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                                 UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000        COMMISSION FILE NO. 001-13797

                                HAWK CORPORATION
             (Exact name of registrant as specified in its charter)

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<S>                                            <C>
                   DELAWARE                                      34-1608156
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           (State of Incorporation)                 (I.R.S. Employer Identification No.)

 200 PUBLIC SQUARE, SUITE 30-5000, CLEVELAND,                    44114-2301
                     OHIO                      ----------------------------------------------
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   (Address of principal executive offices)                      (Zip Code)
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       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (216) 861-3553

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

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<CAPTION>
         TITLE OF EACH CLASS            NAME OF EXCHANGE ON WHICH REGISTERED
         -------------------            ------------------------------------
<S>                                    <C>
Series B 10.25% Senior Notes due 2003                 New York Stock Exchange
Class A Common Stock, par value $.01                  New York Stock Exchange
</TABLE>

       SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:  None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s)), and (2) has been subject to such filing
requirements for the past 90 days.  YES [X]  NO [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [ ]

As of March 16, 2001, the registrant had 8,552,920 shares of Class A Common
Stock, net of treasury shares, and 0 shares of Class B non-voting Common Stock
outstanding. As of that date, the aggregate market value of the voting stock of
the registrant held by non-affiliates was $34,348,977 (based upon the closing
price of $6.50 per share of Class A Common Stock on the New York Stock Exchange
on March 16, 2001). For purposes of this calculation, the registrant deems the
3,268,462 shares of Class A Common Stock held by all of its Directors and
executive officers to be the shares of Class A Common Stock held by affiliates.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the 2001 Proxy Statement of Hawk Corporation are incorporated
by reference into Part III of this Form 10-K.

     As used in this Form 10-K, the terms "Company," "Hawk" and "Registrant"
mean Hawk Corporation and its consolidated subsidiaries, taken as a whole,
unless the context indicates otherwise. Except as otherwise stated, the
information contained in this Form 10-K is as of December 31, 2000.

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                                     PART I

ITEM 1. BUSINESS

     Hawk Corporation, founded in 1989, is a holding company, the principal
assets of which consist of the capital stock of its manufacturing subsidiaries,
Friction Products Co., S.K. Wellman Corp., S.K. Wellman SpA, Hawk Composites
(Suzhou) Company Limited, Helsel, Inc., Sinterloy Corporation, Clearfield
Powdered Metals, Inc., Allegheny Powder Metallurgy, Inc., Net Shape Technologies
LLC, Hutchinson Products LLC, Hutchinson Products de Mexico, Hawk Brake, Inc.,
Quarter Master Industries, Inc., Tex Racing Enterprises. Inc. and Logan Metal
Stampings, Inc. Through its subsidiaries, Hawk operates primarily in four
reportable segments: friction products, powder metal, performance automotive and
motor components. The Company's friction products are made from proprietary
formulations of composite materials that primarily consist of metal powders,
synthetic and natural fibers. Friction products are the replacement elements
used in brakes, clutches and transmissions to absorb vehicular energy and
dissipate it through heat and normal mechanical wear. Friction products
manufactured by the Company include friction components for use in brakes,
transmissions and clutches in aerospace, construction, agriculture, truck and
specialty vehicle markets. The Company's powder metal components are made from
formulations of composite powder metal alloys. The powder metal segment
manufactures a variety of components for use in fluid power, truck, lawn and
garden, construction, agriculture, home appliance, automotive and office
equipment markets. In its performance automotive segment, the Company
manufactures brakes, clutches and gearboxes for the performance automotive
markets. Through its motor segment, the Company designs and manufactures
die-cast aluminum rotors for small electric motors used in appliances, business
equipment and exhaust fans. The Company focuses on manufacturing products
requiring sophisticated engineering and production techniques for applications
in markets in which it has achieved a significant market share.

BUSINESS STRATEGY

     The Company's business strategy includes the following principal elements:

     - Focus on High-Margin, Specialty Applications. The Company operates
       primarily in markets that require sophisticated engineering and
       production techniques. In developing new applications, as well as in
       evaluating acquisitions, the Company seeks to compete in markets
       requiring such engineering expertise and technical capability, rather
       than in markets in which the primary competitive factor is price. The
       Company believes margins for its products in these markets are higher
       than in other manufacturing markets that use standardized products. The
       Company's gross margins in 2000 and 1999 were 27.2% and 26.0%,
       respectively.

     - New Product Introduction. A key part of the Company's strategy is the
       introduction of new products, which incorporate improved performance
       characteristics or reduced costs in response to customer needs. Because
       friction products are the consumable, or wear, component of brake, clutch
       and transmission systems, the introduction of new friction products in
       conjunction with a new system provides the Company with the opportunity
       to supply the aftermarket for the life of the system. For example, the
       ability to service the aftermarket for a particular aircraft braking
       system will likely provide the Company with a stable market for its
       friction products for the life of the product, which can be 30 years or
       more. The Company also seeks to grow by applying its existing products
       and technologies to new specialized applications where its products have
       a performance or technological advantage. In addition, the Company has
       expanded its product line offerings through outsourcing opportunities,
       especially in the motor segment, to enhance its growth strategy.

     - Pursuit of Strategic Acquisitions. Many of the markets in which the
       Company competes are fragmented, providing the Company with attractive
       acquisition opportunities. The Company made two acquisitions in 2000. Tex
       Racing, acquired in November 2000, continues the Company's expansion into
       the performance automotive market, and its investment in Net Shape in
       December 2000, enabled the Company to expand into metal injection molding
       (MIM) technology for its powder metal businesses. The Company will
       continue to seek to acquire complementary businesses with leading market
       positions that will enable it to expand its product offerings, technical
       capabilities and customer base.
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     - Expanding International Sales. Through its friction segment, which has,
       foreign manufacturing facilities in Italy and Canada and a worldwide
       distribution network, the Company continues to expand its international
       operations in established markets throughout Europe, Asia and North
       America. In 2000, the Company opened a friction manufacturing facility
       located in Suzhou, China. This facility, which is projected to begin
       production in early 2001, will primarily service aftermarket friction
       customers on a worldwide basis. The Company also believes that further
       opportunities to expand sales exist in emerging economies. In 1999, the
       Company established a rotor manufacturing facility in Monterrey, Mexico
       to supply customers in its motor segment. This facility will service
       motor manufacturers located in Mexico and Latin America. This facility
       began production in 2000. Sales from the Company's international
       facilities have grown from $8.1 million in 1995 to $21.7 million in 2000.

     - Leveraging Customer Relationships. The Company's engineers work closely
       with customers to develop and design new products and improve the
       performance of existing products. The Company's commitment to quality,
       service and just-in-time delivery enables it to build and maintain strong
       and stable customer relationships. The Company believes that more than
       80% of its sales are from products and materials for which it is the sole
       source provider for specific customer applications. The Company or its
       predecessors have had relationships with a number of its customers,
       dating back to the 1940's. The Company believes that strong relationships
       with its customers provide it with significant competitive advantages in
       obtaining and securing new business opportunities.

ACQUISITIONS

     On November 1, 2000 the Company purchased the stock of Tex Racing
Enterprises, Inc., a manufacturer of premium branded drive train components for
motorsport and performance automotive markets. The products are used by leading
teams in the NASCAR racing series, as well as for high-performance street
vehicles and other road race and oval track competition cars.

     On December 1, 2000 the Company made an investment in Net Shape
Technologies LLC a manufacturer of metal injection molded components through its
newly established Hawk MIM, Inc. subsidiary. MIM is an advanced production
process for efficiently producing complex powder metal components from a wide
variety of metallic and ceramic composites. Similar to plastic injection
molding, MIM offers rapid production of three-dimensional engineered components.
MIM technology is complementary to Hawk's existing powder metal businesses.

     The friction products, powder metal component and performance automotive
industries are fragmented and are undergoing consolidation due in part to the
additional resources needed (1) to perform the research and development
necessary to satisfy customers' increasingly stringent quality and performance
criteria, and (2) to meet just-in-time delivery requirements. As a result, the
Company believes that it can continue to make strategic acquisitions that may
include other friction product, powder metal component and performance
automotive manufacturers. To effect its acquisition strategy, the Company
engages in discussions, from time to time, with other manufacturers in friction
products, powder metal component, performance automotive, motor and other
complementary businesses. At this time, the Company has no binding agreements
regarding any future acquisitions.

PRODUCTS AND MARKETS

     The Company focuses on supplying components to the aerospace, industrial,
performance automotive and motor markets that require sophisticated engineering
and production techniques for applications in markets in which it has achieved a
significant market share. Through acquisitions and product line expansions, the
Company has diversified its end markets. The Company believes this
diversification has reduced its economic exposure to the cyclical effects of any
particular industry.

  FRICTION PRODUCTS

     The Company's friction segment manufactures products made from proprietary
formulations of composite materials that primarily consist of metal powders,
synthetic and natural fibers. Friction products are the
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replacement elements used in brakes, clutches and transmissions to absorb
vehicular energy and dissipate it through heat and normal mechanical wear. For
example, the friction brake components in aircraft braking systems slow and stop
airplanes when landing or taxiing. Friction products manufactured by the Company
also include friction components for use in automatic and power shift
transmissions, clutch facings that serve as the main contact point between an
engine and a transmission, and brake components for use in many other types of
braking systems.

     The Company's friction products are custom-designed to meet the performance
requirements of a specific application and must meet temperature, pressure,
component life and noise level criteria. The engineering required in designing a
friction material for a specific application dictates a balance between the
component life cycle and the performance application of the friction material
in, for example, stopping or starting movement. Friction products are consumed
through customary use in a brake, clutch or transmission system and require
regular replacement. Because the friction material is the consumable, or wear,
component of such systems, new friction product introduction in conjunction with
a new system provides the Company with the opportunity to supply the aftermarket
with that friction product for the life of the system.

     The principal markets served by the Company's friction segment include
manufacturers of aircraft brakes, truck clutches, heavy-duty construction and
agricultural vehicle brakes, clutches and transmissions, and manufacturers of
motorcycle and snowmobiles. Based upon net sales, the Company believes that it
is among the top three worldwide manufacturers of friction products used in
aerospace and industrial applications. The Company estimates that aftermarket
sales of friction products have comprised approximately 50% of the Company's net
friction product sales in recent years. The Company believes that its stable
aftermarket sales component enables the Company to reduce its exposure to
adverse economic cycles.

     Aerospace. The Company believes it is the only independent supplier of
friction materials to the manufacturers of braking systems for the Boeing 727,
737 and 757, the MD DC-9, DC-10 and MD-80 and the Canadair CRJ aircraft. The
Company believes it is also the largest supplier of friction materials to the
general aviation (non-commercial, non-military) market, supplying friction
materials for aircraft manufacturers such as Cessna, Lear, Gulfstream and
Fokker. Each aircraft braking system, including the friction materials supplied
by the Company, must meet stringent Federal Aviation Administration criteria and
certification requirements. New model development and FAA testing for the
Company's aircraft braking system customers generally begins two to five years
prior to full scale production of new braking systems. If the Company and its
aircraft brake system manufacturing partner are successful in obtaining the
rights to supply a particular model of aircraft, the Company will typically
supply its friction products to that model's aircraft braking system for as long
as the model continues to fly because it is generally too expensive to redesign
a braking system and meet FAA requirements. Moreover, FAA maintenance
requirements mandate that brake components be changed after a specified number
of take-offs and landings, which the Company expects to result in a continued
and steady market for its aerospace friction products.

     The Company's friction products for commercial aerospace applications are
primarily used on "single-aisle" aircraft that are flown on shorter routes,
resulting in more takeoffs and landings than larger aircraft. The Company
believes its friction products provide an attractive combination of performance
and cost effectiveness in these applications. According to Boeing's 2000 Current
Market Outlook, approximately 67 percent of the 13,670 airplanes in the world
fleet are single-aisle commercial aircraft. The report also forecasts
single-aisle to increase by approximately 8,950 to 18,100 by the end of 2019.
The Boeing report also states that world airline passenger traffic is projected
to increase 4.8% per year over the next nineteen years. The report also projects
that world airline cargo traffic will increase 6.4% during the same period. The
Company expects that continued growth in world airline traffic, combined with
the increasing number of single-aisle aircraft, will cause demand for the
Company's aerospace friction products to remain strong.

     Construction/Agriculture/Trucks/Specialty. The Company supplies a variety
of friction products for use in brakes, clutches and transmissions on
construction and agriculture equipment, trucks and specialty vehicles. These
components are designed to precise tolerances and permit brakes to stop or slow
a moving vehicle and the clutch or transmission systems to engage or disengage.
The Company believes it is a leading supplier to original equipment
manufacturers and to the aftermarket. The Company believes that its trademark,
Velvetouch(R), is well

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known in the aftermarket for these components. As with the Company's aerospace
friction products, new friction product introduction in conjunction with a new
brake, clutch or transmission system provides the Company with the opportunity
to supply the aftermarket with the friction product for the life of the system.

     - Construction Equipment. The Company supplies friction products such as
       transmission discs, clutch facings and brake components to manufacturers
       of construction equipment, including Caterpillar. The Company believes it
       is the second largest domestic supplier of these types of friction
       products. Replacement components for construction equipment are sold
       through manufacturers such as Caterpillar, as well as various aftermarket
       distributors.

     - Agriculture Equipment. The Company supplies friction products such as
       clutch facings, transmission discs and brake components to manufacturers
       of agriculture equipment, including John Deere and Case New Holland. The
       Company believes it is the second largest domestic supplier of such
       friction products. Replacement components for agricultural equipment are
       sold through original equipment manufacturers as well as various
       aftermarket distributors.

     - Medium and Heavy Trucks. The Company supplies friction products for
       clutch facings used in medium and heavy trucks to original equipment
       manufacturers, such as Eaton. The Company believes it is the leading
       domestic supplier of replacement friction products used in these
       applications. Replacement components are sold through the Company's
       original equipment manufacturers and various aftermarket distributors.

     - Specialty Friction. The Company supplies friction products for use in
       other specialty applications, such as brake pads for Harley-Davidson
       motorcycles, AM General Humvees and Bombardier, Polaris Industries and
       Arctic Cat snowmobiles. The Company believes that these markets are
       experiencing significant growth and the Company will continue to increase
       its market share with its combination of superior quality and longer
       product life.

  POWDER METAL COMPONENTS

     The Company's Powder metal segment is a leading supplier of powder metal
components consisting primarily of pump, motor and transmission elements, gears,
pistons and anti-lock brake sensor rings for applications ranging from lawn and
garden tractors to industrial equipment. Since Hawk's founding in 1989, it has
participated in the growing powder metal products industry with a focus on the
North American industrial market, which the Metal Powder Industries Federation,
an industry trade group, estimates has sales of over $5.0 billion. According to
the Federation's latest available data, the value of iron powder shipments in
North America increased by over 5% in 1999 compared to 1998, to an industry
record of 551,000 tons.

     Applications. The Company manufactures a variety of components made from
powder metals for use in (1) fluid power applications, such as pumps and other
hydraulic mechanisms, (2) transmissions, other drive mechanisms and anti-lock
braking systems used in trucks and off-road and lawn and garden equipment, (3)
gears and other components for use in home appliances and office equipment and
(4) components used in automotive applications. The Company believes that the
market for powder metal components will continue to grow as the Company's core
powder metal technology benefits from advances that permit production of powder
metal components with increased design flexibility, greater densities and closer
tolerances that provide improved strength, hardness and durability for demanding
applications, and enable the Company's powder metal components to be substituted
for wrought steel or iron components produced with forging, casting or stamping
technologies. Powder metal components can often be produced at a lower cost per
unit than products manufactured with forging, casting or stamping technologies
due to the elimination of, or substantial reduction in, secondary machining,
lower material costs and the virtual elimination of raw material waste. The
Company believes that the current trend of substituting powder metal components
for forged, cast or stamped components in industrial applications will continue
for the foreseeable future, providing the Company with increased product and
market opportunities.

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<PAGE>   6

     The Company's Powder metal segment operates in six facilities, each
targeting an important aspect of the market place:

     - High Precision. Helsel's pressing and finishing capabilities enable it to
       specialize in tight tolerance fluid power components such as pump
       elements and gears. In addition, the Company believes that Helsel's
       machining capabilities provide it with a competitive advantage by giving
       it the ability to supply a completed part to its customers, typically
       without any subcontracted precision machining. The Company believes that
       Helsel's growth will be driven by existing customers' new design
       requirements and new product applications primarily for pumps, motors and
       transmissions.

     - Large Size Capability. The Powder metal segment operation, at the
       Company's Friction Products Co. facility, has the capability to make
       structural powder metal components that are among the largest used in
       North America. The Company expects its sales of larger powder metal
       components to continue to grow as the Company creates new designs for
       existing customers and benefits from market growth, primarily in current
       construction, agricultural and truck applications.

     - High Volume. Sinterloy, Clearfield and Allegheny target smaller, high
       volume parts where they can utilize their efficient pressing and
       sintering capabilities to their best advantage. Sinterloy's primary
       market has been powder metal components for the business equipment
       market. Clearfield's market focus has been primarily to the lawn and
       garden, home appliance, power hand tool, and truck markets. Allegheny's
       market focus has been primarily the lawn and garden and automotive
       markets. The Company believes that the high volume capabilities of
       Sinterloy, Clearfield and Allegheny will provide the Company with cross-
       selling opportunities from the Company's other powder metal facilities.

     - Metal Injection Molding. Net Shape manufactures small complex metal
       injection molded parts for a variety of industries. The Company believes
       that through its relationship with traditional powder metal end-users,
       that significant cross-selling opportunities exist for metal injected
       molded parts.

  PERFORMANCE AUTOMOTIVE

     Under the "Hawk Performance" trade name, the Company supplies high
performance friction material for use in racing car brakes. The Company's high
performance brake pad for racecars can operate in temperatures of over 1,100
degrees Fahrenheit. The Company believes that this performance racing material
may have additional applications such as braking systems for passenger and
school buses, police cars and commercial delivery vehicles. Additionally, the
Company supplies premium branded clutch and drive train components through its
Quarter Master and Tex Racing subsidiaries. The products are used by leading
teams in the NASCAR racing series, as well as for high-performance street
vehicles, and other road race and oval track competition cars.

  MOTOR COMPONENTS

     The Company believes that its motor segment, which operates through its
Hutchinson Products LLC and Hutchinson Products de Mexico subsidiaries, is the
largest independent U.S. manufacturer of die-cast aluminum rotors for use in
subfractional electric motors. These motors are used in a wide variety of
applications such as business equipment, small household appliances and exhaust
fans. The Company estimates that approximately 50% of all rotors in the
subfractional motor market are made internally by large motor manufacturers.
However, the Company believes its Motor division has growth opportunities
arising from the trend by original equipment motor manufacturers to outsource
their production of rotors. In 1999, the Company expanded its rotor
manufacturing capabilities into Mexico, where a large portion of subfractional
motors are manufactured. Production at this facility began in late 2000.

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BUSINESS SEGMENT INFORMATION
(in thousands)

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<CAPTION>
                                                                  YEAR ENDED DECEMBER 31
                                                             --------------------------------
                                                               2000        1999        1998
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
Revenues
  Friction Products........................................  $106,337    $107,348    $117,091
  Powder Metal.............................................    78,203      68,335      53,493
  Performance Automotive...................................     9,358       3,324       2,528
  Motor....................................................     8,431       8,631       9,175
                                                             --------    --------    --------
Consolidated...............................................  $202,329    $187,638    $182,287
                                                             ========    ========    ========
Operating Income
  Friction Products........................................  $ 10,618    $  7,756    $ 18,955
  Powder Metal.............................................     9,755      11,003      13,359
  Performance Automotive...................................       356         155        (348)
  Motor....................................................    (1,266)       (350)        852
                                                             --------    --------    --------
Consolidated...............................................  $ 19,463    $ 18,564    $ 32,818
                                                             ========    ========    ========
</TABLE>

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<CAPTION>
                                                                  DECEMBER 31
                                                              --------------------
                                                                2000        1999
                                                              --------    --------
<S>                                                           <C>         <C>
Total Assets
  Friction Products.........................................  $105,844    $113,485
  Powder Metal..............................................    77,001      73,415
  Performance Automotive....................................    17,226       9,180
  Motor.....................................................    15,314      13,540
                                                              --------    --------
Consolidated................................................  $215,385    $209,620
                                                              ========    ========
</TABLE>

MANUFACTURING

     The manufacturing processes for most of the Company's friction products,
performance automotive brake products and powder metal components are
essentially similar. In general, both use composite metal alloys in powder form
to make high quality powder metal components. The basic manufacturing steps,
consisting of blending/compounding, molding/compacting, sintering (or bonding)
and secondary machining/treatment, are as follows:

     - Blending/compounding: Composite metal alloys in powder form are blended
       with lubricants and other additives according to scientific formulas,
       many of which are proprietary to the Company. The formulas are designed
       to produce precise performance characteristics necessary for a customer's
       particular application. The Company often works together with its
       customers to develop new formulas that will produce materials with
       greater energy absorption characteristics, durability and strength.

     - Molding/compacting: At room temperature, a specific amount of a powder
       alloy is compacted under pressure into a desired shape. The Company's
       molding presses are capable of producing pressures of up to 3,000 tons.
       The Company believes that it has some of the largest presses in the
       powder metal industry, enabling it to produce large, complex components.
       With its injection molding equipment, the Company can create complex
       shapes not obtainable with conventional powder metal presses.

     - Sintering: After compacting, molded parts are heated in furnaces to
       specific temperatures, enabling metal powders to metallurgically bond,
       harden and strengthen the molded parts while retaining their desired
       shape. For friction materials, the friction composite part is also bonded
       directly to a steel plate or core, creating a strong continuous metallic
       part.

     - Secondary machining/treatment: If required by customer specifications, a
       sintered part undergoes additional processing. These processing
       operations are generally necessary to attain increased hardness or

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       strength, tighter dimensional tolerances or corrosion resistance. To
       achieve these specifications, parts are heat-treated, precision coined,
       ground, drilled or treated with a corrosion resistant coating, such as
       oil.

     Certain of the Company's friction products, which are primarily used in
oil-cooled brakes and power shift transmissions, do not require all of the
foregoing steps. For example, molded composite friction materials are molded
under high temperatures and cured in electronically-controlled ovens and then
bonded to a steel plate or core with a resin-based polymer. Cellulose composite
friction materials are blended and formed into continuous sheets and then
stamped into precise shapes by computer-controlled die cutting machines. Like
molded composite friction materials, cellulose composite friction materials are
then bonded to a steel plate or core with a resin-based polymer.

     The Company's die-cast aluminum rotors are produced in a three-step
process. Steel stamped disks forming the laminations of the rotors are first
skewed (stacked) and then loaded into dies into which molten aluminum is
injected to create the rotors. The rotor castings created in the dies are then
machined to produce finished rotors. These rotors are manufactured in a variety
of sizes and shapes to customers' design specifications.

     - Quality Control. Throughout its design and manufacturing process, the
       Company focuses on quality control. For product design, each Company
       manufacturing facility uses state-of-the-art testing equipment to
       replicate virtually any application required by the Company's customers.
       This equipment is essential to the Company's ability to manufacture
       components that meet stringent customer specifications. To ensure that
       tight tolerances have been met and that the requisite quality is inherent
       in its finished products, the Company uses statistical process controls,
       a variety of electronic measuring equipment and computer-controlled
       testing machinery. The Company has also established programs within each
       of its facilities to detect and prevent potential quality problems.

TECHNOLOGY

     The Company believes that it is an industry leader in the development of
systems, processes and technologies which enable it to manufacture friction
products with numerous performance advantages, such as greater wear resistance,
increased stopping power, lower noise and smoother engagement. The Company's
expertise is evidenced by its aircraft brake components, which are currently
being installed on many of the braking systems of the Boeing 737-NG (new
generation) series of aircraft as well as new series of industrial equipment
from various original equipment manufactures.

     The Company maintains an extensive library of proprietary friction product
formulas that serve as starting points for new product development. Each formula
has a specific set of ingredients and processes to generate repeatability in
production. Some formulas may have as many as 15 different components. A slight
change in a mixture can produce significantly different performance
characteristics. The Company uses a variety of technologies and materials in
developing and producing its products, such as graphitic and cellulose
composites. The Company believes its expertise in the development and production
of products using these different technologies and materials gives it a
competitive advantage over other friction product manufacturers, which typically
have expertise in only one or two types of friction material.

     The Company also believes that its powder metal components business is able
to produce a wide range of products from small precise components to large
structural parts. The Company has presses that produce some of the largest
powder metal parts in the world, and its powder metal technology permits the
manufacture of complex components with specific performance characteristics and
close dimensional tolerances that would be impractical to produce using
conventional metalworking processes. With its MIM technology, the Company is
able to create complex shapes previously not available using conventional powder
metal technology

     The Company's motor business is able to produce a wide range of rotors for
the fractional and sub-fractional motor industries. The Company has developed
customized manufacturing processes for rotors and created specialty rotor die
construction techniques. In addition, the Company has also designed the highly
automated machines necessary for the production of its rotors.

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CUSTOMERS

     The Company's engineers work closely with customers to develop and design
new products and improve the performance of existing products. The Company's
working relationship with its customers on development and design, and the
Company's commitment to quality, service and just-in-time delivery have enabled
it to build and maintain strong and stable customer relationships. The Company
or its predecessors has had relationships with many of its customers which date
back to the 1940's, and the Company believes that more than 80% of its sales are
from products and materials for which it is the sole source provider for
specific customer applications. Management believes the Company's relationships
with its customers are good.

     The Company's recent acquisitions have broadened product lines, increased
its technological capabilities and will further enhance its customer
relationships and expand its preferred supplier status. As a result of the
Company's commitment to customer service and satisfaction, the Company is a
preferred supplier to many of the world's leading original equipment
manufacturers, including Aircraft Braking Systems, BFGoodrich Aerospace,
Caterpillar, Eaton, Case New Holland (CNH), Hydro-Gear, Sauer-Sundstrand,
Electrolux and AO Smith.

     The Company's top five customers accounted for 24.8% of the Company's
consolidated net sales in 2000 and 28.5% of the Company's consolidated net sales
in 1999.

MARKETING AND SALES

     The Company markets its products globally through product management and
sales professionals, who operate primarily from the Company's facilities in the
United States, Italy, China and Canada. The Company's product managers and sales
force work directly with the Company's engineers who provide the technical
expertise necessary for the development and design of new products and for the
improvement of the performance of existing products. The Company's friction
products are sold both directly to original equipment manufacturers and to the
aftermarket through its original equipment customers and a network of
distributors and representatives throughout the world. The Company also sells
its powder metal components and rotors to original equipment manufacturers
through independent sales representatives.

COMPETITION

     The principal segments in which the Company competes are competitive and
fragmented, with many small manufacturers and only a few manufacturers that
generate sales in excess of $50 million. The larger competitors may have
financial and other resources substantially greater than those of the Company.
The Company competes for new business principally at the beginning of the
development of new applications and at the redesign of existing applications by
its customers. For example, new model development for the Company's aircraft
braking system customers generally begins two to five years prior to full-scale
production of new braking systems. Product redesign initiatives by customers
typically involve long lead times as well. Although the Company has been
successful in the past in obtaining this new business, there is no assurance
that the Company will continue to obtain such business in the future. The
Company also competes with manufacturers using different technologies, such as
carbon composite ("carbon-carbon") friction materials for aircraft braking
systems. Carbon-carbon braking systems are significantly lighter than the
metallic aircraft braking systems for which the Company supplies friction
materials, but are more expensive. The carbon-carbon brakes are typically used
on wide-body aircraft, such as the Boeing 747 and military aircraft, where the
advantages in reduced weight justify the additional expense.

     In addition, as the Company's core powder metal technology improves,
enabling its components to be substituted for wrought steel or iron components,
the Company increasingly competes with companies using forging, casting or
stamping technologies. Powder metal components can often be produced at a lower
cost per unit than products manufactured with forging, casting or stamping
technologies due to the elimination of, or substantial reduction in, secondary
machining, lower material costs and the virtual elimination of raw material
waste. As a result, powder metal components are increasingly being substituted
for metal parts manufactured using more traditional technologies.

                                        8
<PAGE>   10

SUPPLY AND PRICE OF RAW MATERIALS

     The principal raw materials used by the Company are copper, steel and iron
powders, aluminum ingot and custom-fabricated cellulose sheet. The Company has
no long-term supply agreements with any of its major suppliers. However, the
Company has generally been able to obtain sufficient supplies of raw materials
for its operations, and changes in prices of such supplies over the past few
years have not had a significant effect on its operations.

GOVERNMENT REGULATION

     The Company's sales to manufacturers of aircraft braking systems
represented 13.7% and 15.1% of the Company's consolidated net sales in 2000 and
1999, respectively. Each aircraft braking system, including the friction
products supplied by the Company, must meet stringent FAA criteria and testing
requirements. The Company has been able to meet these requirements in the past
and continuously reviews FAA compliance procedures to help ensure continued and
future compliance.

ENVIRONMENTAL, HEALTH AND SAFETY MATTERS

     Manufacturers like the Company are subject to stringent environmental
standards imposed by federal, state, local and foreign environmental laws and
regulations, including those related to air emissions, wastewater discharges,
chemical and hazardous waste management and disposal. Certain of these
environmental laws hold owners or operators of land or businesses liable for
their own and for previous owners' or operators' releases of hazardous or toxic
substances, materials or wastes, pollutants or contaminants. Compliance with
environmental laws also may require the acquisition of permits or other
authorizations for certain activities and compliance with various standards or
procedural requirements. The Company is also subject to the federal Occupational
Safety and Health Act and similar foreign and state laws. The nature of the
Company's operations, the long history of industrial uses at some of its current
or former facilities, and the operations of predecessor owners or operators of
certain of the businesses expose the Company to risk of liabilities or claims
with respect to environmental and worker health and safety matters. The Company
reviews its procedures and policies for compliance with environmental and health
and safety laws and regulations and believes that it is in substantial
compliance with all such material laws and regulations applicable to its
operations. The costs of compliance with environmental, health and safety
requirements have not been material to the Company.

INTELLECTUAL PROPERTY MATTERS

     Hawk(R), Wellman Friction Products(R), Velvetouch(R), Fibertuff(R),
Feramic(R), Velvetouch Feramic(R), Velvetouch Organik(R) and Velvetouch
Metalik(R), Hawk Brake(R) and Hawk Performance(R) are among the federally
registered trademarks of the Company. Velvetouch(R) is the Company's principal
trademark for use in the friction segment aftermarket and is registered in 26
countries.

     Although the Company maintains patents related to its business, the Company
does not believe that its competitive position is dependent on patent protection
or that its operations are dependent on any individual patent.

     To protect its intellectual property, the Company relies on a combination
of internal procedures, confidentiality agreements, patents, trademarks, trade
secrets law and common law, including the law of unfair competition.

PERSONNEL

     At December 31, 2000, the Company had approximately 1,336 domestic
employees and 264 international employees. Approximately 215 employees at the
Company's Brook Park, Ohio plant are covered under a collective bargaining
agreement with the Paper, Allied Industrial, Chemical and Energy Workers
International Union (PACE) which was renegotiated in 2000 and expires in October
2004; approximately 70 employees at the Company's Akron, Ohio facility are
covered under a collective bargaining agreement with the United Automobile
Workers expiring in July 2003; approximately 200 employees at the Company's
Orzinuovi, Italy plant are represented by a national mechanics union under an
agreement that expired in December 2000 and by a local

                                        9
<PAGE>   11

union under an agreement that also expired in December 2000. The Company is
currently operating under a temporary agreements with its unions; and
approximately 60 hourly employees at the Company's Alton, Illinois facility are
covered under a collective bargaining agreement with the International
Association of Machinists and Aerospace Workers expiring in June 2001. The
Company has experienced no strikes and believes its relations with its employees
and their unions to be good.

ITEM 2. PROPERTIES

     Hawk's world headquarters is located in Cleveland, Ohio. The company
maintains manufacturing facilities at 16 locations in 5 countries. The Company
is a lessee under operating leases for some of its properties and equipment.
Hawk's principal research facility is located in Solon, Ohio. In addition,
research is also performed in a number of the operating divisions' facilities.
The Company believes that substantially all of its property and equipment is
maintained in good condition, adequately insured and suitable for its present
and intended use.

     The Company is party to an expense sharing arrangement under which the
Company shares the expenses of its corporate headquarters located in Cleveland
with a company owned by Ronald E. Weinberg, the Co-Chairman and Co-CEO of the
Company.

ITEM 3. LEGAL PROCEEDINGS

     The Company is involved in lawsuits that arise in the ordinary course of
its business. In the Company's opinion, the outcome of these matters will not
have a material adverse effect on the Company's business, financial condition or
results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

                                        10
<PAGE>   12

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's Class A common stock has been traded on the New York Stock
Exchange since the Company's initial public offering on May 12, 1998 under the
symbol "HWK." The following table sets forth for the fiscal periods indicated
the high and low prices of the Common Stock as reported on the New York Stock
Exchange.

  QUARTERLY STOCK PRICES

<TABLE>
<CAPTION>
        QUARTER ENDED                                       HIGH        LOW
        -------------                                      -------    -------
<S>     <C>                                                <C>        <C>
2000
        March 31, 2000...................................  $ 6.625    $ 4.375
        June 30, 2000....................................  $ 7.875    $ 5.125
        September 30, 2000...............................  $ 8.500    $ 6.813
        December 31, 2000................................  $ 6.938    $ 5.000

1999
        March 31, 1999...................................  $ 8.750    $ 6.500
        June 30, 1999....................................  $11.750    $ 7.438
        September 30, 1999...............................  $ 9.063    $ 5.250
        December 31, 1999................................  $ 6.188    $ 3.813

</TABLE>

     The closing sale price for the common stock on December 29, 2000, the last
trading day of the year, was $5.438

     Shareholders of record as of March 16, 2001 numbered 85. The Company
estimates that an additional 1,000 shareholders own stock held for their
accounts at brokerage firms and financial institutions.

     The Company has never declared or paid, and does not intend to declare or
pay, any cash dividends for the foreseeable future and intends to retain
earnings for the future operation and expansion of the Company's business. The
Company's senior note indenture and its credit facility prohibit the payment of
cash dividends on the Class A common stock except upon compliance with certain
conditions.

                                        11
<PAGE>   13

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
        FOR THE YEAR ENDING DECEMBER 31,           2000     1999(2)    1998(2)    1997(2)    1996(2)
        --------------------------------          ------    -------    -------    -------    -------
                                                         (IN MILLIONS, EXCEPT PER SHARE DATA)
<S>                                               <C>       <C>        <C>        <C>        <C>
INCOME STATEMENT DATA:
Net Sales.......................................  $202.3    $187.6     $182.3     $160.7     $125.2
Cost of Sales...................................   147.4     138.9      124.6      114.8       92.8
                                                  ------    ------     ------     ------     ------
Gross Profit....................................    54.9      48.7       57.7       45.9       32.4
Income from Operations..........................    19.5      18.6       32.8       22.1        9.8
Income (Loss) before Income Taxes and
  Extraordinary Charge..........................    10.2      10.0       21.9        6.6       (1.1)
Income Taxes....................................     4.4       3.7        9.7        3.7        0.8
Income (Loss) before Extraordinary Charge.......     5.8       6.3       12.2        2.9       (1.9)
Extraordinary Charge (1)........................      --        --        3.1         --        1.2
                                                  ------    ------     ------     ------     ------
Net Income (Loss)...............................  $  5.8    $  6.3     $  9.1     $  2.9     $ (3.1)
Preferred Stock Dividend Requirements...........    (0.2)     (0.1)      (0.3)      (0.3)      (0.2)
Income (Loss) before Extraordinary Item
  Applicable to Common Shareholders.............  $  5.6    $  6.2     $ 11.9     $  2.6     $ (2.1)
Net Income (Loss) Applicable to Common
  Shareholders..................................  $  5.6    $  6.2     $  8.9     $  2.6     $ (3.3)
EARNINGS (LOSS) PER SHARE:
Basic:
  Earnings (Loss) Before Extraordinary
     Charges....................................  $  .66    $  .71     $ 1.59     $  .55     $ (.45)
  Extraordinary Charge..........................      --        --       (.41)        --       (.26)
                                                  ------    ------     ------     ------     ------
Basic Earnings (Loss) Per Share.................  $  .66    $  .71     $ 1.18     $  .55     $ (.71)
                                                  ------    ------     ------     ------     ------
Diluted:
  Earnings (Loss) Before Extraordinary Charge...  $  .66    $  .71     $ 1.51     $  .45     $ (.45)
  Extraordinary Charge..........................      --        --       (.39)        --       (.26)
                                                  ------    ------     ------     ------     ------
Diluted Earnings (Loss) Per Share...............  $  .66    $  .71     $ 1.12     $  .45     $ (.71)
                                                  ------    ------     ------     ------     ------
OTHER DATA:
Depreciation and Amortization...................  $ 15.0    $ 13.7     $ 11.5     $ 10.5     $  8.4
Capital Expenditures (Including Capital
  Leases........................................  $ 10.5    $ 10.2     $ 15.2     $  9.6     $ 10.3
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,                                       2000      1999      1998      1997      1996
------------                                      ------    ------    ------    ------    ------
                                                                  (IN MILLIONS)
<S>                                               <C>       <C>       <C>       <C>       <C>
BALANCE SHEET DATA:
Cash and Cash Equivalents.......................  $  4.0    $  4.0    $ 14.3    $  4.4    $ 25.8
Working Capital.................................    36.5      33.5      39.9      28.8      48.7
Property Plant and Equipment, Net...............    70.4      70.2      64.3      52.5      44.1
Total Assets....................................   215.4     209.6     203.4     173.1     158.4
Total Long-Term Debt............................   103.9     105.4     102.5     132.1     129.2
Shareholders' Equity (Deficit)..................    71.7      66.5      64.4      (2.2)      1.2
</TABLE>

---------------

(1) Reflects premium paid on partial redemption of Senior Notes and write-off of
    deferred financing costs in conjunction with the Company's initial public
    offering, net of $2.3 million in income taxes in 1998 and write-off of
    deferred financing costs, net of $0.8 million in income taxes in 1996.

(2) In the fourth quarter of 2000, the Company changed its accounting policy to
    reflect in its consolidated statement of income all shipping and handling
    costs as cost of sales and related shipping revenue in net sales. All prior
    periods have been changed to conform to current year presentation.

                                        12
<PAGE>   14

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     This discussion should be read in conjunction with the consolidated
financial statements, notes and tables included elsewhere in this report.
Management's discussion and analysis may contain forward-looking statements that
are provided to assist in the understanding of anticipated future financial
performance. However, such performance involves risks and uncertainties, which
may cause actual results to differ materially from those expressed in the
forward-looking statements.

RESULTS OF OPERATIONS

     In 2000, Hawk Corporation experienced a 7.9 percent decrease in net income
over the prior year. This decrease was attributable to weakness in the heavy
truck and agriculture markets served by the Company's friction and powder metal
divisions, increased technical and administrative spending to support the
Company's growth initiatives and the continuing start-up expenditures at the
Company's Mexico and China facilities. In addition, the Company's effective tax
rate increased in 2000 to 43.0 percent from 36.7 percent in 1999 as a result of
higher tax rates at the Company's foreign operations and the absence of various
state tax credits that resulted in the lowering of the effective rate.

     The Company is anticipating slight growth for 2001 as growth in the
industrial markets served by the Company is expected to be near 2000 levels. The
Company expects to see continuing softness in the first half of the year with
more favorable market conditions developing during the second half of 2001.
Additionally, the Company expects to benefit from new product introductions and
the achievement of operating production levels at its facilities in Mexico and
China during 2001.

  YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

     Net Sales. Consolidated net sales for 2000 were $202.3 million, an increase
of $14.7 million or 7.8 percent over 1999. The increase in net sales came
primarily from the Company's powder metal and performance automotive segments.
The net sales increase was attributable to the acquisition of Allegheny in March
1999, Quarter Master in November 1999 and Tex Racing in November 2000. Sales in
2000 from these acquisitions represented $9.4 million, or 63.9 percent, of the
total sales increase reported during 2000. Sales in the friction segment were
$106.3 million in 2000, a decrease of 0.9 percent compared to 1999. Sales
increases in the construction and specialty markets served by the friction
segment were offset by declines in the truck, non-performance automotive and
agriculture markets, and to a lesser extent, the aerospace market. In the
Company's powder metal segment, sales increased to $78.2 million, or 14.5
percent, from 1999. The increase was the result of the acquisition of Allegheny
and strength in the fluid power, appliance and lawn and garden markets served by
the Company. This increase was offset by the continued reduction in volumes from
a customer that moved its production offshore.

     Gross Profit. Gross profit increased $6.1 million to $54.9 million during
2000, a 12.5 percent increase compared to gross profit of $48.8 million in 1999.
The gross profit margin increased to 27.1 percent in 2000 from 26.0 percent in
the comparable period in 1999. The increase in margins was led by the friction
segment, primarily as a result of product mix benefits and cost reduction
programs initiated in 1999. In the powder metal segment, while the Company
benefited from volume increases from the acquisition of Allegheny, the softness
in the agriculture and heavy truck markets served by this segment, the loss of a
customer and changes in the product-mix caused a reduction in margins achieved
by the Company during 1999. Gross profit margins in the Company's performance
automotive segment remained flat in 2000 when compared to 1999 while the gross
profit margin in the Company's motor segment declined in 2000 primarily as a
result of the startup costs associated with the Company's new Mexican facility.

     Selling, Technical and Administrative Expenses. Selling, technical and
administrative ("ST&A") expenses increased $4.9 million, or 18.6 percent, from
$26.4 million during 1999 to $31.3 million in 2000. As a percentage of net
sales, ST&A increased to 15.5 percent of sales in 2000 from 14.1 percent of
sales in 1999. The increase in ST&A expenses as a percent of sales, resulted
primarily from expenditures incurred by the Company's entry into Mexico and
China, personnel costs associated the Company's growth initiatives and increased
depreciation
                                        13
<PAGE>   15

expense. The Company spent $3.5 million, or 1.7 percent of its net sales on
product research and development costs compared to $3.2 million in 1999.

     Income from Operations. Income from operations increased $0.9 million, or
4.8 percent, from $18.6 million in 1999 to $19.5 million in 2000. Income from
operations as a percentage of net sales decreased to 9.6 percent in 2000 from
9.9 percent in 1999.

     Other (Expense) Income. Other expense was $0.5 million in 2000, an increase
of $0.9 million, from income of $0.4 million reported in 1999. The expense
reported in 2000 was primarily the result of foreign currency transaction losses
incurred by the Company at its Italian facility. In addition, the Company
reported income in 1999 as the result of the receipt of a contingent receivable.

     Interest Expense. Interest expense decreased $0.4 million, or 4.3 percent,
to $9.0 million in 2000 from $9.4 million in 1999. The decrease is attributable
to lower debt levels during 2000 compared with 1999.

     Income Taxes. The provision for income taxes increased $0.7 million to $4.4
million in 2000 from $3.7 million in 1999 primarily because of the increase in
the Company's effective tax rate during 2000 as a result of higher tax rates at
the Company's foreign operations. In 1999, the Company benefited from state
investment and job creation tax credits. An analysis of changes in income taxes
and the effective tax rate of the Company are presented in the accompanying
consolidated financial statements and notes.

     Net Income. As a result of the factors noted above, net income was $5.8
million in 2000, a decrease of 7.9 percent, compared to net income of $6.3
million reported in 1999.

  YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

     Net Sales. Consolidated sales for 1999 were $187.6 million, an increase of
$5.3 million or 2.9 percent over 1998. The increase in sales came from the
powder metal segment, with 1999 sales levels exceeding 1998 by $14.8 million, or
27.7 percent. The sales increase was attributable to the acquisition of
Clearfield in June 1998 and Allegheny in March 1999. Sales in 1999 from the
Clearfield Powdered Metals, Inc and Allegheny Powder Metallurgy, Inc.
acquisitions represent a $21.3 million increase over 1998 sales contributed by
Clearfield during the six months of 1998 that it was owned by Hawk. This
increase represents 143.9 percent of the total increase in the 1999 powder metal
segment sales. The Company experienced soft demand in the agricultural market
served by the powder metal segment as well as the loss of a powder metal
customer at the Company's Sinterloy facility during 1999 that moved its
production offshore. Sales in the friction segment were $107.3 million in 1999,
a decrease of 8.4 percent compared to 1998. Sales increases in the truck and
specialty markets served by the friction segment were offset by declines in the
agricultural and mining and forestry components of the construction markets, and
to a lesser extent, the aerospace market.

     Gross Profit. Gross profit decreased $8.8 million to $48.8 million during
1999, a 15.3 percent decrease compared to gross profit of $57.6 million in 1998.
The gross profit margin decreased to 26.0 percent in 1999 from 31.6 percent in
the comparable period in 1998. The decrease in margins occurred in both the
friction and powder metal segments, primarily as a result of sales weaknesses in
the agricultural and construction markets, and to a lesser extent, the aerospace
market. This softness contributed to reduced sales of higher-margin friction and
powder metal products and under-utilization of manufacturing capacity, primarily
in the friction segment and higher depreciation costs incurred by the Company.
In the powder metal segment, while the Company benefited from volume increases
from the acquisitions of Clearfield and Allegheny, the softness in the
agricultural and construction markets, the loss of the customer and changes in
the product-mix caused a reduction in margins achieved by the Company during
1999.

     Selling, Technical and Administrative Expenses. Selling, technical and
administrative ("ST&A") expenses increased $5.1 million, or 23.9 percent, from
$21.3 million during 1998 to $26.4 million in 1999. As a percentage of net
sales, ST&A increased to 14.1 percent of sales in 1999 from 11.7 percent of
sales in 1998. The increase in ST&A expenses as a percent of sales, resulted
primarily from expenditures incurred by the Company's entry into Mexico and
China and personnel costs associated with the restructuring of the Company's
friction segment. The Company spent $3.2 million, or 1.7 percent of its net
sales on product research and development costs compared to $3.0 million in
1998.
                                        14
<PAGE>   16

     Income from Operations. Income from operations decreased $14.2 million, or
43.3 percent, from $32.8 million in 1998 to $18.6 million in 1999. Income from
operations as a percentage of net sales decreased to 9.9 percent in 1999 from
18.0 percent in 1998. The decline reflected the impact of the sales weakness,
product mix, facility utilization, personnel costs and start-up costs incurred
for global expansion.

     Interest Expense. Interest expense decreased $2.5 million, or 21.0 percent,
to $9.4 million in 1999 from $11.9 million in 1998. The decrease is attributable
to lower debt levels, a result of the repayment of debt from the proceeds of the
Company's IPO in the second quarter of 1998 and, to a lesser extent, lower
interest rates incurred by the Company during 1999 compared with 1998.

     Income Taxes. The provision for income taxes decreased $6.0 million to $3.7
million in 1999 from $9.7 million in 1998, primarily because of the decrease in
pre-tax income. The Company also experienced a decline in its effective tax rate
in 1999 to 36.7 percent from 44.8 percent in 1998 due primarily to state
investment and job creation tax credits received by the Company during the year.
An analysis of changes in income taxes and the effective tax rate of the Company
are presented in the accompanying consolidated financial statements and notes.

     Extraordinary Charge. In 1998, the Company recorded an extraordinary charge
of $3.1 million (net of $2.3 million of taxes) in prepayment premiums with the
repayment of $35.0 million of the Company's 10 1/4 percent Senior Notes due 2003
(the "Senior Notes") and the write-off of deferred financing costs associated
with the redemption of all of the $30.0 million of the Company's 12 percent
Senior Subordinated Notes (the "Senior Subordinated Notes").

     Net Income. As a result of the factors noted above, net income was $6.3
million in 1999, a decrease of 30.8 percent, compared to net income of $9.1
million reported in 1998.

LIQUIDITY AND CAPITAL RESOURCES

     The primary financing requirements of the Company are (1) for capital
expenditures for maintenance, replacement and acquisitions of equipment,
expansion of capacity, productivity improvements and product development, (2)
for funding the Company's day-to-day working capital requirements, (3) for
making additional strategic acquisitions of complementary businesses and (4) to
pay interest on, and to repay principal of, indebtedness. These requirements
have been, and will continue to be, financed through a combination of cash flow
from operations and borrowings under the Company's credit facility. As of
December 31, 2000, the Company had cash and cash equivalents of $4.0 million.

     In December 1998, the Board of Directors authorized a program to repurchase
up to $5.0 million of the Company's common stock. During 2000, the Company did
not acquire any shares under the program. In 1999, the Company acquired 367,300
shares under the program.

     Net cash provided by operating activities was $21.6 million in 2000
compared to $19.7 million in 1999. Cash provided by operations is primarily
attributable to net income and non-cash charges of depreciation and
amortization. Net working capital was $36.5 million at year-end 2000 compared to
$33.5 million at year-end 1999. The increase in working capital at December 31,
2000 is primarily attributable to the acquisition of Tex Racing in November
2000.

     Net cash used in investing activities was $16.9 million in 2000 and $25.8
million in 1999. The cash used in investing activities in 2000 consisted
primarily of $6.5 million for the acquisitions of Tex Racing and Net Shape and
$10.5 million for the purchase of property, plant and equipment. In 1999, cash
used in investing activities consisted of $19.4 million attributable to the
acquisitions of Allegheny and Quarter Master and $10.1 million for the purchase
of property, plant and equipment. During 1999, the Company received cash of $3.7
million from the sale of unused office and manufacturing facilities. In order to
achieve long-term growth prospects and enhance product quality, capital spending
in 2001 is anticipated to be approximately $12.1 million.

     Net cash used in financing activities was $4.6 million in 2000, primarily
for the payment of long-term debt. In 1999, net cash used in financing
activities was also $4.6 million, primarily from the repurchase of common stock
and the payment of long-term debt.

                                        15
<PAGE>   17

     The Company believes that for the next twelve months, cash flow from
operating activities, borrowings under its credit facility and access to capital
markets will be sufficient to satisfy its working capital, capital expenditure
and debt requirements and to finance continued growth through acquisitions.

FORWARD-LOOKING STATEMENTS

     Statements that are not historical facts, including statements about the
Company's confidence in its prospects and strategies and its expectations about
growth of existing markets and its ability to expand into new markets, to
identify and acquire complementary businesses and to attract new sources of
financing, are forward-looking statements that involve risks and uncertainties.
In addition to statements which are forward-looking by reason of context, the
words "believe," "expect," "anticipate," "intend," "designed," "goal,"
"objective," "optimistic," "will" and other similar expressions identify
forward-looking statements. In light of the risks and uncertainties inherent in
all future projections, the inclusion of the forward-looking statements should
not be regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved. Many factors could cause
the Company's actual results to differ materially and adversely from those in
the forward-looking statements, including the following:

     - the effect of the Company's debt service requirements on funds available
       for operations and future business opportunities and the Company's
       vulnerability to adverse general economic and industry conditions and
       competition;

     - the ability of the Company to continue to meet the terms of its credit
       facilities which contain a number of significant financial covenants and
       other restrictions;

     - the ability of the Company to utilize all of its manufacturing capacity
       in light of softness in some end-markets served by the Company;

     - the effect of any future acquisitions by the Company on its indebtedness
       and on the funds available for operations and future business
       opportunities;

     - the effect of competition by manufacturers using new or different
       technologies;

     - the effect on the Company's international operations of unexpected
       changes in regulatory requirements, export restrictions, currency
       controls, tariffs and other trade barriers, difficulties in staffing and
       managing foreign operations, political and economic instability,
       fluctuations in currency exchange rates, difficulty in accounts
       receivable collection and potentially adverse tax consequences;

     - the ability of the Company to successfully integrate the Tex Racing, Net
       Shape or any other future acquisitions into the Company's existing
       businesses;

     - the ability of the Company to negotiate new agreements, as they expire,
       with its unions representing certain of its employees, on terms favorable
       to the Company or without experiencing work stoppages;

     - the effect of any interruption in the Company's supply of raw materials
       or a substantial increase in the price of any of the raw materials;

     - the continuity of business relationships with major customers; and

     - the ability of the Company's products to meet stringent Federal Aviation
       Administration criteria and testing requirements.

     These risks and others that are detailed in this Form 10-K, must be
considered by any investor or potential investor in the Company.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Market Risk Disclosures. The following discussion about the Company's
market risk disclosures involves forward-looking statements. Actual results
could differ materially from those projected in the forward-looking statements.
The Company is exposed to market risk related to changes in interest rates and
foreign currency exchange rates. The Company does not use derivative financial
instruments for speculative or trading purposes.

     Interest Rate Sensitivity. Approximately 29.5 percent of the Company's
long-term debt obligations bear interest at a variable rate. To mitigate the
risk associated with interest rate fluctuations, the Company entered into
                                        16
<PAGE>   18

an interest rate swap with a notional amount of $35.0 million. The agreement
expired on December 31, 2000. In mid-January 2001, the Company entered into a
new interest rate swap agreement with a notional amount of $10.0 million. The
notional amount is used to calculate the contractual cash flow to be exchanged
and does not represent exposure to credit loss.

     Foreign Currency Exchange Risk. The Company currently does not hedge its
foreign currency exposure and, therefore, has not entered into any forward
foreign exchange contracts to hedge foreign currency transactions. The Company
has operations outside the United States with foreign-currency denominated
assets and liabilities, primarily denominated in Italian lira, Canadian dollars
and Mexican pesos. Because the Company has foreign-currency denominated assets
and liabilities, financial exposure may result, primarily from the timing of
transactions and the movement of exchange rates. The unhedged foreign currency
balance sheet exposures as of December 31, 2000 are not expected to result in a
significant impact on earnings or cash flows.

                                        17
<PAGE>   19

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         REPORT OF INDEPENDENT AUDITORS

Shareholders and Board of Directors
Hawk Corporation

     We have audited the accompanying consolidated balance sheets of Hawk
Corporation and subsidiaries as of December 31, 2000 and 1999 and the related
consolidated statements of income, shareholders' equity (deficit), and cash
flows for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Hawk Corporation and subsidiaries at December 31, 2000 and 1999 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.

Cleveland, Ohio
February 9, 2001

                                        18
<PAGE>   20

                      (This page intentionally left blank)

                                        19
<PAGE>   21

                                HAWK CORPORATION

                          CONSOLIDATED BALANCE SHEETS

                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                  DECEMBER 31
                                                              --------------------
                                                                2000        1999
                                                              --------    --------
<S>                                                           <C>         <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $  4,010    $  3,993
  Accounts receivable, less allowance of $372 in 2000 and
     $408 in 1999...........................................    29,602      29,745
  Inventories:
     Raw materials and work-in-process......................    20,140      17,809
     Finished products......................................    11,724       9,310
                                                              --------    --------
                                                                31,864      27,119
  Deferred income taxes.....................................     1,113       1,747
  Other current assets......................................     2,976       3,599
                                                              --------    --------
Total current assets........................................    69,565      66,203
Property, plant and equipment:
  Land and improvements.....................................     1,603       1,504
  Buildings and improvements................................    18,240      16,067
  Machinery and equipment...................................    89,330      81,953
  Furniture and fixtures....................................     5,584       4,915
  Construction in progress..................................     3,316       3,710
                                                              --------    --------
                                                               118,073     108,149
  Less accumulated depreciation.............................    47,672      37,964
                                                              --------    --------
Total property, plant and equipment.........................    70,401      70,185
Other assets:
  Intangible assets.........................................    70,713      69,177
  Shareholder notes.........................................     1,010       1,010
  Other.....................................................     3,696       3,045
                                                              --------    --------
Total other assets..........................................    75,419      73,232
                                                              --------    --------
Total assets................................................  $215,385    $209,620
                                                              ========    ========
</TABLE>

                See notes to consolidated financial statements.
                                        20
<PAGE>   22
                                HAWK CORPORATION

                   CONSOLIDATED BALANCE SHEETS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                                  DECEMBER 31
                                                              --------------------
                                                                2000        1999
                                                              --------    --------
<S>                                                           <C>         <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $ 11,579    $ 11,414
  Short-term borrowings.....................................        --         872
  Accrued compensation......................................     7,791       6,944
  Other accrued expenses....................................     6,446       6,271
  Current portion of long-term debt.........................     7,273       7,160
                                                              --------    --------
Total current liabilities...................................    33,089      32,661
Long-term liabilities:
  Long-term debt............................................    96,661      98,244
  Deferred income taxes.....................................    11,554      10,559
  Other.....................................................     2,092       1,667
                                                              --------    --------
Total long-term liabilities.................................   110,307     110,470
Minority interest...........................................       300          --
Shareholders' equity:
  Series D preferred stock, $.01 par value; an aggregate
     liquidation value of $1,530, plus any unpaid dividends
     with 9.8% cumulative dividend (1,530 shares authorized,
     issued and outstanding)................................         1           1
  Class A common stock, $.01 par value; 75,000,000 shares
     authorized; 9,187,750 issued; and 8,548,520 and
     8,540,920 outstanding in 2000 and 1999, respectively...        92          92
  Class B common stock, $.01 par value; 10,000,000 shares
     authorized; none issued or outstanding.................        --          --
  Additional paid-in capital................................    54,631      54,645
  Retained earnings.........................................    24,109      18,491
  Accumulated other comprehensive loss......................    (2,409)     (1,949)
  Treasury stock, at cost, 639,230 and 646,830 shares in
     2000 and 1999, respectively............................    (4,735)     (4,791)
                                                              --------    --------
Total shareholders' equity..................................    71,689      66,489
                                                              --------    --------
Total liabilities and shareholders' equity..................  $215,385    $209,620
                                                              ========    ========
</TABLE>

                See notes to consolidated financial statements.
                                        21
<PAGE>   23

                                HAWK CORPORATION

                       CONSOLIDATED STATEMENTS OF INCOME

                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31
                                                             --------------------------------
                                                               2000        1999        1998
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
Net sales..................................................  $202,329    $187,638    $182,287
Cost of sales..............................................   147,387     138,879     124,641
                                                             --------    --------    --------
Gross profit...............................................    54,942      48,759      57,646
Expenses:
  Selling, technical and administrative expenses...........    31,318      26,366      21,296
  Amortization of intangibles..............................     4,161       3,829       3,532
                                                             --------    --------    --------
Total expenses.............................................    35,479      30,195      24,828
                                                             --------    --------    --------
Income from operations.....................................    19,463      18,564      32,818
Interest expense...........................................    (9,016)     (9,409)    (11,883)
Interest income............................................       218         431         999
Other (expense) income, net................................      (535)        405         (31)
                                                             --------    --------    --------
Income before income taxes and extraordinary charge........    10,130       9,991      21,903
Income taxes...............................................     4,360       3,662       9,690
                                                             --------    --------    --------
Income before extraordinary charge.........................     5,770       6,329      12,213
Extraordinary charge--net of taxes of $2,276...............        --          --       3,079
                                                             --------    --------    --------
Net income.................................................  $  5,770    $  6,329    $  9,134
                                                             ========    ========    ========
Earnings per share:
  Basic:
     Earnings before extraordinary charge..................  $    .66    $    .71    $   1.59
     Extraordinary charge..................................        --          --        (.41)
                                                             --------    --------    --------
  Basic earnings per share.................................  $    .66    $    .71    $   1.18
                                                             ========    ========    ========
  Diluted:
     Earnings before extraordinary charge..................  $    .66    $    .71    $   1.51
     Extraordinary charge..................................        --          --        (.39)
                                                             --------    --------    --------
  Diluted earnings per share...............................  $    .66    $    .71    $   1.12
                                                             ========    ========    ========
</TABLE>

                See notes to consolidated financial statements.
                                        22
<PAGE>   24

                                HAWK CORPORATION

           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                             ACCUMULATED
                                                   ADDITIONAL   RETAINED        OTHER        COMMON
                              PREFERRED   COMMON    PAID-IN     EARNINGS    COMPREHENSIVE   STOCK IN
                                STOCK     STOCK     CAPITAL     (DEFICIT)   INCOME (LOSS)   TREASURY    TOTAL
                              ---------   ------   ----------   ---------   -------------   --------   -------
<S>                           <C>         <C>      <C>          <C>         <C>             <C>        <C>
Balance at January 1,
  1998......................     $1        $14      $ 1,964      $(3,120)      $(1,030)                $(2,171)
  Net income................                                       9,134                                 9,134
  Other comprehensive
     income:
  Foreign currency
     translation............                                                       390                     390
                                                                                                       -------
  Total comprehensive
     income.................                                                                             9,524
  Stock split...............                33          (33)
  Issuance of common stock
     in connection with
     initial public
     offering, net of
     issuance costs.........                35       54,450                                             54,485
  Conversion of detachable
     warrants in connection
     with initial public
     offering...............                10                     6,553                                 6,563
  Preferred stock
     redemption.............                         (1,736)                                            (1,736)
  Preferred stock
     dividend...............                                        (257)                                 (257)
  Repurchase of common
     stock..................                                                                $(1,993)    (1,993)
                                 --        ---      -------      -------       -------      -------    -------
Balance at December 31,
  1998......................      1         92       54,645       12,310          (640)      (1,993)    64,415
  Net income................                                       6,329                                 6,329
  Other comprehensive
     income:
  Foreign currency
     translation............                                                    (1,309)                 (1,309)
                                                                                                       -------
  Total comprehensive
     income.................                                                                             5,020
  Preferred stock
     dividend...............                                        (148)                                 (148)
  Repurchase of common
     stock..................                                                                 (2,798)    (2,798)
                                 --        ---      -------      -------       -------      -------    -------
Balance at December 31,
  1999......................      1         92       54,645       18,491        (1,949)      (4,791)    66,489
  Net income................                                       5,770                                 5,770
  Other comprehensive
     income:
  Minimum pension liability
     (net of tax)...........                                                       (83)                    (83)
  Foreign currency
     translation............                                                      (377)                   (377)
                                                                                                       -------
  Total comprehensive
     income.................                                                                             5,310
  Preferred stock
     dividend...............                                        (152)                                 (152)
  Issuance of common stock
     from treasury as
     compensation...........                            (14)                                     56         42
                                 --        ---      -------      -------       -------      -------    -------
Balance at December 31,
  2000......................     $1        $92      $54,631      $24,109       $(2,409)     $(4,735)   $71,689
                                 ==        ===      =======      =======       =======      =======    =======
</TABLE>

                See notes to consolidated financial statements.
                                        23
<PAGE>   25

                                HAWK CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31
                                                              --------------------------------
                                                                2000        1999        1998
                                                              --------    --------    --------
<S>                                                           <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................................  $  5,770    $  6,329    $  9,134
Adjustments to reconcile net income to net cash provided by
  operating activities:
  Depreciation and amortization.............................    14,976      13,673      11,496
  Accretion of discount on debt.............................        --          --         238
  Deferred income taxes.....................................     1,650       1,440       3,161
  Extraordinary charge, net of tax..........................        --          --       3,079
  Loss on fixed assets......................................       216         518         346
  Changes in operating assets and liabilities, net of
     acquired assets:
     Accounts receivable....................................       590      (2,690)      2,546
     Inventories............................................    (3,622)        121      (1,821)
     Other assets...........................................        57         581      (3,636)
     Accounts payable.......................................      (205)        (67)       (817)
     Other liabilities......................................     2,132        (159)        210
                                                              --------    --------    --------
Net cash provided by operating activities...................    21,564      19,746      23,936
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of marketable securities...........................        --          --      (4,130)
Sale of marketable securities...............................        --          --       4,040
Business acquisitions.......................................    (6,510)    (19,350)     (9,100)
Purchases of property, plant and equipment..................   (10,489)    (10,134)    (14,084)
Proceeds from sale of assets................................        69       3,682          --
Payments received on shareholder notes......................        --          --         665
                                                              --------    --------    --------
Net cash used in investing activities.......................   (16,930)    (25,802)    (22,609)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on short-term debt.................................      (808)         --        (805)
Proceeds from long-term debt................................    30,217      38,022      35,000
Payments on long-term debt..................................   (33,886)    (39,701)    (71,795)
Deferred financing costs....................................        --          --        (850)
Payments of preferred stock dividends.......................      (152)       (148)       (257)
Net proceeds from issuance of common stock..................        --          --      52,749
Prepayment premium on early retirement of debt..............        --          --      (3,588)
Repurchase of common stock..................................        --      (2,798)     (1,993)
                                                              --------    --------    --------
Net cash (used in) provided by financing activities.........    (4,629)     (4,625)      8,461
Effect of exchange rate changes on cash.....................        12         357         141
                                                              --------    --------    --------
Net increase (decrease) in cash and cash equivalents........        17     (10,324)      9,929
Cash and cash equivalents at beginning of year..............     3,993      14,317       4,388
                                                              --------    --------    --------
Cash and cash equivalents at end of year....................  $  4,010    $  3,993    $ 14,317
                                                              ========    ========    ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest..................................  $  9,045    $  9,403    $ 12,179
                                                              ========    ========    ========
Cash payments for income taxes..............................  $  3,685    $  2,596    $  6,310
                                                              ========    ========    ========
Noncash investing and financing activities:
  Equipment purchased with capital leases...................  $     24    $     85    $  1,149
                                                              ========    ========    ========
  Issuance of common stock from treasury....................  $     42    $     --    $     --
                                                              ========    ========    ========
</TABLE>

                See notes to consolidated financial statements.
                                        24
<PAGE>   26

                                HAWK CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

A. BASIS OF PRESENTATION

     Hawk Corporation (the "Company") designs, engineers, manufactures and
markets specialized components used in a wide variety of aerospace, industrial
and commercial applications.

     The consolidated financial statements of the Company include its wholly
owned subsidiaries. Beginning in December 2000, the financial statements also
include the Company's 67% ownership interest in Net Shape Technologies, LLC. All
significant intercompany accounts and transactions have been eliminated in the
accompanying financial statements. Certain amounts have been reclassified in
1999 and 1998 to conform with the 2000 presentation.

     In May 1998, the Company completed an initial public offering (IPO) of
3,500,000 shares of common stock at an offering price to the public of $17.00
per share. See Note F.

     In the fourth quarter of 2000, the Company changed its accounting policy to
reflect in its consolidated statement of income all shipping and handling costs
as cost of sales and related shipping revenue in net sales. All prior periods
have been changed to conform to current year presentation.

B. SIGNIFICANT ACCOUNTING POLICIES

  CASH AND CASH EQUIVALENTS

     The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

  INVENTORIES

     Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out (FIFO) method.

  PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment are recorded at cost and include expenditures
for additions and major improvements. Expenditures for repairs and maintenance
are charged to operations as incurred. The Company principally uses either the
straight-line or the unit method of depreciation for financial reporting
purposes based on annual rates sufficient to amortize the cost of the assets
over their estimated useful lives. Buildings and improvements are depreciated
over periods ranging from 15 to 33 years. Machinery and equipment is depreciated
over periods ranging from 4 to 12 years. Furniture and fixtures are depreciated
over periods ranging from 3 to 10 years. Accelerated methods of depreciation are
used for federal income tax purposes.

  INTANGIBLE ASSETS

     Intangible assets are amortized using the straight-line method over periods
ranging from 5 to 40 years. The ongoing value and remaining useful life of
intangible assets are subject to periodic evaluation, and the Company currently
expects the carrying amounts to be fully recoverable. If events and
circumstances indicate that intangible assets might be impaired, an undiscounted
cash flows methodology would be used to determine whether an impairment loss
should be recognized.

  FOREIGN CURRENCY TRANSLATION

     The assets and liabilities of the Company's foreign subsidiaries are
translated into U.S. dollars at year-end exchange rates. Revenues and expenses
are translated at weighted average exchange rates. Gains and losses from

                                        25
<PAGE>   27
                                HAWK CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

transactions are included in results of operations. Gains and losses resulting
from translation are included in accumulated other comprehensive loss, a
component of shareholders' equity.

  REVENUE RECOGNITION

     Revenue from the sale of the Company's products is recognized upon shipment
to the customer and when title has transferred. Costs and related expenses to
manufacture the products are recorded as costs of sales when the related revenue
is recognized.

  SIGNIFICANT CONCENTRATIONS

     The Company provides credit, in the normal course of its business, to
original equipment and aftermarket manufacturers. The Company's customers are
not concentrated in any specific geographic region. The Company performs ongoing
credit evaluations of its customers and maintains allowances for potential
credit losses which, when realized, have been within the range of management's
expectations.

     The Company has approximately 200 employees at one of its foreign
operations covered under a national collective bargaining agreement, which
expired in 2000. The Company is currently operating under a temporary agreement
with its union.

  PRODUCT RESEARCH AND DEVELOPMENT

     Research and development costs are expensed as incurred. The Company's
expenditures for product development and engineering were approximately $3,533
in 2000, $3,229 in 1999 and $2,985 in 1998.

  INCOME TAXES

     The Company uses the liability method in measuring the provision for income
taxes and recognizing deferred tax assets and liabilities in the balance sheet.
The liability method requires that deferred income taxes reflect the tax
consequences of currently enacted rates for differences between the tax and
financial reporting bases of assets and liabilities.

  FAIR VALUE OF FINANCIAL INSTRUMENTS

     The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:

     Cash and Cash Equivalents -- The carrying amounts reported in the
consolidated balance sheets for cash and cash equivalents approximate fair
value.

     Long-Term Debt (including Current Portion) -- The fair values of the
Company's publicly traded debentures, shown in the following table, are based on
quoted market prices. The fair values of the Company's non-traded debt, also
shown in the following table, are estimated using discounted cash flow analysis,
based on the Company's current incremental borrowing rates for similar types of
borrowing arrangements.

<TABLE>
<CAPTION>
                                                                     DECEMBER 31
                                                      ------------------------------------------
                                                             2000                   1999
                                                      -------------------    -------------------
                                                      CARRYING     FAIR      CARRYING     FAIR
                                                       AMOUNT      VALUE      AMOUNT      VALUE
                                                      --------    -------    --------    -------
<S>                                                   <C>         <C>        <C>         <C>
Publicly traded debt................................  $65,000     $61,100    $65,000     $61,100
Non-traded debts (including capital leases).........  $38,934     $38,934    $40,404     $40,404
</TABLE>

     Interest Rate Swap -- The Company enters into interest rate swaps primarily
to hedge against interest rate risks. These agreements generally involve the
exchange of fixed and floating rate interest payment obligations without the
exchange of the underlying principal amounts. Counterparties to this agreement
are major financial institutions. There were no interest rate swap agreements
outstanding at December 31, 2000.

                                        26
<PAGE>   28
                                HAWK CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, which requires all derivatives to be
recognized as either assets or liabilities in the balance sheet and measured at
fair value. The adoption of the statement effective January 1, 2001 did not have
a significant effect.

C. BUSINESS ACQUISITIONS

     Effective in June 1998, the Company acquired all of the outstanding stock
of Clearfield Powdered Metals, Inc. for $9,100 in cash and other consideration.
The acquisition was accounted for as a purchase. The excess of the purchase
price over the estimated fair value of the net assets acquired in the amount of
$8,300 is being amortized over 30 years and is included in intangible assets.
The results of operations of Clearfield are included in the Company's
consolidated statements of income since the date of acquisition.

     Effective in March 1999, the Company acquired all of the outstanding stock
of Allegheny Powder Metallurgy, Inc. for $14,500 in cash and other
consideration. The acquisition was accounted for as a purchase. The excess of
the purchase price over the estimated fair value of the acquired in the amount
of $8,110 is being amortized over 30 years and is included in intangible assets.
The results of operations of Allegheny are included in the Company's
consolidated statements of income since the date of acquisition.

     Effective in November 1999, the Company acquired substantially all of the
assets (except cash) and assumed certain liabilities of Quarter Master
Industries, Inc. for $4,850 in cash and other consideration. The purchase price
also includes future contingent payments based on earnings. The acquisition was
accounted for as a purchase. The excess of the purchase price over the estimated
fair value of the assets less the assumed liabilities in the amount of $4,240 is
being amortized over 15 years and is included in intangible assets. The results
of operations of Quarter Master are included in the Company's consolidated
statements of income since the date of acquisition.

     Effective in November 2000, the Company acquired all of the outstanding
stock of Tex Racing Enterprises, Inc. for $6,030 in cash and other
consideration. The purchase price also includes future contingent payments based
on earnings. The acquisition was accounted for as a purchase. The excess of
purchase price over the estimated fair value of the net assets acquired in the
amount of $4,700 is being amortized over 15 years and is included in intangible
assets. The results of operations of Tex Racing are included in the Company's
consolidated statements of income since the date of acquisition.

     In December 2000, the Company acquired 67% of Net Shape Technologies LLC
(Net Shape) for $480 in cash, concurrent with a capital infusion of $800. The
acquisition was accounted for as a purchase. The excess of the purchase price
over the estimated fair value of net assets acquired in the amount of $742 is
being amortized over 10 years and is included in intangible assets. The results
of operations of Net Shape are included in the Company's consolidated statements
of income since the date of acquisition.

     The following unaudited pro forma consolidated results of operations give
effect to the Allegheny, Quarter Master, Tex Racing and Net Shape acquisitions
as though they had occurred on January 1, 1999 and include certain adjustments,
such as additional amortization expense as a result of goodwill.

                                        27
<PAGE>   29
                                HAWK CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31
                                                                ----------------------
                                                                  2000         1999
                                                                ---------    ---------
<S>                                                             <C>          <C>
Net sales...................................................    $209,435     $202,855
                                                                ========     ========
Net income..................................................    $  5,658     $  7,796
                                                                ========     ========
Income per share -- basic...................................    $    .64     $    .88
                                                                ========     ========
Income per share -- diluted.................................    $    .64     $    .88
                                                                ========     ========
</TABLE>

     Pro forma net sales and net income are not necessarily indicative of the
net sales and net income that would have occurred had the acquisitions been made
at the beginning of the year or the results that may occur in the future.

D. INTANGIBLE ASSETS

     The components of intangible assets and related amortization periods are as
follows:

<TABLE>
<CAPTION>
                                                                 DECEMBER 31
                                                              ------------------
                                                               2000       1999
                                                              -------    -------
<S>                                                           <C>        <C>
Product certifications (19 to 40 years).....................  $20,820    $20,820
Goodwill (10 to 40 years)...................................   67,380     61,895
Deferred financing costs (5 to 7 years).....................    4,693      4,693
Proprietary formulations and patents (10 to 15 years).......    1,858      1,858
Other.......................................................    1,043        831
                                                              -------    -------
                                                               95,794     90,097
Accumulated amortization....................................  (25,081)   (20,920)
                                                              -------    -------
                                                              $70,713    $69,177
                                                              =======    =======
</TABLE>

     Product certifications were acquired and valued based on the acquired
company's position as a certified supplier of friction materials to the major
manufacturers of commercial aircraft brakes.

E. FINANCING ARRANGEMENTS

<TABLE>
<CAPTION>
                                                                 DECEMBER 31
                                                              ------------------
                                                               2000       1999
                                                              -------    -------
<S>                                                           <C>        <C>
Term Loan...................................................  $22,500    $27,500
Senior Notes................................................   65,000     65,000
Revolver....................................................    8,145      4,951
Other.......................................................    8,289      7,953
                                                              -------    -------
                                                              103,934    105,404
Less current portion........................................    7,273      7,160
                                                              -------    -------
                                                              $96,661    $98,244
                                                              =======    =======
</TABLE>

     In connection with the IPO in May 1998, the Company retired all of its
outstanding $30,000 Senior Subordinated Notes, and incurred an extraordinary
charge of $427 relating to the write-off of previously capitalized deferred
financing costs. The Senior Subordinated Notes had detachable warrants to the
lender, which terminated upon the closing of the Company's IPO and provided the
lender the option to purchase 1,023,793 shares of the Company's common stock at
a per share price of $.01. The warrant holders exercised the warrants on May 11,
1998 for 1,023,793 shares of the Company's common stock. As a result of the
warrant exercise the

                                        28
<PAGE>   30
                                HAWK CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

corresponding carrying value of the warrants of $9,300, less the par value of
the common stock issued, including the put options, was reclassified as an
addition to retained earnings.

     In November 1996, the Company issued $100,000 in Senior Notes (Senior
Notes) due on December 1, 2003, unless previously redeemed at the Company's
option, in accordance with the terms of the Senior Notes. Interest is payable
semi-annually on June 1 and December 1 of each year commencing June 1, 1997, at
a fixed rate of 10.25%. In March 1997, the Senior Notes were exchanged for notes
registered with the Securities and Exchange Commission. In May 1998, concurrent
with the IPO, the Company retired $35,000 of the then outstanding $100,000
Senior Notes and incurred extraordinary charges of $1,340 and $3,588 relating to
the write-off of previously capitalized deferred financing costs and a
prepayment premium on the early retirement of debt, respectively. The remaining
$65,000 Senior Notes are fully and unconditionally guaranteed on a joint and
several basis by each of the direct and indirect wholly owned domestic
subsidiaries of the Company (Guarantor Subsidiaries). See Note N.

     In May 1998, the Company entered into a $35,000 unsecured term loan
facility and a $50,000 unsecured revolving credit facility. The term loan has
quarterly maturities of $1,250, beginning September 30, 1998, with the remaining
principal of $12,500 due on March 31, 2003. The revolving credit facility
matures March 31, 2003. Interest is payable under both facilities, quarterly, at
a variable rate based on a Eurodollar Rate, plus a margin, per annum or, at the
Company's option, a variable rate based on the lending bank's prime rate. The
margin is subject to increase or decrease based on achievement of certain
financial covenants by the Company. At December 31, 2000, the rate on the term
loan facility and the revolving credit facility was 8.7% and 8.5%, respectively.
The term loan and revolving credit facility require the Company to maintain
certain conditions with respect to net worth and interest coverage ratio as
defined in the agreement.

     Aggregate principal payments due on long-term debt as of December 31, 2000
are as follows: 2001 -- $7,273; 2002 -- $6,228; 2003 -- $86,534; 2004 -- $1,829;
2005 -- $1,920; and thereafter -- $150.

     At December 31, 1999 the Company's short-term borrowings represent advances
under unsecured lines of credit. No amounts were outstanding at December 31,
2000. Unused amounts under these lines total approximately $1,700 at December
31, 2000.

F. SHAREHOLDERS' EQUITY

     In connection with the IPO, in 1998, the Company redeemed all 1,375 shares
of its outstanding, $.01 par value, Series A preferred stock, 351 shares of its
outstanding, $.01 par value, Series B preferred stock and 7 shares of its
outstanding, $.01 par value, Series C preferred stock. The remaining 351 and
1,182 issued and outstanding shares of Series B and C preferred stock,
respectively, were converted into 1,530 shares of $.01 par value, Series D
preferred stock. Dividends on the Series D preferred stock are cumulative at a
rate of 9.8%. Each share of Series D preferred stock is (1) entitled to a
liquidation preference equal to $1,000 per share plus any accrued or unpaid
dividends, (2) not entitled to vote, except in certain circumstances, and (3)
redeemable in whole, at the option of the Company, for $1 per share plus all
accrued dividends to the date of redemption. The Company also has 100,000
authorized shares of $.01 par value, Series E preferred stock, of which no
shares are issued or outstanding. Each share of Series E preferred stock is (1)
not redeemable and is entitled to dividends in the amount of 1,000 times the per
share dividend received by the holders of common stock, (2) entitled to 1,000
votes per share, and (3) entitled to a liquidation right of 1,000 times the
aggregate amount distributed per share to the holder of common stock.

     On November 13, 1997, the Board of Directors declared a dividend of one
Series E preferred share purchase right (a Right) for each outstanding share of
common stock. The dividend was payable to the shareholders of record as of
January 16, 1998, and with respect to common stock, issued thereafter until the
Distribution Date, as defined in the Rights Agreement, and in certain
circumstances, with respect to common stock issued after the Distribution Date.
Except as set forth in the Rights Agreement, each Right, when it becomes
exercisable, entitles

                                        29
<PAGE>   31
                                HAWK CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the registered holder to purchase from the Company one one-thousandth of a share
of Series E preferred stock at a price of $70 per one one-thousandth share of a
Series E preferred stock, subject to adjustment.

G. EMPLOYEE STOCK OPTION PLAN

     The Company grants stock options to certain employees under various plans,
to purchase shares of Class A common shares. In May 2000, the shareholders
approved the Hawk Corporation 2000 Long Term Incentive Plan, which allows for
the issuance of up to 700,000 shares of Class A common stock to officers and
other key employees. During 2000, 1999 and 1998, the Company granted stock
options to purchase an aggregate of 328,878, 147,400 and 343,200 shares,
respectively, at exercise prices representing the fair market values of such
shares at the date of grant. The options vest ratably over a five year period.

     The following table summarizes the stock option activity for the years
ended December 31, 2000 and 1999 and 1998:

<TABLE>
<CAPTION>
                                          2000                  1999                  1998
                                   -------------------   -------------------   -------------------
                                              WEIGHTED              WEIGHTED              WEIGHTED
                                              AVERAGE               AVERAGE               AVERAGE
                                              EXERCISE              EXERCISE              EXERCISE
                                   OPTIONS     PRICE     OPTIONS     PRICE     OPTIONS     PRICE
                                   --------   --------   --------   --------   --------   --------
<S>                                <C>        <C>        <C>        <C>        <C>        <C>
Options outstanding at beginning
  of year........................   472,600    $13.78     340,200    $16.50          --    $   --
Granted..........................   328,878      6.11     147,400      7.47     343,200     16.52
Exercised........................        --        --          --        --          --        --
Canceled.........................   (35,211)    13.16     (15,000)    13.83      (3,000)    17.00
                                   --------    ------    --------    ------    --------    ------
Options outstanding at end of
  year...........................   766,267    $10.51     472,600    $13.78     340,200    $16.50
Exercisable at the end of the
  year...........................   159,300    $14.91      65,340    $16.62          --    $   --
Weighted average fair value of
  options granted during the
  year...........................  $   4.00              $   4.13              $   8.92
Shares available for future
  grant..........................   633,733               227,400               359,800
</TABLE>

     Exercise prices for options outstanding as of December 31, 2000 ranged from
$4.25 to $18.70. A summary of the options by range of exercise prices is as
follows:

<TABLE>
<CAPTION>
                                              OUTSTANDING                    EXERCISABLE
                                  -----------------------------------    -------------------
                                                           WEIGHTED
                                             WEIGHTED      AVERAGE                  WEIGHTED
                                             AVERAGE      REMAINING                 AVERAGE
            RANGE OF                         EXERCISE    CONTRACTUAL                EXERCISE
         EXERCISE PRICE           OPTIONS     PRICE      LIFE (YEARS)    OPTIONS     PRICE
--------------------------------  -------    --------    ------------    -------    --------
<S>                               <C>        <C>         <C>             <C>        <C>
$4.25 to $6.00..................  196,647     $ 5.46         9.3             400     $ 4.25
$6.01 to $12.00.................  284,720     $ 7.37         8.8          37,020     $ 7.74
$12.01 to $18.70................  284,900     $17.13         6.1         121,880     $17.12
</TABLE>

                                        30
<PAGE>   32
                                HAWK CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, but applies Accounting Principles Board
Opinion No. 25 and related interpretations in accounting for its plans.
Accordingly, no compensation expense has been reflected in the accompanying
consolidated financial statements related to the stock options issued pursuant
to this plan. If the Company had elected to recognize compensation expense based
on the fair value at the grant dates for awards under this plan consistent with
the method prescribed by SFAS No. 123, net income and net income per share would
have been changed to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31
                                                           --------------------------
                                                            2000      1999      1998
                                                           ------    ------    ------
<S>                                                        <C>       <C>       <C>
Net income:
  As reported............................................  $5,770    $6,329    $9,134
  Pro forma..............................................  $4,975    $5,469    $8,619
Earnings per share (diluted):
  As reported............................................  $  .66    $  .71    $ 1.12
  Pro forma..............................................  $  .58    $  .63    $ 1.09
</TABLE>

     The fair value of the options granted used to compute pro forma net income
and earnings per share disclosures is the estimated present value at grant date
using the Black-Scholes option-pricing model with the following assumptions:

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31
                                                          -----------------------------
                                                           2000       1999       1998
                                                          -------    -------    -------
<S>                                                       <C>        <C>        <C>
Dividend yield..........................................       0%         0%         0%
Expected volatility.....................................    57.8%      48.8%      35.0%
Risk free interest rate.................................    5.25%       6.5%       5.8%
Expected average holding period.........................  7 YEARS    7 years    7 years
</TABLE>

H. EMPLOYEE BENEFITS

     The Company has several defined benefit pension plans that cover certain
employees. Benefits payable are based primarily on compensation and years of
service or a fixed annual benefit for each year of service. Certain hourly
employees are also covered under collective bargaining agreements. The Company
funds the plans in amounts sufficient to satisfy the minimum amounts required
under ERISA.

                                        31
<PAGE>   33
                                HAWK CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The components of the defined benefit pension plans are as follows:

<TABLE>
<CAPTION>
                                                                  DECEMBER 31
                                                              --------------------
                                                                2000        1999
                                                              --------    --------
<S>                                                           <C>         <C>
  Change in benefit obligation:
       Benefit obligation at beginning of year..............  $ 12,530    $ 13,360
       Service cost.........................................       508         613
       Interest cost........................................     1,019         920
       Actuarial losses (gains).............................     1,601      (1,605)
       Plan amendments......................................       220          --
       Foreign currency exchange rate charges...............       (25)         37
     Benefits paid..........................................      (850)       (795)
                                                              --------    --------
     Benefit obligation at end of year......................  $ 15,003    $ 12,530
                                                              ========    ========
  Change in plan assets:
       Fair value of plan assets at beginning of year.......  $ 20,270    $ 15,930
       Actual return on plan assets.........................      (398)      4,410
       Foreign currency exchange rate charges...............       (45)         66
       Company contributions................................       472         659
       Benefits paid........................................      (850)       (795)
                                                              --------    --------
  Fair value of plan assets at end of year..................  $ 19,449    $ 20,270
                                                              ========    ========
  Funded status of the plan.................................  $  4,446    $  7,740
  Unrecognized net actuarial gains..........................    (1,882)     (5,362)
  Unrecognized prior service cost...........................       576         423
                                                              --------    --------
  Net prepaid benefit cost..................................  $  3,140    $  2,801
                                                              ========    ========
  Amounts recognized in the balance sheet consist of the
     following:
          Prepaid benefit cost..............................  $  3,140    $  2,802
          Accrued benefit liability.........................      (393)         (1)
          Intangible asset..................................       253          --
          Cumulative other comprehensive loss...............       140          --
                                                              --------    --------
  Net amount recognized.....................................  $  3,140    $  2,801
                                                              ========    ========
</TABLE>

     All of the Company's pension plans were overfunded at December 31, 1999.
Amounts applicable to the Company's underfunded pension plans at December 31,
2000 are as follows:

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                                    2000
                                                                ------------
<S>                                                             <C>
Projected benefit obligation................................      $ 4,303
Accumulated benefit obligation..............................        4,269
Fair value of plan assets...................................        4,139
Amounts recognized as accrued benefit liabilities...........          393
Amounts recognized as intangible asset......................          253
</TABLE>

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31
                                                         -----------------------------
                                                          2000       1999       1998
                                                         -------    -------    -------
<S>                                                      <C>        <C>        <C>
Components of net periodic pension cost:
     Service cost......................................  $   508    $   613    $   449
     Interest cost.....................................    1,019        920        905
     Expected return on plan assets....................   (1,455)    (1,498)    (1,257)
     Amortization of prior service cost................       67         60         51
     Recognized net actuarial loss.....................      (26)        58         (3)
                                                         -------    -------    -------
                                                         $   113    $   153    $   145
                                                         =======    =======    =======
</TABLE>

                                        32
<PAGE>   34
                                HAWK CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The plans' assets are primarily invested in fixed income and equity
securities. In addition, one of the Company's defined benefit plans also
contains investments in the Company's stock. As of December 31, 2000, 60,000
shares of the Company's stock had been purchased at a cost of $717. The market
value as of December 31, 2000 was $326.

     The following assumptions were used in accounting for the defined benefit
plans:

<TABLE>
<CAPTION>
                                                              2000    1999    1998
                                                              ----    ----    ----
<S>                                                           <C>     <C>     <C>
Used to compute the projected benefit obligation as of
  December 31:
     Weighted average discount rate.........................  7.5%    8.0%    7.0%
     Annual salary increase.................................  3.0%    3.0%    3.0%
     Weighted average expected long-term rate of return on
       plan assets for the year ended December 31...........  9.5%    9.5%    9.5%
</TABLE>

     The Company also sponsors several defined contribution plans, which provide
voluntary employee contributions and, in certain plans, matching and
discretionary employer contributions. Expenses associated with these plans were
approximately $1,444 in 2000, $1,263 in 1999 and $844 in 1998.

I. LEASE OBLIGATIONS

     The Company has capital lease commitments for buildings and equipment.
Future minimum annual rentals are: 2001 -- $764; 2002 -- $478; 2003 -- $193;
2004 -- $180; 2005 -- $126; and thereafter -- $12. Amount representing interest
is $238. Total capital lease obligations are included in other long-term debt.
Amortization of assets recorded under capital leases is included with
depreciation expense.

     The Company leases certain office and warehouse facilities and equipment
under operating leases. Rental expense was approximately $1,828 in 2000, $1,127
in 1999 and $939 in 1998. Future minimum lease commitments under these
agreements that have an original or existing term in excess of one year as of
December 31, 2000 are as follows: 2001 -- $1,937; 2002 -- $1,709;
2003 -- $1,321; 2004 -- $1,255; 2005 -- $901; and thereafter -- $939.

J. INCOME TAXES

     The provision for income taxes, including the effect of the extraordinary
charge in 1998, consists of the following:

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31
                                                           --------------------------
                                                            2000      1999      1998
                                                           ------    ------    ------
<S>                                                        <C>       <C>       <C>
Current:
  Federal................................................  $2,020    $1,771    $3,028
  State and local........................................     171       113       626
  Foreign................................................     527       251       599
                                                           ------    ------    ------
                                                            2,718     2,135     4,253
Deferred:
  Federal................................................   1,468     1,259     2,675
  State and local........................................     119       138       287
  Foreign................................................      55       130       199
                                                           ------    ------    ------
                                                            1,642     1,527     3,161
                                                           ------    ------    ------
Total income tax provision...............................  $4,360    $3,662    $7,414
                                                           ======    ======    ======
</TABLE>

                                        33
<PAGE>   35
                                HAWK CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and income tax purposes. Significant components of the Company's deferred tax
assets and liabilities as of December 31 are as follows:

<TABLE>
<CAPTION>
                                                               2000       1999
                                                              -------    -------
<S>                                                           <C>        <C>
Deferred tax assets:
  Accrued vacation..........................................  $   530    $   498
  Other accruals............................................      733      1,436
  Foreign capital leases....................................    1,304      1,398
  Other.....................................................      987        672
                                                              -------    -------
Total deferred tax assets...................................    3,554      4,004
Deferred tax liabilities:
  Tax over book depreciation and amortization...............   11,186      9,906
  Employee benefits.........................................      687        703
  Foreign leased property...................................    1,666      1,815
  Other.....................................................      456        392
                                                              -------    -------
Total deferred tax liabilities..............................   13,995     12,816
                                                              -------    -------
Net deferred tax liabilities................................  $10,441    $ 8,812
                                                              =======    =======
</TABLE>

     The provision for income taxes, including the tax effect of the
extraordinary charge in 1998, differs from the amounts computed by applying the
federal statutory rate as follows:

<TABLE>
<CAPTION>
                                                                  DECEMBER 31
                                                              --------------------
                                                              2000    1999    1998
                                                              ----    ----    ----
<S>                                                           <C>     <C>     <C>
Income tax expense at federal statutory rate................  35.0%   35.0%   35.0%
State and local tax, net of federal tax benefit.............   1.8     1.6     3.6
Nondeductible goodwill amortization.........................   3.9     4.0     1.8
Adjustment to worldwide tax accrual and other, net..........   2.3    (3.9)    4.4
                                                              ----    ----    ----
Provision for income taxes..................................  43.0%   36.7%   44.8%
                                                              ====    ====    ====
</TABLE>

     In 1999, the Company reversed income tax accruals as a result of the
resolution of tax contingencies. Undistributed earnings of the Company's foreign
subsidiaries amounted to approximately $7,000 at December 31, 2000. These
earnings are considered to be indefinitely reinvested and, accordingly, no
provision for U.S. federal and state income taxes has been provided. It is not
practical to determine the amount of income tax liability that would result had
such earnings actually been repatriated. Upon distribution of these earnings in
the form of dividends or otherwise, the Company would be subject to both U.S.
income taxes, which may be offset by foreign tax credits, and withholding taxes
payable to various foreign countries.

                                        34
<PAGE>   36
                                HAWK CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

K. EARNINGS PER SHARE

     Basic and diluted earnings per share are computed as follows:

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31
                                                          ---------------------------
                                                           2000      1999      1998
                                                          ------    ------    -------
<S>                                                       <C>       <C>       <C>
Income available to common shareholders:
  Income before extraordinary charge....................  $5,770    $6,329    $12,213
  Less: Preferred stock dividends.......................     152       148        257
                                                          ------    ------    -------
Income before extraordinary charge attributable to
  common shareholders...................................  $5,618    $6,181    $11,956
                                                          ======    ======    =======
Net income..............................................  $5,770    $6,329    $ 9,134
Less: Preferred stock dividends.........................     152       148        257
                                                          ------    ------    -------
Net income attributable to common shareholders..........  $5,618    $6,181    $ 8,877
                                                          ======    ======    =======
Weighted average shares: (In Thousands)
  Basic:
     Basic weighted average shares......................   8,548     8,657      7,554
                                                          ======    ======    =======
  Diluted:
     Basic from above...................................   8,548     8,657      7,554
     Effect of warrant conversion.......................      --        --        368
     Effect of note conversion and options..............      21        --         19
                                                          ------    ------    -------
Diluted weighted average shares.........................   8,569     8,657      7,941
                                                          ======    ======    =======
Earnings per share:
  Basic:
     Earnings before extraordinary charge...............  $  .66    $  .71    $  1.59
     Extraordinary charge...............................      --        --       (.41)
                                                          ------    ------    -------
  Basic earnings per share..............................  $  .66    $  .71    $  1.18
                                                          ======    ======    =======
Diluted:
     Earnings before extraordinary charge...............  $  .66    $  .71    $  1.51
     Extraordinary charge...............................      --        --       (.39)
                                                          ------    ------    -------
Diluted earnings per share..............................  $  .66    $  .71    $  1.12
                                                          ======    ======    =======
</TABLE>

     Outstanding stock options were not included in the computation of diluted
earnings per share for 1999, since it would have resulted in an anti-dilutive
effect. The effect of the note conversion was not included in the computation of
earnings per share for 2000 or 1999, since it would have resulted in an
anti-dilutive effect.

L. RELATED PARTIES

     In July 1995, certain shareholders of the Company issued interest-bearing
notes to the Company in the amount of $2,000, enabling them to repay certain
indebtedness incurred by them with respect to an acquisition. The notes are due
and payable on July 1, 2002 and bear interest at the prime rate. The balance
outstanding at December 31, 2000 and 1999 is $1,010.

M. BUSINESS SEGMENTS

     During 2000, as a result of recent acquisitions, the Company changed its
segment reporting structure to match management's internal reporting of
businesses operations. Significant changes include the segregation of the
performance automotive and motor businesses.

                                        35
<PAGE>   37
                                HAWK CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company now operates in four primary business segments: friction
products, powder metal, performance automotive and motors. The Company's
reportable segments are strategic business units that offer different products
and services. They are managed separately based on fundamental differences in
their operations.

     The friction products segment engineers, manufactures and markets
specialized components, used in a variety of aerospace, industrial and
commercial applications. The Company, through this segment, is a worldwide
supplier of friction components for brakes, clutches and transmissions.

     The powder metal segment engineers, manufactures and markets specialized
components, used primarily in industrial applications. The Company, through this
segment, targets three areas of the powder metal component marketplace: high
precision components that are used in fluid power applications, large structural
powder metal parts used in construction, agricultural and truck applications,
and smaller high-volume parts.

     The performance automotive segment engineers, manufacturers and markets
high performance friction material for use in racing car brakes in addition to
premium branded clutch and drive train components. The Company, through this
segment, targets leading teams in the NASCAR racing series, as well as
high-performance street vehicles and other road race and oval track competition
cars.

     The motor segment engineers, manufacturers and markets die-cast aluminum
rotors for use in subfractional electric motors. The Company, through this
segment, targets a wide variety of application such as business equipment, small
household appliances and exhaust fans.

     The information by segment is as follows:

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31
                                                     --------------------------------
                                                       2000        1999        1998
                                                     --------    --------    --------
<S>                                                  <C>         <C>         <C>
Revenues from external customers:
  Friction Products................................  $106,337    $107,348    $117,091
  Powder Metal.....................................    78,203      68,335      53,493
  Performance Automotive...........................     9,358       3,324       2,528
  Motor............................................     8,431       8,631       9,175
                                                     --------    --------    --------
Consolidated.......................................  $202,329    $187,638    $182,287
                                                     ========    ========    ========
Depreciation and amortization:
  Friction Products................................  $  8,444    $  8,075    $  7,538
  Powder Metal.....................................     5,056       4,666       3,160
  Performance Automotive...........................       708         281         165
  Motor............................................       768         651         633
                                                     --------    --------    --------
Consolidated.......................................  $ 14,976    $ 13,673    $ 11,496
                                                     ========    ========    ========
Operating income (loss):
  Friction Products................................  $ 10,618    $  7,756    $ 18,955
  Powder Metal.....................................     9,755      11,003      13,359
  Performance Automotive...........................       356         155        (348)
  Motor............................................    (1,266)       (350)        852
                                                     --------    --------    --------
Consolidated.......................................  $ 19,463    $ 18,564    $ 32,818
                                                     ========    ========    ========
</TABLE>

                                        36
<PAGE>   38
                                HAWK CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31
                                                     --------------------------------
                                                       2000        1999        1998
                                                     --------    --------    --------
<S>                                                  <C>         <C>         <C>
Extraordinary charge:
  Friction Products................................  $     --    $     --    $  1,939
  Powder Metal.....................................        --          --         740
  Performance Automotive...........................        --          --          88
  Motor............................................        --          --         312
                                                     --------    --------    --------
Consolidated.......................................  $     --    $     --    $  3,079
                                                     ========    ========    ========
Capital expenditures: (including capital leases):
  Friction Products................................  $  3,731    $  4,734    $ 11,182
  Powder Metal.....................................     4,416       3,486       3,705
  Performance Automotive...........................       411         423          --
  Motor............................................     1,955       1,576         346
                                                     --------    --------    --------
Consolidated.......................................  $ 10,513    $ 10,219    $ 15,233
                                                     ========    ========    ========
</TABLE>

<TABLE>
<CAPTION>
                                                                  DECEMBER 31
                                                              --------------------
                                                                2000        1999
                                                              --------    --------
<S>                                                           <C>         <C>
Total assets:
  Friction Products.........................................  $105,844    $113,485
  Powder Metal..............................................    77,001      73,415
  Performance Automotive....................................    17,226       9,180
  Motor.....................................................    15,314      13,540
                                                              --------    --------
Consolidated................................................  $215,385    $209,620
                                                              ========    ========
</TABLE>

     Geographic information for the years ended December 31, 2000, 1999 and 1998
is as follows:

<TABLE>
<CAPTION>
                                      2000                                 1999                                 1998
                       ----------------------------------   ----------------------------------   ----------------------------------
                        DOMESTIC     FOREIGN                 DOMESTIC     FOREIGN                 DOMESTIC     FOREIGN
                       OPERATIONS   OPERATIONS    TOTAL     OPERATIONS   OPERATIONS    TOTAL     OPERATIONS   OPERATIONS    TOTAL
                       ----------   ----------   --------   ----------   ----------   --------   ----------   ----------   --------
                                                                      (IN THOUSANDS)
<S>                    <C>          <C>          <C>        <C>          <C>          <C>        <C>          <C>          <C>
Net sales............   $180,632     $21,697     $202,329    $166,429     $21,209     $187,638    $160,247     $22,040     $182,287
Income (loss) from
  operations.........     19,499         (36)      19,463      18,131         433       18,564      31,238       1,580       32,818
Net income (loss)....      7,274      (1,504)       5,770       6,916        (587)       6,329       8,761         373        9,134
Total assets.........    194,659      20,726      215,385     187,363      22,257      209,620     179,879      23,567      203,446
</TABLE>

     The Company currently has foreign operations in Canada, Italy, Mexico and
China.

N. SUPPLEMENTAL GUARANTOR INFORMATION

     As discussed in Note E, each of the Guarantor Subsidiaries has fully and
unconditionally guaranteed, on a joint and several basis, the obligation to pay
principal, premium, if any, and interest with respect to the Senior Notes. The
Guarantor Subsidiaries are direct or indirect wholly owned subsidiaries of the
Company.

     The following supplemental consolidating condensed financial statements
present:

        Consolidating condensed balance sheets as of December 31, 2000 and
        December 31, 1999, consolidating condensed statements of operations for
        the years ended December 31, 2000, 1999 and 1998 and consolidating
        condensed statements of cash flows for the years ended December 31,
        2000, 1999 and 1998.

                                        37
<PAGE>   39
                                HAWK CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

        Hawk Corporation (Parent), combined Guarantor Subsidiaries and combined
        Non-Guarantor Subsidiaries (consisting of the Company's subsidiaries in
        Canada and Italy, beginning in 1999, Mexico and beginning in 2000,
        China) with their investments in subsidiaries accounted for using the
        equity method.

        Elimination entries necessary to consolidate the Parent and all of its
        subsidiaries.

     Management does not believe that separate financial statements of the
Guarantor Subsidiaries are material to investors. Therefore, separate financial
statements and other disclosures concerning the Guarantor Subsidiaries are not
presented.

<TABLE>
<CAPTION>
                                                             DECEMBER 31, 2000
                                   ---------------------------------------------------------------------
                                                COMBINED       COMBINED
                                               GUARANTOR     NON-GUARANTOR
                                    PARENT    SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                   --------   ------------   -------------   ------------   ------------
<S>                                <C>        <C>            <C>             <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents......  $    553     $  1,027        $ 2,430                       $  4,010
  Accounts receivable, net.......                 22,785          6,817                         29,602
  Inventories, net...............                 25,792          6,072                         31,864
  Deferred income taxes..........     1,199                         (86)                         1,113
  Other current assets...........       967        1,363            646                          2,976
                                   --------     --------        -------       ---------       --------
Total current assets.............     2,719       50,967         15,879                         69,565
Investment in subsidiaries.......       794        3,168                      $  (3,962)
Inter-company advances, net......   160,192        5,784         (5,084)       (160,892)
Property, plant and equipment....        26       61,219          9,156                         70,401
Intangible assets................       207       70,506                                        70,713
Other............................     1,010        3,931            775          (1,010)         4,706
                                   --------     --------        -------       ---------       --------
Total assets.....................  $164,948     $195,575        $20,726       $(165,864)      $215,385
                                   ========     ========        =======       =========       ========
LIABILITIES AND SHAREHOLDERS'
  EQUITY
Current liabilities:
  Accounts payable...............               $  8,313        $ 3,266                       $ 11,579
  Accrued compensation...........  $      5        6,854            932                          7,791
  Other accrued expenses.........       633        5,047            766                          6,446
  Current portion of long-term
     debt........................     5,000        1,901            372                          7,273
                                   --------     --------        -------       ---------       --------
Total current liabilities........     5,638       22,115          5,336                         33,089
Long-term liabilities:
  Long-term debt.................    90,645        5,574            442                         96,661
  Deferred income taxes..........    11,128                         426                         11,554
  Other..........................                    937          1,155                          2,092
  Inter-company advances, net....     1,197      149,909         10,199       $(161,305)
                                   --------     --------        -------       ---------       --------
Total long-term liabilities......   102,970      156,420         12,222        (161,305)       110,307
                                   --------     --------        -------       ---------       --------
Total liabilities................   108,608      178,535         17,558        (161,305)       143,396
Minority interest................                    300                                           300
Shareholders' equity.............    56,340       16,740          3,168          (4,559)        71,689
                                   --------     --------        -------       ---------       --------
Total liabilities and
  shareholders' equity...........  $164,948     $195,575        $20,726       $(165,864)      $215,385
                                   ========     ========        =======       =========       ========
</TABLE>

                                        38
<PAGE>   40
                                HAWK CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                             DECEMBER 31, 1999
                                   ---------------------------------------------------------------------
                                                COMBINED       COMBINED
                                               GUARANTOR     NON-GUARANTOR
                                    PARENT    SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                   --------   ------------   -------------   ------------   ------------
<S>                                <C>        <C>            <C>             <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents......  $  1,691     $    193        $ 2,109                       $  3,993
  Accounts receivable, net.......                 22,883          6,862                         29,745
  Inventories, net...............                 21,766          5,353                         27,119
  Deferred income taxes..........     1,459                         288                          1,747
  Other current assets...........     1,327        1,979            293                          3,599
                                   --------     --------        -------       ---------       --------
Total current assets.............     4,477       46,821         14,905                         66,203
Investment in subsidiaries.......       793        5,065                      $  (5,858)
Inter-company advances, net......   156,992          997           (904)       (157,085)
Property, plant and equipment....                 62,590          7,595                         70,185
Intangible assets................       215       68,962                                        69,177
Other............................     1,010        3,394            661          (1,010)         4,055
                                   --------     --------        -------       ---------       --------
Total assets.....................  $163,487     $187,829        $22,257       $(163,953)      $209,620
                                   ========     ========        =======       =========       ========
LIABILITIES AND SHAREHOLDERS'
  EQUITY
Current liabilities:
  Accounts payable...............               $  8,084        $ 3,330                       $ 11,414
  Short-term borrowings..........                                   872                            872
  Accrued compensation...........  $      9        6,032            903                          6,944
  Other accrued expenses.........     1,473        4,388            410                          6,271
  Current portion of long-term
     debt........................     5,000        1,745            415                          7,160
                                   --------     --------        -------       ---------       --------
Total current liabilities........     6,482       20,249          5,930                         32,661
Long-term liabilities:
  Long-term debt.................    92,451        4,934            859                         98,244
  Deferred income taxes..........     9,906                         653                         10,559
  Other..........................                    522          1,145                          1,667
  Inter-company advances, net....     1,127      148,363          8,605       $(158,095)
                                   --------     --------        -------       ---------       --------
Total long-term liabilities......   103,484      153,819         11,262        (158,095)       110,470
                                   --------     --------        -------       ---------       --------
Total liabilities................   109,966      174,068         17,192        (158,095)       143,131
Shareholders' equity.............    53,521       13,761          5,065          (5,858)        66,489
                                   --------     --------        -------       ---------       --------
Total liabilities and
  shareholders' equity...........  $163,487     $187,829        $22,257       $(163,953)      $209,620
                                   ========     ========        =======       =========       ========
</TABLE>

                                        39
<PAGE>   41
                                HAWK CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31, 2000
                                     --------------------------------------------------------------------
                                                 COMBINED       COMBINED
                                                GUARANTOR     NON-GUARANTOR
                                     PARENT    SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                     -------   ------------   -------------   ------------   ------------
<S>                                  <C>       <C>            <C>             <C>            <C>
Net sales..........................              $180,632        $21,697                       $202,329
Cost of sales......................  $   285      129,265         17,837                        147,387
                                     -------     --------        -------        -------        --------
Gross profit.......................     (285)      51,367          3,860                         54,942
Expenses:
  Selling, technical and
     administrative expenses.......     (274)      27,696          3,896                         31,318
  Amortization of intangible
     assets........................        9        4,152                                         4,161
                                     -------     --------        -------        -------        --------
Total expenses.....................     (265)      31,848          3,896                         35,479
                                     -------     --------        -------        -------        --------
Income from operations.............      (20)      19,519            (36)                        19,463
Interest (income) expense, net.....   (3,803)      11,947            654                          8,798
Income (loss) from equity
  investees........................    2,898       (1,504)                      $(1,394)
Other (income) expense.............                   394            141                            535
                                     -------     --------        -------        -------        --------
Income (loss) before income
  taxes............................    6,681        5,674           (831)        (1,394)         10,130
Income taxes.......................      911        2,776            673                          4,360
                                     -------     --------        -------        -------        --------
Net income (loss)..................  $ 5,770     $  2,898        $(1,504)       $(1,394)       $  5,770
                                     =======     ========        =======        =======        ========
</TABLE>

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31, 1999
                                      --------------------------------------------------------------------
                                                  COMBINED       COMBINED
                                                 GUARANTOR     NON-GUARANTOR
                                      PARENT    SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                      -------   ------------   -------------   ------------   ------------
<S>                                   <C>       <C>            <C>             <C>            <C>
Net sales...........................              $166,429        $21,209                       $187,638
Cost of sales.......................  $  (165)     121,163         17,881                        138,879
                                      -------     --------        -------        -------        --------
Gross profit........................      165       45,266          3,328                         48,759
Expenses:
  Selling, technical and
     administrative expenses........     (283)      23,754          2,895                         26,366
  Amortization of intangible
     assets.........................        8        3,821             --                          3,829
                                      -------     --------        -------        -------        --------
Total expenses......................     (275)      27,575          2,895                         30,195
                                      -------     --------        -------        -------        --------
Income from operations..............      440       17,691            433                         18,564
Interest (income) expense, net......   (3,782)      12,220            540                          8,978
Income (loss) from equity
  investees.........................    3,688         (587)                      $(3,101)
Other (income) expense..............       (4)        (500)            99                           (405)
                                      -------     --------        -------        -------        --------
Income (loss) before income taxes...    7,914        5,384           (206)        (3,101)          9,991
Income taxes........................    1,585        1,696            381                          3,662
                                      -------     --------        -------        -------        --------
Net income (loss)...................  $ 6,329     $  3,688        $  (587)       $(3,101)       $  6,329
                                      =======     ========        =======        =======        ========
</TABLE>

                                        40
<PAGE>   42
                                HAWK CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31, 1998
                                      --------------------------------------------------------------------
                                                  COMBINED       COMBINED
                                                 GUARANTOR     NON-GUARANTOR
                                      PARENT    SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                      -------   ------------   -------------   ------------   ------------
<S>                                   <C>       <C>            <C>             <C>            <C>
Net sales...........................              $160,247        $22,040                       $182,287
Cost of sales.......................               106,500         18,141                        124,641
                                      -------     --------        -------        --------       --------
Gross profit........................                53,747          3,899                         57,646
Expenses:
  Selling, technical and
     administrative expenses........  $  (113)      19,090          2,319                         21,296
  Amortization of intangible
     assets.........................       10        3,522                                         3,532
                                      -------     --------        -------        --------       --------
Total expenses......................     (103)      22,612          2,319                         24,828
                                      -------     --------        -------        --------       --------
Income from operations..............      103       31,135          1,580                         32,818
Interest (income) expense, net......   (2,667)      13,059            492                         10,884
Income from equity investees........    9,643          373                       $(10,016)
Other income (expense), net.........      (95)         (19)            83                            (31)
                                      -------     --------        -------        --------       --------
Income before income taxes and
  extraordinary charge..............   12,318       18,430          1,171         (10,016)        21,903
Income taxes........................    1,121        7,771            798                          9,690
                                      -------     --------        -------        --------       --------
Income before extraordinary
  charge............................   11,197       10,659            373         (10,016)        12,213
Extraordinary charge, net of tax....    2,063        1,016                                         3,079
                                      -------     --------        -------        --------       --------
Net income..........................  $ 9,134     $  9,643        $   373        $(10,016)      $  9,134
                                      =======     ========        =======        ========       ========
</TABLE>

                                        41
<PAGE>   43
                                HAWK CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31, 2000
                                    ---------------------------------------------------------------------
                                                 COMBINED       COMBINED
                                                GUARANTOR     NON-GUARANTOR
                                     PARENT    SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                    --------   ------------   -------------   ------------   ------------
<S>                                 <C>        <C>            <C>             <C>            <C>
Net cash provided by operating
  activities......................  $  7,330      $9,976         $4,258                        $21,564
Cash flows from investing
  activities:
  Business acquisitions...........    (6,510)                                                   (6,510)
  Purchase of property, plant and
     equipment....................                (7,747)        (2,742)                       (10,489)
  Proceeds from sale of assets....                    69                                            69
                                    --------      ------         ------          ------        -------
Net cash used in investing
  activities......................    (6,510)     (7,678)        (2,742)                       (16,930)
Cash flows from financing
  activities:
  Payments on short-term debt.....                                 (808)                          (808)
  Proceeds from borrowings of
     long-term debt...............    29,443         774                                        30,217
  Payments on long-term debt......   (31,249)     (2,238)          (399)                       (33,886)
  Payment of preferred stock
     dividend.....................      (152)                                                     (152)
                                    --------      ------         ------          ------        -------
Net cash used in financing
  activities......................    (1,958)     (1,464)        (1,207)                        (4,629)
  Effect of exchange rate changes
     on cash......................                                   12                             12
                                    --------      ------         ------          ------        -------
Net (decrease) increase in cash
  and cash equivalents............    (1,138)        834            321                             17
Cash and cash equivalents, at
  beginning of period.............     1,691         193          2,109                          3,993
                                    --------      ------         ------          ------        -------
Cash and cash equivalents, at end
  of period.......................  $    553      $1,027         $2,430          $   --        $ 4,010
                                    ========      ======         ======          ======        =======
</TABLE>

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31, 1999
                                         --------------------------------------------------------------------
                                                     COMBINED       COMBINED
                                                    GUARANTOR     NON-GUARANTOR
                                         PARENT    SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                         -------   ------------   -------------   ------------   ------------
<S>                                      <C>       <C>            <C>             <C>            <C>
Net cash provided by operating
  activities...........................  $11,158      $4,886         $3,702                        $19,746
Cash flows from investing activities:
  Business acquisitions................  (19,350)                                                  (19,350)
  Purchase of property, plant and
     equipment.........................               (7,953)        (2,181)                       (10,134)
  Proceeds from sale of assets.........                3,682                                         3,682
                                         -------      ------         ------          ------        -------
Net cash used in investing
  activities...........................  (19,350)     (4,271)        (2,181)                       (25,802)
Cash flows from financing activities:
  Proceeds from borrowings of long-term
     debt..............................   37,897         125                                        38,022
  Payments on long-term debt...........  (37,946)     (1,147)          (608)                       (39,701)
  Payment of preferred stock
     dividend..........................     (148)                                                     (148)
  Repurchase of common stock...........   (2,798)                                                   (2,798)
                                         -------      ------         ------          ------        -------
Net cash used in financing
  activities...........................   (2,995)     (1,022)          (608)                        (4,625)
  Effect of exchange rate changes on
     cash..............................                  554           (197)                           357
                                         -------      ------         ------          ------        -------
Net (decrease) increase in cash and
  cash equivalents.....................  (11,187)        147            716                        (10,324)
Cash and cash equivalents, at beginning
  of period............................   12,878          46          1,393                         14,317
                                         -------      ------         ------          ------        -------
Cash and cash equivalents, at end of
  period...............................  $ 1,691      $  193         $2,109          $   --        $ 3,993
                                         =======      ======         ======          ======        =======
</TABLE>

                                        42
<PAGE>   44
                                HAWK CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31, 1998
                                         ---------------------------------------------------------------------
                                                      COMBINED       COMBINED
                                                     GUARANTOR     NON-GUARANTOR
                                          PARENT    SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                         --------   ------------   -------------   ------------   ------------
<S>                                      <C>        <C>            <C>             <C>            <C>
Net cash provided by operating
  activities...........................  $  3,873     $16,319         $3,744                        $23,936
Cash flows from investing activities:
  Purchase of marketable securities....    (4,130)                                                   (4,130)
  Sale of marketable securities........     4,040                                                     4,040
  Business acquisitions................    (9,100)                                                   (9,100)
  Purchase of property, plant and
     equipment.........................               (12,570)        (1,514)                       (14,084)
  Payments received on shareholder
     notes.............................       665                                                       665
                                         --------     -------         ------          ------        -------
Net cash used in investing
  activities...........................    (8,525)    (12,570)        (1,514)                       (22,609)
Cash flows from financing activities:
  Payments on short-term debt..........                                 (805)                          (805)
  Proceeds from long-term debt.........    35,000                                                    35,000
  Payments on long-term debt...........   (67,500)     (3,379)          (916)                       (71,795)
  Deferred financing costs.............                  (850)                                         (850)
  Payment of preferred stock
     dividend..........................      (241)        (16)                                         (257)
  Net proceeds from issuance of common
     stock.............................    52,749                                                    52,749
  Prepayment premium on early
     retirement of debt................    (3,588)                                                   (3,588)
  Repurchase of common stock...........    (1,993)                                                   (1,993)
                                         --------     -------         ------          ------        -------
Net cash provided by (used in)
  financing activities.................    14,427      (4,245)        (1,721)                         8,461
Effect of exchange rate changes on
  cash.................................                    73             68                            141
                                         --------     -------         ------          ------        -------
Net increase (decrease) in cash and
  cash equivalents.....................     9,775        (423)           577                          9,929
Cash and cash equivalents, at beginning
  of period............................     3,103         469            816                          4,388
                                         --------     -------         ------          ------        -------
Cash and cash equivalents, at end of
  period...............................  $ 12,878     $    46         $1,393          $   --        $14,317
                                         ========     =======         ======          ======        =======
</TABLE>

O. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                       MARCH 31,   JUNE 30,   SEPTEMBER 30,   DECEMBER 31,    MARCH 31,   JUNE 30,   SEPTEMBER 30,   DECEMBER 31,
                         2000        2000         2000            2000          1999        1999         1999            1999
                       ---------   --------   -------------   ------------    ---------   --------   -------------   ------------
                                                     (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                    <C>         <C>        <C>             <C>             <C>         <C>        <C>             <C>
Net sales............   $55,170    $53,837       $47,861        $45,461        $47,134    $48,164       $45,695        $46,645
Gross profit.........    14,943     14,958        13,362         11,679         13,856     12,533        10,477         11,893
Net income...........     2,164      1,910         1,493            203          2,652      1,789         1,235            653
Basic earnings per
  share..............   $   .25    $   .22       $   .17        $   .02        $   .30    $   .20       $   .14        $   .07
Diluted earnings per
  share..............   $   .25    $   .22       $   .17        $   .02        $   .30    $   .20       $   .14        $   .07
</TABLE>

     In the fourth quarter of 2000, the Company changed its accounting policy to
reflect in its consolidated statement of income all shipping and handling costs
as cost of sales and related shipping revenue in net sales. All prior periods
have been changed to conform to current year presentation.

                                        43
<PAGE>   45

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     None.

                                    PART III

ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT

     The information required by Item 10 is incorporated herein by reference to
the Registrant's definitive Proxy Statement relating to its 2001 Annual Meeting
of Stockholders (the "Proxy Statement"), under the captions "Board of
Directors," "Executive Officers" and "Section 16(a) Beneficial Ownership
Reporting Compliance." This Proxy Statement will be filed with the SEC prior to
April 28, 2001.

ITEM 11. EXECUTIVE COMPENSATION

     The information required by Item 11 is contained under the caption
"Executive Compensation and Other Information" in the Proxy Statement and is
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by Item 12 is contained under the caption
"Principal Stockholders" in the Proxy Statement and is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by Item 13 is contained under the caption "Certain
Relationships and Related Transactions" in the Proxy Statement and is
incorporated herein by reference.

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) (1) Financial Statements

     The following consolidated financial statements of the Company are included
in Item 8:

          (i)  Consolidated Balance Sheets at December 31, 2000 and 1999

          (ii)  Consolidated Statements of Income for the years ended December
                31, 2000, 1999 and 1998

          (iii) Consolidated Statements of Shareholders' Equity (Deficit) for
                the years ended December 31, 2000, 1999 and 1998

          (iv)  Consolidated Statements of Cash Flows for the years ended
                December 31, 2000, 1999 and 1998

          (v)  Notes to Consolidated Financial Statements for the years ended
               December 31, 2000, 1999 and 1998

        All consolidated financial schedules are omitted because they are
        inapplicable, not required by the instructions or the information is
        included in the consolidated financial statements or notes thereto.

(b) Reports on Form 8-K:

     None.

                                        44
<PAGE>   46

(c) Exhibits:

<TABLE>
<S>      <C>
3.1      Form of the Company's Second Amended and Restated
         Certificate of Incorporation (Incorporated by reference to
         the Company's Registration Statement on Form S-1 as filed
         with the Securities and Exchange Commission (Reg. No.
         333-40535))
3.2      The Company's Amended and Restated By-laws (Incorporated by
         reference to the Company's Current Report on Form 8-K as
         filed with the Securities and Exchange Commission (Reg. No.
         001-13797))
4.1      Form of Rights Agreement between the Company and Continental
         Stock Transfer & Trust Company, as Rights Agent
         (Incorporated by reference to the Company's Registration
         Statement on Form S-1 as filed with the Securities and
         Exchange Commission (Reg. No. 333-40535))
4.2      Indenture, dated as of November 27, 1996, by and among the
         Company, Friction Products Co., Hawk Brake, Inc., Logan
         Metal Stampings, Inc., Helsel, Inc., S.K. Wellman Holdings,
         Inc., S.K. Wellman Corp., Wellman Friction Products U.K.
         Corp., Hutchinson Products Corporation, and Bank One Trust
         Company, NA, as Trustee (Incorporated by reference to the
         Company's Registration Statement on Form S-4 as filed with
         the Securities and Exchange Commission (Reg. No. 333-18433))
4.3      Form of 10 1/4% Senior Note due 2003 (Incorporated by
         reference to the Company's Registration Statement on Form
         S-4 as filed with the Securities and Exchange Commission
         (Reg. No. 333-18433))
4.4      Form of Series B 10 1/4% Senior Note due 2003 (Incorporated
         by reference to the Company's Registration Statement on Form
         S-4 as filed with the Securities and Exchange Commission
         (Reg. No. 333-18433))
4.5      Stockholders' Voting Agreement, effective as of November 27,
         1996, by and among the Company, Norman C. Harbert, the
         Harbert Family Limited Partnership, Ronald E. Weinberg, the
         Weinberg Family Limited Partnership, Byron S. Krantz and the
         Krantz Family Limited Partnership (Incorporated by reference
         to the Company's Registration Statement on Form S-4 as filed
         with the Securities and Exchange Commission (Reg. No.
         333-18433))
4.6      Letter agreement, dated January 5, 1998, amending the
         Stockholders' Voting Agreement, effective as of November 27,
         1996, by and among the Company, Norman C. Harbert, the
         Harbert Family Limited Partnership, Ronald E. Weinberg, the
         Weinberg Family Limited Partnership, Byron S. Krantz and the
         Krantz Family Limited Partnership (Incorporated by reference
         to the Company's Registration Statement on Form S-1 as filed
         with the Securities and Exchange Commission (Reg. No.
         333-40535))
10.1     Employment Agreement, dated as of November 1, 1996, between
         the Company and Norman C. Harbert (Incorporated by reference
         to the Company's Registration Statement on Form S-4 as filed
         with the Securities and Exchange Commission (Reg. No.
         333-18433))
10.2     Form of Amended and Restated Wage Continuation Agreement
         between the Company and Norman C. Harbert (Incorporated by
         reference to the Company's Registration Statement on Form
         S-1 as filed with the Securities and Exchange Commission
         (Reg. No. 333-40535))
10.3     Employment Agreement, dated as of November 1, 1996, between
         the Company and Ronald E. Weinberg (Incorporated by
         reference to the Company's Registration Statement on Form
         S-4 as filed with the Securities and Exchange Commission
         (Reg. No. 333-18433))
10.7     Letter agreement, dated as of March 26, 1998, amending the
         Employment Agreement and the Consulting Agreement, each
         dated July 1, 1994, between Helsel, Inc. and Jess F. Helsel
         (Incorporated by reference to the Company's Form 10-K for
         the year ended December 31, 1998 as filed with the
         Securities and Exchange Commission)
</TABLE>

                                        45
<PAGE>   47

<TABLE>
<S>        <C>
10.8       Form of the Promissory Notes, each dated June 30, 1995, issued by of
           Norman C. Harbert and Ronald E. Weinberg to the Company (Incorporated
           by reference to the Company's Registration Statement on Form S-4 as
           filed with the Securities and Exchange Commission (Reg. No. 333-18433))
10.9       Letter agreement, dated October 1, 1996, amending the Promissory Notes,
           dated June 30, 1995, issued by each of Norman C. Harbert and Ronald E.
           Weinberg to the Company (Incorporated by reference to the Company's
           Registration Statement on Form S-4 as filed with the Securities and
           Exchange Commission (Reg. No. 333-18433))
10.11      Credit Agreement, dated as of May 1, 1998, among the Company and
           KeyBank National Association, as Swing Line Lender, Administrative
           Agent and as Syndication Agent (Incorporated by reference to the
           Company's Form 10-Q for the quarterly period ended June 30, 1998 as
           filed with the Securities and Exchange Commission)
10.12      Subsidiary Guaranty, dated as of May 1, 1998, among the subsidiaries
           of the Company, as guarantors, and KeyBank National Association,
           as Administrative Agent (Incorporated by reference to the Company's
           Form 10-Q for the quarterly period ended June 30, 1998 as filed with
           the Securities and Exchange Commission)
10.13*     Amendment No. 1, dated as of November 22, 2000 to Credit Agreement
           among the Company and KeyBank National Association, as Lender, the
           Swing Line Lender, a Letter of Credit Issuer and as the Syndication
           Agent and the Administrative Agent
10.14      Hawk Corporation 1997 Stock Option Plan (Incorporated by reference
           to the Company's Registration Statement on Form S-1 as filed with
           the Securities and Exchange Commission (Reg. No. 333-40535))
10.15*     Hawk Corporation 2000 Long Term Incentive Plan
10.16*     Hawk Corporation Annual Incentive Compensation Plan
21.1*      Subsidiaries of the Registrant
23.1*      Consent of Ernst & Young LLP
</TABLE>

---------------

* Filed herewith

                                        46
<PAGE>   48

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                          Hawk Corporation

                                          By: /s/ THOMAS A. GILBRIDE
                                            ------------------------------------
                                            Thomas A. Gilbride
                                            Vice President -- Finance
Date March 23, 2001

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
              SIGNATURE                                    TITLE                            DATE
              ---------                                    -----                            ----
<S>                                      <C>                                           <C>

/s/ NORMAN C. HARBERT                    Co-Chairman of the Board, Co-Chief            March 23, 2001
------------------------------------     Executive Officer and Director (principal
Norman C. Harbert                        executive officer)

/s/ RONALD E. WEINBERG                   Co-Chairman of the Board, Co-Chief            March 23, 2001
------------------------------------     Executive Officer, Treasurer and Director
Ronald E. Weinberg                       (principal financial officer)

/s/ THOMAS A. GILBRIDE                   Vice President -- Finance (principal          March 23, 2001
------------------------------------     accounting officer)
Thomas A. Gilbride

/s/ BYRON S. KRANTZ                      Secretary and Director                        March 23, 2001
------------------------------------
Byron S. Krantz

/s/ PAUL R. BISHOP                       Director                                      March 23, 2001
------------------------------------
Paul R. Bishop

/s/ DAN T. MOORE, III                    Director                                      March 23, 2001
------------------------------------
Dan T. Moore, III

/s/ WILLIAM J. O'NEILL, JR.              Director                                      March 23, 2001
------------------------------------
William J. O'Neill, Jr.

/s/ JACK KEMP                            Director                                      March 23, 2001
------------------------------------
Jack Kemp
</TABLE>

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