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 this Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations," and in Part II, Item 1A under the caption "Risk Factors." Reference is also made to the risks and uncertainties described in the Company's Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission, in Item 1A under the caption "Risk Factors," and in Item 7 under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations."

We develop, manufacture and market advanced technical ceramic products, ceramic powders and components for defense, industrial, energy, automotive/diesel and commercial applications. Our products include:

• 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, zirconium diboride and fused silica, which are used in manufacturing armor and a broad range of industrial products and consumer products;

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

• durable, reduced friction, ceramic diesel engine components;

• functional and frictional coatings primarily for automotive applications;

• translucent ceramic orthodontic brackets;

• bio-glass compounds as a key ingredient in tooth paste to rejuvenate the growth of enamel;

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

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

• specialty glass compositions for solar, electronic, industrial and health care markets;

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

• fused silica powders for precision investment casting (PIC);

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

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

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

• ceramic bearings and bushings for oil drilling and fluid handling pumps;

• ceramic micro-reactors used to process chemicals and pharmaceuticals;

• PetroCeram® ceramic sand screens for oil and gas recovery and exploration; and

• enhanced combat helmets for soldiers.

Our customers include the U.S. government, prime government contractors, companies engaged in solar energy, oil and natural gas exploration and nuclear energy, and large industrial, automotive, diesel and commercial manufacturers in both domestic and international markets.

On September 30, 2012, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with 3M Company ("3M") and Cyborg Acquisition Corporation, a wholly owned subsidiary of 3M ("Purchaser"). Subject to the terms and conditions of the Merger Agreement, on October 15, 2012, Purchaser commenced a tender offer to purchase all of our outstanding shares of common stock, par value $0.01, at a purchase price of $35.00 per share, net to the holder in cash, without interest, less any required withholding taxes.

The consummation of the tender offer is conditioned on the tender of a majority of the outstanding shares of our common stock on a fully diluted basis, as well as receipt of antitrust clearances, and other conditions that are specified in the Merger Agreement. Following successful completion of the tender offer and, if required, receipt of stockholder approval, the Purchaser will merge with and into the Company (the "Merger"), and the remaining Company stockholders, other than Purchaser, 3M or the Company or any wholly owned subsidiary of 3M or the Company or any stockholders who have properly exercised appraisal rights under the General Corporation Law of the State of Delaware, will receive the same cash price per share as paid in the tender offer. In connection with the completion of the tender offer and the Merger, all of our outstanding stock options and restricted stock units, whether vested or unvested, will become fully vested and converted into a right to receive a cash payment of $35.00 per share, less any applicable exercise price.

The Merger Agreement contains certain termination rights by us and 3M including our acceptance of a superior proposal. In the event that the Merger Agreement is terminated, we may, under specified circumstances, be required to pay a termination fee of approximately $17.1 million.

The tables below show, for each of our four operating segments, revenues and income (loss) from operations in the periods indicated.

Segment revenues (in millions):

                             Three Months Ended September 30,                  Nine Months Ended September 30,
                           2012              2011          Change           2012              2011          Change
Advanced Ceramic
Operations              $      53.4       $      74.0         (27.9 %)   $     172.5       $     217.4         (20.6 %)
ESK Ceramics                   33.2              39.9         (16.8 %)         113.1             125.9         (10.2 %)
Thermo Materials               15.4              24.2         (36.3 %)          45.6              84.6         (46.1 %)
Boron                           8.3              13.4         (37.5 %)          29.4              32.7         (10.2 %)
Inter-segment
elimination                    (4.1 )            (3.5 )        16.6 %          (17.4 )           (17.1 )         1.7 %
   Total                $     106.2       $     148.0         (28.2 %)   $     343.2       $     443.5         (22.6 %)

Segment operating income (loss) (in millions):

                             Three Months Ended September 30,                  Nine Months Ended September 30,
                           2012              2011          Change           2012              2011          Change
Advanced Ceramic
Operations              $       0.5       $     14.6          (96.7 %)   $      13.6       $     45.7          (70.2 %)
ESK Ceramics                    4.0              7.0          (42.3 %)          15.3             24.0          (36.3 %)
Thermo Materials              (22.0 )            6.0            n/m *          (26.3 )           22.9            n/m
Boron                           1.7              2.1          (19.3 %)           2.8              2.8           (2.8 %)
Inter-segment
elimination                     0.4              1.1           65.5 %           (0.5 )            0.4          215.4 %
  Total                 $     (15.4 )     $     30.8            n/m      $      (4.9 )     $     95.8            n/m

* Not meaningful

We categorize our products into five market applications. The tables below show our sales by market application and the percentage contribution to our total sales of each market application in the different time periods.

Sales by Market Application (in millions):
                             Three Months Ended September 30,                  Nine Months Ended September 30,
                           2012              2011          Change           2012              2011          Change
Defense                 $      43.2       $      59.1         (26.8 %)   $     135.4       $     179.9         (24.7 %)
Industrial                     39.1              42.5          (7.8 %)         120.1             126.8          (5.3 %)
Energy                         11.9              33.2         (64.2 %)          47.7              98.2         (51.4 %)
Automotive/Diesel               7.9              10.2         (23.3 %)          25.8              30.2         (14.7 %)
Commercial                      4.1               3.0          37.3 %           14.2               8.4          68.7 %
   Total                $     106.2       $     148.0         (28.2 %)   $     343.2       $     443.5         (22.6 %)

Percentage Contribution:

                      Three Months Ended          Nine Months Ended
                         September 30,              September 30,
                       2012          2011          2012         2011
Defense                   40.8 %       40.0 %         39.5 %      40.5 %
Industrial                36.8         28.7           35.0        28.6
Energy                    11.2         22.4           13.9        22.2
Automotive/Diesel          7.4          6.9            7.5         6.8
Commercial                 3.8          2.0            4.1         1.9
Total                    100.0 %      100.0 %        100.0 %     100.0 %

The principal factor contributing to our growth in sales from 2002 through 2007 was increased demand by the U.S. military for ceramic body armor that protects soldiers, which was driven primarily by military conflicts such as those in Iraq and Afghanistan. This demand was driven by recognition of the performance and life saving benefits of utilizing advanced technical ceramics in lightweight body armor. Our sales declined in 2008 primarily because of a reduction in shipments of body armor. Our sales declined in 2009 primarily because of a continued reduction in shipments of body armor and also due to a decline in sales of our industrial, automotive/diesel and commercial market product lines due to the severe economic recession. In 2010, sales of body armor continued to decline. However, sales from energy related products grew by 61.6% in 2010 when compared to 2009. Most of this growth in energy sales was generated by sales of our ceramic crucibles used in the production of photovoltaic cells for solar panels. Additionally, sales of industrial and automotive/diesel products rebounded sharply in 2010, particularly at our ESK Ceramics subsidiary. In 2011, our sales increased due to higher shipments of body armor due to the increased demand for ESAPI body armor, an increase of sales to the nuclear industry, and continuing growth of sales at our ESK Ceramics subsidiary.

Commencing in 2004, several strategic acquisitions also have contributed to our sales growth. These include our acquisition of ESK Ceramics in August 2004, our acquisition of Minco, Inc. in July 2007, our acquisition of EaglePicher Boron, LLC in August 2007, which we renamed Boron Products, LLC and our acquisition of VIOX Corporation in January 2011.

To illustrate the impact of body armor, energy-related products, and our acquisitions, the following table shows our sales from body armor, energy-related products, from our acquisitions, and from all other sources for each of the years 2002 through 2011 (in millions).

                        2011        2010        2009        2008        2007        2006        2005        2004        2003        2002
Sales from body
armor                  $ 193.8     $  70.4     $ 170.0     $ 385.0     $ 535.3     $ 479.4     $ 199.5     $ 120.3     $  58.2     $ 26.2
Sales from energy
products:
  Gross sales from
energy products          129.0        99.9        62.2        57.7        20.9        11.9         9.8         5.3         2.5        1.7
  Less sales
from energy products
included in acquired
companies                (66.2 )     (28.5 )     (24.5 )     (11.4 )      (4.5 )      (3.2 )      (3.2 )      (0.7 )         -          -

Sales from energy
products due
to organic growth         62.8        71.4        37.7        46.3        16.4         8.7         6.6         4.6         2.5        1.7
Sales from acquired
companies                254.5       191.1       136.8       177.1       142.6       110.2       109.8        36.0           -          -
All other sales           60.9        70.0        56.1        71.8        62.5        64.6        52.4        54.7        40.8       33.3
Total sales            $ 572.0     $ 402.9     $ 400.6     $ 680.2     $ 756.8     $ 662.9     $ 368.3     $ 215.6     $ 101.5     $ 61.2

Sales decreased by $100.3 million during the nine month period ended September 30, 2012 compared to the same period last year as shipments of body armor and ceramic crucibles were lower by $43.9 million and $46.7 million, respectively. Partially offsetting this were increased sales of nuclear products, ceramic missile radomes, non-ECH Helmets and specialty glass or bio-glass products.

Sales in the third quarter of 2012 decreased $41.8 million compared to sales in the same quarter of 2011 due to decreased shipments of body armor as demand for ESAPI plates was lower, continued very weak shipments of ceramic crucibles and solar paste to the solar industry. We continued to incur approximately the same amount of operating losses from our crucible product line during the third quarter 2012 as we did in the first two quarters of 2012. Our ESK Ceramics subsidiary recorded lower sales in the third quarter of 2012 compared to the same quarter last year due to weakness in the European economy especially in the industrial and automotive segments of the economy.

In October 2008, we were awarded an Indefinite Delivery/Indefinite Quantity, or ID/IQ, contract by the U.S. Army for the next ballistic threat generation of ceramic body armor plates, called XSAPI, as well as for the current generation ESAPI plates. This five-year contract has a maximum value of $2.37 billion and allows the U.S. Army to order either XSAPI or ESAPI body armor from us.

Through September 30, 2012, we have received delivery orders under the October 2008 ID/IQ contract totaling $278.8 million. We have completed the shipmentsof these delivery orders. With less than two years remaining under this ID/IQ contract, the war in Iraq concluded, and the war in Afghanistan winding down, we expect that the total amount of body armor that we ultimately ship under this contract will be substantially less than the maximum amount.

In September 2011, we were awarded a three-year ID/IQ contract for ESAPI ceramic armor plates from Defense Logistics Agency Troop Support group. This purchasing group services the United States Army, Navy, Air Force and Marine Corps. This award was in response to our bid to the Defense Supply Center Philadelphia (DSCP) in response to their requirement for a three-year sustainment order for the replacement of body armor inserts. Simultaneously with the receipt of this award, we received an initial delivery order for $127.1 million for ESAPI ceramic body armor plates and two additional delivery orders of $15.4 million for a total of $142.5 million. Of this amount, we have shipped $84.7 million of body armor through September 30, 2012 and we expect to ship the balance of $57.9 million by April 30, 2013. This ID/IQ contract includes options for additional deliveries of up to $127.3 million in each of the second and third years. We estimate that we will receive $71.1 million in ESAPI delivery orders for all of 2013.

In October 2011, we announced the receipt of a delivery order for approximately $6.9 million for ceramic body armor plates from the United States Special Operations Command ("SOCOM"). In March 2012, we received a stop work notice on this order and other orders from SOCOM because the ceramic body armor plates failed government testing. On June 1, 2012, we received an extension of this stop work notice. We recommended solutions to SOCOM and on July 20, 2012, SOCOM issued a show cause notice questioning our proposed solutions. SOCOM provided us an opportunity to present an acceptable corrective action plan ("CAP") by August 20, 2012. Ceradyne provided a CAP for line items SPEAR BALCS GEN III and for TSA Swimmer GEN III on August 17, 2012 and was notified on October 30, 2012 that SOCOM would accept the recommendations for the SPEAR line item but determined not to accept the CAP for the TSA line item. Ceradyne will incorporate the CAP for the SPEAR line item in November and submit the new design for First Article Testing in the first quarter of 2013.

For 2012 and for the next several years, we expect that our sales of body armor will continue in a range of approximately $50.0 to $150.0 million per year. We will continue to bid on Foreign Military Sales (FMS) for the first generation of SAPI body armor through our existing ID/IQ contract with Aberdeen Proving Grounds.

Although we believe that demand for ceramic body armor will 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, positions and strategies of the current U.S. government, the level of international conflicts and the deployment of armed forces. Moreover, ceramic armor contracts generally are awarded in an open competitive bidding process and may be cancelled by the government at any time without penalty. Therefore, our future level of sales of ceramic body armor will depend on our ability to successfully compete for and retain this business.

In June 2009, we acquired substantially all of the business, assets, technology and intellectual property related to ballistic combat and non-combat helmets of Diaphorm Technologies, LLC, based in Salem, New Hampshire. Based on this technology, we submitted a proposal to the U.S. Marine Corps Systems Command in June 2009 in response to a solicitation for the procurement of Enhanced Combat Helmets (ECH), which are intended to provide substantially increased levels of protection compared to combat helmets now in use. In response to our proposal, the U.S. Marine Corps Systems Command in July 2009 awarded us a contract for up to a maximum of 246,840 helmets. After an extended period of First Article Testing, our helmets have been approved by the U.S. Government. In March 2012, we received the first of two low rate initial production ECH Helmet orders. The initial release has a value of approximately $3.0 million. The second low rate initial production order was received in May 2012 with a value of approximately $3.9 million. The full multi-year production order has been delayed pending resolution of technical issues related to production and testing. If these issues are successfully resolved,the total of the initial orders plus full production orders could exceed $170.0 million. Our strategy regarding this acquisition is to combine our successful track record in body armor programs with the proprietary helmet-forming technologies acquired from Diaphorm to create a world class manufacturer of Enhanced Combat Helmets.

New orders for the three and nine months ended September 30, 2012 were $76.1 million and $236.2 million, respectively, compared to $272.0 million and $612.5 million, respectively, for the same periods last year. Orders for ceramic body armor for the three and nine months ended September 30, 2012 were $15.8 million and $15.5 million compared to $174.7 million and $282.8 million, for the three and nine months ended September 30, 2011, respectively.

Our order backlog was $179.0 million as of September 30, 2012 and $354.9 million as of September 30, 2011. The backlog for ceramic body armor represented approximately $75.7 million, or 42.3%, of the total backlog as of September 30, 2012 and $208.7 million, or 58.8%, of the total backlog as of September 30, 2011. We expect that substantially all of our order backlog as of September 30, 2012 will be shipped during the next 12 months.

For the next several quarters, demand for ceramic body armor is likely to be the most significant factor affecting our sales. We expect sales of body armor will be lower in 2012 than in 2011.

Results of Operations for the Three and Nine Months Ended September 30, 2012 and 2011

Net Sales

Our total net sales for the three and nine months ended September 30, 2012 and
2011 were as follows (dollars in millions):

                                     Three Months Ended          Nine Months Ended
                                        September 30,              September 30,
                                     2012           2011         2012          2011
Net Sales                          $   106.2       $ 148.0     $   343.2      $ 443.5
Increase (decrease) in net sales   $   (41.8 )     $  56.2     $  (100.3 )    $ 141.3
Percentage change in net sales         (28.2 %)       61.3 %       (22.6 %)      46.7 %

Sales declined in the nine month period ended September 30, 2012 as shipments of ceramic body armor, and ceramic crucibles and solar paste to the solar industry were lower by $43.9 million and $55.3 million, respectively, when compared to the same period last year. We continued to experience lower sales in our ESK Ceramics subsidiary during the nine month period ended September 30, 2012 compared to the same period last year due to continued weakness in the European economy especially in the industrial and automotive segments of the economy.

Sales declined for the three months ended September 30, 2012 compared to the same period last year, primarily from decreases in shipments of body armor of $16.5 million, lower shipments of ceramic crucibles and solar paste to the solar industry of $16.2 million, lower shipments of metal matrix composite products to the nuclear industry by our Ceradyne Canada business unit of $4.7 million and lower shipments of $6.7 million by our ESK Ceramics subsidiary, reflecting softness in the European economy. Offsetting these declines, were increased shipments to the semiconductor industry by our Boron segment of $1.3 million, increased shipments of non-ECH Helmets of $1.8 million and ceramic missile radomes of $1.9 million, and increased shipments of $1.3 million of our bio-glass product for use as an ingredient in tooth paste.

Sales for the three months ended September 30, 2012 of energy products amounted to $11.9 million, a decrease of $21.3 million, or 64.2%, from $33.2 million in the prior year as sales of ceramic crucibles to the solar industry continued their decline due to a reduction of government subsidies for the installation of solar panels and a buildup of inventories of solar cells and solar wafers in end market distribution channels.

Sales of industrial products for the three months ended September 30, 2012 decreased $3.3 million compared to the prior year due to weakness in the European economy.

Sales of automotive/diesel products for the three months ended September 30, 2012 decreased $2.4 million compared to the same period last year due to lower sales to our European customers.

Our net sales of commercial products for the three months ended September 30, 2012 were $4.1 million, an increase of $1.0 million, or 37.3%, from $3.1 million in the prior year. This increase was caused by increased demand for our bio-glass product for use as an ingredient in tooth paste and increased sales of our orthodontic brackets.

Advanced Ceramic Operations Segment

Our Advanced Ceramic Operations segment had net sales for the three and nine
months ended September 30, 2012 and 2011 as follows (dollars in millions):

                                     Three Months Ended          Nine Months Ended
                                        September 30,              September 30,
                                     2012           2011         2012          2011
Net Sales                          $    53.4       $  74.0     $   172.5      $ 217.3
Increase (decrease) in net sales   $   (20.6 )     $  45.7     $   (44.8 )    $  93.6
Percentage change in net sales         (27.9 %)      161.8 %       (20.6 %)      75.6 %

Contributing to the decrease of $20.6 million in sales during the three months ended September 30, 2012 were lower shipments of body armor and solar paste of $16.5 million and $4.9 million, respectively. For the nine months ended September 30, 2012, shipments of ceramic body armor amounted to $108.3 million, a decrease of $43.9 million, or 28.8%, from $152.2 million in the same period last year. The primary reasons for the decrease in shipments of ceramic body armor were a decrease in demand for ESAPI body armor plates.

ESK Ceramics Segment

Our ESK Ceramics segment had net sales for the three and nine months ended
September 30, 2012 and 2011 as follows (dollars in millions):

                                     Three Months Ended          Nine Months Ended
                                        September 30,              September 30,
                                      2012           2011        2012          2011
Net Sales                          $     33.2       $ 39.9     $   113.1      $ 125.9
Increase (decrease) in net sales   $     (6.7 )     $  7.8     $   (12.8 )    $  31.1
Percentage change in net sales          (16.8 %)      24.2 %       (10.2 %)      32.8 %

On a constant currency basis, sales for the three months ended September 30, 2012 were $36.5 million, a decrease of $3.4 million, or 8.6%, from the corresponding quarter of the prior year. The major factor causing the decrease in sales was weakness in the European economy which impacted all product lines except the PetroCeram® ceramic sand screens whose sales increased by $0.2 million. Sales of industrial products for the three months ended September 30, 2012 were $18.7 million, a decrease of $3.8 million, or 16.8%, from $22.5 million in the corresponding quarter of the prior year. Sales of defense products for the three months ended September 30, 2012 were $5.4 million, a decrease of $0.8 million, or 12.7%, from $6.2 million in the corresponding quarter of the prior year. Included in sales of defense products for the three months ended September 30, 2012 were inter-segment sales of $3.8 million compared to $2.9 million in the prior year. Sales of automotive/diesel products for the three months ended September 30, 2012 were $6.5 million, a decrease of $1.2 million, or 15.5%, from $7.7 million in the corresponding quarter of the prior year.

On a constant currency basis, sales for the nine months ended September 30, 2012 were $120.9 million, a decrease of $5.0 million, or 4.0%, from the corresponding prior year period. Sales declined for the reasons stated above. Sales of industrial products for the nine months ended September 30, 2012 were $60.7 million, a decrease of $10.4 million, or 14.5%, from $71.1 million in the . . .