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UNITED STATES
SECURITIES AND EXCHANGE COMMISION
 WASHINGTON, D.C. 20549
 FORM 10-K
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal year ended December 31, 2009
 Commission File No. 001-13797
 
 HAWK
CORPORATION
  Delaware
    
    34-1608156(State of incorporation)
    
    (I.R.S. Employer Identification No.)
 200 Public Square, Suite 1500, Cleveland, Ohio 44114
 (216) 861-3553
 Securities registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Exchange on Which RegisteredClass A Common Stock, par value $.01
    
    NYSE Amex8 3/4% Senior Notes due 2014
    
    NYSE Amex
 Securities registered pursuant to Section 12(g) of the Act: None
 YES o NO þ
 YES o NO þ
 YES þ NO o
 YES
o
NO o
 Form 10-K. þ
  Large Accelerated Filer o
    
    Accelerated Filer þ
    
    Non-accelerated Filer o
    
    Smaller Reporting Company o
 YES o NO þ




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TABLE OF CONTENTS  Part IITEM 1. BUSINESSITEM 1A. RISK FACTORSITEM 1B. UNRESOLVED STAFF COMMENTSITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSITEM 4. RESERVEDPart IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESITEM 6. SELECTED FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONSITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9A. CONTROLS AND PROCEDURESITEM 9B. OTHER INFORMATIONPART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEITEM 11. EXECUTIVE COMPENSATIONITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCEITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESPart IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULESSIGNATURESExhibit 21.1Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2    Table of Contents  DOCUMENTS INCORPORATED BY REFERENCE
   
 Part I
 
 ITEM 1.
    
    BUSINESS
 Our Company
   www.hawkcorp.com
 Friction Products Information
   
    
    a leading domestic and international supplier of brake and clutch friction materials
for construction and mining equipment, agricultural equipment and trucks,
 
    
    the leading North American independent supplier of metallic friction materials for
braking systems for new and existing series of many commercial and military aircraft
models, including Boeing, EADS, Lockheed and United Technologies, as well as the Canadair
regional jet series,
 
    
    the largest supplier of metallic friction materials for the general aviation market,
including numerous new and existing series of Cessna, Hawker, Lear
and Pilatus aircrafts, and
  2




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
    
    a leading domestic supplier of friction materials into performance, defense and
specialty markets such as military vehicles, motorcycles, race cars, performance
automobiles, and ATVs.
  
    
    a leading supplier of critical stack components used in the manufacture of phosphoric acid fuel
cells. The fuel cells which use our stack components are a major presence in the on-site
stationary fuel cell market.
 Discontinued Operations
     Year Ended December 312009
    
    
    2008
    
    
    2007(dollars in millions)Net sales
    
    $
    
    
    
    $
    7.4
    
    
    $
    20.1(Loss) from discontinued operations, before income taxes
    
    $
    (0.2
    )
    
    $
    (1.8
    )
    
    $
    (3.1
    )(Loss) gain on sale of discontinued operations, before income taxes
    
    
    
    
    
    
    (1.9
    )
    
    
    15.0Income tax (benefit) expense
    
    
    (0.1
    )
    
    
    (2.0
    )
    
    
    2.4(Loss) income from discontinued operations, after income taxes
    
    $
    (0.1
    )
    
    $
    (1.7
    )
    
    $
    9.5
  3




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Business Strategy
  
    
    Continued Product Innovation.We believe that we are an industry
leader in the development of systems, processes and technologies
that enable us to manufacture friction products with numerous
performance advantages, such as greater wear resistance, increased
stopping power, lower noise and smoother engagement. We are
committed to maintaining our technological advantages. As a
result, we are focusing our research and development efforts on
improving our existing products and developing materials and
technologies for new applications for our existing end markets. We
seek new product developments and production techniques that will
enable us to develop new applications for our existing end
markets. For the year ended December 31, 2009, we spent $4.7
million on research and development, which is a higher percentage
of our net sales than in the previous year at 2.7%, compared to
$5.4 million, or 2.0% of our net sales for the year ended December
31, 2008.
    
    Focus on High-Margin, Specialty Applications.We focus on markets
that require sophisticated engineering and production techniques
and in which we have achieved a significant market share. We seek
to compete in markets requiring a high level of engineering
expertise and technical capability, rather than in markets in
which the primary competitive factor is product pricing. Our gross
margins were 27.5% for the year ended December 31, 2009 and 28.6%
for the year ended December 31, 2008.
    
    Capitalize on Aftermarket Opportunities.We estimate that total
aftermarket sales of our friction products have comprised
approximately 40% to 50% of friction product sales in recent
years. A substantial portion of our sales to original equipment
manufacturers serve the aftermarket needs of their equipment in
the field Separately, we have an expanded aftermarket sales force
to focus on increasing direct aftermarket sales under our
VelveTouchâ and Hawk
PerformanceÒ brands, to fleets, industrial and
retail customers. For the year ended December 31, 2009, our
direct aftermarket sales were $24.5 million, or 14.2% of our
sales, a decrease of 15.2% from 2008. Our aftermarket sales
enable us to reduce our exposure to adverse economic cycles in the
original equipment markets. Sales of our friction products can
offer decades of continued sales for products such as aircraft
brakes, heavy duty trucks and construction equipment which have a
large population of equipment in the field.
    
    Institute Cost-Reduction Initiatives.To maintain our profit
margins in highly competitive markets and in periods of rising raw
material costs, we aggressively manage our operating cost
structure. Through various cost reduction programs, lean
manufacturing initiatives and Six Sigma projects, we continue to
look for ways to lower the total cost of manufacturing our
products. We use an incentive-based compensation system to further
align our employees with our focus on providing products of the
highest quality and at the lowest cost.
    
    Globalization.In addition to the United States, we have friction
manufacturing facilities in Italy, China and Canada and sales
representatives in Russia, India and Mexico. Through our worldwide
distribution network, we continue to selectively expand our
international operations in established markets throughout Europe,
Asia, North America, South America and Australia. Net sales from our foreign
manufacturing facilities represented $46.9 million, or 27.2%, of
our consolidated net sales for the year ended December 31, 2009,
and $112.2 million, or 41.6%, of our consolidated net sales in
2008.
    
    Acquisitions.We have made a strategic decision to focus our
corporate resources on the friction products business and divested
our performance racing segment in 2008 and our precision
components segment in 2007. Currently, we are reviewing
opportunities to acquire businesses in friction products or
related to friction.
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Our Principal Markets and Products
  Sales by Principal Markets
 % of SalesMarket
    
    2009
    
    
    2008Construction and Mining
    
    
    36.5
    %
    
    
    47.2
    %Aircraft and Defense
    
    
    27.5
    %
    
    
    20.3
    %Agriculture
    
    
    14.2
    %
    
    
    15.0
    %Truck
    
    
    9.7
    %
    
    
    9.2
    %Performance Friction
    
    
    6.9
    %
    
    
    3.9
    %Specialty Friction
    
    
    3.8
    %
    
    
    3.6
    %Alternative Energy
    
    
    1.4
    %
    
    
    0.8
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
 Friction Products
    End Markets. ® ®
 
    
    Construction and Mining Equipment.We supply friction products such as transmission discs,
clutch facings and brake components to manufacturers of construction and mining equipment,
including Caterpillar, Volvo and Carraro. We believe we are one of the largest suppliers of
these types of friction products. Replacement components for construction equipment are sold
through original equipment manufacturers as well as directly to aftermarket distributors.
  5




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
    
    Aircraft and Defense.We believe we are a leading independent supplier of friction products
to the manufacturers of aircraft braking systems for Boeing, European Aeronautic Defense and
Space, Lockheed, United Technologies and Bombardier, as well as certain military aircraft. We
believe we are also the largest supplier of metallic friction products to the general
aviation (non-commercial airline, non-military) market, supplying friction materials for
aircraft such as Cessna, Hawker, Lear and Pilatus.Each commercial aircraft braking system, including the friction products supplied by us, must
meet stringent Federal Aviation Administration (FAA) criteria and certification requirements.
New model development and FAA testing for our aircraft braking system customers generally
begins two to five years before full scale production of new braking systems. If we and our
aircraft brake system manufacturing partner are successful in obtaining the rights to supply
a particular model of aircraft, we will typically supply our friction products for that
models aircraft braking system for as long as the model continues to fly because it is
generally not economically feasible to redesign a braking system once it is certified by the
FAA. Moreover, the FAA maintenance requirements mandate that brake lining components be
changed after a specified number of take-offs and landings, which results in a continuous and
steady market for our aircraft friction products.We supply brake pads for military vehicles and for a number of military aircraft applications.
    
    Agriculture Equipment.We supply friction products such as clutch facings, transmission discs
and brake components to manufacturers of agriculture equipment, including John Deere and Case
New Holland. We believe we are one of the largest domestic suppliers of these types of
friction products. Replacement components for agricultural equipment are sold through
original equipment manufacturers and directly to aftermarket distributors.
    
    Medium and Heavy Trucks.We supply friction products for clutch buttons and facings used in
medium and heavy trucks to original equipment manufacturers, such as Eaton and ZF Sachs. We
believe we are the leading domestic supplier of replacement friction products used in these
applications. Replacement components are sold through original equipment manufacturers and
directly to aftermarket distributors.
    
    Performance and Specialty Friction.We supply friction products for use in specialty
applications, such as brake pads for high performance street cars such as Corvettes and
BMWs, race cars, fleet vehicles such as delivery trucks, police cars and ambulances as well
as motorcycles. We believe that we have increased our market share with our combination of
superior quality and product performance. Our replacement components are sold through
original equipment manufacturers and directly to aftermarket distributors through
relationships with national automotive retailers such as Tire Rack.
    
    Alternative Energy. We supply critical stack components used in manufacture of phosphoric
acid fuel cells. The fuel cells that use our stack components dominate the on-site
stationary fuel cell market. We continue to work with the State of Ohio and our customer to
develop manufacturing equipment and processes that advance the state of the fuel cell
component manufacturing.
 Our Manufacturing Processes
  
    
    Blending/compounding:Composite metal alloys in powder form are
blended with lubricants and other additives according to
scientific formulas, many of which are proprietary. The formulas
are designed to produce precise performance characteristics
necessary for a customers particular application. We often work
together with our customers to develop new formulas that will
produce materials with greater energy absorption characteristics,
durability and strength.
    
    Molding/compacting:At room temperature, a specific amount of a
metal powder alloy and other materials are compacted under
pressure into a desired shape.
    
    Sintering:After compacting, molded parts are heated in furnaces
to specific temperatures slightly below melting, enabling metal
powders to metallurgically bond, harden and strengthen while
retaining their desired shape. The friction composite part is also
bonded directly to a steel plate or core, creating a strong
continuous metallic part.
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
    
    Secondary machining/treatment:If required by customer
specifications, a part undergoes additional processing. This
processing is generally necessary to attain increased hardness or
strength, tighter dimensional tolerances or corrosion resistance.
To achieve these specifications, parts are precision coined or
flattened, ground, machined or treated with a corrosion resistant
coating.
   Our Quality Control Procedures
   Our Global Operations
  Sales by Geographic Location of our Manufacturing Facilities
 % of SalesLocation
    
    2009
    
    
    2008United States
    
    
    72.8
    %
    
    
    58.4
    %Italy
    
    
    22.9
    %
    
    
    36.4
    %Other foreign
    
    
    4.3
    %
    
    
    5.2
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
   7




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Our Technology
    Our Customers
   How We Market and Sell Our Products
  Our Competition
    8




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The Suppliers and Prices of Raw Materials We Use
  Government Regulation of Our Businesses
  Environmental, Health and Safety Matters
    Our Intellectual Property
 ® ® ® ® ® ® ® ® ®
  9




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Personnel
   
 ITEM 1A.
    
    RISK FACTORS
  Worldwide economic conditions and credit tightening could adversely affect our results of
operations and financial position.
   We may not fully realize the benefits from our cost reduction initiatives and efforts to increase productivity
  We are the subject of investigations by the Securities and Exchange Commission (SEC) and the
Department of Justice (DOJ) which may harm our business and results of operations.
   10




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We have broad discretion over the use of our cash and short-term investments.
  Our gross profit margins are subject to fluctuation because of product mix.
  We operate in a highly competitive industry, which may prevent us from growing and may decrease our
business.
      11




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Labor disputes and work stoppages at our unionized facilities could delay or impede our production,
reduce sales of our products and increase costs.
  We are subject to governmental regulations that may affect our ability to implement our business objectives.
  Environmental and health and safety liabilities and requirements could require us to incur material costs.
  
    
    Discharges of pollutants into the air and water;
 
    
    The management and disposal of hazardous substances; and
 
    
    The cleanup of contaminated properties
  
    
    the discovery of new information concerning past releases of hazardous substances;
    
    the discovery or occurrence of compliance problems relating to our operations; and
    
    changes in existing environmental laws or their interpretation.
  We are dependent upon the availability of raw materials, and we may not be able to receive
favorable prices for, or continued supplies of, raw materials, which may affect our ability to
obtain enough supplies to conduct our business.
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We are subject to risks associated with international operations.
   
    
    foreign countries may impose additional withholding taxes or otherwise tax our foreign income, impose tariffs
or adopt other restrictions on foreign trade or investment, including exchange controls;
    
    fluctuations in international currency exchange rates may affect product demand and may adversely affect the
profitability in U.S. dollars of products and services provided by us in foreign markets where payment for our
products is made in local currency;
    
    unexpected adverse changes in foreign laws or regulatory requirements may occur;
    
    there are difficulties inherent in the management and operation of an enterprise spread over various countries;
    
    there are complexities associated with the necessity of using non-U.S. representatives and consultants;
    
    there may be uncertainty in the ability of non-U.S. customers to finance purchases;
    
    compliance with a variety of foreign laws and regulations, as well as U.S. laws affecting the activities of
U.S. companies abroad may be difficult; and
    
    the overlap of different tax laws may subject us to additional taxes.
  We are dependent on a small number of customers for a large portion of our sales.
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We depend on our senior management team and other skilled and experienced personnel to operate our
business effectively, and the loss of any of these individuals could adversely impact our business
and our future financial conditions or results of operations.
   Our existing preferred shareholders have the ability to exert voting control
with respect to the election of directors.
  Significant changes in discount rates, actual investment return on pension assets and other factors
could affect our earnings, equity and pension contributions in future periods.
  Business disruptions could seriously affect our future sales and financial condition or increase
our costs and expenses.
   14




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ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
  
 ITEM 2.
    
    PROPERTIES
   ApproximateLocation
    
    Square Footage
    
    Principal FunctionsCatoosa (Tulsa), Oklahoma(1)
    
    240,000
    
    Manufacturing of friction products, metal stampings and supportMedina, Ohio
    
    219,000
    
    Manufacturing of friction products, product engineering, and supportOrzinuovi, Italy
    
    106,000
    
    Manufacturing of friction products, sales and marketing, product application development, customer service and support and administrationSuzhou, China(1)
    
    73,000
    
    Manufacturing of friction products, sales and marketing, customer service and support, and administrationAkron, Ohio
    
    71,000
    
    Manufacturing of metal stampingsSolon, Ohio(1)
    
    58,000
    
    Research and development, sales and marketing, customer service and support, and administrationConcord, Ontario, Canada(1)
    
    15,000
    
    Manufacturing of friction products, distribution and warehousing, customer service and supportCleveland, Ohio(1)
    
    9,000
    
    Principal executive offices
 
 (1)
    
    Leased.  
 ITEM 3.
    
    LEGAL PROCEEDINGS
  
    
    As we previously disclosed, the Division of Enforcement of the SEC provided Hawk with a formal
order of private investigation that relates to an investigation commenced by the SEC. The
investigation concerns activity beginning in June 2006 involving (1) Hawks preparations for
compliance with Section 404 of the Sarbanes-Oxley Act of 2002, (2) the maintenance, and evaluation
of the effectiveness, by Hawk of disclosure controls and procedures and internal control over
financial reporting, (3) transactions in Hawks common stock by a stockholder that is not
affiliated with Hawk, including the impact of those transactions on when Hawk would have been
required to comply with Section 404, (4) the calculation of the amount of Hawk common stock held by
non-affiliates and the effect of the calculation on the date when Hawk would have been required to
comply with Section 404, (5) communications between Hawk and third parties regarding Section 404
compliance and (6) Hawks periodic disclosure requirements related to the foregoing. As previously
disclosed, Hawk has also been contacted by the DOJ in connection with the DOJs related
investigation.
  15




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On August 4, 2009, Joseph J. Levanduski, our then Chief Financial Officer, received a
notification from the Staff, commonly referred to as a Wells Notice. This
notice indicates that the Staff intends to recommend to the Commissioners of the SEC that the SEC
bring a civil injunctive action and institute a follow-on public administrative proceeding pursuant
to Rule 102(e) of the SECs Rules of Practice against Mr. Levanduski alleging that he aided and
abetted violations of Section 17(a) of the Securities Act of 1933, as amended, and Sections 9(a)(2)
and 10(b) of the Exchange Act and Rule 10b-5 thereunder and violated SEC Regulation FD. Hawk
believes that the violations alleged to have been committed by Mr. Levanduski relate to events that
are alleged to have occurred on June 30, 2006. However, the SEC allegations may relate to a
different date or time period. There can be no assurance that the SEC will not issue a Wells
Notice to Hawk in connection with the SEC investigation.Under the process established by the SEC, before the Staff can make a formal recommendation
regarding what action, if any, should be taken by the Commissioners of the SEC with respect to Mr.
Levanduski, he has the opportunity to engage in discussions with, and make a submission to, the SEC
regarding whether a civil injunctive action should be filed. Mr. Levanduski has made this
submission to the SEC on October 2, 2009.The Staff has orally confirmed that it does not intend to recommend that any enforcement action
be instituted against Hawk. However, there can be no assurance that the Staff will not reverse its
decision and ultimately decide to recommend such an action, or that the SEC itself will not
institute such an action.Hawk has no reason to believe that the SEC and DOJ investigations will result in any
restatement of Hawks financial statements for any period.We cooperated fully with the inquiries by the SEC and the DOJ. Although Hawk believes that
insurance proceeds are available, Hawk may continue to incur additional expenses related to the
investigations that are not covered by insurance. The expenses may be substantial, including
indemnification costs for which Hawk may be responsible. Any adverse development in connection
with the SEC or DOJ investigations could adversely impact Hawks business and results of
operations.
    
    As previously disclosed, on October 16, 2007, a lawsuit captioned Paul Mickle v. Wellman
Products Group, LLC, Case No. CJ 2007 06914 was filed in the District Court for Tulsa County,
Oklahoma. Mr. Mickle alleges violation of wage and hour laws by one of our subsidiaries, Wellman
Products Group, Inc. (Wellman). The case purports to be a class action on behalf of Mr. Mickle and
other allegedly similarly situated employees. Discovery as to the class certification is
finished. The plaintiffs have been granted their Motion for Class Certification, we disagree with
the class certification and filed an appeal on January 7, 2010. Briefing on the appeal of the
class certification is on-going as we continue to vigorously contest this lawsuit.
  
 ITEM 4.Reserved.
 
 Part II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
   16




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Quarterly Stock Prices
 Quarter Ended
    
    High
    
    
    Low2009December 31, 2009
    
    $
    18.35
    
    
    $
    13.68September 30, 2009
    
    $
    15.38
    
    
    $
    13.40June 30, 2009
    
    $
    16.00
    
    
    $
    11.61March 31, 2009
    
    $
    18.15
    
    
    $
    9.652008December 31, 2008
    
    $
    20.25
    
    
    $
    11.40September 30, 2008
    
    $
    24.70
    
    
    $
    15.57June 30, 2008
    
    $
    18.84
    
    
    $
    15.28March 31, 2008
    
    $
    20.20
    
    
    $
    15.32
   Approximate DollarTotal Number of
    
    
    Value of Shares ThatTotal
    
    
    
    
    
    
    Shares Purchased
    
    
    may yet beNumber of
    
    
    Average
    
    
    as Part of Publicly
    
    
    Purchased Under theShares
    
    
    Price Paid
    
    
    Announced Plans
    
    
    Plans or Programs(2)Period
    
    Purchased
    
    
    per Share
    
    
    or Programs(1)
    
    
    (in millions)10/1/09 to 10/31/09
    
    
    
    
    
    
    
    
    
    
    988,822
    
    
    1.7 million11/1/09 to 11/30/09
    
    
    28,566
    
    
    $
    16.49
    
    
    
    1,017,388
    
    $
    1.2 million12/1/09 to 12/31/09
    
    
    55,523
    
    
    $
    16.49
    
    
    
    1,072,911
    
    $
    0.3 million
 (1)
    
    On November 24, 2008, we announced a plan, approved by our Board of Directors, to
repurchase up to $15.0 million of our shares of Class A common stock in the open market,
through privately negotiated transactions or otherwise, in accordance with securities laws
and regulations (the Repurchase Plan). Under the terms of our indenture relating to the
senior notes as of December 31, 2009, we were permitted to repurchase up to $15.9 million of
our shares of Class A common stock based on our cumulative net income through December 31,
2009.(2)
    
    After December 31, 2009, the approximate value of additional shares that could be repurchased
pursuant to the Repurchase Plan was $0.3 million. The Plan expires when the aggregate
repurchase price limit is met, unless terminated earlier by our Board of Directors.    17




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Performance Graph
  
  18




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ITEM 6.
    
    SELECTED FINANCIAL DATA
 Years ended December 31
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006(4)
    
    
    2005(dollars in millions, except per share data)Statement of Operations Data:Net sales
    
    $
    172.4
    
    
    $
    269.6
    
    
    $
    215.9
    
    
    $
    199.9
    
    
    $
    167.1Gross profit
    
    $
    47.5
    
    
    $
    77.1
    
    
    $
    51.4
    
    
    $
    44.9
    
    
    $
    33.7Restructuring costs (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5.5Income from operations
    
    $
    16.7
    
    
    $
    39.2
    
    
    $
    19.5
    
    
    $
    15.4
    
    
    $
    2.3Income (loss) from continuing
operations, after income taxes
    
    $
    6.5
    
    
    $
    22.5
    
    
    $
    7.8
    
    
    $
    1.6
    
    
    $
    (5.7
    )Discontinued operations, after income
taxes
    
    
    (0.1
    )
    
    
    (1.7
    )
    
    
    9.5
    
    
    
    1.4
    
    
    
    4.4Net income (loss)
    
    $
    6.4
    
    
    $
    20.8
    
    
    $
    17.3
    
    
    $
    3.0
    
    
    $
    (1.3
    )Earnings (Loss) Per Share:Basic earnings (loss) from continuing
operations per share
    
    $
    0.77
    
    
    $
    2.50
    
    
    $
    0.85
    
    
    $
    0.16
    
    
    $
    (0.66
    )Diluted earnings (loss) from continuing
operations per share
    
    $
    0.75
    
    
    $
    2.40
    
    
    $
    0.82
    
    
    $
    0.15
    
    
    $
    (0.66
    )Basic net earnings (loss) per share
    
    $
    0.76
    
    
    $
    2.31
    
    
    $
    1.91
    
    
    $
    0.31
    
    
    $
    (0.17
    )Diluted net earnings (loss) per share
    
    $
    0.73
    
    
    $
    2.21
    
    
    $
    1.83
    
    
    $
    0.30
    
    
    $
    (0.17
    )Other Data:Depreciation
    
    $
    7.1
    
    
    $
    6.8
    
    
    $
    6.6
    
    
    $
    6.6
    
    
    $
    6.2Amortization
(2)
    
    
    0.6
    
    
    
    0.6
    
    
    
    0.7
    
    
    
    0.5
    
    
    
    0.7Capital expenditures (including capital
leases and financed capital
expenditures)
    
    
    7.5
    
    
    
    15.2
    
    
    
    7.6
    
    
    
    7.9
    
    
    
    7.5
 December 31
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(dollars in millions)Balance Sheet Data:Cash and cash equivelants
    
    $
    47.2
    
    
    $
    62.5
    
    
    $
    22.0
    
    
    $
    6.2
    
    
    $
    6.8Short-term investments
    
    
    35.9
    
    
    
    30.8
    
    
    
    59.0
    
    
    
    
    
    
    
    Working capital (3)
    
    
    113.3
    
    
    
    126.0
    
    
    
    113.3
    
    
    
    115.8
    
    
    
    48.9Property plant and equipment, net
    
    
    47.1
    
    
    
    47.5
    
    
    
    39.6
    
    
    
    38.2
    
    
    
    36.3Assets of discontinued operations
    
    
    
    
    
    
    
    
    
    
    6.7
    
    
    
    94.1
    
    
    
    100.8Total assets
    
    
    204.5
    
    
    
    240.0
    
    
    
    219.9
    
    
    
    229.3
    
    
    
    226.0Liabilities of discontinued operations
    
    
    
    
    
    
    
    
    
    
    1.7
    
    
    
    14.2
    
    
    
    16.9Total indebtedness (including capital
leases)
    
    
    77.1
    
    
    
    87.1
    
    
    
    87.1
    
    
    
    111.2
    
    
    
    116.7Shareholders equity
    
    
    77.5
    
    
    
    77.4
    
    
    
    67.3
    
    
    
    46.7
    
    
    
    40.7
  19




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##### Table of Contents



(1)
    
    Reflects planning, travel, severance and moving costs associated with the closure of our
Brook Park, Ohio facility and the construction of our new facility in Tulsa, Oklahoma.(2)
    
    Amortization outlined in this table does not include deferred financing amortization of $0.4
million in each of the years 2009, 2008, 2007, 2006 and 2005, which is included in interest
expense on the respective Consolidated Statements of Operations.(3)
    
    Working capital is defined as total current assets less total current liabilities.(4)
    
    Effective January 1, 2006, we adopted new stock compensation guidance and elected to use the
modified prospective transition method, which required that prior period results not be
restated. No stock compensation expense was recognized in net income prior to the adoption of
the new guidance. 
 ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS
 Cautionary Note Regarding Forward-Looking Statements
   Results of Operations
     20




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##### Table of Contents



Recent Events
 
    
    On February 8, 2010, we announced that we were soliciting consents from holders of $75.7
million of our senior notes to amend the indenture governing the senior notes. The
amendment will allow us to repurchase up to $20.0 million of our outstanding common stock.
The consent solicitation provided for the payment of a consent fee for valid consents
received by us by 5:00 p.m. on February 22, 2010. As of that date, $75.6 million of the
senior notes consented and a fee of $1.5 million was paid to the consenting senior note
holders. We have entered into a supplemental indenture to allow for the stock repurchase.
 
    
    On February 19, 2010, our Board of Directors approved a new plan to repurchase up to
$25.0 million of our common stock. Share repurchases are conditioned on our compliance
with covenants in our domestic bank facility and indenture. Under our domestic bank
facility, we can repurchase the full $25.0 million of our common stock. As of March 8,
2010, under the covenant formula applicable to stock repurchases in the indenture,
including the recent amendment to the indenture which allowed for a repurchase of up to
$20.0 million of stock, we can repurchase $20.9 million of our common stock.
 Under the program, our shares can be purchased from time to time in the open market, through
privately negotiated transactions, through a trading plan satisfying the safe harbor
provisions of Rule 10b5-1 and Rule 10b-18 under the Securities Exchange Act of 1934, or
otherwise in accordance with securities laws and regulations. The timing and amount of any
repurchases will be determined by our management, based on its evaluation of market
conditions, share price and other factors. We have no obligation to repurchase shares under
the repurchase program and the timing, actual number of shares to be purchased and the
purchase prices to be paid by us will depend in part on market conditions.
 
    
    On March 2, 2010, we completed the acquisition of Sangte Plate Manufacturing Company,
Ltd., located near our existing Chinese facility in Suzhou, China, as part of our overall
strategy to capture more share of the Asian friction market. This acquisition was
determined to be insignificant for financial reporting purposes.
 Outlook for 2010
      Critical Accounting Policies
   21




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##### Table of Contents




    
    Accounts Receivable.We maintain an allowance for doubtful accounts for estimated
losses from the failure of our customers to make required payments for products delivered.
We estimate this allowance based on the age of the related receivable, knowledge of the
financial condition of our customers, review of historical receivable and reserve trends
and other pertinent information. In cases where we are aware of circumstances that may
impair a specific customers ability to meets its financial obligations subsequent to the
original sale, we record an allowance against amounts due, and thereby reduce the net
recognized receivable to the amount we reasonably believe will be collected. If the
financial condition of our customers deteriorates or we experience an unfavorable trend in
receivable collections in the future, additional allowances may be required. Historically,
our reserves have approximated actual experience.
 
    
    Revenue Recognition.Revenue from the sale of our products is recognized when all of
the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii)
shipment has occurred, (iii) the price to the customer is fixed or determinable, and (iv)
collection of the resulting receivable is reasonable assured. Revenue is generally
recognized at the point of shipment; however in certain instances as shipping terms
dictate, revenue is recognized when the product reaches the point of destination, and title
to our customer is transferred. Substantially all of our revenues are derived from fixed
price purchase orders.
 
    
    Inventory.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.
Fixed manufacturing overhead costs are allocated to inventory based on normal production
capacity and abnormal manufacturing costs are recognized as period costs. We review the
net realizable value of inventory in detail on an on-going basis, with consideration given
to deterioration, obsolescence, and other factors. If actual market conditions differ from
those projected by management, and our estimates prove to be inaccurate, write-downs of
inventory values and adjustments to cost of sales may be required. Historically, our
reserves have approximated actual experience.
 
    
    Fair Value Disclosures.Our financial instruments include cash and cash equivalents,
short and long-term investments, accounts receivable, accounts payable, short and long-term
notes receivable and debt instruments, certain of which are recorded at fair value. We
have classified our financial assets as Level 1, 2 or 3 within the fair value hierarchy
based on the inputs used to determine their fair value. Fair values determined by Level 1
inputs utilize quoted prices (unadjusted) in active markets for identical assets or
liabilities that we have the ability to access. Fair values determined by Level 2 inputs
utilize data points that are observable such as quoted prices, interest rates and yield
curves. Fair values determined by Level 3 inputs utilize unobservable inputs supported by
little or no market activity and that are significant to the fair value of the assets or
liabilities. Excluding cash equivalents, the largest portion of our short-term investments
are comprised of investments that may be sensitive to changes in economic factors such as
interest rates or credit spreads.
 
    
    Investments.As of December 31, 2009 and December 31, 2008, we accounted for all of our
short-term investments as available-for-sale. We report our available-for-sale securities
at fair value in our Consolidated Balance Sheets with unrealized holding gains and losses,
net of tax, included in Accumulated other comprehensive (loss) income. Dividend and
interest income, including the amortization of any discount or premium, as well as realized
gains or losses, are included in Interest income in our Consolidated Statements of
Operations. We periodically evaluate our investments for other-than-temporary impairment.
We did not record any other-than-temporary impairment of our short-term investments in the years
ended December 31, 2009, 2008 or 2007.
 
    
    Long-Lived Assets (including Tangible and Finite-Lived Intangible Assets).To conduct
our global business operations and execute our business strategy, we acquire tangible and
intangible assets, including property, plant and equipment and finite-lived intangible
assets. At December 31, 2009, the net carrying amount of these long-lived assets totaled
$53.1 million. The determination of useful lives for depreciation and amortization
purposes and whether or not these assets are impaired involves the use of accounting
estimates and assumptions, changes in which could materially impact our financial condition
or results of operations if actual results differ from such estimates and assumptions. We
periodically evaluate the recovery of the carrying amount of our long-lived assets whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. The principal factors we consider in deciding when to perform an impairment
review include significant changes or planned changes in our use of the assets, significant
changes in the economic performance of the businesses that utilize the assets and other
factors.
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##### Table of Contents



If we determine that an impairment review is necessary, recoverability of assets is measured
by comparing the carrying amount of the asset group to the estimated future undiscounted
cash flows. If the carrying amount exceeds the estimated future undiscounted cash flows,
the asset group is considered to be impaired. The impairment is then measured as the
difference between the carrying amount of the asset group and its fair value. Fair value is
measured based on quoted market prices in active markets, if available. If quoted market
prices are not available, the estimate of fair value is based on various valuation
techniques, including the discounted value of estimated future cash flows. We did not find
it necessary to perform an impairment review of our tangible or finite lived intangible
assets in the years ended December 31, 2009, 2008 or 2007.
 
    
    Pension Benefits.We maintain a number of defined benefit plans and one defined
contribution plan to provide retirement benefits for employees. These plans are maintained
and minimum contributions are made in accordance with the requirements of the Employee
Retirement Income Security Act of 1974 (ERISA) and the Ontario Pension Benefits Act and
Regulation. We consult with outside actuaries as to the appropriateness for many of the
assumptions used in determining the benefit obligations and the annual expense for our
pension plans. All significant assumptions are evaluated at least annually.
 For financial reporting purposes, net periodic pension expense is calculated based upon a
number of actuarial assumptions, including an expected long-term rate of return on plan
assets and a discount rate for plan obligations. At the end of each year, the expected
return on plan assets is determined based on the expected return of the various asset
classes in the plans portfolio and the targeted allocation of plan assets. We use the
target plan asset allocation because we rebalance our portfolio to target and we currently
have no plans to change our target plan asset allocation in the future. The asset return is
developed using historical asset return performance as well as current and anticipated
market conditions such as inflation, interest rates and market performance. We assumed that
the expected weighted average long-term rate of return on plan assets would be 8.25% for our
domestic plans at December 31, 2009 and 2008. 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 and produces the expected
return on plan assets that is included in net pension expense. The difference between this
expected return and the actual return on plan assets is recorded to Accumulated other
comprehensive (loss) income, and the amortization of the net deferral of past losses will
increase future pension expense.
 To develop the discount rate assumption to be used for our domestic pension plans, we match
projected pension payments to the yield derived from the Citigroup Pension Discount Curve (a
spot-rate yield curve) that contains a portfolio of available non-callable bonds rated AA or
higher with comparable maturities. At December 31, 2009, the result supported a discount
rate of 6.0% for our domestic pension plans.A similar approach to determining the long-term rate of return and discount rates in the
U.S. was utilized for our Canadian pension plan.
  23




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##### Table of Contents



Sensitivity Analysis
 Changes in net periodic pension expense may occur in the future due to changes in our
expected long-term rate of return on plan assets and discount rate resulting from economic
events. The discount rate assumption is
selected each year based on market conditions in effect as of the disclosure date. The rate
selected is used to measure plan liabilities as of the disclosure date and for calculating
the following years pension expense. The expected long-term rate of return on plan assets
assumption, although reviewed annually, is changed less frequently due to the long-term
nature of the assumption. This assumption does not impact the measurement of assets or
liabilities as of the disclosure date; rather it is used only in the calculation of pension
expense. The following table highlights the sensitivity of our pension obligations and
expense to a 1% change in these assumptions, assuming all other assumptions remain constant:
 Impact on PensionImpact on 2010 Pension
    
    Benefit Obligation atChange in Assumption
    
    Expense
    
    December 31, 20091.0% decrease in discount rate
    
    Increase  $0.4 million
    
    Increase  $4.3 million1.0% increase in discount rate
    
    Decrease $0.3 million
    
    Decrease $3.5 million1.0% decrease in expected rate of return on
plan assets
    
    Increase  $0.3 million
    
    n/a1.0% increase in expected rate of return on
plan assets
    
    Decrease $0.3 million
    
    n/a
 Net periodic pension expense is expected to be approximately $0.9 million in 2010, a $1.0
million decrease from 2009 due principally to higher plan asset balances increasing the
expected return on plan assets. In 2009, we made contributions of $0.8 million to satisfy
minimum statutory funding requirements. We also made voluntary contributions into our
domestic pension plans of $3.9 million in 2009, primarily to improve the funded status of
our plans which had deteriorated in 2008 due to the significant assets losses resulting from
the poor performance of the equity markets. During 2010, we anticipate contributing
approximately $1.8 million into our domestic and Canadian pension plans to satisfy minimum
funding requirements. Beyond 2010, the actual amounts expected to be contributed into our
pension plans may become significant, but such amounts are dependent upon, among other
things, interest rates, underlying asset returns and the impact of legislative or regulatory
changes related to pension funding obligations.
 
    
    Income Taxes.Our provision for income taxes, taxes payable and other tax assets and
liabilities are based on the current statutory income tax rates in the domestic and foreign
tax jurisdictions in which we operate. 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. Deferred tax assets and liabilities are determined
based on the difference between the financial statements and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the differences are
expected to reverse.
 The determination of the amount of valuation allowance to be provided on recorded deferred
tax assets involves certain estimates regarding the timing and amount of the reversal of
taxable temporary differences, expected future taxable income and the impact of tax planning
strategies. A valuation allowance is established to offset any deferred tax assets if,
based upon the available evidence it is more likely than not that some or all of the
deferred tax asset will not be realized. The projections of future taxable income include a
number of estimates and assumptions regarding our volume, pricing and costs. Additionally,
valuation allowances related to deferred tax assets can be impacted by changes to tax laws.
We recorded a valuation allowance for the years ended December 31, 2009 and 2008 for
deferred tax assets attributed to financial reserves in China. The valuation allowance was
recorded due to prior history of operating losses and the uncertainty of earnings in future
periods at our China facility. At December 31, 2009 and 2008, we have a valuation allowance
of $1.3 million and $1.5
million, respectively, against certain domestic state and local tax net operating losses due
to the uncertainty of future earnings in those locations and the potential for these net
operating losses to lapse. In 2008 we reversed the valuation allowance previously recorded
at our Canadian subsidiary. We have determined that no additional valuation allowances are
necessary as of December 31, 2009.
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##### Table of Contents



We believe that our tax positions meet the technical merits of existing tax laws. We establish additional
provisions for income taxes when there remain certain positions that do not meet the minimum
probability threshold, as defined by the authoritative guidance for uncertainty in income
taxes, which is a tax position that is more likely than not to be sustained upon examination by the
applicable taxing authority. The total amount of unrecognized tax benefits as of December
31, 2009, was $1.2 million. During 2009, we received notification of potential tax
deficiencies at our Italian subsidiary from Inland Revenue (Italy). We recorded
unrecognized tax benefits as tax expense related to this audit. We do not agree with the proposed
assessment and are contesting the preliminary audit report.
 We recognize interest and penalties related to unrecognized tax benefits as income tax
expense. The interest and penalties in continuing operations tax expense for the year ended
December 31, 2009 was $0.3 million.
 
    
    Foreign Currency Translation and Transactions.We have foreign manufacturing operations
in Italy, China and Canada, and revenue and expenses from these operations are denominated
in local currency, thereby creating exposures to changes in exchange rates. For the years
ended December 31, 2009, 2008 and 2007, revenue from non-U.S. countries represented 27.2%,
41.6% and 39.0% of our consolidated revenue, respectively. Fluctuations in these
operations respective currencies may have an impact on our business, results of operations
and financial position. We currently do not use financial instruments to hedge our exposure
to exchange rate fluctuations with respect to our foreign operations. As a result, we may
experience substantial foreign currency translation gains or losses due to the volatility
of other currencies compared to the U.S. dollar, which may positively or negatively affect
our results of operations attributed to these operations. Accumulated other comprehensive
(loss) income included translation gains (losses) of $1.2 million, ($2.6) million and $3.5
million for the years ended December 31, 2009, 2008 and 2007, respectively.
 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. Sales or
purchases in foreign currencies, other than the subsidiarys local currency, are exchanged
at the date of the transaction. The effect of transaction gains or losses is included in
Other income (expense), net in our Consolidated Statements of Operations. Foreign currency
transaction gains or losses were not material to the results of operations for the years
ended December 31, 2009, 2008 or 2007.
 Recent Accounting Pronouncements
  
    
    In February 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-09,
Amendments to Certain Recognition and Disclosure Requirements(ASU 2010-09), which
addresses certain implementation issues related to an entitys requirement to perform and
disclose subsequent events procedures. The ASU (1) exempts entities that file their
financial statements with, or furnish them to, the SEC from disclosing the date through
which subsequent events procedures have been performed and (2) clarifies the circumstances
in which an entitys financial statements would be considered restated and in which the
entity would therefore be required to update its subsequent events evaluation since the
originally issued or available to be issued financial statements. ASU 2010-09 became
effective immediately upon issuance, and we have adopted its disclosure requirements within
our accompanying Form 10-K for the year ended December 31, 2009.
 
    
    The Financial Accounting Standards Board (FASB) issued a technical amendment to
employers disclosure requirements for plan assets for defined benefit pensions and other
postretirement plans, which is integrated into the Accounting Standards Codification (ASC)
at ASC 715-20-50, Compensation  Retirement Benefits: Defined Benefit Plans  General:
Disclosure. The objective is to provide users of financial statements with an
understanding of how investment allocation decisions are made, the major categories of
plan assets held by the plans, the inputs and valuation techniques used to measure the
fair value of plan assets, significant concentration of risk within the companys plan
assets, and for fair value measurements determined using significant unobservable inputs a
reconciliation of changes between the beginning and ending balances. The disclosures
contained within our Form 10-K for the year ended December 31, 2009 are in compliance with
the requirements of this ASC.
 
    
    The FASB issued ASU 2009-05, Measuring Liabilities at Fair Value(ASU 2009-05), which
provides additional guidance clarifying the measurement of liabilities at fair value and
addresses restrictions when estimating the fair value of a liability under ASC 820, Fair
Value Measurements and Disclosures(ASC 820). When a quoted price in an active market for
the identical liability is not available, ASU 2009-05 requires that the fair value should
be measured using one of the following approaches a) the quoted price of the identical
liability when traded as an asset, b) quoted prices for similar liabilities or similar
liabilities when traded as assets or c) another valuation technique that is consistent
with the principles of ASC 820. The disclosures contained within our accompanying Form
10-K for the year ended December 31, 2009 are in compliance with the requirements of this
ASC.
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##### Table of Contents




    
    In January 2010, the FASB issued ASU 2010-06, Improving Disclosures About Fair Value
Measurements(ASU 2010-06), which amends ASC 820 to add new requirements for disclosures
about transfers into and out of Levels 1 and 2 and separate disclosures about purchases,
sales, issuances and settlements relating to Level 3 measurements. ASU 2010-06 also
clarifies existing fair value disclosures about the level of disaggregation and about
inputs and valuation techniques used to measure fair value. Further, ASU 2010-06 amends
guidance on employers disclosures about postretirement benefit plan assets under ASC 715
to require that disclosures be provided by classes of assets instead of by major
categories of assets. This ASU is effective for the first reporting period beginning
after December 15, 2009, except for the requirement to provide Level 3 activity of
purchases, sales, issuances and settlements on a gross basis, which will be effective for
fiscal years beginning on or after December 15, 2010, and for interim periods within those
fiscal years. We do not expect the adoption of this guidance will have a material impact
on our consolidated financial statements and disclosures.
 
    
    In December 2009, the FASB issued ASU No. 2009-17, Improvements to Financial Reporting
by Enterprises Involved with Variable Interest Entities(ASU 2009-17), which codifies
former Statement of Financial Accounting Standards (SFAS) No. 167, Amendments to FASB
Interpretation No. 46R(SFAS 167) and revises the former guidance under FASB Interpretation
No. 46 (revised December 2003), Consolidation of Variable Interest Entitiesto require an
analysis to determine whether a variable interest gives the entity a controlling financial
interest in a variable interest entity. SFAS 167 requires an ongoing reassessment and
eliminates the quantitative approach previously required for determining whether an entity
is the primary beneficiary. The ASU also requires additional disclosures about a reporting
entitys involvement with variable interest entities and about any significant changes in
risk exposure as a result of that involvement. This ASU is effective for fiscal years
beginning on or after November 15, 2009. We do not expect the adoption of this statement
will have an impact on our consolidated financial statements and disclosures.
 
    
    In December 2009, the FASB issued ASU No. 2009-16, Accounting for Transfers of
Financial Assets(ASU 2009-16),which codifies the former guidance in SFAS No. 166,
Accounting for Transfers of Financial Assets(SFAS 166) and revises the former guidance
under SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities(SFAS 140). Among other things, ASU 2009-16 removes the
concept of a qualifying special-purpose entity, changes the requirements for derecognizing
assets, and enhances information reported to financial statement users by increasing the
transparency of disclosures about transfers of financial assets and an entitys continuing
involvement with transferred financial assets. This statement also clarifies the
requirements for isolation and limitations on portions of financial assets that are
eligible for sale accounting. This ASU is effective for fiscal years beginning on or
after November 15, 2009. We do not expect the adoption of this statement will have an
impact on our consolidated financial statements and disclosures.
 
    
    In October 2009, the FASB issued ASU No. 2009-14, Certain Revenue Arrangements That
Include Software Elements  a consensus of the FASB Emerging Issues Task Force(ASU
2009-14) which will become effective for all revenue arrangements entered into or
materially modified by us beginning July 1, 2010, with earlier adoption permitted. Under
the new guidance, tangible products that have software components that are essential to
the functionality of the tangible product will no longer be within the scope of the
software revenue recognition guidance, and software-enabled products will now be subject
to other relevant revenue recognition guidance. We do not expect the adoption of this
guidance will have an impact on our consolidated
financial statements and disclosures.
 
    
    In October 2009, the FASB issued ASU No. 2009-13, Multiple-Deliverable Revenue
Arrangements  a consensus of the FASB Emerging Issues Task Force(ASU 2009-13), which
will become effective for all revenue arrangements entered into or materially modified by
us beginning July 1, 2010, with earlier adoption permitted. Under the new guidance, when
vendor specific objective evidence or third party evidence for deliverables in an
arrangement cannot be determined, a best estimate of the selling price is required to
separate deliverables and allocate arrangement considerations using the relative selling
price method. The guidance includes new disclosure requirements on how the application of
the relative selling price method affects the timing and amount of revenue recognition.
We do not expect the adoption of this guidance will have an  impact on our
consolidated financial statements and disclosures.
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##### Table of Contents




    
    In September 2009, the FASB issued a proposed ASU on the Emerging Issues Task Force
consensus-for-exposure on Issue 09-2 that addresses the inconsistencies between the
accounting for Research and Development (R&D) assets acquired in a business combination
and those acquired in an asset acquisition. The proposed ASU requires an entity to
capitalize R&D assets acquired in an asset acquisition as indefinite-lived intangible
assets until completion or abandonment of the related R&D activities. The ASU also
proposes that contingent consideration in an asset acquisition would be accounted for in
accordance with other sections of the ASC and includes a principle under which the entity
would analyze whether contingent consideration relates to the acquired asset or to future
services provided by the seller. The proposed ASU would be effective for fiscal years
beginning on or after December 15, 2009 and we do not expect the adoption of this guidance
will have a material impact on our consolidated financial statements and disclosures.
  Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008
  Year Ended December 31% of
    
    
    
    
    
    
    % of2009
    
    
    Sales
    
    
    2008
    
    
    Sales(dollars in millions)Net sales
    
    $
    172.4
    
    
    
    100.0
    %
    
    $
    269.6
    
    
    
    100.0
    %Cost of sales
    
    $
    124.9
    
    
    
    72.4
    %
    
    $
    192.5
    
    
    
    71.4
    %Gross profit
    
    $
    47.5
    
    
    
    27.6
    %
    
    $
    77.1
    
    
    
    28.6
    %Selling, technical and administrative expenses
    
    $
    30.2
    
    
    
    17.5
    %
    
    $
    37.3
    
    
    
    13.8
    %Income from operations
    
    $
    16.7
    
    
    
    9.7
    %
    
    $
    39.2
    
    
    
    14.5
    %Interest expense
    
    $
    8.0
    
    
    
    4.6
    %
    
    $
    8.1
    
    
    
    3.0
    %Interest income
    
    $
    0.5
    
    
    
    0.3
    %
    
    $
    2.1
    
    
    
    0.8
    %Other income (expense), net
    
    $
    1.9
    
    
    
    1.1
    %
    
    $
    1.5
    
    
    
    0.6
    %Income tax provision
    
    $
    4.5
    
    
    
    2.6
    %
    
    $
    12.1
    
    
    
    4.5
    %Income from continuing operations, after income taxes
    
    $
    6.5
    
    
    
    3.8
    %
    
    $
    22.6
    
    
    
    8.4
    %Discontinued operations, net of tax
    
    $
    (0.1
    )
    
    
    -0.1
    %
    
    $
    (1.7
    )
    
    
    -0.6
    %Net income
    
    $
    6.4
    
    
    
    3.7
    %
    
    $
    20.8
    
    
    
    7.7
    %
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Net Sales.
 ® ®
  Cost of Sales.
 Gross Profit. Net Sales Cost of Sales
 Selling, Technical and Administrative Expenses.
 Income from Operations.
  28




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##### Table of Contents



Interest Expense.
 Interest Income
 Other Income (Expense), Net
 Income Taxes.
 Net Income.
 Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
   29




---



##### Table of Contents



Year Ended December 31% of
    
    
    
    
    
    
    % of2008
    
    
    Sales
    
    
    2007
    
    
    Sales(dollars in millions)Net sales
    
    $
    269.6
    
    
    
    100.0
    %
    
    $
    215.9
    
    
    
    100.0
    %Cost of sales
    
    $
    192.5
    
    
    
    71.4
    %
    
    $
    164.5
    
    
    
    76.2
    %Gross profit
    
    $
    77.1
    
    
    
    28.6
    %
    
    $
    51.4
    
    
    
    23.8
    %Selling, technical and administrative expenses
    
    $
    37.3
    
    
    
    13.8
    %
    
    $
    31.2
    
    
    
    14.5
    %Income from operations
    
    $
    39.2
    
    
    
    14.5
    %
    
    $
    19.5
    
    
    
    9.0
    %Interest expense
    
    $
    8.1
    
    
    
    3.0
    %
    
    $
    9.4
    
    
    
    4.4
    %Interest income
    
    $
    2.1
    
    
    
    0.8
    %
    
    $
    3.8
    
    
    
    1.8
    %Other income (expense), net
    
    $
    1.5
    
    
    
    0.6
    %
    
    $
    (0.3
    )
    
    
    -0.1
    %Income taxes
    
    $
    12.1
    
    
    
    4.5
    %
    
    $
    5.8
    
    
    
    2.7
    %Income from continuing operations, after income taxes
    
    $
    22.6
    
    
    
    8.4
    %
    
    $
    7.8
    
    
    
    3.6
    %Discontinued operations, net of tax
    
    $
    (1.7
    )
    
    
    -0.6
    %
    
    $
    9.5
    
    
    
    4.4
    %Net income
    
    $
    20.8
    
    
    
    7.7
    %
    
    $
    17.3
    
    
    
    8.0
    %
 Net Sales.
 ® ®
  30




---



##### Table of Contents



Cost of Sales.
 Gross Profit. Net Sales Cost of Sales
 Selling, Technical and Administrative Expenses.
 Income from Operations.
 Interest Expense.
 Interest Income
 Other Income (Expense), Net
 Income Taxes.
  31




---



##### Table of Contents



Income from continuing operations, After income taxes.
 Discontinued Operations, Net of Tax.
 Year Ended December 312008
    
    
    2007(dollars in millions)Net sales
    
    $
    7.4
    
    
    $
    20.1Loss from discontinued operations, before income taxes
    
    $
    (1.8
    )
    
    $
    (3.1
    )(Loss) gain on sale of discontinued operations, before income taxes
    
    
    (1.9
    )
    
    
    15.0Income tax (benefit) expense
    
    
    (2.0
    )
    
    
    2.4(Loss) income from discontinued operations, after income taxes
    
    $
    (1.7
    )
    
    $
    9.5
 Net Income.
 Liquidity, Capital Resources and Cash Flows
    32




---



##### Table of Contents



December 312009
    
    
    2008
    
    
    2007(dollars in millions)LIQUIDITYCash and cash equivalents
    
    $
    47.2
    
    
    $
    62.5
    
    
    $
    22.0Short-term investments
    
    $
    35.9
    
    
    $
    30.8
    
    
    $
    59.0Working capital (1)
    
    $
    113.3
    
    
    $
    126.0
    
    
    $
    113.3Current ratio (2)
    
    
    4.6 to 1.0

    
    
    
    3.4 to 1.0
    
    
    
    3.1 to 1.0Net debt as a % of capitalization (3) (4)
    
    
    N/A
    
    
    
    N/A
    
    
    
    8.4
    %Average number of days sales in accounts receivable
    
    
    58 days
    
    
    
    52 days
    
    
    
    63 daysAverage number of days sales in inventory
    
    
    80 days
    
    
    
    78 days
    
    
    
    81 days
 Year Ended December 312009
    
    
    2008
    
    
    2007(dollars in millions)CASH FLOWSCash provided by operating activities of continuing operations
    
    $
    19.2
    
    
    $
    23.6
    
    
    $
    20.4Cash (used in) provided by investing activities of continuing operations
    
    
    (12.3
    )
    
    
    16.7
    
    
    
    29.7Cash (used in) provided by financing activities of continuing operations
    
    
    (22.3
    )
    
    
    (0.7
    )
    
    
    (26.6
    )Effect of exchange rates on cash
    
    
    0.2
    
    
    
    (0.9
    )
    
    
    0.7Cash (used in) provided by discontinued operations
    
    
    (0.1
    )
    
    
    1.8
    
    
    
    (8.4
    )Net (decrease) increase in cash and cash equivalents
    
    $
    (15.3
    )
    
    $
    40.5
    
    
    $
    15.8
 (1)
    
    Working capital is defined as total current assets minus total current liabilities.(2)
    
    Current ratio is defined as total current assets divided by total current
liabilities.(3)
    
    Net debt is defined as long-term debt, including current portion, and
short-term borrowings, less cash and short-term investments. Capitalization is defined
as net debt plus shareholders equity.(4)
    
    We have zero net debt at December 31, 2009 and 2008 because our cash, cash
equivalents and short-term investments were $6.0 million and $6.2 million greater than
total debt, respectively.     33




---



##### Table of Contents



Operating Activities
   Investing Activities
    Financing Activities
     34




---



##### Table of Contents



Contractual Obligations and Other Commercial Commitments
  (Dollars in Thousands)
    
    Total
    
    
    2010
    
    
    2011-2013
    
    
    2014-2016
    
    
    ThereafterContractual obligations (1) (2) (3):Bank facilities (4)
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Senior notes (5)
    
    
    77,090
    
    
    
    
    
    
    
    
    
    
    
    77,090
    
    
    
    Operating leases
    
    
    23,759
    
    
    
    3,214
    
    
    
    8,643
    
    
    
    6,384
    
    
    
    5,518Deferred compensation plan distributions (6)
    
    
    3,018
    
    
    
    
    
    
    
    261
    
    
    
    136
    
    
    
    2,621Purchase obligations (7)
    
    
    18,361
    
    
    
    18,271
    
    
    
    82
    
    
    
    8
    
    
    
    Total contractual obligations
    
    $
    122,228
    
    
    $
    21,485
    
    
    $
    8,986
    
    
    $
    83,618
    
    
    $
    8,139Other commercial commitments:Stand-by letters of credit
    
    $
    855
    
    
    $
    855
 
 (1)
    
    This contractual obligations table does not include our defined benefit pension
obligations. An analysis of our obligations under our defined benefit pension plans is
contained in Note 11 Employee Benefits in the accompanying audited Consolidated Financial
Statements of this Form 10-K.(2)
    
    This contractual obligations table does not include liabilities related to deferred
taxes because it is not certain when these liabilities will become due.(3)
    
    The above table does not include approximately $1.2 million of unrecognized tax benefits
recorded in other long-term accrued expenses. These liabilities have not been included in
the contractual obligations table because we cannot reasonably predict whether any specific
taxing jurisdiction will select our tax returns to review, so it is impractical to
determine the amounts that may impact future cash flows. See Note 13 Income Taxes in the
accompanying audited Consolidated Financial Statements of this Form 10-K for further
analysis of our unrecognized tax benefit liabilities.(4)
    
    The Company currently has no borrowings under its $30 million domestic bank facility or
its $3.3 million (2.3 million Euro) Italian bank facility, both of which are variable rate
obligations.(5)
    
    The senior notes accrue interest at a fixed rate of 83/4% per annum, or $6.7 million per
year, which is paid semi-annually on January 1 and July 1.(6)
    
    Deferred compensation plan distributions are based on known in-service distributions
with remaining payments made upon termination. For purpose of this table, all participants
are assumed to be actively employed through December 31, 2016.(7)
    
    Purchase obligations primarily represent commitments for inventory purchases, services
and capital expenditures under purchase order. Debt
  December 312009

    
    
    2008(dollars in millions)Senior notes
    
    $
    77.1
    
    
    $
    87.1Bank facilities (domestic and foreign)
    
    
    
    
    
    
    Total debt
    
    $
    77.1
    
    
    $
    87.1
  35




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##### Table of Contents



Senior Notes
      For the period below
    
    PercentageOn or after November 1, 2009
    
    
    104.375
    %On or after November 1, 2010
    
    
    103.281
    %On or after November 1, 2011
    
    
    102.188
    %On or after November 1, 2012
    
    
    101.094
    %On or after November 1, 2013
    
    
    100.000
    %
   
    
    incur or guarantee additional debt or issue disqualified capital stock,
    
    pay dividends, redeem subordinated debt or make other restricted payments,
    
    issue preferred stock of our subsidiaries,
    
    transfer or sell assets, including capital stock of our subsidiaries,
    
    incur dividend or other payment restrictions affecting certain of our subsidiaries,
    
    make certain investments or acquisitions,
    
    grant liens on our assets,
    
    enter into certain transactions with affiliates, and
    
    merge, consolidate or transfer substantially all of our assets.
  36




---



##### Table of Contents




    
    there is no default or event of default,
    
    we meet the cash flow ratio, and
    
    the amount of the dividend payment plus certain other payments is
not in excess of a formula based on the sum of our consolidated
net income after November 1, 2004, the cash proceeds of certain
equity offerings by us after November 1, 2004, and the return on
certain investments made by us.
  Bank Facility
      
    
    pay cash dividends on our Class A common stock in an amount up to $5.0 million per
year;
 
    
    repurchase our Class A common stock in an amount not to exceed $30.0 million during
the commitment period;
 
    
    repurchase our 83/4% Senior Notes due 2014 (senior notes) in an amount not to exceed
$30.0 million during the commitment period; and
 
    
    effect acquisitions subject to certain restrictions in an unlimited amount;
  37




---



##### Table of Contents



Other Debt
  
 ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Market Risk Disclosures.
 Interest Rate Risk.
  Inflation/Deflation Risk.
  38




---



##### Table of Contents



Foreign Currency Exchange Risk.
  
 ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  Hawk Corporation  December 31, 2009, 2008 and 2007
 Audited Consolidated Financial StatementsReport of Ernst & Young LLP, Independent Registered Public Accounting Firm
    
    
    40Report of Ernst & Young LLP, Independent Registered Public Accounting Firm  Internal Controls
    
    
    41Consolidated Balance Sheets
    
    
    42Consolidated Statements of Operations
    
    
    44Consolidated Statements of Shareholders Equity
    
    
    45Consolidated Statements of Cash Flows
    
    
    46Notes to Consolidated Financial Statements
    
    
    47
  39




---



##### Table of Contents



REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      
  40




---



##### Table of Contents



REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     .
   
  41




---



##### Table of Contents



HAWK CORPORATION
 
 CONSOLIDATED BALANCE SHEETS
 (In Thousands, except share data)
 December 312009
    
    
    2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    47,206
    
    
    $
    62,520Short-term investments
    
    
    35,930
    
    
    
    30,774Accounts receivable, less allowance of $985 in
2009 and $1,328 in 2008
    
    
    27,578
    
    
    
    38,569Inventories:Raw materials
    
    
    5,503
    
    
    
    10,607Work-in-process
    
    
    10,886
    
    
    
    16,967Finished products
    
    
    11,106
    
    
    
    13,803Total inventories
    
    
    27,495
    
    
    
    41,377Deferred income taxes
    
    
    1,305
    
    
    
    414Other current assets
    
    
    5,686
    
    
    
    5,521Total current assets
    
    
    145,200
    
    
    
    179,175Property, plant and equipment:Land and improvements
    
    
    1,166
    
    
    
    1,154Buildings and improvements
    
    
    19,264
    
    
    
    16,227Machinery and equipment
    
    
    102,365
    
    
    
    94,388Furniture and fixtures
    
    
    8,327
    
    
    
    8,225Construction in progress
    
    
    2,186
    
    
    
    6,638133,308
    
    
    
    126,632Less accumulated depreciation
    
    
    86,212
    
    
    
    79,134Total property, plant and equipment
    
    
    47,096
    
    
    
    47,498Other assets:Finite-lived intangible assets
    
    
    6,015
    
    
    
    6,568Deferred income taxes
    
    
    289
    
    
    
    2,381Other
    
    
    5,892
    
    
    
    4,370Total other assets
    
    
    12,196
    
    
    
    13,319Total assets
    
    $
    204,492
    
    
    $
    239,992
 See notes to consolidated financial statements
  42




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##### Table of Contents



HAWK CORPORATION
 CONSOLIDATED BALANCE SHEETS
 (In Thousands, except share data)
 December 312009
    
    
    2008Liabilities and shareholders equityCurrent liabilities:Accounts payable
    
    $
    16,861
    
    
    $
    30,207Accrued compensation
    
    
    7,324
    
    
    
    9,910Accrued interest
    
    
    3,385
    
    
    
    3,816Accrued taxes
    
    
    345
    
    
    
    2,253Other accrued expenses
    
    
    3,979
    
    
    
    7,031Total current liabilities
    
    
    31,894
    
    
    
    53,217Long-term liabilities:Long-term debt
    
    
    77,090
    
    
    
    87,090Deferred income taxes
    
    
    2,873
    
    
    
    338Pension liabilities
    
    
    2,509
    
    
    
    11,300Other accrued expenses
    
    
    12,656
    
    
    
    10,656Total long-term liabilities
    
    
    95,128
    
    
    
    109,384Shareholders equitySeries 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
    
    
    
    1Series 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; 7,979,740 and 8,836,424 outstanding in 2009 and
2008, respectively
    
    
    92
    
    
    
    92Class B common stock, $.01 par value; 10,000,000 shares authorized;
none issued or outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    55,323
    
    
    
    54,738Retained earnings
    
    
    42,011
    
    
    
    35,784Accumulated other comprehensive loss
    
    
    (3,281
    )
    
    
    (8,232
    )Treasury stock, at cost, 1,208,010 and 351,326 shares in 2009 and
2008, respectively
    
    
    (16,676
    )
    
    
    (4,992
    )Total shareholders equity
    
    
    77,470
    
    
    
    77,391Total liabilities and shareholders equity
    
    $
    204,492
    
    
    $
    239,992
 See notes to consolidated financial statements
  43




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HAWK CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In Thousands, except per share data)
 Year Ended December 312009
    
    
    2008
    
    
    2007Net sales
    
    $
    172,402
    
    
    $
    269,648
    
    
    $
    215,879Cost of sales
    
    
    124,927
    
    
    
    192,552
    
    
    
    164,509Gross profit
    
    
    47,475
    
    
    
    77,096
    
    
    
    51,370Operating expenses:Selling, technical and administrative expenses
    
    
    30,238
    
    
    
    37,325
    
    
    
    31,172Amortization of finite-lived intangible assets
    
    
    553
    
    
    
    589
    
    
    
    727Total operating expenses
    
    
    30,791
    
    
    
    37,914
    
    
    
    31,899Income from operations
    
    
    16,684
    
    
    
    39,182
    
    
    
    19,471Interest expense
    
    
    (8,036
    )
    
    
    (8,055
    )
    
    
    (9,394
    )Interest income
    
    
    491
    
    
    
    2,089
    
    
    
    3,835Other income (expense), net
    
    
    1,879
    
    
    
    1,503
    
    
    
    (297
    )Income from continuing operations, before income taxes
    
    
    11,018
    
    
    
    34,719
    
    
    
    13,615Income tax provision
    
    
    4,505
    
    
    
    12,139
    
    
    
    5,829Income from continuing operations, after income taxes
    
    
    6,513
    
    
    
    22,580
    
    
    
    7,786(Loss) income from discontinued operations, after income tax
(benefit)
expense of ($70) in 2009, ($1,957) in 2008, and $2,414 in 2007
    
    
    (136
    )
    
    
    (1,738
    )
    
    
    9,482Net income
    
    $
    6,377
    
    
    $
    20,842
    
    
    $
    17,268Earnings per share:Basic earnings per share:Income from continuing operations, after income taxes
    
    $
    0.77
    
    
    $
    2.50
    
    
    $
    0.85Discontinued operations, after income taxes
    
    
    (0.01
    )
    
    
    (0.19
    )
    
    
    1.06Net earnings per basic share
    
    $
    0.76
    
    
    $
    2.31
    
    
    $
    1.91Diluted earnings per share:Income from continuing operations, after income taxes
    
    $
    0.75
    
    
    $
    2.40
    
    
    $
    0.82Discontinued operations, after income taxes
    
    
    (0.02
    )
    
    
    (0.19
    )
    
    
    1.01Net earnings per diluted share
    
    $
    0.73
    
    
    $
    2.21
    
    
    $
    1.83Average shares outstanding  basic
    
    
    8,242
    
    
    
    8,964
    
    
    
    8,967Average shares and equivalents outstanding  diluted
    
    
    8,507
    
    
    
    9,356
    
    
    
    9,360Income available to common shareholders
    
    $
    6,227
    
    
    $
    20,692
    
    
    $
    17,118
 See notes to consolidated financial statements
  44




---



##### Table of Contents



HAWK CORPORATION
 
 CONSOLIDATED
STATEMENTS  OF SHAREHOLDERS EQUITY
 (In Thousands)
 Accumulated Other Comprehensive(Loss) IncomeUnrealized GainAdditional
    
    
    Retained
    
    
    Foreign
    
    
    Change in
    
    
    / Loss onPreferred
    
    
    Common
    
    
    Paid-in
    
    
    Earnings
    
    
    Currency
    
    
    Pension
    
    
    Marketable
    
    
    TreasuryStock
    
    
    Stock
    
    
    Capital
    
    
    (Deficit)
    
    
    Translation
    
    
    Liability
    
    
    Securities
    
    
    Stock
    
    
    TotalBalance at January 1, 2007
    
    $
    1
    
    
    $
    92
    
    
    $
    53,492
    
    
    $
    (2,026
    )
    
    $
    2,142
    
    
    $
    (5,609
    )
    
    $
    
    
    
    $
    (1,363
    )
    
    $
    46,729Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,268
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,268Other comprehensive
income (loss):Change in
funded status
of pensions,
net of tax of $1,114
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,980
    
    
    
    
    
    
    
    
    
    
    
    1,980Unrealized gain
on marketable
securities,
net of tax
of $37
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65
    
    
    
    
    
    
    
    65Foreign
currency
translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,545
    
    
    
    (82
    )
    
    
    
    
    
    
    
    
    
    
    3,463Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,508Preferred stock
dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (150
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (150
    )Share based
compensation
    
    
    
    
    
    
    
    
    
    
    390
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    390Stock repurchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,694
    )
    
    
    (3,694
    )Issuance of common
stock from treasury as
compensation and
exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    (814
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,087
    
    
    
    1,273Balance at December 31, 2007
    
    $
    1
    
    
    $
    92
    
    
    $
    53,068
    
    
    $
    15,092
    
    
    $
    5,687
    
    
    $
    (3,711
    )
    
    $
    65
    
    
    $
    (2,970
    )
    
    $
    67,324Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,842
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,842Other comprehensive
income (loss):Change in
funded status
of pensions,
net of tax of $4,276
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,596
    )
    
    
    
    
    
    
    
    
    
    
    (7,596
    )Unrealized loss
on marketable
securities,
net of tax
of $25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (44
    )
    
    
    
    
    
    
    (44
    )Foreign
currency
translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,744
    )
    
    
    111
    
    
    
    
    
    
    
    
    
    
    
    (2,633
    )Total comprehensive
loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,273
    )Preferred stock
dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (150
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (150
    )Share based compensation
    
    
    
    
    
    
    
    
    
    
    808
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    808Stock repurchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,335
    )
    
    
    (2,335
    )Tax benefit from
exercise of incentive
stock
options
    
    
    
    
    
    
    
    
    
    
    908
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    908Issuance of common
stock from treasury as
compensation and
exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    (46
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    313
    
    
    
    267Balance at December 31, 2008
    
    $
    1
    
    
    $
    92
    
    
    $
    54,738
    
    
    $
    35,784
    
    
    $
    2,943
    
    
    $
    (11,196
    )
    
    $
    21
    
    
    $
    (4,992
    )
    
    $
    77,391Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,377
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,377Other comprehensive
income (loss):Change in
funded status
of pensions,
net of tax of $2,159
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,800
    
    
    
    
    
    
    
    
    
    
    
    3,800Unrealized loss
on marketable
securities,
net of tax
of $16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28
    )
    
    
    
    
    
    
    (28
    )Foreign
currency
translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,253
    
    
    
    (74
    )
    
    
    
    
    
    
    
    
    
    
    1,179Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,951Preferred stock
dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (150
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (150
    )Share based
compensation
    
    
    
    
    
    
    
    
    
    
    931
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    931Stock repurchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,632
    )
    
    
    (12,632
    )Tax benefit from
exercise of incentive
stock
options
    
    
    
    
    
    
    
    
    
    
    116
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116Issuance of common
stock from treasury as
compensation and
exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    (462
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    948
    
    
    
    486Balance at December 31, 2009
    
    $
    1
    
    
    $
    92
    
    
    $
    55,323
    
    
    $
    42,011
    
    
    $
    4,196
    
    
    $
    (7,470
    )
    
    $
    (7
    )
    
    $
    (16,676
    )
    
    $
    77,470
  45




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##### Table of Contents



HAWK CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)
 Year Ended December 312009
    
    
    2008
    
    
    2007Cash flows from operating activitiesNet income
    
    $
    6,377
    
    
    $
    20,842
    
    
    $
    17,268Adjustments to reconcile net income to net cash provided by operating
activities:Loss from discontinued operations, net of tax
    
    
    136
    
    
    
    482
    
    
    
    2,461Loss (gain) on sale of discontinued operations, net of tax
    
    
    
    
    
    
    1,256
    
    
    
    (11,943
    )Depreciation and amortization
    
    
    8,070
    
    
    
    7,767
    
    
    
    7,682Deferred income taxes
    
    
    1,600
    
    
    
    1,631
    
    
    
    1,999Amortization of discount on investments
    
    
    (225
    )
    
    
    (1,260
    )
    
    
    (2,753
    )Loss on sale or disposal of fixed assets
    
    
    70
    
    
    
    202
    
    
    
    114Write-off of deferred financing fees
    
    
    177
    
    
    
    
    
    
    
    583Stock option expense
    
    
    931
    
    
    
    808
    
    
    
    390Changes in operating assets and liabilites:Accounts receivable
    
    
    11,126
    
    
    
    (2,277
    )
    
    
    (1,351
    )Inventories
    
    
    13,957
    
    
    
    (5,255
    )
    
    
    (1,253
    )Other assets
    
    
    (1,907
    )
    
    
    (1,082
    )
    
    
    (898
    )Accounts payable
    
    
    (12,834
    )
    
    
    (473
    )
    
    
    7,308Accrued expenses
    
    
    (8,011
    )
    
    
    2,445
    
    
    
    1,610Pension accounts, net
    
    
    (2,906
    )
    
    
    (1,617
    )
    
    
    (1,621
    )Other
    
    
    2,611
    
    
    
    99
    
    
    
    819Net cash provided by operating activities of continuing operations
    
    
    19,172
    
    
    
    23,568
    
    
    
    20,415Net cash (used in) provided by operating activities of discontinued operations
    
    
    (136
    )
    
    
    1,939
    
    
    
    (6,954
    )Cash flows from investing activitiesProceeds from sale of discontinued operations
    
    
    
    
    
    
    2,650
    
    
    
    93,355Purchase of held to maturity securities
    
    
    
    
    
    
    
    
    
    
    (78,969
    )Proceeds from held to maturity securities
    
    
    
    
    
    
    
    
    
    
    80,475Purchases of available for sale securities
    
    
    (173,837
    )
    
    
    (311,355
    )
    
    
    (263,869
    )Proceeds from available for sale securities
    
    
    168,997
    
    
    
    340,571
    
    
    
    206,306Purchases of property, plant and equipment
    
    
    (7,518
    )
    
    
    (15,204
    )
    
    
    (7,648
    )Proceeds from sale of property, plant and equipment
    
    
    11
    
    
    
    18
    
    
    
    17Net cash (used in) provided by investing activities of continuing operations
    
    
    (12,347
    )
    
    
    16,680
    
    
    
    29,667Net cash used in investing activities of discontinued operations
    
    
    
    
    
    
    (51
    )
    
    
    (1,423
    )Cash flows from financing activitiesPayments on short-term debt
    
    
    
    
    
    
    
    
    
    
    (980
    )Proceeds from long-term debt
    
    
    
    
    
    
    
    
    
    
    10,964Payments on long-term debt
    
    
    (10,000
    )
    
    
    (59
    )
    
    
    (34,006
    )Proceeds from stock options
    
    
    436
    
    
    
    221
    
    
    
    1,233Stock repurchase
    
    
    (12,632
    )
    
    
    (2,335
    )
    
    
    (3,694
    )Receipts from government grants
    
    
    325
    
    
    
    675
    
    
    
    Payments of deferred financing fees
    
    
    (340
    )
    
    
    
    
    
    
    Tax benefit from exercise of incentive stock options
    
    
    116
    
    
    
    908
    
    
    
    Payments of preferred stock dividends
    
    
    (150
    )
    
    
    (150
    )
    
    
    (150
    )Net cash used in financing activities of continuing operations
    
    
    (22,245
    )
    
    
    (740
    )
    
    
    (26,633
    )Net cash used in financing activities of discontinued operations
    
    
    
    
    
    
    
    
    
    
    (14
    )Effect of exchange rate changes on cash
    
    
    242
    
    
    
    (868
    )
    
    
    771Net cash (used in) provided by continuing operations
    
    
    (15,178
    )
    
    
    38,640
    
    
    
    24,220Net cash (used in) provided by discontinued operations
    
    
    (136
    )
    
    
    1,888
    
    
    
    (8,391
    )Net (decrease) increase in cash and cash equivalents
    
    
    (15,314
    )
    
    
    40,528
    
    
    
    15,829Cash and cash equivalents at beginning of year
    
    
    62,520
    
    
    
    21,992
    
    
    
    6,163Cash and cash equivalents at end of year
    
    $
    47,206
    
    
    $
    62,520
    
    
    $
    21,992Supplemental cash flow informationCash payments for interest
    
    $
    8,082
    
    
    $
    7,697
    
    
    $
    10,032Cash payments for taxes
    
    $
    6,606
    
    
    $
    5,797
    
    
    $
    5,602Cash refunds for taxes
    
    $
    (216
    )
    
    $
    (580
    )
    
    $
    (544
    )Noncash investing and financing activities:Tax benefit from exercise of incentive
stock options
    
    $
    116
    
    
    $
    908
    
    
    $
    
  46




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##### Table of Contents



HAWK CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2009
(In Thousands, except share data)
 1. Basis of Presentation
   2. Significant Accounting Policies
 Use of Estimates
  Cash Equivalents
  Short-term Investments
  Fair Value of Financial Instruments
  Trade Receivables
   47




---



##### Table of Contents



Inventories
  Long-Lived Assets
   Pension Benefits
   Revenue Recognition
    48




---



##### Table of Contents



Grant Income
   Insurance
  Contingencies
  Foreign Currency
  Significant Concentrations
   49




---



##### Table of Contents



Personnel
  Product Research and Development
  Advertising
  Income Taxes
  Recent Accounting Developments
  
    
    In February 2010, the FASB issued ASU 2010-09, which addresses certain implementation
issues related to an entitys requirement to perform and disclose subsequent events
procedures. The ASU (1) exempts entities that file their financial statements with, or
furnish them to, the SEC from disclosing the date through which subsequent events
procedures have been performed and (2) clarifies the circumstances in which an entitys
financial statements would be considered restated and in which the entity would therefore
be required to update its subsequent events evaluation since the originally issued or
available to be issued financial statements. ASU 2010-09 became effective immediately upon
issuance, and the Company has adopted its disclosure requirements within this Form 10-K for
the year ended December 31, 2009.
 
    
    The FASB issued a technical amendment to employers disclosure requirements for plan
assets for defined benefit pensions and other postretirement plans, which is integrated
into the ASC at ASC 715-20-50, Compensation  Retirement Benefits: Defined Benefit Plans
 General: Disclosure. The objective is to provide users of financial statements with an
understanding of how investment allocation decisions are made, the major categories of
plan assets held by the plans, the inputs and valuation techniques used to measure the
fair value of plan assets, significant concentration of risk within the companys plan
assets, and for fair value measurements determined using significant unobservable inputs a
reconciliation of changes between the beginning and ending balances. The disclosures
contained within the Companys Form 10-K for the year ended December 31, 2009 are in
compliance with the requirements of this ASC.
 
    
    The FASB issued ASU 2009-05, which provides additional guidance clarifying the
measurement of liabilities at fair value and addresses restrictions when estimating the
fair value of a liability under ASC 820. When a quoted price in an active market for the
identical liability is not available, ASU 2009-05 requires that the fair value should be
measured using one of the following approaches a) the quoted price of the identical
liability when traded as an asset, b) quoted prices for similar liabilities or similar
liabilities when traded as assets or c) another valuation technique that is consistent
with the principles of ASC 820. For the Company, ASU 2009-05 is
effective for the quarter ended December 31, 2009. The disclosures contained within the
Companys Form 10-K for the year ended December 31, 2009 are in compliance with the
requirements of this ASC.
  50




---



##### Table of Contents




    
    In January 2010, the FASB issued ASU 2010-06, which amends ASC 820 to add new
requirements for disclosures about transfers into and out of Levels 1 and 2 and separate
disclosures about purchases, sales, issuances and settlements relating to Level 3
measurements. ASU 2010-06 also clarifies existing fair value disclosures about the level
of disaggregation and about inputs and valuation techniques used to measure fair value.
Further, ASU 2010-06 amends guidance on employers disclosures about postretirement
benefit plan assets under ASC 715 to require that disclosures be provided by classes of
assets instead of by major categories of assets. This ASU is effective for the first
reporting period beginning after December 15, 2009, except for the requirement to provide
Level 3 activity of purchases, sales, issuances and settlements on a gross basis, which
will be effective for fiscal years beginning on or after December 15, 2010, and for
interim periods within those fiscal years. The Company does not expect the adoption of
this guidance will have a material impact on its consolidated financial statements and
disclosures.
 
    
    In December 2009, the FASB issued ASU 2009-17, which codifies SFAS 167 and revises the
former guidance under FIN 46R to require an analysis to determine whether a variable
interest gives the entity a controlling financial interest in a variable interest entity.
SFAS 167 requires an ongoing reassessment and eliminates the quantitative approach
previously required for determining whether an entity is the primary beneficiary. The ASU
also requires additional disclosures about a reporting entitys involvement with variable
interest entities and about any significant changes in risk exposure as a result of that
involvement. This ASU is effective for fiscal years beginning on or after November 15,
2009. The Company does not expect the adoption of this statement will have an impact on
its consolidated financial statements and disclosures.
 
    
    In December 2009, the FASB issued ASU 2009-16, which codifies SFAS 166 and revises the
former guidance under SFAS 140. Among other things, ASU 2009-16 removes the concept of a
qualifying special-purpose entity, changes the requirements for derecognizing assets, and
enhances information reported to financial statement users by increasing the transparency
of disclosures about transfers of financial assets and an entitys continuing involvement
with transferred financial assets. This statement also clarifies the requirements for
isolation and limitations on portions of financial assets that are eligible for sale
accounting. This ASU is effective for fiscal years beginning on or after November 15,
2009. The Company does not expect the adoption of this statement will have an impact on
its consolidated financial statements and disclosures.
 
    
    In October 2009, the FASB issued ASU 2009-14, which will become effective for all
revenue arrangements entered into or materially modified by the Company beginning July 1,
2010, with earlier adoption permitted. Under the new guidance, tangible products that
have software components that are essential to the functionality of the tangible product
will no longer be within the scope of the software revenue recognition guidance, and
software-enabled products will now be subject to other relevant revenue recognition
guidance. The Company does not expect the adoption of this guidance will have an
impact on its consolidated financial statements and disclosures.
 
    
    In October 2009, the FASB issued ASU 2009-13, which will become effective for all
revenue arrangements entered into or materially modified by the Company beginning July 1,
2010, with earlier adoption permitted. Under the new guidance, when vendor specific
objective evidence or third party evidence for deliverables in an arrangement cannot be
determined, a best estimate of the selling price is required to separate deliverables and
allocate arrangement considerations using the relative selling price method. The guidance
includes new disclosure requirements on how the application of the relative selling price
method affects the timing and amount of revenue recognition. The Company does not expect
the adoption of this guidance will have an  impact on its consolidated financial
statements and disclosures.
 
    
    In September 2009, the FASB issued a proposed ASU on the Emerging Issues Task Force
consensus-for-exposure on Issue 09-2 that addresses the inconsistencies between the
accounting for Research and Development (R&D) assets acquired in a business combination
and those acquired in an asset acquisition. The proposed ASU requires an entity to
capitalize R&D assets acquired in an asset acquisition as indefinite-lived intangible
assets until completion or abandonment of the related R&D activities. The ASU also
proposes that contingent
consideration in an asset acquisition would be accounted for in accordance with other
sections of the ASC and includes a principle under which the entity would analyze whether
contingent consideration relates to the acquired asset or to future services provided by the
seller. The proposed ASU would be effective for fiscal years beginning on or after December
15, 2009 and the Company does not expect the adoption of this guidance will have a material
impact on its consolidated financial statements and disclosures.
  51




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##### Table of Contents



3. Discontinued Operations
     Year Ended December 312009
    
    
    2008
    
    
    2007Net sales
    
    $
    
    
    
    $
    7,373
    
    
    $
    20,093(Loss) from discontinued operations, before income taxes
    
    $
    (206
    )
    
    $
    (1,799
    )
    
    $
    (3,127
    )(Loss) gain on sale of discontinued operations, before income
taxes
    
    
    
    
    
    
    (1,896
    )
    
    
    15,023Income tax (benefit) expense
    
    
    (70
    )
    
    
    (1,957
    )
    
    
    2,414(Loss) income from discontinued operations, after income taxes
    
    $
    (136
    )
    
    $
    (1,738
    )
    
    $
    9,482
  52




---



##### Table of Contents





Year Ended December 312009
    
    
    2008
    
    
    2007Basic (loss) earnings per share from discontinued operations, after
income taxes(Loss) from discontinued operations, after income taxes
    
    
    (0.01
    )
    
    
    (0.05
    )
    
    $
    (0.27
    )(Loss) gain on sale of discontinued operations, after income taxes
    
    
    
    
    
    
    (0.14
    )
    
    
    1.33Basic (loss) earnings per share from discontinued operations, after
income taxes
    
    $
    (0.01
    )
    
    $
    (0.19
    )
    
    $
    1.06Diluted (loss) earnings per share from discontinued operations,
after income taxes(Loss) from discontinued operations, after income taxes
    
    $
    (0.02
    )
    
    $
    (0.05
    )
    
    $
    (0.27
    )(Loss) gain on sale of discontinued operations, after income taxes
    
    
    
    
    
    
    (0.14
    )
    
    
    1.28Diluted (loss) earnings per share from discontinued operations,
after income taxes
    
    $
    (0.02
    )
    
    $
    (0.19
    )
    
    $
    1.01
 4. Fair Value Measurements
   Level 1
 Level 2
 Level 3
  53




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##### Table of Contents



Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3December 31, 2009Assets:Money market funds
    
    $
    11,172
    
    
    $
    11,172
    
    
    $
    
    
    
    $
    Commercial paper
    
    
    34,977
    
    
    
    
    
    
    
    34,977
    
    
    
    Other trading(1)
    
    
    3,018
    
    
    
    2,538
    
    
    
    
    
    
    
    480Total assets at fair value
    
    $
    49,167
    
    
    $
    13,710
    
    
    $
    34,977
    
    
    $
    480Liabilities:Deferred compensation plan
liability
(1)
    
    $
    3,018
    
    
    $
    2,538
    
    
    $
    
    
    
    $
    480Total liabilities at fair value
    
    $
    3,018
    
    
    $
    2,538
    
    
    $
    
    
    
    $
    480December 31, 2008Assets:Money market funds
    
    $
    22,031
    
    
    $
    22,031
    
    
    $
    
    
    
    $
    Mutual funds
    
    
    25,028
    
    
    
    25,028
    
    
    
    
    
    
    
    Commercial paper
    
    
    19,956
    
    
    
    
    
    
    
    19,956
    
    
    
    U.S. govt. agencies
    
    
    10,000
    
    
    
    
    
    
    
    10,000
    
    
    
    Other trading(1)
    
    
    1,062
    
    
    
    1,062
    
    
    
    
    
    
    
    Total assets at fair value
    
    $
    78,077
    
    
    $
    48,121
    
    
    $
    29,956
    
    
    $
    Liabilities:Deferred compensation plan liability
(1)
    
    $
    1,062
    
    
    $
    1,062
    
    
    $
    
    
    
    $
    Total liabilities at fair value
    
    $
    1,062
    
    
    $
    1,062
    
    
    $
    
    
    
    $
    
 (1)
    
    Other trading assets represent assets held in a rabbi trust to fund deferred compensation
plan liabilities and are included as a component of Other long-term assets in the Consolidated
Balance Sheets as of December 31, 2009 and December 31, 2008. The deferred compensation plan
liability is the Companys liability under its deferred compensation plan and is included in
Other long-term accrued expenses in the Consolidated Balance Sheets as of December 31, 2009
and 2008.    54




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##### Table of Contents



Level 3  Gains and Losses
  GuaranteedIncome FundBalance  January 1, 2009
    
    $
    Realized gains
    
    
    Unrealized gains / (losses) relating to instruments
still held at reporting date
    
    
    8Purchases, sales, issuances and settlements (net)
    
    
    472Balance  December 31, 2009
    
    $
    480
     55




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##### Table of Contents



December 31, 2009
    
    
    December 31, 2008Carrying Value
    
    
    Fair Value
    
    
    Carrying Value
    
    
    Fair ValueLong-term financial
liabilitiesLong-term debt
    
    $
    77,090
    
    
    $
    76,994
    
    
    $
    87,090
    
    
    $
    88,396
 5. Investments
   Available-for-Sale SecuritiesGross Unrealized
    
    
    Gross Unrealized
    
    
    Estimated Fair ValueAmortized Cost
    
    
    Gains
    
    
    Losses
    
    
    (Net Carrying Amount)December 31, 2009Other debt
securities  due in
one year or less
    
    $
    35,941
    
    
    $
    
    
    
    $
    (11
    )
    
    $
    35,930December 31, 2008Other debt
securities  due in
one year or less
    
    $
    30,791
    
    
    $
    60
    
    
    $
    (26
    )
    
    $
    30,774
     56




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##### Table of Contents



6. Intangible Assets
  December 31, 2009
    
    
    December 31, 2008Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedGross
    
    
    Amortization
    
    
    Net
    
    
    Gross
    
    
    Amortization
    
    
    NetProduct
certifications
    
    $
    20,820
    
    
    $
    14,805
    
    
    $
    6,015
    
    
    $
    20,820
    
    
    $
    14,252
    
    
    $
    6,568
    7. Financing Arrangements
 December 312009
    
    
    2008Senior notes
    
    $
    77,090
    
    
    $
    87,090Bank facilities (domestic and foreign)
    
    
    
    
    
    
    Total debt
    
    $
    77,090
    
    
    $
    87,090
   Senior Notes
 3 4
  57




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##### Table of Contents



For the period below
    
    PercentageOn or after November 1, 2009
    
    
    104.375
    %On or after November 1, 2010
    
    
    103.281
    %On or after November 1, 2011
    
    
    102.188
    %On or after November 1, 2012
    
    
    101.094
    %On or after November 1, 2013
    
    
    100.000
    %
   
    
    incur or guarantee additional debt or issue disqualified capital stock,
 
    
    pay dividends, redeem subordinated debt or make other restricted payments,
 
    
    issue preferred stock of its subsidiaries,
 
    
    transfer or sell assets, including capital stock of its subsidiaries,
 
    
    incur dividend or other payment restrictions affecting certain of its subsidiaries,
 
    
    make certain investments or acquisitions,
 
    
    grant liens on assets,
 
    
    enter into certain transactions with affiliates, and
 
    
    merge, consolidate or transfer substantially all of its assets.
  58




---



##### Table of Contents






    
    there is no default or event of default,
 
    
    the Company meets the cash flow ratio, and
 
    
    the amount of the dividend payment plus certain other payments is not in excess of a
formula based on the sum of the Companys consolidated net income after November 1,
2004, the cash proceeds of certain equity offerings by the Company after November 1,
2004, and the return on certain investments made by the Company.
 Subsequent Event:
  Bank Facility
      
    
    pay cash dividends on its Class A common stock in an amount up to $5,000 per year;
 
    
    repurchase its Class A common stock in an amount not to exceed $30,000 during the
commitment period;
 
    
    repurchase its senior notes in an amount not to exceed
$30,000 during the commitment period; and
 
    
    effect acquisitions subject to certain restrictions in an unlimited amount;
    59




---



##### Table of Contents



Other
  8. Accounts Receivables Factoring Agreement
  9. Shareholders Equity
    60




---



##### Table of Contents



10. Stock Compensation Plan
   2009
    
    
    2008
    
    
    2007Expected volatility
    
    
    n/a
    
    
    
    86.2
    %
    
    
    87.2
    %Expected option life in years
    
    
    n/a
    
    
    
    5.5
    
    
    
    5.5Expected dividend yield
    
    
    n/a
    
    
    
    0.0
    %
    
    
    0.0
    %Risk-free interest rate
    
    
    n/a
    
    
    
    3.2
    %
    
    
    5.0
    %Weighted average fair value per option at
grant date
    
    
    n/a
    
    
    $
    5.19
    
    
    $
    8.68
   61




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##### Table of Contents



WeightedAverage
    
    
    AggregateWeighted Average
    
    
    Remaining
    
    
    Intrinsic ValueOptions
    
    
    Exercise Price
    
    
    Contract Term
    
    
    (in thousands)Options outstanding at January 1, 2009
    
    
    798,828
    
    
    $
    8.50Granted
    
    
    
    
    
    
    Exercised
    
    
    (69,649
    )
    
    
    6.27Forfeited or expired
    
    
    
    
    
    
    Options outstanding at December 31,
2009
    
    
    729,179
    
    
    $
    8.72
    
    
    4.7 yrs.
    
    $
    6,548Exercisable at December 31, 2009
    
    
    527,778
    
    
    $
    6.05
    
    
    3.5 yrs.
    
    $
    6,112
    For the years ended December 312009
    
    
    2008
    
    
    2007(in thousands)Total intrinsic value of options
exercised
    
    $
    344
    
    
    $
    305
    
    
    $
    1,863Total fair value of shares vested
    
    $
    652
    
    
    $
    213
    
    
    $
    114
  2009
    
    
    2008
    
    
    2007Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageShares
    
    
    Fair Value
    
    
    Shares
    
    
    Fair Value
    
    
    Shares
    
    
    Fair ValueBeginning nonvested shares
outstanding
    
    
    283,200
    
    
    $
    10
    
    
    
    150,200
    
    
    $
    6
    
    
    
    219,480
    
    
    $
    3Issuances
    
    
    
    
    
    
    
    
    
    
    179,000
    
    
    $
    12
    
    
    
    59,875
    
    
    $
    8Cancellations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeitures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (84,280
    )
    
    
    Vestings
    
    
    (81,799
    )
    
    $
    8
    
    
    
    (46,000
    )
    
    $
    5
    
    
    
    (44,875
    )
    
    $
    3Ending nonvested shares outstanding
    
    
    201,401
    
    
    $
    11
    
    
    
    283,200
    
    
    $
    10
    
    
    
    150,200
    
    
    $
    6
   62




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##### Table of Contents



11. Employee Benefits
   Year Ended December 312009
    
    
    2008Accumulated benefit obligation
    
    $
    31,327
    
    
    $
    30,845Change in benefit obligation:Benefit obligation at beginning of year
    
    $
    31,013
    
    
    $
    28,405Service cost
    
    
    309
    
    
    
    190Interest cost
    
    
    1,819
    
    
    
    1,746Actuarial losses
    
    
    324
    
    
    
    2,651Foreign currency exchange rate impact (1)
    
    
    154
    
    
    
    (207
    )Benefits paid
    
    
    (2,021
    )
    
    
    (1,772
    )Benefit obligation at end of year
    
    $
    31,598
    
    
    $
    31,013Change in plan assets:Fair value of plan assets at beginning of year
    
    $
    19,713
    
    
    $
    27,923Actual return on plan assets
    
    
    6,525
    
    
    
    (7,530
    )Foreign currency exchange rate impact (1)
    
    
    104
    
    
    
    (166
    )Company contributions
    
    
    4,768
    
    
    
    1,258Benefits paid
    
    
    (2,021
    )
    
    
    (1,772
    )Fair value of plan assets at end of year
    
    $
    29,089
    
    
    $
    19,713Funded status of the plans
    
    $
    (2,509
    )
    
    $
    (11,300
    )Amounts recognized in the Consolidated Balance
Sheets consist of the
following:Pension liabilities  non current
    
    $
    (2,509
    )
    
    $
    (11,300
    )
 (1)
    
    Resulting from the impact of the Companys defined benefit pension plan in
Canada.    63




---



##### Table of Contents



Year Ended December 312009
    
    
    2008Projected benefit obligation
    
    $
    31,598
    
    
    $
    31,013A ccumulated benefit obligation
    
    $
    31,327
    
    
    $
    30,845Fair value of plan assets
    
    $
    29,089
    
    
    $
    19,713A mounts recognized as accrued benefit
liabilities
    
    $
    2,509
    
    
    $
    11,300
  Year Ended December 312009
    
    
    2008
    
    
    2007Components of net periodic pension cost:Service cost
    
    $
    340
    
    
    $
    223
    
    
    $
    186Interest cost
    
    
    1,819
    
    
    
    1,746
    
    
    
    1,703Expected return on plan assets
    
    
    (1,759
    )
    
    
    (2,274
    )
    
    
    (2,091
    )Amortization of prior service cost
    
    
    240
    
    
    
    240
    
    
    
    240Recognized net actuarial loss
    
    
    1,233
    
    
    
    251
    
    
    
    400Net periodic pension cost of defined
benefit plans
    
    $
    1,873
    
    
    $
    186
    
    
    $
    438
   Year Ended December 312009
    
    
    2008
    
    
    2007Weighted average rates used to compute the projected
benefit obligation as of December 31:Discount rate
    
    
    6.0
    %
    
    
    6.0
    %
    
    
    6.0
    %Rate of compensation increase (1)
    
    
    3.5
    %
    
    
    3.5
    %
    
    
    3.5
    %Weighted average rates used to determine the net
periodic benefit cost for the years ended December 31:Discount rate
    
    
    6.1
    %
    
    
    6.0
    %
    
    
    5.6
    %Rate of compensation increase (1)
    
    
    3.5
    %
    
    
    3.5
    %
    
    
    3.5
    %Expected long-term rate of return on plan assets
    
    
    8.2
    %
    
    
    8.2
    %
    
    
    8.2
    %
 (1)
    
    Only the Companys Canadian pension plan is impacted by a rate of compensation
increase.   64




---



##### Table of Contents



BenefitYear
    
    Payments2010
    
    $
    1,7392011
    
    $
    1,7822012
    
    $
    1,8372013
    
    $
    1,8532014
    
    $
    1,9172015 - 2019
    
    $
    10,060
 Investment Strategy and Asset Allocation
   Year Ended December 312009
    
    
    2008Asset CategoryCash and equivalents
    
    $
    664
    
    
    
    2.3
    %
    
    $
    522
    
    
    
    2.6
    %Equity securities:U.S. companies  growth
    
    
    5,383
    
    
    
    18.5
    %
    
    
    3,621
    
    
    
    18.4
    %Foreign companies  growth
    
    
    4,272
    
    
    
    14.7
    %
    
    
    2,922
    
    
    
    14.8
    %U.S. companies  value
    
    
    6,592
    
    
    
    22.7
    %
    
    
    4,614
    
    
    
    23.4
    %Foreign companies  value
    
    
    3,469
    
    
    
    11.9
    %
    
    
    2,285
    
    
    
    11.6
    %Total equity securities
    
    
    19,716
    
    
    
    67.8
    %
    
    
    13,442
    
    
    
    68.2
    %Fixed income securities:Short-term investments
    
    
    264
    
    
    
    0.9
    %
    
    
    355
    
    
    
    1.8
    %Fixed income funds
    
    
    6,649
    
    
    
    22.9
    %
    
    
    5,394
    
    
    
    27.4
    %Total fixed income securities
    
    
    6,913
    
    
    
    23.8
    %
    
    
    5,749
    
    
    
    29.2
    %Other
    
    
    1,796
    
    
    
    6.2
    %
    
    
    
    
    
    
    Total
    
    $
    29,089
    
    
    
    100
    %
    
    $
    19,713
    
    
    
    100.0
    %
   65




---



##### Table of Contents



Pension Plan Assets Measured at Fair Value
      December 31, 2009
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Cash and equivalents
    
    $
    664
    
    
    $
    664
    
    
    $
    
    
    
    $
    Equity securities:U.S. companies  growth
    
    
    5,383
    
    
    
    3,383
    
    
    
    2,000
    
    
    
    Foreign companies  growth
    
    
    4,272
    
    
    
    2,365
    
    
    
    1,907
    
    
    
    U.S. companies  value
    
    
    6,592
    
    
    
    4,680
    
    
    
    1,912
    
    
    
    Foreign companies  value
    
    
    3,469
    
    
    
    2,448
    
    
    
    1,021
    
    
    
    Fixed income securities:Short-term investments
    
    
    264
    
    
    
    
    
    
    
    264
    
    
    
    Fixed income funds
    
    
    6,649
    
    
    
    4,649
    
    
    
    2,000
    
    
    
    Other
    
    
    1,796
    
    
    
    
    
    
    
    1,796
    
    
    
    Total
    
    $
    29,089
    
    
    $
    18,189
    
    
    $
    10,900
    
    
    $
    
 Defined Contribution Plan
  12. Lease Obligations
    66




---



##### Table of Contents



13. Income Taxes
      For the Year Ended December 312009
    
    
    2008Balance at January 1
    
    $
    586
    
    
    $
    1,113Additions based on tax positions related to the current year
    
    
    116
    
    
    
    110Additions for tax positions of prior years
    
    
    273
    
    
    
    Reduction for tax positions of prior years
    
    
    (23
    )
    
    
    Settlement
    
    
    
    
    
    
    (517
    )Lapses in applicable statutes
    
    
    (106
    )
    
    
    (120
    )Balance at December 31
    
    $
    846
    
    
    $
    586
    67




---



##### Table of Contents



Year ended December 312009
    
    
    2008
    
    
    2007Current:Federal
    
    $
    2,096
    
    
    $
    3,138
    
    
    $
    8State and local
    
    
    64
    
    
    
    307
    
    
    
    (97
    )Foreign
    
    
    745
    
    
    
    7,063
    
    
    
    3,9192,905
    
    
    
    10,508
    
    
    
    3,830Deferred:Federal
    
    
    2,043
    
    
    
    2,708
    
    
    
    1,318State and local
    
    
    9
    
    
    
    21
    
    
    
    38Foreign
    
    
    (452
    )
    
    
    (1,098
    )
    
    
    6431,600
    
    
    
    1,631
    
    
    
    1,999Total income tax provision
    
    $
    4,505
    
    
    $
    12,139
    
    
    $
    5,829
  Year ended December 312009
    
    
    2008Deferred tax assets:NOL carryforward
    
    $
    1,532
    
    
    $
    1,540AMT carryforward
    
    
    
    
    
    
    490Accrued vacation
    
    
    532
    
    
    
    494Employee benefits
    
    
    1,702
    
    
    
    3,599Other accruals
    
    
    2,139
    
    
    
    2,734Book over tax amortization
    
    
    
    
    
    
    Inventory
    
    
    2,251
    
    
    
    1,134Subtotal deferred tax assets
    
    
    8,156
    
    
    
    9,991Valuation allowances
    
    
    (1,358
    )
    
    
    (1,594
    )Total deferred tax assets
    
    
    6,798
    
    
    
    8,397Deferred tax liabilities:Tax over book depreciation
    
    
    5,920
    
    
    
    4,158Tax over book amortization
    
    
    1,792
    
    
    
    1,436Foreign leased property
    
    
    310
    
    
    
    334Other
    
    
    55
    
    
    
    12Total deferred tax liabilities
    
    
    8,077
    
    
    
    5,940Net deferred tax (liabilities) assets
    
    $
    (1,279
    )
    
    $
    2,457
  68




---



##### Table of Contents



Year Ended December 312009
    
    
    2008
    
    
    2007Income tax expense at federal statutory rate
    
    $
    3,856
    
    
    $
    12,152
    
    
    $
    4,764State and local tax, net of federal tax benefit
    
    
    47
    
    
    
    213
    
    
    
    (38
    )Taxes on foreign income which differ from
United States
statutory rate
    
    
    389
    
    
    
    (909
    )
    
    
    668Foreign tax withholding
    
    
    160
    
    
    
    329
    
    
    
    232Unrecognized tax benefits
    
    
    533
    
    
    
    
    
    
    
    Tax credit utilization
    
    
    (699
    )
    
    
    
    
    
    
    Other
    
    
    219
    
    
    
    354
    
    
    
    203Provision for income taxes
    
    $
    4,505
    
    
    $
    12,139
    
    
    $
    5,829
  Year ended December 312009
    
    
    2008
    
    
    2007Income (loss) from continuing operations before income taxes:Domestic
    
    $
    12,263
    
    
    $
    14,473
    
    
    $
    2,953Foreign
    
    
    (1,245
    )
    
    
    20,246
    
    
    
    10,662As reported
    
    $
    11,018
    
    
    $
    34,719
    
    
    $
    13,615
   69




---



##### Table of Contents



14. Earnings Per Share
  Year Ended December 312009
    
    
    2008
    
    
    2007Income from continuing operations, after income taxes
    
    $
    6,513
    
    
    $
    22,580
    
    
    $
    7,786Less: Preferred stock dividends
    
    
    150
    
    
    
    150
    
    
    
    150Income from continuing operations, after income taxes
available to common shareholders
    
    $
    6,363
    
    
    $
    22,430
    
    
    $
    7,636Net income
    
    $
    6,377
    
    
    $
    20,842
    
    
    $
    17,268Less: Preferred stock dividends
    
    
    150
    
    
    
    150
    
    
    
    150Net income available to common shareholders
    
    $
    6,227
    
    
    $
    20,692
    
    
    $
    17,118Weighted
average shares outstanding (in thousands):Basic weighted average shares outstanding
    
    
    8,242
    
    
    
    8,964
    
    
    
    8,967Diluted:Basic weighted average shares outstanding
    
    
    8,242
    
    
    
    8,964
    
    
    
    8,967Dilutive effect of stock options
    
    
    265
    
    
    
    392
    
    
    
    393Diluted weighted average shares outstanding
    
    
    8,507
    
    
    
    9,356
    
    
    
    9,360Earnings per share:Basic earnings from continuing operations, after
income taxes
    
    $
    0.77
    
    
    $
    2.50
    
    
    $
    0.85Discontinued operations, after income taxes
    
    
    (0.01
    )
    
    
    (0.19
    )
    
    
    1.06Net earnings per basic share
    
    $
    0.76
    
    
    $
    2.31
    
    
    $
    1.91Diluted earnings from continuing operations, after
income taxes
    
    $
    0.75
    
    
    $
    2.40
    
    
    $
    0.82Discontinued operations, after income taxes
    
    
    (0.02
    )
    
    
    (0.19
    )
    
    
    1.01Net earnings per diluted share
    
    $
    0.73
    
    
    $
    2.21
    
    
    $
    1.83
  15. Related Parties
    70




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##### Table of Contents



16. Principal Markets and Geographic Disclosures
  Year Ended December 312009
    
    
    2008
    
    
    2007(dollars in thousands)Net Sales by Market:Construction and Mining
    
    $
    62,947
    
    
    $
    127,371
    
    
    $
    99,247Aircraft and Defense
    
    
    47,373
    
    
    
    54,739
    
    
    
    43,292Agriculture
    
    
    24,466
    
    
    
    40,406
    
    
    
    29,276Truck
    
    
    16,725
    
    
    
    24,795
    
    
    
    23,220Performance Friction
    
    
    11,856
    
    
    
    10,414
    
    
    
    10,063Specialty Friction
    
    
    6,541
    
    
    
    9,744
    
    
    
    10,344Alternative Energy
    
    
    2,494
    
    
    
    2,179
    
    
    
    437Total
    
    $
    172,402
    
    
    $
    269,648
    
    
    $
    215,879
  Year Ended December 312009
    
    
    2008
    
    
    2007(dollars in thousands)Capital Expenditures
    
    $
    7,518
    
    
    $
    15,204
    
    
    $
    7,648Depreciation Expense
    
    
    7,132
    
    
    
    6,822
    
    
    
    6,550
   71




---



##### Table of Contents



Year Ended December 312009
    
    
    2008
    
    
    2007(dollars in thousands)Net Sales:United States
    
    $
    125,489
    
    
    $
    157,437
    
    
    $
    131,644Italy
    
    
    39,554
    
    
    
    98,023
    
    
    
    73,457All Other Foreign
    
    
    7,359
    
    
    
    14,188
    
    
    
    10,778Total
    
    $
    172,402
    
    
    $
    269,648
    
    
    $
    215,879Property, Plant and Equipment:United States
    
    $
    34,728
    
    
    $
    33,610
    
    
    $
    27,272Italy
    
    
    10,150
    
    
    
    11,198
    
    
    
    9,729All Other Foreign
    
    
    2,218
    
    
    
    2,690
    
    
    
    2,574Total
    
    $
    47,096
    
    
    $
    47,498
    
    
    $
    39,575
   17. Supplemental Guarantor Information
   
    
    Consolidating condensed Balance Sheets as of December 31, 2009 and December 31, 2008,
consolidating condensed Statements of Operations for the years ended December 31, 2009,
2008 and 2007 and consolidating condensed Statements of Cash Flows for the years ended
December 31, 2009, 2008 and 2007.
    
    Hawk Corporation (Parent), combined Guarantor Subsidiaries and combined Non-Guarantor
Subsidiaries consisting of the Companys subsidiaries in Italy, Canada 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.
   72




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##### Table of Contents



Supplemental Consolidating Condensed
Balance Sheet
 December 31, 2009Combined
    
    
    CombinedGuarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(dollars in thousands)AssetsCurrent assets:Cash and cash equivalents
    
    $
    24,182
    
    
    $
    11
    
    
    $
    23,013
    
    
    $
    
    
    
    $
    47,206Short-term investments
    
    
    34,977
    
    
    
    
    
    
    
    953
    
    
    
    
    
    
    
    35,930Accounts receivable, net
    
    
    
    
    
    
    12,520
    
    
    
    15,058
    
    
    
    
    
    
    
    27,578Inventories, net
    
    
    
    
    
    
    16,714
    
    
    
    11,025
    
    
    
    (244
    )
    
    
    27,495Deferred income taxes
    
    
    511
    
    
    
    
    
    
    
    794
    
    
    
    
    
    
    
    1,305Other current assets
    
    
    3,704
    
    
    
    723
    
    
    
    1,259
    
    
    
    
    
    
    
    5,686Total current assets
    
    
    63,374
    
    
    
    29,968
    
    
    
    52,102
    
    
    
    (244
    )
    
    
    145,200Investment in subsidiaries
    
    
    49,927
    
    
    
    
    
    
    
    
    
    
    
    (49,927
    )
    
    
    Inter-company advances, net
    
    
    
    
    
    
    2,738
    
    
    
    (2,738
    )
    
    
    
    
    
    
    Property, plant and equipment, net
    
    
    
    
    
    
    34,728
    
    
    
    12,368
    
    
    
    
    
    
    
    47,096Other assets:Finite-lived intangible assets
    
    
    
    
    
    
    6,015
    
    
    
    
    
    
    
    
    
    
    
    6,015Other
    
    
    5,892
    
    
    
    
    
    
    
    289
    
    
    
    
    
    
    
    6,181Total other assets
    
    
    5,892
    
    
    
    6,015
    
    
    
    289
    
    
    
    
    
    
    
    12,196Total assets
    
    $
    119,193
    
    
    $
    73,449
    
    
    $
    62,021
    
    
    $
    (50,171
    )
    
    $
    204,492Liabilities and shareholders equityCurrent liabilities:Accounts payable
    
    $
    46
    
    
    $
    9,696
    
    
    $
    7,119
    
    
    $
    
    
    
    $
    16,861Accrued compensation
    
    
    2,455
    
    
    
    2,599
    
    
    
    2,270
    
    
    
    
    
    
    
    7,324Accrued interest
    
    
    3,385
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,385Accrued taxes
    
    
    
    
    
    
    56
    
    
    
    345
    
    
    
    (56
    )
    
    
    345Other accrued expenses
    
    
    1,804
    
    
    
    1,870
    
    
    
    292
    
    
    
    13
    
    
    
    3,979Total current liabilities
    
    
    7,690
    
    
    
    14,221
    
    
    
    10,026
    
    
    
    (43
    )
    
    
    31,894Long-term liabilities:Long-term debt
    
    
    77,090
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77,090Deferred income taxes
    
    
    2,508
    
    
    
    
    
    
    
    365
    
    
    
    
    
    
    
    2,873Other
    
    
    4,499
    
    
    
    6,534
    
    
    
    4,132
    
    
    
    
    
    
    
    15,165Inter-company advances, net
    
    
    (50,064
    )
    
    
    42,346
    
    
    
    7,919
    
    
    
    (201
    )
    
    
    Total long-term liabilities
    
    
    34,033
    
    
    
    48,880
    
    
    
    12,416
    
    
    
    (201
    )
    
    
    95,128Shareholders equity
    
    
    77,470
    
    
    
    10,348
    
    
    
    39,579
    
    
    
    (49,927
    )
    
    
    77,470Total liabilities and shareholders equity
    
    $
    119,193
    
    
    $
    73,449
    
    
    $
    62,021
    
    
    $
    (50,171
    )
    
    $
    204,492
  73




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##### Table of Contents



Supplemental Consolidating Condensed
Balance Sheet
 December 31, 2008Combined
    
    
    CombinedGuarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(dollars in thousands)AssetsCurrent assets:Cash and cash equivalents
    
    $
    45,241
    
    
    $
    32
    
    
    $
    17,247
    
    
    $
    
    
    
    $
    62,520Short-term investments
    
    
    29,956
    
    
    
    
    
    
    
    818
    
    
    
    
    
    
    
    30,774Accounts receivable, net
    
    
    
    
    
    
    13,900
    
    
    
    24,669
    
    
    
    
    
    
    
    38,569Inventories, net
    
    
    
    
    
    
    23,779
    
    
    
    17,858
    
    
    
    (260
    )
    
    
    41,377Deferred income taxes
    
    
    116
    
    
    
    
    
    
    
    298
    
    
    
    
    
    
    
    414Other current assets
    
    
    1,545
    
    
    
    1,650
    
    
    
    2,326
    
    
    
    
    
    
    
    5,521Total current assets
    
    
    76,858
    
    
    
    39,361
    
    
    
    63,216
    
    
    
    (260
    )
    
    
    179,175Investment in subsidiaries
    
    
    38,498
    
    
    
    
    
    
    
    
    
    
    
    (38,498
    )
    
    
    Inter-company advances, net
    
    
    
    
    
    
    14,122
    
    
    
    (14,115
    )
    
    
    (7
    )
    
    
    Property, plant and equipment, net
    
    
    
    
    
    
    33,610
    
    
    
    13,888
    
    
    
    
    
    
    
    47,498Other assets:Finite-lived intangible assets
    
    
    
    
    
    
    6,568
    
    
    
    
    
    
    
    
    
    
    
    6,568Other
    
    
    5,956
    
    
    
    606
    
    
    
    189
    
    
    
    
    
    
    
    6,751Total other assets
    
    
    5,956
    
    
    
    7,174
    
    
    
    189
    
    
    
    
    
    
    
    13,319Total assets
    
    $
    121,312
    
    
    $
    94,267
    
    
    $
    63,178
    
    
    $
    (38,765
    )
    
    $
    239,992Liabilities and shareholders equityCurrent liabilities:Accounts payable
    
    $
    114
    
    
    $
    14,865
    
    
    $
    15,228
    
    
    $
    
    
    
    $
    30,207Accrued compensation
    
    
    3,013
    
    
    
    4,393
    
    
    
    2,504
    
    
    
    
    
    
    
    9,910Accrued interest
    
    
    3,816
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,816Accrued taxes
    
    
    195
    
    
    
    45
    
    
    
    2,058
    
    
    
    (45
    )
    
    
    2,253Other accrued expenses
    
    
    1,796
    
    
    
    2,956
    
    
    
    2,273
    
    
    
    6
    
    
    
    7,031Total current liabilities
    
    
    8,934
    
    
    
    22,259
    
    
    
    22,063
    
    
    
    (39
    )
    
    
    53,217Long-term liabilities:Long-term debt
    
    
    87,090
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87,090Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    338
    
    
    
    
    
    
    
    338Other
    
    
    2,327
    
    
    
    15,785
    
    
    
    3,844
    
    
    
    
    
    
    
    21,956Inter-company advances, net
    
    
    (54,430
    )
    
    
    46,591
    
    
    
    7,696
    
    
    
    143
    
    
    
    Total long-term liabilities
    
    
    34,987
    
    
    
    62,376
    
    
    
    11,878
    
    
    
    143
    
    
    
    109,384Shareholders equity
    
    
    77,391
    
    
    
    9,632
    
    
    
    29,237
    
    
    
    (38,869
    )
    
    
    77,391Total liabilities and shareholders equity
    
    $
    121,312
    
    
    $
    94,267
    
    
    $
    63,178
    
    
    $
    (38,765
    )
    
    $
    239,992
  74




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##### Table of Contents



Supplemental Consolidating Condensed
Statement of Operations
 Year Ended December 31, 2009Combined
    
    
    CombinedGuarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(dollars in thousands)Net sales
    
    $
    
    
    
    $
    124,433
    
    
    $
    51,327
    
    
    $
    (3,358
    )
    
    $
    172,402Cost of sales
    
    
    
    
    
    
    81,316
    
    
    
    46,969
    
    
    
    (3,358
    )
    
    
    124,927Gross profit
    
    
    
    
    
    
    43,117
    
    
    
    4,358
    
    
    
    
    
    
    
    47,475Operating expenses:Selling, technical and administrative expenses
    
    
    21
    
    
    
    25,225
    
    
    
    4,992
    
    
    
    
    
    
    
    30,238Amortization of intangibles
    
    
    
    
    
    
    553
    
    
    
    
    
    
    
    
    
    
    
    553Total operating expenses
    
    
    21
    
    
    
    25,778
    
    
    
    4,992
    
    
    
    
    
    
    
    30,791Income (loss) from operations
    
    
    (21
    )
    
    
    17,339
    
    
    
    (634
    )
    
    
    
    
    
    
    16,684Interest (expense) income, net
    
    
    
    
    
    
    (7,782
    )
    
    
    237
    
    
    
    
    
    
    
    (7,545
    )Income (loss) from equity investee
    
    
    5,593
    
    
    
    (1,356
    )
    
    
    
    
    
    
    (4,237
    )
    
    
    Other income (expense), net
    
    
    674
    
    
    
    2,032
    
    
    
    (827
    )
    
    
    
    
    
    
    1,879Income (loss) from continuing operations, before
income taxes
    
    
    6,246
    
    
    
    10,233
    
    
    
    (1,224
    )
    
    
    (4,237
    )
    
    
    11,018Income tax provision (benefit)
    
    
    (151
    )
    
    
    4,524
    
    
    
    132
    
    
    
    
    
    
    
    4,505Income (loss) from continuing operations, after income
    
    
    6,397
    
    
    
    5,709
    
    
    
    (1,356
    )
    
    
    (4,237
    )
    
    
    6,513Discontinued operations, after income taxes
    
    
    (20
    )
    
    
    (116
    )
    
    
    
    
    
    
    
    
    
    
    (136
    )Net income (loss)
    
    $
    6,377
    
    
    $
    5,593
    
    
    $
    (1,356
    )
    
    $
    (4,237
    )
    
    $
    6,377
  75




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##### Table of Contents



Supplemental Consolidating Condensed
Statement of Operations
 Year Ended December 31, 2008Combined
    
    
    CombinedGuarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(dollars in thousands)Net sales
    
    $
    
    
    
    $
    155,745
    
    
    $
    123,925
    
    
    $
    (10,022
    )
    
    $
    269,648Cost of sales
    
    
    
    
    
    
    106,725
    
    
    
    95,849
    
    
    
    (10,022
    )
    
    
    192,552Gross profit
    
    
    
    
    
    
    49,020
    
    
    
    28,076
    
    
    
    
    
    
    
    77,096Operating expenses:Selling, technical and administrative expenses
    
    
    70
    
    
    
    29,331
    
    
    
    7,924
    
    
    
    
    
    
    
    37,325Amortization of intangibles
    
    
    
    
    
    
    589
    
    
    
    
    
    
    
    
    
    
    
    589Total operating expenses
    
    
    70
    
    
    
    29,920
    
    
    
    7,924
    
    
    
    
    
    
    
    37,914Income (loss) from operations
    
    
    (70
    )
    
    
    19,100
    
    
    
    20,152
    
    
    
    
    
    
    
    39,182Interest (expense) income, net
    
    
    (220
    )
    
    
    (6,278
    )
    
    
    532
    
    
    
    
    
    
    
    (5,966
    )Income from equity investee
    
    
    23,521
    
    
    
    14,817
    
    
    
    
    
    
    
    (38,338
    )
    
    
    Other income (expense), net
    
    
    (303
    )
    
    
    2,073
    
    
    
    (267
    )
    
    
    
    
    
    
    1,503Income from continuing operations, before
income taxes
    
    
    22,928
    
    
    
    29,712
    
    
    
    20,417
    
    
    
    (38,338
    )
    
    
    34,719Income tax provision
    
    
    50
    
    
    
    6,445
    
    
    
    5,644
    
    
    
    
    
    
    
    12,139Income from continuing operations, after income taxes
    
    
    22,878
    
    
    
    23,267
    
    
    
    14,773
    
    
    
    (38,338
    )
    
    
    22,580Discontinued operations, after income taxes
    
    
    (2,036
    )
    
    
    254
    
    
    
    44
    
    
    
    
    
    
    
    (1,738
    )Net income
    
    $
    20,842
    
    
    $
    23,521
    
    
    $
    14,817
    
    
    $
    (38,338
    )
    
    $
    20,842
  76




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##### Table of Contents



Supplemental Consolidating Condensed
Statement of Operations
 Year Ended December 31, 2007Combined
    
    
    CombinedGuarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(dollars in thousands)Net sales
    
    $
    
    
    
    $
    133,535
    
    
    $
    93,013
    
    
    $
    (10,669
    )
    
    $
    215,879Cost of sales
    
    
    
    
    
    
    99,870
    
    
    
    75,308
    
    
    
    (10,669
    )
    
    
    164,509Gross profit
    
    
    
    
    
    
    33,665
    
    
    
    17,705
    
    
    
    
    
    
    
    51,370Operating expenses:Selling, technical and administrative expenses
    
    
    327
    
    
    
    24,083
    
    
    
    6,762
    
    
    
    
    
    
    
    31,172Amortization of intangibles
    
    
    
    
    
    
    727
    
    
    
    
    
    
    
    
    
    
    
    727Total operating expenses
    
    
    327
    
    
    
    24,810
    
    
    
    6,762
    
    
    
    
    
    
    
    31,899Income (loss) from operations
    
    
    (327
    )
    
    
    8,855
    
    
    
    10,943
    
    
    
    
    
    
    
    19,471Interest (expense) income, net
    
    
    (234
    )
    
    
    (5,646
    )
    
    
    321
    
    
    
    
    
    
    
    (5,559
    )Income from equity investee
    
    
    7,538
    
    
    
    5,153
    
    
    
    
    
    
    
    (12,691
    )
    
    
    Other income (expense), net
    
    
    (530
    )
    
    
    694
    
    
    
    (461
    )
    
    
    
    
    
    
    (297
    )Income from continuing operations, before
income taxes
    
    
    6,447
    
    
    
    9,056
    
    
    
    10,803
    
    
    
    (12,691
    )
    
    
    13,615Income tax provision
    
    
    16
    
    
    
    1,482
    
    
    
    4,331
    
    
    
    
    
    
    
    5,829Income from continuing operations, after income taxes
    
    
    6,431
    
    
    
    7,574
    
    
    
    6,472
    
    
    
    (12,691
    )
    
    
    7,786Discontinued operations, after income taxes
    
    
    10,837
    
    
    
    (36
    )
    
    
    (1,319
    )
    
    
    
    
    
    
    9,482Net income
    
    $
    17,268
    
    
    $
    7,538
    
    
    $
    5,153
    
    
    $
    (12,691
    )
    
    $
    17,268
  77




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##### Table of Contents



Supplemental Consolidating Condensed
Cash Flows Statement
 Year Ended December 31, 2009Combined
    
    
    CombinedGuarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(dollars in thousands)Net cash provided by operating
activities of continuing operations
    
    $
    6,351
    
    
    $
    6,277
    
    
    $
    6,544
    
    
    $
    
    
    
    $
    19,172Net cash used in operating
activities of discontinued operations
    
    
    
    
    
    
    (136
    )
    
    
    
    
    
    
    
    
    
    
    (136
    )Cash flows from investing activities:Purchases of available for sale securities
    
    
    (173,837
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (173,837
    )Proceeds from available for sale securities
    
    
    168,997
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    168,997Purchases of property, plant and equipment
    
    
    
    
    
    
    (6,495
    )
    
    
    (1,023
    )
    
    
    
    
    
    
    (7,518
    )Proceeds from sale of property, plant and
equipment
    
    
    
    
    
    
    8
    
    
    
    3
    
    
    
    
    
    
    
    11Net cash used in investing
activities of continuing operations
    
    
    (4,840
    )
    
    
    (6,487
    )
    
    
    (1,020
    )
    
    
    
    
    
    
    (12,347
    )Net cash used in investing activities of
discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash flows from financing activities:Proceeds from stock options
    
    
    436
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    436Stock repurchase
    
    
    (12,632
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,632
    )Receipts from government grants
    
    
    
    
    
    
    325
    
    
    
    
    
    
    
    
    
    
    
    325Payments on long-term debt
    
    
    (10,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,000
    )Payment of deferred financing fees
    
    
    (340
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (340
    )Tax benefit from exercise of incentive stock options
    
    
    116
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116Payments of preferred stock dividend
    
    
    (150
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (150
    )Net cash (used in) provided by financing
activities of continuing operations
    
    
    (22,570
    )
    
    
    325
    
    
    
    
    
    
    
    
    
    
    
    (22,245
    )Net cash used in financing
activities of discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Effect of exchange rate changes on cash
    
    
    
    
    
    
    
    
    
    
    242
    
    
    
    
    
    
    
    242Net cash (used in) provided by continuing
operations
    
    
    (21,059
    )
    
    
    115
    
    
    
    5,766
    
    
    
    
    
    
    
    (15,178
    )Net cash used by discontinued
operations
    
    
    
    
    
    
    (136
    )
    
    
    
    
    
    
    
    
    
    
    (136
    )Net (decrease) increase in cash and cash
equivalents
    
    
    (21,059
    )
    
    
    (21
    )
    
    
    5,766
    
    
    
    
    
    
    
    (15,314
    )Cash and cash equivalents at beginning of
period
    
    
    45,241
    
    
    
    32
    
    
    
    17,247
    
    
    
    
    
    
    
    62,520Cash and cash equivalents at end of period
    
    $
    24,182
    
    
    $
    11
    
    
    $
    23,013
    
    
    $
    
    
    
    $
    47,206
  78




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##### Table of Contents



Supplemental Consolidating Condensed
Cash Flows Statement
 Year Ended December 31, 2008Combined
    
    
    CombinedGuarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating
activities of continuing operations
    
    $
    2,767
    
    
    $
    8,348
    
    
    $
    12,453
    
    
    $
    
    
    
    $
    23,568Net cash provided by operating
activities of discontinued operations
    
    
    
    
    
    
    1,895
    
    
    
    44
    
    
    
    
    
    
    
    1,939Cash flows from investing activities:Proceeds from sale of discontinued operations
    
    
    2,650
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,650Purchases of available for sale securities
    
    
    (310,359
    )
    
    
    
    
    
    
    (996
    )
    
    
    
    
    
    
    (311,355
    )Proceeds from available for sale securities
    
    
    339,575
    
    
    
    
    
    
    
    996
    
    
    
    
    
    
    
    340,571Purchases of property, plant and equipment
    
    
    
    
    
    
    (10,884
    )
    
    
    (4,320
    )
    
    
    
    
    
    
    (15,204
    )Proceeds from sale of property, plant and
equipment
    
    
    
    
    
    
    7
    
    
    
    11
    
    
    
    
    
    
    
    18Net cash provided by (used in) investing
activities of continuing operations
    
    
    31,866
    
    
    
    (10,877
    )
    
    
    (4,309
    )
    
    
    
    
    
    
    16,680Net cash used in investing activities of
discontinued operations
    
    
    
    
    
    
    (51
    )
    
    
    
    
    
    
    
    
    
    
    (51
    )Cash flows from financing activities:Proceeds from stock options
    
    
    221
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    221Stock repurchase
    
    
    (2,335
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,335
    )Receipts from government grants
    
    
    
    
    
    
    675
    
    
    
    
    
    
    
    
    
    
    
    675Payments on long-term debt
    
    
    
    
    
    
    
    
    
    
    (59
    )
    
    
    
    
    
    
    (59
    )Tax benefit from exercise of incentive stock options
    
    
    908
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    908Payments of preferred stock dividend
    
    
    (150
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (150
    )Net cash (used in) provided by financing
activities of continuing operations
    
    
    (1,356
    )
    
    
    675
    
    
    
    (59
    )
    
    
    
    
    
    
    (740
    )Effect of exchange rate changes on cash
    
    
    
    
    
    
    
    
    
    
    (868
    )
    
    
    
    
    
    
    (868
    )Net cash provided by (used in) continuing
operations
    
    
    33,277
    
    
    
    (1,854
    )
    
    
    7,217
    
    
    
    
    
    
    
    38,640Net cash provided by discontinued
operations
    
    
    
    
    
    
    1,844
    
    
    
    44
    
    
    
    
    
    
    
    1,888Net increase (decrease) in cash and cash
equivalents
    
    
    33,277
    
    
    
    (10
    )
    
    
    7,261
    
    
    
    
    
    
    
    40,528Cash and cash equivalents at beginning of
period
    
    
    11,964
    
    
    
    42
    
    
    
    9,986
    
    
    
    
    
    
    
    21,992Cash and cash equivalents at end of period
    
    $
    45,241
    
    
    $
    32
    
    
    $
    17,247
    
    
    $
    
    
    
    $
    62,520
  79




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##### Table of Contents



Supplemental Consolidating Condensed
Cash Flows Statement
 Year Ended December 31, 2007Combined
    
    
    CombinedGuarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash (used in) provided by operating
activities of continuing operations
    
    $
    (1,244
    )
    
    $
    10,936
    
    
    $
    10,723
    
    
    $
    
    
    
    $
    20,415Net cash used in operating
activities of discontinued operations
    
    
    
    
    
    
    (5,481
    )
    
    
    (1,473
    )
    
    
    
    
    
    
    (6,954
    )Cash flows from investing activities:Proceeds from sale of discontinued
operations
    
    
    93,354
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    93,355Purchases of held to maturity securities
    
    
    (78,969
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (78,969
    )Proceeds from held to maturity securities
    
    
    80,475
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,475Purchases of available for sale securities
    
    
    (262,937
    )
    
    
    
    
    
    
    (932
    )
    
    
    
    
    
    
    (263,869
    )Proceeds from available for sale securities
    
    
    206,306
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    206,306Purchases of property, plant and equipment
    
    
    
    
    
    
    (4,033
    )
    
    
    (3,615
    )
    
    
    
    
    
    
    (7,648
    )Proceeds from sale of property, plant and
equipment
    
    
    
    
    
    
    15
    
    
    
    2
    
    
    
    
    
    
    
    17Net cash provided by (used in) investing
activities of continuing operations
    
    
    38,229
    
    
    
    (4,017
    )
    
    
    (4,545
    )
    
    
    
    
    
    
    29,667Net cash used in investing activities of
discontinued operations
    
    
    
    
    
    
    (1,423
    )
    
    
    
    
    
    
    
    
    
    
    (1,423
    )Cash flows from financing activities:Payments on short-term debt
    
    
    
    
    
    
    
    
    
    
    (980
    )
    
    
    
    
    
    
    (980
    )Proceeds from long-term debt
    
    
    10,964
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,964Payments on long-term debt
    
    
    (33,874
    )
    
    
    
    
    
    
    (132
    )
    
    
    
    
    
    
    (34,006
    )Proceeds from stock options
    
    
    1,233
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,233Stock repurchase
    
    
    (3,694
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,694
    )Payments of preferred stock dividend
    
    
    (150
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (150
    )Net cash used in financing
activities of continuing operations
    
    
    (25,521
    )
    
    
    
    
    
    
    (1,112
    )
    
    
    
    
    
    
    (26,633
    )Net cash used in financing
activities of discontinued operations
    
    
    
    
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    (14
    )Effect of exchange rate changes on cash
    
    
    
    
    
    
    
    
    
    
    771
    
    
    
    
    
    
    
    771Net cash provided by continuing
operations
    
    
    11,464
    
    
    
    6,919
    
    
    
    5,837
    
    
    
    
    
    
    
    24,220Net cash used in discontinued
operations
    
    
    
    
    
    
    (6,918
    )
    
    
    (1,473
    )
    
    
    
    
    
    
    (8,391
    )Net increase in cash and cash
equivalents
    
    
    11,464
    
    
    
    1
    
    
    
    4,364
    
    
    
    
    
    
    
    15,829Cash and cash equivalents at beginning of
period
    
    
    500
    
    
    
    41
    
    
    
    5,622
    
    
    
    
    
    
    
    6,163Cash and cash equivalents at end of period
    
    $
    11,964
    
    
    $
    42
    
    
    $
    9,986
    
    
    $
    
    
    
    $
    21,992
  80




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##### Table of Contents



18. Summary of Quarterly Results of Operations (Unaudited)
 2009March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Net sales
    
    $
    44,285
    
    
    $
    39,077
    
    
    $
    43,452
    
    
    $
    45,588Gross profit
    
    
    11,998
    
    
    
    8,391
    
    
    
    13,569
    
    
    
    13,517Income from
continuing operations, after income taxes
    
    
    1,584
    
    
    
    (372
    )
    
    
    3,783
    
    
    
    1,518Discontinued operations, after income taxes
    
    
    (10
    )
    
    
    (164
    )
    
    
    (13
    )
    
    
    51Net income
    
    $
    1,574
    
    
    $
    (536
    )
    
    $
    3,770
    
    
    $
    1,569Basic earnings per share: (1 )Earnings per share from continuing operations
    
    $
    0.18
    
    
    $
    (0.05
    )
    
    $
    0.46
    
    
    $
    0.18Discontinued operations
    
    
    
    
    
    
    (0.02
    )
    
    
    
    
    
    
    0.01Net earnings per basic share
    
    $
    0.18
    
    
    $
    (0.07
    )
    
    $
    0.46
    
    
    $
    0.19Diluted earnings per share: (1 )Earnings per share from continuing operations
    
    $
    0.17
    
    
    $
    (0.05
    )
    
    $
    0.45
    
    
    $
    0.18Discontinued operations
    
    
    
    
    
    
    (0.02
    )
    
    
    
    
    
    
    Net earnings per diluted share
    
    $
    0.17
    
    
    $
    (0.07
    )
    
    $
    0.45
    
    
    $
    0.18
 2008March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Net sales
    
    $
    65,779
    
    
    $
    71,801
    
    
    $
    74,181
    
    
    $
    57,887Gross profit
    
    
    17,411
    
    
    
    21,099
    
    
    
    25,111
    
    
    
    13,475Income from continuing operations, after income taxes
    
    
    3,826
    
    
    
    6,180
    
    
    
    10,297
    
    
    
    2,277Discontinued operations, after income taxes
    
    
    (675
    )
    
    
    (1,168
    )
    
    
    (41
    )
    
    
    146Net income
    
    $
    3,151
    
    
    $
    5,012
    
    
    $
    10,256
    
    
    $
    2,423Basic earnings per share: (1 )Earnings per share from continuing operations
    
    $
    0.42
    
    
    $
    0.69
    
    
    $
    1.14
    
    
    $
    0.25Discontinued operations
    
    
    (0.07
    )
    
    
    (0.13
    )
    
    
    
    
    
    
    0.02Net earnings per basic share
    
    $
    0.35
    
    
    $
    0.56
    
    
    $
    1.14
    
    
    $
    0.27Diluted earnings per share: (1 )Earnings per share from continuing operations
    
    $
    0.40
    
    
    $
    0.66
    
    
    $
    1.09
    
    
    $
    0.24Discontinued operations
    
    
    (0.07
    )
    
    
    (0.13
    )
    
    
    
    
    
    
    0.02Net earnings per diluted share
    
    $
    0.33
    
    
    $
    0.53
    
    
    $
    1.09
    
    
    $
    0.26
 (1)
    
    Due to the quarterly computation of earnings per share, the sum of the four cumulative
quarters will not necessarily equal the annual total.  81




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##### Table of Contents



Schedule II  Valuation and Qualifying Accounts
 AdditionsBalance at
    
    
    Charged to
    
    
    
    
    
    
    Balance atBeginning of
    
    
    Costs and
    
    
    
    
    
    
    End ofYear
    
    
    Expenses
    
    
    Deductions
    
    
    YearYear ended December 31, 2009:Allowance for uncollectible accounts
    
    $
    1,328
    
    
    $
    (146
    )
    
    $
    (197)
    (1)(3)
    
    $
    985Slow moving and obsolete inventory
reserve
    
    
    3,793
    
    
    
    1,424
    
    
    
    (175)
    (2)(3)
    
    
    5,042Year ended December 31, 2008:Allowance for uncollectible accounts
    
    $
    847
    
    
    $
    726
    
    
    $
    (245
    )(1)(3)
    
    $
    1,328Slow moving and obsolete inventory
reserve
    
    
    3,477
    
    
    
    860
    
    
    
    (544
    )(2)(3)
    
    
    3,793Year ended December 31, 2007:Allowance for uncollectible accounts
    
    $
    827
    
    
    $
    120
    
    
    $
    (100
    )(1)(3)
    
    $
    847Slow moving and obsolete inventory
reserve
    
    
    2,970
    
    
    
    901
    
    
    
    (394
    )(2)(3)
    
    
    3,477
 (1)
    
    Uncollectible accounts written off, net of recoveries.(2)
    
    Inventory items written off against the reserve account.(3)
    
    Impact of foreign currency on accounts. 
 ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A.
    
    CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
 Managements Report on Internal Control over Financial Reporting.
  82




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##### Table of Contents



Attestation Report of Independent Registered Public Accounting Firm.
 Changes in Internal Control Over Financial Reporting
 
 ITEM 9B.
    
    OTHER INFORMATION
  
 PART III
 
 ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  
 ITEM 11.
    
    EXECUTIVE COMPENSATION
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  
 ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
  
 ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
   83




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##### Table of Contents



Part IV
 
 ITEM 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
  1.
    
    The following consolidated financial statements of Hawk Corporation are filed as part
of this report under Item 8  Financial Statements and Supplementary Data:
 (i)
    
    Consolidated Balance Sheets at December 31, 2009 and 2008(ii)
    
    Consolidated Statements of Operations for the years ended December 31, 2009, 2008 and 2007(iii)
    
    Consolidated Statements of Shareholders Equity for the years ended December 31, 2009, 2008 and 2007(iv)
    
    Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007(v)
    
    Notes to Consolidated Financial Statements for the years ended December 31,
2009, 2008 and 2007
 2.
    
    Schedule II  Valuation and Qualifying Accounts for the years ended December 31, 2009,
2008 and 2007
   3.1
    
    
    Form of Hawk Corporations Second Amended and Restated Certificate of Incorporation
(Incorporated by reference to the Companys Registration Statement on Form S-1 as filed on
November 19, 1997 with the Securities and Exchange Commission (Reg. No. 333-40535))3.2
    
    
    Hawk Corporations Amended and Restated By-laws (Incorporated by reference to the Companys
Current Report on Form 8-K as filed on March 2, 2000 with the Securities and Exchange
Commission)3.3
    
    
    Hawk Corporations Amendment No. 1 to Amended and Restated By-laws, dated August 19, 2008
(Incorporated by reference to the Companys Current Report on Form 8-K as filed on August 22,
2008 with the Securities and Exchange Commission)4.1
    
    
    Stockholders Voting Agreement, effective as of November 27, 1996, by and among Hawk
Corporation, Norman C. Harbert, the Harbert Family Limited Partnership, Ronald E. Weinberg,
the Weinberg Family Limited Partnership, Byron S. Krantz and the Krantz Family Limited
Partnership (Incorporated by reference to the Companys Registration Statement on Form S-4 as
filed with the Securities and Exchange Commission (Reg. No. 333-18433))4.2
    
    
    Letter agreement, dated January 5, 1998, amending the Stockholders Voting Agreement,
effective as of November 27, 1996, by and among Hawk Corporation, Norman C. Harbert, the
Harbert Family Limited Partnership, Ronald E. Weinberg, the Weinberg Family Limited
Partnership, Byron S. Krantz and the Krantz Family Limited Partnership (Incorporated by
reference to the Companys Amendment No. 4 to Registration Statement on Form S-1/A as filed on
January 23, 1998 with the Securities and Exchange Commission (Reg. No. 333-40535))4.3
    
    
    Indenture, dated as of November 1, 2004, among Hawk Corporation, the Guarantors named
therein, and HSBC Bank USA, National Association, as Trustee (Incorporated by reference to the
Companys Form 8-K as filed on November 1, 2004 with the Securities and Exchange Commission)4.4
    
    
    Registration Rights Agreement, dated as of November 1, 2004, among Hawk Corporation, the
Guarantors named therein, and Jefferies & Company, Inc. (Incorporated by reference to the
Companys Form 8-K as filed on November 1, 2004 with the Securities and Exchange Commission)4.5
    
    
    Amended and Restated Rights Agreements dated as of January 4, 2008, by and between Hawk
Corporation and National City Bank, as Rights Agent (Incorporated by reference to the
Companys Form 8-K as filed on January 4, 2008 with the Securities and Exchange Commission)
  84




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##### Table of Contents



4.6
    
    
    Form of 8 3/4% Senior Exchange Note due 2014 (Incorporated by reference to the Companys
Registration Statement on Form S-4 as filed on December 3, 2004 with the Securities and
Exchange Commission (Reg. No. 333-120991))4.8
    
    
    Supplemental Indenture, dated as of February 23, 2010, among Hawk Corporation, the Guarantors
named therein, and HSBC Bank USA, National Association, as Trustee (Incorporated by reference
to the Companys Form 8-K as filed on February 24, 2010 with the Securities and Exchange
Commission)10.1
    
    
    Hawk Corporation 1997 Stock Option Plan (Incorporated by reference to the Companys
Registration Statement on Form S-1 as filed on November 19, 1997 with the Securities and
Exchange Commission (Reg. No. 333-40535))10.2
    
    
    First Amendment to Hawk Corporation 1997 Stock Option Plan dated December 31, 2008
(Incorporated by reference to the Companys Form 10-K for the period ended December 31, 2008
as filed on March 10, 2009 with the Securities and Exchange Commission)10.3
    
    
    Hawk Corporation Amended and Restated 2000 Long Term Incentive Plan (Incorporated by
reference to the Annex A of the Companys Definitive Proxy Statement as filed on April 29,
2008 with the Securities and Exchange Commission)10.4
    
    
    First Amendment to Hawk Corporation 2000 Long Term Incentive Plan dated December 31, 2008
(Incorporated by reference to the Companys Form 10-K for the period ended December 31, 2008
as filed on March 10, 2009 with the Securities and Exchange Commission)10.5
    
    
    Hawk Corporation Annual Incentive Compensation Plan (Incorporated by reference to the
Companys Form 10-K for the period ended December 31, 2000 as filed on March 23, 2001 with the
Securities and Exchange Commission)10.6
    
    
    Hawk Corporation Deferred Compensation Plan (Incorporated by reference to the Companys
Registration Statement on Form S-8 as filed on December 5, 2007 with the Securities and
Exchange Commission (Reg. No. 333-147832))10.7
    
    
    Form of Intellectual Property Security Agreement, dated as of August 10, 2001, by and between
Hawk Corporation and each of the following subsidiaries of Hawk Corporation: Allegheny Powder
Metallurgy, Inc., Clearfield Powdered Metals, Inc., Friction Products Co., Hawk Brake, Inc.,
Hawk MIM, Inc., Helsel, Inc., Hawk Motors, Inc., Logan Metal Stampings, Inc., Net Shape
Technologies LLC, Quarter Master Industries, Inc., S.K. Wellman Corp., S.K. Wellman Holdings,
Inc., Sinterloy Corporation, Tex Racing Enterprises, Inc. and Wellman Friction Products U.K.
Corp. (Incorporated by reference to the Companys Form 10-Q for the quarterly period ended
June 30, 2001 as filed on August 14, 2001 with the Securities and Exchange Commission)10.8
    
    
    Credit and Security Agreement, dated November 1, 2004, among Hawk Corporation, Allegheny
Clearfield, Inc., Friction Products Co., Hawk MIM, Inc., Hawk Motors, Inc., Hawk Precision
Components, Inc., Helsel, Inc., Logan Metal Stampings, Inc., Net Shape Technologies LLC,
Quarter Master Industries, Inc., Sinterloy Corporation, S.K. Wellman Corp., S.K. Wellman
Holdings, Inc., Tex Racing Enterprises, Inc., Wellman Products Group, Inc., and Wellman
Products, LLC, as Borrowers, and KeyBank National Association, as Administrative Agent and LC
Issuer (Incorporated by reference to the Companys Form 8-K as filed on November 1, 2004 with
the Securities and Exchange Commission)10.9
    
    
    Amendment No. 1 to Credit and Security Agreement made as of August 31, 2006 among Hawk
Corporation, Allegheny Clearfield, Inc., Friction Products Co., Hawk MIM, Inc., Hawk Motors,
Inc., Hawk Precision Components Group, Inc., Helsel, Inc., Logan Metal Stampings, Inc., Net
Shape Technologies LLC, Quarter Master Industries, Inc., Sinterloy Corporation, S.K. Wellman
Corp., S.K. Wellman Holdings, Inc., Tex Racing Enterprises, Inc., Wellman Products Group,
Inc., and Wellman Products, LLC, as borrowers, the Lenders listed on the signature pages
thereto, and KeyBank National Association, as Administrative Agent and LC Issuer (Incorporated
by reference to the Companys Form 8-K as filed on September 1, 2006 with the Securities and
Exchange Commission)10.10
    
    
    Amendment No. 2 to Credit and Security Agreement made as of August 31, 2006 among Hawk
Corporation, Allegheny Clearfield, Inc., Friction Products Co., Hawk MIM, Inc., Hawk Motors,
Inc., Hawk Precision Components Group, Inc., Helsel, Inc., Logan Metal Stampings, Inc., Net
Shape Technologies LLC, Quarter Master Industries, Inc., Sinterloy Corporation, S.K. Wellman
Corp., S.K. Wellman Holdings, Inc., Tex Racing Enterprises, Inc., Wellman Products Group,
Inc., and Wellman Products, LLC, as borrowers, the Lenders listed
on the signature pages thereto, and KeyBank National Association, as Administrative Agent
and LC Issuer (Incorporated by reference to the Companys Form 8-K as filed on February 8,
2006 with the Securities and Exchange Commission)
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10.11
    
    
    Amendment No. 4 and Consent to Credit and Security Agreement and Omnibus Amendment to
Certain Other Loan Documents, made as of May 30, 2008, among Hawk Corporation, Friction
Products Co., Hawk Motors, Inc., Logan Metal Stampings, Inc., Quarter Master Industries, Inc.,
S.K. Wellman Corp., S.K. Wellman Holdings, Inc., Tex Racing Enterprises, Inc., Wellman
Products Group, Inc., and Wellman Products, LLC, as borrowers, the Lenders listed on the
signature pages of the Agreement, KeyBank National Association, as Administrative Agent, and
KeyBank National Association, as LC Issuer (Incorporated by reference to the Companys Form
8-K as filed on June 3, 2008 with the Securities and Exchange Commission)10.12
    
    
    Form of Pledge and Security Agreement  Borrower in favor of KeyBank National Association
(Incorporated by reference to the Companys Form 10-Q for the quarterly period ended September
30, 2004 as filed on November 15, 2004 with the Securities and Exchange Commission)10.13
    
    
    Form of Collateral Assignment of Security Interest in Trademarks and Licenses, dated as of
November 1, 2004, among Hawk Corporation and the other Grantors named therein and KeyBank
National Association (Incorporated by reference to the Companys Form 10-Q for the quarterly
period ended September 30, 2004 as filed on November 15, 2004 with the Securities and Exchange
Commission)10.14
    
    
    Form of Collateral Assignment of Security Interest in Patents and Patent Applications, dated
as of November 1, 2004, among Hawk Corporation and the other Grantors named therein and
KeyBank National Association (Incorporated by reference to the Companys Form 10-Q for the
quarterly period ended September 30, 2004 as filed on November 15, 2004 with the Securities
and Exchange Commission)10.15
    
    
    Form of Collateral Assignment of Security Interest in Copyrights, dated as of November 1,
2004, among Hawk Corporation and the other Grantors named therein and KeyBank National
Association (Incorporated by reference to the Companys Form 10-Q for the quarterly period
ended September 30, 2004 as filed on November 15, 2004 with the Securities and Exchange
Commission)10.16
    
    
    Form of Limited License Agreement (Borrower) in favor of KeyBank National Association
(Incorporated by reference to the Companys Form 10-Q for the quarterly period ended September
30, 2004 as filed on November 15, 2004 with the Securities and Exchange Commission)10.17
    
    
    Depositary Agreement appointing HSBC Bank USA, National Association, as exchange agent
(Incorporated by reference to Amendment No. 1 to the Companys Registration Statement on Form
S-4 as filed on December 20, 2004 with the Securities and Exchange Commission (Reg. No.
333-120991))10.18
    
    
    Amended and Restated Wage Continuation Agreement, dated as of December 31, 2001, by and
among Hawk Corporation, Friction Products Co. and Norman C. Harbert (Incorporated by reference
to the Companys Form 10-K for the period ended December 31, 2001 as filed on April 1, 2002
with the Securities and Exchange Commission)10.19
    
    
    Second Amendment to Restated Wage Continuation Agreement dated as of December 31, 2008 by
and between Norman C. Harbert and Hawk Corporation (Incorporated by reference to the
Companys Form 10-K for the period ended December 31, 2008 as filed on March 10, 2009 with the
Securities and Exchange Commission)10.20
    
    
    Amended and Restated Senior Advisor Agreement dated as of December 31, 2008 by and between
Hawk Corporation and Norman C. Harbert (Incorporated by reference to the Companys Form 10-K
for the period ended December 31, 2008 as filed on March 10, 2009 with the Securities and
Exchange Commission)10.21
    
    
    Employment Agreement, dated August 14, 2006, by and between Hawk Corporation and Joseph J.
Levanduski (Incorporated by reference to the Companys Form 10-Q for the quarterly period
ended June 30, 2006 as filed on August 14, 2006 with the Securities and Exchange Commission)10.22
    
    
    Amendment to Agreements, dated November 10, 2006, between Hawk Corporation and Joseph J.
Levanduski (Incorporated by reference to the Companys Form 10-Q for the quarterly period
ended September 30, 2006 as filed on November 13, 2006 with the Securities and Exchange
Commission)
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##### Table of Contents



10.23
    
    
    Second Amendment to Employment Agreement dated as of December 30, 2008, by and between Hawk
Corporation and Joseph J. Levanduski (Incorporated by reference to the Companys Form 10-K for
the period ended December 31, 2008 as filed on March 10, 2009 with the Securities and Exchange
Commission)10.24
    
    
    Hawk Corporation Annual Incentive Compensation Plan (Incorporated by reference to Annex B of
the Companys Definitive Proxy Statement as filed April 29, 2008 with the Securities and
Exchange Commission)10.25
    
    
    Form of Change in Control Agreement by and among Hawk Corporation and certain executive
officers (Incorporated by reference to the Companys Form 10-Q for the quarterly period ended
June 30, 2006 as filed on August 14, 2006 with the Securities and Exchange Commission)10.26
    
    
    Form of Amendment No. 1 to Change in Control Agreement by and among Hawk Corporation and
certain executive officers (Incorporated by reference to the Companys Form 10-K for the
period ended December 31, 2008 as filed on March 10, 2009 with the Securities and Exchange
Commission)10.27
    
    
    Hawk Corporation Annual Incentive Compensation Plan (Incorporated by reference to Annex A of
the Companys Definitive Proxy Statement as filed April 17, 2009 with the Securities and
Exchange Commission)10.28
    
    
    Amended and Restated Employment Agreement dated March 31, 2009, by and between Hawk
Corporation and Ronald E. Weinberg (Incorporated by reference to the Companys Form 8-K as
filed on April 3, 2009 with the Securities and Exchange Commission)10.29
    
    
    Credit and Security Agreement, dated as of June 12, 2009, among Hawk Corporation, Friction
Products Co., Logan Metal Stampings, Inc., S.K. Wellman Corp., S.K. Wellman Holdings, Inc.,
Wellman Products Group, Inc., and Wellman Products, LLC, as borrowers, the Lenders listed on
the signature pages of the Agreement, KeyBank National Association, as Administrative Agent,
and KeyBank National Association, as LC Issuer (Incorporated by reference to the Companys
Form 8-K as filed on June 15, 2009 with the Securities and Exchange Commission)10.30
    
    
    Amended and Restated Employment Agreement dated as of August 21, 2009, by and between Hawk,
Wellman Products Group, Inc. and Christopher DiSantis (Incorporated by reference to the
Companys Form 8-K as filed on August 27, 2009 with the Securities and Exchange Commission )10.31
    
    
    Amended and Restated Change in Control Agreement between Hawk Corporation and B. Christopher
DiSantis (Incorporated by reference to the Companys Form 8-K as filed on August 27, 2009 with
the Securities and Exchange Commission)10.32
    
    
    Split-Dollar Agreement dated as of August 21, 2009, between Hawk Corporation and B.
Christopher DiSantis (Incorporated by reference to the Companys Form 8-K as filed on August
27, 2009 with the Securities and Exchange Commission)14
    
    
    Code of Business Conduct and Ethics (Incorporated by reference to the Companys Form 8-K as
filed on May 30, 2006 with the Securities and Exchange Commission)21.1*
    
    
    Subsidiaries of the Registrant23.1*
    
    
    Consent of Independent Registered Public Accounting Firm31.1*
    
    
    Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2*
    
    
    Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1*
    
    
    Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2*
    
    
    Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Filed or furnished herewith
    
    Indicates management contract or compensatory plan or arrangement  87




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##### Table of Contents



SIGNATURES
  HAWK CORPORATIONBy:
    /s/ JOHN T. BRONSTRUPJohn T. Bronstrupinterim Chief Accounting Officer   SIGNATURE
    
    TITLE
    
    DATE/s/ Ronald E. Weinberg

Ronald E. Weinberg
    
    Chairman of the Board, Chief Executive
Officer, and Director
(principal executive officer)
    
    March 10, 2010/s/ Norman C. Harbert

Norman C. Harbert
    
    Chairman Emeritus, Founder
and Director
    
    March 10, 2010/s/ John T. Bronstrup

John T. Bronstrup
    
    interim Chief Accounting
Officer (principal
financial and accounting officer)
    
    March 10, 2010/s/ Byron S. Krantz

Byron S. Krantz
    
    Secretary and Director
    
    March 10, 2010/s/ Paul R. Bishop

Paul R. Bishop
    
    Director
    
    March 10, 2010/s/ Dan T. Moore, III

Dan T. Moore, III
    
    Director
    
    March 10, 2010/s/ Andrew T. Berlin

Andrew T. Berlin
    
    Director
    
    March 10, 2010/s/ Richard T. Marabito

Richard T. Marabito
    
    Director
    
    March 10, 2010
  88