10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2005

Commission File Number 001-13797

HAWK CORPORATION

(Exact name of Registrant as specified in its charter)

Delaware	34-1608156
(State of incorporation)	(I.R.S. Employer Identification No.)

200 Public Square, Suite 1500, Cleveland, Ohio 44114

(Address of principal executive offices) (Zip Code)

(216) 861-3553

(Registrant’s telephone number, including area code)

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 reports), and (2) has been subject to such filing requirements for the past 90 days. Yes R No £

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes £ No R

As of November 8, 2005, the Registrant had the following number of shares of common stock outstanding:

Class A Common Stock, $0.01 par value:	8,922,486
Class B Common Stock, $0.01 par value:	None (0)

As used in this Form 10-Q, the terms “Company,”“Hawk,”“Registrant,”“we,”“us,” and “our” 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-Q is as of September 30, 2005.

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			Page
PART I.	FINANCIAL INFORMATION
	Item 1.	Financial Statements (Unaudited)	3
	Item 2.	Management’s Discussion and Analysis of Financial
		Condition and Results of Operations	22
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36
	Item 4.	Controls and Procedures	36
PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings	36
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
	Item 3.	Defaults upon Senior Securities	37
	Item 4.	Submission of Matters to a Vote of Security Holders	37
	Item 5.	Other Information	37
	Item 6.	Exhibits	37
	SIGNATURES		38

PART I.FINANCIAL INFORMATION

ITEM I.FINANCIAL STATEMENTS

HAWK CORPORATION

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In Thousands, except share data)

	September 30,		December 31,
	2005		2004
Assets
Current assets:
Cash and cash equivalents	$	6,027	$	6,785
Accounts receivable, less allowance of $1,026 in 2005 and $970 in 2004		39,896		39,044
Inventories:
Raw materials and work-in-process		28,127		24,043
Finished products		17,745		17,507
Total inventories		45,872		41,550
Deferred income taxes		4,151		4,583
Taxes receivable		373		373
Shareholder notes				600
Assets held for sale		1,623
Other current assets		3,801		3,460
Assets of discontinued operations		4,065		4,499
Total current assets		105,808		100,894
Property, plant and equipment:
Land and improvements		1,341		1,850
Buildings and improvements		18,360		20,705
Machinery and equipment		116,560		116,663
Furniture and fixtures		8,879		9,220
Construction in progress		14,658		8,469
		159,798		156,907
Less accumulated depreciation		89,368		86,879
Total property, plant and equipment		70,430		70,028
Other assets:
Goodwill		32,495		32,495
Other intangible assets		8,619		9,170
Other		7,672		8,279
Total other assets		48,786		49,944
Total assets	$	225,024	$	220,866

3

HAWK CORPORATION

CONSOLIDATED BALANCE SHEETS - (Unaudited) (Continued)

(In Thousands, except share data)

	September 30,			December 31,
	2005			2004
Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	28,056		$	25,554
Accrued compensation		6,269			8,173
Accrued interest		2,455			1,630
Accrued taxes		2,236			2,877
Other accrued expenses		7,019			5,597
Short-term debt		1,004			980
Current portion of long-term debt		332			639
Liabilities of discontinued operations		4,382			4,297
Total current liabilities		51,753			49,747
Long-term liabilities:
Long-term debt		113,486			111,402
Deferred income taxes		3,362			3,631
Pension liabilities		7,358			7,358
Other		3,040			3,701
Total long-term liabilities		127,246			126,092
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
Series E preferred stock, $.01 par value; 100,000 shares authorized; none issued or outstanding
Class A common stock, $.01 par value; 75,000,000 shares authorized; 9,187,750 issued; and 8,891,049 and 8,782,121 outstanding in 2005 and 2004, respectively		92			92
Class B common stock, $.01 par value; 10,000,000 shares authorized none issued or outstanding
Additional paid-in capital		53,593			53,867
Retained earnings (deficit)		(1,510	)		(3,353	)
Accumulated other comprehensive loss		(3,794	)		(2,431	)
Treasury stock, at cost, 296,701 and 405,629 shares in 2005 and 2004, respectively		(2,357	)		(3,149	)
Total shareholders' equity		46,025			45,027
Total liabilities and shareholders' equity	$	225,024		$	220,866

Note: The balance sheet at December 31, 2004 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to consolidated financial statements.

4

HAWK CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(In Thousands, except per share data)

	Three months ended						Nine months ended
	September 30,			September 30,			September 30,			September 30,
	2005			2004			2005			2004
Net sales	$	62,808		$	59,367		$	205,753		$	183,038
Cost of sales		52,952			45,728			159,693			137,914
Gross profit		9,856			13,639			46,060			45,124
Operating expenses:
Selling, technical and administrative expenses		8,429			9,181			29,568			28,313
Restructuring costs		1,977			286			3,880			507
Employee benefit curtailment		(424	)					(424	)
Amortization of finite-lived intangible assets		184			184			552			550
Total operating expenses		10,166			9,651			33,576			29,370
(Loss) income from operations		(310	)		3,988			12,484			15,754
Interest expense		(2,625	)		(2,610	)		(7,866	)		(7,687	)
Interest income		6			8			21			33
Other (expense) income, net		(51	)		(101	)		(307	)		(620	)
(Loss) income from continuing operations, before income taxes		(2,980	)		1,285			4,332			7,480
Income tax (benefit) provision		(1,273	)		234			2,501			3,207
(Loss) income from continuing operations, after income taxes		(1,707	)		1,051			1,831			4,273
Income (loss) from discontinued operations, net of tax of  $7 and $67 for the three and nine months ended September 30, 2005, respectively, and $(233) for the three and nine months ended September 30, 2004		14			(424	)		125			(415	)
Net (loss) income	$	(1,693	)	$	627		$	1,956		$	3,858
(Loss) earnings per share:
Basic (loss) earnings per share:
(Loss) earnings from continuing operations, after income taxes	$	(.19	)	$	.12		$	.19		$	.48
Discontinued operations		.00			(.05	)		.01			(.05	)
Net (loss) earnings per basic share	$	(.19	)	$	.07		$	.20		$	.43
Diluted earnings (loss) per share:
(Loss) earnings from continuing operations, after income taxes	$	(.19	)	$	.11		$	.19		$	.47
Discontinued operations		.00			(.05	)		.01			(.05	)
Net (loss) earnings per diluted share	$	(.19	)	$	.06		$	.20		$	.42

See Notes to Consolidated Financial Statements

5

HAWK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In Thousands)

	September 30,			September 30,
	2005			2004
Cash flows from operating activities
Net income	$	1,956		$	3,858
Adjustments to reconcile net income to net cash used in operating activities:
(Income) loss from discontinued operations, net of tax		(125	)		415
Depreciation and amortization		8,747			8,328
Loss on fixed assets		682			217
Changes in operating assets and liabilities:
Accounts receivable		(2,147	)		(8,915	)
Inventories		(5,056	)		(4,940	)
Other assets		(73	)		435
Accounts payable		3,850			4,397
Accrued expenses		682			369
Other liabilities and other		(140	)		258
Net cash provided by operating activities of continuing operations		8,376			4,422
Net cash provided by operating activities of discontinued operations		686			1,480
Cash flows from investing activities
Purchases of property, plant and equipment		(11,664	)		(12,686	)
Proceeds from sale of property, plant and equipment		76
Net cash used in investing activities of continuing operations		(11,588	)		(12,686	)
Net cash used in investing activities of discontinued operations		(42	)		(173	)
Cash flows from financing activities
Payments on short-term debt		(125	)		(337	)
Proceeds from long-term debt		63,624			83
Payments on long-term debt		(61,655	)		(1,335	)
Proceeds from Bank Facility					78,228
Payments on Bank Facility					(69,280	)
Net proceeds from exercise of stock options		518			539
Payments of preferred stock dividends		(113	)		(113	)
Net cash provided by financing activities of continuing operations		2,249			7,785
Effect of exchange rate changes on cash		(439	)		26
Net cash used in continuing operations		(1,402	)		(453	)
Net cash provided by discontinued operations		644			1,307
Net (decrease) increase in cash and cash equivalents		(758	)		854
Cash and cash equivalents at beginning of period		6,785			3,365
Cash and cash equivalents at end of period	$	6,027		$	4,219

See Notes to Consolidated Financial Statements

6

HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

September 30, 2005

(In Thousands, except per share data)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in conformity with U.S generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. For further information, refer to the consolidated financial statements and footnotes thereto in the Form 10-K for Hawk Corporation (Company) for the year ended December 31, 2004.

The Company, through its business segments, designs, engineers, manufactures and markets specialized components used in a variety of industrial, commercial and aerospace applications.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Certain amounts have been reclassified in 2004 to conform to the 2005 presentation.

NOTE 2 - INTANGIBLE ASSETS

The components of finite-lived intangible assets are as follows:

	September 30, 2005						December 31, 2004
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Product certifications	$	20,820	$	12,263	$	8,557	$	20,820	$	11,716	$	9,104
Other intangible assets		2,719		2,657		62		2,719		2,653		66
	$	23,539	$	14,920	$	8,619	$	23,539	$	14,369	$	9,170

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.

The Company estimates that amortization expense for finite-lived intangible assets for each of the next five years will be approximately $735.

The weighted average amortization period for product certifications and other intangible assets is 29 years and 14 years, respectively.

NOTE 3 - COMPREHENSIVE INCOME

Comprehensive (loss) income is as follows:

	Three months ended September 30,					Nine months ended September 30,
	2005			2004		2005			2004
Net (loss) income	$	(1,693	)	$	627	$	1,956		$	3,858
Foreign currency translation		(20	)		401		(1,363	)		(2	)
Comprehensive (loss) income	$	(1,713	)	$	1,028	$	593		$	3,856

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NOTE 4 - INVENTORIES

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

NOTE 5 - EMPLOYEE STOCK OPTION PLAN

In accordance with the provisions of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123), the Company has elected to continue applying the provisions of Accounting Principles Board Opinion No. 25 (APB 25) and related interpretations in accounting for its stock-based compensation plans. Under the provisions of APB 25, because the exercise price of the stock option equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. The following illustrates the pro forma effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123 for the three and nine month periods ended September 30, 2005 and 2004:

	Three months ended September 30,					Nine months ended September 30,
	2005			2004		2005		2004
Net (loss) income as reported	$	(1,693	)	$	627	$	1,956	$	3,858
Employee stock-based compensation expense determinedunder fair value based methods, net of tax		74			62		200		154
Pro forma net (loss) earnings	$	(1,767	)	$	565	$	1,756	$	3,704
Basic (loss) earnings per share:
As reported	$	(.19	)	$	.07	$	.20	$	.43
Pro forma	$	(.20	)	$	.06	$	.19	$	.41
Diluted (loss) earnings per share:
As reported	$	(.19	)	$	.06	$	.20	$	.42
Pro forma	$	(.20	)	$	.06	$	.19	$	.40

In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment (SFAS 123(R)), which is a revision of SFAS 123. This statement addresses the accounting transactions in which a company exchanges its equity instruments for goods or services. It also addresses transactions in which a company incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. SFAS 123(R) eliminates the ability to account for share-based compensation transactions using the intrinsic value method and requires instead that such transactions be accounted for using a fair-value-based method. SFAS 123(R) covers a wide range of share-based compensation arrangements, including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. On April 14, 2005, the U.S. Securities and Exchange Commission (SEC) announced a deferral of the effective date of SFAS 123(R) for calendar year companies until the beginning of 2006. When the Company adopts SFAS 123(R) in 2006, it will include the expense associated with share-based payments issued to employees in its Consolidated Statement of Operations. The Company has completed its assessment of which valuation model to select as provided for by SFAS 123(R), and has concluded that is will use the Black-Scholes valuation model and amortization assumptions currently used under the current pro forma disclosures and accepted under SFAS 123(R).

NOTE 6 - DISCONTINUED OPERATIONS

During the fourth quarter of 2003, the Company committed to a plan to sell its motor segment, with operations in Monterrey, Mexico and Alton, Illinois. This segment, which manufactures die-cast aluminum rotors for fractional and subfractional horsepower electric motors, failed to achieve a certain level of profitability and, after completing an extensive analysis, the Company determined that a divestiture of this segment would allow the Company to concentrate on its major business segments.

8

In the fourth quarter of 2004, the Company sold certain fixed assets of its Alton, Illinois facility which had previously been adjusted to fair market value as of December 31, 2003, and also sold the land and building of this facility, which had previously been included with continuing operations.

The Company continues to actively market the sale of the Monterrey, Mexico operations and anticipates selling the remaining portion of the business during 2005.

Operating results from discontinued operations are summarized as follows:

	Three months ended September 30,					Nine months ended September 30,
	2005		2004			2005		2004
Net sales	$	2,036	$	3,351		$	6,809	$	9,884
Income (loss) from operations before income taxes	$	21	$	(657	)	$	192	$	(648	)
Income tax expense (benefit)		7		(233	)		67		(233	)
Income (loss) from operations, net of tax	$	14	$	(424	)	$	125	$	(415	)

The assets and liabilities of this segment, which have been classified as assets and liabilities of discontinued operations in the Consolidated Balance Sheets, consist of the following at September 30, 2005 and December 31, 2004:

	September 30,		December 31,
	2005		2004
Accounts receivable	$	2,200	$	3,069
Inventory		733		673
Other current assets		750		418
Property, plant and equipment		330		289
Other assets		52		50
Total assets of discontinued operations	$	4,065	$	4,499
Accounts payable	$	4,174	$	3,973
Other accrued expenses		208		324
Total liabilities of discontinued operations	$	4,382	$	4,297

NOTE 7 - RESTRUCTURING

In accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146), which supersedes Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring), we record liabilities for costs associated with exit or disposal activities, including restructuring costs, when the liability is incurred instead of at the date of commitment to an exit or disposal activity.

In the fourth quarter of 2003, the Company committed to a restructuring program to achieve cost savings and expansion in its friction products segment by moving operations at its Brook Park, Ohio location to a new production facility in Tulsa, Oklahoma. During 2004, the Company substantially completed the construction of its new and larger, leased facility. The Company anticipates pre-tax restructuring costs of approximately $5,500 for the full year 2005 related to the relocation of the Ohio facility and employee severance expense. In connection with the planned closure of the Ohio facility and the relocation to the Tulsa, Oklahoma facility, the Company incurred $2,217 and $4,288 of restructuring costs, $1,977 and $3,880 of which are reported as “Restructuring costs” in the Consolidated Statements of Income and $240 and

9

$408 of which are included in “Cost of sales” in the Consolidated Statements of Income, primarily related to severance, recruiting, relocation and other costs during the three and nine month periods ended September 30, 2005, respectively. During the three and nine month periods ended September 30, 2004, the Company incurred $286 and $507 of restructuring costs, which are reported as “Restructuring costs” in the Consolidated Statements of Income.

The following table sets forth the cash flow activity related to restructuring costs as of and for the nine months ended September 30, 2005:

Amounts recognized as restructuring costs (including $408 recorded in “Cost of sales”) through the nine months ended September 30, 2005	$	4,288
Cash payments through September 30, 2005		3,232
Restructuring cost accrual as of September 30, 2005	$	1,056

During the third quarter of 2005, the Company entered into a contract to sell certain assets of its Brook Park, Ohio manufacturing facility, with an expected transaction closing date prior to December 31, 2005. The assets under contract have been reported as “Assets held for sale” in the Consolidated Balance Sheets as of September 30, 2005, in accordance with SFAS No 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The net proceeds from the sale are expected to approximate the book value of the facility.

Additionally, during the third quarter of 2005 the Company reported employee benefit curtailment income of $424, as a result of employment terminations at our Ohio facility based on a reduction of an actuarially computed liability which provided for medical benefits to individuals who met certain age and service requirements at termination of their employment.

NOTE 8 - EMPLOYEE BENEFITS

The Company previously disclosed in its financial statements for the year ended December 31, 2004 that it expected to contribute $1,842 on a cash basis to its defined benefit pension plans in 2005. In the third quarter of 2005, the Company received notification of revised contribution amounts for certain of its defined benefit pension plans from its third party actuary, primarily resulting from favorable plan experience during 2005.

As of September 30, 2005, $1,386 of contributions has been made. The Company presently anticipates contributing an additional $220 to fund its pension plans in 2005 for a total of $1,606 based on the revised contribution expectation provided by its third party actuary.

The components of net periodic benefit cost are as follows:

	Three months ended September 30,						Nine months ended September 30,
	2005			2004			2005			2004
Service cost	$	271		$	217		$	814		$	639
Interest cost		389			348			1,165			1,025
Expected return on plan assets		(450	)		(362	)		(1,349	)		(1,063	)
Amortization of prior service cost		4			20			12			62
Amortization of net loss		64			81			193			243
Net periodic benefit cost	$	278		$	304		$	835		$	906

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NOTE 9 - EARNINGS PER SHARE

Basic and diluted earnings per share are computed as follows:

	Three months ended September 30,						Nine months ended September 30,
	2005			2004			2005		2004
(Loss) income from continuing operations, after income taxes	$	(1,707	)	$	1,051		$	1,831	$	4,273
Less: Preferred stock dividends		38			38			113		113
(Loss) income from continuing operations, after income taxes available to common shareholders	$	(1,745	)	$	1,013		$	1,718	$	4,160
Net (loss) income	$	(1,693	)	$	627		$	1,956	$	3,858
Less: Preferred stock dividends		38			38			113		113
Net (loss) income available to common shareholders	$	(1,731	)	$	589		$	1,843	$	3,745
Weighted average shares outstanding (in thousands):
Basic weighted average shares outstanding		8,880			8,718			8,854		8,667
Diluted:
Basic weighted average shares outstanding		8,880			8,718			8,854		8,667
Dilutive effect of convertible notes										8
Dilutive effect of stock options					430			491		229
Diluted weighted average shares outstanding		8,880			9,148			9,345		8,904
(Loss) earnings per share:
Basic (loss) earnings from continuing operations, after income taxes	$	(.19	)	$	.12		$	.19	$	.48
Discontinued operations		.00			(.05	)		.01		(.05	)
Net (loss) earnings per basic share	$	(.19	)	$	.07		$	.20	$	.43
Diluted (loss) earnings from continuing operations, after income taxes	$	(.19	)	$	.11		$	.19	$	.47
Discontinued operations		.00			(.05	)		.01		(.05	)
Net (loss) earnings per diluted share	$	(.19	)	$	.06		$	.20	$	.42

NOTE 10 - BUSINESS SEGMENTS

The Company operates in three business segments: friction products, precision components and performance racing. 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 industrial, commercial and aerospace applications. The Company, through this segment, is a worldwide supplier of friction components for brakes, clutches and transmissions.

The precision components segment engineers, manufactures and markets specialized powder metal components, used primarily in industrial and consumer applications. The Company, through this segment, targets four 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, smaller high-volume parts and metal injected molded parts.

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The performance racing segment engineers, manufactures and markets premium branded clutch, transmissions and driveline systems. The Company, through this segment, targets leading teams in the National Association for Stock Car Auto Racing (NASCAR) and the American LeMans Racing Series (ALMS) and for the weekend enthusiasts in the Sports Car Club of America (SCCA) and other road racing and oval track competition cars.

Information by segment is as follows:

	Three months ended September 30,						Nine months ended September 30,
	2005			2004			2005		2004
Net sales to external customers
Friction products	$	40,192		$	36,982		$	130,205	$	111,993
Precision components		19,134			18,902			63,146		59,341
Performance racing		3,482			3,483			12,402		11,704
Consolidated	$	62,808		$	59,367		$	205,753	$	183,038
Depreciation and amortization
Friction products	$	1,681		$	1,617		$	5,196	$	5,085
Precision components		1,014			934			3,053		2,805
Performance racing		58			45			170		154
Consolidated	$	2,753		$	2,596		$	8,419	$	8,044
Gross profit:
Friction products	$	6,262		$	9,345			30,988	$	29,172
Precision components		3,096			3,562			12,162		12,876
Performance racing		498			732			2,910		3,076
Consolidated	$	9,856		$	13,639		$	46,060	$	45,124
(Loss) income from operations:
Friction products	$	(404	)	$	3,513		$	9,480	$	12,096
Precision components		380			493			2,589		2,900
Performance racing		(286	)		(18	)		415		758
Consolidated	$	(310	)	$	3,988		$	12,484	$	15,754

⁽¹⁾ Depreciation and amortization outlined in this table does not include deferred financing amortization of $108 and $324 for the three and nine months ended September 30, 2005 and $96 and $286 for the three and nine months ended September 30, 2004, which is included in “Interest expense” in the Consolidated Statements of Income.

The following section of Note 10, Business Segments, discloses adjusted income from operations for each business segment. This disclosure differs from income from operations, the most directly comparable measure calculated in accordance with GAAP. A reconciliation of this financial measure to the most comparable GAAP measure is included in the table below.

We have presented this non-GAAP financial measure because we believe that meaningful analysis of our financial performance is enhanced by an understanding of isolated factors underlying that performance. In addition, our chief operating decision makers use this measure in monitoring and evaluating both our overall performance and the ongoing performance of each of our business segments. This non-GAAP financial measure should not be considered an alternative to measures required by GAAP. Refer to the section “Non-GAAP Financial Measure” on page 22 of the MD&A section of this Form 10-Q for more detailed disclosure.

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Reconciliation of Adjusted income from operations to Income from operations determined in accordance with GAAP:

	Three months ended September 30,						Nine months ended September 30,
	2005			2004			2005		2004
(Loss) income from operations - Friction products:	$	(404	)	$	3,513		$	9,480	$	12,096
Restructuring costs		2,217			286			4,288		507
Employee benefit curtailment income		(424	)
Loan forgiveness costs								169		389
Adjusted income from operations - Friction products	$	1,389		$	3,799		$	13,937	$	12,992
Income from operations - Precision components:	$	380		$	493		$	2,589	$	2,900
Loan forgiveness costs								443		300
Adjusted income from operations - Precision components	$	380		$	493		$	3,032	$	3,200
(Loss) income from operations - Performance racing:	$	(286	)	$	(18	)	$	415	$	758
Loan forgiveness costs								64		43
Adjusted (loss) income from operations - Performance racing	$	(286	)	$	(18	)	$	479	$	801

_________

NOTE 11 - SUPPLEMENTAL GUARANTOR INFORMATION

Each of the Guarantor Subsidiaries has fully and unconditionally guaranteed, on a joint and several basis, to pay principal, premium, 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 September 30, 2005 and December 31, 2004, consolidating condensed statements of income for the three and nine months ended September 30, 2005 and 2004 and consolidating condensed statements of cash flows for the nine months ended September 30, 2005 and 2004.

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

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

The Company 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. The bank facility contains covenants with respect to the Company and its subsidiaries that, among other things, would prohibit the payment of dividends to the Company by the subsidiaries (including Guarantor Subsidiaries) in the event of a default under the terms of the bank facility. The indenture governing the senior notes permits the payment of any dividends to the Company by the subsidiaries (including Guarantor Subsidiaries) provided that no event of default has occurred under the terms of the indenture.

13

Supplemental Consolidating Condensed

Balance Sheet (Unaudited)

	September 30, 2005
	Parent			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	191		$	39		$	5,797					$	6,027
Accounts receivable, net					27,366			12,530						39,896
Inventories		(755	)		36,507			10,787		$	(667	)		45,872
Deferred income taxes		3,698						453						4,151
Taxes receivable		373												373
Assets held for sale					1,623									1,623
Other current assets		947			2,186			668						3,801
Current assets of discontinued operations					5			4,060						4,065
Total current assets		4,454			67,726			34,295			(667	)		105,808
Investment in subsidiaries		793									(793	)
Inter-company advances, net		181,748			7,559			(2,647	)		(186,660	)
Property, plant and equipment, net					60,927			9,503						70,430
Other assets:
Goodwill and other intangible assets		72			41,042									41,114
Other		222			6,713			737						7,672
Total other assets		294			47,755			737						48,786
Total assets	$	187,289		$	183,967		$	41,888		$	(188,120	)	$	225,024
Liabilities and shareholders' equity
Current liabilities:
Accounts payable				$	20,064		$	7,992					$	28,056
Accrued compensation	$	912			3,567			1,790						6,269
Accrued interest		2,429			(1	)		27						2,455
Accrued taxes		460			230			1,752		$	(206	)		2,236
Other accrued expenses		1,406			5,595			18						7,019
Short-term debt								1,004						1,004
Current portion of long-term debt					175			157						332
Current liabilities of discontinued operations					74			4,308						4,382
Total current liabilities		5,207			29,704			17,048			(206	)		51,753
Long-term liabilities:
Long-term debt		112,294			704			488						113,486
Deferred income taxes		2,741						621						3,362
Other		666			7,022			2,710						10,398
Inter-company advances, net		(107	)		177,907			8,274			(186,074	)
Total long-term liabilities		115,594			185,633			12,093			(186,074	)		127,246
Shareholders' equity		66,488			(31,370	)		12,747			(1,840	)		46,025
Total liabilities and shareholders’ equity	$	187,289		$	183,967		$	41,888		$	(188,120	)	$	225,024

14

Supplemental Consolidating Condensed

Balance Sheet (Unaudited)

	December 31, 2004
	Parent			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	1,967		$	49		$	4,769					$	6,785
Accounts receivable, net					26,491			12,553						39,044
Inventories		(974	)		31,316			12,081		$	(873	)		41,550
Deferred income taxes		3,698						885						4,583
Taxes receivable		373												373
Other current assets		1,809			1,771			480						4,060
Current assets of discontinued operations					84			4,415						4,499
Total current assets		6,873			59,711			35,183			(873	)		100,894
Investment in subsidiaries		793									(793	)
Inter-company advances, net		177,871			2,531			(4,970	)		(175,432	)
Property, plant and equipment, net					60,299			9,729						70,028
Other assets:
Goodwill and other intangible assets		72			41,593									41,665
Other		228			8,341			720			(1,010	)		8,279
Total other assets		300			49,934			720			(1,010	)		49,944
Total assets	$	185,837		$	172,475		$	40,662		$	(178,108	)	$	220,866
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable				$	15,749		$	9,805					$	25,554
Accrued compensation	$	1,395			5,052			1,726						8,173
Accrued interest		1,623						7						1,630
Accrued taxes		778			408			2,077		$	(386	)		2,877
Other accrued expenses		1,840			3,993			(236	)					5,597
Short-term debt								980						980
Current portion of long-term debt					362			277						639
Current liabilities of discontinued operations					257			4,040						4,297
Total current liabilities		5,636			25,821			18,676			(386	)		49,747
Long-term liabilities:
Long-term debt		110,000			887			515						111,402
Deferred income taxes		2,821						810						3,631
Other		313			7,920			2,826						11,059
Inter-company advances, net		818			166,815			8,388			(176,021	)
Total long-term liabilities		113,952			175,622			12,539			(176,021	)		126,092
Shareholders’ equity		66,249			(28,968	)		9,447			(1,701	)		45,027
Total liabilities and shareholders’ equity	$	185,837		$	172,475		$	40,662		$	(178,108	)	$	220,866

15

Supplemental Consolidating Condensed

Statement of Income (Unaudited)

	Three months ended September 30, 2005
	Parent			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales				$	49,825		$	15,347		$	(2,364	)	$	62,808
Cost of sales					43,327			11,989			(2,364	)		52,952
Gross profit					6,498			3,358						9,856
Operating expenses:
Selling, technical and administrative expense	$	42			6,996			1,391						8,429
Restructuring costs					1,977									1,977
Employee benefit curtailment					(424	)								(424	)
Amortization of intangibles					184									184
Total operating expenses		42			8,733			1,391						10,166
(Loss) income from operations		(42	)		(2,235	)		1,967						(310	)
Interest income (expense), net		892			(3,491	)		(20	)					(2,619	)
(Loss) income from equity investee		(2,352	)		1,204						1,148
Other (expense) income, net					(109	)		58						(51	)
(Loss) income from continuing operations, before income taxes		(1,502	)		(4,631	)		2,005			1,148			(2,980	)
Income tax provision (benefit)		191			(2,237	)		773						(1,273	)
(Loss) income from continuing operations, after income taxes		(1,693	)		(2,394	)		1,232			1,148			(1,707	)
Discontinued operations, net of tax					42			(28	)					14
Net (loss) income	$	(1,693	)	$	(2,352	)	$	1,204		$	1,148		$	(1,693	)

16

Supplemental Consolidating Condensed

Statement of Income (Unaudited)

	Three months ended September 30, 2004
	Parent			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales				$	49,532		$	12,973		$	(3,138	)	$	59,367
Cost of sales					38,870			9,996			(3,138	)		45,728
Gross profit					10,662			2,977						13,639
Operating expenses:
Selling, technical and administrative expense	$	(8	)		7,871			1,318						9,181
Restructuring costs					286									286
Amortization of intangibles					184									184
Total operating expenses		(8	)		8,341			1,318						9,651
Income from operations		8			2,321			1,659						3,988
Interest income (expense), net		902			(3,482	)		(22	)					(2,602	)
(Loss) income from equity investee		(475	)		776						(301	)
Other income (expense), net					12			(113	)					(101	)
Income (loss) from continuing operations, before income taxes		435			(373	)		1,524			(301	)		1,285
Income tax (benefit) provision		(192	)		(453	)		879						234
Income from continuing operations, after income taxes		627			80			645			(301	)		1,051
Discontinued operations, net of tax					(555	)		131						(424	)
Net income (loss)	$	627		$	(475	)	$	776		$	(301	)	$	627

17

Supplemental Consolidating Condensed

Statement of Income (Unaudited)

	Nine months ended September 30, 2005
	Parent			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales				$	164,105		$	50,165		$	(8,517	)	$	205,753
Cost of sales					129,969			38,241			(8,517	)		159,693
Gross profit					34,136			11,924						46,060
Operating expenses:
Selling, technical and administrative expense	$	970			24,272			4,326						29,568
Restructuring costs					3,880									3,880
Employee benefit curtailment					(424	)								(424	)
Amortization of intangibles					552									552
Total operating expenses		970			28,280			4,326						33,576
(Loss) income from operations		(970	)		5,856			7,598						12,484
Interest income (expense), net		2,686			(10,463	)		(68	)					(7,845	)
Income from equity investee		1,767			4,624						(6,391	)
Other (expense) income, net		(34	)		(268	)		(5	)					(307	)
Income (loss) from continuing operations, before income taxes		3,449			(251	)		7,525			(6,391	)		4,332
Income tax provision (benefit)		1,493			(1,926	)		2,934						2,501
Income from continuing operations, after income taxes		1,956			1,675			4,591			(6,391	)		1,831
Discontinued operations, net of tax					92			33						125
Net income	$	1,956		$	1,767		$	4,624		$	(6,391	)	$	1,956

18

Supplemental Consolidating Condensed

Statement of Income (Unaudited)

	Nine months ended September 30, 2004
	Parent			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales				$	149,710		$	42,002		$	(8,674	)	$	183,038
Cost of sales					114,516			32,072			(8,674	)		137,914
Gross profit					35,194			9,930						45,124
Operating expenses:
Selling, technical and administrative expense	$	569			23,722			4,022						28,313
Restructuring costs					507									507
Amortization of intangibles					550									550
Total operating expenses		569			24,779			4,022						29,370
(Loss) income from operations		(569	)		10,415			5,908						15,754
Interest income (expense), net		2,713			(10,283	)		(84	)					(7,654	)
Income from equity investee		2,513			3,138						(5,651	)
Other income (expense), net		(311	)		(161	)		(148	)					(620	)
Income (loss) from continuing operations, before income taxes		4,346			3,109			5,676			(5,651	)		7,480
Income tax provision (benefit)		488			(138	)		2,857						3,207
Income from continuing operations, after income taxes		3,858			3,247			2,819			(5,651	)		4,273
Discontinued operations, net of tax					(734	)		319						(415	)
Net income	$	3,858		$	2,513		$	3,138		$	(5,651	)	$	3,858

19

Supplemental Consolidating Condensed

Cash Flow Statement (Unaudited)

	Nine months ended September 30, 2005
	Parent			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations	Consolidated
Net cash (used in) provided by operating activities of continuing operations	$	(4,255	)	$	10,160		$	2,471			$	8,376
Net cash provided by operating activities of discontinued operations								686				686
Cash flows from investing activities
Purchases of property, plant and equipment					(10,129	)		(1,535	)			(11,664	)
Proceeds from sale or property, plant and equipment					64			12				76
Net cash used in investing activities of continuing operations					(10,065	)		(1,523	)			(11,588	)
Net cash used in investing activities of discontinued operations								(42	)			(42	)
Cash flows from financing activities
Payment on short-term debt					(116	)		(9	)			(125	)
Proceeds from long-term debt		63,474			150							63,624
Payments on long-term debt		(61,400	)		(139	)		(116	)			(61,655	)
Net proceeds from exercise of stock options		518										518
Payments of preferred stock dividends		(113	)									(113	)
Net cash provided by (used in) financing activities of continuing operations		2,479			(105	)		(125	)			2,249
Effect of exchange rate changes on cash								(439	)			(439	)
Net cash (used in) provided by continuing operations		(1,776	)		(10	)		384				(1,402	)
Net cash provided by discontinued operations								644				644
Net (decrease) increase in cash and cash equivalents		(1,776	)		(10	)		1,028				(758	)
Cash and cash equivalents, at beginning of period		1,967			49			4,769				6,785
Cash and cash equivalents, at end of period	$	191		$	39		$	5,797			$	6,027

20

Supplemental Consolidating Condensed

Cash Flow Statement (Unaudited)

	Nine months ended September 30, 2004
	Parent			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations	Consolidated
Net cash (used in) provided by operating activities of continuing operations	$	(9,462	)	$	13,416		$	468			$	4,422
Net cash (used in) provided by operating activities of discontinued operations					(786	)		2,266				1,480
Cash flows from investing activities
Purchases of property, plant and equipment					(11,552	)		(1,134	)			(12,686	)
Net cash used in investing activities of continuing operations					(11,552	)		(1,134	)			(12,686	)
Net cash used in investing activities of discontinued operations					(33	)		(140	)			(173	)
Cash flows from financing activities
Payments on short-term debt								(337	)			(337	)
Proceeds from long-term debt		83										83
Payments on long-term debt					(1,137	)		(198	)			(1,335	)
Proceeds from Bank Facility		78,228										78,228
Payments on Bank Facility		(69,280	)									(69,280	)
Net proceeds from exercise of stock options		539										539
Payments of preferred stock dividends		(113	)									(113	)
Net cash provided by (used in) financing activities of continuing operations		9,457			(1,137	)		(535	)			7,785
Effect of exchange rate changes on cash								26				26
Net cash (used in) provided by continuing operations		(5	)		727			(1,175	)			(453	)
Net cash (used in) provided by discontinued operations					(819	)		2,126				1,307
Net (decrease) increase in cash and cash equivalents		(5	)		(92	)		951				854
Cash and cash equivalents, at beginning of period		39			129			3,197				3,365
Cash and cash equivalents, at end of period	$	34		$	37		$	4,148			$	4,219

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report, as well as, Management’s Discussion and Analysis of Financial Condition and Results of Operations as contained in our 2004 Annual Report on From 10K .

NON-GAAP FINANCIAL MEASURE

In our discussion and analysis of our financial condition and results of operations, we may refer to financial measures which are considered to be “non-GAAP financial measures” under the rules and regulation of the SEC. The non-GAAP financial measure used by us is “Adjusted income from operations”. This measure is reconciled to the most comparable GAAP financial measure in tables presented on pages 29 and 32 in this section of this Form 10-Q.

This non-GAAP financial measure is defined by us as income from operations as presented in our Consolidated Statement of Income plus restructuring and loan forgiveness costs less employee benefit curtailment income. We use this measure to more accurately gauge the ongoing day to day operating activities of our business. As a result of our decision to relocate one of our friction products manufacturing facilities to Oklahoma from Ohio, we have incurred significant non-recurring costs related to this one-time event that has impacted the financial results for 2004 and 2005. This restructuring program is expected to be complete by December 31, 2005. Additionally, in conjunction with the closure of our Ohio facility, for the period ended September 30, 2005, we reported employee benefit curtailment income due to the termination of employees upon the closure of the facility. This non-recurring income resulted from the reduction of a liability computed by our actuary to reflect the portion of benefits based on age and years of service requirements that are no longer owed by us at the date of termination. The loan forgiveness expense resulted from a one-time, non-recurring action taken by our compensation committee on January 30, 2004 approving the forgiveness of the shareholder notes of two of our senior executive officers. The action required the full forgiveness of the shareholder notes by July 1, 2005 if specific operating targets were met. Based on our performance, a portion of the shareholder notes was forgiven as of March 31, 2004 and the balance in March 2005. As of March 31, 2005, the entire loan balance with the senior executive officers has been forgiven.

We have presented this non-GAAP financial measure because we believe that meaningful analysis of our financial performance is enhanced by an understanding of isolated factors underlying that performance. In addition, our chief operating decision makers use this measure in monitoring and evaluating both our overall performance and the ongoing performance of each of our business segments. This non-GAAP financial measure should not be considered an alternative to measures required by GAAP.

GENERAL

Through our subsidiaries, we operate in three reportable segments: friction products, precision components and performance racing. Our results of operations are affected by a variety of factors, including but not limited to, general economic conditions, customer demand for our products, competition, raw material pricing and availability, labor relations with our personnel and political conditions in the countries in which we operate. We sell a wide range of products that have a corresponding range of gross margins. Our consolidated gross margin is affected by product mix, selling prices, material and labor costs as well as our ability to absorb overhead costs resulting from fluctuations in demandfor our products.

·   Friction Products

We believe that, based on net sales, we are one of the top worldwide manufacturers of friction products used in industrial, agricultural, powersports and aerospace applications. Our friction products segment manufactures parts and components made from proprietary formulations of composite materials, primarily consisting of metal powders and synthetic and natural fibers. Friction products are used in brakes, clutches and transmissions to absorb vehicular energy and dissipate it through heat and normal mechanical wear. The principal markets served by our friction products segment include construction and mining vehicles, agricultural vehicles, trucks, commercial and general aircraft, motorcycles, race cars, military vehicles and all-terrain vehicles (ATVs). Through this segment our Hawk Performance^® brand performance brake is the official brake sponsor of the SCCA. We believe we are:

·   a leading domestic and international supplier of friction products for construction and mining equipment, agricultural equipment and trucks,

22

·   the leading North American independent supplier of friction materials for braking systems for new and existing series of many commercial aircraft models, including the Boeing 737 and 757 and the MD-80, and several regional jets used by commuter airlines, including the Canadair regional jet series,

·   the largest supplier of friction materials for the growing general aviation market, including numerous new and existing series of Gulfstream, Cessna, Lear and Beech aircraft,

·   a leading domestic supplier of friction products in powersports and specialty markets, such as motorcycles, race cars, ATV’s, military vehicles and snowmobiles, and

·   a leading supplier of aftermarket industrial friction materials through our Velvetouch ^® brand products.

·   Precision Components

We are a leading supplier of powder metal and metal injection molded precision components used in industrial and consumer applications, such as pumps, motors, transmissions, lawn and garden equipment, appliances, small hand tools, trucks and telecommunications equipment. We use composite metal alloys in powder form to manufacture high quality custom-engineered metal components. Our precision components segment serves four specific areas of the powder metal marketplace:

·   tight tolerance fluid power components, such as pump elements and gears,

·   large powder metal components used primarily in construction equipment, agricultural equipment and trucks,

·   high volume parts for the lawn and garden, appliance and other markets, and

·   metal injection molded parts for a variety of industries, including small hand tools, medical and telecommunications.

·   Performance Racing

We engineer, manufacture and market premium branded clutch, transmissions and driveline systems for the performance racing market. Through this segment, we supply parts used in NASCAR and the ALMS racing series and for the weekend enthusiasts in the SCCA and other road racing oval track and competition cars.

The following chart shows our net sales by segment during the first nine months of 2005:

NET SEGMENT SALES

NINE MONTHS ENDED SEPTEMBER 30, 2005

 

As of September 30, 2005, Hawk had approximately 1,800 employees and 17 manufacturing, research, sales and administrative sites in 6 countries at its continuing operations.

23

Critical Accounting Policies

Some of our accounting policies require the application of significant judgment by us in the preparation of our financial statements. In applying these policies, we use our best judgment to determine the underlying assumptions that are used in calculating the estimates that affect the reported values on our financial statements. On an ongoing basis, we evaluate our estimates and judgments based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

We review our financial reporting and disclosure practices and accounting policies quarterly to ensure that they provide accurate and transparent information relative to the current economic and business environment. We base our estimates and assumptions on historical experience and other factors that we consider relevant. If these estimates differ materially from actual results, the impact on our consolidated financial statements may be material. However, historically our estimates have not been materially different from actual results.Our critical accounting policies include the following:

·   Revenue Recognition. Revenues are recognized when products are shipped and title has transferred to our customer.

·   Allowance for Doubtful Accounts. Our policy regarding the collectibility of accounts receivable is based on a number of factors. In circumstances where a specific customer is unable to pay its obligations, we record a specific allowance for bad debts against amounts due to reduce the net recognized receivable to the amount that we reasonably expect to collect. If circumstances change, estimates of the recoverability of the amounts due us could change.

·   Inventory Reserves. We establish reserves for slow moving and obsolete inventories based on our historical experience and product demand. In addition, we establish a physical inventory adjustment reserve based on historical book to physical adjustments and management’s estimate of future adjustments. We evaluate the adequacy of our inventory reserves and make adjustments to the reserves as required.

·   Goodwill. Goodwill represents the excess of the cost of companies we acquired over the fair value of their net assets as of the date of acquisition. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142), our policy is to evaluate the carrying value of our goodwill and indefinite-lived intangible assets at least annually, or more frequently if there is a significant adverse event or change in the environment in which one of our business unit operates. We would record an impairment loss in the period such determination is made. In assessing the recoverability of our goodwill, we consider changes in economic conditions and make assumptions regarding estimated future cash flows and other factors. Estimates of future discounted cash flows are highly subjective judgments based on our experience and knowledge of operations. These estimates can be significantly impacted by many factors including changes in global and local business and economic conditions, operating costs, inflation and competitive trends. If actual results are materially different than the assumptions used, impairment could result. We did not record any impairment charges in the three or nine month periods ended September 30, 2005 and 2004.

·   Long-Lived Assets. We review long-lived assets (excluding goodwill) for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In assessing the recoverability of our long-lived assets, we consider changes in economic conditions and make assumptions regarding estimated future cash flows and other factors. Estimates of future undiscounted cash flows are highly subjective judgments based on our experience and knowledge of our operations. These estimates can be significantly impacted by many factors including changes in global and local business and economic conditions, operating costs, inflation and competitive trends. If our estimates or underlying assumptions change in the future, we may be required to record impairment charges. There were no impairment charges recorded in the three or nine month periods ended September 30, 2005 and 2004.

·   Pension Benefits. We account for our defined benefit pension plans in accordance with SFAS No. 87, Employers' Accounting for Pensions (SFAS 87), which requires that amounts recognized in financial statements be determined on an actuarial basis. The most significant elements in determining our pension income (expense) in accordance with SFAS 87 are the expected return on plan assets and appropriate discount rates. We assumed that the expected weighted average long-term rate of return on plan assets will be 8.6% for 2005 which is consistent with the rate used for 2004. Based on our existing and forecasted asset allocation and related long-term investment performance results, we believe that our assumption of future returns is reasonable. However, should the rate of return differ materially from our assumed rate we could experience a material adverse effect on the funded status of our plans and our future pension expense. The assumed long-term rate of return on assets is applied to a calculated value of plan assets, which recognizes changes in the fair value of plan assets in a systematic manner over five years. This produces the expected return on plan assets that       

24

is included in pension income (expense).  The difference between this expected return and the actual return on plan assets is deferred.  The net deferral of past asset gains (losses) affects the calculated value of plan assets and, ultimately, future pension income (expense).  Net periodic benefit cost was $0.8 million and $0.9 million for the nine month periods ended September 30, 2005 and 2004, respectively.

We determine the discount rate to be used to discount plan liabilities at their measurement date, December 31. The discount rate reflects the current rate at which the pension liabilities could be effectively settled at the end of the year. At December 31, 2004, we

determined this rate to be 6.0%. Changes in discount rates over the past three years have not materially affected pension income (expense), and the net effect of changes in the discount rate, as well as the net effect of other changes in actuarial assumptions and experience, has been deferred as permitted by SFAS 87.

·   Income Taxes. Our effective tax rate, taxes payable and other tax assets and liabilities reflect the current tax rates in the domestic and foreign tax jurisdictions in which we operate. Deferred income taxes reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for reporting and income tax purposes. Our effective tax rate is substantially driven by the impact of the mix of our foreign and domestic income and losses and the federal and local tax rate differences on each.

SFAS No. 109, Accounting for Income Taxes,(SFAS 109) provides certain guidelines to follow in making the determination of the need for a valuation allowance. We must show that taxable income is expected to be available for future periods sufficient to realize the benefits of temporary differences and carryforwards to not record an allowance. We have identified strategies which, if implemented, would enable us to realize the aforementioned tax benefits, and therefore, we have determined that no valuation allowance is required as of September 30, 2005.

On June 30, 2005, the Governor of Ohio signed House Bill 66 into law which significantly changed the corporate tax structure in Ohio.  The major provisions of the bill include phasing-out the Ohio Franchise Tax and phasing-in a Commercial Activities Tax. The tax changes did not have a material effect on the Company’s tax provision for the nine months ended September 30, 2005. We continue to evaluate other provisions of House Bill 66.

·   Foreign Currency Translation and Transactions. Assets and liabilities of our foreign operations are translated using period-end exchange rates and revenues and expenses are translated using exchange rates as determined throughout the year. Gains or losses resulting from translation are included in a separate component of our shareholders’ equity. Other comprehensive income includes a translation loss of $1.4 million for the nine months ended September 30, 2005. We recorded no foreign currency translation gain or loss for the nine months ended September 30, 2004. Gains or losses resulting from foreign currency transactions are translated to local currency at the rates of exchange prevailing at the dates of the transactions. Accounts receivable or payable in foreign currencies, other than the subsidiary’s local currency, are translated at the rates of exchange prevailing at the date of the transaction. The effect of the transaction’s gain or loss is included in “Other (expense) income, net” in our Consolidated Statements of Income. Foreign currency transaction gains and losses were not material to the results of operations for the three or nine months ended September 30, 2005 and 2004.

THIRD QUARTER OF 2005 COMPARED TO THE THIRD QUARTER OF 2004

Net Sales. Our consolidated net sales for the third quarter of 2005 were $62.8 million, an increase of $3.4 million, or 5.7%, from the same period in 2004. We experienced the sales increase as a result of new customer applications and market share gains in the end markets of our friction products and precision component segments along with the continuing economic recovery in the industrial markets we serve during the period.

Net Segment Sales:	Three months ended September 30, 2005		Three months ended September 30, 2004		$ Change		% Change
	(dollars in millions)
Friction products	$	40.2	$	37.0	$	3.2		8.6	%
Precision components		19.1		18.9		0.2		1.1	%
Performance racing		3.5		3.5		0.0		0.0	%
Consolidated	$	62.8	$	59.4	$	3.4		5.7	%

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·   Friction Products. Net sales in the friction products segment, our largest, were $40.2 million in the third quarter of 2005, an increase of $3.2 million, or 8.6%, compared to $37.0 million in the comparable quarter of 2004. Net sales increased as a result of new product introductions, continued market share gains in the construction and mining and truck markets, improving economic conditions in our industrial markets and increased sales to our aftermarket. We experienced sales increases in our construction and mining, truck, aftermarket and aerospace markets during the quarter. The agriculture market was down slightly in the third quarter of 2005 compared to 2004 primarily as a result of softness in the European farm economy. Our specialty friction market was down in the third quarter of 2005 as a result of our customer’s timing of certain military orders. The friction products segment continued to experience strong sales growth from our international operations during the quarter. Net sales, on a local currency basis, at our Italian facility increased 13.0% in the third quarter of 2005 compared to the comparable period of 2004. Total shipments from our Chinese friction products facility increased 41.1% in the third quarter of 2005 compared to the same period in 2004. The effect of foreign currency exchange rates accounted for 0.3% of the 8.6% friction products net sales increase during the quarter.

·   Precision Components. Net sales in our precision components segment were $19.1 million in the third quarter of 2005, an increase of 1.1%, or $0.2 million, compared to $18.9 million in the comparable quarter of 2004. The increase in net sales was primarily attributable to increased sales to customers in our appliance market partially offset by slight declines in sales to the lawn and garden and automotive markets.

·   Performance Racing. Net sales in our performance racing segment were $3.5 million in the both the third quarter of 2005 and 2004.

Gross Profit. Gross profit decreased $3.7 million to $9.9 million during the third quarter of 2005, compared to $13.6 million in the third quarter of 2004. The gross profit margin decreased to 15.8% of net sales in the third quarter of 2005 from 22.9% of net sales in the third quarter of 2004. Included in our gross profit are significant costs incurred during the quarter as a result of operating inefficiencies associated with the relocation of our Ohio friction products facility to Oklahoma, including increased labor, overtime, maintenance, employee benefit, training, freight and outsourcing costs as a result of the start-up of operations in Oklahoma and operating both the Ohio and Oklahoma facilities during the production transition period, phase-in costs associated with our new technology initiatives in our precision components segment and increased inventory reserves in our performance racing segment. Additionally, there are inventory related costs in connection with the restructuring of $0.2 million within our cost of sales for the third quarter ended September 30, 2005. There are no comparable costs included in our cost of sales in the third quarter of 2004. As a result, our gross margin showed significant deterioration during the quarter from the comparable period in 2004.

Gross Profit Margin:	Three months ended September 30, 2005			Three months ended September 30, 2004			Change
Friction products		15.7	%		25.1	%		(9.4	%)
Precision components		16.2	%		19.0	%		(2.8	%)
Performance racing		14.3	%		20.0	%		(5.7	%)
Consolidated		15.8	%		22.9	%		(7.1	%)

·   Friction Products. Our friction products segment reported gross profit of $6.3 million or 15.7% of its net sales in the third quarter of 2005 compared to $9.3 million or 25.1% of its net sales in the comparable quarter of 2004. The decrease in this segment’s gross profit margin was primarily the result of operating inefficiencies associated with the relocation of our Brook Park, Ohio friction products facility to Tulsa, Oklahoma, including increased labor, overtime, employee benefit, training, freight and outsourcing costs as a result of the start-up of operations in Oklahoma and operating both the Ohio and Oklahoma facilities during the production transition period. This decline was partially offset by product mix and continued emphasis on cost reduction programs.

·   Precision Components. Gross profit in our precision components segment was $3.1 million or 16.2% of its net sales in the third quarter of 2005 compared to $3.6 million or 19.0% of its net sales in comparable period of 2004. The decrease in this segment's gross profit margin was primarily the result of phase-in costs associated with our new technologies, higher raw material and energy costs and production outsourcing costs. In addition, we continued to support our China precision components facility during the period. The decline in the segment’s gross margin was partially offset by sales volume increases for this segment as a whole and product mix.

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·   Performance Racing. Our performance racing segment reported gross profit of $0.5 million or 14.3% of net sales in the third quarter of 2005 compared to $0.7 million or 20.0% of net sales in the comparable period of 2004. The decrease in the gross profit and gross profit percentage during the quarter was primarily the result of cost increases on various driveline components, increased inventory reserves to reflect inventory obsoleted due to rule changes in the racing circuits served by this segment, increased employee benefit costs and product mix.

Selling, Technical and Administrative Expenses. Selling, technical and administrative (ST&A) expenses decreased $0.8 million, or 8.7%, to $8.4 million in the third quarter of 2005 from $9.2 million in the comparable period of 2004. As a percentage of net sales, ST&A expenses improved to 13.4% of net sales in the third quarter of 2005 compared to 15.5% of net sales in the comparable period of 2004. The decrease in ST&A expenses resulted primarily from reduced incentive compensation costs as a result of financial operating targets not being met, partially offset by sales and marketing expenses related to aftermarket product sales programs in our friction products segment, increased research and development costs, and to a lesser extent, duplicate administrative costs associated with the move of our friction products facility to Oklahoma. We spent $1.7 million on product research and development in the third quarter of 2005 compared to $1.3 million in the comparable period of 2004.

Restructuring Costs. Direct restructuring costs (excluding the $0.2 million recorded in our Cost of sales) for the three months ended September 30, 2005 were $2.0 million, consisting of severance, recruiting, relocation and other costs associated with our new manufacturing facility in Oklahoma and the closing of a facility in Ohio. In the comparable period of 2004, we incurred direct restructuring costs of $0.3 million. The costs reflected in 2004 and 2005 are a part of the same initiative relating to the closure of the Brook Park, Ohio facility and transition to the Tulsa, Oklahoma facility.

Employee Benefit Curtailment. As a result of employment reductions at our Brook Park, Ohio facility as of September 30, 2005, we reduced the liability to an actuarially computed liability which provided for medical benefits to individuals who met certain age and service requirements at termination of employment. This action resulted in reported income of $0.4 million for the three months ended September 30, 2005.

(Loss) Income from Operations. Income from operations decreased $4.3 million to a loss of $0.3 million in the third quarter of 2005 from $4.0 million in the comparable quarter of 2004. Income from operations as a percentage of net sales decreased to (0.5%) in the third quarter of 2005 from 6.7% in the third quarter of 2004. The decrease was primarily the result of direct restructuring costs, operating inefficiencies and duplicate manufacturing costs associated with the transition of operations to our Oklahoma facility from Ohio, increased inventory reserves and increased labor costs. These costs were partially offset by reduced incentive compensation costs, $0.4 million of employee benefit curtailment income, and product mix.

As a result of the items discussed above, income from operations at each of our segments was as follows:

(Loss) income from operations by segment:	Three months ended September 30, 2005			Three months ended September 30, 2004		$ Change			% Change
	(dollars in millions)
Friction products	$	(0.4	)	$	3.5	$	(3.9	)		(111.4	%)
Precision components		0.4			0.5		(0.1	)		(20.0	%)
Performance racing		(0.3	)		0.0		(0.3	)
Consolidated	$	(0.3	)	$	4.0	$	(4.3	)		(107.5	%)

Included in our income from operations in the third quarter of 2005 was $2.2 million of direct restructuring costs related to the plant relocation ($0.2 million of which is included in our cost of sales) and other non-recurring income of $0.4 million relating to a reversal of a post-retirement benefit liability no longer owed by us. Income from operations before these charges was $1.5 million, or 2.4% of net sales in the third quarter of 2005, a decrease of 65.1%, or $2.8 million, from $4.3 million, or 7.2% of net sales in the comparable period of 2004.

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	Three months ended September 30,
	(Loss) income from operations, as reported (GAAP)						Restructuring costs 1				Other non-recurring 2				Adjusted (loss) income from operations
	2005			2004			2005		2004		2005			2004	2005			2004
	(dollars in millions)
Friction products	$	(0.4	)	$	3.5		$	2.2	$	0.3	$	(0.4	)		$	$1.4		$	3.8
Precision components		0.4			0.5											0.4			0.5
Performance racing		(0.3	)		0.0											(0.3	)		0.0
Total pre-tax	$	(0.3	)	$	4.0		$	2.2	$	0.3	$	(0.4	)		$	$1.5		$	4.3
Operating margin		(0.5	%)		6.7	%										2.4	%		7.2	%

1.   Restructuring costs in this table for the three months ended September 30, 2005 include $0.2 million classified in our Consolidated Statement of Income as Cost of sales items.

2.   Other non-recurring includes employee benefit curtailment income of $0.4 million for the three months ended September 30, 2005.

The table above discloses Adjusted income from operations, which is considered to be a “non-GAAP financial measure” under the rules and regulations of the SEC. Refer to the section “Non-GAAP Financial Measure” on page 22 of this section of this Form 10-Q for more detailed disclosure.

Interest Expense. Interest expense was flat in the third quarter of 2005 and 2004 at $2.6 million. Higher levels of total borrowings during the three month period ended September 30, 2005 were partially offset by lower borrowing rates during the period. Included as a component of interest expense in our financial statements are the amortization of deferred financing costs. Deferred financing costs included in interest expense in the third quarter of 2005 and 2004 were $0.1 million.

Income Taxes. We recorded a tax benefit for our continuing operations of $1.3 million in the third quarter of 2005 compared to a provision of $0.2 million in the comparable period of 2004. Our worldwide provision for income taxes is based on our estimated annual tax rates for the year applied to all of our sources of income.

Discontinued Operations, net of tax. In the fourth quarter of 2003, we committed to a plan to divest our motor segment operations. In accordance with GAAP, we have accounted for the motor segment in our financial statements on the line item “Discontinued operations, net of tax.” The following is a summary of the results of discontinued operations for the three months ended September 30, 2005 and 2004.

	Three months ended
	September 30, 2005		September 30, 2004
	(dollars in millions)
Net sales	$	2.0	$	3.4
Income (loss) from discontinued operations before income taxes		0.0		(0.6	)
Income tax provision		0.0		0.2
Income (loss) from discontinued operations, net of tax	$	0.0	$	(0.4	)

Net Income. As a result of the factors noted above, we reported a net loss of $1.7 million in the third quarter of 2005 compared to net income of $0.6 million in the comparable prior year period, a decrease of $2.3 million.

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FIRST NINE MONTHS OF 2005 COMPARED TO THE FIRST NINE MONTHS OF 2004

Net Sales. Our consolidated net sales for the first nine months of 2005 were $205.8 million, an increase of $22.8 million or 12.5% from the same period in 2004. We experienced sales increases as a result of new product introductions and market share gains in our friction products and precision component segments and the continuing economic recovery in the industrial markets we serve during the period. The effect of foreign currency exchange rates accounted for 0.7% of the 12.5% net sales increase during the nine month period.

Net Segment Sales:	Nine months ended September 30, 2005		Nine months ended September 30, 2004		$ Change		% Change
	(dollars in millions)
Friction products	$	130.2	$	112.0	$	18.2		16.3	%
Precision components		63.2		59.3		3.9		6.6	%
Performance racing		12.4		11.7		0.7		6.0	%
Consolidated	$	205.8	$	183.0	$	22.8		12.5	%

·   Friction Products. Net sales in our friction products segment were $130.2 million for the first nine months of 2005, an increase of $18.2 million, or 16.3%, compared to $112.0 million in the comparable period of 2004. Net sales increased globally as a result of new product introductions, continued market share gains in the truck and construction and mining markets, improving economic conditions in our industrial markets and increased sales to our aftermarket. We experienced sales increases in our construction and mining, truck, aftermarket, specialty and aerospace markets during the nine month period. The agriculture market was down slightly during the period compared to 2004 primarily as a result of softness in the European farm economy. Net sales, on a local currency basis, at our Italian facility increased 10.3% in the first nine months of 2005 compared to the comparable period of 2004. Total shipments at our Chinese friction products facility increased 44.2% in the first nine months of 2005 compared to the same period in 2004. The effect of foreign currency exchange rates accounted for 1.2% of the 16.3% friction products net sales increase during the period.

·   Precision Components. Net sales in our precision components segment were $63.2 million in first nine months of 2005, an increase of $3.9 million, or 6.6%, compared to $59.3 million in the comparable period of 2004. The increase in net sales was primarily attributable to improving conditions in the general industrial segments of the domestic economy as well as new product introductions.

·   Performance Racing. Net sales in our performance racing segment were $12.4 million in the first nine months of 2005, an increase of $0.7 million, or 6.0%, compared to $11.7 million in the comparable period of 2004. The increase in sales in this segment was due to new product introductions during the period.

Gross Profit. Gross profit increased $1.0 million to $46.1 million during the first nine months of 2005, a 2.2% increase compared to gross profit of $45.1 million in the comparable period of 2004. The gross profit margin decreased to 22.4% of net sales in 2005 from 24.6% of net sales in the comparable period of 2004. Included in our gross profit are significant costs incurred during the period as a result of operating inefficiencies associated with the relocation of our Ohio friction products facility to Oklahoma, including increased labor, overtime, maintenance, employee benefit, training, freight and outsourcing costs as a result of the start-up of operations in Oklahoma and operating both the Ohio and Oklahoma facilities during the production transition period. In addition, we incurred phase-in costs associated with our new technology initiatives in our precision components segment and an increase in inventory reserves in our performance racing segment. There are inventory related costs related to the restructuring of $0.4 million within cost of sales for the nine months ended September 30, 2005. There are no comparable inventory related restructuring costs in our cost of sales in the first nine months of 2004.

Gross Profit Margin:	Nine months ended September 30, 2005			Nine months ended September 30, 2004			Change
Friction products		23.8	%		26.1	%		(2.3	%)
Precision components		19.3	%		21.8	%		(2.5	%)
Performance racing		23.4	%		25.6	%		(2.2	%)
Consolidated		22.4	%		24.6	%		(2.2	%)

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·   Friction Products. Our friction products segment reported gross profit of $31.0 million or 23.8% of its net sales in the first nine months of 2005 compared to $29.2 million or 26.1% of its net sales in the comparable period of 2004. The decrease in this segment’s gross profit margin was primarily the result of direct restructuring costs, operating inefficiencies associated with the transition of operations to our new Oklahoma facility from Ohio, and increased labor and incentive compensation costs during the period. The decrease in the segment’s gross profit was partially offset by sales volume increases during the period and product mix.

·   Precision Components. Gross profit in our precision components segment was $12.2 million or 19.3% of its net sales in the first nine months of 2005 compared to $12.9 million or 21.8% of its net sales in comparable period of 2004. The decrease in this segment's gross profit margin was primarily the result of phase-in costs associated with our new technologies, sales volume declines which occurred in the earlier part of the year at one of our manufacturing facilities, higher raw material and energy costs and production outsourcing costs required as a result of the overall segment’s sales volume increases to meet customer delivery schedules. We continued to support our China precision components facility during the period. The decline in the segment’s gross margin was partially offset by sales volume increases for this segment as a whole and product mix.

·   Performance Racing. Our performance racing segment reported gross profit of $2.9 million or 23.4% of net sales in the first nine months of 2005 compared to $3.0 million or 25.6% of net sales in the comparable period of 2004. The decrease in the gross profit and gross profit percentage during the quarter was primarily the result of cost increases on various driveline components, reserves created to reflect inventory obsoleted due to rule changes in the racing circuits served by this segment, increased employee benefit costs and product mix.

Selling, Technical and Administrative Expenses. ST&A expenses increased $1.3 million, or 4.6%, to $29.6 million in the first nine months of 2005 from $28.3 million in the comparable period of 2004. As a percentage of net sales, ST&A expenses decreased to 14.4% of net sales in the first nine months of 2005 compared to 15.5% of net sales in the comparable period of 2004. The increase in ST&A expenses resulted primarily from increased incentive compensation costs for the nine month period, sales and marketing expenses related to aftermarket product sales programs in our friction products segment, increased research and development costs and to a lesser extent, duplicate administrative costs associated with the move of our friction products facility to Oklahoma and loan forgiveness and the related tax gross-up costs associated with the forgiveness ofshareholder loans in both periods. Included in ST&A expenses for the nine months ended September 30, 2005, is $1.1 million of loan forgiveness costs compared to $0.7 million in the comparable period of 2004. We spent $4.8 million on product research and development in the first nine months of 2005 compared to $4.2 million in the comparable period of 2004.

Restructuring Costs. Direct restructuring costs (excluding the $0.4 million recorded in our Costs of sales) for the nine months ended September 30, 2005 were $3.9 million, consisting of severance, planning, recruiting, relocation and other costs associated with our new manufacturing facility in Oklahoma. In the comparable period of 2004, we incurred direct restructuring costs of $0.5 million. The costs reflected in 2004 and 2005 are a part of the same initiative relating to the closure of the Brook Park, Ohio facility and transition to the Tulsa, Oklahoma facility.

Employee Benefit Curtailment. As a result of employment reductions at our Brook Park, Ohio facility as of September 30, 2005, we reduced an actuarially computed liability which provided for medical benefits to individuals who met certain age and service requirements at termination of employment. This action resulted in reported income of $0.4 million for the nine months ended September 30, 2005.

Income from Operations. Income from operations decreased $3.3 million or 20.9% to $12.5 million in the first nine months of 2005 from $15.8 million in the comparable period of 2004. Income from operations as a percentage of net sales decreased to 6.1% in the first nine months of 2005 from 8.6% in the comparable period of 2004. The decrease was primarily the result of direct restructuring costs, operating inefficiencies and duplicate manufacturing costs associated with the transition of operations to our Oklahoma facility from Ohio, increased loan forgiveness costs, increased research and development costs and increased labor and incentive compensation costs partially offset by product mix and $0.4 million of employee benefit curtailment income.

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As a result of the items discussed above, income from operations at each of our segments was as follows:

Income from operations by segment:	Nine months ended September 30, 2005		Nine months ended September 30, 2004		$ Change			% Change
	(dollars in millions)
Friction products	$	9.5	$	12.1	$	(2.6	)		(21.5	%)
Precision components		2.6		2.9		(0.3	)		(10.3	%)
Performance racing		0.4		0.8		(0.4	)		(50.0	%)
Consolidated	$	12.5	$	15.8	$	(3.3	)		(20.1	%)

Included in our income from operations in the first nine months of 2005 was $4.3 million of direct restructuring costs related to the plant relocation ($0.4 million of which was included in our cost of sales), a $1.1 million charge related to forgiveness of shareholder loans outstanding as of March 31, 2005 and other non-cash recurring income of $0.4 million relating to a reversal of a post retirement benefit liability no longer owed by us. In the first nine months of 2004, income from operations included direct restructuring costs of $0.5 million and loan forgiveness costs of $0.7 million. Income from operations before these charges was $17.5 million, or 8.5% of net sales in the first nine months of 2005, an increase of $0.5 million, or $2.9%, from $17.0 million, or 9.3% of net sales in the comparable period of 2004.

	Nine months ended September 30,
	(Loss) income from operations, as reported (GAAP)						Restructuring costs 1				Other non-recurring 2			Adjusted income from operations
	2005			2004			2005		2004		2005		2004	2005			2004
	(dollars in millions)
Friction products	$	9.5		$	12.1		$	4.3	$	0.5	$	0.2		$	14.0		$	13.0
Precision components		2.6			2.9							0.4			3.0			3.2
Performance racing		0.4			0.8							0.1			0.5			0.8
Total pre-tax	$	12.5		$	15.8		$	4.3	$	0.5	$	0.7		$	17.5		$	17.0
Operating margin		6.1	%		8.6	%									8.5	%		9.3	%

1.   Restructuring costs in this table for the nine months ended September 30, 2005 include $0.4 million classified in the Company’s Consolidated Statement of Income as Cost of sales items.

2.   Other non-recurring, net includes loan forgiveness costs of $1.1 million for the nine month period ended September 30, 2005 and $0.7 million for the nine month period ended September 30, 2004, net of employee benefit curtailment income of $0.4 million for the nine month period ended September 30, 2005.

The table above discloses Adjusted income from operations, which is considered to be a “non-GAAP financial measure” under the rules and regulations of the SEC. Refer to the section “Non-GAAP Financial Measure” on page 22 of this section of this Form 10-Q for more detailed disclosure.

Interest Expense. Interest expense increased $0.2 million in the first nine months of 2005 to $7.9 million from $7.7 million in the comparable period of 2004. Higher levels of total borrowings during the nine month period ended September 30, 2005 were partially offset by lower borrowing rates during the period. Included as a component of interest expense in our financial statements are the amortization of deferred financing costs. Deferred financing costs included in interest expense in the first nine months of 2005 and 2004 were $0.3 million.

Income Taxes. We recorded a tax provision for our continuing operations of $2.5 million in the first nine months of 2005 compared to $3.2 million in the comparable period of 2004. Our effective income tax rate of 58.1% and 42.7% for the nine month periods ended September 30, 2005 and 2004, respectively, exceed the current federal U.S. statutory rate of 35.0%, primarily as a result of tax rate differences on our expected foreign income compared to our expected consolidated domestic losses and expected individual state tax liabilities. Our worldwide provision for income taxes is based on our estimated annual tax rates for the year applied to all of our sources of income.

31

Discontinued Operations, net of tax. In the fourth quarter of 2003, we committed to a plan to divest our motor segment operations. In accordance with GAAP, we have accounted for the motor segment in our financial statements on the line item “Discontinued operations, net of tax.” The following is a summary of the results of discontinued operations for the nine months ended September 30, 2005 and 2004.

	Three months ended
	September 30, 2005		September 30, 2004
	(dollars in millions)
Net sales	$	6.8	$	9.9
Income (loss) from discontinued operations before income taxes		0.2		(0.6	)
Income tax provision		0.1		0.2
Income (loss) from discontinued operations, net of tax	$	0.1	$	(0.4	)

Net Income. As a result of the factors noted above, we reported net income of $2.0 million in the first nine months of 2005 compared to $3.9 million in the comparable prior year period, a decrease of $1.9 million, or 48.7%.

LIQUIDITY AND CAPITAL RESOURCES

Our primary financing requirements are:

·   for capital expenditures for acquisition, maintenance, and replacement of equipment, expansion of capacity, productivity improvements and product development,

·   for funding our day-to-day working capital requirements, and

·   to pay interest on, and to repay principal of, our indebtedness.

Our primary source of funds for conducting our business activities and servicing our debt has been cash generated from operations and borrowings under our bank facility. The following selected measures of liquidity and capital resources outline various metrics that are reviewed by our management and are provided to enhance the understanding of our business.

Selected Measures of Liquidity and Capital Resources from Continuing Operations

	September 30, 2005			December 31, 2004
	(dollars in millions)
Cash and cash equivalents	$	6.0		$	6.8
Working capital (1)	$	54.1		$	51.1
Current ratio (2)		2.0 to 1.0			2.0 to 1.0
Debt as a % of capitalization (3)		70.3	%		70.2	%
Average number of days sales in accounts receivable		56.1 days			60.5 days
Average number of days sales in inventory		78.4 days			78.1 days

(1)   Working capital is defined as current assets minus current liabilities.

(2)   Current ratio is defined as current assets divided by current liabilities.

(3)   Debt is defined as long-term debt, including current portion, and short-term borrowings, less cash. Capitalization is defined as debt plus shareholders’ equity.

As part of our capital management, we review certain working capital measures on a continuing basis. The increase in our net working capital from December 31, 2004 resulted from increased inventory requirements to support our increased sales volumes and the inventory build to support the move to our new facility in Oklahoma. Our accounts receivable and inventory levels are reviewed through the computation of days sales outstanding and inventory turnover, respectively. The number of days sales outstanding in accounts receivable was 56 days compared to 61 days at December 31, 2004. The decrease is mainly attributable to a strong focus on accounts receivable collection efforts within our operating segments.

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Average inventory turns of 78 days remains flat at September 30, 2005 as compared to September 30, 2004. Our overall inventory levels have increased approximately $4.3 million at September 30, 2005 as compared to December 31, 2004 levels to support our increased sales volumes and the inventory build to support the move to our new facility in Oklahoma; the turnover calculation is flat mainly due to the impact of the higher sales volumes.

Debt

The following table summarizes the components of our debt as of September 30, 2005 and December 31, 2004:

	September 30, 2005		December 31, 2004
	(dollars in millions)
Short-term debt	$	1.0	$	1.0
Bank facility		2.3		0.2
Senior notes		110.0		110.0
Other		1.5		1.8
Total debt	$	114.8	$	113.0

Our bank facility, which is available for general corporate purposes, has a maximum commitment of $30.0 million, including a letter of credit sub-facility of up to $5.0 million. The bank facility matures on November 1, 2009, subject to extension at our request on an annual basis thereafter, with the consent of the lender. The interest rates on the bank facility range from 150 to 225 basis points over the London Interbank Offered Rates, or alternatively, 0 basis points over the prime rate, and the commitment fee is 25 basis points on the unused portion of the bank facility. At September 30, 2005, we had $2.3 million outstanding under the bank facility and $2.5 million of letters of credit outstanding under the letter of credit sub-facility. At September 30, 2005, we had $25.2 million available to borrow under the bank facility.

The bank facility is collateralized by a security interest in our cash, accounts receivable, inventory and certain intangible assets. We also pledged the stock of our guarantor subsidiaries and 65% of the stock of certain of our foreign subsidiaries as collateral. The restrictive terms of the bank facility require that we maintain a minimum amount of shareholders’ equity as determined by reference to an adjusted shareholders’ equity at September 30, 2004 plus net income earned by us after such date. The bank facility also requires that we maintain an earnings before interest, taxes, depreciation and amortization to interest expense ratio of at least 1.0 to 1.0, although the lender will test this ratio only if our borrowing availability falls below $10.0 million. This test was not required to be performed as of September 30, 2005 as a result of our excess borrowing availability. Under the bank facility, we may pay cash dividends on our Class A common stock in an amount up to $2.0 million per year under certain circumstances.

Our $110 million aggregate principal amount of 8¾ % senior notes due November 1, 2014 are senior unsecured obligations, rank senior in right of payment to all of our existing and future subordinated debt and rank equally in right of payment with all of our existing and future senior unsecured by all of our existing and future domestic restricted subsidiaries (the Guarantors). The guarantees rank senior in right of payment to all of the existing and future subordinated debt of the Guarantors and equally in right of payment with all existing and future senior debt to the Guarantors, including the bank facility. The senior notes and the guarantees are effectively subordinated to all of our and the Guarantors’ secured debt, including the bank facility, to the extent of the value of the assets securing that debt. The terms of the senior notes permit us to incur additional debt without limitation, provided that we continue to meet a cash flow ratio greater than 2.0 to 1.0 for our most recently ended four quarters. At September 30, 2005, we exceeded the required cash flow ratio test. We may pay cash dividends on our Class A common stock under the terms of the senior notes under certain circumstances.

We have entered into various short-term, variable-rate, debt agreements of up to $4.5 million with local financial institutions at our facilities in Italy and China. Borrowings under these credit facilities totaled $1.0 million as of September 30, 2005.

As of September 30, 2005, we were in compliance with the provisions of all of our debt instruments.

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Cash Flow

The following table summarizes the major components of our cash flow:

	September 30, 2005			September 30, 2004
	(dollars in millions)
Cash provided by operating activities	$	8.4		$	4.5
Cash used in investing activities	$	(11.6	)	$	(12.7	)
Cash provided by financing activities	$	2.2		$	7.8
Effect of exchange rate changes on cash	$	(0.4	)	$
Cash provided by discontinued operations	$	0.6		$	1.3
Net (decrease) increase in cash and cash equivalents	$	(0.8	)	$	0.9

Our net cash provided by operating activities was $8.4 million for the nine month period ended September 30, 2005 compared to cash provided by operating activities of $4.5 million for the comparable nine month period of 2004. The increase in cash from operating activities was attributable to less of an increase in accounts receivable at September 30, 2005 as compared to September 30, 2004 and a reduction in net income of approximately $1.9 million for the nine months ended September 30, 2005 as compared to the nine months ended September 30, 2004. 

Our net cash used in investing activities was $11.6 million and $12.7 million for the nine month period ended September 30, 2005 and 2004, respectively, primarily for the purchase of property, plant and equipment.

Our net cash provided by financing activities was $2.2 million for the nine month period ended September 30, 2005 due to borrowings under the Company’s revolving credit facility. Net cash provided by financing activities was $7.8 million for the nine month period ended September 30, 2004 as a result of an increase in borrowings during the nine month period ended September 30, 2004 to support our working capital requirements in addition to purchases of property, plant and equipment.

We believe that cash flow from operating activities and borrowings under our bank facility will be sufficient to satisfy our working capital, capital expenditures and debt requirements and to finance our continued internal growth needs and restructuring initiatives for the next twelve months.

FORWARD LOOKING STATEMENTS

Statements that are not historical facts, including statements about our confidence in our prospects and strategies and our expectations about growth of existing markets and our 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 guarantees of performance or a representation by us or any other person that our objectives or plans will be achieved.

Our forward-looking statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. Important assumptions relating to the forward looking statements include, among others, assumptions regarding demand for our products, the expansion of product offerings geographically or through new applications, the timing and cost of planned capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve risks and uncertainties, which could cause actual results that differ materially and adversely from those contained in any forward looking statement. Many of these factors are beyond our ability to control or predict and such incurrence could be material. Such factors include, but are not limited to, the following:

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·   higher than anticipated costs related to the relocation of the friction products segment facility;  

·   the ability to hire, train and retain qualified people at our new friction product facility;

·   the ability to transfer production to the new facility and commence production at the new facility without causing customer delays or dissatisfaction;

·   the ability to achieve the projected cost savings at the new facility, including whether the cost savings can be achieved in a timely manner;

·   our ability to meet the terms of our bank facility and the senior notes, each of which contain a number of significant financial covenants and other restrictions;

·   limitations that may confine our growth as a result of restrictions imposed by the financial covenants;

·   our vulnerability to adverse general economic and industry conditions and competition;

·   the impact on our gross profit margins as a result of changes in our product mix;

·   the effect of any interruption in our supply of raw materials (including steel, copper and oil) or a substantial increase in the price of any of these raw materials;

·   our ability to effectively utilize all of our manufacturing capacity as the industrial and commercial end-markets we serve continue to improve;

·   whether or not the remaining portion of our motor segment can be sold and if sold whether the sale can take place at the price projected by us;

·   our ability to generate profits at our precision components facility in China;

·   the effect of the transfer of manufacturing to China and other lower wage locations by other manufacturers who compete with us;

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

·   the effect of domestic earnings or losses compared to foreign earnings or losses on our overall effective tax rate and our ability to use our NOL and AMT carryforwards in future periods;

·   the effect on our international operations of unexpected changes in legal and regulatory requirements, export restrictions, currency controls, tariffs and other trade barriers, difficulties in staffing and managing foreign operations, political and economic instability, difficulty in accounts receivable collection and potentially adverse tax consequences;

·   the effect of fluctuations in foreign currency exchange rates as our non-U.S. sales continue to increase;

·   our ability to negotiate new agreements, as they expire, with our unions representing certain of our employees, on terms favorable to us or without experiencing work stoppages; and

·   the continuity of business relationships with major customers.

Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events.

You must consider these risks and others that are detailed in this Form 10-Q in deciding whether to invest or continue to own our common stock or senior notes.

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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Market Risk Disclosures. The following discussion about our market risk disclosures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. We are exposed to market risk related to changes in interest rates and foreign currency exchange rates. In seeking to minimize the risks and costs associated with market risk, we manage our exposures to interest rates and foreign currency exchange rates through our regular operating and financial activities and through foreign currency hedge contracts. We had no foreign currency hedge contracts outstanding as of September 30, 2005. We do not use derivative financial instruments for speculative or trading purposes.

Interest Rate Sensitivity. At September 30, 2005, approximately 2.9%, or $3.3 million, of our total debt bears interest at a variable rate. Our primary interest rate risk exposure results from floating rate debt. If interest rates were to increase 100 basis points (1%) from September 30, 2005 rates, and assuming no changes in debt from September 30, 2005 levels, our additional annual interest expense would be less than $0.1 million.

Foreign Currency Exchange Risk. The majority of our receipts and expenditures are contracted in U.S. dollars, and we do not consider the market risk exposure relating to currency exchange to be material at this time. We have operations outside the United States with foreign currency denominated assets and liabilities, primarily denominated in Euros, Canadian dollars, and Chinese renminbi. Because we have foreign currency denominated assets and liabilities, financial exposure may result, primarily from the timing of transactions and the movement of exchange rates. We do not expect that our unhedged foreign currency balance sheet exposure as of September 30, 2005 will result in a significant impact on our earnings or cash flows. We also monitor exposure to transactions denominated in currencies other than the functional currency of each country in which Hawk operates, and periodically enter into forward contracts to mitigate that exposure. As of September 30, 2005, we have no derivative instruments outstanding.

Inflation Risk. We manage our inflation risks by ongoing review of product selling prices and production costs. In spite of the recent surcharges and price increases on a number of our raw materials, we do not believe that inflation risks are material to our business, its consolidated financial position, results of operations, or cash flows.

ITEM 4.CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures. As of September 30, 2005, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures. The evaluation was carried out under the supervision of and with the participation of our management, including our Chief Executive Officer, Chief Financial Officer and Vice President - Finance. Based on this evaluation, the Chief Executive Officer, Chief Financial Officer and Vice President - Finance concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to Hawk, including our consolidated subsidiaries, required to be included in reports we file with or submit to the SEC under the Securities Exchange Act of 1934. We continue to evaluate the need for improvements in our disclosure controls and procedures, including further formalizing our processes, procedures and policies.

Changes in Internal Control. There have been no changes in our internal controls over financial reporting during the most recent fiscal quarter that are judged to have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

We are involved in lawsuits that have arisen in the ordinary course of our business. We are contesting each of these lawsuits vigorously and believe we have defenses to the allegations that have been made. In our opinion, the outcome of these legal actions will not have a material adverse effect on our financial condition, liquidity or results of operations.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

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ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None

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

None

ITEM 5.OTHER INFORMATION

Hawk and Norman C. Harbert entered into a Senior Advisor Agreement on November 9, 2005 whereby Mr. Harbert is employed by Hawk as a senior advisor. The Senior Advisor Agreement is effective as of June 1, 2005. In connection with the Senior Advisor Agreement, on November 9, 2005, Hawk and Mr. Harbert terminated, effective as of June 1, 2005, each of the Amended and Restated Employment Agreement, dated December 31, 2001, and amended on December 31, 2003, and the Consulting Agreement dated December 31, 2001 (collectively, the “Prior Agreements”). The terms of Mr. Harbert’s compensation and benefits under the Senior Advisor Agreement are consistent with the Prior Agreements. The Senior Advisor Agreement further provides that Mr. Harbert will retain the office he currently holds as Chairman Emeritus of the Board and Founder, and will be employed by Hawk as a senior advisor through June 30, 2012. Mr. Harbert’s duties and responsibilities pursuant to the Senior Advisor Agreement include such duties and responsibilities as are customarily assigned to a person in his position. In addition, Mr. Harbert will continue to chair Hawk’s annual meeting of shareholders.

Also in connection with Mr. Harbert’s employment by Hawk as a senior advisor, Hawk and Mr. Harbert entered into the First Amendment to Restated Wage Continuation Agreement on November 9, 2005, effective as of June 1, 2005. This amendment and the Senior Advisor Agreement provide that, if Mr. Harbert dies while in active employ of Hawk under the Senior Advisor Agreement, his spouse will receive payments in accordance with the First Amendment to the Restated Wage Continuation Agreement.

The descriptions of the Senior Advisor Agreement and First Amendment to Restated Wage Continuation Agreement set forth above are qualified in their entirety by reference to said agreements, copies of which are attached hereto as Exhibits 10.1 and 10.2, respectively, and incorporated herein by reference.

ITEM 6.EXHIBITS

Exhibits:

10.1* Senior Advisor Agreement, dated as of November 9, 2005, between Hawk Corporation and Norman C. Harbert

10.2* First Amendment to Restated Wage Continuation Agreement, dated as of November 9, 2005, between Hawk Corporation and Norman C. Harbert

31.1* Certification of the Chairman of the Board, Chief Executive Officer and President pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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

32.1* Certification of the Chairman of the Board, Chief Executive Officer and President pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2* Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* filed herewith

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SIGNATURES

Pursuant to the requirements 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.

Date: November 14, 2005HAWK CORPORATION

By: /s/ Ronald E. Weinberg

Ronald E. Weinberg

Chairman of the Board, CEO and President

By: /s/ Joseph J. Levanduski

Joseph J. Levanduski

Chief Financial Officer

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EX-10.1

Exhibit 10.1

SENIOR ADVISOR AGREEMENT

THIS SENIOR ADVISOR AGREEMENT (this “Agreement”) is made and entered into the 9^th day of November, 2005, as of the first day of June, 2005, by and among HAWK CORPORATION, a Delaware corporation (“Hawk” or the “Company”) and NORMAN C. HARBERT (“Harbert”).

RECITALS

A.The parties are parties to the Amended and Restated Employment Agreement dated as of December 31, 2001 (the “Employment Agreement”) and the First Amendment to Amended and Restated Employment Agreement dated as of December 31, 2003 (together with the Employment Agreement, the “Restated Employment Agreement”;

B.The parties are parties to a Consulting Agreement dated as of December 31, 2001 (the “Consulting Agreement”);

C.The parties desire to terminate the Restated Employment Agreement and the Consulting Agreement and amend the terms and conditions under which Harbert will be retained by the Company in accordance with the terms set forth in this Agreement;

NOW THEREFORE, in consideration of the premises and the promises and agreements contained herein and other good and valuable consideration, the sufficiency and receipt of which

are hereby acknowledged, and intending to be legally bound, the Company and Harbert agree as follows:

 1.EMPLOYMENT. The Company hereby employs Harbert as a senior advisor and Harbert agrees to be employed by the Company as a senior advisor for a period commencing as of the date hereof and terminating on June 30, 2012. Such period, together with the period of any extension or renewal upon the mutual agreement of the Company and Harbert, of such employment is herein referred to as the “Advisory Period.”

2.COMPENSATION AND BENEFITS. Provided that Harbert’s employment hereunder is not terminated in accordance with this Agreement, during the Advisory Period Harbert shall receive as compensation:

(a)Salary: Salary at the annual rate of $418,625, payable not less frequently than semi-monthly (as adjusted from time to time, “Base Wages”), reduced by any payments made to Harbert under (i) any non-contributory defined benefit plan maintained by the Company (“Defined Benefit Payments”) and (ii) any disability or similar policy.

(b)Harbert Benefit Programs: Harbert shall have the right to participate, subject to any applicable eligibility requirements, in all corporate employee benefit programs offered to “executive” employees by the Company and any other plans made available by the Company in the future to its executives and “key” management employees, including, if any, the Company’s 401(k) plan, health and life insurance programs and non-contributory defined benefit plans.

(c)Executive Bonus Plan: During each year of the Advisory Period, Harbert shall receive a bonus pursuant to the Annual Incentive Compensation Plan presently in effect in an amount $100,000 less than the bonus payable to Ronald E. Weinberg (“Weinberg”) but not to exceed $250,000.

(d)Business Expenses: The Company shall promptly reimburse Harbert for all reasonable and necessary business expenses incurred by Harbert on behalf of the Company and its parent, wholly-owned subsidiaries or affiliated entities during the Advisory Period. Harbert shall submit to the Company appropriate expense reports that detail such expenses and includes copies of receipts where appropriate.

(e)Office: Harbert shall retain the office he is presently housed in or its equivalent.

(f)Automobile Expenses: Harbert shall be entitled to receive a car allowance in the amount determined by the Compensation Committee (regardless of its membership), but not less than the amount presently paid, payable semi-monthly. The Company shall provide property and liability insurance on Harbert’s automobile and reimburse Harbert for the reasonable maintenance and repair costs incurred with respect to Harbert’s automobile.

(g)Insurance: For the Advisory Period and any renewal thereof, the Company shall continue to maintain and pay the premiums on the insurance policies issued by Massachusetts Mutual Life (Policy Numbers 71396950 and 6160812), or such other similar policies as may be agreed by Harbert. Such insurance policies shall continue to be subject to the applicable split-dollar agreements between the Company and Harbert.

3.ADJUSTMENTS TO COMPENSATION. Harbert hereby authorizes the Company to withhold and withdraw from amounts payable to Harbert under this Agreement all applicable amounts required by federal, state and local laws.

4.DUTIES. Harbert shall, during the Advisory Period, serve as the Chairman Emeritus of the Board and senior advisor of the Company or in any capacity as the Board of Directors (the “Board”) may request and Harbert shall mutually agree to serve from time to time and in such

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capacity. Harbert's title shall be Chairman Emeritus of the Board and Founder. During the Advisory Period, Harbert shall perform such duties and responsibilities as are customarily assigned to the Chairman Emeritus and Founder and senior advisor of the Company and shall chair the Company's annual stockholder meeting. Harbert shall be required to devote the time and efforts to the business and affairs of the Company as is necessary to discharge his duties and Harbert may (i) serve on the boards of directors of other companies and on the boards of trustees of charitable organizations, and (ii) devote a portion of his time and efforts to the making and management of personal investments, in each case for so long as Harbert continues to substantially perform his duties and functions hereunder to the best of his ability and skill in such a manner as to promote the best interests of the Company. Harbert further agrees to serve as a director on the boards of directors of the Company’s subsidiaries or affiliated entities and in one or more executive offices of any of the Company’s subsidiaries or affiliated entities.

5.LIMITATIONS ON AUTHORITY.

(a)Notwithstanding anything else herein contained, Harbert shall adhere to the written limitations on authority as issued from time to time by the Board. Nothing contained herein shall be deemed to restrict the power of the Board to limit the authority of Harbert. Any violation of the terms of this Section 5(a) shall be deemed to be a material violation of a provision of this Agreement.

(b)Notwithstanding anything else herein contained, the Company shall cause Weinberg, as long as he remains Chief Executive Officer of Hawk and any successor to Weinberg as Chief Executive Officer of Hawk, to consult in advance with Harbert on each of the matters set forth below; provided that each of the Company and Harbert understand and agree that Harbert’s advice shall be sought but that his consent and/or approval with respect to any of the following matters shall not be required:

(i)The (A) evaluation of key management employees of the Company together with salary reviews, and (B) increases in compensation of key management employees of Hawk;

(ii)The entering into and/or execution of contracts, agreements, joint ventures and other commitments which would have a material effect on the business, financial condition and affairs, properties, assets, obligations, and operation of Hawk;

(iii)The formulation of the annual budget and business plan of Hawk;

(iv)The formulation of the business goals of Hawk;

(v)The merger, consolidation, combination, liquidation, or sale of all or substantially all the assets or stock of Hawk or any of its affiliates that are material to Hawk as a whole and the acquisition or purchase of all or substantially all the assets or stock of another company or entity that is material to Hawk as a whole; and

(vi)Any other matter which would have a material effect on the business, operations, financial condition or affairs, assets or properties of Hawk.

(c)Harbert is not vested with any authority to set policy on behalf of the Company.

Failure to comply with this Section 5 shall not be deemed a material breach of this Agreement.

6.DEATH OF EMPLOYEE. In the event Harbert should die during the Advisory Period and:

(a)at the time of Harbert’s death, Harbert has a wife, then: (i) payments shall be made pursuant to and in accordance with the Amended and Restated Wage Continuation Agreement between the Company and Harbert dated as of December 31, 2001, and the First Amendment to Restated Wage Continuation Agreement of even date (collectively, the “Wage Continuation Agreement”), which is herein incorporated by reference; (ii) the Company shall pay to Harbert’s wife the amount of bonus which Harbert would have received under Section 2(c) hereof for the year of Harbert’s death which shall be prorated for the portion of the year ending upon the date of death; and (iii) the Company shall continue to provide and/or pay for the existing health care coverage to Harbert’s wife to the maximum extent allowable in all respects under applicable law; provided, however, that Harbert’s surviving spouse’s primary provider of medical coverage shall be Medicare and the Company’s health care coverage shall be the secondary payor; and provided further, however, that the combined benefits of Medicare and the Medicare supplemental policy shall be substantially the same as then available under the Company’s existing health care coverage for active employees; or

(b)at the time of Harbert’s death, Harbert has no wife, then the Company shall: (i) for a period of two (2) years, continue to pay Harbert’s Base Wages at the same monthly rate earned by Harbert immediately prior to his death to Harbert’s beneficiaries or estate; and (ii) pay to Harbert’s beneficiaries or his estate, the amount of bonus which the Harbert would have received under Section 2(c) hereof for the year of Harbert’s death which shall be prorated for the portion of the year ending upon the date of death.

7.DISABILITY OF EMPLOYEE.

[INTENTIONALLY OMITTED.]

8.TERMINATION.

(a)The Company may terminate Harbert’s employment hereunder at any time for cause, which shall be deemed to include the following: (i) Harbert’s engaging in fraud, misappropriation of funds, embezzlement or like conduct committed against the Company; or (ii) Harbert’s conviction of a felony.

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(b)Harbert’s employment hereunder may be terminated by the Company in the event of Harbert’s voluntarily leaving the employ of the Company.

(d)In the event that Harbert’s employment with the Company is terminated by the Company or by Harbert, the parties agree that the provisions of Sections 8(c), 9, 10, 11, 12, 13, 14, 17, 18, 21, 24 and 25 hereof shall survive such termination and continue in full force and effect.

9.NON-COMPETITION. Harbert recognizes and acknowledges that the business of the Company is the manufacture, marketing and development of friction materials, metal stampings, powder metals, metal injection moldings, rotors, electric motors, performance racing products and businesses related thereto. Harbert agrees that within the United States, Canada, Italy, Mexico and China and any other location in which the Company engaged in all or part of the above-described business at any time during the Advisory Period, and for two (2) years from and after the date of the termination of Harbert’s employment hereunder (the “Restricted Period”), Harbert shall not, in any manner, directly or indirectly on behalf of himself or any other person, firm, business or corporation;

(a)Establish, operate or engage in, financially or otherwise, as an owner, partner, shareholder, officer, director, licensor, licensee, principal, agent, employee, trustee, consultant or in any other relationship or capacity, the business of the Company;

(b)Request or instigate any account or customer of the Company or its subsidiaries or affiliates to withdraw, diminish, curtail or cancel any of its business with the Company or its subsidiaries or affiliates; or

(c)Hire, solicit, or encourage to either leave the employment of or cease working with the Company or its subsidiaries or affiliates (i) any current employee of the Company or its subsidiaries or affiliates, or (ii) any employee who has left the employment of or ceased working with the Company or its subsidiaries or affiliates within one (1) year of the date of termination of such employee’s employment with the Company.

In the event of Harbert’s breach of any provision of this Section, the running of the Restricted Period shall be automatically tolled (i.e., no part of the Restricted Period shall expire) from and after the date of the first such breach.

10.CONFIDENTIAL INFORMATION. Harbert recognizes and acknowledges that confidential information, including, without limitation, information, knowledge or data: (i) of a business nature such as, but not limited to, information about cost, price, rates, profits, purchasing, suppliers, advertising, customers, sales, marketing, promotion, compensation, employment, personnel, including information regarding present and prospective customers and the business affairs and financial condition of the Company; (ii) of a technical nature such as, but not limited to, methods, know-how, processes and research; (iii) pertaining to future developments such as, but not limited to, research and development projects and future marketing, advertising or promotion; and (iv) pertaining to trade secrets of the Company; and including all other matters which the Company treats as confidential (the items described above being hereafter collectively referred to as “Confidential Information”), are valuable, special and unique assets of the Company. During and after the Restricted Period, Harbert shall keep secret and retain in strictest confidence, shall not use for the benefit of himself or others except in connection with the business and affairs of the Company, any and all Confidential Information learned or obtained by Harbert before or after the date of this Agreement, and shall not disclose such Confidential Information to anyone outside of the Company either during or after employment by the Company, except as required in the course of performing duties of his employment with the Company, without the express written consent of the Company or as required by law.

11.PROPERTY OF EMPLOYER. Harbert agrees to deliver promptly to the Company all manuals, letters, notes, notebooks, reports, computer programs and files, memoranda, customer and supplier lists and all other materials relating in any way to the business of the Company and in any way obtained by Harbert during the period of his employment with the Company which are in his possession or under his control, and all copies thereof, (i) upon termination of Harbert’s employment with the Company, or (ii) at any other time at the Company’s request. Harbert further agrees that he will not make or retain any copies of any of the foregoing and that he will so represent to the Company upon termination of his employment hereunder.

12.RIGHTS AND REMEDIES UPON BREACH. Both parties recognize that the rights and obligations set forth in this Agreement are special, unique and of extraordinary character. If Harbert breaches, or threatens to commit a breach of, any of the provisions of Sections 9 through 11 hereof (hereinafter referred to as the “Restrictive Covenants”), then the Company shall have the right and remedy to injunctive relief, which right and remedy shall be in addition to, and not in lieu of, any other rights and remedies available to the Company pursuant to this

Agreement, any applicable law or in equity. The right and remedy to have the Restrictive Covenants specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide adequate remedy to the Company. As to the covenants contained in Section 9 hereof, specific performance shall be for a period of time equal to the unexpired portion of the Restricted Period, giving full effect to the tolling provision of Section 9 hereof, and beginning on the earlier of the date on which the court’s order becomes final and nonappealable or the date on which all appeals have been exhausted.

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13.DISCLOSURE. The Company may notify anyone employing Harbert or evidencing an intention to employ Harbert as to the existence and provisions of this Agreement and of the Restrictive Covenants.

14.INDEMNIFICATION.

(a)The Company shall indemnify Harbert (and his legal representative or other successors) to the fullest extent provided by the articles or certificate of incorporation and by-laws or code of regulations (or other governing document) of the Company and any wholly-owned subsidiary, as may be amended or restated from time to time.

(b)Harbert shall indemnify the Company against any and all losses incurred by the Company as a result of Harbert’s acts of willful misconduct or fraud.

15.ASSIGNMENT. This Agreement is a personal services contract and it is expressly agreed that the rights and interests of Harbert hereunder may not be sold, transferred, assigned, pledged or hypothecated (other than by will or the laws of descent and distribution).

16.BINDING EFFECT. This Agreement shall inure to the benefit of and be binding upon the parties hereto, their heirs, representatives and permitted successors and assigns.

17.SEVERABILITY. In case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein.

18.BLUE-PENCILLING. If at any time it shall be determined that any of the provisions of this Agreement are unreasonable as to time or area, or both, by any court of competent jurisdiction, the Company shall be entitled to enforce such provision for such period of time and within such area as may be determined to be reasonable by such court.

19.REPRESENTATIONS OF HARBERT. Harbert represents and warrants, on behalf of himself, his immediate family and any person, firm or corporation in which he has a substantial interest, that:

(a)They are not indebted to the Company in any amount whatsoever;

(b)They do not, and will not during the Restricted Period, have any direct or indirect ownership interest in any entity with which the Company has a business relationship or competes with the Company; provided, however, that the ownership of, or investments in, at no time exceeding 5% of the issued and outstanding capital stock of an entity with annual revenues in excess of $20 million shall not constitute a breach of this representation and warranty;

(c)They are not and will not become, during the Advisory Period, directly or indirectly, interested in any material contract with the Company (other than this Agreement); and

(d)The execution of this Agreement or his employment by the Company will not breach any agreement or covenant entered into by him that is currently in effect.

Excluded from the foregoing representations and warranties are transactions disclosed to the Board done on terms at least as favorable to the Company as those which it could otherwise have obtained from unrelated third parties.

20.CONFLICTS OF INTEREST. In the event that Harbert engages in or contemplates engagement in a transaction which does affect or could affect the business of the Company, Harbert agrees to immediately disclose in writing to the Board all material information relating to same. Additionally, in the event that the Company engages in or contemplates engagement in a transaction in which Harbert has a financial or personal interest, Harbert shall, immediately upon his learning of said engagement or contemplated engagement, disclose in writing to the Board all material information relating to said interest.

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21.ACKNOWLEDGMENT. Harbert acknowledges that: (i) he has carefully read all of the terms of this Agreement, and that such terms have been fully explained to him; (ii) he understands the consequences of each and every term of this Agreement; (iii) he has had sufficient time and an opportunity to consult with his own legal advisor prior to signing this Agreement; (iv) he had other employment opportunities at the time he entered into this Agreement; (v) he specifically understands that by signing this Agreement he is giving up certain rights he may have otherwise had, and that he is agreeing to limit his freedom to engage in certain employment during and after the termination of this Agreement; and (vi) the limitations to his right to compete contained in this Agreement represent reasonable limitations as to scope, duration and geographical area, and that such limitations are reasonably related to protection which the Company reasonably requires.

22.NOTICES. All notices, requests, demands or other communications hereunder shall be sent by registered or certified mail to:

the Company:Board of Directors

 Hawk Corporation

 200 Public Square, Suite 1500

 Cleveland, Ohio 44114-2301

Copy to:Byron S. Krantz, Esq.

 Kohrman Jackson & Krantz P.L.L.

 One Cleveland Center

 1375 East Ninth Street, 20^th Floor

 Cleveland, Ohio 44114

Harbert:Norman C. Harbert

 P.O. Box 127

 Hiram, OH 44234

23.CAPTIONS. The captions in this Agreement are included for convenience only and shall not in any way affect the interpretation or construction of any provision hereof.

24.GOVERNING LAW. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Ohio.

25.SUBMISSION TO JURISDICTION. The Company may enforce any claim arising out of or relating to this Agreement, or arising from or related to the advisory relationship existing in connection with this Agreement in any state or federal court having subject matter jurisdiction and located in Cleveland, Ohio. For the purpose of any action or proceeding instituted with respect to any such claim, Harbert hereby irrevocably submits to the jurisdiction of such courts and irrevocably consents to the service of process out of said courts by mailing a copy thereof, by registered mail, postage prepaid, to Harbert and agrees that such service, to the fullest extent permitted by law, (i) shall be deemed in every respect effective service of process upon him in any such suit, action or proceeding, and (ii) shall be taken and held to be valid personal service upon and personal delivery to him. Nothing herein contained shall affect the right of the Company to serve process in any other manner permitted by law or preclude the Company from bringing an action or proceeding in respect hereof in any other country, state or place having jurisdiction over such action. Harbert irrevocably waives, to the fullest extent permitted by law, any objection which he has or may have to the laying of the venue of any such suit, action or proceeding brought in any such court located in Cleveland, Ohio, and any claim that any such suit, action or proceeding brought in such a court has been brought in an inconvenient forum.

26.WAIVER OF BREACH. The waiver by either party of a breach of any provisions of this Agreement shall not operate or be construed as a waiver of any subsequent breach.

27.AMENDMENT. This Agreement may be amended only in a writing executed by both parties hereto.

28.ENTIRE AGREEMENT. This Agreement and the Wage Continuation Agreement between the Company and Harbert constitute the entire agreement between the parties and this Agreement supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, whether written or oral, of the parties hereto relating to the transactions contemplated by this Agreement and the Wage Continuation Agreement. No course of conduct or dealing between the parties shall be deemed to amend this Agreement.

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IN WITNESS WHEREOF, the undersigned have hereunto set their hand as of the date first written above.

HAWK CORPORATION

By:/s/ Ronald E.. Weinberg

Ronald E. Weinberg

Its:President and Chief Executive Officer

Attested to:

By:/s/ Byron S. Krantz

Byron S. Krantz

Its:Secretary

By:/s/ Norman C. Harbert

Norman C. Harbert

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EX-10.2

Exhibit 10.2

FIRST AMENDMENT TO RESTATED

WAGE CONTINUATION AGREEMENT

THIS FIRST AMENDMENT TO RESTATED WAGE CONTINUATION AGREEMENT (the “First Amendment”) is made and entered into the 9^th day of November, 2005, as of the first day of June, 2005, by and among HAWK CORPORATION, a Delaware corporation (“Hawk” or the “Company”), and NORMAN C. HARBERT, individually (“Harbert”).

RECITALS:

A.WHEREAS, the parties and Friction Products Co. (“Friction”) are parties to the Amended and Restated Wage Continuation Agreement dated as of December 31, 2001 (the “Restated Agreement”);

B.WHEREAS, Friction is no longer a necessary party; and

C.WHEREAS, the remaining parties desire to further amend the Restated Agreement in accordance with the terms set forth in this First Amendment.

NOW THEREFORE, in consideration of the premises and of the mutual promises herein contained, the parties hereto agree as follows:

1.Consideration. Section 1(a) of the Restated Agreement is hereby deleted and replaced in its entirety with the following:

(a)In consideration of Harbert remaining in its employ as a Senior Advisor, the Company agrees that (i) in the event of death of Harbert while Harbert is in the active employ of the Company under the Senior Advisor Agreement by and between the Company and Harbert dated 11^th day of October, 2005, as of June 1, 2005 (the “Advisor Agreement”), or (ii) in the event of death of Harbert at any time after he had been receiving “Disability Wage Continuation Payments” (as such term is defined in the Advisor Agreement), the Company shall pay to the Spouse a monthly payment equal to the Tentative Payment Amount divided by sixty percent (60%) (the “Wage Continuation Payment”) less any applicable withholding taxes. The term “Tentative Payment Amount” shall equal Twelve Thousand Five Hundred Dollars ($12,500) less the After-Tax Monthly Spousal Annuity and in no event shall be less than zero; the term “After-Tax Monthly Spousal Annuity” shall mean the Monthly Spousal Annuity less Taxes Payable; and the term “Taxes Payable” shall mean the portion of the Monthly Spousal Annuity subject to federal income taxes multiplied by forty percent (40%); provided further that the foregoing monthly payment shall be reduced (but not below zero) by the amount of any disability insurance payments made to Harbert or his spouse under any insurance plans provided and paid for by the Company or any of its affiliates and any payments made to Harbert or his spouse under any non-contributory defined benefit plan maintained by the Company or any of its affiliates. The phrase “mentally or physically disabled” shall have the meaning ascribed to it in the Advisor Agreement. If the Trustee makes a determination not to purchase the Monthly Spousal Annuity upon the death of Harbert while the Spouse is living or if Harbert designates someone other than the Spouse directly or indirectly through the Trust as the beneficiary of the Insurance Benefit, the Monthly Spousal Annuity will be deemed to equal the monthly annuity amount that could otherwise have been purchased by the Trustee for the Spouse if such a determination had not been made. The Wage Continuation Payment shall be payable to the Spouse in equal monthly installments commencing with the first day of the first month following the month of Harbert’s death and shall continue monthly until the death of the Spouse.

2.Termination. Section 2A of the Restated Agreement is hereby deleted and replaced in its entirety with the following:

A.The employment of Harbert by the Company is terminated for any reason other than his (i) death or (ii) Harbert becoming mentally or physically disabled. Nothing contained herein shall be construed to be a contract of employment for any term of years, nor as conferring upon Harbert the right to continue in the employ of the Company in any capacity. It is expressly understood by the parties thereto that this Agreement relates exclusively to salary continuation benefits in return for Harbert’s services and is not intended to be an employment contract.

3.Express Changes Only. Except as set forth in this First Amendment, all of the terms and provisions of the Restated Agreement shall remain unmodified and in full force and effect.

4.Captions. The captions in this First Amendment are included for convenience only and shall not in any way affect the interpretation or construction of any provision hereof.

5.Governing Law. This First Amendment shall be governed by, and construed and enforced in accordance with, the laws of the State of Ohio.

6.Submission to Jurisdiction. The Company may enforce any claim arising out of or relating to this First Amendment, or arising from or related to the employment relationship existing in connection with this First Amendment in any state or federal court having subject matter

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jurisdiction and located in Cleveland, Ohio. For the purpose of any action or proceeding instituted with respect to any such claim, Harbert hereby irrevocably submits to the jurisdiction of such courts and irrevocably consents to the service of process out of said courts by mailing a copy thereof, by registered mail, postage prepaid, to Harbert and agrees that such service, to the fullest extent permitted by law, (i) shall be deemed in every respect effective service of process upon him in any such suit, action or proceeding, and (ii) shall be taken and held to be valid personal service upon and personal delivery to him. Nothing herein contained shall affect the right of the Company to serve process in any other manner permitted by law or preclude the Company from bringing an action or proceeding in respect hereof in any other country, state or place having jurisdiction over such action. Harbert irrevocably waives, to the fullest extent permitted by law, any objection which he has or may have to the laying of the venue of any such suit, action or proceeding brought in any such court located in Cleveland, Ohio, and any claim that any such suit, action or proceeding brought in such a court has been brought in an inconvenient forum.

7.Counterparts. This First Amendment may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original and all such counterparts together, shall constitute one and the same instrument. The execution and delivery of facsimiles of this First Amendment shall be binding on the parties hereto.

8.Entire Agreement, Amendments and Waivers. There are and were no oral or written representations, warranties, understandings, stipulations, agreements, or promises made by any party, or by any agent, employee, or other representative of any party, pertaining to the subject matter of this First Amendment which have not been incorporated into this First Amendment. This First Amendment shall not be modified, changed, terminated, amended, superseded, waived, or extended except by a written instrument executed by the party or parties against whom enforcement is sought.

[Signature Page Follows]

HAWK CORPORATION

By: /s/ Ronald E. Weinberg

Ronald E. Weinberg

Its: President and Chief Executive Officer

Attested to:

By: /s/ Byron S. Krantz

Byron S. Krantz

Its: Secretary

FRICTION PRODUCTS CO.

By: /s/ Ronald E. Weinberg

Ronald E. Weinberg

Its: President and Chief Executive Officer

Attested to:

By: /s/ Byron S. Krantz

Byron S. Krantz

Its: Secretary

By: /s/ Norman C. Harbert

Norman C. Harbert

 46

EX-31.1

 Exhibit 31.1  

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

I, Ronald E. Weinberg, Chairman of the Board, Chief Executive Officer and President of Hawk Corporation, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Hawk Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

(c)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2005

/s/ Ronald E. Weinberg

Ronald E. Weinberg

Chairman of the Board, Chief Executive Officer and President

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EX-31.2

Exhibit 31.2 

Certification of Chief Financial Officer (Principal Financial Officer)

I, Joseph J. Levanduski, Chief Financial Officer of Hawk Corporation, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Hawk Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

(c)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2005

/s/ Joseph J. Levanduski

Joseph J. Levanduski

Chief Financial Officer

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EX-32.1

Exhibit 32.1 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Hawk Corporation (the “Company”) on Form 10-Q for the period ending June 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ronald E. Weinberg, Chairman of the Board, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Ronald E. Weinberg

Ronald E. Weinberg

Chairman of the Board, Chief Executive Officer and President

November 14, 2005

This certification is made solely for the purpose of 18 U.S.C. § 1350, subject to the knowledge standard contained in that statute, and not for any other purpose.

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EX-32.2

Exhibit 32.2 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Hawk Corporation (the “Company”) on Form 10-Q for the period ending June 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joseph J. Levanduski, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Joseph J. Levanduski

Joseph J. Levanduski

Chief Financial Officer

November 14, 2005

This certification is made solely for the purpose of 18 U.S.C. § 1350, subject to the knowledge standard contained in that statute, and not for any other purpose.

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