##### Table of Contents





SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C.
    20549
       Form 10-K
      (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2007o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period from
    
    to   Commission file number
    000-13059
      CERADYNE, INC.
 (Exact name of registrant as
    specified in its charter)
      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)   (714) 549-0421
 (Registrants telephone
    number, including area 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   Securities registered pursuant to Section 12(g) of the
    Act: None
      þ o
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
  þ o o o
  Rule 12b-2 o þ
      DOCUMENTS INCORPORATED BY REFERENCE: Form 10-K.




---



##### 





TABLE OF
    CONTENTS
  PagePART I


3ITEM 1.

Business


3ITEM 1A.

Risk Factors


24ITEM 1B.

Unresolved Staff Comments


35ITEM 2.

Properties


35ITEM 3.

Legal Proceedings


35ITEM 4.

Submission of Matters to a Vote of Security
    Holders


36PART II


36ITEM 5.

Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


36ITEM 6.

Selected Financial Data


36ITEM 7.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations


38ITEM 7A.

Quantitative and Qualitative Disclosures About
    Market Risk


56ITEM 8.

Financial Statements and Supplementary Data


57ITEM 9.

Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


57ITEM 9A.

Controls and Procedures


57ITEM 9B.

Other information


58PART III


58ITEM 10.

Directors, Executive Officers and Corporate
    Governance


58ITEM 11.

Executive Compensation


58ITEM 12.

Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


58ITEM 13.

Certain Relationships and Related Transactions,
    and Director Independence


58ITEM 14.

Principal Accountant Fees and Services


58PART IV


59ITEM 15.

Exhibits and Financial Statement Schedules


59FINANCIALS


F-1EXHIBIT 3.3EXHIBIT 3.4EXHIBIT 3.5EXHIBIT 12.1EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2   2




---



##### Table of Contents



PART I



NOTE REGARDING
    FORWARD-LOOKING STATEMENTS  Form 10-K
      ITEM 1.
    BUSINESS  Introduction
        
    lightweight ceramic armor 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, and zirconium diboride,
    which are used in manufacturing armor and a broad range of
    industrial products; and
    BORONEIGE®
    boron nitride powder for cosmetic products;
    evaporation boats for metallization of materials for food
    packaging and other products;
    durable, reduced friction, ceramic diesel engine components;   3




---



##### Table of Contents




    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 industrial applications and ceramic
    crucibles;
    neutron absorbing materials, structural and non-structural, in
    combination with aluminum metal matrix composite that serve as
    part of a barrier system for spent fuel wet and dry storage in
    the nuclear industry, and non-structural neutron absorbing
    materials for use in the transport of nuclear fresh fuel rods;
    nuclear chemistry products for use in pressurized water reactors
    and boiling water reactors; and
    boron dopant chemicals for semiconductor silicon manufacturing
    and for ion implanting of silicon wafers.          10 11
 4




---



##### Table of Contents




    lightweight ceramic armor for military vehicles, boats and
    aircraft;
    ceramic components that have the potential to facilitate the
    extraction of oil from oil sands on a cost-effective basis;
    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;
    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; and
    small complicated ceramic components made using our injection
    molding technology that have the potential to be used as medical
    implants.    tm tm tm 6-person 10-person tm 6-person tm tm tm
  tm tm
 5




---



##### Table of Contents



tm
    Advanced
    Technical Ceramics
    DensityMelting Point

Hardness

Chemical



(Grams(Degrees

(Vickers

Resistance

Electrical

per CubicMaterials

Fahrenheit)

Scale)

to Acids

Properties

Centimeter)Advanced technical ceramics

2,500 to 6,900

Up to 3,200

Excellent

From excellent insulators to conductors

2.5 to 4.5High strength alloy steel

2,500 to 2,700

Up to 900

Fair

Conductors

7.0 to 9.0High performance plastics

275 to 750

Up to 10

Good to Excellent

Good to excellent insulators

1.0 to 2.0      6




---



##### Table of Contents



Our
    Solution
    Market Opportunity

Demands of the Market

Our SolutionDefenseLightweight 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®
    or Spectra
    Shield®
    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 and
    aircraft.Missile radomes (nose cones)

Defensive tactical missile systems such as the PAC-3 (Patriot
    Advanced Capability) and the Arrow Missile 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 radome for more demanding requirements.
    We have also established a precision diamond grinding capability
    to finish these radomes. 7




---



##### Table of Contents



Market Opportunity

Demands of the Market

Our SolutionIndustrialAdvanced 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 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.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. 8




---



##### Table of Contents



Market Opportunity

Demands of the Market

Our SolutionIndustrial 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 side damns are used in the refractory industry for
    the production of steel.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
    ceramic crucibles.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 aluminum 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. 9




---



##### Table of Contents



Market Opportunity

Demands of the Market

Our SolutionSemiconductor 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 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.Automotive/DieselHeavy-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

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.CommercialOrthodontic 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
Claritytm. 10




---



##### Table of Contents



Market Opportunity

Demands of the Market

Our SolutionBORONEIGE®
    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.   Our
    Competitive Strengths
    Broad Technical Expertise in Ceramic Material
    Science.
  Proprietary Equipment and Manufacturing
    Processes.
  Vertically Integrated Body Armor
    Manufacturer.
  Strong Position in Multiple Markets.
 11




---



##### Table of Contents



Key Customer Relationships.
  Experienced Management Team and Entrepreneurial
    Culture. ®
  Our
    Business Strategy
    Capitalizing on Opportunities in the Defense
    Market.
  tm tm tm
  6-person 10-person tm 6-person tm tm
 12




---



##### Table of Contents



tm
  Continuing to Increase our Non-Defense Revenue
    Base. ®
  Identifying New Products and Markets.
  Investing to Improve our Gross Margins and Manufacturing
    Efficiencies. ®
 13




---



##### Table of Contents



Market
    Applications and Products
    Defense
  Lightweight Ceramic Armor. ® ® ® tm
  Boron Carbide Powders.
  Missile Radomes (Nose Cones).
  Industrial
  Fluid Handling/Wear Parts. ®
  Boron Compounds and Metallurgy.
  Evaporation Boats.
  Industrial Wear Components. ®
 14




---



##### Table of Contents



Radioactive Waste Management. ® 10
  Ceramic-Impregnated Dispenser Cathodes.
  Tempered Glass Furnace Components and Metallurgical and
    Industrial Tooling
  Fused Silica Ceramic Crucibles.
  Precision Ceramics. ®
  Samarium Cobalt Permanent Magnets.
  Boron Isotopes for the Nuclear Industry. 10 10
  Boron Isotopes for Semiconductors. 11
  Precision Investment Casting Products.
 15




---



##### Table of Contents



Automotive/Diesel
  Wear-Resistant Functional and Frictional
    Coatings. ®
  Diesel Engine Components.
  Commercial
  Ceramic Orthodontic Brackets. tm
  BORONEIGE®
    Boron Nitride Powder. BORONEIGE®,
  Operating
    Divisions and Facilities
    Operating Segment and Facility Location

ProductsCeradyne Advanced Ceramic Operations

Defense Applications:   Lightweight ceramic armorCosta Mesa and Irvine,
    California(1)Approximately 240,000 square feet

Industrial Applications:   Ceralloy® 147 SRBSN wear parts
 Precision ceramicsLexington,
    Kentucky(2)Approximately 115,000 square feet

Automotive/Diesel Applications:   Ceralloy®
    147 SRBSN automotive/diesel engine partsWixom,
    Michigan(3)Approximately 29,000 square feet

Commercial Applications:   Ceramic orthodontic brackets
 Components for medical devices 16




---



##### Table of Contents



Operating Segment and Facility Location

ProductsESK CeramicsKempten,
    Germany(4)Approximately 544,000 square feet
    Bazet,
    France(5)Approximately 88,000 square feet

Defense Applications:   Boron carbide powders for body
    armorIndustrial 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 pump sealsAutomotive/Diesel Applications:   EKagrip®
    functional and frictional coatingsCommercial Applications:   BORONEIGE®
    boron nitride powder for cosmeticsCeradyne Semicon AssociatesLexington,
    Kentucky(6)Approximately 35,000 square feet

Industrial Applications:   Ceramic-impregnated dispenser
    cathodes for microwave tubes, lasers and cathode ray tubes
       Samarium cobalt magnetsCeradyne Thermo MaterialsScottdale and Clarkston,
    Georgia(7)Approximately 132,000 square feet

Defense Applications:   Missile radomes (nose cones)
       High purity fused silica used to
    manufacture missile radomes (nose cones)Tianjin,
    China(8)Approximately 98,000 square feet
    Midway,
    Tennessee(9)Approximately 105,000 square feet

Industrial Applications:   Glass tempering rolls
 Metallurgical tooling
 Castable and other fused silica products
 Crucibles for photovoltaic solar cell applications
 Turbine components used in aerospace applicationsCeradyne Canada

Industrial Applications:Chicoutimi,
    Canada(10)Approximately 86,000 square feet

 Boral® structural neutron absorbing materials
 Metal matrix composite structuresCeradyne Boron ProductsQuapaw,
    Oklahoma(11)Approximately 128,000 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:
       P-dopants for semiconductor silicon
    manufacturing
       P-dopants for ion implanting of silicon
    wafers  17




---



##### Table of Contents



(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. We also lease in Irvine,
    California a 24,000 square foot facility that expires in
    April 2009 and a 76,000 square foot facility 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 own our facility in Kempten, Germany, as well as the
    22-acre
    property on which our facility is located.(5)
    
    We own our facility in Bazet, France, as well as the
    four-acre
    property on which our facility is located.(6)
    
    We own our facility in Lexington, Kentucky, as well as the
    five-acre
    property on which our facility is located.(7)
    
    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 47,000 square foot facility in Clarkson, Georgia which
    expires in May 2009.(8)
    
    We own our facility in Tianjin, China, as well as the
    four-acre
    property on which our facility is located.(9)
    
    We own our facility in Midway, Tennessee as well as the
    40-acre
    property on which our facility is located.(10)
    
    We own our facility in Chicoutimi, Quebec, Canada, as well as
    the
    seven-acre
    property on which our facility is located.(11)
    
    We own our facility in Quapaw, Oklahoma as well as the
    155-acre
    property on which our facility is located.  Sales,
    Marketing and Customers
         18




---



##### Table of Contents



Manufacturing
    Processes
    Hot Pressing.
    Ceramic Powders (Boron Carbide
    TETRABOR®,
    Boron Nitride, Titanium Diboride, Calcium Hexaboride, Zirconium
    Diboride).
  Sintering and Reaction Bonding of Silicon Nitride
    (SRBSN). ® 3 4
  tm tm
  Manufacture of Translucent Ceramics
    (Transtar®). ®
 19




---



##### Table of Contents



Functional Coatings.
  Evaporation Boats
    (LaserMet®,
    DiMet®,
    TriMet®,
    FlashMet®) ®
  Sintered Parts.
  Diamond Grinding.
  Sintering of Fused Silica Ceramics.
  Injection Molding. and/or
  Boron Carbide and Aluminum Metal Matrix
    Composites. ®
 20




---



##### Table of Contents



Boron Isotopes. 10 11
  High Purity Fused Silica.
  Raw
    Materials
    Quality
    Control
    Engineering
    and Research
      Competition
   21




---



##### Table of Contents



Backlog
    Patents,
    Licenses and Trademarks
        ® ®
  ® ® ® ® ® ® ® ® tm tm ® ® ® ® ® ® ® ® ® ® ® ® ®
  Employees
  U.S.-based
 22




---



##### Table of Contents



Availability
    of SEC Filings
  http://www.sec.gov.
  EXECUTIVE
    OFFICERS OF CERADYNE
    Name

Age

PositionJoel P. Moskowitz

68

Chairman of the Board, Chief Executive Officer and PresidentDavid P. Reed

53

Vice President, and President of North American Operations and
    Assistant Corporate SecretaryJerrold J. Pellizzon

54

Chief Financial Officer and Corporate SecretaryMichael A. Kraft

45

Vice President of Nuclear and Semiconductor Business UnitsThomas Jüngling

44

Vice President, and President of ESK CeramicsBruce Lockhart

45

Vice President, and President of Thermo MaterialsJeff Waldal

43

Vice President, and President of Semicon AssociatesKenneth R. Morris

54

Vice President of Operations   Joel P. Moskowitz
  David P. Reed
  Jerrold J. Pellizzon
 23




---



##### Table of Contents



Michael Kraft
  Thomas Jüngling
  Bruce Lockhart
  Jeff Waldal
  Kenneth R. Morris
    ITEM 1A.
    RISK
    FACTORS  Form 10-K
 24




---



##### Table of Contents



Risks
    Related to Our Business
  A
    substantial portion of our revenues is derived from the sale of
    defense related products, primarily ceramic body armor. If
    demand for ceramic body armor declines, if federal budget
    appropriations involving our products are reduced, if we fail to
    obtain new government contracts or delivery orders under
    existing contracts, or if existing government contracts or
    orders are cancelled, our revenues, profit and cash flow will be
    materially and adversely affected.
            If the
    performance requirements for ceramic body armor are modified by
    the U.S. military, we may incur delays or additional costs to
    change the design of our product, or we may not be able to
    satisfy the new requirements with our existing ceramic materials
    and processes. If this were to occur, our costs could increase
    and our revenues, profit and cash flow would decline.
   25




---



##### Table of Contents



We rely
    on two critical materials to make ceramic body armor. A delay or
    inability to obtain sufficient quantities of these materials
    could limit the amount of body armor we can manufacture and
    therefore result in reduced revenues, profit and cash
    flow.
      ® ®
    We have
    recently added significant manufacturing capacity. If demand for
    our products declines, we may have inefficient or under-utilized
    capacity, and our gross margins, profit and cash flow may
    suffer.
       26




---



##### Table of Contents



If we
    fail to increase our non-defense revenue, and if the demand for
    ceramic body armor decreases, our revenues, profit and cash flow
    will be materially and adversely affected.
    Growth in
    our operations may strain our resources, and if we fail to
    successfully manage potential future growth, we could incur
    higher operating costs and delays in the production of our
    products, which could result in reduced revenues, profit and
    cash flow.
    
    add manufacturing capacity and personnel;
    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.    We may
    generate less profit than expected or even lose money on our
    fixed price government contracts.
   27




---



##### Table of Contents



Our long
    term investments are subject to risks which may cause losses and
    affect the liquidity of these investments.
    03-1 SFAS 115-1 124-1,
  Our
    business is subject to various laws and regulations favoring the
    U.S. governments contractual position, and our failure to
    comply with such laws and regulations could harm our operating
    results and prospects.
      We
    currently depend entirely on 3M Unitek for sales of our ceramic
    orthodontic brackets. If we are unable to maintain our existing
    level of business with 3M Unitek our revenues, profit and cash
    flow from this product line will decline.
   28




---



##### Table of Contents



Our
    business is subject to risks associated with doing business
    outside the United States.
      
    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 property protections;
    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; 29




---



##### Table of Contents




    fluctuations in currency exchange rates; and
    risks associated with operating a business in a potentially
    unstable political climate.      We may
    make future acquisitions which may be difficult to integrate,
    divert management resources, result in unanticipated costs, or
    dilute our stockholders.
    
    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.    The cost
    of electricity is a significant portion of our cost of product
    sales. An increase in the cost of electricity may cause our
    profit margins to decline.
   30




---



##### Table of Contents



We may
    not be able to adequately safeguard our intellectual property
    rights and trade secrets from unauthorized use, and we may
    become subject to claims that we infringe on others
    intellectual property rights.
        Our
    ability to operate effectively could be impaired if we were to
    lose the services of our key personnel, or if we are unable to
    recruit qualified managers and key personnel in the
    future.
       31




---



##### Table of Contents



Our
    manufacturing facilities are subject to a number of operational
    risks, including hazards associated with ceramic manufacturing
    and natural disasters, any of which could have a material
    adverse impact on our productivity and results of
    operations.
    
    accidents or mechanical failure;
    fires or explosions of furnaces; and
    employee exposure to extreme temperatures or hazardous
    substances.    Defects
    in our products could harm our reputation for quality products,
    increase our operating expenses, reduce sales of our products
    and impact cash flow.
    If we are
    unable to compete successfully against current and future
    competitors, our revenues could decline.
      
    manufacturing capacity and the ability to deliver products;
    price;
    product performance;
    material specifications;
    application engineering capabilities;
    customer support; and
    reputation.   32




---



##### Table of Contents



Uninsured
    losses arising from third party claims brought against us could
    result in payment of substantial damages, which would decrease
    our cash reserves and could harm our profit and cash
    flow.
    We are
    subject to extensive government regulation, and our failure or
    inability to comply with these regulations could subject us to
    penalties and result in a loss of our government contracts,
    which could reduce our revenues, profit and cash flow.
        If we
    fail to comply with environmental laws and regulations, we could
    incur an increase in our operating costs and a decrease in our
    profit and cash flow.
       33




---



##### Table of Contents



Risks
    Related to our Common Stock
  Our stock
    price has been volatile, and the value of an investment in our
    common stock may decline.
    
    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 our stock;
    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 our competitors;
    market reaction to any future acquisitions, joint ventures or
    strategic investments announced by us or our competitors;
    developments in the financial markets;
    market reaction to any adverse publicity or news
    stories; and
    general economic, political or stock market conditions.    Delaware
    law may delay or prevent a change in control, and may discourage
    bids for our common stock at a premium over its market
    price.
  2 3
 34




---



##### Table of Contents



ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    PROPERTIES    ITEM 3.
    LEGAL
    PROCEEDINGS  No. 06-CC-00156.
  06-919 Rule 10b-5
      No. 06-CC-00156. 06-919
 35




---



##### Table of Contents



ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES    High


LowYear Ended December 31, 2006First Quarter

$
62.51


$
44.71Second Quarter

$
56.06


$
43.07Third Quarter

$
54.59


$
41.09Fourth Quarter

$
58.66


$
40.26Year Ended December 31, 2007First Quarter

$
61.75


$
50.56Second Quarter

$
74.72


$
55.20Third Quarter

$
83.59


$
64.95Fourth Quarter

$
78.19


$
42.27         ITEM 6.
    SELECTED
    FINANCIAL DATA   36




---



##### Table of Contents



page F-1.
  Year Ended December 31,2007(1)


2006


2005


2004(2)


2003(amounts in thousands, except per share data)Statement of Income Data:Net sales

$
756,835


$
662,888


$
368,253


$
215,612


$
101,473Cost of product sales


450,787



401,991



237,115



146,518



72,124Gross profit


306,048



260,897



131,138



69,094



29,349Operating expenses:Selling


26,917



22,919



20,694



8,266



2,440General and administrative


40,801



35,293



21,014



14,131



7,799Research and development


17,552



9,909



7,802



3,341



2,111Total operating expenses


85,270



68,121



49,510



25,738



12,350Income from operations


220,778



192,776



81,628



43,356



16,999Other income (expense):Royalty income


174



120



145



146



151Interest income


12,394



6,687



434



476



136Miscellaneous, net


(2,599
)


(919
)


275



1,602



34Interest expense


(4,204
)


(4,105
)


(9,252
)


(1,661
)


(32
)Total other income (expense)


5,765



1,783



(8,398
)


563



289Income before provision for income taxes


226,543



194,559



73,230



43,919



17,288Provision for income taxes


82,278



66,155



26,452



16,346



6,051Net income

$
144,265


$
128,404


$
46,778


$
27,573


$
11,237Net income per share:Basic

$
5.29


$
4.77


$
1.90


$
0.52


$
0.14Diluted

$
5.20


$
4.69


$
1.86


$
0.51


$
0.14Weighted average number of common shares outstanding:Basic


27,252



26,924



24,635



21,442



19,094Diluted


27,732



27,352



25,107



21,900



19,709   As of December 31,2007


2006


2005


2004


2003(amounts in thousands)Balance Sheet Data:Cash and cash equivalents

$
155,103


$
13,547


$
91,542


$
4,521


$
11,462Short term investments


29,582



190,565



7,839



10,041



19,202Working capital


353,923



332,063



212,309



78,389



60,519Total assets


783,286



613,815



430,193



316,354



104,207Total long-term debt


121,000



121,000



121,000



109,725



Stockholders equity


578,629



406,611



250,520



135,041



86,777  37




---



##### Table of Contents



(1)
    
    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.(2)
    
    The operations of ESK Ceramics have been consolidated with ours
    since September 1, 2004.  ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  The following discussion and analysis of our financial
    condition and results of operations should be read together with
    Selected Consolidated Financial Data, and our
    consolidated financial statements and related notes included
    elsewhere in this report. This discussion and analysis contains
    forward-looking statements that involve risks and uncertainties.
    We base these statements on assumptions that we consider
    reasonable. Our actual results could differ materially from
    those anticipated in these forward-looking statements as a
    result of certain factors discussed in Note Regarding
    Forward-Looking Statements, Item 1A 
    Risk Factors, and elsewhere in this report.
  Overview
    
    lightweight ceramic armor 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, and zirconium diboride,
    which are used in manufacturing armor and a broad range of
    industrial products; and
    BORONEIGE®
    boron nitride powder for cosmetic 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 industrial applications and ceramic
    crucibles;
    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; and
    boron dopant chemicals for semiconductor silicon manufacturing
    and for ion implanting of silicon wafers.      38




---



##### Table of Contents



Operating Segment and Facility Location

ProductsCeradyne Advanced Ceramic OperationsCosta Mesa and Irvine, CaliforniaApproximately 240,000 square feetLexington, KentuckyApproximately 115,000 square feetWixom, MichiganApproximately 29,000 square feet

Defense Applications:     Lightweight ceramic
    armorIndustrial Applications:     Ceralloy®
    147 SRBSN wear parts
         Precision ceramicsAutomotive/Diesel Applications:     Ceralloy®
    147 SRBSN automotive/diesel engine partsCommercial Applications:     Ceramic orthodontic
    brackets
         Components for medical
    devicesESK CeramicsKempten, GermanyApproximately 544,000 square feetBazet, FranceApproximately 88,000 square feet

Defense Applications:     Boron carbide powders
    for body armorIndustrial 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 pump
    sealsAutomotive/Diesel Applications:     EKagrip®
    functional and frictional coatingsCommercial Applications:     BORONEIGE®
    boron nitride powder for cosmeticsCeradyne Semicon AssociatesLexington, KentuckyApproximately 35,000 square feet

Industrial Applications:     Ceramic-impregnated
    dispenser cathodes for microwave tubes, lasers and cathode ray
    tubes
         Samarium cobalt magnetsCeradyne Thermo MaterialsScottdale and Clarkston, GeorgiaApproximately 132,000 square feetTianjin, ChinaApproximately 98,000 square feetMidway, 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 applicationsCeradyne CanadaChicoutimi, Quebec, CanadaApproximately 86,000 square feet

Industrial Applications:     Boral®
    structural neutron absorbing materials
         Metal matrix composite
    structures 39




---



##### Table of Contents



Operating Segment and Facility Location

ProductsCeradyne Boron ProductsQuapaw, OklahomaApproximately 128,000 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:     P-dopants for
    semiconductor silicon manufacturing
         P-dopants for ion implanting
    of silicon wafers       Year Ended December 31,2007


2006


2005Advanced Ceramic Operations

$
587.3


$
528.7


$
242.8ESK Ceramics


160.6



148.1



123.2Semicon Associates


8.0



9.1



7.5Thermo Materials


32.0



15.0



12.2Ceradyne Canada


3.9



2.4



Ceradyne Boron Products


7.7







Inter-segment elimination


(42.7
)


(40.4
)


(17.4
)Total revenue from external customers

$
756.8


$
662.9


$
368.3     Year Ended December 31,2007


2006


2005Advanced Ceramic Operations

$
212.6


$
177.0


$
63.6ESK Ceramics


13.4



17.3



10.2Semicon Associates


1.1



1.6



0.9Thermo Materials


2.3



0.9



(0.2
)Ceradyne Canada


(3.0
)


(0.7
)


Ceradyne Boron Products


0.7







Inter-segment elimination


(0.6
)


(1.5
)


(1.3
)Total segment income before provision for taxes

$
226.5


$
194.6


$
73.2     Year Ended December 31,2007


2006


2005Defense


74.0
%


76.2
%


65.8
%Industrial


20.1



17.0



23.2Automotive/Diesel


4.2



5.2



8.3Commercial


1.7



1.6



2.7Total


100.0
%


100.0
%


100.0
%  40




---



##### Table of Contents



tm tm tm 6-person 10-person tm 6-person tm tm
 41




---



##### Table of Contents



tm
  tm tm tm
        Net Sales.
  Cost of Product Sales.
    Selling Expenses.
  General and Administrative Expenses.
 42




---



##### Table of Contents



Research and Development Expenses.
  Review of
    Historical Stock Option Grant Procedures
             43




---



##### Table of Contents



Results
    of Operations
    Year Ended December 31,2007


2006


2005Net sales


100.0
%


100.0
%


100.0
%Cost of product sales


59.6



60.6



64.4Gross profit


40.4



39.4



35.6Operating expenses:Selling


3.6



3.5



5.6General and administration


5.4



5.3



5.7Research and development


2.3



1.5



2.1Income from operations


29.1



29.1



22.2Other income (expense)


0.8



0.3



(2.3
)Income before provision for income taxes


29.9



29.4



19.9Net income


19.1
%


19.4
%


12.7
%   Year
    Ended December 31, 2007 Compared to Year Ended
    December 31, 2006
  Net Sales.
   44




---



##### Table of Contents



Gross Profit.
     45




---



##### Table of Contents



Selling Expenses.
  General and Administrative Expenses.
  Research and Development Expenses.
 46




---



##### Table of Contents



Other Income (Expense).
  Income before Provision for Income Taxes.
              Income Taxes.
 47




---



##### Table of Contents



Year
    Ended December 31, 2006 Compared to Year Ended
    December 31, 2005
  Net Sales.
            Gross Profit.
   48




---



##### Table of Contents



Selling Expenses.
  General and Administrative Expenses.
  Research and Development Expenses.
 49




---



##### Table of Contents



Other Income (Expense).
  Income before Provision for Income Taxes.
            Income Taxes.
  Liquidity
    and Capital Resources
     50




---



##### Table of Contents



®
      ®
     51




---



##### Table of Contents



52




---



##### Table of Contents



Payments Due by PeriodLess than








After 5Total


1 Year


2-3 Years


4-5 Years


YearsDebt, principal amount

$
121,000


$



$



$



$
121,000Non-cancelable leases


6,314



2,370



3,726



218



Pension benefits


9,219



630



1,472



1,857



5,260IT services


1,032



740



292







Cash commitments for interest expense


97,406



3,479



6,958



6,958



80,011Total contractual obligations

$
234,971


$
7,219


$
12,448


$
9,033


$
206,271     Off-Balance
    Sheet Arrangements
    Critical
    Accounting Policies and Estimates
  page F-1
        Sales Recognition.
 53




---



##### Table of Contents



Accounts Receivable. page F-1.
  Inventories. (first-in,
  Accounting for Long-Lived Assets.
  Goodwill and Intangible Assets.
  and/or and/or
 54




---



##### Table of Contents



Pension.
  Recent
    Accounting Pronouncements
         55




---



##### Table of Contents



No. 07-3, (EITF 07-3) EITF 07-3
  ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  Interest
    Rate Risk
    03-1 SFAS 115-1 124-1,
     56




---



##### Table of Contents



Foreign
    Currency Fluctuations
      ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  page F-1
  ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    ITEM 9A.
    CONTROLS
    AND PROCEDURES  Evaluation
    of Disclosure Controls and Procedures
  Rules 13a-15(e) Rule 15d-15(e)
  Changes
    in Internal Control over Financial Reporting
    Managements
    Report on Internal Control over Financial Reporting
   57




---



##### Table of Contents



ITEM 9B.
    OTHER
    INFORMATION   PART III  ITEM 10.
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE    ITEM 11.
    EXECUTIVE
    COMPENSATION    ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS    ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE    ITEM 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES   58




---



##### Table of Contents



PART IV  ITEM 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES    Financial Statements:
  PageReport of Independent Registered Public Accounting Firm


F-1Consolidated Balance Sheets at December 31, 2007 and 2006


F-2Consolidated Statements of Income for the Years Ended
    December 31, 2007, 2006 and 2005


F-3Consolidated Statements of Stockholders Equity for the
    Years Ended December 31, 2007, 2006 and 2005


F-4Consolidated Statements of Cash Flows for the Years Ended
    December 31, 2007, 2006 and 2005


F-5Notes to Consolidated Financial Statements


F-6     ExhibitNumber

Description2
.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.3
.4

Amendment to Bylaws of Registrant, adopted April 29, 1996.3
.5

Amendment to Bylaws of Registrant, adopted December 18,
    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. 59




---



##### Table of Contents



ExhibitNumber

Description10
.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. 60




---



##### Table of Contents



ExhibitNumber

Description10
.26

Intentionally omitted.10
.27

Intentionally omitted10
.28

Intentionally omitted10
.29

Intentionally omitted10
.30*

Base Salaries Payable to Executive Officers during 2007.
    Incorporated herein by reference to Exhibit 10.1 of
    Registrants
    Form 8-K
    Current Report dated March 19, 2007, filed with the
    Commission on March 23, 2007.10
.31*

Cash Bonus Plan for Executive Officers for 2007. Incorporated
    herein by reference to Exhibit 10.1 of Registrants
    Form 8-K
    Current Report dated March 19, 2007, filed with the
    Commission on March 23, 2007.10
.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. 61




---



##### Table of Contents



ExhibitNumber

Description10
.44

Lease dated August 6, 2001 covering 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. Incorporated herein by
    reference to Exhibit 14.1 to the Registrants Annual
    Report on
    Form 10-K
    for the year ended December 31, 2004.21
.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. 62




---



##### Table of Contents



CERADYNE,
    INC.
  REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    Internal Control 
    Integrated Framework
          
   F-1




---



##### Table of Contents



CERADYNE,
    INC.
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2007


2006(In thousands, except for share data)ASSETSCurrent assets:Cash and cash equivalents

$
155,103


$
13,547Short term investments


29,582



190,565Restricted cash


2,660



Accounts receivable, net of allowances for doubtful accounts of
    $792 and $1,158 in 2007 and 2006, respectively


85,346



77,162Other receivables


5,704



3,289Inventories


92,781



73,109Production tooling


16,632



20,975Prepaid expenses and other


12,391



11,859Deferred tax asset


12,455



11,469Total current assets


412,654



401,975Property, plant and equipment, net


243,892



183,011Long term investments


38,089



Intangible assets, net


37,578



8,389Goodwill


46,848



16,518Other assets


4,225



3,922Total assets

$
783,286


$
613,815LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
35,990


$
35,470Accrued expenses


22,483



21,821Income taxes payable


258



12,621Total current liabilities


58,731



69,912Long-term debt


121,000



121,000Employee benefits


13,650



13,274Other long term liability


4,985



Deferred tax liability


6,291



3,018Total liabilities


204,657



207,204Commitments and contingencies (Note 8)Stockholders equity:Common Stock, $0.01 par value: 100,000,000 authorized;
    27,318,530 and 27,119,012 shares issued and outstanding at
    December 31, 2007 and 2006, respectively


272



272Additional paid in capital


185,702



178,252Retained earnings


361,301



217,036Accumulated other comprehensive income


31,354



11,051Total stockholders equity


578,629



406,611Total liabilities and stockholders equity

$
783,286


$
613,815    F-2




---



##### Table of Contents



CERADYNE,
    INC.
  CONSOLIDATED
    STATEMENTS OF INCOME
  Years Ended December 31,2007


2006


2005(In thousands, except for per share data)Net sales

$
756,835


$
662,888


$
368,253Cost of product sales


450,787



401,991



237,115Gross profit


306,048



260,897



131,138Operating expenses:Selling


26,917



22,919



20,694General and administrative


40,801



35,293



21,014Research and development


17,552



9,909



7,80285,270



68,121



49,510Operating income


220,778



192,776



81,628Other income (expense)Royalty income


174



120



145Interest income


12,394



6,687



434Miscellaneous, net


(2,599
)


(919
)


275Interest expense


(4,204
)


(4,105
)


(9,252
)5,765



1,783



(8,398
)Income before provision for income taxes


226,543



194,559



73,230Provision for income taxes


82,278



66,155



26,452Net income

$
144,265


$
128,404


$
46,778Net income per common share:Basic

$
5.29


$
4.77


$
1.90Diluted

$
5.20


$
4.69


$
1.86Shares used in computing per common share amounts:Basic


27,252



26,924



24,635Diluted


27,732



27,352



25,107    F-3




---



##### Table of Contents



CERADYNE,
    INC.
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY
  AccumulatedCommon Stock








Other


TotalNumber of





Retained


Deferred


Comprehensive


StockholdersShares


Amount


Earnings


Compensation


Income (Loss)


Equity(In thousands, except for share data)Balance, December 31, 2004


24,479,420


$
79,964


$
41,854


$



$
13,223


$
135,041Comprehensive income:Net income










46,778











46,778Net unrealized loss on available-for-sale securities


















(96
)


(96
)Minimum pension liability, net


















(667
)


(667
)Cumulative translation adjustment


















(19,788
)


(19,788
)Total comprehensive income






















26,227Issuance of common stock, net of issuance cost of $534


2,070,000



84,680















84,680Issuance of common stock


70,646



1,713















1,713Issuance of restricted stock






1,728







(1,728
)






Exercise of stock options


175,708



1,067















1,067Amortization of deferred compensation














222







222Tax benefit from exercise of stock options






1,570















1,570Balance, December 31, 2005


26,795,774



170,722



88,632



(1,506
)


(7,328
)


250,520Comprehensive income:Net income










128,404











128,404Net unrealized loss on available-for-sale securities


















(63
)


(63
)Minimum pension liability, net


















282



282Cumulative translation adjustment


















18,401



18,401Total comprehensive income






















147,024FAS 158 pension adjustment, net


















(241
)


(241
)Issuance of common stock


29,188



571















571Exercise of stock options


294,050



2,312















2,312Tax benefit from exercise of stock options






2,524















2,524Stock based compensation






3,901















3,901Deferred compensation






(1,506
)






1,506







Balance, December 31, 2006


27,119,012



178,524


$
217,036






$
11,051


$
406,611Comprehensive income:Net income










144,265











144,265Net unrealized loss on available-for-sale securities


















(434
)


(434
)Net change in pension liability


















1,123



1,123Cumulative translation adjustment


















19,614



19,614Total comprehensive income






















164,568Issuance of common stock


19,204



401















401Exercise of stock options


180,314



1,297















1,297Tax benefit from exercise of stock options






3,301















3,301Stock based compensation






2,451















2,451Balance, December 31, 2007


27,318,530


$
185,974


$
361,301


$



$
31,354


$
578,629    F-4




---



##### Table of Contents



CERADYNE,
    INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Years Ended December 312007


2006


2005(In thousands)Cash flows from operating activities:Net income

$
144,265


$
128,404


$
46,778Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization


26,751



18,054



15,203Deferred income taxes


(2,288
)


(4,938
)


(2,722
)Stock compensation


2,451



3,901



222Loss on equipment disposal


908



152



34Changes in operating assets and liabilities, net of assets
    acquired:Accounts receivable, net


(1,584
)


(17,392
)


(10,395
)Other receivables


(2,149
)


(607
)


(233
)Inventories


(6,270
)


(2,987
)


(22,378
)Production tooling


4,473



(5,670
)


(6,009
)Prepaid expenses and other


337



(4,388
)


(431
)Other assets


(974
)


27



(792
)Accounts payable


(3,797
)


10,749



(6,730
)Accrued expenses


(827
)


2,209



171Income tax payable


(12,754
)


3,762



2,728Tax benefit from exercise of stock options










1,570Other liabilities


1,125



7,265



4,102Employee benefits


(1,066
)


686



Other long term liability


4,985







Net cash provided by operating activities


153,586



139,227



21,118Cash flows from investing activities:Purchases of property, plant and equipment


(42,245
)


(36,008
)


(20,223
)Changes in restricted cash


(2,660
)






Purchases of marketable securities


(700,443
)


(673,214
)


Proceeds from sales and maturities of marketable securities


823,499



490,488



2,202Acquisition of businesses, net of cash acquired


(99,098
)


(6,679
)


(3,697
)Proceeds from sale of equipment


9







Net cash used in investing activities


(20,938
)


(225,413
)


(21,718
)Cash flows from financing activities:Proceeds from common stock offering










85,169Costs of common stock offering










(489
)Proceeds from issuance of common stock for stock plans


401



571



1,713Proceeds from issuance of stock due to exercise of stock options


1,297



2,312



1067Reduction in bank line of credit










(9,492
)Proceeds from long-term debt










121,000Payments on long-term debt










(109,725
)Tax benefit due to exercise of stock options


3,531



2,884



Net cash provided by financing activities


5,229



5,767



89,243Effect of exchange rates on cash and cash equivalents


3,679



2,424



(1,622
)Increase (decrease) in cash and cash equivalents


141,556



(77,995
)


87,021Cash and cash equivalents, beginning of period


13,547



91,542



4,521Cash and cash equivalents, end of period

$
155,103


$
13,547


$
91,542Supplemental disclosures of cash flow information:Interest paid

$
3,520


$
3,452


$
6,683Income taxes paid

$
90,775


$
65,333


$
35,834Supplemental schedule of non-cash financing activities:Fulfillment of 401(k) obligations through the issuance of stock

$
1,085


$
828


$
880    F-5




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  1.
    Description
    of Business      2.
    Summary
    of Significant Accounting Policies  a.
    Principles
    of Consolidation and Nature of Operations    b.
    Cash
    and Cash Equivalents    c.
    Investments    03-1 SFAS 115-1 124-1,
 F-6




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    d.
    Foreign
    Exchange Risk Management    e.
    Accounts
    Receivable, Net    Balance at





Write-offs


Balance atBeginning





Net of


End ofof Year


Additions


Recoveries


YearDecember 31, 2007

$
1,158


$
111


$
477


$
792December 31, 2006

$
545


$
1,025


$
412


$
1,158December 31, 2005

$
456


$
220


$
131


$
545   f.
    Inventories  first-in,
  December 31,2007


2006Raw materials

$
22,772


$
16,398Work-in-process


46,853



34,265Finished goods


23,156



22,446$
92,781


$
73,109  F-7




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  g.
    Production
    Tooling    h.
    Property,
    Plant and Equipment, Net    December 31,2007


2006Land and Land Improvements

$
15,086


$
11,226Building improvements


81,965



62,509Machinery and equipment


179,727



138,557Leasehold improvements


16,572



15,077Office equipment


19,512



13,816Construction in progress


16,880



9,020329,742



250,205Accumulated depreciation and amortization


(85,850
)


(67,194
)$
243,892


$
183,011     Buildings

30 yearsMachinery and equipment

3 to 12 yearsOffice equipment

5 yearsLeasehold improvements

Shorter of 10 years or the term of lease     i.
    Goodwill
    and Intangible Assets, Net    and/or and/or
 F-8




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      ACO


Semicon


Thermo


ESK


Canada


Boron Products


TotalDecember 31, 2005

$
2,608


$
603


$
279


$
5,775


$



$



$
9,265Acquisition of ESK Ceramics (Note 7)














2,760











2,760Acquisition of Ceradyne Canada


















3,832







3,832Translation














661











661December 31, 2006


2,608



603



279



9,196



3,832







16,518Acquisition of Minco, Inc.










11,099















11,099Acquisition of Boron Products






















18,251



18,251Translation














980











980December 31, 2007

$
2,608


$
603


$
11,378


$
10,176


$
3,832


$
18,251


$
46,848     December 31, 2007


December 31, 2006Gross


Accumulated


Net


Gross


Accumulated


NetAmount


Amortization


Amount


Amount


Amortization


AmountAmortizing Intangible AssetsBacklog

$
1,795


$
1,795


$



$
575


$
558


$
17Developed technology


11,617



1,666



9,951



6,007



820



5,187Trade name


1,110



142



968



460



23



437Customer Relationships


25,230



947



24,283



730



36



694Non-compete agreement


500



178



322











Non-amortizing
    tradename


2,054







2,054



2,054







2,054Total

$
42,306


$
4,728


$
37,578


$
9,826


$
1,437


$
8,389       Identified Intangible Asset

Estimated Useful Life in Years or MonthsDeveloped technology

10 years  12.5 yearsTradename

10 yearsCustomer relationships

10 years  12.5 yearsBacklog

1 month  3 monthsNon-compete agreement

15 months    F-9




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  j.
    Sales
    Recognition    k.
    Net
    Income Per Share  3-for-2
    December 31,2007


2006


2005Weighted average number of shares outstanding


27,252,448



26,923,916



24,634,558Dilutive stock options


285,427



364,002



448,115Dilutive restricted stock units


39,853



63,931



24,722Dilutive convertible note shares


154,274







Number of shares used in dilutive computation


27,732,002



27,351,849



25,107,395   l.
    Accounting
    for Long-Lived Assets   F-10




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  m.
    Use of
    Estimates    n.
    Engineering
    and Research    o.
    Fair
    Value of Financial Instruments    p.
    Income
    Taxes      q.
    Share-Based
    Compensation   F-11




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      r.
    Comprehensive
    Income    December 31,2007


2006Unrealized loss on available-for-sale-securities, net

$
(640
)

$
(206
)Net change in pension liability


172



(951
)Cumulative translation adjustment


31,822



12,208$
31,354


$
11,051   s.
    Reclassifications    t.
    New
    Accounting Pronouncements     F-12




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        No. 07-3, (EITF 07-3) EITF 07-3
  3.
    Acquisitions       F-13




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Cash

$
27,905Transaction costs


216Total purchase price

$
28,121Fair value of assets acquired and liabilities assumed:Cash

$
332Accounts receivable, net


2,503Inventory


3,301Property, plant and equipment


7,114Other assets


1,473Assumed liabilities


(1,892
)Deferred taxes


(4,789
)Backlog


110Developed technology


1,510Tradename


650Customer relationships


6,210Non-compete


500Goodwill


11,099$
28,121       Identified Intangible Asset

Estimated Useful Life in Years or MonthsDeveloped technology

10 yearsTradename

10 yearsCustomer relationships

10 yearsBacklog

1 monthNon-compete agreement

15 months       10
 F-14




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Cash

$
69,600Transaction costs


1,709Total purchase price

$
71,309Fair value of assets acquired and liabilities assumed:Accounts receivable, net

$
2,811Inventory


6,375Property, plant and equipment


23,636Other assets


61Assumed liabilities


(1,505
)Backlog


1,110Developed technology


2,280Customer relationships


18,290Goodwill


18,251$
71,309       Identified Intangible Asset

Estimated Useful Life in Years or MonthsDeveloped technology


12.5 yearsCustomer relationships


12.5 yearsBacklog


3 months     ®
    Boral Product LineNet tangible assets

$
717Intangible assets (estimated useful life of 10 years)


2,130Goodwill


3,832Total purchase price

$
6,679   4.
    Debt and
    Bank Borrowing Arrangements; Convertible Note and Common Stock
    Offerings   F-15




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
             F-16




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          5.
    Financial
    Instruments  Foreign
    Exchange Risk Management
    6.
    Income
    Taxes    2007


2006


2005Current, domestic

$
79,406


$
66,862


$
28,244Current, foreign


4,897



4,713



1,836Current, total


84,303



71,575



30,080Deferred, domestic


(984
)


(6,458
)


(4,761
)Deferred, foreign


(1,041
)


1,038



1,133Deferred, total


(2,025
)


(5,420
)


(3,628
)Provision for income taxes

$
82,278


$
66,155


$
26,452  F-17




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2007


2006Current deferred tax assets:Inventory

$
5,342


$
5,968Vacation accrual


1,061



980Bad debt allowance


323



454Accrued payroll


1,759



1,456State taxes


3,310



2,046Other


1,228



844Total current deferred tax asset

$
13,023


$
11,748Current deferred tax (liability):Prepaid expenses


(568
)


(279
)Total current deferred tax (liability)


(568
)


(279
)Net current deferred tax asset

$
12,455


$
11,469Non current deferred tax assets:Deferred compensation

$
2,653


$
2,182Accrued payroll


1,638



1,070Unrealized currency loss


358



643State taxes


257



55Net operating loss


494



Unrealized investment loss


861



Other






19Total non current deferred tax assets


6,261



3,969Non current deferred tax (liabilities):Depreciation and amortization


(7,859
)


(6,987
)Fixed asset step up


(911
)


Intangible asset set up


(3,307
)


Other


(475
)


Total non current deferred tax (liabilities)


(12,552
)


(6,987
)Net non current deferred tax (liability)

($
6,291
)

($
3,018
)    F-18




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2007


2006


2005Income before taxes, domestic

$
215,608


$
179,497


$
64,340Income before taxes, foreign


10,845



15,062



8,890Income before taxes, total

$
226,543


$
194,559


$
73,230Provision for income taxes at federal statutory rate (35%)


79,290



68,096



25,631State income taxes, net of federal benefit


9,468



2,270



3,453Permanent Items


584



398



169Extraterritorial income exclusion






(2,417
)


(1,010
)Credits


(502
)


(399
)


(389
)Manufacturing deduction


(4,147
)


(1,600
)


(310
)Other


(2,415
)


(193
)


(1,092
)Provision for income taxes

$
82,278


$
66,155


$
26,452Effective tax rate


36.32
%


34.00
%


36.12
%           Balance at January 1, 2007

$
6,178Additions based on tax positions related to the current year


494Additions for tax positions of prior years


Reductions of tax positions of prior years


(2,116
)Balance at December 31, 2007

$
4,556    F-19




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2003-2007 years
  7.
    Employee
    Retirement and Other Benefit Plans  Supplemental
    Retirement Plan
    Pension
    and Other Postretirement Benefit Plans
      German
    Pension and Benefit Plans
       F-20




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        2007


2006


2005Service cost

$
(463
)

$
(442
)

$
(306
)Interest cost


(400
)


(335
)


(303
)Amortization


(60
)


(85
)


(14
)Net periodic benefit cost

$
(923
)

$
(862
)

$
(623
)     2007


2006


2005Discount rate


5.75
%


4.50
%


4.50
%Rate of long-term compensation increase


2.50
%


2.50
%


2.50
%  F-21




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006Funded Status at end of year:Projected benefit obligation

$
(8,503
)

$
(8,617
)Assets at fair value






Funded status


(8,503
)


(8,617
)Unrecognized actuarial losses






(1,663
)Unfunded pension cost before equity adjustment


(8,503
)


(6,954
)Additional minimum liability






(1,273
)Pension Liability before FAS 158


(8,503
)


(8,226
)Effect of FAS 158 recognized in OCI






(391
)Pension liability after FAS 158

$
(8,503
)

$
(8,617
)Change in projected benefit obligation:Projected benefit obligation at beginning of year

$
(8,617
)

$
(7,455
)Foreign currency exchange rate changes


(855
)


(867
)Service costs


(463
)


(442
)Interest costs


(400
)


(335
)Actuarial gains


1,722



402Benefits paid


110



80Projected benefit obligation at end of year

$
(8,503
)

$
(8,617
)Net amounts recognized in consolidated balance sheet:Current liabilities

$
(106
)

$
(104
)Non-current liabilities

$
(8,397
)

$
(8,513
)Accumulated benefit obligation

$
(8,140
)

$
(8,226
)     2007


2006Discount rate


5.75
%


4.50
%Rate of long-term compensation increase


2.50
%


2.50
%     Before-


Tax


Net-of-Tax


(Expense) or


TaxAmount


Benefit


AmountAccumulated other comprehensive income at beginning of year

$
(1,542
)

$
591


$
(951
)Net actuarial loss arising during current year


1,722



(660
)


1,062Amortization of actuarial gain


60



(17
)


43Foreign currency effect


122



(48
)


74Accumulated other comprehensive income at end of year

$
362


$
(134
)

$
228  F-22




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Before-


Tax


Net-of-Tax


(Expense) or


TaxAmount


Benefit


AmountAccumulated other comprehensive income at beginning of year

$
(1,608
)

$
616


$
(992
)Net actuarial loss arising during current year


11



(4
)


7Amortization of actuarial gain (loss)


34



(13
)


21Foreign currency effect


21



(8
)


13Accumulated other comprehensive income at end of year

$
(1,542
)

$
591


$
(951
)     Pensionkasse  Old

$
680Additional Compensation


734Deferred Compensation


190Total contributions in 2008

$
1,604     2008

$
1072009


1442010


1632011


2332012


2652013  2017


1,674     Ceradyne
    Boron Products Pension Plans
     F-23




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Service costs

$
39Interest costs


183Expected return on assets


(235
)Net periodic benefit cost

$
(13
)     2007Discount rate


6.17
%Rate of long-term compensation increase


4.00
%Expected return on plan assets


8.00
%     Funded status at end of year:Projected benefit obligation

$
8,963Assets at fair value


8,947Funded status

$
(16
)Change in projected benefit obligation:Benefit obligation at date of acquisition

$
(8,995
)Service costs


(39
)Interest costs


(183
)Actuarial gains (losses)


121Benefits paid


133Projected benefit obligation at end of year

$
(8,963
)Changes in plan assets:Fair value of plan assets at acquisition date

$
9,056Actual return on plan assets


24Benefits paid


(133
)Fair value of plan assets at end of year

$
8,947Net amount recorded in consolidated balance sheet:Noncurrent liabilities

$
(16
)Accumulated benefit obligation at end of year

$
8,946     2007Discount rate


5.95
%Rate of long-term compensation increase


4.00
%  F-24




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Before-


Tax


Net-of-Tax


(Expense) or


TaxAmount


Benefit


AmountAccumulated other comprehensive income at date of acquisition

$



$



$
Net actuarial loss arising during current year


(91
)


35



(56
)Accumulated other comprehensive income at end of year

$
(91
)

$
35


$
(56
)         2008

$
5232009


5212010


6442011


6442012


7152013  2017


3,586   8.
    Commitments
    and Contingencies  a.
    Operating
    Lease Obligations   F-25




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2008

$
2,3702009


2,0902010


1,6362011


2092012


9$
6,314   b.
    Legal
    Proceedings  No. 06-CC-00156.
  06-919 Rule 10b-5
      No. 06-CC-00156. 06-919
 F-26




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      9.
    Disclosure
    About Segments of Enterprise and Related Information  10
 F-27




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  SEGMENT
    INFORMATION FOR THE YEARS ENDED
    DECEMBER 31, 2007, 2006 AND 2005
  2007


2006


2005(Amounts in thousands)RevenueACO

$
587,279


$
528,687


$
242,836ESK Ceramics


160,623



148,154



123,172Semicon Associates


7,970



9,065



7,444Thermo Materials


32,025



15,021



12,173Ceradyne Canada


3,916



2,405



Ceradyne Boron Products


7,766







Inter-segment elimination


(42,744
)


(40,444
)


(17,372
)Total revenue from external customers

$
756,835


$
662,888


$
368,253Depreciation and AmortizationACO

$
9,328


$
7,589


$
5,662ESK Ceramics


10,630



8,822



8,191Semicon Associates


346



363



372Thermo Materials


3,061



921



978Ceradyne Canada


732



359



Ceradyne Boron Products


2,654



Total

$
26,751


$
18,054


$
15,203Segment Income before Provision for Income TaxesACO

$
212,681


$
177,039


$
63,655ESK Ceramics


13,373



17,304



10,219Semicon Associates


1,131



1,580



894Thermo Materials


2,304



881



(209
)Ceradyne Canada


(3,041
)


(680
)


Ceradyne Boron Products


727







Inter-segment elimination


(632
)


(1,565
)


(1,329
)Total

$
226,543


$
194,559


$
73,230 F-28




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2007


2006


2005(Amounts in thousands)Segment AssetsACO

$
410,244


$
396,766


$
253,426ESK Ceramics


209,384



174,926



158,118Semicon Associates


5,682



6,174



6,111Thermo Materials


67,465



17,844



12,538Ceradyne Canada


20,480



18,105



Ceradyne Boron Products


70,031







Total

$
783,286


$
613,815


$
430,193Expenditures for PP&EACO

$
8,174


$
15,598


$
12,382ESK Ceramics


17,384



6,749



5,826Semicon Associates


396



250



223Thermo Materials


14,696



4,696



1,792Ceradyne Canada


1,528



8,715



Ceradyne Boron Products


67







Total

$
42,245


$
36,008


$
20,223   SEGMENT
    INFORMATION FOR THE YEARS ENDED
    DECEMBER 31, 2007, 2006 AND 2005
  2007


2006


2005Percentage of U.S. net sales from external customersACO


75
%


78
%


63
%ESK Ceramics


2
%


3
%


7
%Semicon Associates


1
%


1
%


2
%Thermo Materials


2
%


2
%


2
%Ceradyne Canada


1
%






Ceradyne Boron Products


1
%






Total percentage of U.S. net sales from external customers


82
%


84
%


74
%Percentage of foreign net sales from external customersACO


2
%


2
%


3
%ESK Ceramics


14
%


13
%


22
%Semicon Associates










0
%Thermo Materials


2
%


1
%


1
%Ceradyne Canada










Ceradyne Boron Products










Total percentage of foreign net sales from external customers


18
%


16
%


26
% F-29




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2007


2006


2005Percentage of total net sales from external customersACO


77
%


80
%


66
%ESK Ceramics


16
%


16
%


29
%Semicon Associates


1
%


1
%


2
%Thermo Materials


4
%


3
%


3
%Ceradyne Canada


1
%






Ceradyne Boron Products


1
%






Total percentage of net sales from external customers


100
%


100
%


100
%     December 31,2007


2006


2005Armor

$
551,301


$
488,230


$
207,111Automotive


10,961



17,018



16,019Orthodontics


10,603



10,372



9,834Industrial


14,414



13,067



9,872$
587,279


$
528,687


$
242,836   10.
    Share-Based
    Compensation     F-30




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
             F-31




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006


2005Share-based compensation expense recognized:General and administrative, options

$
710


$
3,074


$
110General and administrative, Units


1,741



827



222Related deferred income tax benefit


(890
)


(1,326
)


(120
)Decrease in net income

$
1,561


$
2,575


$
212Decrease in basic earnings per share

$
0.06


$
0.10


$
0.01Decrease in diluted earnings per share

$
0.06


$
0.09


$
0.01           2007


2006


2005Weighted





Weighted





WeightedAverage





Average





AverageNumber of


Exercise


Number of


Exercise


Number of


ExerciseOptions


Price


Options


Price


Options


PriceOutstanding, beginning of year


677,370


$
11.41



977,870


$
10.49



1,145,703


$
7.79Options granted





$







$




37,500


$
20.21Options exercised


(159,495
)

$
8.15



(294,050
)

$
8.10



(175,708
)

$
5.45Options cancelled


(20,550
)

$
21.50



(6,450
)

$
22.71



(29,625
)

$
6.43Outstanding, end of year


497,325


$
12.04



677,370


$
11.41



977,870


$
8.73Exercisable, end of year


429,600


$
10.83



481,470


$
9.83



623,870


$
6.93  F-32




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006


2005Weighted





Weighted





WeightedAverage





Average





AverageGrant Fair





Grant Fair





Grant FairUnits


Value


Units


Value


Units


ValueOutstanding, beginning of year


137,100


$
41.13



77,000


$
22.44






$
Granted


72,850


$
66.06



77,550


$
55.48



77,000



22.44Vested


(31,791
)

$
41.47



(16,450
)

$
22.68







Forfeited


(28,400
)

$
42.39



(1,000
)

$
22.46







Non-vested Units at end of year


149,759


$
52.94



137,100


$
41.13



77,000


$
22.44     Outstanding


ExercisableAverage


Weighted


Aggregate





Average


Weighted


AggregateRemaining


Average


Intrinsic





Remaining


Average


IntrinsicNumber of


Contractual


Exercise


Value


Number of


Contractual


Exercise


ValueRange of Exercise Prices

Options


Life (Years)


Price


(000s)


Options


Life (Years)


Price


(000s)$1.44 - $2.81


5,400



1.21


$
1.68


$
243



5,400



1.21


$
1.68


$
243$2.98 - $4.58


230,050



4.06


$
4.09


$
9,795



230,050



4.06


$
4.09


$
9,795$10.53 - $16.89


130,125



5.69


$
16.89


$
3,875



109,650



5.69


$
16.89


$
3,265$18.80 - $24.07


131,750



6.71


$
21.56


$
3,308



84,500



6.62


$
21.88


$
2,095Total


497,325



5.16


$
12.04


$
17,221



429,600



4.94


$
10.83


$
15,398     OutstandingAverage


Weighted


AggregateRemaining


Average


IntrinsicNumber of


Contractual


Grant


ValueRange of Grant Prices

Units


Life (Years)


Price


(000s)$21.46 - $22.68


34,500



2.28


$
22.36


$
839$42.28 - $45.67


12,669



2.79


$
44.17


$
32$52.46 - $62.07


55,740



3.65


$
59.14


$
$66.35 - $81.18


46,850



4.31


$
69.42


$
149,759



3.47


$
52.62


$
871  F-33




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2005Net income, as reported

$
46,778Deduct: total stock-based employee compensation expense
    determined under the fair value based method for all awards, net
    of related tax effects


(689
)Pro forma net income

$
46,089Net income per Share:Basic  as reported

$
1.90Basic  pro forma

$
1.87Diluted  as reported

$
1.86Diluted  pro forma

$
1.84Weighted average shares outstanding:Basic


24,634,558Diluted


25,107,395     2005Expected term (years)


7.0Volatility


56.75
%Annual dividend per share

$
0.00Risk free interest rate


3.98
%Weighted-average fair value of options granted

$
12.29       11.
    Review of
    Historical Stock Option Grant Procedures   F-34




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            Materiality
 F-35




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      12.
    Quarterly
    Financial Information (unaudited)    Quarter
    Ending
  March 31,


June 30,


September 30,


December 31,2006


2006


2006


2006Net sales

$
136,347


$
162,016


$
185,796


$
178,729Gross profit


53,985



63,681



70,531



72,700Net income


24,613



29,129



36,922



37,740Basic income per share

$
0.92


$
1.08


$
1.37


$
1.40Diluted income per share

$
0.90


$
1.07


$
1.34


$
1.38   Quarter
    Ending
  March 31,


June 30,


September 30,


December 31,2007


2007


2007


2007Net sales

$
188,443


$
185,359


$
191,606


$
191,428Gross profit


77,112



77,384



75,787



75,766Net income


38,089



38,303



32,650



35,224Basic income per share

$
1.40


$
1.41


$
1.20


$
1.29Diluted income per share

$
1.38


$
1.38


$
1.16


$
1.28  F-36




---



##### Table of Contents



SIGNATURES
      By:
    /s/  JOEL
    P. MOSKOWITZ         /s/  Joel
    P. MoskowitzJoel
    P. Moskowitz

Chairman of the Board, Chief Executive Officer, President and
    Director
    (Principal Executive Officer)

February 26, 2008/s/  Jerrold
    J. PellizzonJerrold
    J. Pellizzon

Chief Financial Officer
    (Principal Financial and Accounting Officer)

February 26, 2008/s/  Richard
    A. AlliegroRichard
    A. Alliegro

Director

February 26, 2008/s/  Frank
    EdelsteinFrank
    Edelstein

Director

February 26, 2008/s/  Richard
    A. KertsonRichard
    A. Kertson

Director

February 26, 2008/s/  William
    C. LaCourseWilliam
    C. LaCourse

Director

February 26, 2008/s/  Milton
    L. LohrMilton
    L. Lohr

Director

February 26, 2008




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber

Description2
.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.3
.4

Amendment to Bylaws of Registrant, adopted April 29, 1996.3
.5

Amendment to Bylaws of Registrant, adopted December 18,
    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).




---



##### Table of Contents



ExhibitNumber

Description10
.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 omitted10
.28

Intentionally omitted10
.29

Intentionally omitted10
.30*

Base Salaries Payable to Executive Officers during 2007.
    Incorporated herein by reference to Exhibit 10.1 of
    Registrants
    Form 8-K
    Current Report dated March 19, 2007, filed with the
    Commission on March 23, 2007.10
.31*

Cash Bonus Plan for Executive Officers for 2007. Incorporated
    herein by reference to Exhibit 10.1 of Registrants
    Form 8-K
    Current Report dated March 19, 2007, filed with the
    Commission on March 23, 2007.10
.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.




---



##### Table of Contents



ExhibitNumber

Description10
.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, 2001 covering 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. Incorporated herein by
    reference to Exhibit 14.1 to the Registrants Annual
    Report on
    Form 10-K
    for the year ended December 31, 2004.21
.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.