accounting Firm, PricewaterhouseCoopers      LLP.                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                    |
| 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.                                                                                                                                                                                                           |

|   | Each      of these exhibits constitutes a management contract, compensatory plan, or      arrangement. |
|--------|--------------------------------------------------------------------------------------------------------|

----

| To      Board of Directors and Stockholders of Ceradyne,  Inc. |
|----------------------------------------------------------------|

|   | /s/      PricewaterhouseCoopers LLP |
|--------|-------------------------------------|

|   | Orange      County, California |
|--------|--------------------------------|

|   | February      23, 2010 |
|--------|------------------------|

----

|   | CERADYNE,      INC. |
|--------|---------------------|

|                                                                                                                                                                     |   | December 31, |         |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|--------------|
|                                                                                                                                                                     |   | 2009              |         |   | 2008 |   |
| ASSETS                                                                                                                                                                   |   |              |         |   |   |   |
| Current      assets:                                                                                                                                                     |   |              |         |   |   |   |
| Cash      and cash equivalents                                                                                                                                           |   | $                 | 122,154      |   |   | $ | 215,282 |   |
| Short      term investments                                                                                                                                              |   |              | 117,666      |   |   |   |  6,140 |   |
| Restricted      cash                                                                                                                                                     |   |              | 3,130        |   |   |   | 2,702 |   |
| Accounts      receivable, net of allowances for doubtful accounts of $851 and $686 in2009      and 2008, respectively                                          |   |              |  53,269 |   |   |   |  64,631 |   |
| Other      receivables                                                                                                                                                   |   |              | 11,424       |   |   |   | 5,316 |   |
| Inventories,      net                                                                                                                                                    |   |              | 100,976      |   |   |   | 101,017 |   |
| Production      tooling, net                                                                                                                                             |   |              | 12,006       |   |   |   | 14,563 |   |
| Prepaid      expenses and other                                                                                                                                          |   |              | 19,932       |   |   |   | 24,170 |   |
| Deferred      tax asset                                                                                                                                                  |   |              | 13,796       |   |   |   | 11,967 |   |
| Total      current assets                                                                                                                                                |   |              | 454,353      |   |   |   | 445,788 |   |
|                                                                                                                                                                     |   |              |         |   |   |   |   |   |
| Property,      plant and equipment, net                                                                                                                                  |   |              | 239,322      |   |   |   | 251,928 |   |
| Long      term investments                                                                                                                                               |   |              | 20,019       |   |   |   | 24,434 |   |
| Intangible      assets, net                                                                                                                                              |   |              | 89,409       |   |   |   | 84,384 |   |
| Goodwill                                                                                                                                                                 |   |              | 43,880       |   |   |   | 45,324 |   |
| Other      assets                                                                                                                                                        |   |              | 2,721        |   |   |   | 2,669 |   |
| Total      assets                                                                                                                                                        |   | $                 | 849,704      |   |   | $ | 854,527 |   |
|                                                                                                                                                                     |   |              |         |   |   |   |   |   |
| LIABILITIES      AND STOCKHOLDERS’ EQUITY                                                                                                                          |   |              |         |   |   |   |   |   |
| Current      liabilities:                                                                                                                                                |   |              |         |   |   |   |   |   |
| Accounts      payable                                                                                                                                                    |   | $                 | 24,683       |   |   | $ | 22,954 |   |
| Accrued      expenses                                                                                                                                                    |   |              | 23,463       |   |   |   | 21,999 |   |
| Total      current liabilities                                                                                                                                           |   |              | 48,146       |   |   |   | 44,953 |   |
|                                                                                                                                                                     |   |              |         |   |   |   |   |   |
| Long-term      debt                                                                                                                                                      |   |              | 82,163       |   |   |   | 102,631 |   |
| Employee      benefits                                                                                                                                                   |   |              | 21,769       |   |   |   | 19,088 |   |
| Other      long term liabilities                                                                                                                                         |   |              | 39,561       |   |   |   | 41,816 |   |
| Deferred      tax liability                                                                                                                                              |   |              | 8,348        |   |   |   | 7,045 |   |
| Total      liabilities                                                                                                                                                   |   |              | 199,987      |   |   |   | 215,533 |   |
|                                                                                                                                                                     |   |              |         |   |   |   |   |   |
| Commitments      and contingencies (Note 8)                                                                                                                         |   |              |         |   |   |   |   |   |
|                                                                                                                                                                     |   |              |         |   |   |   |   |   |
| Stockholders’      equity:                                                                                                                                         |   |              |         |   |   |   |   |   |
| Common Stock, $0.01 par value:      100,000,000 authorized; 25,401,005 and 25,830,374shares issued and outstanding at      December 31, 2009 and 2008, respectively |   |              | 254          |   |   |   | 259 |   |
| Additional      paid in capital                                                                                                                                          |   |              | 157,679      |   |   |   | 163,291 |   |
| Retained      earnings                                                                                                                                                   |   |              | 470,256      |   |   |   | 461,741 |   |
| Accumulated      other comprehensive income                                                                                                                              |   |              | 21,528       |   |   |   | 13,703 |   |
| Total      stockholders’ equity                                                                                                                                    |   |              | 649,717      |   |   |   | 638,994 |   |
| Total      liabilities and stockholders’ equity                                                                                                                    |   | $                 | 849,704      |   |   | $ | 854,527 |   |

----

|                                                    |   | Years      ended December 31, |    |
|---------------------------------------------------------|--------|------------------------------------|---------|
|                                                    |   | 2009                               |    |   | 2008 |   |   | 2007 |   |
|                                                    |   |                               |    |   |   |   |   |   |   |
| Net      sales                                          |   | $                                  | 400,575 |   |   | $ | 680,197 |   |   | $ | 756,835 |   |
| Cost      of product sales                              |   |                               | 298,956 |   |   |   | 414,885 |   |   |   | 450,787 |   |
| Gross      profit                                       |   |                               | 101,619 |   |   |   | 265,312 |   |   |   | 306,048 |   |
|                                                    |   |                               |    |   |   |   |   |   |   |   |   |   |
| Operating      expenses:                                |   |                               |    |   |   |   |   |   |   |   |   |   |
| Selling                                                 |   |                               | 27,151  |   |   |   | 31,231 |   |   |   | 26,917 |   |
| General      and administrative                         |   |                               | 38,492  |   |   |   | 43,889 |   |   |   | 40,801 |   |
| Acquisition      related charge (credit)                |   |                               | (768    | ) |   |   | 9,824 |   |   |   | - |   |
| Research      and development                           |   |                               | 12,258  |   |   |   | 14,782 |   |   |   | 17,552 |   |
| Restructuring      – plant closure and severance  |   |                               | 12,924  |   |   |   | - |   |   |   | - |   |
| Goodwill      impairment                                |   |                               | 3,832   |   |   |   | - |   |   |   | - |   |
|                                                    |   |                               | 93,889  |   |   |   | 99,726 |   |   |   | 85,270 |   |
|                                                    |   |                               |    |   |   |   |   |   |   |   |   |   |
| Operating      income                                   |   |                               | 7,730   |   |   |   | 165,586 |   |   |   | 220,778 |   |
|                                                    |   |                               |    |   |   |   |   |   |   |   |   |   |
| Other      income (expense)                             |   |                               |    |   |   |   |   |   |   |   |   |   |
| Interest      income                                    |   |                               | 4,091   |   |   |   | 7,553 |   |   |   | 12,394 |   |
| Interest      expense                                   |   |                               | (7,119  | ) |   |   | (7,876 | ) |   |   | (7,618 | ) |
| Gain      on early extinguishment of debt               |   |                               | 1,881   |   |   |   | - |   |   |   | - |   |
| Loss      on auction rate securities                    |   |                               | (5,187  | ) |   |   | (5,870 | ) |   |   | (2,114 | ) |
| Miscellaneous,      net                                 |   |                               | (979    | ) |   |   | 1,511 |   |   |   | (311 | ) |
|                                                    |   |                               | (7,313  | ) |   |   | (4,682 | ) |   |   | 2,351 |   |
| Income      before provision for income taxes           |   |                               | 417     |   |   |   | 160,904 |   |   |   | 223,129 |   |
| (Benefit)      provision for income taxes               |   |                               | (8,098  | ) |   |   | 56,424 |   |   |   | 80,946 |   |
|                                                    |   |                               |    |   |   |   |   |   |   |   |   |   |
| Net      income                                         |   | $                                  | 8,515   |   |   | $ | 104,480 |   |   | $ | 142,183 |   |
|                                                    |   |                               |    |   |   |   |   |   |   |   |   |   |
| Net      income per common share:                       |   |                               |    |   |   |   |   |   |   |   |   |   |
| Basic                                                   |   | $                                  | 0.33    |   |   | $ | 3.95 |   |   | $ | 5.22 |   |
| Diluted                                                 |   | $                                  | 0.33    |   |   | $ | 3.91 |   |   | $ | 5.13 |   |
| Shares      used in computing per common share amounts: |   |                               |    |   |   |   |   |   |   |   |   |   |
| Basic                                                   |   |                               | 25,684  |   |   |   | 26,446 |   |   |   | 27,252 |   |
| Diluted                                                 |   |                               | 25,802  |   |   |   | 26,689 |   |   |   | 27,732 |   |

----

|                                                      |   | Common      Stock    |       |    |   |    |    |             |   |    |                                            |   |
|-----------------------------------------------------------|--------|----------------------|------------|---------|--------|---------|---------|------------------|--------|---------|-------------------------------------------------|--------|
|                                                      |   | Number      ofShares |       |    | Amount |    |    | RetainedEarnings |   |    | AccumulatedOtherComprehensiveIncome      (Loss) |   |   | TotalStockholders’Equity |   |
| Balance,      December 31, 2006                      |   |                 | 27,119,012 |    |   | $       | 195,752 |             |   | $       | 215,078                                         |   |   | $ | 11,051 |   |   | $ | 421,881 |   |
| Comprehensive      income:                                |   |                 |       |    |   |    |    |             |   |    |                                            |   |   |   |   |   |   |   |   |   |
| Net      income                                           |   |                 | —    |    |   |    | — |             |   |    | 142,183                                         |   |   |   | — |   |   |   | 142,183 |   |
| Net      unrealized loss on available-for-sale securities |   |                 | —    |    |   |    | — |             |   |    | —                                         |   |   |   | (434 | ) |   |   | (434 | ) |
| Net      change in pension liability                      |   |                 | —    |    |   |    | — |             |   |    | —                                         |   |   |   | 1,123 |   |   |   | 1,123 |   |
| Cumulative      translation adjustment                    |   |                 | —    |    |   |    | — |             |   |    | —                                         |   |   |   | 19,614 |   |   |   | 19,614 |   |
| Total      comprehensive income                           |   |                 | —    |    |   |    | — |             |   |    | —                                         |   |   |   | — |   |   |   | 162,486 |   |
|                                                      |   |                 |       |    |   |    |    |             |   |    |                                            |   |   |   |   |   |   |   |   |   |
| Issuance      of common stock                             |   |                 | 19,204     |    |   |    | 401     |             |   |    | —                                         |   |   |   | — |   |   |   | 401 |   |
| Exercise      of stock options                            |   |                 | 180,314    |    |   |    | 1,297   |             |   |    | —                                         |   |   |   | — |   |   |   | 1,297 |   |
| Tax      benefit from exercise of stock options           |   |                 | —    |    |   |    | 3,301   |             |   |    | —                                         |   |   |   | — |   |   |   | 3,301 |   |
| Stock      based compensation                             |   |                 | —    |    |   |    | 2,451   |             |   |    | —                                         |   |   |   | — |   |   |   | 2,451 |   |
| Balance,      December 31, 2007                      |   |                 | 27,318,530 |    |   | $       | 203,202 |             |   | $       | 357,261                                         |   |   | $ | 31,354 |   |   | $ | 591,817 |   |
| Comprehensive      income:                                |   |                 |       |    |   |    |    |             |   |    |                                            |   |   |   |   |   |   |   |   |   |
| Net      income                                           |   |                 | —    |    |   |    | — |             |   |    | 104,480                                         |   |   |   | — |   |   |   | 104,480 |   |
| Net      unrealized loss on available-for-sale securities |   |                 | —    |    |   |    | — |             |   |    | —                                         |   |   |   | (5,271 | ) |   |   | (5,271 | ) |
| Net      change in pension liability                      |   |                 | —    |    |   |    | — |             |   |    | —                                         |   |   |   | (3,296 | ) |   |   | (3,296 | ) |
| Cumulative      translation adjustment                    |   |                 | —    |    |   |    | — |             |   |    | —                                         |   |   |   | (9,084 | ) |   |   | (9,084 | ) |
| Total      comprehensive income                           |   |                 | —    |    |   |    | — |             |   |    | —                                         |   |   |   | — |   |   |   | 86,829 |   |
| Issuance      of common stock                             |   |                 | 55,281     |    |   |    | 809     |             |   |    | —                                         |   |   |   | — |   |   |   | 809 |   |
| Repurchases      of common stock                          |   |                 | (1,578,237 | )       |   |    | (44,705 | )                |   |    | —                                         |   |   |   | — |   |   |   | (44,705 | ) |
| Exercise      of stock options                            |   |                 | 34,800     |    |   |    | 366     |             |   |    | —                                         |   |   |   | — |   |   |   | 366 |   |
| Tax      benefit from exercise of stock options           |   |                 | —    |    |   |    | 769     |             |   |    | —                                         |   |   |   | — |   |   |   | 769 |   |
| Stock      based compensation                             |   |                 | —    |    |   |    | 3,109   |             |   |    | —                                         |   |   |   | — |   |   |   | 3,109 |   |
| Balance,      December 31, 2008                      |   |                 | 25,830,374 |    |   |  $ | 163,550 |             |   |  $ | 461,741                                         |   |   |  $ | 13,703 |   |   |  $ | 638,994 |   |
| Comprehensive      income:                                |   |                 |       |    |   |    |    |             |   |    |                                            |   |   |   |   |   |   |   |   |   |
| Net      income                                           |   |                 |       |    |   |    | — |             |   |    | 8,515                                           |   |   |   | — |   |   |   | 8,515 |   |
| Net      unrealized gain on available-for-sale securities |   |                 | —    |    |   |    | — |             |   |    | —                                         |   |   |   | 3,612 |   |   |   | 3,612 |   |
| Net      change in pension liability                      |   |                 | —    |    |   |    | — |             |   |    | —                                         |   |   |   | (936 |  ) |   |   | (936 | )  |
| Cumulative      translation adjustment                    |   |                 | —    |    |   |    | — |             |   |    | —                                         |   |   |   | 5,149 |   |   |   | 5,149 |   |
| Total      comprehensive income                           |   |                 | —    |    |   |    | — |             |   |    | —                                         |   |   |   | — |   |   |   | 16,340 |   |
| Impact      of repurchase of convertible debt             |   |                 | —    |    |   |    | (829    | )           |   |    | —                                         |   |   |   | — |   |   |   | (829 | )  |
| Issuance      of common stock                             |   |                 | 129,131    |    |   |    | 944     |             |   |    | —                                         |   |   |   | — |   |   |   | 944 |   |
| Repurchases      of common stock                          |   |                 | (567,000   | )  |   |    | (9,753  | )           |   |    | —                                         |   |   |   | — |   |   |   | (9,753 |  ) |
| Exercise      of stock options                            |   |                 | 8,500      |    |   |    | 33      |             |   |    | —                                         |   |   |   | — |   |   |   | 33 |   |
| Tax      benefit from exercise of stock options           |   |                 | —    |    |   |    | 149     |             |   |    | —                                         |   |   |   | — |   |   |   | 149 |   |
| Stock      based compensation                             |   |                 | —    |    |   |    | 3,839   |             |   |    | —                                         |   |   |   | — |   |   |   | 3,839 |   |
| Balance,      December 31, 2009                      |   |                 | 25,401,005 |    |   |  $ | 157,933 |             |   |  $ | 470,256                                         |   |   |  $ | 21,528 |   |   |  $ | 649,717 |   |

----

|                                                                                        |   | Years ended      December 31 |     |
|---------------------------------------------------------------------------------------------|--------|-----------------------------------|----------|
|                                                                                        |   | 2009                              |     |   | 2008 |   |   | 2007 |   |
| Cash      flows from operating activities:                                                  |   |                              |     |   |   |   |   |   |   |
| Net      income                                                                             |   | $                                 | 8,515    |   |   | $ | 104,480 |   |   | $ | 142,183 |   |
| Adjustments      to reconcile net income to net cash provided by operating      activities: |   |                              |     |   |   |   |   |   |   |   |   |   |
| Depreciation      and amortization                                                          |   |                              | 35,146   |   |   |   | 36,668 |   |   |   | 26,751 |   |
| Non      cash interest expense on convertible debt                                          |   |                              | 3,643    |   |   |   | 3,883 |   |   |   | 3,594 |   |
| Gain      on early extinguishment of debt                                                   |   |                              | (1,881   | ) |   |   | - |   |   |   | - |   |
| Payments      of accreted interest on repurchased convertible debt                          |   |                              | (2,957   | ) |   |   | - |   |   |   | - |   |
| Deferred      income taxes                                                                  |   |                              | (1,572   | ) |   |   | (3,136 | ) |   |   | (3,620 | ) |
| Stock      compensation                                                                     |   |                              | 3,839    |   |   |   | 3,109 |   |   |   | 2,451 |   |
| Losses      on auction rate securities                                                      |   |                              | 5,187    |   |   |   | 5,870 |   |   |   | - |   |
| Goodwill      impairment                                                                    |   |                              | 3,832    |   |   |   | - |   |   |   | - |   |
| Loss      on equipment disposal                                                             |   |                              | 514      |   |   |   | 257 |   |   |   | 908 |   |
| Changes      in operating assets and liabilities, net of assets    acquired:                |   |                              |     |   |   |   |   |   |   |   |   |   |
| Accounts      receivable, net                                                               |   |                              | 12,170   |   |   |   | 20,830 |   |   |   | (1,584 | ) |
| Other      receivables                                                                      |   |                              | (5,973   | ) |   |   | 333 |   |   |   | (2,149 | ) |
| Inventories,      net                                                                       |   |                              | 2,513    |   |   |   | (6,623 | ) |   |   | (6,270 | ) |
| Production      tooling, net                                                                |   |                              | 2,587    |   |   |   | 2,018 |   |   |   | 4,473 |   |
| Prepaid      expenses and other                                                             |   |                              | 3,731    |   |   |   | (10,825 | ) |   |   | 337 |   |
| Other      assets                                                                           |   |                              | -        |   |   |   | (427 | ) |   |   | (1,154 | ) |
| Accounts      payable and accrued expenses                                                  |   |                              | 3,946    |   |   |   | (16,285 | ) |   |   | (4,624 | ) |
| Income      tax payable                                                                     |   |                              | (213     | ) |   |   | (232 | ) |   |   | (12,754 | ) |
| Other      liabilities                                                                      |   |                              | -        |   |   |   | 114 |   |   |   | 1,125 |   |
| Other      long term liability                                                              |   |                              | (7,357   | ) |   |   | 9,667 |   |   |   | 4,985 |   |
| Employee      benefits                                                                      |   |                              | 2,103    |   |   |   | 6,269 |   |   |   | (1,066 | ) |
| Net      cash provided by operating activities                                              |   |                              | 67,773   |   |   |   | 155,970 |   |   |   | 153,586 |   |
| Cash      flows from investing activities:                                                  |   |                              |     |   |   |   |   |   |   |   |   |   |
| Purchases      of property, plant and equipment                                             |   |                              | (14,534  | ) |   |   | (44,047 | ) |   |   | (42,245 | ) |
| Changes      in restricted cash                                                             |   |                              | (428     | ) |   |   | (42 | ) |   |   | (2,660 | ) |
| Purchases      of marketable securities                                                     |   |                              | (179,194 | ) |   |   | - |   |   |   | (700,443 | ) |
| Proceeds      from sales and maturities of marketable securities                            |   |                              | 73,170   |   |   |   | 21,738 |   |   |   | 823,499 |   |
| Acquisition      of businesses, net of cash acquired                                        |   |                              | (9,654   | ) |   |   | (27,208 | ) |   |   | (99,098 | ) |
| Proceeds      from sale of equipment                                                        |   |                              | 72       |   |   |   | 84 |   |   |   | 9 |   |
| Net      cash (used in) investing activities                                                |   |                              | (130,568 | ) |   |   | (49,475 | ) |   |   | (20,938 | ) |
| Cash      flows from financing activities:                                                  |   |                              |     |   |   |   |   |   |   |   |   |   |
| Proceeds      from issuance of common stock for stock plans                                 |   |                              | -        |   |   |   | - |   |   |   | 401 |   |
| Proceeds      from issuance of stock due to exercise of stock options                       |   |                              | 33       |   |   |   | 366 |   |   |   | 1,297 |   |
| Tax      benefit due to exercise of stock options                                           |   |                              | 149      |   |   |   | 769 |   |   |   | 3,531 |   |
| Shares      repurchased                                                                     |   |                              | (9,753   | ) |   |   | (44,705 | ) |   |   | - |   |
| Reduction      on long term debt                                                            |   |                              | (20,239  | ) |   |   | - |   |   |   | - |   |
| Net      cash (used in)  provided by financing activities                         |   |                              | (29,810  | ) |   |   | (43,570 | ) |   |   | 5,229 |   |
| Effect      of exchange rates on cash and cash equivalents                                  |   |                              | (523     | ) |   |   | (2,746 | ) |   |   | 3,679 |   |
| (Decrease)      increase in cash and cash equivalents                                       |   |                              | (93,128  | ) |   |   | 60,179 |   |   |   | 141,556 |   |
| Cash      and cash equivalents, beginning of period                                         |   |                              | 215,282  |   |   |   | 155,103 |   |   |   | 13,547 |   |
| Cash      and cash equivalents, end of period                                               |   | $                                 | 122,154  |   |   | $ | 215,282 |   |   | $ | 155,103 |   |
| Supplemental      disclosures of cash flow information:                                     |   |                              |     |   |   |   |   |   |   |   |   |   |
| Interest      paid                                                                          |   | $                                 | 2,952    |   |   | $ | 3,484 |   |   | $ | 3,520 |   |
| Income      taxes paid                                                                      |   | $                                 | 733      |   |   | $ | 63,545 |   |   | $ | 90,775 |   |
| Supplemental      schedule of non-cash financing activities:                                |   |                              |     |   |   |   |   |   |   |   |   |   |
| Fulfillment      of 401(k) obligations through the issuance of stock                        |   | $                                 | 1,507    |   |   | $ | 1,291 |   |   | $ | 1,085 |   |

----

|                   |   | Balance atBeginningof      Year |   |   |           Additions |   |   | Write-offsandRecoveries |   |   | Balance atEnd      ofYear |   |
|------------------------|--------|--------------------------------------|--------|--------|-----------------------------------------|--------|--------|-------------------------|--------|--------|--------------------------------|--------|
| December      31, 2009 |   | $                                    | 686    |   |                                    | $      | 740    |                    |   | $      | 575                            |   |   | $ | 851 |   |
| December      31, 2008 |   | $                                    | 792    |   |                                    | $      | 955    |                    |   | $      | 1,061                          |   |   | $ | 686 |   |
| December      31, 2007 |   | $                                    | 1,158  |   |                                    | $      | 111    |                    |   | $      | 477                            |   |   | $ | 792 |   |

|                |   | December 31, |          |
|---------------------|--------|-------------------|---------------|
|                |   | 2009              |          |   | 2008 |   |
| Raw      materials  |   | $                 |  12,219  |   |   | $ | 18,377 |   |
| Work-in-process     |   |              |  46,334  |   |   |   | 45,180 |   |
| Finished      goods |   |              |  42,423  |   |   |   | 37,460 |   |
|                |   | $                 |  100,976 |   |   | $ | 101,017 |   |

----

|                                           |   | December 31, |           |
|------------------------------------------------|--------|-------------------|----------------|
|                                           |   | 2009              |           |   | 2008 |   |
| Land      and land improvements                |   | $                 |  19,320   |   |   | $ | 17,073 |   |
| Buildings      and improvements                |   |              |  100,861  |   |   |   | 97,234 |   |
| Machinery      and equipment                   |   |              |  214,552  |   |   |   | 202,963 |   |
| Leasehold      improvements                    |   |              |  9,473    |   |   |   | 8,241 |   |
| Office      equipment                          |   |              |  29,807   |   |   |   | 26,175 |   |
| Construction      in progress                  |   |              |  6,083    |   |   |   | 13,469 |   |
|                                           |   |              |  380,096  |   |   |   | 365,155 |   |
| Accumulated      depreciation and amortization |   |              |  (140,774 | ) |   |   | (113,227 | ) |
|                                           |   | $                 |  239,322  |   |   | $ | 251,928 |   |

| Buildings      and improvements | 30      years                                 |
|---------------------------------|-----------------------------------------------|
| Machinery      and equipment    | 3      to 12 years                            |
| Office      equipment           | 3      to 5 years                             |
| Leasehold      improvements     | Shorter      of 10 years or the term of lease |

----

----

|                                      |   | ACO    |    | Semicon |   | Thermo  |   | ESK    |    | Canada |   | Boron   |   | Total  |    |
|-------------------------------------------|--------|--------|---------|---------|--------|---------|--------|--------|---------|--------|--------|---------|--------|--------|---------|
|                                      |   |   |    |    |   |    |   |   |    |   |   |    |   |   |    |
| Balance      at December 31, 2007    |   | $      | 2,608   |    | $      | 603     |   | $      | 11,378  |   | $      | 10,176  |   | $      | 3,832   |   | $ | 18,251 |   | $ | 46,848 |   |
| Accumulated      impairment losses        |   |   | — |    |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |
| Translation      and other                |   |   | — |    |   | — |   |   | (1,047  | )      |   | (477    | )      |   | — |   |   | — |   |   | (1,524 | ) |
| Balance      at December 31, 2008    |   |   | 2,608   |    |   | 603     |   |   | 10,331  |   |   | 9,699   |   |   | 3,832   |   |   | 18,251 |   |   | 45,324 |   |
| Accumulated      impairment losses        |   |   | — |    |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |
| Acquisition      of Diaphorm Technologies |   |   | 2,100   |    |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 2,100 |   |
| Translation      and other                |   |   | — |    |   | — |   |   | — |   |   | 288     |   |   | — |   |   | — |   |   | 288 |   |
| Goodwill      impairment                  |   |   | — |    |   | — |   |   | — |   |   | — |   |   | (3,832  | ) |   | — |   |   | (3,832 | ) |
| Balance      at December 31, 2009    |   | $      | 4,708   |    | $      | 603     |   | $      | 10,331  |   | $      | 9,987   |   | $      | — |   | $ | 18,251 |   | $ | 43,880 |   |

|                                                                                      |   | December 31,      2009 |    |   | December 31,      2008 |   |
|-------------------------------------------------------------------------------------------|--------|-----------------------------|---------|--------|-----------------------------|--------|
|                                                                                      |   | GrossAmount                 |    |   | AccumulatedAmortization     |   |   | NetAmount |   |   | GrossAmount |   |   | AccumulatedAmortization |   |   | NetAmount |   |
| Amortizing      Intangible Assets                                                         |   |                        |    |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Backlog                                                                                   |   | $                           | 1,864   |   |                        | $      | 1,864 |   |   | $ | — |   |   | $ | 1,795 |   |   | $ | 1,795 |   |   | $ | — |   |
| Developed      technology                                                                 |   |                        | 50,752  |   |                        |   | 4,378 |   |   |   | 46,374 |   |   |   | 42,489 |   |   |   | 3,106 |   |   |   | 39,383 |   |
|           Trade      name               |   |                        | 1,110   |   |                        |   | 445 |   |   |   | 665 |   |   |   | 1,110 |   |   |   | 302 |   |   |   | 808 |   |
|           Customer      Relationships   |   |                        | 47,604  |   |                        |   | 7,671 |   |   |   | 39,933 |   |   |   | 46,604 |   |   |   | 4,465 |   |   |   | 42,139 |   |
|           Non-compete      agreement    |   |                        | 500     |   |                        |   | 500 |   |   |   | — |   |   |   | 500 |   |   |   | 500 |   |   |   | — |   |
|           Non-amortizing      tradename |   |                        | 2,437   |   |                        |   | — |   |   |   | 2,437 |   |   |   | 2,054 |   |   |   | — |   |   |   | 2,054 |   |
| Total                                                                                     |   | $                           | 104,267 |   |                        | $      | 14,858 |   |   | $ | 89,409 |   |   | $ |  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                                |

----

|                                               |   | December 31, |       |
|----------------------------------------------------|--------|-------------------|------------|
|                                               |   | 2009              |       |   | 2008 |   |   | 2007 |   |
| Weighted      average number of shares outstanding |   |              | 25,683,963 |   |   |   | 26,445,785 |   |   |   | 27,252,448 |   |
| Dilutive      stock options                        |   |              | 118,281    |   |   |   | 217,972 |   |   |   | 285,427 |   |
| Dilutive      restricted stock units               |   |              | -          |   |   |   | 25,434 |   |   |   | 39,853 |   |
| Dilutive      convertible note shares              |   |              | -          |   |   |   | - |   |   |   | 154,274 |   |
| Number      of shares used in dilutive computation |   |              | 25,802,244 |   |   |   | 26,689,191 |   |   |   |  27,732,002 |   |

----

|                                                              |   | December 31, |   |
|-------------------------------------------------------------------|--------|-------------------|--------|
|                                                              |   | 2009              |   |   | 2008 |   |
| Unrealized      gain (loss) on available-for-sale-securities, net |   | $                 | (1,991 | )  |   | $ | (5,911 | ) |
| Net      change in pension liability                              |   |              | (4,059 | ) |   |   | (3,124 | ) |
| Cumulative      translation adjustment                            |   |              | 27,578 |   |   |   | 22,738 |   |
|                                                              |   | $                 | 21,528 |   |   | $ | 13,703 |   |

----

----

|                                                       |   |                                                             |                                                                      |   |                                                              |   |    |                                               |   |   |                                                     |   |
|------------------------------------------------------------|--------|------------------------------------------------------------------|---------------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|---------|----------------------------------------------------|--------|--------|----------------------------------------------------------|--------|
|                                                       |   | Fair      Value Measurements at      December 31, 2009Using |                                                                      |   |                                                              |   |
| (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, 2009 |   |
| Cash      and cash equivalents (including restricted cash) |   | $                                                                |   125,284                                                       |   |                                                              | $      |  - |                                               |   | $      | -                                                        |   |   | $ |   125,284 |   |
| Short      term investments                                |   |                                                             |   117,666                                                       |   |                                                              |   |  - |                                               |   |   |  -                                                  |   |   |   |   117,666 |   |
| Long      term investments                                 |   |                                                             |             - |   |                                                              |   |  - |                                               |   |   |        20,019         |   |   |   |          20,019 |   |
| Assets      held by defined benefit pension plans          |   |                                                             |            -       |   |                                                              |   | 6,857   |                                               |   |   | -                                                        |   |   |   | 6,857 |   |
| Other      long-term financial asset                       |   | $                                                                |      1,962                                       |   |                                                              | $      |  - |                                               |   | $      |  -                                                  |   |   | $ |   1,962 |   |

|                                                       |   |                                                             |                                                                      |   |                                                        |   |    |                                               |   |   |                                                     |   |
|------------------------------------------------------------|--------|------------------------------------------------------------------|---------------------------------------------------------------------------|--------|-------------------------------------------------------------|--------|---------|----------------------------------------------------|--------|--------|----------------------------------------------------------|--------|
|                                                       |   | Fair      Value Measurements at      December 31, 2008Using |                                                                      |   |                                                        |   |
| (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 |   |
| Assets      held by defined benefit pension plans          |   |                                                             |            -       |   |                                                        |   | 6,447   |                                               |   |   | -                                                        |   |   |   | 6,447 |   |
| Other      long-term financial asset                       |   | $                                                                |     1,355                                             |   |                                                        | $      |  - |                                               |   | $      |  -                                                  |   |   | $ | 1,355 |   |

|                                                               |   | Year      Ended December 31, |   |
|--------------------------------------------------------------------|--------|------------------------------|--------|
|                                                               |   | 2009                         |   |   | 2008 |   |
| Balance      at beginning of year                                  |   | $                            | 24,434 |   |   | $ | 38,089 |   |
| Sale      of auction rate securities                               |   |                         | (5,320 | ) |   |   | - |   |
| Realized      loss included in net earnings                        |   |                         | (2,280 | ) |   |   | - |   |
| Unrealized      loss included in net earnings                      |   |                         | (2,907 | ) |   |   | (5,870 | ) |
| Unrealized      gain (loss) included in other comprehensive income |   |                         | 6,092  |   |   |   | (7,785 | ) |
| Balance      at end of year                                        |   | $                            | 20,019 |   |   | $ | 24,434 |   |

----

----

| 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 |   |

----

| Cash      consideration paid to SemEquip stockholders |   | $      | 23,315 |   |
|-------------------------------------------------------|--------|--------|--------|--------|
| Accrued      purchase consideration                   |   |   | 25,235 |   |
| Direct      transaction fees and expenses             |   |   | 1,970  |   |
| Total      purchase price                             |   | $      | 50,520 |   |

| Cash                                         |   | $      | 2,192  |   |
|----------------------------------------------|--------|--------|--------|--------|
| Inventories                                  |   |   | 3,574  |   |
| Accounts      receivable, net                |   |   | 446    |   |
| Other      current assets                    |   |   | 276    |   |
| Property,      plant and equipment           |   |   | 1,071  |   |
| Intangible      assets                       |   |   | 48,189 |   |
| Accounts      payable and other liabilities  |   |   | (3,685 | )      |
| Non-current      deferred tax liability, net |   |   | (1,543 | )      |
| Net      assets acquired                     |   | $      | 50,520 |   |

----

|   | • | SemEquip      historical operating margins and performance of comparable publicly traded      entities |
|--------|---------|--------------------------------------------------------------------------------------------------------|

|   | • | Number      of customers and SemEquip marketshare |
|--------|---------|---------------------------------------------------|

|   | • | Contractual      and non-contractual relationships with large customers,  and |
|--------|---------|-------------------------------------------------------------------------------|

|   | • | Patents      held |
|--------|---------|-------------------|

|                          |   | 2008   |    |   | 2007   |   |
|-------------------------------|--------|--------|---------|--------|--------|--------|
| Net      Sales                |   | $      | 682,978 |   |   | $      | 760,642 |   |
| Net      income (1)           |   | $      | 100,639 |   |   | $      | 127,467 |   |
|                          |   |   |    |   |   |   |   |   |
| Basic      income per share   |   | $      | 3.81    |   |   | $      | 4.68 |   |
| Diluted      income per share |   | $      | 3.77    |   |   | $      | 4.60 |   |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | The      unaudited pro forma information for the years ended December 31, 2008 and      2007 includes the $9.8 million pre-tax acquisition related compensation      charge associated with a pre-closing commitment by SemEquip to pay      incentive compensation to several of its employees and advisors, which has      been recognized in the Company’s historical results of operations for      these periods. The unaudited pro forma information for the years ended      December 31, 2008 and 2007 include pro forma adjustments to reflect      pre-tax increase in amortization expense of $398,000 and $0.7 million,      respectively, related to management’s estimate of the fair value of      intangible assets acquired in the SemEquip acquisition.  |

----

|                                     |         |    |   |   |
|------------------------------------------|--------------|---------|--------|--------|
| Cash                                     |    | $       | 4,000  |   |
| Transaction      costs                   |    |    | 115    |   |
| Total      purchase price                |    | $       | 4,115  |   |
| Fair      value of assets acquired:      |    |    |   |   |
| Fixed      assets                        |    |  $ | 29     |   |
| Customer      relationships              |         |    | 120    |   |
| Developed      technology                |         |    | 3,966  |   |
| Total      fair value of assets acquired |    | $       | 4,115  |   |

| Cash                                                        |    | $      | 27,905  |   |
|-------------------------------------------------------------|--------------|--------|---------|--------|
| Transaction      costs                                      |    |   | 216     |   |
| Total      purchase price                                   |    | $      | 28,121  |   |
| Fair      value of assets acquired and liabilities assumed: |    |   |    |   |
| Cash                                                        |    | $      | 332     |   |
| Accounts      receivable, net                               |    |   | 2,503   |   |
| Inventory                                                   |    |   | 3,301   |   |
| Property,      plant and equipment                          |    |   | 7,114   |   |
| Other      assets                                           |    |   | 1,473   |   |
| Assumed      liabilities                                    |    |   | (1,892) |   |
| Deferred      taxes                                         |         |   | (3,741) |   |
| Backlog                                                     |    |   | 110     |   |
| Developed      technology                                   |    |   | 1,510   |   |
| Tradename                                                   |    |   | 650     |   |
| Customer      relationships                                 |         |   | 6,210   |   |
| Non-compete                                                 |         |   | 500     |   |
| Goodwill                                                    |    |   | 10,051  |   |
|                                                        |    | $      | 28,121  |   |

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

----

| Cash                                                        |    | $      | 69,600  |   |
|-------------------------------------------------------------|--------------|--------|---------|--------|
| Transaction      costs                                      |    |   | 1,709   |   |
| Total      purchase price                                   |    | $      | 71,309  |   |
| Fair      value of assets acquired and liabilities assumed: |    |   |    |   |
| Accounts      receivable, net                               |    | $      | 2,811   |   |
| Inventory                                                   |    |   | 6,375   |   |
| Property,      plant and equipment                          |    |   | 23,636  |   |
| Other      assets                                           |    |   | 61      |   |
| Assumed      liabilities                                    |    |   | (1,505) |   |
| Backlog                                                     |    |   | 1,110   |   |
| Developed      technology                                   |    |   | 2,280   |   |
| Customer      relationships                                 |         |   | 18,290  |   |
| Goodwill                                                    |    |   | 18,251  |   |
|                                                        |    | $      | 71,309  |   |

----

| Identified Intangible Asset |   | Estimated Useful Life in Years or      Months |
|-----------------------------|--------|-----------------------------------------------|
| Developed      technology   |   | 12.5      years                               |
| Customer      relationships |   | 12.5      years                               |
| Backlog                     |   | 3      months                                 |

|                                                                                                                                   |   | 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      |   |                         | 3,414   |   |   |   | 204 |   |   |   | (1,252 | ) |   |   | - |   |   |   | (1,958 | ) |
| Cumulative      retrospective impact at January 1, 2007                                                                                |   |                         | (25,847 | ) |   |   | (814 | ) |   |   | 9,763 |   |   |   | 17,228 |   |   |   | (1,958 | ) |
| Retrospective      impact from amortization of discount on  liability      component and debt issuance costs during the year |   |                         | 3,595   |   |   |   | 182 |   |   |   | (1,331 | ) |   |   | - |   |   |   | (2,082 | ) |
| Cumulative      retrospective impact at December 31, 2007                                                                              |   |                         | (22,252 | ) |   |   | (632 | ) |   |   | 8,432 |   |   |   | 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 | )      |   | $      | (469 | )      |   | $      | 6,982  |   |   | $      | 17,228 |   |   | $      | (6,310 | ) |

----

|                                                         |   | December      31, 2009 |    |   | December      31, 2008 |   |
|--------------------------------------------------------------|--------|------------------------|---------|--------|------------------------|--------|
| Long-term      debt                                          |   |                   |    |   |                   |   |
|   Principal      amount                            |   | $                      | 93,100  |   |                   | $      | 121,000 |   |
|   Unamortized      discount                        |   |                   | (10,937 | )      |                   |   | (18,369 | ) |
|       Net      carrying amount |   | $                      | 82,163  |   |                   | $      | 102,631 |   |
| Equity      component, net of income tax benefit             |   | $                      | 16,399  |   |                   | $      | 17,228 |   |

----

|                                      |   | 2009   |       |   | 2008   |   |      | 2007   |   |
|-------------------------------------------|--------|--------|------------|--------|--------|--------|-----------|--------|--------|
| Current,      domestic                    |   | $      | (5,995     | )      |   | $      | 59,303    |   |   | $ | 79,406 |   |
| Current,      foreign                     |   |   |  (531 | )      |   |   |  229 |   |   |   | 4,897 |   |
| Current,      total                       |   |   | (6,526     | )      |   |   | 59,532    |   |   |   | 84,303 |   |
| Deferred,      domestic                   |   |   | 1,904      |   |   |   | (3,041    | )      |   |   | (2,316 | ) |
| Deferred,      foreign                    |   |   | (3,476     | )      |   |   | (67       | )      |   |   | (1,041 | ) |
| Deferred,      total                      |   |   | (1,572     | )      |   |   | (3,108    | )      |   |   | (3,357 | ) |
| (Benefit)      provision for income taxes |   | $      | (8,098     | )      |   | $      | 56,424    |   |   | $ | 80,946 |   |

----

|                                                                                                       |   | December 31, |    |
|------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|
|                                                                                                       |   | 2009              |    |   | 2008 |   |
| Deferred      tax asset:                                                                                   |   |              |    |   |   |   |
| Inventory                                                                                                  |   | $                 | 7,360   |   |   | $ | 6,806 |   |
| Vacation      accrual                                                                                      |   |              | 835     |   |   |   | 950 |   |
| Bad      debt allowance                                                                                    |   |              | 313     |   |   |   | 199 |   |
| Employee      compensation                                                                                 |   |              | 2,157   |   |   |   | 1,615 |   |
| State      taxes                                                                                           |   |              | -       |   |   |   | 1,992 |   |
| Foreign      taxes                                                                                         |   |              | 4,558   |   |   |   | 1,011 |   |
| Other                                                                                                      |   |              | 464     |   |   |   | 476 |   |
|   Total      current deferred tax asset, before valuation allowance                              |   |              | 15,687  |   |   |   | 13,049 |   |
| Valuation      allowance                                                                                   |   |              | (873    | ) |   |   | (467 | ) |
|   Current      deferred tax asset, net of valuation allowance                                    |   | $                 | 14,814  |   |   | $ | 12,582 |   |
|                                                                                                       |   |              |    |   |   |   |   |   |
| Current      deferred tax (liability):                                                                     |   |              |    |   |   |   |   |   |
| State      taxes                                                                                           |   |              | (495    | ) |   |   | - |   |
| Prepaid      expenses                                                                                      |   |              | (523    | ) |   |   | (615 | ) |
|   Total      current deferred tax (liability):                                                   |   |              | (1,018  | ) |   |   | (615 | ) |
|                                                                                                       |   |              |    |   |   |   |   |   |
| Net      current deferred tax asset                                                                        |   | $                 | 13,796  |   |   | $ | 11,967 |   |
|                                                                                                       |   |              |    |   |   |   |   |   |
| Non      current deferred tax assets:                                                                      |   |              |    |   |   |   |   |   |
|           Deferred      compensation                     |   | $                 | 2,909   |   |   | $ | 2,906 |   |
|           Employee      compensation                     |   |              | 1,610   |   |   |   | 1,355 |   |
|           Acquisition      related compensation          |   |              | 2.913   |   |   |   | 4,012 |   |
|           State      taxes                               |   |              | 650     |   |   |   | 558 |   |
|           Net      operating loss carryforwards          |   |              | 19,063  |   |   |   | 18,842 |   |
|           Research      credits                          |   |              | 2,773   |   |   |   | 2,091 |   |
|           Unrealized      investment loss                |   |              | 5,438   |   |   |   | 6,605 |   |
|           Pension      liability                         |   |              | 2,034   |   |   |   | 1,889 |   |
|           Capital      loss carryforward                 |   |              | 913     |   |   |   | - |   |
|           Foreign      tax credit carryforward and other |   |              | 289     |   |   |   | 771 |   |
|    Total      non current deferred tax assets                                               |   |              | 38,592  |   |   |   | 39,029 |   |
|           Valuation      allowance                       |   |              | (4,492  | ) |   |   | (2,222 | ) |
|    Non      current deferred tax assets, net of valuation allowance                         |   |              | 34,100  |   |   |   | 36,807 |   |
|                                                                                                       |   |              |    |   |   |   |   |   |
| Non      current deferred tax (liabilities):                                                               |   |              |    |   |   |   |   |   |
| Depreciation      and amortization                                                                         |   |              | (11,191 | ) |   |   | (10,821 | ) |
| Fixed      asset step up                                                                                   |   |              | -       |   |   |   | (962 | ) |
| Intangible      asset step up                                                                              |   |              | (20,552 | ) |   |   | (24,382 | ) |
| Convertible      debt                                                                                      |   |              | (6,002  | ) |   |   | (6,981 | ) |
| Other                                                                                                      |   |              | (4,703  | ) |   |   | (706 | ) |
|    Total      non current deferred tax (liabilities)                                        |   |              | (42,448 | ) |   |   | (43,852 | ) |
| Net      non current deferred tax (liability)                                                              |   | $                 | (8,348  | ) |   | $ | (7,045 | ) |

----

|                                                                                                                                  |   | December 31, |    |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|
|                                                                                                                                  |   | 2009              |    |   | 2008 |   |   | 2007 |   |
| Income      before taxes, domestic                                                                                                    |   | $                 | 24,178  |   |   | $ | 136,801 |   |   | $ | 212,284 |   |
| Income      (loss) before taxes, foreign                                                                                              |   |              | (23,761 | ) |   |   | 24,103 |   |   |   | 10,845 |   |
| Income      before taxes, total                                                                                                       |   | $                 | 417     |   |   | $ | 160,904 |   |   | $ | 223,129 |   |
| Provision      for income taxes at federal statutory rate (35%)                                                                       |   |              | 146     |   |   |   | 56,317 |   |   |   | 78,095 |   |
| State      income taxes, net of federal benefit                                                                                       |   |              | (3,572  | )  |   |   | 4,575 |   |   |   | 9,331 |   |
| Non      deductible items                   |   |              | 242     |   |   |   | 247 |   |   |   | 584 |   |
| Worthless      stock deduction                                                                                                        |   |              | (410    | ) |   |   |   |   |   |   |   |   |
| Foreign      tax provision (credits)                                                                                                  |   |              | (1,059  | )  |   |   | (564 | ) |   |   | (502 | ) |
| Manufacturing      deduction                                                                                                          |   |              | -       |   |   |   | (2,882 | ) |   |   | (4,147 | ) |
| Foreign      earnings not taxed at federal rate                                                                                       |   |              | (2,031  | ) |   |   | (5,583 | ) |   |   | - |   |
| Contingency      reserve                                                                                                              |   |              | (3,697  | ) |   |   | - |   |   |   | - |   |
| SemEquip      NOL adjustment                                                                                                          |   |              | (392    | )  |   |   |   |   |   |   |   |   |
| Valuation      allowance                                                                                                              |   |              | 2,675   |   |   |   | - |   |   |   | - |   |
| Other                                                                                                                                 |   |              | -       |   |   |   | 4,314 |   |   |   | (2,415 | ) |
| Provision      (benefit) for income taxes                                                                                             |   |              | (8,098  | ) |   | $ | 56,424 |   |   | $ | 80,946 |   |

----

|                                                              |   | 2009   |   |    | 2008   |   |    | 2007   |    |
|-------------------------------------------------------------------|--------|--------|--------|---------|--------|--------|---------|--------|---------|
| Balance      at January 1,                                        |   | $      | 7,227  |    |   | $      | 4,556   |   |  $ |  6,178 |   |
| Additions      based on tax positions related to the current year |   |   | 777    |    |   |   | 676     |   |    |  494 |   |
| Additions      for tax positions of prior years                   |   |   | -      |    |   |   | 2,724   |   |    |  - |   |
| Reductions      for settlements with taxing authorities           |   |   | (1,675 | )  |   |   | -  |   |    | - |   |
| Reductions      of tax positions of prior years                   |   |   | (4,512 | )       |   |   | (729    | )      |    |  (2,116 |  ) |
| Balance      at December 31,                                      |   | $      | 1,817  |    |   | $      | 7,227   |   |  $ |  4,556 |   |

----

----

|                           |   | 2009   |   |   | 2008   |   |   | 2007   |   |
|--------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Service      cost              |   | $      | (592   | )      |   | $      | (437   | )      |   | $ | (463 | ) |
| Interest      cost             |   |   | (681   | )      |   |   | (490   | )      |   |   | (400 | ) |
| Amortization                   |   |   | (88    | )      |   |   | -      |   |   |   | (60 | ) |
| Net      periodic benefit cost |   | $      | (1,361 | )      |   | $      | (927   | )      |   | $ | (923 | ) |

|                                         |   | 2009   |   |   | 2008   |   |             | 2007 |   |
|----------------------------------------------|--------|--------|--------|--------|--------|--------|------------------|------|--------|
| Discount      rate                           |   |   | 6.25   | %      |   |   |        5.75 | %    |   |   | 5.75 | % |
| Rate      of long-term compensation increase |   |   | 3.00   | %      |   |   | 2.50             | %    |   |   | 2.50 | % |

|                                                                                                 |   | 2009   |    |   | 2008   |   |
|------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Funded      status at end of year:                                                                   |   |   |    |   |   |   |
| Projected      benefit obligation                                                                    |   | $      | (14,657 | )      |   | $      | (11,032 | ) |
| Assets      at fair value                                                                            |   |   | -       |   |   |   | - |   |
| Funded      status                                                                                   |   | $      | (14,657 | )      |   | $      | (11,032 | ) |
|        Net      amounts recognized in consolidated balance sheet: |   |   |    |   |   |   |   |   |
| Current      liabilities                                                                             |   | $      | (154    | )      |   | $      | (106 | ) |
| Non-current      liabilities                                                                         |   | $      | (14,503 | )      |   | $      | (10,926 | ) |
|        Change      in projected benefit obligation:               |   |   |    |   |   |   |   |   |
|        Projected      benefit obligation at beginning of year     |   | $      | (11,032 | )      |   | $      | (8,503 | ) |
| Foreign      currency exchange rate changes                                                          |   |   | (439    | )      |   |   | 568 |   |
| Service      costs                                                                                   |   |   | (592    | )      |   |   | (437 | ) |
| Interest      costs                                                                                  |   |   | (681    | )      |   |   | (490 | ) |
| Actuarial      gains (losses)                                                                        |   |   | (2,061  | )      |   |   | (2,280 | ) |
| Benefits      paid                                                                                   |   |   | 148     |   |   |   | 110 |   |
|        Projected      benefit obligation at end of year           |   | $      | (14,657 | )      |   | $      | (11,032 | ) |
|        Accumulated      benefit obligation                        |   | $      | (13,222 | )      |   | $      | (10,173 | ) |

----

|                                         |   | 2009   |   |   | 2008   |   |
|----------------------------------------------|--------|--------|--------|--------|--------|--------|
| Discount      rate                           |   |   | 5.40   | %      |   |   | 6.25 | % |
| Rate      of long-term compensation increase |   |   | 3.00   | %      |   |   | 3.00 | % |

|                                                                    |   |                   |   |   | 2009                         |   |   |                   |   |
|-------------------------------------------------------------------------|--------|------------------------|--------|--------|------------------------------|--------|--------|------------------------|--------|
|                                                                    |   | Before-Tax      Amount |   |   | Tax (Expense)or Benefit |   |   | Net-of-Tax      Amount |   |
| Accumulated      other comprehensive (loss) income at beginning of year |   | $                      | (1,875 | )      |                         | $      | 530    |                   |   | $ | (1,345 | ) |
| Net      actuarial (loss) gain arising during current year              |   |                   | (2,061 | )      |                         |   | 604    |                   |   |   | (1,457 | ) |
| Amortization      of actuarial gain                                     |   |                   | 88     |   |                         |   | (26    | )                      |   |   | 62 |   |
| Foreign      currency effect                                            |   |                   | (108   | )      |                         |   | 52     |                   |   |   | (56 | ) |
| Accumulated      other comprehensive (loss) income at end of year(1)    |   | $                      | (3,956 | )      |                         | $      | 1,160  |                   |   | $ | (2,796 | ) |

|   | (1)      Approximately $173 of net actuarial loss included in accumulated      other comprehensive loss will be amortized into income in      2010. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                    |   |                   |   |   | 2008                         |   |   |                   |   |
|-------------------------------------------------------------------------|--------|------------------------|--------|--------|------------------------------|--------|--------|------------------------|--------|
|                                                                    |   | Before-Tax      Amount |   |   | Tax (Expense)or Benefit |   |   | Net-of-Tax      Amount |   |
| Accumulated      other comprehensive income (loss) at beginning of year |   | $                      | 362    |   |                         | $      | (134   | )                      |   | $ | 228 |   |
| Amortization      of actuarial gain                                     |   |                   | (2,280 | )      |                         |   | 670    |                   |   |   | (1,610 | ) |
| Foreign      currency effect                                            |   |                   | 43     |   |                         |   | (6     | )                      |   |   | 37 |   |
| Accumulated      other comprehensive (loss) income at end of year(1)    |   | $                      | (1,875 | )      |                         | $      | 530    |                   |   | $ | (1,345 | ) |

| Pensionkasse      – old             |   | $      | 1,310 |   |
|-------------------------------------------|--------|--------|-------|--------|
| Additional      compensation              |   |   | 1,257 |   |
| Deferred      compensation                |   |   | 226   |   |
| Total      contributions expected in 2010 |   | $      | 2,793 |   |

| 2010                   |   | $      | 154   |   |
|------------------------|--------|--------|-------|--------|
| 2011                   |   |   | 243   |   |
| 2012                   |   |   | 310   |   |
| 2013                   |   |   | 344   |   |
| 2014                   |   |   | 418   |   |
| 2015      – 2019 |   |   | 2,829 |   |

----

|                                |   | 2009   |   |   | 2008   |   |    | 2007   |   |
|-------------------------------------|--------|--------|--------|--------|--------|--------|---------|--------|--------|
| Service      costs                  |   | $      | 86     |   |   | $      | 110     |   |   | $ | 39 |   |
| Interest      costs                 |   |   | 513    |   |   |   | 510     |   |   |   | 183 |   |
| Amortization      of actuarial loss |   |   | 202    |   |   |   | -  |   |   |   | -  |   |
| Expected      return on assets      |   |   | (490   | )      |   |   | (697    | )      |   |   | (235 | ) |
| Net      periodic pension (benefit) |   | $      | 311    |   |   | $      | (77     | )      |   | $ | (13 | ) |

|                                         |   | 2009   |   |   | 2008   |   |   | 2007 |   |
|----------------------------------------------|--------|--------|--------|--------|--------|--------|--------|------|--------|
| Discount      rate                           |   |   | 5.74   | %      |   |   | 5.92   | %    |   |   | 6.17 | % |
| Rate      of long-term compensation increase |   |   | 4.00   | %      |   |   | 4.00   | %    |   |   | 4.00 | % |
| Expected      return on plan assets          |   |   | 8.00   | %      |   |   | 8.00   | %    |   |   | 8.00 | % |

| Funded      status at end of year:                      |   | 2009   |   |   | 2008   |   |
|---------------------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                                    |   |   |   |   |   |   |
| Projected      benefit obligation                       |   | $      | 9,088  |   |   | $      | 9,210 |   |
| Assets      at fair value                               |   |   | 6,857  |   |   |   | 6,446 |   |
| Funded      status                                      |   | $      | (2,231 | )      |   | $      | (2,764 | ) |
|                                                    |   |   |   |   |   |   |   |   |
| Net      amount recorded in consolidated balance sheet: |   |   |   |   |   |   |   |   |
| Noncurrent      liabilities                             |   | $      | (2,231 | )      |   | $      | (2,764 | ) |
|                                                    |   |   |   |   |   |   |   |   |
| Change      in projected benefit obligation:            |   |   |   |   |   |   |   |   |
| Benefit      obligation at beginning of period          |   | $      | (9,210 | )      |   | $      | (8,963 | ) |
| Service      costs                                      |   |   | (86    | )      |   |   | (110 | ) |
| Interest      costs                                     |   |   | (513   | )      |   |   | (510 | ) |
| Actuarial      gains (losses)                           |   |   | 108    |   |   |   | (146 | ) |
| Benefits      paid                                      |   |   | 613    |   |   |   | 519 |   |
|  Projected      benefit obligation at end of year  |   | $      | (9,088 | )      |   | $      | (9,210 | ) |

----

| Changes      in plan assets:                          |   |   |   |   |   |   |
|-------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Fair      value of plan assets at beginning of period |   | $      | 6,447  |   |   | $      | 8,947 |   |
|  Actual      return (loss) on plan assets        |   |   | 1,022  |   |   |   | (1,981 | ) |
|  Benefits      paid                              |   |   | (612   | )      |   |   | (519 | ) |
|  Fair      value of plan assets at end of year   |   | $      | 6,857  |   |   | $      | 6,447 |   |

|                                                                              |   | 2009   |   |   | 2008   |   |
|-----------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                                                              |   |   |   |   |   |   |
| Investment      fund – equity securities                                    |   | $      | 4,461  |   |   | $      | 4,244 |   |
| Investment      fund – fixed income securities                              |   |   | 2,396  |   |   |   | 2,203 |   |
|       Fair      value of plan assets at end of year |   | $      | 6,857  |   |   | $      | 6,447 |   |
|                                                                              |   |   |   |   |   |   |   |   |
| Accumulated      benefit obligation at end of year                                |   | $      | (9,082 | )      |   | $      | (9,188 | ) |

|                                         |   | 2009   |   |   | 2008   |   |
|----------------------------------------------|--------|--------|--------|--------|--------|--------|
| Discount      rate                           |   |   | 5.75   | %      |   |   | 5.74 | % |
| Rate      of long-term compensation increase |   |   | 3.00   | %      |   |   | 4.00 | % |

|                                                                    |   | 2009                   |   |
|-------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                    |   | Before-Tax      Amount |   |   | Tax (Expense)or Benefit |   |   | Net-of-Tax      Amount |   |
| Accumulated      other comprehensive income (loss) at beginning of year |   | $                      | (2,915 | ) |   | $ | 1,136 |   |   | $ | (1,779 | ) |
| Net      actuarial gain arising during current year                     |   |                   | 843    |   |   |   | (329 | ) |   |   | 514 |   |
| Accumulated      other comprehensive income (loss) at end of year(1)    |   | $                      | (2,072 | ) |   | $ | 807 |   |   | $ | (1,265 | ) |

|   | (1)Approximately      $116 of actuarial net loss included in accumulated other comprehensive      loss will be amortized into income in2010. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                    |   | 2008                   |   |
|-------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                    |   | Before-Tax      Amount |   |   | Tax (Expense)or Benefit |   |   | Net-of-Tax      Amount |   |
| Accumulated      other comprehensive income (loss) at beginning of year |   | $                      | (91    | ) |   | $ | 35 |   |   | $ | (56 | ) |
| Net      actuarial gain arising during current year                     |   |                   | (2,824 | ) |   |   | 1,101 |   |   |   | (1,723 | ) |
| Accumulated      other comprehensive income (loss) at end of year       |   | $                      | (2,915 | ) |   | $ | 1,136 |   |   | $ | (1,779 | ) |

----

| 2010                   |   | $      | 593   |   |
|------------------------|--------|--------|-------|--------|
| 2011                   |   |   | 608   |   |
| 2012                   |   |   | 588   |   |
| 2013                   |   |   | 602   |   |
| 2014                   |   |   | 678   |   |
| 2015      – 2019 |   |   | 3,726 |   |

| 2010       |   | $      | 3,383 |   |
|------------|--------|--------|-------|--------|
| 2011       |   |   | 1,472 |   |
| 2012       |   |   | 735   |   |
| 2013       |   |   | 339   |   |
| 2014       |   |   | 145   |   |
| Thereafter |   |   | 27    |   |
|       |   | $      | 6,101 |   |

----

----

|                                                  |   | 2009   |    |   | 2008   |   |    | 2007   |   |
|-------------------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
| Revenue                                               |   |   |    |   |   |   |    |   |   |
| ACO                                                   |   | $      | 214,074 |   |   | $      | 450,452 |   |   | $ | 587,279 |   |
| ESK      Ceramics                                     |   |   | 105,117 |   |   |   | 152,238 |   |   |   | 160,623 |   |
| Semicon      Associates                               |   |   | 7,677   |   |   |   | 8,551   |   |   |   | 7,970 |   |
| Thermo      Materials                                 |   |   | 66,116  |   |   |   | 80,158  |   |   |   | 32,025 |   |
| Ceradyne      Canada                                  |   |   | 1,664   |   |   |   | 5,222   |   |   |   | 3,916 |   |
| Boron                                                 |   |   | 27,287  |   |   |   | 19,007  |   |   |   | 7,766 |   |
| Inter-segment      elimination                        |   |   | (21,360 | )      |   |   | (35,431 | )      |   |   | (42,744 | ) |
| Total      revenue from external customers            |   | $      | 400,575 |   |   | $      | 680,197 |   |   | $ | 756,835 |   |
|                                                  |   |   |    |   |   |   |    |   |   |   |   |   |
| Depreciation and    Amortization                      |   |   |    |   |   |   |    |   |   |   |   |   |
| ACO                                                   |   | $      | 10,036  |   |   | $      | 10,523  |   |   | $ | 9,328 |   |
| ESK      Ceramics                                     |   |   | 11,686  |   |   |   | 13,144  |   |   |   | 10,630 |   |
| Semicon      Associates                               |   |   | 353     |   |   |   | 423     |   |   |   | 346 |   |
| Thermo      Materials                                 |   |   | 4,878   |   |   |   | 5,497   |   |   |   | 3,061 |   |
| Ceradyne      Canada                                  |   |   | 1,339   |   |   |   | 1,043   |   |   |   | 732 |   |
| Boron                                                 |   |   | 6,854   |   |   |   | 6,038   |   |   |   | 2,654 |   |
| Total                                                 |   | $      | 35,146  |   |   | $      | 36,668  |   |   | $ | 26,751 |   |
|                                                  |   |   |    |   |   |   |    |   |   |   |   |   |
| Segment Income before Provision for Income      Taxes |   |   |    |   |   |   |    |   |   |   |   |   |
| ACO                                                   |   | $      | 22,855  |   |   | $      | 145,339 |   |   | $ | 209,267 |   |
| ESK      Ceramics                                     |   |   | (24,897 | )      |   |   | 4,214   |   |   |   | 13,373 |   |
| Semicon      Associates                               |   |   | 674     |   |   |   | 1,377   |   |   |   | 1,131 |   |
| Thermo      Materials                                 |   |   | 12,825  |   |   |   | 23,694  |   |   |   | 2,304 |   |
| Ceradyne      Canada                                  |   |   | (6,926  | )      |   |   | (69     | )      |   |   | (3,041 | ) |
| Boron                                                 |   |   | (4,092  | )      |   |   | (15,508 | )      |   |   | 727 |   |
| Inter-segment      elimination                        |   |   | (22     | )      |   |   | 1,857   |   |   |   | (632 | ) |
| Total                                                 |   | $      | 417     |   |   | $      | 160,904 |   |   | $ | 223,129 |   |
|                                                  |   |   |    |   |   |   |    |   |   |   |   |   |
| Segment Assets                                        |   |   |    |   |   |   |    |   |   |   |   |   |
| ACO                                                   |   | $      | 401,496 |   |   | $      | 384,346 |   |   | $ | 409,612 |   |
| ESK      Ceramics                                     |   |   | 207,733 |   |   |   | 226,626 |   |   |   | 209,384 |   |
| Semicon      Associates                               |   |   | 5,370   |   |   |   | 5,939   |   |   |   | 5,682 |   |
| Thermo      Materials                                 |   |   | 105,332 |   |   |   | 96,163  |   |   |   | 67,465 |   |
| Ceradyne      Canada                                  |   |   | 17,489  |   |   |   | 21,667  |   |   |   | 20,480 |   |
| Boron                                                 |   |   | 112,284 |   |   |   | 119,786 |   |   |   | 70,031 |   |
| Total                                                 |   | $      | 849,704 |   |   | $      | 854,527 |   |   | $ | 782,654 |   |
|                                                  |   |   |    |   |   |   |    |   |   |   |   |   |
| Expenditures for PP&E                             |   |   |    |   |   |   |    |   |   |   |   |   |
| ACO                                                   |   | $      | 4,680   |   |   | $      | 5,150   |   |   | $ | 8,174 |   |
| ESK      Ceramics                                     |   |   | 426     |   |   |   | 22,079  |   |   |   | 17,384 |   |
| Semicon      Associates                               |   |   | 200     |   |   |   | 371     |   |   |   | 396 |   |
| Thermo      Materials                                 |   |   | 7,952   |   |   |   | 12,635  |   |   |   | 14,696 |   |
| Ceradyne      Canada                                  |   |   | 140     |   |   |   | 3,381   |   |   |   | 1,528 |   |
| Boron                                                 |   |   | 1,136   |   |   |   | 431     |   |   |   | 67 |   |
| Total                                                 |   | $      | 14,534  |   |   | $      | 44,047  |   |   | $ | 42,245 |   |

----

|                                                               |   | 2009   |   |    | 2008   |   |   | 2007    |   |
|--------------------------------------------------------------------|--------|--------|--------|---------|--------|--------|--------|---------|--------|
| Percentage of U.S. net sales from external customers               |   |   |   |    |   |   |   |    |   |
| ACO                                                                |   |   | 52     | %       |   |   | 63     | %       |   |   | 75 | % |
| ESK      Ceramics                                                  |   |   | 3      | %       |   |   | 2      | %       |   |   | 2 | % |
| Semicon      Associates                                            |   |   | 1      | %       |   |   | 1      | %       |   |   | 1 | % |
| Thermo      Materials                                              |   |   | 6      | %       |   |   | 4      | %       |   |   | 2 | % |
| Ceradyne      Canada                                               |   |   | 0      | %  |   |   | 1      | %       |   |   | 1 | % |
| Boron                                                              |   |   | 4      | %       |   |   | 2      | %       |   |   | 1 | % |
| Total      percentage of U.S. net sales from external customers    |   |   | 66     | %       |   |   | 73     | %       |   |   | 82 | % |
|                                                               |   |   |   |    |   |   |   |    |   |   |   |   |
| Percentage of foreign net sales from external      customers       |   |   |   |    |   |   |   |    |   |   |   |   |
| ACO                                                                |   |   | 2      | %       |   |   | 3      | %       |   |   | 2 | % |
| ESK      Ceramics                                                  |   |   | 20     | %       |   |   | 16     | %       |   |   | 14 | % |
| Semicon      Associates                                            |   |   | 0      | %  |   |   | 0      | %  |   |   | 0 | %  |
| Thermo      Materials                                              |   |   | 9      | %       |   |   | 7      | %       |   |   | 2 | % |
| Ceradyne      Canada                                               |   |   | 0      | %  |   |   | 0      | %  |   |   | 0 | %  |
| Boron                                                              |   |   | 3      | %       |   |   | 1      | %       |   |   | 0 | %  |
| Total      percentage of foreign net sales from external customers |   |   | 34     | %       |   |   | 27     | %       |   |   | 18 | % |
|                                                               |   |   |   |    |   |   |   |    |   |   |   |   |
| Percentage of total net sales from external      customers         |   |   |   |    |   |   |   |    |   |   |   |   |
| ACO                                                                |   |   | 54     | %       |   |   | 66     | %       |   |   | 77 | % |
| ESK      Ceramics                                                  |   |   | 23     | %       |   |   | 18     | %       |   |   | 16 | % |
| Semicon      Associates                                            |   |   | 1      | %       |   |   | 1      | %       |   |   | 1 | % |
| Thermo      Materials                                              |   |   | 15     | %       |   |   | 11     | %       |   |   | 4 | % |
| Ceradyne      Canada                                               |   |   | 0      | %  |   |   | 1      | %       |   |   | 1 | % |
| Boron                                                              |   |   | 7      | %       |   |   | 3      | %       |   |   | 1 | % |
| Total      percentage of net sales from external customers         |   |   | 100    | %       |   |   | 100    | %       |   |   | 100 | % |

|         |   | December 31, |    |
|--------------|--------|-------------------|---------|
|         |   | 2009              |    |   | 2008 |   |   | 2007 |   |
| Armor        |   | $                 | 189,028 |   |   | $ | 410,649 |   |   | $ | 551,301 |   |
| Automotive   |   |              | 5,006   |   |   |   | 17,604 |   |   |   | 10,961 |   |
| Orthodontics |   |              | 9,487   |   |   |   | 9,977 |   |   |   | 10,603 |   |
| Industrial   |   |              | 10,553  |   |   |   | 12,222 |   |   |   | 14,414 |   |
|         |   | $                 | 214,074 |   |   | $ | 450,452 |   |   | $ | 587,279 |   |

----

|                                              |   | 2009   |         |   | 2008   |   |   | 2007   |   |
|---------------------------------------------------|--------|--------|--------------|--------|--------|--------|--------|--------|--------|
| Share-based      compensation expense recognized: |   |   |         |   |   |   |   |   |   |
| General      and administrative, options          |   | $      | 214          |   |   | $      | 438    |   |   | $ | 710 |   |
| General      and administrative, Units            |   |   | 3,624        |   |   |   | 2,671  |   |   |   | 1,741 |   |
| Related      deferred income tax benefit          |   |   |  (1,529 | )      |   |   | (1,094 | )      |   |   |  (890 | ) |
|                                              |   |   |         |   |   |   |   |   |   |   |   |   |
| Decrease      in net income                       |   | $      | 2,309        |   |   | $      | 2,015  |   |   | $ | 1,561 |   |
|                                              |   |   |         |   |   |   |   |   |   |   |   |   |
| Decrease      in basic earnings per share         |   | $      | 0.09         |   |   | $      | 0.08   |   |   | $ | 0.06 |   |
|                                              |   |   |         |   |   |   |   |   |   |   |   |   |
| Decrease      in diluted earnings per share       |   | $      | 0.09         |   |   | $      | 0.08   |   |   | $ | 0.06 |   |

----

|                                |   | 2009                  |          |   | 2008                         |   |                    | 2007                  |   |
|-------------------------------------|--------|-----------------------|---------------|--------|------------------------------|--------|-------------------------|-----------------------|--------|
|                                |   | Number      ofOptions |          |   | WeightedAverageExercisePrice |   |                    | Number      ofOptions |   |   | WeightedAverageExercisePrice |   |   | Number      ofOptions |   |   | WeightedAverageExercisePrice |   |
| Outstanding,      beginning of year |   |                  | 462,900       |   |                         | $      | 12.22                   |                  |   |   | 497,325 |   |   | $ | 12.04 |   |   |   | 677,370 |   |   | $ | 11.41 |   |
| Options      granted                |   |                  | -             |   |                         | $      | -                       |                  |   |   | - |   |   | $ | - |   |   |   | - |   |   | $ | - |   |
| Options      exercised              |   |                  | (8,500        | )      |                         | $      | 3.96                    |                  |   |   | (30,675 | ) |   | $ | 9.04 |   |   |   | (159,495 | ) |   | $ | 8.15 |   |
| Options      cancelled              |   |                  | -             |   |                         | $      | -                       |                  |   |   | (3,750 | ) |   | $ | 15.05 |   |   |   | (20,550 | ) |   | $ | 21.50 |   |
| Outstanding,      end of year       |   |                  | 454,400       |   |                         | $      |         12.37 |                  |   |   | 462,900 |   |   | $ | 12.22 |   |   |   | 497,325 |   |   | $ | 12.04 |   |
| Exercisable,      end of year       |   |                  |  448,400 |   |                         | $      | 12.28                   |                  |   |   | 437,025 |   |   | $ | 11.71 |   |   |   | 429,600 |   |   | $ | 10.83 |   |

|                                 |   | 2009   |    |   | 2008                                 |   |   | 2007   |   |
|--------------------------------------|--------|--------|---------|--------|--------------------------------------|--------|--------|--------|--------|
|                                 |   | Units  |    |   | WeightedAverageGrant      Fair Value |   |   | Units  |   |   | WeightedAverageGrant      Fair Value |   |   | Units |   |   | WeightedAverageGrant      Fair Value |   |
| Outstanding,      beginning of year  |   |   | 271,264 |   |                                 | $      | 45.90  |   |   |   | 149,759 |   |   | $ | 52.94 |   |   |   | 137,100 |   |   | $ | 41.13 |   |
| Granted                              |   |   | 198,350 |   |                                 | $      | 19.35  |   |   |   | 168,076 |   |   | $ | 40.54 |   |   |   | 72,850 |   |   | $ | 66.06 |   |
| Vested                               |   |   | (82,340 | )      |                                 | $      | 41.57  |   |   |   | (40,671 | ) |   | $ | 49.09 |   |   |   | (31,791 | ) |   | $ | 41.47 |   |
| Forfeited                            |   |   | (23,350 | )      |                                 | $      | 44.98  |   |   |   | (5,900 | ) |   | $ | 49.08 |   |   |   | (28,400 | ) |   | $ | 42.39 |   |
| Non-vested      Units at end of year |   |   | 363,924 |   |                                 | $      | 32.47  |   |   |   | 271,264 |   |   | $ | 45.90 |   |   |   | 149,759 |   |   | $ | 52.94 |   |

|                          |           |   | Outstanding           |   |    | Exercisable                                  |   |
|-------------------------------|----------------|--------|-----------------------|--------|---------|----------------------------------------------|--------|
| Range      of Exercise Prices |           |   | Number ofOptions |   |    | AverageRemainingContractualLife      (Years) |   |   | WeightedAverageExercisePrice |   |   | AggregateIntrinsicValue(000s) |   |   | Number ofOptions |   |   | AverageRemainingContractualLife      (Years) |   |   | WeightedAverageExercisePrice |   |   | AggregateIntrinsicValue(000s) |   |
| $                             | 2.98 - $4.58   |   |                  |   | 206,375 |                                         |   |   | 2.08 |   |   | $ | 4.12 |   |   | $ | 3,117 |   |   |   | 206,375 |   |   |   | 2.08 |   |   | $ | 4.12 |   |   | $ | 3,117 |   |
| $                             | 10.53 - $16.89 |   |                  |   | 122,025 |                                         |   |   | 3.70 |   |   | $ | 16.89 |   |   | $ | 284 |   |   |   | 122,025 |   |   |   | 3.70 |   |   | $ | 16.89 |   |   | $ | 284 |   |
| $                             | 18.80 - $24.07 |   |                  |   | 126,000 |                                         |   |   | 4.72 |   |   | $ | 21.51 |   |   | $ | 6 |   |   |   | 120,000 |   |   |   | 4.69 |   |   | $ | 21.63 |   |   | $ | 4 |   |
|                          |           |   |                  |   | 454,400 |                                         |   |   | 3.25 |   |   | $ | 12.37 |   |   | $ | 3,407 |   |   |   | 448,400 |   |   |   | 3.22 |   |   | $ | 12.28 |   |   | $ | 3,405 |   |

|                       |                |   | Outstanding         |   |
|----------------------------|---------------------|--------|---------------------|--------|
| Range      of Grant Prices |                |   | Number ofUnits |   |   | AverageRemainingContractualLife      (Years) |   |   | WeightedAverageGrantFair      Value |   |
| $                          | 16.53      - $22.68 |   |                |   | 193,150 |   |   |   | 3.63 |   |   | $ | 19.64 |   |
| $                          | 37.41 - $39.43      |   |                |   | 80,084 |   |   |   | 3.22 |   |   | $ | 38.60 |   |
| $                          | 42.28      - $45.70 |   |                |   | 44,900 |   |   |   | 3.13 |   |   | $ | 44.51 |   |
| $                          | 52.47      - $62.07 |   |                |   | 25,520 |   |   |   | 1.71 |   |   | $ | 58.87 |   |
| $                          | 66.35      - $81.18 |   |                |   | 20,270 |   |   |   | 2.17 |   |   | $ | 70.56 |   |
|                       |                |   |                |   | 363,924 |   |   |   | 3.26 |   |   | $ | 32.47 |   |

|                                                                      |   | CostsIncurred |   |   | CashPayments |   |   | Non-CashAdjustments |   |   | Balance atDecember      31,2009 |   |
|---------------------------------------------------------------------------|--------|---------------|--------|--------|--------------|--------|--------|---------------------|--------|--------|--------------------------------------|--------|
| Severance,      retention bonuses and other one-time termination benefits |   | $             | 12,090 |   |         | $      | (7,039 | )                   |   | $      | 474                                  |   |   | $ | 5,525 |   |
| Termination      of redundant supplier contracts                          |   |          | 107    |   |         |   | -      |                |   |   | 3                                    |   |   |   | 110 |   |
| Legal      fees and other shutdown costs                                  |   |          | 727    |   |         |   | (121   | )                   |   |   | 2                                    |   |   |   | 608 |   |
|                                                                      |   | $             | 12,924 |   |         | $      | (7,160 | )                   |   | $      | 479                                  |   |   | $ | 6,243 |   |

----

| Quarter      Ending                                                |   |                                 |    |   |              |   |    |                         |   |   |                        |   |
|--------------------------------------------------------------------|--------|--------------------------------------|---------|--------|-------------------|--------|---------|------------------------------|--------|--------|-----------------------------|--------|
|                                                               |   |         March 31,2008 |    |   | June 30,2008 |   |    |  September 30,2008 |   |   |  December 31,2008 |   |
| Net      sales                                                     |   | $                                    | 188,537 |   |              | $      | 184,975 |                         |   | $      | 167,746                     |   |   | $ | 138,939 |   |
| Gross      profit                                                  |   |                                 | 71,529  |   |              |   | 75,561  |                         |   |   | 66,664                      |   |   |   | 51,558 |   |
| Net      income                                                    |   |                                 | 32,351  |   |              |   | 32,641  |                         |   |   | 18,819                      |   |   |   | 20,669 |   |
| Basic      income per share                                        |   | $                                    | 1.19    |   |              | $      | 1.24    |                         |   | $      | 0.72                        |   |   | $ | 0.79 |   |
| Diluted      income per share                                      |   | $                                    | 1.18    |   |              | $      | 1.23    |                         |   | $      | 0.71                        |   |   | $ | 0.79 |   |
|                                                               |   |                                 |    |   |              |   |    |                         |   |   |                        |   |   |   |   |   |
| Quarter      Ending                                                |   |                                 |    |   |              |   |    |                         |   |   |                        |   |   |   |   |   |
|                                                               |   |         March 31,2009 |    |   | June 30,2009 |   |    |  September 30,2009 |   |   |  December 31,2009 |   |
| Net      sales                                                     |   | $                                    | 99,772  |   |              | $      | 95,267  |                         |   | $      | 107,954                     |   |   | $ | 97,582 |   |
|      Gross      profit                    |   |                                 | 23,587  |   |              |   | 23,064  |                         |   |   | 28,625                      |   |   |   | 26,343 |   |
|      Net      income (loss)               |   |                                 | 708     |   |              |   | (11,210 | )                            |   |   | 4,936                       |   |   |   | 14,081 |   |
|      Basic      income (loss) per share   |   | $                                    | .03     |   |              | $      | (0.44   | )                            |   | $      | 0.19                        |   |   | $ | 0.55 |   |
|      Diluted      income (loss) per share |   | $                                    | .03     |   |              | $      | (0.44   | )                            |   | $      | 0.19                        |   |   | $ | 0.55 |   |

----

| February      23, 2010 | CERADYNE,      INC. |
|------------------------|---------------------|
|                   |                |   |
|                   | By:                 | /s/      JOEL P. MOSKOWITZ |
|                   |                | Joel      P. Moskowitz |
|                   |                | Chief      Executive Officer |

| /s/ JOEL P. MOSKOWITZJoel      P. Moskowitz       | Chairman      of the Board,Chief      Executive Officer, President and Director (Principal Executive      Officer) | February      23, 2010 |
|--------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------|------------------------|
|                                                   |                                                                                                               |                   |
| /s/ JERROLD J. PELLIZZONJerrold      J. Pellizzon | Chief      Financial Officer(Principal      Financial and Accounting Officer)                                      | February      23, 2010 |
|                                                   |                                                                                                               |                   |
| /s/ RICHARD A. ALLIEGRORichard      A. Alliegro   | Director                                                                                                           | February      23, 2010 |
|                                                   |                                                                                                               |                   |
| /s/ FRANK EDELSTEINFrank      Edelstein           | Director                                                                                                           | February      23, 2010 |
|                                                   |                                                                                                               |                   |
| /s/ RICHARD A. KERTSON                            | Director                                                                                                           | February      23, 2010 |
| Richard      A. Kertson                                |                                                                                                               |                   |
|                                                   |                                                                                                               |                   |
| /s/ William      C. LaCourse                      | Director                                                                                                           | February      23, 2010 |
| William      C. LaCourse                               |                                                                                                               |                   |
|                                                   |                                                                                                               |                   |
| /s/ MILTON L. LOHRMilton      L. Lohr             | Director                                                                                                           | February      23, 2010 |