	September 30, 2005			December 31, 2004
	(Unaudited)
CURRENT ASSETS
Cash and cash equivalents	$	4,108		$	4,521
Short-term investments		7,830			10,041
Accounts receivable, net of allowances for doubtful accounts of approximately $415 and $456 at September 30, 2005 and December 31, 2004, respectively		45,356			48,649
Other receivables		2,663			3,175
Inventories, net		68,659			47,673
Production tooling, net		12,294			7,868
Prepaid expenses and other		8,302			8,510
Deferred tax asset		3,676			4,210
TOTAL CURRENT ASSETS		152,888			134,647

PROPERTY, PLANT & EQUIPMENT, at cost
Land		9,204			10,017
Buildings and improvements		49,914			54,483
Machinery and equipment		112,669			112,130
Leasehold improvements		12,535			11,134
Office equipment		10,454			9,302
Construction in progress		6,190			1,763
		200,966			198,829
Less accumulated depreciation and amortization		(46,900	)		(36,551	)
		154,066			162,278

INTANGIBLE ASSETS, net		6,219			7,235
GOODWILL		7,240			6,079
OTHER ASSETS		5,625			6,115
TOTAL ASSETS	$	326,038		$	316,354

	September 30, 2005			December 31, 2004
	(Unaudited)
CURRENT LIABILITIES
Bank line of credit	$	2,000		$	9,708
Current portion of long-term debt		1,100			1,100
Accounts payable		35,065			32,830
Accrued expenses		10,359			7,981
Income taxes payable		1,032			4,639
TOTAL CURRENT LIABILITIES		49,556			56,258
LONG-TERM DEBT, NET OF CURRENT PORTION		107,800			108,625
EMPLOYEE BENEFITS		10,236			10,735
DEFERRED TAX LIABILITY		7,031			5,695
TOTAL LIABILITIES		174,623			181,313
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY
Common stock, $.01 par value, Authorized - 40,000,000 shares, Outstanding - 24,649,950 shares and 24,479,813 shares at September 30, 2005 and December 31, 2004, respectively		246			244
Additional paid in capital		84,173			79,720
Retained earnings		72,578			41,854
Deferred compensation		(1,599	)		—
Accumulated other comprehensive (loss) income		(3,983	)		13,223
TOTAL SHAREHOLDERS’ EQUITY		151,415			135,041
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	326,038		$	316,354

	THREE MONTHS ENDED September 30,						NINE MONTHS ENDED September 30,
	2005			2004			2005			2004
	(Unaudited)						(Unaudited)
NET SALES	$	94,406		$	56,329		$	254,100		$	132,240
COST OF PRODUCT SALES		59,576			38,373			164,823			89,238
Gross profit		34,830			17,956			89,277			43,002

OPERATING EXPENSES
Selling		5,015			2,064			15,309			3,572
General and administrative		5,442			3,698			15,179			9,028
Research and development		2,037			858			5,641			1,881
		12,494			6,620			36,129			14,481
Income from operations		22,336			11,336			53,148			28,521

OTHER INCOME (EXPENSE):
Royalty income		32			30			92			90
Interest income		93			88			265			423
Interest expense		(1,872	)		(382	)		(4,987	)		(382	)
Miscellaneous		4			830			171			1,878
		(1,743	)		566			(4,459	)		2,009
Income before provision for income taxes		20,593			11,902			48,689			30,530
PROVISION FOR INCOME TAXES		7,254			4,608			17,965			11,742
NET INCOME	$	13,339		$	7,294		$	30,724		$	18,788
BASIC INCOME PER SHARE	$	0.54		$	0.30		$	1.25		$	0.78
DILUTED INCOME PER SHARE	$	0.53		$	0.30		$	1.23		$	0.77

WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC		24,586			24,303			24,530			24,095
DILUTED		25,092			24,699			25,006			24,491

	NINE MONTHS ENDED September 30,
	2005 (Unaudited)			2004 (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	30,724		$	18,788
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation and amortization		11,143			3,529
Deferred income taxes		2,328			661
Stock compensation		92			—
Payments of loan fees		—			(3,227	)
Change in operating assets and liabilities, net of acquisitions:
Accounts receivable, net		1,564			(5,685	)
Other receivables		454			421
Inventories		(24,291	)		(7,977	)
Production tooling		(3,974	)		(794	)
Prepaid expenses		(167	)		(2,130	)
Other assets		(130	)		56
Accounts payable		5,027			12,384
Accrued expenses		795			3,994
Income taxes payable		(3,839	)		4,199
Tax benefit due to exercise of stock options		668			1,951
Employee benefits		804			69
NET CASH PROVIDED BY OPERATING ACTIVITIES		21,198			26,239

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(15,203	)		(20,206	)
Redemptions of short-term investments		2,197			9,044
Additional costs of acquisition		(1,505	)		(141,251	)
NET CASH USED IN INVESTING ACTIVITIES		(14,511	)		(152,413	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock due to exercise of options		852			716
Proceeds from issuance of stock for stock plans		1,208			831
Payments on long-term debt		(825	)		—
Proceeds from issuance of long term debt		—			110,000
Reduction in bank line of credit		(7,533	)		5,497
Other		(36	)		—
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES		(6,334	)		117,044
EFFECT OF EXCHANGE RATES ON CASH AND EQUIVALENTS		(766	)		768
(DECREASE) IN CASH AND CASH EQUIVALENTS		(413	)		(8,362	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		4,521			11,462
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	4,108		$	3,100
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES:
Interest paid	$	5,059		$	52
Income taxes paid	$	19,640		$	5,495

See accompanying condensed notes to Consolidated Financial Statements

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement have been included. Operating results for the nine months ended September 30, 2005 are not necessarily indicative of the results that may be expected for the year ended December 31, 2005.

The balance sheet at December 31, 2004 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the Consolidated Financial Statements and Notes to Financial Statements included in Ceradyne’s Annual Report on Form 10-K for the year ended December 31, 2004.

The Company applies the provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” in accounting for stock-based compensation; therefore, no compensation expense has been recognized for its fixed stock option plans as options are granted at fair market value based upon the closing price on the grant date. The Company has adopted the disclosure requirements for SFAS No. 123, “Accounting for Stock-Based Compensation”. On December 31, 2002, the FASB issued SFAS No. 148, “Accounting for Stock Based Compensation-Transition and Disclosure,” which amends SFAS No. 123. SFAS No. 148 requires more prominent and frequent disclosures about the effects of stock-based compensation, which the Company adopted in the year ended December 31, 2002. Accordingly, if compensation expense for the Company’s stock options had been recognized, based upon the fair value of awards granted, the Company’s net income and earnings per share would have been reduced to the following pro forma amounts (in thousands, except per share amounts):

	Three Months Ended September 30,				Nine months Ended September 30,
	2005		2004		2005		2004
Net income, as reported	$	13,339	$	7,294	$	30,724	$	18,788
Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects		99		223		602		473
Pro forma net income	$	13,240	$	7,071	$	30,122	$	18,315
Net income per share:
Basic - as reported	$	0.54	$	0.30	$	1.25	$	0.78
Basic - pro forma	$	0.54	$	0.29	$	1.23	$	0.76
Diluted - as reported	$	0.53	$	0.30	$	1.23	$	0.77
Diluted - pro forma	$	0.53	$	0.29	$	1.20	$	0.75

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. The Company’s options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate.

During the second quarter ended June 30, 2005, the Company issued 77,000 Restricted Stock Units (the “Units”) to certain directors, officers and employees with a grant date fair value of $22.68 per share for 62,000 and a grant date fair value of $21.46 for the remaining 15,000. Each Unit represents the right to receive one share of the Company’s Common Stock when the Unit vests. For directors, the Units vest annually over three years on the anniversary date of their issuance. For officers and employees, the Units vest annually over five years on the anniversary date of their issuance. Pursuant to APB 25, the Company records compensation expense for the amount of the grant date fair value on a straight line basis over the vesting period. The Company incurred charges associated with the vesting of the Units of $37,000 and $129,000 for the three and nine months ended September 30, 2005, respectively.

On August 23, 2004, the Company completed the acquisition of ESK Ceramics GmbH and Co. KG (“ESK Ceramics”) from Wacker-Chemie GmbH, pursuant to a Sale and Purchase Agreement dated June 30, 2004. The Company began to consolidate and report the operations of ESK as of September 1, 2004. Strategic reasons for our acquisition of ESK Ceramics were to a) broaden product line offerings to customers located outside the United States and b) reduce costs of boron carbide, a key raw material used in the production of our largest product line, body armor.

The purchase price was approximately $142.2 million, which included $4.7 million of transaction costs. The purchase price was financed with $110 million of long-term debt borrowed under a new credit facility of $160 million provided by a syndicate of banks and institutional lenders led by Wachovia Bank, pursuant to a Credit Agreement dated August 18, 2004. The balance of the purchase price and transaction costs was paid with a portion of the Company’s existing cash.

Unaudited pro-forma combined results of operations of the Company, assuming the acquisition had occurred as of January 1, 2004, are presented below. The pro-forma combined results of operations for the three and nine months ended September 30, 2004, include the acquisition described above and adjustments to inter-company sales, depreciation, amortization, pension costs, and interest. The pro-forma combined results of operations for the three and nine months ended September 30, 2004 contain the use of certain estimates and adjustments to reflect three and nine months of results of operations for the acquisition discussed above. These combined results have been prepared for comparison purposes only and do not purport to be indicative of what operating results would have been, and may not be indicative of future operating results (in thousands):

In May 2005 the FASB issued Statement of Financial Accounting Standards (SFAS) No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS 154 requires retrospective application to prior periods’ financial statements for changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 also requires that retrospective application of a change in accounting principle be limited to the direct effects of the change. Indirect effects of a change in accounting principle, such as a change in non-discretionary profit-sharing payments resulting from an accounting change, should be recognized in the period of the accounting change. SFAS 154 also requires that a change in depreciation, amortization, or depletion method for long-lived, non-financial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Early adoption is permitted for accounting changes and corrections of errors made in fiscal years beginning after the date this Statement is issued. The Company is required to adopt the provisions of SFAS 154, as applicable, beginning in fiscal 2007. We do not expect the adoption of this standard to have a material impact on our consolidated financial position, results of operations or cash flows.

In November 2004, Statement of Financial Accounting Standards No. 151, “Inventory Costs-an amendment of ARB No. 43, Chapter 4” (SFAS No. 151), was issued. This Statement amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We do not expect adoption of this standard to have a material impact on our consolidated financial position, results of operations or cash flows.

In December 2004, the FASB issued FASB Staff Position No. FAS 109-2 (“FAS 109-2”), “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creations Act of 2004.” FAS 109-2 provides guidance under FASB Statement No. 109, “Accounting for Income Taxes,” with respect to recording the potential impact of the repatriation provisions of the American Jobs Creation Act of 2004 (the “Jobs Act”) on enterprises’ income tax expense and deferred tax liability. The Jobs Act was enacted on October 22, 2004. FAS 109-2 states that an enterprise is allowed time beyond the financial reporting period of enactment to evaluate the effect of the Jobs Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying FASB Statement No. 109. The Company has not yet completed evaluating the impact of the repatriation provisions, however it does not anticipate the adoption will have a material impact on its consolidated financial statements. Accordingly, as provided for in FAS 109-2, the Company has not adjusted its tax expense or deferred tax liability to reflect the repatriation provisions of the Jobs Act.

In December 2004, the FASB issued SFAS No. 153 (“FAS 153”), “Exchange of Nonmonetary Assets-an amendment of APB Opinion No. 29,” which amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. FAS 153 defines a nonmonetary exchange as having commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This Statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005 and shall be applied prospectively. The Company adopted FAS 153 in the third quarter ended September 30, 2005, and its adoption is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

In December 2004, the Financial Accounting Standards Board (FASB) issued a revision of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123R). SFAS 123R supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance and eliminates the alternative to use Opinion 25’s intrinsic value method of accounting that was provided in Statement 123 as originally issued. Under Opinion 25, issuing stock options to employees generally resulted in recognition of no compensation cost. SFAS 123(R) requires all entities recognize compensation expense in an amount equal to the fair value of share-based payments (e.g. stock options and restricted stock) granted to employees. This applies to all transactions involving the issuance of our own equity in exchange for goods or services, including employee services. Upon adoption of SFAS 123(R), all stock option awards to employees will be recognized as expense in the income statement, typically over any related vesting period. SFAS 123(R) carried forward the guidance from SFAS 123 for payment transactions with non-employees. The Securities and Exchange Commission amended the compliance date on April 14, 2005, to require public companies to adopt the standard as of the beginning of the first annual period that begins after June 15, 2005. We will, therefore, be required to adopt SFAS 123(R) in the first quarter of 2006. We believe the impact of adopting SFAS 123(R) will be similar to the pro forma disclosure impact presented above in Note 2 of these Notes to Consolidated Financial Statements.


	1.		Modified Prospective Method under which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS 123 for all awards granted to employees prior to the effective date of SFAS 123(R) that remain unvested on the effective date.

	2.		Modified Retrospective Method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

On August 18, 2004, the Company entered into a $160 million Credit Facility Agreement with Wachovia Bank, National Association, and a syndicate of banks and other institutional lenders. The obligations under the Credit Agreement are collateralized by substantially all of the assets of the Company and ESK Ceramics, other than real property. The Credit Agreement provided for a term loan in the amount of $110 million and a revolving line of credit in the amount of $50 million. The Company borrowed the entire $110 million under the term loan on August 18, 2004. Principal under the term loan is payable in installments of $275,000 on the last day of each calendar quarter commencing December 31, 2004, with a balloon payment of $102.6 million payable on August 18, 2011. Additional payments of principal are required annually in an amount equal to 50 percent of the Company’s “excess cash flow,” as defined in the Credit Agreement. Principal may be prepaid at any time, in whole or in part, without premium or penalty at the election of the Company. Accrued interest is payable with each installment of principal.

Borrowings under the Credit Agreement bear interest at a rate per annum equal to the base rate chosen by the Company plus a margin determined pursuant to the Credit Agreement. The Company may choose a base rate, which is equal to approximately the London interbank offered rate, commonly known as the LIBOR rate, for deposits in dollars for the interest period selected by the Company. The Company may also choose an “alternate base rate,” as defined in the Credit Agreement, which is a fluctuating interest rate per annum equal to the higher of either (a) the prime rate established by Wachovia Bank from time to time, or (b) one-half of one percent above the Federal Funds Rate. The applicable margin is, in respect to the term loan, 2.00 percent per annum if the LIBOR rate is used and 1.00 percent per annum if an alternate base rate is used. With respect to borrowings under the revolving line of credit, the applicable margin is 1.75 percent per annum through December 31, 2005, and thereafter, the margin is a percentage determined pursuant to the Credit Agreement ranging from 0.25 percent to 1.00 percent if an alternate base rate is chosen, and ranging from 1.50 percent to 2.25 percent if the LIBOR rate is chosen.

As of September 30, 2005, the Company borrowed a total of $2.0 million under the revolving line of credit based on the prime rate plus a spread of 1.75 percent, resulting in a current effective interest rate on the revolving line of credit loan equal to 7.25 percent per annum. Additionally, approximately $2.3 million of the revolving line of credit has been reserved to support the issuance of outstanding letters of credit.

The Company serves its markets and manages its business through four operating segments, each of which has its own manufacturing facilities and administrative and selling functions. The Company’s Advanced Ceramic Operations, located in Costa Mesa, Irvine, and San Diego, California, Lexington, Kentucky and Wixom, Michigan, primarily produces armor and orthodontic products, diesel engine parts, components for semiconductor equipment, and houses the Company’s sintered reaction bonded silicon nitride (SRBSN) research and development activities. The Company’s cathode development and production are handled through its Semicon Associates division located in Lexington, Kentucky. Fused silica products, including missile radomes, are produced at the Company’s Thermo Materials division located in Scottdale and Clarkson, Georgia. The Company’s ESK Ceramics operation is located in Kempten, Germany and Bazet, France. This subsidiary produces ceramic powders, including boron carbide powder for ceramic body armor, evaporation boats for metallization, functional and frictional coatings utilized in the automotive and textile industries, high performance pump seals, bearings for fluid handling, and refractory products.

FACILITY LOCATION		PRODUCTS

Ceradyne Advanced Ceramic Operations		Defense Applications:

Costa Mesa, Irvine and San Diego, California		• Lightweight ceramic armor

		Industrial Applications:
Approximately 166,000 square feet
		• Ceralloy^® 147 SRBSN wear parts
Lexington, Kentucky
		• Semiconductor equipment components
Approximately 115,000 square feet
		• Precision ceramics
Wixom, Michigan
		Automotive/Diesel Applications:
Approximately 29,000 square feet
		• Ceralloy^® 147 SRBSN automotive/diesel engine parts
		• Ceramic armor system components for civilian vehicles

		Commercial Applications:

		• Orthodontic ceramic brackets
		• Components for medical devices

ESK Ceramics		Defense Applications:

Kempten, Germany		• Boron carbide powders for body armor

Approximately 532,000 square feet		Industrial Applications:

Bazet, France		• Ceramic powders: boron carbide, boron nitride, silicon nitride, silicon carbide
Approximately 90,000 square feet		• Silicon carbide parts
		• Evaporation Boats for the packaging industry
		• High performance pump seals

		Automotive/Diesel Applications:

		• EKagrip^® functional and frictional coatings; electroless nickel layer/hard particle coatings

-12-

Table of Contents

FACILITY LOCATION		PRODUCTS

Ceradyne Semicon Associates		Industrial Applications:

Lexington, Kentucky		• Ceramic-impregnated dispenser cathodes for microwave tubes, lasers and cathode ray tubes
Approximately 35,000 square feet		• Samarium cobalt magnets

Ceradyne Thermo Materials		Defense Applications:

Scottdale and Clarkson, Georgia		• Missile radomes (nose cones)

Approximately 132,000 square feet		Industrial Applications:

		• Glass tempering rolls
		• Metallurgical tooling
		• Castable and other fused silica products
		• Crucibles for photovoltaic solar cell applications

	Three Months Ended September 30					Nine Months Ended September 30
	2005		2004			2005			2004
Revenue from External Customers
ACO	$	63,558	$	42,698		$	158,766		$	107,728
ESK Ceramics		26,204		8,679			80,744			8,679
Semicon Associates		1,676		1,951			5,418			5,868
Thermo Materials		2,968		3,001			9,172			9,965
Total	$	94,406	$	56,329		$	254,100		$	132,240

Depreciation and Amortization
ACO	$	1,458	$	895		$	4,108		$	2,382
ESK Ceramics		1,948		398			6,042			398
Semicon Associates		85		105			280			301
Thermo Materials		247		185			713			448
Total	$	3,738	$	1,583		$	11,143		$	3,529

Segment Income before Provision for Income Taxes
ACO	$	18,086	$	12,080		$	41,563		$	30,076
ESK Ceramics		2,310		(161	)		6,840			(161	)
Semicon Associates		130		140			525			456
Thermo Materials		67		(157	)		(239	)		159
Total	$	20,593	$	11,902		$	48,689		$	30,530

Segment Assets
ACO	$	144,089	$	106,497	$	144,089	$	106,497
ESK Ceramics		163,133		163,569		163,133		163,569
Semicon Associates		5,914		5,778		5,914		5,778
Thermo Materials		12,902		11,940		12,902		11,940
Total	$	326,038	$	287,784	$	326,038	$	287,784

Expenditures for PP&E
ACO	$	3,835	$	6,000	$	9,070	$	16,642
ESK Ceramics		1,368		560		4,312		560
Semicon Associates		23		144		185		429
Thermo Materials		293		835		1,636		2,575
Total	$	5,519	$	7,539	$	15,203	$	20,206

	Three Months Ended September 30						Nine months Ended September 30
	2005			2004			2005			2004
U.S. Net Sales
ACO		61	%		71	%		57	%		76	%
ESK Ceramics		12	%		5	%		11	%		2	%
Semicon Associates		1	%		2	%		2	%		4	%
Thermo Materials		2	%		4	%		2	%		5	%
Total		76	%		82	%		72	%		87	%

Foreign Net Sales
ACO		3	%		5	%		3	%		5	%
ESK Ceramics		20	%		10	%		24	%		4	%
Semicon Associates		0	%		1	%		0	%		1	%
Thermo Materials		1	%		2	%		1	%		3	%
Total		24	%		18	%		28	%		13	%

Total Net Sales
ACO		64	%		76	%		60	%		81	%
ESK Ceramics		32	%		15	%		35	%		6	%
Semicon Associates		1	%		3	%		2	%		5	%
Thermo Materials		3	%		6	%		3	%		8	%
Total		100	%		100	%		100	%		100	%

The Company leases certain of its manufacturing facilities under noncancelable operating leases expiring at various dates through October 2015. The Company incurred rental expense under these leases of $1,418,000 and $770,000 for the nine months ended 2005 and 2004, respectively. The approximate minimum rental commitments required under existing noncancelable leases as of September 30, 2005 are as follows (in thousands):

Comprehensive income encompasses all changes in equity other than those arising from transactions with stockholders, and consists of net income, currency translation adjustments, pension adjustments and unrealized net gains and losses on investments classified as available-for-sale. Comprehensive income is net income adjusted for changes in unrealized gains and losses on marketable securities and foreign currency translation.

This Quarterly Report on Form 10-Q contains statements which may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. One generally can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “may,” “will,” “expects,” “intends,” “estimates,” “anticipates,” “plans,” “seeks,” or “continues,” or the negative thereof, or variations thereon, or similar terminology. Forward-looking statements regarding future events and the future performance of the Company involve risks and uncertainties that could cause actual results to differ materially. Reference is made to the risks and uncertainties which are described in Note 10, “Commitments and Contingencies”, of Condensed Notes to Consolidated Financial Statements of this report, and in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, as filed with the Securities and Exchange Commission, under “Item 1-Business”, including the section therein entitled “Risk Factors”, and “Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

We develop, manufacture and market advanced technical ceramic products and components for defense, industrial, automotive/diesel and commercial applications. Our primary products include lightweight ceramic armor for soldiers and military helicopters; ceramic orthodontic brackets; ceramic diesel engine components; missile radomes; ceramic-impregnated dispenser cathodes for microwave tubes, lasers and cathode ray tubes; and ceramic industrial components for erosion and corrosion resistant applications. With our acquisition of ESK Ceramics in August 2004, we now also produce ceramic powders, including boron carbide powder for ceramic body armor, evaporation boats for metallization, functional and frictional coatings utilized in the automotive and textile industries, high performance pump seals, bearings for fluid handling, and refractory products. Our customers include the U.S. government, prime government contractors and large industrial, automotive and commercial manufacturers.

The principal factors contributing to our growth in sales in recent years, as well as during the first nine months of the current year, are increased demand by the U.S. military for ceramic body armor that protects soldiers and our acquisition of ESK Ceramics in August 2004. ESK Ceramics, after eliminating inter-company sales, contributed $26.2 million to our net sales during the three months ended September 30, 2005 and $80.7 million to our net sales during the nine months ended September 30, 2005.

Military conflicts in Afghanistan and Iraq, as well as an increasingly unstable geopolitical climate and the heightened risk of international conflicts, have resulted in increased sales of our ceramic body armor in each year since 2001, as well as in the nine months ended September 30, 2005. In June 2005, we announced the receipt of a $75.5 million delivery order for our lightweight ceramic body armor. We began shipping this order in July 2005 and expect to complete it by the end of January 2006. During October 2005, we received an additional $47.8 million delivery order which we expect to ship during the months of February through April 2006. This is the fifth delivery order issued under the Indefinite Delivery/Indefinite Quantity (ID/IQ) $461 million maximum value contract awarded to us in August 2004. The five delivery orders total approximately $232 million. Based on our current backlog for ceramic body armor, we expect our shipments of ceramic body armor to be higher in fiscal year 2006 than in 2005. However, unless we receive additional orders under existing contracts or are successful in obtaining new contracts for ceramic body armor, our shipments of ceramic body armor will decline materially in 2007 from levels we expect to achieve in 2006. For the next several quarters, and perhaps longer, fluctuations in sales of ceramic body armor are likely to be the biggest factor affecting our sales.

Although we expect demand for ceramic body armor to continue for many years, the quantity and timing of government orders depends on a number of factors outside of our control, such as the amount of U.S. defense budget appropriations and the level of international conflicts. Moreover, ceramic armor contracts generally are awarded in an open competitive bidding process. Therefore, our future level of sales of ceramic body armor will depend on our ability to successfully compete for this business.

During the quarter ended March 31, 2005, the U.S. military directed us to modify the specifications of the lightweight ceramic body armor that we had been manufacturing, from the version commonly referred to as SAPI (small arms protective insert), to a revised requirement commonly referred to as ESAPI. The revised requirement is more difficult to manufacture than the SAPI version. We have developed five new designs to meet the revised requirement, all of which have been approved by the government, and we intend to continue to develop additional, improved armor designs. During the quarter ended September 30, 2005, nearly all of the body armor we shipped consisted of our new designs that meet the revised requirement.

ESK Ceramics produces boron carbide powder, which serves as a starter ceramic powder in the manufacture of our lightweight ceramic body armor. Owning this source of a principal raw material, together with the recent and ongoing expansion of our manufacturing capacity in our new Lexington, Kentucky plant and in our Irvine, California facility, should allow us to fulfill current and anticipated requirements for our ceramic body armor.

In recent years, a substantial portion of our revenue has been derived from our order backlog as of the beginning of the period. Our order backlog was approximately $189.6 million as of September 30, 2005, compared to approximately $122.1 million as of September 30, 2004. Orders for ceramic armor as of September 30, 2005 represented approximately $136.6 million, or 72.1% of the total backlog. This compares with orders for ceramic armor as of September 30, 2004 of approximately $83.1million, or 68.1% of the total backlog at that time. We expect that substantially all of the orders as of September 30, 2005 will be shipped during the next 12 months.

Net sales for our Advanced Ceramic Operations division for the three months ended September 30, 2005 were $63.6 million, an increase of $20.9 million, or 48.9% from the $42.7 million in the corresponding quarter of the prior year. The primary reason for this improvement was the shipment of $54.9 million of ceramic body and other armor components for defense customers, an increase of $20.8 million, or 60.9%, from the $34.1 million of net sales in the third quarter of 2004. This increase in net sales of lightweight body armor for military personnel was caused by delivery of orders that were received in the fourth quarter of 2004 from the U.S. Department of Defense. Net sales for our automotive/diesel component product line were $4.1 million, an increase of $0.7 million, or 20.0%, from the $3.5 million in the corresponding quarter of the prior year. The primary reason for this increase is that our customers are producing more heavy-duty diesel truck engines due to an increase in orders for diesel trucks. Net sales of our orthodontic brackets product line were $2.3 million, a decrease $126,000, or 5.2%, from net sales of $2.4 million in the corresponding quarter of the prior year.

For the nine month period ended September 30, 2005, net sales for the Advanced Ceramic Operations division were $158.8 million, an increase of $51.0 million, or 47.4% from the $107.7 million in the corresponding prior year period. The primary reason for this improvement was the shipment of $131.8 million of ceramic body and other armor components for defense customers, an increase of $48.2 million, or 57.7% from the $83.6 million of net sales in the corresponding prior year period. This increase in net sales of lightweight body armor for military personnel was caused by delivery of orders that were received in the fourth quarter of 2004 from the U.S. Department of Defense. Net sales for our automotive/diesel component product line were $12.1 million, an increase of $3.7 million, or 44.6%, from the $8.3 million in the corresponding prior year period. The primary reason for this increase is that our customers are producing more heavy-duty diesel truck engines due to an increase in orders. Net sales of our orthodontic brackets product line were $7.5 million, a decrease of $0.3 million, or 3.4%, from net sales of $7.7 million in the corresponding prior year period.

Our ESK Ceramics subsidiary had net sales for the three months ended September 30, 2005 of $26.2 million. For the nine months ended September 30, 2005, net sales for ESK Ceramics were $80.7 million. We completed the acquisition of ESK Ceramics on August 23, 2004 and began to consolidate its operations with ours as of September 1, 2004. ESK Ceramics contributed $8.7 million to our net sales for the three and nine months ended September 30, 2004.

For the nine months ended September 30, 2005, net sales for our Thermo Materials division were $9.2 million, a decrease of $0.8 million, or 8.0%, from the $10.0 million in the corresponding prior year period. This decrease was due to several factors. Defense revenues decreased $1.5 million, and sales of fused silica rollers decreased $1.5 million, which were offset by an increase of $1.4 million of crucibles sales, and an aggregate increase of $0.8 million from sales of other product lines. The decrease in sales of fused silica rollers was caused by severe price competition from Chinese manufacturers who continued to reduce prices resulting in decreasing sales prices for our fused silica roller products.

Gross Profit. Our gross profit was $34.8 million for the three months ended September 30, 2005, an increase of $16.8 million, or 93.3% from $18 million in the corresponding prior year quarter. As a percentage of net sales, gross profit was 36.9% for the three months ended September 30, 2005, compared to 31.9% for the corresponding prior year period. For the nine months ended September 30, 2005, our gross profit amounted to $89.3 million, an increase of $46.3 million, or 107.7%, from $43.0 million in the corresponding prior year period. As a percentage of net sales, gross profit was 35.1% for the nine months ended September 30, 2005, compared to 32.5% for the corresponding prior year period. Gross profit during the three months ended September 30, 2004 was negatively impacted by charges of $0.8 million, which related to inventory fair value adjustments and the amortization of backlog that was acquired in connection with the acquisition of ESK Ceramics in August 2004. The increase in gross profit as a percentage of net sales in both the three and nine month periods ended September 30, 2005 was the result of increased sales, particularly in sales of body armor, improved sales mix, higher operating leverage and a reduction in the cost of boron carbide, a key raw material used in the production of body armor, resulting from the acquisition of ESK Ceramics.

Our Advanced Ceramic Operations division posted gross profit of $24.6 million for the three months ended September 30, 2005, an increase of $9.5 million, or 63.3%, from $15.0 million in the corresponding prior year quarter. As a percentage of net sales, gross profit was 38.7% for the three months ended September 30, 2005, compared to 35.2% for the corresponding prior year quarter. The reasons for the increase in gross profit and gross profit as a percentage of sales were consistent with those reasons described above for the nine months ended September 30, 2005.

Our ESK Ceramics subsidiary had a gross profit of $9.3 million, equal to 35.5% of net sales, for the three months ended September 30, 2005. For the nine months ended September 30, 2005, gross profit for ESK Ceramics was $27.3 million and 33.8% as a percentage of sales. For comparative purposes, gross profit as a percentage of sales was 24.8% for the month of September 2004, the only month during the 2004 period for which its operations were consolidated with ours.

Our Thermo Materials division had gross profit of $586,000, an increase of $206,000, or 54.2% from $380,000 in the corresponding prior year quarter. As a percentage of net sales, gross profit was 19.7% for the three months ended September 30, 2005, compared to 12.7% for the corresponding prior year quarter. Increased gross profits in the crucible product line contributed to the increase in gross profits for the three months ended September 30, 2005.

For the nine months ended September 30, 2005, gross profit for the Thermo Materials division was $1.2 million, a decrease of $0.4 million or 25.8%, compared to $1.6 million in the prior year period. As a percentage of net sales, gross profit was 13.0% for the nine months ended September 30, 2005, compared to 16.1% for the corresponding prior year period. This decrease was due in part to a $0.6 million decline in gross profit in our fused silica roller product line caused by severe price competition from Chinese manufacturers.

Selling Expenses. Our selling expenses were $5.0 million for the three months ended September 30, 2005, an increase of $2.9 million, or 143.0%, from $2.1 million in the corresponding prior year quarter. Selling expenses, as a percentage of net sales, increased from 3.7% for the three months ended September 30, 2004 to 5.3% for the three months ended September 30, 2005, primarily due to the inclusion into our results of the operations of ESK Ceramics. ESK contributed $2.6 million, or 88.2% of the $2.9 million increase.

For the nine months ended September 30, 2005, selling expenses were $15.3 million, an increase of $11.7 million, or 328.6%, from $3.6 million in the corresponding prior year period. Selling expenses, as a percentage of net sales, increased from 2.7% for the nine months ended September 30, 2004 to 6.0% of net sales for the nine months ended September 30, 2005. ESK contributed $10.8 million, or 91.6% of the $11.7 million increase. ESK’s selling expenses are higher as a percentage of net sales than the other three divisions because ESK sells in more foreign countries and has more customers. We expect this trend to continue.

General and Administrative Expenses. General and administrative expenses for the three months ended September 30, 2005 were $5.4 million, an increase of $1.7 million, or 47.2%, from $3.7 million in the corresponding prior year quarter. General and administrative expenses, as a percentage of net sales, decreased from 6.6% for the three months ended September 30, 2004 to 5.8% of net sales for the three months ended September 30, 2005. For the three months ended September 30, 2005, ESK Ceramics contributed $0.6 million, or 33.1% of the increase. Increases in the number of employees and related personnel expenses primarily accounted for the remaining increase in general and administrative expenses.

For the nine months ended September 30, 2005, general and administrative expenses were $15.2 million, an increase of $6.2 million, or 68.1%, from $9.0 million in the nine months ended September 30, 2004. General and administrative expenses, as a percentage of net sales, decreased from 6.8% for the nine months ended September 30, 2004 to 6.0% of net sales for the nine months ended September 30, 2005. For the nine month period ended September 30, 2005, ESK contributed $2.5 million, or 40.3% of the increase. Increases in the number of employees and related personnel expenses primarily accounted for the remaining rise in general and administrative expenses.

Research and Development. Research and development expenses for the three months ended September 30, 2005 were $2.0 million, an increase of $1.2 million, or 137.4%, from $0.9 million in the corresponding prior year quarter. Research and development expenses, as a percentage of net sales, increased from 1.5% for the three months ended September 30, 2004 to 2.2% of net sales for the three months ended September 30, 2005. Including the results of ESK for the three months ended September 30, 2005 contributed $331,000, or 28.1% of the increase.

For the nine months ended September 30, 2005, research and development expenses were $5.6 million, an increase of $3.7 million, or 199.9%, from $1.9 million in the corresponding prior year period. Research and development expenses, as a percentage of net sales, increased from 1.4% for the nine months ended September 30, 2004 to 2.2% of net sales for the nine months ended September 30, 2005. Including the results of ESK contributed $1.7 million, or 46.4% of the increase. For both the three and nine months ended September 30, 2005, expenses for the development of new armor designs contributed to a portion of the increase.

Other Income (Expense). Other income for the three months ended September 30, 2005 was $129,000, a decrease of $0.8 million, or 86.4%, compared to $0.9 million in the corresponding quarter of 2004. The decrease was primarily due to gains on currency transactions of $0.9 million recognized in the three months ended September 30, 2004. Other income for the nine months ended September 30, 2005 was $0.5 million, a decrease of $1.9 million, compared to $2.4 million in the corresponding prior year period. The decrease was due to gains on currency transactions of $1.9 million recognized in the nine months ended September 30, 2004 compared to gains from currency transactions of $171,000 in the nine months ended September 30, 2005. Also contributing to the decrease was a reduction in interest income due to lower cash balances during the nine months ended September 30, 2005 when compared to the corresponding prior year period. The increase in interest expense was due to higher levels of debt related to the acquisition of ESK Ceramics in August 2004.

Interest Expense. Our interest expense for the three months ended September 30, 2005 was $1.9 million, an increase of $1.5 million, or 390.1%, from $382,000 in the corresponding prior year quarter. Interest expense for the nine months ended September 30, 2005 was $5.0 million, an increase of $4.6 million, or 1,205.5% in the corresponding prior year period. The increase in interest expense was due to higher levels of debt incurred to acquire ESK Ceramics in August 2004.

Income before Provision for Income Taxes. Our income before provision for income taxes for the three months ended September 30, 2005 was $20.6 million, an increase of $8.7 million, or 73.0%, from $11.9 million in the corresponding prior year quarter. For the nine months ended September 30, 2005, income before provision for income taxes was $48.7 million, an increase of $18.2 million, or 59.5%, from the $30.5 million in the corresponding prior year period.

Our Advanced Ceramic Operations division’s income before provision for income taxes for the three months ended September 30, 2005 was $18.1 million, an increase of $6.0 million, or 49.7%, from $12.1 million in the corresponding prior year quarter. For the nine months ended September 30, 2005, the Advanced Ceramic Operations division’s income before provision for income taxes was $41.6 million, an increase of $11.5 million, or 38.2%, from $30.1 million in the corresponding prior year period. The increase in income before provision for income taxes for both the three and nine months ended September 30, 2005 was a result of higher sales of armor offset in part by higher general and administrative expenses to support these sales levels.

Our ESK Ceramics subsidiary’s income before provision for income taxes for the three months ended September 30, 2005 was $2.3 million after including interest expense of $1.6 million. For the nine months ended September 30, 2005, ESK Ceramics’ income before provision for income taxes was $6.8 million after including interest expense of $4.6 million and gains from currency of $0.9 million. ESK was included in our consolidated financial results as of September 1, 2004 for the nine months ended September 30, 2004.

Semicon Associates’ income before provision for income taxes for the three months ended September 30, 2005 was $130,000, a decrease of $10,000, or 7.1%, from $140,000 in the corresponding prior year quarter. For the nine months ended September 30, 2005, Semicon Associates income before provision for income taxes was $525,000, an increase of $68,000, or 14.9%, from $457,000 in the corresponding prior year period. The increase in income before provision for income taxes for the nine months ended September 30, 2005 was a result of a reduction of selling and general and administrative expenses.

Thermo Materials’ income before provision for income taxes for the three months ended September 30, 2005 was $67,000, an increase of $224,000, or 142.7% from $157,000 of loss before provision for income taxes in the corresponding prior year quarter. For the nine months ended September 30, 2005, Thermo Materials’ loss before provision for income taxes for the nine months ended September 30, 2005 was $239,000, a decrease of $398,000 from $159,000 of income before provision for income taxes in the corresponding prior year period. The decrease in income before provision for income taxes for the three and the nine months ended September 30, 2005 was primarily due to reduced amounts of sales and gross margin of fused silica rolls and defense products.

Income Taxes. For the three months ended September 30, 2005, we had a provision for taxes of $7.3 million, an increase of $2.6 million, or 57.4%, from $4.6 million in the corresponding prior year quarter. The effective income tax rate for the three months ended September 30, 2005 was 35.2% compared to 38.5% in the corresponding prior period. The third quarter reduction in the effective tax rate was the result of higher than previously estimated research and development credits and higher extra territorial income exclusions. Our provision for income taxes for the nine months ended September 30, 2005 was $17.9 million, an increase of $6.2 million, or 53.0%, from the $11.7 million in the corresponding prior year period. The effective income tax rate for the nine months ended September 30, 2005 was 36.9% compared to 38.5% in the corresponding prior year period.

Our net cash position decreased by $413,000 during the nine months ended September 30, 2005, compared to an $8.4 million decrease during the nine months ended September 30, 2004. For the nine months ended September 30, 2005, cash flow provided by operating activities amounted to $21.2 million. The primary factors contributing to cash flow from operating activities during the nine months ended September 30, 2005, were net income of $30.7 million, depreciation and amortization of $11.1 million, a decrease in accounts receivables of $1.6 million and a decrease in other receivables of $454,000. Also, contributing to the increase in cash flow from operating activities were increases in accounts payable, accrued expenses and accruals for employee benefits that added an aggregate of $6.6 million. These contributions were offset in part by increases in inventories of $24.3 million, increased levels of production tooling of $4.0 million and increases in other assets and prepaid expenses of $297,000. The increase in inventory and tooling were due to the increase in sales and production to support the growth of the ACO segment.

We used $14.5 million of our cash for investing activities, including $15.2 million for capital expenditures and $1.5 million in additional acquisition costs related to ESK Ceramics, partially offset by the liquidation of short-term investments totaling $2.2 million. A majority of our capital expenditures was for equipment to add armor manufacturing capacity primarily at our Lexington, Kentucky hot press facility and improve productivity.

Financing activities used cash of $6.3 million, including reductions in our bank line of credit of $7.5 million and our long-term debt of $0.8 million. Financing activities used were offset by issuance of common stock for stock plans of $1.2 million and proceeds from issuance of stock due to exercise of options of $0.9 million. The effect of exchange rates on cash and cash equivalents due to our investment in ESK Ceramics was a negative $0.8 million.

On August 18, 2004, we established a $160 million credit facility with Wachovia Bank, National Association, and a syndicate of banks and other institutional lenders. The Credit Agreement provides for a term loan in the amount of $110 million and a revolving line of credit in the amount of $50 million. All the proceeds from the term loan were borrowed on August 18, 2004 and were used to partially fund the acquisition of ESK Ceramics GmbH and Co. KG (“ESK Ceramics”) from Wacker-Chemie GmbH, pursuant to a Sale and Purchase Agreement dated June 30, 2004. The balance of the purchase price and transaction costs was paid with a portion of the Company’s existing cash.

Principal under the term loan is payable in installments of $275,000 on the last day of each calendar quarter commencing December 31, 2004, with a balloon payment of $102.6 million payable on August 18, 2011. Additional payments of principal are required annually in an amount equal to 50 percent of our “excess cash flow,” as defined in the Credit Agreement. Principal may be prepaid at any time, in whole or in part, without premium or penalty at our election. Accrued interest is payable with each installment of principal.

Our cash, cash equivalents and short-term investments totaled $11.9 million at September 30, 2005, compared to $14.6 million at December 31, 2004. At September 30, 2005, we had working capital of $103.3 million, compared to $78.4 million at December 31, 2004. Our cash position includes amounts denominated in foreign currencies, and the repatriation of those cash balances from our ESK Ceramics subsidiary does not result in additional tax costs. We believe that our current cash and cash equivalents on hand, cash available from the sale of short-term investments, cash available from additional borrowings under our revolving line of credit and cash we expect to generate from operations will be sufficient to finance our anticipated capital and operating requirements for at least the next 12 months. We also may utilize cash, and to the extent necessary, borrowings from time to time to acquire other businesses, technologies or product lines that complement our existing business, although we have no present commitments or agreements to do so.

We are exposed to market risks related to fluctuations in interest rates on our debt. We routinely monitor our risks associated with fluctuations in currency exchange rates and interest rates. We address these risks through controlled risk management that may, in the future, include the use of derivative financial instruments to economically hedge or reduce these exposures. We do not enter into foreign exchange contracts for speculative or trading purposes. Currently, we do not utilize interest rate swaps.

Given the inherent limitations of forecasting and the anticipatory nature of the exposures intended to be hedged, there can be no assurance that such programs will offset more than a portion of the adverse financial impact resulting from unfavorable movements in either interest or foreign exchange rates. In addition, the timing of the accounting for recognition of gains and losses related to mark-to-market instruments for any given period may not coincide with the timing of gains and losses related to the underlying economic exposures and, therefore, may adversely affect our operating results and financial position and cash flows.

We enter into foreign exchange forward contracts to reduce earnings and cash flow volatility associated with foreign exchange rate changes to allow our management team to focus its attention on its core business operations. Accordingly, we enter into contracts which change in value as foreign exchange rates change to economically offset the effect of changes in value of foreign currency assets and liabilities, commitments and anticipated foreign currency denominated sales and operating expenses. We enter into foreign exchange forward contracts in amounts between minimum and maximum anticipated foreign exchange exposures, generally for periods not to exceed one year. These derivative instruments are not designated as accounting hedges.

We measure the financial statements of our foreign subsidiaries using the local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the exchange rate on the balance sheet date. Revenues, costs and expenses are translated at the rates of exchange prevailing during the year. Translation adjustments resulting from this process are included in stockholders’ equity. Gains and losses from foreign currency transactions are included in other income, miscellaneous.

Overall, we are a net recipient of currencies other than the U.S. dollar and, as such, we benefit from a weaker dollar and are adversely affected by a stronger dollar relative to major currencies worldwide. Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. dollar, may negatively affect net sales, gross profit, and net income from our subsidiary, ESK Ceramics, as expressed in U.S. dollars. This would also negatively impact our consolidated reported results.

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Ceradyne’s disclosure controls and procedures as of September 30, 2005, pursuant to Rule 13a-15 under the Securities Exchange Act of 1934. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and to ensure that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

	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.

Exhibit		Description

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Delaware	33-0055414
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)


3169 Red Hill Avenue, Costa Mesa, CA	92626
(Address of principal executive)	(Zip Code)

Class		Outstanding as of October 21, 2005
Common Stock, $.01 par value		24,652,650 Shares

		PAGE NO.

PART I.	FINANCIAL INFORMATION

Item 1.	Unaudited Condensed Consolidated Financial Statements

	Condensed Consolidated Balance Sheets - September 30, 2005 and December 31, 2004	3-4

	Condensed Consolidated Statements of Income - Three and Nine months Ended September 30, 2005 and 2004	5

	Condensed Consolidated Statements of Cash Flows - Nine months Ended September 30, 2005 and 2004	6

	Condensed Notes to Consolidated Financial Statements	7-15

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16-21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22

Item 4.	Controls and Procedures	22

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	23

Item 2.	N/A	23

Item 3.	N/A	23

Item 4.	N/A	23

Item 5.	N/A	23

Item 6.	Exhibits	23

SIGNATURE		24

	Nine months Ending September 30, 2005
Expected term (years)		7.0
Volatility		56.64	%
Annual dividend per share	$	00.00
Risk-free interest rate		3.98	%
Weighted-average fair value of options granted	$	14.58

	September 30, 2005		December 31, 2004
Raw materials	$	20,882	$	11,697
Work-in-process		28,726		22,344
Finished goods		19,051		13,632
Total inventories	$	68,659	$	47,673

	September 30, 2005
	Gross Amount		Accumulated Amortization		Net Amount
Intangible assets:
Backlog	$	525	$	525	$	—
Developed technology		4,453		288		4,165
		4,978		813		4,165
Non-amortizing tradename		2,054		—		2,054
Total	$	7,032	$	813	$	6,219

	September 30, 2005		Translation			ESK		Quest		December 31, 2004
Goodwill:
ACO	$	2,608	$	—		$	—	$	33	$	2,575
Semicon Associates		603		—			—		—		603
Thermo Materials		279		—			—		—		279
ESK Ceramics		3,750		(344	)		1,472		—		2,622
Total	$	7,240	$	(344	)	$	1,472	$	33	$	6,079

Cash and debt incurred	$	137,488
Transaction costs		4,677
Total purchase price	$	142,165

Fair value of assets acquired and liabilities assumed:
Cash		610
Accounts receivable		14,263
Inventory		24,916
Property, plant and equipment		104,234
Other assets		9,295
Backlog		500
Developed technology		4,600
Tradename		2,100
Goodwill		3,060
Assumed liabilities		(21,413	)
	$	142,165

	Three Months Ended September				Nine months Ended September
	2005		2004		2005		2004
Weighted average number of shares outstanding		24,586		24,302		24,530		24,095
Dilutive stock options and restricted stock		506		397		476		397
Number of shares used in diluted computations		25,092		24,699		25,006		24,492

	Three Months Ended September 30 2005			Nine Months Ended September 30 2005
Service cost	$	365		$	1,058
Interest cost		415			1,224
Expected return on plan assets		(385	)		(1,197	)
Amortization of unrecognized gain		4			11
Net periodic benefit cost	$	399		$	1,096


2005	$	423
2006		1,510
2007		1,546
2008		1,548
2009		1,470
Thereafter		2,540
	$	9,037


	CERADYNE, INC.

Date: October 31, 2005	By:	/s/ JERROLD J. PELLIZZON

		Jerrold J. Pellizzon Vice President Chief Financial Officer (Principal Financial and Accounting Officer)

	Three Months Ended September 30				Nine Months Ended September 30
	2005		2004		2005		2004
Armor	$	54,939	$	34,218	$	131,830	$	83,519
Automotive		4,101		3,417		12,087		8,304
Orthodontics		2,315		2,444		7,462		7,725
Industrial		2,203		2,619		7,387		8,180
	$	63,558	$	42,698	$	158,766	$	107,728